1 Cangene 26604 CV - Annual report · 2012-06-11 · a renovation at Cangene bioPharma, Inc., our...

Cangene CorporationBuilding on strength. Investing in growth.

•

2011 Annual Review

•

Cangene is a long-standing Canadian biopharmaceutical company and has been listed on the Toronto Stock Exchange since 1991 under the symbol CNJ.

Our primary focus is on antibody-based and plasma-derived products; their therapeutic use mainly targets infectious disease and biodefence, but they also have application in hematology and transplant medicine. Currently targeted conditions include hepatitis B, anthrax and botulism. Four of our hyperimmune products (concentrated specialty anti-bodies) have been approved for sale in the United States and/or Canada, and three products have been accepted into the U.S. Strategic National Stockpile.

We also provide commercial contract-manufacturing services through our wholly-owned U.S. subsidiary, Cangene bioPharma, Inc. Cangene bioPharma also serves as our U.S. commercial hub, housing our warehouse and supporting our sales force.

Our four Cangene Plasma Resources plasma-collection centres, located in California, Maryland and Florida in the United States and in Winnipeg, Manitoba in Canada, collect a portion of the plasma we use to manufacture our products.

Cangene has operations in Manitoba and Ontario in Canada, and in California, Maryland and Florida in the United States. The majority of our 700 employees work in the head office location in Winnipeg or in Baltimore at Cangene bioPharma.

Additional company information can be found at: www.cangene.com, www.cangenebiopharma.com and www.cangeneplasma.com.

As the new President and CEO of Cangene Corporation, I’m delighted to have this first opportunity to address you and to share my view of Cangene and our path forward.

BUILDING ON STRENGTH

I was excited about Cangene’s potential before I joined the Company; after being

here for a short time, the excitement has grown even greater. I believe this Company

has great potential. We have excellent people, proven technology, solid infrastructure

and a debt-free balance sheet. I intend to focus the Company and build on our

strengths. I see this as the beginning of an exciting new chapter for Cangene.

I also believe though, that after several years of concentrating on government contract

opportunities, Cangene has temporarily lost touch with its entrepreneurial roots. Our

task is to continue optimizing our commercial operations while regaining nimbleness.

Our strategy will be to identify new business opportunities as well as to focus on

internal pipeline development in order to drive global sales.

INVESTING IN GROWTH

Over the past two years, we’ve made bold moves in the direction of building our

commercial business and laying the foundation for growth. We invested in our sales

and marketing infrastructure in the United States, and we are now well positioned to

grow commercial product sales in that market. We also invested in infrastructure with

a renovation at Cangene bioPharma, Inc., our Baltimore-based subsidiary, and that

has paid off with higher throughput capacity of the commercial contract-manufacturing

operations, which is already resulting in revenue growth. And we are investing in

our pipeline by moving our immune globulin intravenous (“IGIV”) product towards

clinical trials. In addition, we are actively looking to augment our product portfolio

through acquisition. We are taking a long-term approach to increasing value through

strategic growth.

2011 MessageTo Our Shareholders

1

BUILDING OUR BRAND

During fiscal 2011, we brought our new commercial warehouse at Cangene bioPharma

on-line. We now ship our commercial products from that warehouse, making this the

hub of our U.S. commercial business. We also completed the $11-million renovation of

the sterile filling and support facility at Cangene bioPharma. This work was completed

ahead of schedule. In support of the increased throughput, the renovation included

the addition of a second production freeze-dryer. At the same time, we completed

scheduled facility upgrades to ensure we stay current with the evolving international

regulatory environment. Cangene bioPharma fills vials and syringes to produce finished

units of commercial drugs that are sold around the world for a variety of customers,

meaning we must stay current with U.S., Canadian, European and other national

and regional regulatory agencies. Changes within the industry mean that more

companies are outsourcing their manufacturing, which creates new opportunities for

Cangene bioPharma.

Continuing to build awareness of the Cangene brand, we merged our Mid-Florida

Biologicals, Inc. and Biotherapeutic Laboratories, Inc subsidiaries, and renamed the

resulting company Cangene Plasma Resources, Inc. This includes our three U.S.

INVESTING IN INFRASTRUCTURE

•

•

Cangene’s bioPharma subsidiary has undergone much change in the last two years. As Cangene increased its

focus on commercial operations, it invested in warehouse, cold storage, and sales and marketing support that now

form the hub of Cangene’s U.S. commercial operations. But it’s more. It also produces finished units of commercial

drugs for customers ranging from small pharmaceutical companies to major multinationals. It has contributed to the

development and production of more than 185 clinical products since 1990. And vials and pre-filled syringes of

drugs filled by Cangene bioPharma are sold in more than 40 countries.

During 2011, Cangene invested in renovating and upgrading the Cangene bioPharma facility. Despite a shutdown while the renovations were completed, the increased throughput capacity contributed to a $4.6-million or 23% increase in Cangene bioPharma’s commercial contract-manufacturing revenue for the year.

2

plasma-collection facilities—Cangene Plasma Resources California, Cangene Plasma

Resources Mid-Florida and Cangene Plasma Resources Frederick. Now our U.S. plasma

donors will connect with our corporate identity every time they visit one of our centres.

SUSTAINING OUR BIODEFENCE BUSINESS

Notwithstanding our focus on the commercial products, our existing government

biodefence contracts remain an important part of our business. The schedule of

deliveries greatly influences our revenue flow during any given period. Consequently,

it was a significant and positive event when the Biomedical Advanced Research

and Development Authority (“BARDA”) exercised additional options on the botulism

antitoxin contract.

This move will generate approximately $61 million in additional revenue over the next

three to four years. At the same time, the delivery schedule under the existing contract

has been extended to 2018 for the approximately 70,000 doses remaining, with heavier

weighting in 2017 and 2018. The exercise of these options increased the total value of

the contract to $423 million; we have already recognized approximately $218 million

of this. And while the extended delivery schedule spreads the product revenue over a

•

•

3

greater period of time, it ensures a more predictable revenue stream over the upcoming

years. The additional work included in that $61 million of options will primarily involve

plasma collection in the next three years, along with additional stability studies and

licensure-related work. BARDA has also retained a contract option under which some

of the collected plasma may be fractionated or used to manufacture additional bulk

product over the period from 2012 to 2016.

We made our final delivery on the anthrax immune globulin contract in the fourth

quarter of fiscal 2011. Development activities related to getting licensure continue and

will continue to provide revenues, albeit at a lower level.

EXPANDING OUR COMMERCIAL SCOPE

Along with our support of the U.S. sales force and expanding our commercial product

portfolio through acquisition, we have been assessing our global sales opportunities.

We have re-evaluated the potential in key markets such as Europe, South America, the

Middle East and Asia, and believe there are some good opportunities for expansion

of our existing commercial products. Our regulatory and marketing teams are moving

forward with a renewed interest in global market opportunities.

•

•

FOCUSED ON INNOVATION

Cangene is using an innovative “antibody mining” platform to screen collected plasma for antibodies of therapeutic interest that can provide the basis for new hyperimmunes or monoclonal antibodies. As part of its IGIV program, Cangene is

collecting non-specialty plasma; this plasma contains a vast array of different antibodies with

distinct specificities. The state-of-the-art antibody mining technology allows the researchers to

rapidly screen for unique or desirable candidates within this pool; these may then be developed

into therapeutics for a variety of diseases.

4

ENHANCING OUR PIPELINE

Moving forward, one of our key strategic objectives is to enhance our pipeline and

product portfolio. The leading product in our internal development program is IGIV.

This is an exciting product medically and commercially. Current competitors share an

estimated $4.5 billion market annually. And its potential uses keep growing. Largely

used as an anti-infective or immune system-related treatment, it has also shown

promise in treating other types of conditions. We’ve made good progress in scaling

up our manufacturing process and have collected an inventory of plasma for our

manufacture of product for clinical trials. We are preparing our investigational new

drug (“IND”) application that we plan to file in calendar 2012. IND filing is the gateway

to clinical trials.

In addition, we have an active and innovative monoclonal antibody program. We expect

to see future additions to our pipeline arise from this internal development stream.

•

•

ThE mAjORITy OF CANGENE’S pRODUCTS ARE mADE FROm plASmA

We need the participation of dedicated plasma donors at Cangene Plasma Resources donation centres. To find out more about Cangene’s plasma donation programs

or to see if you qualify as a donor, visit www.cangeneplasma.com.

5

•

•

I was excited about Cangene’s potential before I

joined the Company; after being here for a short time,

the excitement has grown even greater. I believe this

Company has great potential.

FINANCIAL HIGHLIGHTS

Looking to our financials—a significant event was our early adoption of International

Financial Reporting Standards (“IFRS”) for the preparation of our financial statements.

You’ll find more detail about this change in our 2011 Management’s Discussion and

Analysis (“MD&A”). Prior to this change, we prepared our financial statements according

to Canadian generally accepted accounting principles (“GAAP”). Along with our

adoption of IFRS, we changed to using the U.S. dollar as our functional currency,

rather than our historical use of Canadian dollars.

Fiscal 2011 was somewhat of a challenging year financially for Cangene. Nevertheless,

we ended the year with our strongest quarter of the year, a substantial and increased

cash position, and our highest quarterly revenue in two years. Our investment in our

mAIN pRODUCT pORTFOlIO/pIpElINE

P R O D U C T D E S C R I P T I O N S TAT U S

WinRho® SDF Antibodies specific for Rh-positive red blood cells

Approved—commercial

HepaGam B® Antibodies specific for hepatitis B virus Approved—commercial

VariZIG® Antibodies specific for Varicella zoster virus Approved in Canada—commercial

Vaccinia immune globulinintravenous™ (VIG)

Antibodies specific for vaccinia virusApproved—government supplies

Botulism antitoxin heptavalent (BAT)Antibodies specific for toxins that cause botulism

Investigational—government supplies

Anthrax immune globulin (AIG) Antibodies specific for toxin from Bacillus anthracis (which causes anthrax)

Investigational—government supplies

Immune globulin intravenous (IGIV) Mixture of antibodies In development

6

internal R&D and pipeline development continues to grow. This all bodes well for the

future. I encourage you to review our 2011 MD&A and audited financial statements for

a more detailed look at the year’s financial results. These have been filed on SEDAR

at www.sedar.com.

STRATEGICALLY FOCUSED

Cangene is beginning an exciting new chapter. In the coming months, I plan to spend

my time getting a better understanding of Cangene’s people, products and capabilities.

After which, I’ll develop a strategy for short-, mid- and long-term growth. I’ve now had an

opportunity to visit Cangene’s various locations and operations, and from what I‘ve seen,

we have an exciting future and the Cangene team is motivated to make it happen.

John SedorPresident and CEO

October 25, 2011

•

•

I intend to focus the Company and

build on our strengths. I see this as the

beginning of an exciting new chapter

for Cangene.

“”

(SIGNED)

7

NOTE: We have adopted International Financial Reporting Standards (“IFRS”) for the preparation of our financial statements. This adoption has effect from August 1, 2009 (the “Transition Date”) and includes our transition to reporting in U.S. dollars as our functional currency. Periods prior to the Transition Date have not been restated and were prepared using Canadian generally accepted accounting principles (“GAAP”) and are in Canadian dollars. For full details of our operating results and financial condition, we recommend that you read our consoli-dated financial statements for the year ended July 31, 2011, which have been filed on SEDAR at www.sedar.com.

Unless stated otherwise, dollar amounts are in U.S. dollars; “C$” refers to Canadian dollars.

This document may contain forward-looking information and non-IFRS financial measures; readers are referred to the related cautionary notes contained within the 2011 Management’s Discussion and Analysis, which has been filed on SEDAR at www.sedar.com.

The information contained within this document is intended as an investor summary only and may not include all relevant safety and risk information. Healthcare professionals are directed to refer to approved labelling and prescribing information for products and not rely on information discussed in this report. Prescribing information or drug names may differ in various countries. Scientific information that relates to unapproved products or unapproved uses of products is preliminary and investigative. No conclusions can or should be drawn regarding the safety or efficacy of such products. Only regulatory authorities can determine whether products are safe and effective for the uses being investigated. No information in this report is intended to promote the products discussed.

“Cangene”, “HepaGam B”, “Twinstrand Therapeutics”, “Vaccinia Immune Globulin Intravenous”, “VariZIG”, “WinRho” and “WinRho SDF” are trademarks belonging to Cangene Corporation. The term “WinRho” may be used in this document to refer to any of the WinRho family of products. “Ferriprox” is a trademark belonging to the Apotex Group.

Values on graphs are in millions of dollars as indicated; 2007–2009 inclusive are in Canadian dollars and 2010–2011 inclusive are in U.S. dollars. Results for 2007–2009 inclusive were prepared under Canadian GAAP; results for 2010 have been restated under IFRS and results for 2011 were prepared under IFRS.

Years ended July 31

in thousands except share-related data; 2011 and 2010 U.S. dollars, 2007–2009 Canadian dollars

2011 2010 2009 2008 2007

Revenues US$ 149,707 US$ 150,471 C$ 238,751 C$ 166,056 C$ 92,396

R&D expenses (net of investment tax credits) 27,210 28,086 49,432 48,700 22,079

Tax expense (benefit) (2,241) 1,336 25,802 11,982 8,669

Net income for the year 1,509 16,467 60,512 29,625 10,084

Basic earnings per share 0.02 0.24 0.87 0.42 0.15

Cash, end of year 45,176 40,366 56,131 14,675 —

Debt — — — — 4,884

Total equity 223,200 224,991 292,336 238,620 210,665

Weighted-average number of common shares

outstanding during the year 67,141,337 68,408,137 69,464,566 70,445,637 68,610,995

0

10

20

30

40

50

60

70

80

Revenues(in millions)

R&D Expenses*(in millions)

Net Income(in millions)

0

20

40

60

$80

NET INCOME(in millions)

2007 2008 2009 2010 2011

C$10.1

C$29.6

C$60.5

US$16.5

US$1.50

50

100

150

200

$250

REVENUES(in millions)

2007 2008 2009 2010 2011

C$92.4

C$166.1

C$238.8

US$150.5US$149.7

Contract servicesBiopharmaceutical operations

0

10

20

30

40

$50

R&D EXPENSES*(in millions)

*After applying investment tax credits

*Net cash position = cash – debt

2007 2008 2009 2010 2011

C$22.1

C$48.7 C$49.4

US$28.1US$27.2

R&D servicesIndependent R&D

-20

0

20

40

60

0

50

100

150

200

250

300

350

400

0.00

0.25

0.50

0.75

1.00

Total Assets(in millions)

Earnings Per Share(Basic and fully diluted)

Net Cash Position*(in millions)

(20)

0

20

40

$60

NET CASH POSITION*(in millions)

2007 2008 2009 2010 2011

C$(4.9)

C$56.1

C$14.7

US$40.4US$45.2

0

50

100

150

200

250

0

10

20

30

40

50

2011 ResultsSelected Financial Data

8

Cangene Corporation

CNJ:TSX

Head Office and Manufacturing facility155 Innovation DriveWinnipeg, ManitobaR3T 5Y3Telephone (204) 275-4200Facsimile (204) 269-7003

registered Office and cOrpOrate cOMMunicatiOns180 Attwell Drive, Suite 360Toronto, OntarioM9W 6A9Telephone (416) 675-8300Facsimile (416) 675-8301

cOrpOrate cOMMunicatiOnsDirect telephone (416) 675-8280e-mail at [email protected]

cangene biOpHarMa, inc.1111 South Paca StreetBaltimore, Maryland21230, USATelephone (410) 843-5000Facsimile (410) 843-4414

cOrpOrate Websiteswww.cangene.comwww.cangenebiopharma.comwww.cangeneplasma.comwww.winrho.comwww.winrho.cawww.hepagamb.com

fiscal year endJuly 31st

trading syMbOlCNJ (Toronto Stock Exchange)

52-Week trading rangeC$1.52–C$3.87 (at July 31, 2011)

average daily trading vOluMe32,903 (fiscal 2011)

sHare registrar and transfer agentComputershare Investor Services Inc.100 University Avenue 9th FloorToronto, OntarioM5J 2Y1

sHareHOlder inquiriesFor further information about Cangene and its activities, please contact Ms. Jean Compton, Manager of Corporate Communications at Cangene in Toronto, (416) 675-8280, or by e-mail at [email protected]

annual Meeting Of sHareHOldersMonday, December 12, 2011 at 4:15 pmIvey ING Direct Leadership Centre,130 King Street West,Exchange Tower, Ground Floor,Toronto, Ontario,M5X 1A9

Corporate Information

Quarterly Stock Market InformationFirst Quarter Second Quarter Third Quarter Fourth Quarter

Years ended July 31 2011 2010 2011 2010 2011 2010 2011 2010

High* C$ 3.87 C$ 6.41 C$ 3.30 C$ 6.14 C$ 3.05 C$ 5.60 C$ 2.55 C$ 4.02

Low* C$ 3.09 C$ 3.90 C$ 2.70 C$ 4.75 C$ 2.16 C$ 3.61 C$ 1.52 C$ 3.47

Close* C$ 3.20 C$ 5.82 C$ 2.92 C$ 5.38 C$ 2.25 C$ 3.70 C$ 1.57 C$ 3.55

Volume 1,885,075 3,810,786 3,186,587 3,320,878 1,539,294 2,896,295 1,614,735 2,042,611

*Highs and lows based on board-lot trades on the TSX; closing price based on last business day of the quarterAnn

ual R

ep

ort

De

sig

n b

y C

urra

n &

Co

nno

rs, I

nc. /

ww

w.c

urra

n-c

onn

ors

.co

m

directOrsR. Craig BaxterBoard Chair and Director

D. Bruce BurlingtonDirector and Human Resource & Compensation Committee Chair

Jeremy DesaiDirector

Philip JohnsonDirector and Governance & Nominating Committee Chair

Jack KayDirector

J. Robert LaveryLead Director and Audit Committee Chair

R. Scott LillibridgeDirector

John SedorPresident, CEO and Director

John VivashDirector

Officers William BeesSenior Vice President, Operations

Paul BriseboisVice President, Commercial Development

Michael GrahamChief Financial Officer

Grant McClartyVice President, Research & Development

Francis St. HilaireGeneral Counsel & Secretary

John SedorPresident and Chief Executive Officer

Andrew StoreySenior Vice President, Quality and Regulatory Affairs

CANGENE GUIDING PRINCIPLES

Operate with integrity Maintain compliance with regulatory, customer and corporate standards Provide customers with safe and effective products Provide our plasma donors with outstanding service and a high level of safety Value our employees and teamwork, reward and recognize their contributions,

and develop their talents Innovate in everything, from products to processes Drive shareholder value through sustainable and profitable growth

This document is printed on Domtar Cougar Smooth, which is FSC-certified, SFI Fiber Sourcing-certified and endorsed by the Rainforest Alliance; it features 10% post-consumer recycled content and certified fibre.

Cangene Corporation

155 Innovation Drive, Winnipeg, Manitoba R3T 5Y3180 Attwell Drive, Suite 360, Toronto, Ontario M9W 6A9

www.cangene.com

www.cangenebiopharma.com

www.cangeneplasma.com

Annual Financial Statements and MD&A 2011

Cangene Corporation Building on strength. Investing in growth.

TABLE OF CONTENTS

2 CANGENE CORPORATION 2011 CONSOLIDATED ANNUAL FINANCIAL STATEMENTS and MD&A

Management’s Discussion and Analysis of Financial Condition and Results of Operations 3

Management’s Report 24

Independent Auditors’ Report 24

Consolidated Balance Sheets 25

Consolidated Statements of Income and Comprehensive Income 26

Consolidated Statements of Changes in Equity 27

Consolidated Statements of Cash Flows 28

Notes to Consolidated Financial Statements 29

Glossary 69

Directors and Officers 70

Corporate Information 72 “Cangene”, “HepaGam B”, “Twinstrand Therapeutics”, “VariZIG”, “Vaccinia Immune Globulin Intravenous”, “WinRho” and “WinRho SDF” are trademarks belonging to Cangene Corporation. The term “WinRho” may be used in this document to refer to any of the WinRho family of products. “Ferriprox” is a trademark belonging to the Apotex Group. Unless stated otherwise, dollar amounts are in U.S. dollars; “C$” refers to Canadian dollars. These consolidated annual financial statements and associated notes, and management’s discussion and analysis of financial condition and results of operations may contain forward-looking information and non-IFRS financial measures; readers are referred to the related cautionary notes contained herein. The information contained within this document is intended as an investor summary only and may not include all relevant safety and risk information. Healthcare professionals are directed to refer to approved labelling and prescribing information for products and not rely on information discussed in this document. Prescribing information or drug names may differ in various countries. Scientific information that relates to unapproved products or unapproved uses of products is preliminary and investigative. No conclusions can or should be drawn regarding the safety or efficacy of such products. Only regulatory authorities can determine whether products are safe and effective for the uses being investigated. No information in this report is intended to promote the products discussed.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CANGENE CORPORATION 2011 CONSOLIDATED ANNUAL FINANCIAL STATEMENTS and MD&A 3

(Unless stated otherwise, dollar amounts are in U.S. dollars; “C$” refers to Canadian dollars) October 25, 2011 This review contains management’s discussion of Cangene Corporation’s operating results and financial condition for the year ended July 31, 2011, and should be read in conjunction with the 2011 audited consolidated annual financial statements and associated notes, which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). References in this document to “Cangene”, “the Corporation”, “our”, “we”, and “us” mean Cangene Corporation and/or its management. Our adoption of IFRS has effect from August 1, 2009 (the “Transition Date”), which includes our transition to reporting in U.S. dollars as our functional currency. Periods prior to the Transition Date have not been restated. Note 25 contains reconciliations and descriptions of the effect of the transition from Canadian generally accepted accounting principles (“GAAP”) to IFRS on equity and net income. It also includes reconciliations of: the consolidated balance sheet as at August 1, 2009; the change in equity as at August 1, 2009 and July 31, 2010; and the change in net income for the year ended July 31, 2010. The discussion of products in this report is intended as an information summary for investment purposes and does not contain all relevant product safety and risk information. Healthcare professionals should refer to approved labelling or the appropriate prescribing information for products and not rely on information discussed in this report. Prescribing information or drug names may differ in various countries. Scientific information that relates to unapproved products or unapproved uses of products is preliminary and investigative. No conclusions can or should be drawn regarding the safety or efficacy of such products. Only regulatory authorities can determine whether products are safe and effective for the uses being investigated. No information in this report is intended to promote the products discussed. Disclosure and internal controls Management has established and maintains disclosure controls and procedures in order to provide reasonable assurance that material information relating to Cangene is made known to us in a timely manner, particularly

during the period in which the annual filings are being prepared. We have evaluated the effectiveness of our disclosure controls and procedures as at the date of this report and believe them to be effective in providing such reasonable assurance. Our disclosure controls and procedures have not required any significant modifications as a result of our adoption of IFRS. Management is also responsible for the design and effectiveness of internal controls over financial reporting in order to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes. We do not expect that our internal controls over financial reporting will prevent or detect all misstatements due to error or fraud. Because of the inherent limitations in all control systems, an evaluation of controls can provide only reasonable, not absolute, assurance that all control issues and instances of fraud or error, if any, within the Corporation, have been detected. We are continually evolving and enhancing our systems of internal controls over financial reporting. We have evaluated the design and effectiveness of our internal controls over financial reporting as at the end of the period covered by our annual filings, including changes related to our conversion to IFRS, and have concluded that, subject to the inherent limitations noted above, the controls are sufficient to provide reasonable assurance. Our conversion to IFRS from Canadian GAAP impacts our preparation of financial statements. We have amended our internal controls and procedures as required to enable our reporting of historical Canadian GAAP information related to our initial IFRS adoption, and our current and future reporting under IFRS. Forward-looking statements Management’s discussion and analysis contains certain forward-looking statements that are predictive in nature and are subject to risks and uncertainties that may cause actual results or events to differ materially from the results or events predicted in this discussion. These risks and uncertainties include, but are not limited to, those discussed in the RISKS AND UNCERTAINTIES section within this MD&A. Forward-looking statements may include words such as “expects”, “plans”, “will”, “believes”, “estimates”, “intends”, “may”, “bodes” or other words of similar meaning (including negative and grammatical variations) and may relate to future financial performance, business strategies, or safety and efficacy of unapproved products. Should known or unknown risks or uncertainties materialize, or should our assumptions prove inaccurate, actual results could vary materially from those anticipated. We are under no obligation to update any forward-looking statements, except as required by applicable law.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued


Non-IFRS financial measures The MD&A may contain non-IFRS financial measures. Terms by which non-IFRS financial measures are identified include, but are not limited to, “net cash”, “total assets”, “sales”, “EBITDA” or other similar expressions. Non-IFRS financial measures are used to provide management and investors with additional measures of performance. However, non-IFRS financial measures do not have standard meanings prescribed by IFRS and therefore may not be directly comparable to similar measures used by other companies and should not be viewed as alternatives to measures of financial performance prepared in accordance with IFRS. OVERVIEW Cangene Corporation is a biopharmaceutical company in the business of developing, manufacturing, and commercializing products and technologies for global markets. We manage our business and evaluate performance based on two operating segments: biopharmaceutical operations and contract services. Revenues are generated from product sales, contract-manufacturing and contract-R&D services, and royalties. International sales are transacted mainly in U.S. dollars, as is customary in the industry. Cangene has a majority shareholder, the Apotex Group (“Apotex”), which, to the knowledge of the directors of Cangene, at October 25, 2011, controlled, directly or indirectly, 42,875,787 common shares, representing 64% of the outstanding common shares of Cangene. Apotex includes Apotex Holdings Inc., Apotex Inc. (a leader in the Canadian generic drug industry), Apotex Research Inc. and Apotex Corp., as well as the charitable foundations, Sherman Foundation and Apotex Foundation. Apotex is controlled, directly or indirectly, by Bernard Sherman and the Bernard and Honey Sherman Family Trust, of which he is the trustee. Dr. Sherman is also Chairman, Chief Executive Officer and a director of Apotex Inc., and is President and a director of Sherman Foundation and Apotex Foundation. Strategically, Cangene is focused primarily on hospital-based therapeutics for infectious diseases and biodefence applications. We have particular development and manufacturing expertise with two main types of products: certain plasma products and in particular

hyperimmunes, which are concentrated specialty antibody preparations made from plasma, and

recombinant biopharmaceuticals, which are therapeutic proteins made by introducing a particular gene into a host organism, which in turn produces the protein of interest.

We have expertise in manufacturing technologically complex and sterile injectable products. We also offer contract R&D and manufacturing services to other biopharmaceutical companies and government organizations, particularly through our Cangene bioPharma, Inc. (“Cangene bioPharma”) subsidiary (formerly Chesapeake Biological Laboratories, Inc.) in Baltimore, Maryland. In addition, we have an ongoing innovative R&D program, providing further opportunities for long-term growth. Our first approved product was WinRho® [Rho(D) Immune Globulin (Human) for Injection], and its development established a core competency in developing and manufacturing hyperimmunes. Three additional hyperimmune products, HepaGam B®

[Hepatitis B Immune Globulin (Human) Injection], VariZIG® [Varicella Zoster Immune Globulin (Human)] and VIG [Vaccinia Immune Globulin Intravenous™ (Human)] have also been approved for use. The focus of our recombinant biopharmaceutical development program is monoclonal antibody technology, which we are developing within our independent R&D program. We also continue to develop new plasma products through our independent R&D program. In addition, we seek to expand our commercial product portfolio through acquisition. Revenues from the biopharmaceutical operations segment result largely from sales of WinRho® SDF, which, until the end of fiscal 2010, had been sold primarily through a distribution agreement with Baxter Healthcare Corporation. On April 20, 2010, we signed a new agreement with Baxter under which we assumed U.S. commercialization rights for WinRho® SDF. We began selling this product in the U.S. with our own sales force on June 1, 2010. Our next largest selling commercial product is HepaGam B®. For this product, we had acquired the U.S. commercialization rights from Apotex on November 1, 2009 and began selling the drug in February 2010. These changes are in line with our increasing focus on our commercial products, particularly in the important U.S. market. To support both products, a sales and marketing staff was hired within Cangene bioPharma and we have built an additional warehouse with increased cold-storage and freezer capacity at that location. Our specialized facilities in Winnipeg, Manitoba, Canada and our manufacturing experience have allowed us to provide contract-manufacturing services, and we have been awarded several contracts to develop and manufacture certain biodefence products for the U.S. government. The first of these was a


contract with the U.S. Centers for Disease Control and Prevention (“CDC”) to develop and manufacture VIG, a product used to treat certain complications associated with smallpox vaccination. Revenue from this contract peaked in fiscal 2003 and the product was subsequently approved by the FDA in May 2005. During fiscal 2006, we were awarded significant stockpiling contracts by the U.S. Department of Health and Human Services (“HHS”) to develop and supply immune globulins aimed at toxins that cause botulism (heptavalent botulism antitoxin, “BAT”) and inhalational anthrax (anthrax immune globulin, “AIG”) under the U.S. Project BioShield initiative. These contracts are managed by the Biomedical Advanced Research and Development Authority (“BARDA”) within HHS. The base contracts for BAT and AIG had a combined revenue value of approximately $505 million. Early in fiscal 2008, we met the product requirements as defined by both the BAT and AIG contracts that permitted us to begin shipping product. Subsequent delivery and acceptance into the U.S. Strategic National Stockpile (“SNS”) of both products allowed us to invoice for these initial shipments. Revenue recognized on these contracts during fiscal 2011 is $64.3 million; the total to date is $341.9 million. We have completed bulk manufacturing of product under both contracts and made the last shipment of AIG early in the fourth quarter of 2011. We will continue to ship BAT as defined under the contract, which now specifies that the remaining doses be delivered through 2018, with the heaviest weighting in the last two years. As at July 31, 2011, we have 71,792 doses remaining to be delivered. BARDA recently exercised options related to plasma collection, stability studies and licensure-related work that are expected to generate an additional $61 million in revenue over the next three to four years. In addition, Cangene bioPharma offers commercial contract services for filling and finishing process-sensitive biologics. A recent $11-million renovation at this facility significantly increased overall throughput capacity and provides opportunities for growth. Our contract-services segment continues to contribute significant revenues to our overall business; however, this segment is subject to large fluctuations in activity and revenue due to timing of government contract deliveries. While it is possible we will undertake further government contract activities, we are increasing our focus on our commercial products and our U.S.-based commercial contract-services operation. We will continue to use cash generated from operations to increase investment in independent research and development, ranging from expanding applications of

hyperimmunes to innovative research into entirely new therapies with a primary focus on infectious disease. As well, we intend to augment our commercial product portfolio through acquisition. OUTLOOK In recent years, our primary focus has been on meeting delivery commitments on the U.S. government BAT and AIG stockpiling contracts. Extensions to the BAT contract mean that remaining deliveries of that product will be spread out to 2018, with emphasis on the last two years. BARDA recently exercised options worth $61 million on a number of activities related to the BAT contract; we expect to record this additional revenue over the next three to four years. The additional activities include plasma collection, stability studies and licensure-related work. We made a significant BAT delivery in the fourth quarter of 2011; our delivery commitments under the contract are up to date. We made our final delivery under the existing AIG stockpiling contract early in the fourth quarter of 2011. Work on licensing elements of both the BAT and AIG stockpiling contracts continues. During fiscal 2010, we made a strategic change to begin a greater focus on our commercial products, particularly in the U.S. market, and brought sales and marketing in-house. We began selling HepaGam B® in the U.S. through Cangene bioPharma on February 1, 2010 and added WinRho® SDF on June 1, 2010. Generally, we continue our efforts to grow HepaGam B® sales in the U.S. and Canada by targeting the largest liver transplant centres as well as the long-term post-transplant (home therapy) market. The FDA granted HepaGam B® orphan drug status in the U.S. effective April 2007, which conferred seven years of market exclusivity from that time for the approved indication to prevent hepatitis B recurrence following liver transplantation. With this market exclusivity, and as the first hepatitis B immune globulin licensed by the FDA for this indication, we believe that HepaGam B® will provide strong sales in the years to come as we continue to penetrate the U.S. market. While the overall market for the product has contracted recently, our market share has grown through every quarter of 2011, and more than 65% of the top transplant centres in the United States now use HepaGam B®. We expect that developing our own sales force to market our commercial products in the U.S. will help us achieve a greater market share for our products and greater profitability in the future. We are also continuing to evaluate acquisition, licensing and distribution opportunities to add new products to Cangene bioPharma’s sales and marketing portfolio.



Strategically we have also focused on increasing our plasma-collection capabilities through expansion of our existing plasma centres. These efforts are aimed at bringing more of our plasma supply in-house. Competition for plasma supplies and donor recruitment are significant risks for us with respect to most of our hyperimmune products (see RISKS AND UNCERTAINTIES) and we are looking to reduce this risk by becoming increasingly self-sufficient in plasma supply. The centres now operate under the name Cangene Plasma Resources so they are more closely identified with our corporate brand. The four plasma centre expansions have been completed. Expansion start-up costs and unabsorbed overhead have initially added to our cost per litre for plasma collection, which has increased our cost of sales and reduced our margins. However, we continue to see collections increasing in our expanded centres and expect the cost per litre to decrease as the centres begin operating closer to full capacity.

Throughout 2011 we directed efforts toward a number of independent research and development initiatives, including hyperimmune process improvements, clinical studies, and the development of monoclonal antibody technology and other anti-infectives—most significantly, immune globulin intravenous or IGIV. We have begun building toward its clinical development and believe it has substantial future potential. We expect a significant portion of our independent R&D spending will be directed at this product. To that end, we have collected a significant quantity of non-specialty plasma through our plasma centres and are pursuing the sale of any quantities that exceed our current needs for IGIV development. In that regard, our Cangene Plasma Resources subsidiary has already signed one, three-year commercial supply agreement. We also continue to evaluate a number of acquisition and licensing opportunities. In addition, we continue to pursue new customers and new markets for our existing products.

SELECTED ANNUAL INFORMATION The summarized information in the following charts is taken from our audited consolidated annual financial statements, which were prepared under IFRS and reported in U.S. dollars for the 2010 and 2011 fiscal years, and prepared under Canadian GAAP and reported in Canadian dollars for the 2007 to 2009 fiscal years. A significant portion of our revenues are in U.S. dollars and we have significant operations in the U.S., which required translation of these revenues and operations to Canadian dollars for the 2007 to 2009 fiscal years. Net cash is not a defined term under IFRS or Canadian GAAP, and it should not be construed as an alternative to using the balance sheet as a measure of our financial position. Readers are cautioned that our method of calculating net cash may not be comparable to similar measures presented by other issuers.

C$92.4

C$166.1

C$238.8

US$150.5

$0

$50

$100

$150

$200

$250

2007 2008 2009 2010 2011

Biopharmaceutical operations

Contract services

Revenues (in millions)

R&D Expenses* (in millions)

Net Income (in millions)

C$22.1

C$48.7C$49.4

US$28.1

$0

$10

$20

$30

$40

$50

2007 2008 2009 2010 2011

Independent R&D R&D services

C$10.1

C$29.6

C$60.5

US$16.5

US$1.5

$0

$10

$20

$30

$40

$50

$60

$70

2007 2008 2009 2010 2011

US$149.7

US$27.2

Values on graphs are in dollars or millions of dollars as indicated; 2007–2009 inclusive are in Canadian dollars and 2010–2011 inclusive are in U.S. dollars. Results for 2007–2009 inclusive were prepared under Canadian GAAP; results for 2010 have been restated under IFRS and results for 2011 were prepared under IFRS.

*After applying investment tax credits


Revenue fluctuations within the contract-services segment have contributed to fluctuations in profitability over the last five years. Other significant factors have been R&D expenses aimed at expanding our product pipeline, and more recently, plasma centre start-up and expansion costs as well as sales and marketing expenses aimed at establishing our in-house marketing and distribution capability. In 2007, our net income was low due to the absence of a significant VIG sale and reduced revenues on earlier BAT and AIG R&D contracts, compounded by the fact that the BAT and AIG stockpiling contracts awarded in 2006 were not yet generating revenue. These factors were partially mitigated by improved WinRho® SDF sales, and improved margins and prices on the liquid formulation in the U.S. In 2008, we reached significant milestones in both the BAT and AIG stockpiling contracts. The product deliveries and ongoing licensing and development work associated with these contracts contributed C$75.9 million in revenue in 2008, resulting in a substantial improvement in revenue over recent years. Contract revenues reached their peak of C$147.1 million in 2009, contributing to the Company’s highest total revenue and net income to date. 2010 saw revenues decline as deliveries on the BAT stockpiling contract slowed due to the extended delivery schedule and the reduced activity on development components of the contracts in accordance with the contract terms. Revenues remained level from 2010 to 2011, as did the split between contract services and biopharmaceutical operations. During these two most recent fiscal years, we delivered fewer doses of product to the SNS on our U.S. government stockpiling contracts.

The large increase in research and development expenses in 2008 is also associated with the contracts. Some of this R&D activity took place in prior periods but was only able to be expensed when the associated contract revenues were earned in 2008 following achievement of contract milestones. Research and development expenses in 2009 were consistent with 2008 in total; although 2009 included a higher proportion of independent R&D activity. The 2010 and 2011 years have seen a gradual increase in independent R&D expenditures in addition to a dramatic decrease in development activity on the BAT and AIG stockpiling contracts as we move closer to possible licensure. Net income has fluctuated over the last five years, largely as a result of varying levels of activity on biodefence contracts. As well, 2011 was negatively impacted by a number of factors including a foreign-exchange loss and asset impairment charges. Earnings per share over the five-year period primarily reflects these fluctuations in net income. To a much lesser extent, the increased number of shares outstanding that resulted from the share offering in fiscal 2007 and exercises of stock options also lowered earnings per share. From 2008 through 2011, the number of shares outstanding decreased due to cancellations under our Normal Course Issuer Bids. Earnings per share in 2008 and 2009 were considerably improved over the previous year, with 2009’s outstanding results positioning us for the highest earnings per share in our history. Fiscal 2010 and 2011 produced lower earnings per share as revenues declined from the record high of 2009 and gross margins declined on product sales. The

C$0.15

C$0.42

C$0.87

US$0.24

US$0.02

$0.00

$0.25

$0.50

$0.75

$1.00

2007 2008 2009 2010 2011

C$256.8

C$282.8

C$345.8

US$275.2US$266.1

$0

$50

$100

$150

$200

$250

$300

$350

2007 2008 2009 2010 2011

C$(4.9)

C$14.7

C$56.1

US$40.4

US$45.2

($20)

$0

$20

$40

$60

2007 2008 2009 2010 2011

Earnings per Share Basic and fully diluted

Total Assets (in millions)

Net Cash Position* (in millions)

*Net cash position = cash – debt



2010 and 2011 years have seen us invest in independent R&D, creation of our own sales force and also expanded capacity in both our plasma centre operations and our contract manufacturing capabilities. Over the last five years, we have added significant strength to our financial position and our asset base. It is important to note that the 2010 and 2011 assets are presented using IFRS and a U.S. dollar reporting currency. While our net cash position had decreased to correspond with a major hyperimmune-production-facility expansion and with the investment in inventories and contracts in progress associated with the stockpiling contracts, it increased as the production-facility expansion debt was repaid in 2007 and 2008, and as stockpiling contract revenues were received in 2008 through 2011. A large portion of our debt was also repaid in 2007 with the proceeds of a share offering. Fiscal 2010 saw our cash balance reduced somewhat as we invested heavily in property, plant and equipment with the construction of a new distribution warehouse at Cangene bioPharma in Baltimore, expansion and relocation of plasma centre operations, and acquisition of a building in Winnipeg. The building in Winnipeg is the site of our expanded plasma centre and also provides additional administrative office space. Fiscal 2011 saw our cash balance increase, primarily due to cash flow from operating activities. As at July 31, 2008, 2009, 2010 and 2011 we had no debt outstanding. At July 31, 2011, we have a significant cash balance, positioning us well to take advantage of future opportunities for growth, whether through marketing efforts, internal development of products and technologies, or acquisition and licensing activities. NEW DEVELOPMENTS On November 5, 2010, we announced that we had reorganized and streamlined the structure of our U.S. plasma-collection operations with the merger of our wholly-owned subsidiaries, Mid-Florida Biologicals, Inc. and Biotherapeutic Laboratories, Inc. Pursuant to the merger, which was effective November 1, 2010, Biotherapeutic Laboratories, Inc. ceased to exist and Mid-Florida Biologicals, Inc., as the successor corporation, was renamed Cangene Plasma Resources, Inc. Operations within the three U.S. plasma centres (two formerly operated by Mid-Florida Biologicals and one operated by Biotherapeutic Laboratories) were not impacted by the merger. Cangene Plasma Resources Winnipeg was also unaffected.

On December 14, 2010, we announced that Jack Kay had stepped down from his position as our Board Chair. Mr. Kay will remain on our Board and continue to serve as a director. Replacing him as Chair, is Craig Baxter. Mr. Baxter has been on our Board since November 1995 and brings his more than 25 years of pharmaceutical industry experience to the role. Both Mr. Kay and Mr. Baxter are officers of companies within our majority shareholder, Apotex. On January 25, 2011, we announced the retirement of our long-time President and Chief Executive Officer, Dr. John Langstaff. The resignation was effective immediately; Dr. Langstaff also retired from his position on our Board of Directors. On April 7, 2011, we announced a reorganization of our Canadian operations to reflect decreased U.S. government contract-manufacturing activity and to align our workforce with our growing strategic focus on our commercial products. These factors, combined with our commitment to increase operational efficiency, resulted in a workforce reduction. Between August 1, 2010 and January 31, 2011, approximately 60 positions were eliminated, mainly through attrition. On April 7, 2011, we announced the elimination of 40 additional positions. On May 2, 2011, we announced that Cangene bioPharma had completed an $11-million renovation of its sterile filling and support facility. The renovation added a second production freeze-dryer and significantly increased overall throughput capacity. Since June 1, 2010, we had an ongoing Normal Course Issuer Bid under which we repurchased common shares for cancellation through the facilities of the Toronto Stock Exchange. This Bid expired on May 31, 2011. On June 3, 2011, we announced that BARDA had exercised options under the BAT stockpiling contract, which are expected to generate approximately $61 million in additional revenue for us over the next three to four years. In addition, the delivery schedule under the existing contract was extended out to 2018, with a heavier weighting in 2017 and 2018. The additional work included primarily involves plasma collection in the next three years, along with additional stability studies and licensure-related work. BARDA also retained a contract option under which some of the collected plasma may be fractionated or used to manufacture bulk product over the period from 2012 to 2016.


On August 16, 2011, we announced that our board of directors had unanimously appointed John A. Sedor as President and Chief Executive Officer; he also serves on our Board as a director. Michael Graham, our Chief Financial Officer, who served as interim President and CEO during the Board's search process, will continue in his role as CFO. Mr. Sedor has more than 30 years of proven leadership in the global biopharmaceutical, consumer product and generic drug industries. Most recently, he served as President, CEO and director of CPEX Pharmaceuticals, Inc., a specialty drug delivery pharmaceutical company, including managing its spin-off from Bentley Pharmaceuticals, Inc. in 2008 and its sale in a premium, all-cash transaction in 2010. Prior to CPEX, he was President of Bentley, which focused on the research, development, licensing and commercialization of generic and branded pharmaceutical products. Under his guidance, Bentley expanded its nanotechnology programs and successfully added more than 20 new product approvals in the European market. Previously, he also created Centeon LLC, a 50/50 joint venture between Rhône-Poulenc Rorer and Hoechst AG focused on developing and commercializing plasma protein biotherapeutics. Sedor's other previous roles include serving as President and CEO of Sandoz Inc. (USA) from 2001 until 2005. In that position, he led efforts to more than double net sales growth and overall profitability. Sedor previously also served in a variety of senior positions at Verion, Rorer Pharmaceutical Co., Revlon Health Care Group and Armour Pharmaceutical Company. He holds a B.S. in Pharmacy and Chemistry from Duquesne University. RESULTS OF OPERATIONS Consolidated revenues Total revenues for the year ended July 31, 2011 were $149.7 million, compared with $150.5 million in the prior year. While the consolidated revenues remained consistent, there was a slight change in the mix, with a $4.1-million increase in biopharmaceutical-operations revenues and a $4.8-million decrease in contract-services revenues. We manage our business and evaluate performance based on two operating segments: biopharmaceutical operations and contract services. Biopharmaceutical operations Product-sales revenues in the biopharmaceutical operations segment consist of sales of approved products and non-specialty plasma. Royalty revenues are received from Apotex based on its sales of a drug called Ferriprox® (deferiprone) that it manufactures and markets (2011 is the final year in which we will receive these royalty revenues).

Year ended July 31, 2011 Year ended July 31, 2010

in thousands of U.S. dollars Product

sales Royalties TotalProduct

sales Royalties Total

Revenues $ 51,172 $ 3,226 $ 54,398 $ 43,300 $ 7,023 $ 50,323Gross profit $ 16,663 $ 3,226 $ 19,889 $ 12,645 $ 7,023 $ 19,668Gross margin 33% 100% 37% 29% 100% 39%

In the current year, sales revenues are not shared. For the first ten months of fiscal 2010, revenues on U.S. sales of WinRho® SDF were shared with a distribution partner through a profit-sharing agreement. Furthermore, during those ten months, U.S. sales revenues for WinRho® SDF were reduced by a marketing allowance paid to our distribution partner. For the remainder of 2010 and the entire 2011 year we have incurred the marketing costs directly in our SG&A. For 2011, revenues for WinRho® SDF increased by 6% from the prior year to $31.4 million. Sales of WinRho® SDF outside of North America increased by $1.0 million and Canadian sales increased by $1.7 million, while U.S. sales decreased by 5% or $0.8 million. There was a decline in sales volumes of approximately 41% in the U.S.; however the effect on revenues was largely offset by the fact that revenues are no longer reduced by a marketing allowance to a distribution partner as noted above. In 2011, revenues for HepaGam B® decreased to $10.1 million; a decrease of $2.8 million or 22% from the prior year. This decrease results from a $1.0-million decrease in Canada, a $2.4-million decrease in the U.S. and an increase in non-North American international markets of $0.6 million. Effective November 1, 2009, we no longer share U.S. HepaGam B® revenues with Apotex, nor do we pay it a marketing allowance (we now incur the marketing costs directly in our SG&A). HepaGam B® has orphan drug exclusive approval from the FDA for the prevention of hepatitis B recurrence following liver transplantation. This designation gives our product seven years of market exclusivity in the U.S. (beginning from April 2007).



In addition to sales of commercial products, product-sales revenue in fiscal 2011 includes $8.5 million in sales of non-specialty plasma from our plasma centres as well as a $0.4-million sale of VIG to an international customer. We intend to continue to market excess plasma collected through our plasma centres when we do not need it for manufacturing or product development.

Product Sales 2011 Product Sales 2010

Under IFRS, our gross profit and gross margin are now calculated including both amortization expense and certain amounts of foreign-exchange gain (loss) related to operations. Previously, under Canadian GAAP, these calculations excluded amortization and foreign-exchange gain (loss), as they were separately disclosed in the consolidated statements of comprehensive income. Gross margin on product sales in 2011 has increased by four percentage points compared with the prior year. However, due to its relatively low current market price, the $8.5 million in sales of excess non-specialty plasma did not generate any margin. We have been building an inventory of non-specialty plasma for development of our IGIV and continue to collect significant quantities at a cost that exceeds the current market price. The write-down of this plasma to market price has adversely impacted our margin. Our sales of freeze-dried WinRho® SDF product to non-North American markets have historically generated a low gross margin, although they do contribute positively to the use of the facilities and absorption of overhead; higher non-North American sales of this product impact our overall gross margin. In addition, we had negative margins related to our VIG product as we recorded provisions against some specific lots of VIG inventory and costs to refund sales or replace a small quantity of VIG product that had previously been sold. Offsetting the factors that reduced margins, during 2011 we revalued the royalty provision related to HepaGam B®; this resulted in a $1.7-million reduction to product-services cost of sales in this segment and a 3-percentage-point improvement in gross margin for the year. The reduction in the provision resulted from lower expected future net sales in the U.S. market. Furthermore, the prior-year margins were adversely impacted by a significant write-down of non-specialty plasma, as well as unabsorbed overhead attributed to underutilized facilities—items which were less significant in 2011. Costs of operating our expanded plasma centres have adversely impacted our margin. The larger centres, particularly in Frederick, MD and Winnipeg, MB, have not yet achieved targeted donation volumes. We anticipate that our cost to collect all types of plasma will decrease as our plasma centres increase their collections and reach targeted capacity, which will lead to some recovery in the margin. The decrease in royalty revenue in 2011 is due to a decreased royalty rate on sales of Ferriprox®, the drug manufactured and marketed by Apotex, for which we received 18.75% of net profits in 2011. This compares with 37.5% that we received in fiscal 2010, pursuant to an agreement between Cangene and Apotex. The 2011 fiscal year was the final year in which we will receive these royalties.

61%20%

19%

WinRho® SDF HepaGam B® Other

68%

30%

2%

WinRho® SDF HepaGam B® Other


Contract services Product-services revenue in the contract-services segment comprises third-party contract-manufacturing revenues at our Winnipeg facilities as well as at Cangene bioPharma. R&D-services revenues in this segment are derived from contract-R&D activities for third parties including government and non-government customers.


in thousands of U.S. dollars Product services

R&D services Total

Product services

R&D services Total

Revenues $ 78,872 $ 16,437 $ 95,309 $ 80,504 $ 19,644 $ 100,148Gross profit $ 28,643 $ 5,164 $ 33,807 $ 31,078 $ 5,040 $ 36,118Gross margin 36% 31% 35% 39% 26% 36%

Product-services revenues in 2011 decreased slightly relative to 2010 and the mix of products changed as increased commercial contract-manufacturing sales were recorded in 2011. The U.S. government stockpiling contracts for BAT and AIG continue to account for the majority of product-services revenues in this segment, with 2011 composed mainly of AIG revenue and 2010 mainly BAT revenue. The prior year also included a $2.6-million sale of VIG plasma to the U.S. Department of Defense, which did not re-occur, although this was offset by an international BAT sale in 2011. We have now met all of our product delivery requirements on the AIG contract. The BAT contract delivery schedule extends through to 2018. Cangene bioPharma generated product-services revenue of $24.6 million in 2011, compared with $20.0 million in the same period of the prior year. Cangene bioPharma generates revenues through commercial contract-manufacturing sales. The $4.6-million increase in contract-manufacturing revenues at our Cangene bioPharma subsidiary came despite a shutdown for a scheduled expansion and upgrading of the facilities and fill/finishing capabilities that affected a portion of the third quarter. The expanded capacity contributed to a significant increase in revenue in the final quarter of 2011. Product-services Revenues 2011 Product-services Revenues 2010

The gross margin on product-services revenues declined by three percentage points year-over-year to 36% in 2011. In 2011, we recorded significant provisions against excess plasma inventory that had been collected for the BAT and AIG stockpiling contracts and against bulk product and raw materials that were specific to the BAT contract. There is a possibility that some or all of the inventory provisions related to BAT and AIG may be reversed in future periods if we are able to enter into agreements to sell additional doses of BAT or AIG, or to sell the plasma itself. Furthermore, commercial contract-manufacturing activity at Cangene bioPharma generates lower margins than the government business, and Cangene bioPharma generated a greater percentage of our contract-manufacturing revenue in 2011 than it did in 2010.

68%

32%

Government Commercial

74%

26%

Government Commercial



In R&D services for this segment, the BAT and AIG contracts contributed $15.3 million in revenues in 2011 compared with $18.7 million in the prior year. While development activity related to these contracts continues, the recognition of revenue related to development activity varies with the level of that activity. We did not conduct any other significant third-party contract-R&D work in our Canadian operations in the current year. Gross margin on R&D-services revenues in this segment increased by five percentage points from the comparative prior year. We continue to perform work on the BAT and AIG biodefence stockpiling contracts; some components of the work are eligible for scientific research and experimental development (“SR&ED”) tax credits, which improves margins. In addition to revenues and expenses recognized to date, we have also recorded costs in raw materials and work-in-process inventories related to the BAT and AIG stockpiling contracts. These costs can be expensed and the related revenue recognized when revenue recognition criteria are met. At July 31, 2011, we have recorded costs of $33.1 million related to these two contracts in inventories and contracts in progress as follows: raw materials of $0.8 million, work in process – product costs of $27.6 million, work in process – manufacturing process

development costs of $3.0 million, work in process – development costs of $1.2 million

and finished goods of $0.5 million

We anticipate that contract-services revenues will continue to fluctuate in the future, depending on varying levels of activity related to existing contracts and whether significant new R&D or manufacturing contracts with the U.S. government or other parties are awarded. Independent R&D Independent R&D expenses, from which no related revenue is derived, were $15.9 million in 2011, compared with $13.5 million in the prior year. Expenses are net of applicable tax credits and have increased in the current year largely due to development of IGIV. Expenses incurred in the current year include costs of six IGIV test production runs in the second half of the year. Our efforts to develop monoclonal antibodies aimed at a number of diseases, as well as a number of other projects, also continue.

We continue to conduct independent research in several related biopharmaceutical fields, ranging from expanding applications of hyperimmunes to innovative research into entirely new therapies, although our primary focus is the development of our IGIV product. Selling, general and administrative expense (“SG&A”) SG&A consists primarily of salaries and benefits for administrative departments such as human resources, accounting, marketing and business development. Other significant components of SG&A include consulting, legal and accounting fees, bank charges, directors’ fees, and an allocation of facility overhead expenses. Under IFRS, our SG&A expense also includes amortization expense as well as components of foreign-exchange gain (loss). Total SG&A expense for 2011 increased to $29.7 million from $24.5 million in the same period of the prior year, an increase of $5.2 million or 21%. SG&A related to the sales division is $10.7 million in 2011 compared with $7.6 million during the prior year, an increase of 41%. The prior year included only nine months of expenses associated with the Cangene bioPharma sales division. However, prior to creating our own sales force, a similar amount was paid as a marketing allowance to distribution partners and was recorded as a reduction of product sales. The non-cash amortization expense related to the commercialization rights intangible asset for HepaGam B® increased to $2.1 million in 2011 from $1.6 million in the prior year. Under IFRS, our SG&A expense in 2011 includes a $0.5-million reversal of a previous expense related to the phantom-stock incentive plan. This compares with a reversal of $0.8 million in 2010. This results from the use of the Black-Scholes model to value the plan liability. We have also recorded a reduction in expense of $0.8 million compared with the prior year related to our restricted share unit plan, primarily due to the lower 90-day weighted-average price of our common shares traded on the Toronto Stock Exchange in the current year. Other items resulting in increased SG&A for the 2011 year are: increased bank charges due to cross-currency swap activity and higher accounting and auditing fees due to IFRS early adoption. A further significant item that impacted SG&A in 2011 is the accrual of retirement benefits of approximately $0.9 million for former President and CEO, Dr. John Langstaff.


Taxes A tax expense (benefit) of $(2.2 million) for 2011 compares with a tax expense of $1.3 million for the prior year, and results from a tax loss in the Canadian operations for 2011, which was only partly offset by taxable income in the U.S. operations. In addition, the effective tax expense (benefit) rate of (306.1)% differs from the statutory tax rate of 28.5%, primarily due to the effects of translating the operations into U.S. dollars. This is only partially offset by the effects of income taxes recorded at rates different from the Canadian rate, an unrealized foreign-exchange loss on advances to U.S. subsidiaries and a change in the state deferred tax rate. Net income Net income of $1.5 million for 2011 compares with net income of $16.5 million in 2010. Our net income decreased due to a combination of factors. First, our gross profit in 2011 was $2.1 million lower than the prior year, primarily due to reduced royalty revenues, which are all profit. The prior year included an additional $3.8 million in royalty revenues on sales of Ferriprox®, the drug manufactured and marketed by Apotex, for which Cangene received 18.75% of net profits in fiscal 2011 compared with 37.5% in fiscal 2010. And 2011 is the final year in which we will receive these royalties. Second, independent R&D expense increased by $2.5 million, largely due to a number of test production runs on our IGIV product. Third, our SG&A has increased by $5.2 million in 2011, largely due to the addition of our U.S. sales division within Cangene bioPharma as discussed earlier. Fourth, we recorded asset impairments in our Cangene Plasma Resources cash-generating unit (“CGU”) of $1.8 million to property, plant and equipment, and $2.3 million to goodwill. Finally, we recorded a significant foreign-exchange loss of $4.9 million in 2011 due to the strengthening of the Canadian dollar. This compares with a foreign-exchange gain of $0.1 million in 2010. Partially offsetting these factors is a $2.2-million tax benefit in 2011, compared with a $1.3-million tax expense in 2010. Basic and diluted earnings per share For the current year, our lower basic and diluted earnings per share reflect the effect of decreased net income for the year, as discussed above.

SUMMARY OF QUARTERLY RESULTS

Quarters ended

in thousands of U.S. dollars except per-share data

July 31, 2011

(Q4 2011)

April 30, 2011

(Q3 2011)

January 31, 2011

(Q2 2011)

October 31, 2010

(Q1 2011)

July 31, 2010

(Q4 2010)

April 30, 2010

(Q3 2010)

January 31, 2010

(Q2 2010)

October 31, 2009

(Q1 2010)

Revenues $ 52,230 $ 34,235 $ 40,200 $ 23,042 $ 32,897 $ 39,538 $ 39,047 $ 38,989 R&D expense1 7,789 7,900 4,340 7,181 7,394 6,279 5,238 9,175

Net income (loss) 4,562 (1,827)2 2,8712 (4,097)2 (1,954) 6,158 5,710 6,553 Earnings (loss) per

share Basic and diluted $ 0.07 $ (0.03)2 $ 0.04 $ (0.06) $ (0.03) $ 0.09 $ 0.08 $ 0.10

1. Includes R&D expenditures, net of investment tax credits, classified as either cost of sales – R&D services or independent R&D.

2. Net income and earnings per share (“EPS”) reflect that for the year ended July 31, 2011, we recorded a net adjustment of $1.5 million to inventory and cost of sales related to revenue-recognition timing issues and application of overhead. A portion of the adjustment related to these previously reported quarters indicated. The amounts shown in the table above have been revised to reflect the impact of the adjustment on net income and EPS.

Results over the past eight quarters have fluctuated, primarily in response to the timing of deliveries and activity under the BAT and AIG stockpiling contracts. In the first quarter of 2010 there was only one BAT product delivery during the quarter. Reduced revenues related to WinRho® SDF also affected the quarter. Revenues increased moderately in the second and third quarters of

2010 with product delivery revenues on AIG and BAT remaining relatively stable, and R&D-services and commercial product revenues fluctuating minimally. Revenues decreased in the fourth quarter of 2010 as deliveries on the stockpiling contracts were limited to a small delivery of AIG. This decrease was partially offset by improved commercial product-sales revenues in the quarter.



The first quarter of 2011 saw our revenues decline further, again primarily due to lower revenues on the stockpiling contracts, as there were no deliveries of BAT or AIG to the SNS in the quarter. Revenues on commercial product sales increased in the quarter as they are no longer being shared with distribution partners; however, sales and marketing costs that are now recorded in SG&A offset this increase (see RESULTS OF OPERATIONS – Biopharmaceutical operations). A drop in royalty revenues was also a factor in decreased overall revenues, as we began receiving the lower royalty rate on net profits on Ferriprox®, the drug manufactured and marketed by Apotex, as specified in an agreement between the companies. Revenues increased in the second quarter of 2011 as we completed two deliveries of AIG to the SNS and also recorded increased revenues from Cangene bioPharma. Total revenue dropped somewhat in the third quarter of 2011, largely because there was no delivery on the BAT contract and only one delivery of AIG; however, an $8.5-million commercial sale of non-specialty plasma did increase biopharmaceutical sales. Revenues in the fourth quarter of 2011 were our highest over the eight-quarter period, primarily due to $28.5 million of revenue on the BAT and AIG contracts, combined with $9.6 million in contract-manufacturing revenue at Cangene bioPharma. R&D expense has fluctuated over the last two years with varying levels of activity on independent R&D and third-party R&D contracts. Certain manufacturing-process-development costs that were incurred from 2007 to 2009 on the BAT and AIG contracts and capitalized in inventories and contracts in progress are expensed as product is delivered. The high R&D expense in the first quarter of 2010 is largely due to activity on the BAT and AIG contracts. The relatively high R&D expense in the fourth quarter of 2010 was largely due to activity on IGIV development. Similarly, in the first quarter of 2011, 63% of the R&D expense was investment in Cangene’s independent R&D efforts, the majority of which related to our IGIV development program. The second quarter of 2011 saw reduced independent R&D expense, although work continued on a number of initiatives, such as IGIV and monoclonal antibody development. R&D expenses in the third quarter of 2011 again reflected higher independent R&D expense, including two test production runs of IGIV. R&D expense in the fourth quarter of 2011 remained significant, primarily due to continued development of our IGIV product.

Net income (loss) has fluctuated over the past two years as a result of the revenue effects of varying levels of activity on the stockpiling contracts, as described above, and factors that decreased margins. Reduced margins in the biopharmaceutical operations segment were due to a combination of factors, including excess production capacity, depressed market values of non-specialty plasma inventory, plasma centre start-up costs and inventory provisions. The first quarter of 2011 was impacted by all of these factors, resulting in our most significant quarterly loss during the two-year period. The second quarter of 2011 saw us return to profitability on the strength of two AIG deliveries and improved gross margin on commercial biopharmaceutical product sales, although that improvement was the result of the revaluation of our HepaGam B® royalty liability at January 31, 2011. A net loss was again recorded in the third quarter of 2011 due to a lack of product deliveries on the BAT stockpiling contract, increased independent R&D expenses primarily related to IGIV development, and a significant foreign-exchange loss. Although net income in the fourth quarter of 2011 was negatively impacted by $4.1 million in asset impairment charges in our Cangene Plasma Resources CGU, it was still higher than prior quarters due to BAT and AIG deliveries as well as commercial contract-manufacturing income at Cangene bioPharma. Earnings (loss) per share over the two-year period reflects the fluctuations in net income (loss) as well as the decreases in the number of shares outstanding due to the Normal Course Issuer Bids. Recent Normal Course Issuer Bids have resulted in the cancellation of a total of 3,758,300 of our common shares to May 31, 2011 (the most recent Bid expired on that date). At the July 31, 2011 year end, net income and earnings per share were revised to reflect corrections to overhead application to ending work-in-process inventory and timing of recognition of contact-services cost of sales, as well as the related tax impacts. A portion of this adjustment related to reported amounts from the first three quarters of the fiscal year. The impact on net income in the first three quarters of 2011 is: $(0.3 million) in Q1, $0.5 million in Q2 and, $(0.2 million) in Q3. For earnings per share, there was a resulting $(0.01) change in Q3 and no changes in Q1 and Q2. The revisions also impact ending inventory balances for the first three quarters of 2011, resulting in a $0.5-million increase for Q1, a $0.3-million decrease for Q2 and a $0.1-million increase for Q3.


LIQUIDITY AND CAPITAL RESOURCES Cash at July 31, 2011 was $45.2 million, compared with $40.4 million at the end of the 2010 fiscal year. Overall, the increase in cash since July 31, 2010 is primarily due to positive cash flows from operating activities. Operating activities Cash of $15.7 million was provided by operating activities during 2011, compared with $21.7 million during the prior year. There was a positive net income in both years, with the significantly higher net income in 2010 contributing more to cash from operations. The 2011 fiscal year included a significant increase in cash flow due to non-cash working capital related to operations in comparison with 2010. The primary reason for the change is a decrease in inventory, although this was offset partially by an increase in accounts receivable. Other significant changes in operating activities were a reduction in deferred income and a revaluation of the royalty provision related to HepaGam B®. Financing activities In 2011, cash of $3.3 million was used in financing activities; all was related to the repurchase of shares for cancellation under our Normal Course Issuer Bid. Similarly, in 2010, $3.8 million was used in financing activities for shares repurchased for cancellation under Normal Course Issuer Bids. Our most recent Bid expired on May 31, 2011. Equity The following table provides a continuity of the common shares issued and outstanding:

in thousands of U.S. dollars except share data Number of shares Share capital As at August 1, 2009 68,736,770 $ 52,376 Shares cancelled under Normal Course Issuer Bids (893,200) (680)As at July 31, 2010 67,843,570 51,696 Shares cancelled under Normal Course Issuer Bid (1,096,700) (836)As at July 31, 2011 66,746,870 $ 50,860

At July 31, 2011, 3.1 million [July 31, 2010 – 2.7 million] options remained available to be granted under a stock option plan. We did not grant any stock options during the last two completed fiscal years under the plan and all previously granted options had expired; however, the plan remained in effect, and subsequent to the fiscal year end, 750,000 options were granted to the incoming President and CEO. A summary of the status of our stock option plan as at July 31, 2011 and July 31, 2010, and changes during the years ended on those dates is presented below:


Stock options Number of

options Weighted-average

exercise price Number of


exercise price

Outstanding at beginning of year 339,200 C$ 10.60 711,200 C$ 9.96 Forfeited, expired and cancelled (339,200) 10.60 (372,000) 9.37

Outstanding at end of year — C$ — 339,200 C$ 10.60

Exercisable at end of year — C$ — 339,200 C$ 10.60 While there were no stock options outstanding at the July 31, 2011 year end, at October 25, 2011, the 750,000 stock options that were granted to the incoming President and CEO, John Sedor, were outstanding and 25% were vested and exercisable. These options were granted with an exercise price of C$1.37 and their weighted-average remaining contractual life is 8.0 years. If the 187,500 vested and exercisable options were exercised, we would have 66,934,370 common shares outstanding.



Debt We have available a C$20.0-million operating line of credit with a bank. As at July 31, 2011, there was C$Nil outstanding on the operating line [C$Nil outstanding at July 31, 2010].

Payments due by period

in thousands of U.S. dollars

Total at July 31, 2011

Less than 1 year 1–3 years 4–5 years After 5 years

Operating leases $ 6,374 $ 1,646 $ 2,413 $ 947 $ 1,368 Purchase obligations1 200 200 — — —

Total contractual obligations $ 6,574 $ 1,846 $ 2,413 $ 947 $ 1,368

1.”Purchase obligation” means an agreement to purchase goods or services that is enforceable and legally binding on us and that specifies all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Investing activities Cash used in investing activities decreased to $7.6 million from $29.6 million in the prior year. The prior-year period included $7.0 million that was paid to Apotex for the acquisition of intangible assets related to the U.S. commercialization rights for HepaGam B®, and $7.2 million that was paid to acquire and renovate the building at 137 Innovation Drive in Winnipeg. This is now the site of our expanded Cangene Plasma Resources – Winnipeg location as well as several corporate departments. In addition, in 2010, we constructed a new warehouse at Cangene bioPharma and upgraded utilities, including the acquisition of a new freeze-dryer. During 2011, the new freeze-dryer was installed and became operational in our fourth quarter, resulting in increased contact-manufacturing capacity. Liquidity & capital resources summary Our ability to generate cash from operating activities, including product sales and contract services, as well as our ability to obtain debt financing from our bank, are expected to provide sufficient liquidity to meet anticipated needs of existing projects, including the development of IGIV, absent the occurrence of any unforeseen events. We also anticipate that we could raise further new equity or obtain debt financing if and when new capital is required to fund growth and when a market opportunity exists.

RELATED-PARTY TRANSACTIONS Effective April 13, 2009, we signed an agreement with Apotex under which we acquired rights to certain recombinant biopharmaceutical products developed with previous support from Apotex; the agreement also specified the phasing out over three years of royalties that we have received on a drug called Ferriprox®,

which is owned and marketed by Apotex. Fiscal 2011 was the final year for these royalties. We previously had a distribution agreement with Apotex Corp. for it to market and distribute HepaGam B® in the United States. On October 16, 2009, our Board of Directors approved an agreement under which we acquired the U.S. commercialization rights to HepaGam B®. As per the agreement, we paid Apotex $7.0 million in the first quarter of 2010. In addition, we are paying royalties on net U.S. HepaGam B® sales occurring through June 2016. The effective date of this transfer of rights was November 1, 2009. Our independent directors approved this new agreement after having determined that it is fair to Cangene and our shareholders. The $7.0 million was recorded in intangible assets along with the present value of the estimated future royalty stream on U.S. sales of HepaGam B® through June 2016, which is also

$7.0 million. The total commercialization rights intangible asset is $14.0 million, which, less amortization of $3.7 million, results in a net book value of $10.3 million at July 31, 2011. During 2011, we recorded revenues from Apotex of $3.2 million compared with $8.8 million in the prior year. The decrease is due to the fact that the 2011 fiscal year includes only the 18.75% royalty revenue on net profits from Ferriprox® sales, while the comparative year included shared HepaGam B® sales and a 37.5% royalty revenue on Ferriprox®. At July 31, 2011, $1.6 million was included in accounts receivable from these related-party transactions [July 31, 2010 – $1.6 million]. During 2011, we recorded expenses payable to Apotex of $0.9 million for royalties payable related to net U.S. sales of HepaGam B® compared with $1.5 million in 2010 for royalties and consulting services. At July 31, 2011, $0.2 million is recorded in accounts payable and accrued liabilities owing to Apotex, compared with $0.3 million at July 31, 2010. Related-party transactions are recorded at their exchange amounts.


CRITICAL ACCOUNTING ESTIMATES The preparation of financial statements that present fairly the financial position, financial condition and results of operations in accordance with IFRS requires that we make estimates and assumptions about future events that may affect the reported amounts of assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting periods presented. The resulting accounting estimates will, by definition, seldom equal the related actual results. The following is a summary of critical accounting estimates and assumptions that we believe could materially impact our reported financial position, financial condition or results of operations. Taxes We recognize deferred tax assets, related tax-loss carryforwards and other deductible temporary differences where it is probable that sufficient future taxable income can be generated in order to fully use such losses and deductions. This requires significant estimates and assumptions regarding future earnings, and the ability to implement certain tax planning opportunities in order to assess the likelihood of utilizing such losses and deductions. These estimates and assumptions are subject to uncertainty and, if changed, could materially affect the assessment of our ability to fully realize the benefit of the deferred tax assets. We are subject to income taxes in numerous tax jurisdictions. Significant judgment is required in determining our provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain. We recognize liabilities for anticipated tax audit issues based on estimates of whether additional taxes could be due. Where the final tax outcome of these matters is different from the amounts that we initially recorded, such differences will impact the current and deferred tax assets and liabilities in the period when such determination is made. Impairment of goodwill In accordance with International Accounting Standards (“IAS”) 36 – Impairment of Assets, we test annually to determine whether goodwill has suffered any impairment. We also test whenever events or changes in circumstances indicate that the carrying amount of the asset may be impaired. These calculations require the use of estimates and forecasts of future cash flows. Qualitative factors, including market presence and trends, strength of customer relationships, strength of local management, strength of debt and capital markets, and degree of variability in cash flows, as well as other factors, are

considered when making assumptions with regard to future cash flows and the appropriate discount rate. A change in any of the significant assumptions or estimates used to evaluate goodwill could result in a material change to the results of operations. Revenue recognition – biopharmaceutical product sales We recognize revenue from product sales, net of applicable trade discounts, chargebacks, rebates and other allowances, when persuasive evidence of an agreement exists, delivery has occurred, price is fixed or determinable, and ultimate collection is reasonably assured. We had agreements in the U.S. with distribution partners for the marketing and distribution of WinRho® SDF and HepaGam B® through part of fiscal 2010 (see OVERVIEW). We recognize our share of the revenue from sales of these products by our distribution partners upon shipment from their warehouses to wholesalers or to other customers. When we ship directly to wholesalers or other customers, we recognize revenue upon shipment from our warehouse. We, or our distribution partners, estimate allowances for deductions from revenue using a combination of information received from third parties including market data, inventory reports from major wholesalers, historical information and analyses. These estimates are subject to the inherent limitations of estimates that rely on third-party data, as certain third-party information may itself rely on estimates and reflect other limitations. Provisions for estimated rebates and other allowances, such as discounts and promotional and other credits, are estimated based on historical payment experience, historical relationship to revenues, estimated customer inventory levels and contract terms, and actual discounts offered. We believe that such provisions are determinable due to the limited number of assumptions involved and the consistency of historical experience. Whether sold through a distribution partner or by our own sales force, recognition of revenue on product sales in the U.S. involves a provision for chargebacks. The provision for chargebacks is a significant and complex estimate that is calculated by combining current and historical sales data for each product. Our products are marketed and sold through commercial wholesalers (direct customers) who purchase them at a price referred to as the wholesale acquisition cost (“WAC”). Additionally, we, or our distribution partners, enter into agreements with indirect customers for a contracted price that is less than the WAC. The indirect customers, such as group-purchasing organizations, physician practice-management groups and hospitals, purchase our products from the wholesalers. Under the agreements with the wholesalers, we guarantee



that we will credit them for the difference between the WAC and the indirect customers’ contracted price. This credit is referred to as a chargeback. Wholesalers provide detailed information regarding indirect customer purchases as part of the justification for their credit request. Once we receive these requests, they are standardized and tracked within a software system that adjudicates and reconciles all indirect claims coming from wholesalers. The database with these claims is used for historical trending and estimating future indirect sales, which are used to estimate accruals. Adjustments to these provisions are made periodically to reflect new facts and circumstances that may indicate that historical experience may not be indicative of current and/or future results. We make subjective judgments primarily based on our evaluation of current market conditions and trade inventory levels related to the products. This evaluation may result in an increase or decrease in the experience rate that is applied to current and future sales, or as an adjustment to past sales, or both. Legal and other disputes We provide for anticipated settlement costs where an outflow of resources is considered probable and an estimate can be made of the likely outcome of a dispute, and any legal and other expenses that would arise from claims against the Corporation. ACCOUNTING CHANGES The preparation of financial statements that are fairly presented in accordance with IFRS requires that we adopt, select and apply appropriate accounting policies and principles, particularly where alternatives exist within IFRS. IFRS 1 – First-time Adoption of IFRS: IFRS 1 provides entities adopting IFRS for the first time with a number of optional exemptions and mandatory exceptions to the general requirement for full retrospective application of IFRS. We analyzed the various accounting policy options available and have implemented those that we determined to be the most appropriate for our specific circumstances. The IFRS 1 exemptions most relevant to Cangene are as follows:

BUSINESS COMBINATIONS An exemption is available within IFRS 1 that allows an entity to carry forward its previous GAAP accounting for business combinations prior to its IFRS transition date. The exemption is optional and can be applied to any business combination transaction prior to that transition date. However, should an entity choose to adjust a prior business combination to comply with IFRS, all business combinations subsequent to the date of the adjusted

transaction must also be retrospectively adjusted. We elected to retrospectively apply IFRS 3 – Business Combinations to business combinations that occurred subsequent to June 30, 2009. SHARE-BASED PAYMENT TRANSACTIONS This exemption allows first-time adopters to not apply IFRS 2 – Share-based Payments to equity instruments that were granted prior to November 7, 2002. It also allows the first-time adopter to not apply IFRS 2 to equity instruments granted after November 7, 2002 that vested before transition to IFRS. We applied this exemption to any outstanding equity-settled instruments prior to our Transition Date of August 1, 2009 to the extent possible. As all the stock option plan awards had vested before our transition to IFRS, an equity adjustment to reclassify contributed surplus to retained earnings was recorded. FAIR VALUE OR REVALUATION AS DEEMED COST This exemption allows an entity to revalue property, plant and equipment at fair value at its transition date and use this fair value as the deemed transition cost. This election applies to individual assets. We did not apply this exemption.

CUMULATIVE TRANSLATION DIFFERENCE This exemption allows cumulative translation gains and losses to be deemed zero at transition. We applied this exemption to the extent possible.

BORROWING COSTS This exemption allows an entity to adopt IAS 23 – Borrowing Costs prospectively for property, plant and equipment construction projects for which the capitalization commencement date is after its transition date. We applied this exemption to the extent possible. We have availed ourselves of the recent IASB annual improvements guidance on IFRS 1 – Borrowing Costs, and will not restate any borrowing costs that were capitalized prior to our Transition Date. ESTIMATES IFRS 1 stipulates a mandatory exemption from full retrospective application of IFRS as it relates to the use of estimates. It requires that a company’s estimates in accordance with IFRS at the date of transition to IFRS must be consistent with estimates made for the same date in accordance with previous Canadian GAAP (after adjustments to reflect any difference in accounting policies), unless there is objective evidence that those estimates were in error. We did not use hindsight in our estimates upon transition to IFRS, nor did we find any evidence that any of our previously made estimates were in error.


IAS 1 – Presentation of Financial Statements: Canadian GAAP requires certain profit or loss expense categories to be disclosed separately on the statement of income and comprehensive income. Under IFRS, a company has a choice of adopting the nature-of-expense method or the function-of-expense method in presenting its analysis of expenses, whichever provides information that is reliable and most relevant. We have elected the function-of-expense method, which classifies expenses according to their function. Accordingly, amortization; foreign-exchange gains (losses); and gains or losses on disposal of property, plant and equipment, which were previously disclosed separately under Canadian GAAP, have now been allocated to cost of sales; independent R&D; and selling, general and administrative expenses. Any foreign-exchange gains (losses) related to finance expenses, such as those used to hedge against interest rate or currency rate risk, remain as a separate line of disclosure on the statements of income and comprehensive income under IFRS.

IFRS 2 – Share-based Payments: Under Canadian GAAP, the Company’s cash-settled phantom-stock incentive plan (“PSIP”), restricted share unit plan (“RSU plan”) and deferred share unit plan (“DSU plan”) were accounted for based on their intrinsic values. Under IFRS, share-based payment liabilities are required to be accounted for at fair value using an option-pricing model. IAS 12 – Income Taxes: Canadian GAAP prohibits the recognition of deferred taxes on the intercompany transfer of assets. Deferred tax is not recognized in the consolidated financial statements for the difference between the tax basis of the buyer and the cost as it is reported in the consolidated financial statements. Any taxes paid or recovered by the transferor as a result of the transfer are recorded as an asset or liability in the consolidated financial statements until the gain or loss is recognized by the consolidated entity. IAS 12 contains no exception to prohibit the recognition of deferred tax on the intercompany transfer of assets. Therefore, deferred tax is recognized for temporary differences arising on intercompany transactions measured at the tax rate of the buyer, and cash tax paid or recovered on intercompany transactions is recognized in the period incurred. Deferred tax assets have been recorded with respect to these temporary differences.

In addition, certain deferred tax assets and liabilities have been reclassified to conform to IAS 12 standards. Canadian GAAP allows current and deferred income tax liabilities and assets to be offset if they relate to the same taxable entity and the same taxation authority. However, if a company classifies assets and liabilities as current and non-current, the current portion of the balance cannot be offset with the non-current portion. When a group of companies is taxed by the same taxation authority, a deferred tax asset of one of the companies cannot be offset with the liability of one of the other companies, unless tax planning strategies could be implemented such that an offset would be available. IAS 12 does not permit deferred tax assets and liabilities to be classified as current assets or liabilities. In addition, IAS 12 allows for the offset of deferred tax assets and liabilities if, and only if: the entity has a legally enforceable right to set off

current tax assets against current tax liabilities; and the deferred tax assets and liabilities relate to income

taxes levied by the same taxation authority on either:

– the same taxable entity; or

– different taxable entities that intend either to settle current tax liabilities and assets on a net basis or to realize the assets and settle the liabilities simultaneously in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered.

IAS 16 – Property, Plant and Equipment (“PP&E”): Under IFRS, each component of an item of PP&E with a cost that is significant in relation to the total cost of the item shall be depreciated separately. This is known as the component approach. Compound assets, such as a building or plant, consist of significant parts and each significant part is depreciated separately. Further, under IAS 16, the residual value and the useful life of an asset shall be reviewed on an annual basis and if expectations differ from the previous estimate the change is accounted for as a change in accounting estimate. We have finalized our assessment of the component approach under IFRS and have determined that a building’s structure, which typically consists of a combination of a concrete foundation and steel, is a separate component from the rest of the building. Accordingly, all of our buildings have been retrospectively assigned a life of 60 years for the structure component and 25 to 30 years for the rest of building component. Under Canadian GAAP, the useful lives of our buildings were between 25 and 30 years.



Under IFRS, an entity is required to reassess its PP&E useful-life estimates at the end of each fiscal year. Under Canadian GAAP, the timing of this review is less specific. In accordance with IAS 16, we reviewed the capital-asset useful lives of our various components as at July 31, 2010 and 2011, and at the Transition Date. We determined that equipment has useful lives of five to 15 years, depending upon equipment type. Under Canadian GAAP, we had assigned useful lives to manufacturing and laboratory equipment of five to 10 years. IAS 19 – Employee Benefits: We have a service award program that provides each employee with prescribed cash awards at defined years-of-service intervals. Under Canadian GAAP, this type of program is not considered to be obligatory and thus a liability does not exist at the balance sheet date. Under IFRS, this program is considered to represent a liability at the balance sheet date based on the likelihood that this program will continue for the foreseeable future. A liability is recorded and is determined using actuarial estimating, which in this case takes into account age, years of service and projected employee turnover. IAS 21 – The Effects of Changes in Foreign-exchange Rates: In accordance with Canadian GAAP, we had determined that Cangene’s functional and reporting currency was the Canadian dollar, and that our U.S. subsidiaries were integrated foreign operations. IFRS requires that the functional currency of each entity in a consolidated group be determined separately based on the currency of the primary economic environment in which the entity operates. A list of primary and secondary indicators is used under IFRS in this determination, and these differ in content and emphasis from those factors used under Canadian GAAP. Accordingly, for IFRS, we have determined that our functional currency, including our U.S. subsidiaries, is the U.S. dollar, and in particular, August 1, 2002 is the date at which the U.S. dollar became the functional currency of our Canadian operations. The net result going forward will be a decrease in earnings volatility that is due to foreign-exchange fluctuations as our exposure to Canadian-dollar revenues and expenses is significantly less than our exposure to U.S.-dollar revenues and expenses. We have retrospectively applied the functional currency determination to prior periods. Accordingly, non-monetary assets and liabilities, including: inventory; prepaid expenses; property, plant and equipment; intangible assets; goodwill; other assets; and deferred income, were required to be restated in U.S. dollars based on historical conversion rates. Monetary assets were required to be restated in U.S. dollars at the exchange rates in effect at the period-end balance sheet dates. Revenues and expenses were converted to U.S.

dollars at either the exchange rates that were in effect on the dates that they were incurred or at the average exchange rates in the months in which they were incurred. IAS 34 – Interim Financial Reporting: Under Canadian GAAP, we were allowed to assess our normal manufacturing capacity on an annual basis. At the end of each quarter, we assessed projected manufacturing activity for the remainder of the year and used that latest projection of our current-year manufacturing-capacity utilization to determine how much fixed overhead to capitalize to inventory for that quarter. Under IFRS, we still assess our normal manufacturing capacity on an annual basis. However, IAS 34 does not allow companies to use projected manufacturing activity as a basis for determining over- or under-applied fixed overhead at the end of each quarter. Any unallocated overheads incurred in a quarter are treated as an expense in that quarter. IAS 36 – Impairment of Assets: Upon adoption of IFRS, we were required to test our goodwill for impairment in accordance with IAS 36. Furthermore, IFRS requires that we conduct a long-lived-asset impairment test at the date of adoption of IFRS if indicators of impairment exist. There are several differences that exist between current Canadian GAAP and IFRS for impairment of non-financial assets, which include:

under IFRS, the test for non-financial asset impairment requires the use of a discounted-cash-flow model, whereas Canadian GAAP uses a two-step impairment test that is first based on undiscounted cash flows and then discounted cash flows;

under IFRS, testing for impairment occurs at the level of a CGU, which is the lowest level of assets that generate largely independent cash inflows, whereas Canadian GAAP requires impairment tests at the asset group level;

under IFRS, testing for goodwill impairment occurs at the lowest level at which management monitors goodwill (goodwill CGU); however, it cannot be higher than an operating segment, whereas Canadian GAAP requires the impairment test to be assessed at the reporting unit level; and

IFRS allows the reversal of previous impairment losses, with the exception of goodwill, whereas Canadian GAAP prohibits the reversal of non-financial asset impairments.

Upon adoption of IAS 36 at transition, we identified both a goodwill impairment loss and a long-lived-asset impairment loss at one of our CGUs and a long-lived-asset impairment loss at another one of our CGUs.


FINANCIAL INSTRUMENTS Certain current assets and liabilities, which are subject to normal trade terms, are financial instruments for which the recorded carrying values approximate the fair values. We are, however, exposed to financial market risks, including foreign currency exchange rates and interest rates on operating line of credit obligations. Foreign currency risk We operate internationally, and the majority of our revenue and a significant amount of our expenditures are denominated in U.S. dollars. Periodically, we have entered into forward-foreign-exchange contracts to manage foreign-exchange exposure on anticipated U.S.-dollar sales transactions and the collection of the related accounts receivable. At July 31, 2011, we had no outstanding forward-foreign-exchange contracts. Interest rate risk We are exposed to interest rate risk on borrowings under our revolving operating line of credit, which is subject to a variable interest rate. We have entered into U.S.–Canadian dollar currency swaps for the purpose of lowering the interest expense associated with the Canadian-dollar utilization of our operating line of credit. At July 31, 2011, the following swaps were outstanding:


Notional amount Maturity date

Fair valueat

July 31, 2011 $ 5,000 August 25, 2011 $ (212) 5,000 September 12, 2011 (142) 5,000 September 23, 2011 (221) 10,000 October 13, 2011 (134) 5,000 November 4, 2011 (24) 5,000 November 28, 2011 (142) 10,000 December 22, 2011 (838) 5,000 January 26, 2012 (21) 10,000 January 30, 2012 (41)

$ 60,000 $ (1,775) If the above instruments are held to maturity, we will pay fixed-fee swap costs of $0.8 million.

RISKS AND UNCERTAINTIES We are subject to certain risks and uncertainties inherent in the operation of our business. We attempt to mitigate these risks through a combination of sound risk-management practices, insurance and systems of internal control. The principal risks and uncertainties include but are not limited to the following: Dependence on availability, quality and price of raw materials Our profitable manufacture of hyperimmune products is dependent upon a supply of specialty plasma. Plasma is collected from donors through both our own and third-party collection centres, and accordingly is subject to donor participation. Furthermore, the level of antibodies in the plasma of donors is variable and, unless concentrations are sufficient, the cost of processing plasma to the end product may not be economically viable. We believe that we currently have sufficient relationships with third-party plasma-collection centres to provide an adequate supply of plasma for the foreseeable future. However, competition for collection of plasma, in terms of quality, volume and price, has increased and there can be no assurances that shortages will not develop. We have taken steps to increase our own collection capacity, but there is no guarantee of the level of donor participation or the cost-effectiveness of our plasma-collection activities. In addition, product development may require that we establish an inventory of plasma in advance of product sales; such inventory may vary in value based on market prices and therefore may affect our margins from period to period. Compliance with regulatory requirements Our ability to manufacture, ship and market our products is subject to numerous regulatory requirements and conditions that are complex and evolving. The supply of product, and hence revenue generation, could be interrupted should compliance become an issue. There can be no assurance that we will remain in compliance at all times, although we undertake continuous and stringent quality assurance, quality control and regulatory review processes internally to minimize this risk.



Customer concentration and reliance on contracts We are party to contracts with Canadian and U.S. government agencies, and a small number of other third parties. A significant portion of our revenue comes from a small number of contract customers; there can be no assurance that these customers will continue to purchase products or services from us at current levels or at all. In addition, the delivery schedules related to the contracts may be altered; such alterations would have significant timing impact on our revenue stream. Fluctuations in demand We have entered into contracts and from time to time submit proposals to develop and manufacture products for use in biodefence programs. By their nature, these contracts call for us to supply such products to a national stockpile to be used in the event of an actual incident or attack. Accordingly, demand for these products fluctuates significantly, both at the time of establishing initial stockpiles and in the event of their use or replacement in the stockpile. There is no way to precisely predict the level of future demand for such products. In the event of a crisis, we may be called upon by governments to dedicate capacity to the manufacture of certain biodefence products, which would impact our ability to meet customer demand for other products. Foreign markets Our products are also sold internationally. We view international markets as having significant potential for market expansion. Although we believe that the international political and regulatory environment has not presented a sustained barrier to our ability to ship product in the past, each country has its own regulatory requirements, and introduction of products into new markets can take substantial time. There can also be no assurance that future political or regulatory events will not impede distribution of products to international markets in the future. In addition, we may incur significant upfront costs in efforts to gain entry to these markets. There can be no assurance that these markets will yield sufficient revenues to recover the costs of entry, or to sustain marketing efforts in these jurisdictions.

Competition We compete in a number of segments within the biopharmaceutical industry, some of which are highly competitive. Traditional pharmaceutical companies are increasingly entering biologics markets. And competition in the contract-services segment in North America appears to be intensifying, with a small number of well-positioned organizations attempting to provide a complete suite of services. We anticipate we will compete with a number of larger manufacturers for the production of certain biopharmaceutical products. In addition, we anticipate facing increasing competition as we attempt to further penetrate existing markets and expand our products into new markets. Given these industry characteristics, existing or new competitors may be significantly larger and have greater financial, research, manufacturing or marketing resources than ours. These competitors may compete with us in providing both products and services in markets in which we currently operate, as well as competing to enter new markets where we desire to expand. Further, competitors may employ tactics such as intellectual property challenges or government lobbying to prevent or impede our success at expanding our markets or maintaining regulatory status. There can be no assurances that we will be able to achieve or maintain our desired market share in any particular industry segment or market. Foreign currency risk While the majority of our revenues are generated from non-Canadian customers and accordingly are typically transacted in foreign currencies, primarily in U.S. dollars, we incur significant Canadian-dollar denominated expenses in our Canadian operations. Our net income can be materially affected directly by exchange-rate fluctuations as net income from Canadian operations is translated into U.S. dollars for reporting purposes.


Risks associated with new product development One of our core competencies is research and development of new biopharmaceutical products. A number of our products are still under development. Considerable costs are incurred at every stage of identifying, developing, manufacturing and marketing new products. There can be no assurance during any given research or development stage that any viable new products will be developed for which a market demand exists. The costs of conducting basic and clinical research to identify potential new product opportunities can be significant. There can be no assurance during any development stage that any new products developed will receive regulatory approval. If approved, some of these products will compete with established products of proven safety and efficacy, the manufacturers of which can be expected to employ intellectual property challenges against our commercialization of these products. There can be no assurance that our products will be commercialized or, if commercialized, that medical centres, hospitals, physicians or patients will accept them in lieu of established treatments. Accordingly, there can be no assurance that these products can be manufactured successfully and/or marketed profitably. Reliance on distribution relationships A portion of our revenues from product sales is derived from sales through exclusive distributors in Canada and international markets. For example, in Canada, a sole distributor has rights to WinRho® SDF, HepaGam B® and VariZIG®. As a result, we rely on the sales and marketing strength and the distribution channels through which these distributors operate for a portion of our revenues. There can be no assurance that we will be able to retain these distribution relationships indefinitely and that we will be able to rely upon the sales, marketing and distribution efforts of these distributors to support sales of these products in these significant markets. Exposure to legal actions During the course of our business, we may be exposed to legal actions by competitors, customers, shareholders or other individuals or groups. There can be no assurance that we would prevail in such situations and we could incur significant costs or business disruptions as a result.

Potential liabilities associated with intellectual property claims Certain of our biopharmaceutical products may compete with existing products in the marketplace and, due to the nature of the products being developed and the complexity of the law governing intellectual property rights, we may face increasing exposure to intellectual property claims. Defending intellectual property claims, whether or not such claims have merit, may result in us incurring significant legal costs. An inability to defend such claims could lead to loss of rights to manufacture and sell a product, even after significant costs have been incurred for development and licensing. There can be no assurances that we will not become subject to intellectual property claims, nor can there be any assurance that we would be able to successfully defend such claims. The preceding cautionary statements should be considered in connection with all written or oral statements, especially forward-looking statements, that are made by the Company or by persons acting on our behalf and in conjunction with our periodic disclosure and related filings with the securities commissions. We undertake no obligation to publicly make or update any forward-looking statements, except as required by applicable law. Scientific information that relates to unapproved products or unapproved uses of products is preliminary and investigative. No conclusions can or should be drawn regarding the safety or efficacy of such products. Only regulatory authorities can determine whether products are safe and effective for the uses being investigated. The discussion in this document is intended as an investor summary and does not contain all relevant safety information. Healthcare professionals are directed to refer to approved labelling and appropriate prescribing information for products and not to rely on information discussed in investor documents. Prescribing information or drug names may differ in various countries. ADDITIONAL INFORMATION Additional information relating to Cangene Corporation, including the most recently filed Annual Information Form, can be found on our website at www.cangene.com or on SEDAR at www.sedar.com.

MANAGEMENT’S REPORT


The accompanying consolidated financial statements of Cangene Corporation are the responsibility of management and have been approved by the Board of Directors. The financial statements necessarily include some amounts that are based on management’s best estimates, which have been made using careful judgment. Management has prepared the financial statements in accordance with International Financial Reporting Standards. Financing and operating data elsewhere in this document are consistent with the information contained in the financial statements.

In fulfilling its responsibilities, management of Cangene Corporation maintains internal accounting controls. While no system will prevent or detect all errors or irregularities, the controls are designed to provide reasonable assurance that assets are safeguarded from loss or unauthorized use, transactions are properly recorded, and the financial records are reliable for preparing the financial statements.

The Board of Directors carries out its responsibility with respect to the consolidated financial statements primarily through its Audit Committee. The Audit Committee meets periodically with management and the external auditors to discuss the annual audit, accounting policies and practices, and other financial reporting matters.

The most recent financial statements have been audited by Ernst & Young LLP, Chartered Accountants, who have full access to the Audit Committee, with and without the presence of management. Their report follows hereafter.

(signed) (signed) John Sedor Michael Graham President and CEO Chief Financial Officer

INDEPENDENT AUDITORS’ REPORT To the Shareholders of Cangene Corporation We have audited the accompanying consolidated financial statements of Cangene Corporation, which comprise the consolidated balance sheets as at July 31, 2011 and 2010, and August 1, 2009, and the consolidated statements of income and comprehensive income, changes in equity and cash flows for the years ended July 31, 2011 and 2010, and a summary of significant accounting policies and other explanatory information.

Management's responsibility for the consolidated financial statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors' responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.

Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Cangene Corporation as at July 31, 2011 and 2010, and August 1, 2009, and its financial performance and its cash flows for the years ended July 31, 2011 and 2010 in accordance with International Financial Reporting Standards.

(signed)

Ernst & Young LLP Winnipeg, Canada Chartered Accountants October 25, 2011

Incorporated under the laws of Ontario

Cangene Corporation CONSOLIDATED BALANCE SHEETS


in thousands of U.S. dollars At

July 31, 2011 At

July 31, 2010 At

August 1, 2009

ASSETS [note 8] Current

Cash $ 45,176 $ 40,366 $ 51,772 Accounts receivable [notes 18[c] and 23[a]] 20,083 18,248 29,898 Inventories and contracts in progress [note 5] 67,177 85,868 81,881 Derivative financial instruments [note 18[d]] — — 1,875 Taxes recoverable 12,220 10,467 5,505 Prepaid expenses and deposits 2,334 2,995 2,493

Total current assets 146,990 157,944 173,424 Property, plant and equipment, net [notes 6 and 15] 74,175 78,861 66,010 Taxes recoverable 16,288 5,404 — Deferred tax [note 16[b]] 16,338 15,840 15,693 Goodwill and intangible assets, net [note 7] 12,305 17,106 4,988 Other assets — 40 849

$ 266,096 $ 275,195 $ 260,964

LIABILITIES AND EQUITY Current Accounts payable and accrued liabilities [notes 9[b]

and 23[a]] $ 21,883 $ 24,700 $ 25,855 Derivative financial instruments [note 18[d]] 1,775 562 — Taxes payable 92 73 3,805 Current portion of deferred income 3,207 3,374 5,105

Total current liabilities 26,957 28,709 34,765 Deferred income 6,716 9,593 8,704 Royalty provision [note 9[a]] 3,316 6,072 — Incentive plan liabilities [notes 11[a] and 11[b]] 2,844 3,594 2,466 Deferred share unit liability [note 12] 222 174 — Deferred tax [note 16[b]] 2,841 2,062 2,717

Total liabilities 42,896 50,204 48,652

Commitments [notes 18[d], 18[e], 18[f], 21, 22 and 24[b]]

Equity Share capital [note 10] 50,860 51,696 52,376 Retained earnings 172,340 173,295 159,936

Total equity 223,200 224,991 212,312

$ 266,096 $ 275,195 $ 260,964

See accompanying notes On behalf of the Board: (signed) (signed) John A. Sedor J. Robert Lavery Director Director

Cangene Corporation

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME


in thousands of U.S. dollars except share-related dataYear ended

July 31, 2011 Year ended

July 31, 2010

Revenues Product sales $ 51,172 $ 43,300 Product services 78,872 80,504 R&D services 16,437 19,644 Royalties [note 23[a]] 3,226 7,023

149,707 150,471

Cost of sales [notes 5 and 13] Product sales [note 9] 34,509 30,655 Product services 50,229 49,426 R&D services [note 15] 11,273 14,604

96,011 94,685

Gross profit 53,696 55,786

Expenses [note 13] Independent R&D [note 15] 15,937 13,482 Selling, general and administrative 29,661 24,450 Impairment of goodwill [note 7] 2,328 — Impairment of property, plant and equipment [note 6] 1,763 — Loss (gain) on sale of assets (118) 160

49,571 38,092

Operating profit 4,125 17,694 Short-term interest income 51 45 Foreign-exchange gain (loss) (4,908) 64

Income (loss) before taxes (732) 17,803

Tax expense (benefit) [note 16[a]] Current (2,521) 2,425 Deferred 280 (1,089)

(2,241) 1,336

Net income and comprehensive income for the year $ 1,509 $ 16,467

Earnings per share [note 14]

Basic and diluted $ 0.02 $ 0.24

See accompanying notes

Cangene Corporation CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY


in thousands of U.S. dollars Stated share

capital Retained earnings Total

Balance at August 1, 2009 [note 25] $ 52,376 $ 159,936 $ 212,312 Net income for the year ended July 31, 2010 — 16,467 16,467 Common shares purchased and cancelled

under Normal Course Issuer Bids (“NCIB”) (680) (3,108) (3,788)

Balance at July 31, 2010 $ 51,696 $ 173,295 $ 224,991

Net income for the year ended July 31, 2011 $ — $ 1,509 $ 1,509Common shares purchased and cancelled

under NCIB (836) (2,464) (3,300)

Balance at July 31, 2011 $ 50,860 $ 172,340 $ 223,200


Cangene Corporation CONSOLIDATED STATEMENTS OF CASH FLOWS


in thousands of U.S. dollars Year ended


July 31, 2010

OPERATING ACTIVITIES Net income for the year $ 1,509 $ 16,467 Add (deduct) items not involving cash:

Depreciation of property, plant and equipment 10,355 9,162 Amortization of intangible assets 2,751 2,295 Deferred income (3,045) (842) Incentive plan liabilities [notes 11[a] and 11[b]] (750) 1,128 Deferred share unit liability [note 12] 48 174 Amortization of royalty provision [note 9[a]] (1,093) (928) Revaluation of royalty provision [note 9[a]] (1,663) — Deferred tax expense (benefit) [note 16] 280 (1,089) Change in value of derivative financial instruments

[note 18[d]] 1,213 2,437 Impairment of goodwill [note 7] 2,328 — Impairment of property, plant and equipment [note 6] 1,763 — Loss (gain) on disposal of assets (118) 160

Net change in non-cash working capital balances and

other assets related to operations [note 17] 2,122 (7,283)

Cash provided by operating activities 15,700 21,681

INVESTING ACTIVITIES Purchase of property, plant and equipment, net [notes 6

and 15] (7,530) (22,285) Acquisition of intangible assets [note 7] (271) (7,413) Proceeds on disposal of assets 209 112

Cash used in investing activities (7,592) (29,586)

FINANCING ACTIVITIES Shares repurchased for cancellation [note 10[b]] (3,300) (3,788)

Cash used in financing activities (3,300) (3,788)

Effect of exchange rates on cash 2 287

Net increase (decrease) in cash during the year 4,810 (11,406) Cash, beginning of year 40,366 51,772

Cash, end of year $ 45,176 $ 40,366

Interest paid1 $ 15 $ 1 Taxes paid (received)2 $ (1,955) $ 8,818

1. Amounts paid and received for interest were reflected as operating cash flows in the consolidated statements of cash flows.

2. Amounts paid and received for income taxes were reflected as either operating or investing cash flows in the consolidated statements of cash flows, depending upon the nature of the underlying transaction.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Years ended July 31, 2011 and 2010 1. DESCRIPTION OF BUSINESS Cangene Corporation (the “Corporation” or “Cangene”) was incorporated by Articles of Incorporation under the Business Corporations Act (Ontario) on February 22, 1984. The Corporation is a public entity with common shares listed on the Toronto Stock Exchange and is domiciled in Canada. The address of its registered office is: 180 Attwell Drive, Suite 360, Toronto, Ontario, Canada. Cangene is a biopharmaceutical company in the business of developing, manufacturing, and commercializing products and technologies for global markets. Revenues are generated by product sales, contract manufacturing, contract research and development, and royalties. The Corporation manages its business and evaluates performance based on two operating segments: biopharmaceutical operations and contract services. Cangene is focused primarily on developing and manufacturing therapeutics for infectious diseases or biodefence applications. It has particular expertise in two different types of products: plasma products and in particular hyperimmunes, which are concentrated specialty antibody preparations made from specialty plasma; and recombinant biopharmaceuticals, which are therapeutic proteins made by introducing a particular gene into a host organism, which in turn produces the protein of interest. These consolidated financial statements were authorized for issue by the Corporation’s Board of Directors on October 25, 2011. As at October 25, 2011, the Apotex Group (“Apotex”) controlled, directly or indirectly, 42,875,787 common shares, representing 64% of the outstanding common shares of the Corporation. Apotex includes Apotex Holdings Inc., Apotex Inc., Apotex Research Inc. and Apotex Corp., as well as the charitable foundations, Sherman Foundation and Apotex Foundation. Apotex is controlled, directly or indirectly, by Bernard Sherman and the Bernard and Honey Sherman Family Trust, of which he is the trustee. Dr. Sherman is also Chairman, Chief Executive Officer and a director of Apotex Inc., and is President and a director of Sherman Foundation and Apotex Foundation. 2. SIGNIFICANT ACCOUNTING POLICIES [a] Statement of compliance These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

The first date at which IFRS was applied was August 1, 2009 (the “Transition Date”). Note 25 contains reconciliations and descriptions of the effect of the Corporation’s transition from Canadian generally accepted accounting principles (“GAAP”) to IFRS on equity and net income. It also includes reconciliations of: the consolidated balance sheet as at August 1, 2009; the change in equity as at August 1, 2009 and July 31, 2010; and the change in net income for the year ended July 31, 2010. [b] Basis of presentation These consolidated financial statements have been prepared on a going-concern basis under the historical cost convention, except for certain financial instruments, liabilities and provisions that are valued at fair value. The Corporation’s consolidated financial statements are presented in U.S. dollars, which is the functional currency of the parent company, and all values are rounded to the nearest thousand dollars except when otherwise indicated. As part of the Corporation’s conversion to IFRS, the Corporation’s functional and reporting currency was changed to the U.S. dollar (see note 25). [c] Basis of consolidation These financial statements consolidate the accounts of Cangene Corporation and its wholly-owned subsidiaries: Cangene U.S. Incorporated, Cangene bioPharma, Inc. (“Cangene bioPharma”), Cangene Plasma Resources, Inc. (“Cangene Plasma Resources”) and Twinstrand Holdings Inc. Subsidiaries are entities controlled by the Corporation. Control exists when the Corporation has the power to govern the financial and operating policies so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable or convertible are taken into account. Subsidiaries are fully consolidated from the date on which control is obtained until the date that control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. Intercompany transactions, balances and unrealized gains (losses) on transactions between subsidiaries are eliminated. [d] Business combinations Business combinations are accounted for using the acquisition method of accounting. The cost of an acquisition is measured at the fair value of the assets given, equity instruments issued and liabilities assumed at the date of exchange. Acquisition costs incurred are expensed and included in administrative expenses. Any contingent consideration to be transferred by the acquirer will be recognized at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration, which is deemed to be an asset or liability,

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued


will be recognized in accordance with International Accounting Standards (“IAS”) 39 – Financial Instruments: Recognition and Measurement, either in profit or loss, or as a change to other comprehensive income. If the contingent consideration is classified as equity, it will not be re-measured until it is finally settled within equity. Identifiable assets acquired, and liabilities and contingent liabilities assumed, in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Corporation’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the consolidated statement of income and comprehensive income. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill is allocated to cash-generating units (“CGUs”). The allocation is made to those CGUs or groups of CGUs that are expected to benefit from the business combination in which the goodwill arose. Where goodwill forms part of a CGU and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying value of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the CGU retained. [e] Cash and cash equivalents Cash and cash equivalents comprise cash on hand and current balances with banks and similar institutions. They are readily convertible into known amounts of cash and have an insignificant risk of changes in value. [f] Trade receivables and trade payables Trade receivables are carried at original invoice amount less any provisions for doubtful debts. Provisions are made where there is evidence of a risk of non-payment, taking into account aging, previous experience and general economic conditions. When a trade receivable is determined to be uncollectable it is written off— first against any provision available and then to the consolidated statement of income and comprehensive income. Subsequent recoveries of amounts previously provided for are credited to the consolidated statement of income and comprehensive income. Long-term receivables are discounted where the effect is material. Trade payables are held at amortized cost, which equates to nominal value. Long-term payables are discounted where the effect is material and accreted using the effective-interest-rate (“EIR”) method.

[g] Inventories and contracts in progress Inventories are stated at the lower of cost and net realizable value. Costs of purchased inventories are recorded using weighted-average costing. Costs for work-in-process and finished-goods inventories include materials, direct labour and an allocation of production-overhead costs. The Corporation determines normal capacity for each production facility and allocates fixed production-overhead costs on that basis. Any excess, unallocated, fixed production-overhead costs are expensed as incurred. Net realizable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. [h] Property, plant and equipment Property, plant and equipment is recorded at cost, net of investment tax credits, impairment and depreciation. Design, construction, installation and interest costs related to assets under construction, including all costs for preparing a facility for its intended use, are recorded as construction in progress and are not subject to amortization until the asset is available for use. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Corporation and the cost of the item can be measured reliably. The carrying amount of any significant replaced part is de-recognized; all other repairs and maintenance are charged to the consolidated statement of income and comprehensive income during the financial period in which they are incurred. Depreciation is provided on a straight-line basis for each component of an asset that is significant in relation to the total cost over the following periods based on the estimated useful lives of the assets: Buildings 25–60 years Equipment 5–15 years Furniture and fixtures 5–10 years Computer systems 3–5 years Leasehold improvements Shorter of the term of lease or useful life Land is not depreciated. Residual values and useful lives are reviewed at least at each financial year end and are adjusted prospectively accordingly. [i] Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to prepare for its intended use or sale are capitalized as part of the cost of the respective assets. All other borrowing costs are expensed in the period in which they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowings of funds.


[j] Intangible assets Intangible assets consist of patents, commercialization rights, and computer software that is not an integral part of the related hardware. Internally generated intangible assets, excluding capitalized development costs, are not capitalized and the expenditure is reflected in the consolidated statement of income and comprehensive income in the period in which the expenditure is incurred. Intangible assets are capitalized on the basis of the costs incurred to acquire and bring to use the specific asset, and are subject to amortization on a straight-line basis over the remaining estimated useful life of the asset: Patents 8–16 years Computer software 5 years U.S. commercialization

rights for HepaGam B® 80 months (ending June 2016) The Corporation reviews the estimated useful lives and carrying values of its intangible assets as part of its periodic assessment for impairments. The amortization expense on intangible assets with finite lives is recognized in the consolidated statement of income and comprehensive income in the expense category consistent with the function of the intangible asset. The Corporation currently has no intangible assets with indefinite useful lives. Gains or losses from de-recognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset, and are recognized in the consolidated statement of income and comprehensive income when the asset is de-recognized. [k] Impairment of non-financial assets Goodwill is not subject to amortization, and is tested for impairment annually at July 31, or whenever events or changes in circumstances indicate that the carrying value of the asset may be impaired. Non-financial assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may be impaired. An impairment loss is recognized for the amount by which the asset’s carrying value exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell or its value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable CGUs. The Corporation bases its impairment calculation on detailed budgets and forecast calculations, which are prepared separately for each of its CGUs to which the individual assets are allocated. These budgets and forecast calculations generally cover a period of five years. For longer periods, a long-term growth rate is calculated and applied to project future cash flows after the fifth year.

Non-financial assets, other than goodwill, that were previously impaired are reviewed for possible reversal of the impairment at each reporting date. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognized. Where an impairment loss is subsequently reversed, the carrying amount of the asset, other than goodwill, is increased to the revised estimate of its recoverable amount, but the increased carrying amount cannot exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset in prior years. A reversal of an impairment loss is recognized immediately in the consolidated statement of income and comprehensive income. [l] Provisions Provisions for restructuring costs and legal claims are recognized when the Corporation has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated. For the recognition of a restructuring provision, the Corporation needs to follow a detailed formal restructuring plan for the business or the part of the business concerned, including the location and number of employees affected, a detailed estimate of the associated costs and an appropriate time-line. The employees affected should have a valid expectation that the restructuring is being carried out or the implementation has been initiated already. Restructuring provisions comprise lease termination penalties and employee termination payments. Provisions are not recognized for future operating losses. Provisions are measured at the present value of expenditures expected to be required to settle the obligation using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the obligation. An increase in the provision due to the passage of time is recognized as a charge to the consolidated statement of income and comprehensive income as interest expense. The Corporation recorded a royalty provision when it acquired the U.S. commercialization rights for HepaGam B®. As per the agreement, the Corporation will pay royalties on net U.S. HepaGam B® sales occurring through June 2016. The present value of this estimated future royalty stream was recorded as a provision at the time of acquisition. The royalty provision is re-measured to fair value at each reporting period and changes in fair value are recorded in the consolidated statement of income and comprehensive income.



[m] Borrowings All borrowings are initially recorded at the amount of proceeds received, net of transaction costs. Borrowings are subsequently carried at amortized cost, with the difference between the proceeds, net of transaction costs, and the amount due on redemption being recognized as a charge to the consolidated statement of income and comprehensive income as an interest expense over the period of the relevant borrowing. [n] Taxes The tax expense (benefit) for a period comprises current and deferred tax. Tax expense (benefit) is recognized in the consolidated statement of income and comprehensive income, except to the extent that it relates to items recognized directly in equity. In that case, the tax expense (benefit) is recognized directly in equity. Deferred tax is recognized using the liability method on temporary differences arising between the tax bases of assets and liabilities, and their carrying amounts in the consolidated financial statements. Deferred tax and current tax are determined using tax rates and tax laws that have been enacted or substantively enacted at the balance sheet date. Deferred tax assets or liabilities are measured using rates that are expected to apply when the related deferred tax asset is realized or the deferred tax liability is settled. Deferred tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. Deferred tax is provided on temporary differences arising on investments in subsidiaries, except where the timing of the reversal of the temporary difference is controlled by the Corporation and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities, and when the deferred tax assets and liabilities relate to taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions for uncertain tax positions and possible consequences of audits and differing interpretations by the tax authorities. These provisions are based upon the likelihood and then best estimates of any amount that could be required to be paid. Revenues, expenses and assets are recognized, net of the amount of sales tax, except where the sales tax incurred on a purchase of assets or services is not recoverable from the taxation authority. In this case, the sales tax is recognized as part of the cost of acquisition of

the asset or as part of the expense item, as applicable. Receivables and payables are stated with the amount of sales tax included. The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the consolidated balance sheet. [o] Foreign currency translation The functional currency of each entity within the Corporation is determined based on the currency of the primary economic environment in which that entity operates. Transactions in currencies other than the entity’s functional currency are recognized at the exchange rates on the date of the transaction. Monetary assets and liabilities denominated in such currencies are translated at exchange rates at the balance sheet date. Non-monetary items are measured in terms of historical cost in the foreign currency and are translated using the exchange rate as at the date of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rate at the date when the fair value is determined. Exchange gains and losses arising on translation are included in income in the period incurred. [p] Financial instruments FINANCIAL ASSETS The Corporation classifies its financial assets in the following categories: held for trading, loans and receivables, and available for sale. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Financial assets are accounted for on the settlement date. Transaction costs are expensed evenly over the term of the financial instrument. Based on financial statement classification, gains and losses on financial instruments are recognized in net income or other comprehensive income. The Corporation has made the following classifications:

cash is classified as loans and receivables, which are initially measured at fair value. Subsequent measurements are recorded at amortized cost using the EIR method;

accounts receivable are classified as loans and receivables, which are initially measured at fair value. Subsequent measurements are recorded at amortized cost using the EIR method;


derivative financial instruments, including forward-foreign-exchange contracts, interest rate swaps, currency swaps and forward-foreign-exchange option collars, are classified as held for trading and measured at fair value. Gains and losses resulting from periodic revaluation are recorded in net income.

De-recognition of financial assets A financial asset is de-recognized when:

the rights to receive cash flows from the asset have expired; or

the Corporation has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a “pass-through” arrangement; and either:

(a) the Corporation has transferred substantially all the risks and rewards of the asset; or

(b) the Corporation has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Corporation has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, and has neither transferred nor retained substantially all of the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Corporation’s continuing involvement in the asset. In that case, the Corporation also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Corporation has retained. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying value of the asset or the maximum amount of consideration that the Corporation could be required to repay. Impairment of financial assets The Corporation assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that have occurred after the initial recognition of the asset (an incurred “loss event”), and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, as evidenced by their default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial re-organization, and

where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. Financial assets carried at amortized cost For financial assets carried at amortized cost, the Corporation first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Corporation determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognized are not included in a collective assessment of impairment. If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows. The present value of the estimated future cash flows is discounted at the financial asset’s original EIR. Interest income continues to be accrued on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of finance income in the consolidated statement of income and comprehensive income. Loans, together with the associated allowance, are written off when there is no realistic prospect of future recovery, and all collateral has been realized or has been transferred to the Corporation. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is increased or reduced by adjusting the allowance account. If a write-off is later recovered, the recovery is credited to finance costs in the consolidated statement of income and comprehensive income. FINANCIAL LIABILITIES Initial recognition and measurement of financial liabilities Financial liabilities within the scope of IAS 39 are classified as financial liabilities at fair value through profit or loss, or as loans and borrowings, as appropriate. The Corporation determines the classification of its financial liabilities at initial recognition. All financial liabilities are recognized initially at fair value (in the case of loans and borrowings plus directly attributable transaction costs). The Corporation’s financial liabilities include trade and other payables, bank overdrafts, and derivative financial instruments.



Subsequent measurement of financial liabilities The measurement of financial liabilities depends on their classification as follows:

Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss. Financial liabilities are classified as held for trading if they are acquired for the purpose of selling in the near term. This category includes derivative financial instruments. Gains or losses on liabilities held for trading are recognized in the consolidated statement of income and comprehensive income. The Corporation has not designated any financial liabilities upon initial recognition at fair value through profit or loss. Loans and borrowings After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost using the EIR method. Gains and losses are recognized in the consolidated statement of income and comprehensive income when the liabilities are de-recognized as well as through the EIR method. Amortized cost is calculated by taking into account any discount or premium on acquisition and any fees or costs that are an integral part of the EIR. The EIR amortization is included in interest costs in the consolidated statement of income and comprehensive income. De-recognition A financial liability is de-recognized when the obligation under the liability is discharged or cancelled, or it expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a de-recognition of the original liability and the recognition of a new liability, and the difference in the respective carrying value is recognized in the consolidated statement of income and comprehensive income.

[q] Revenue recognition The Corporation recognizes revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the Corporation and specific criteria have been met for the Corporation’s activities as noted in the following sections. Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment and excluding taxes or duty.

PRODUCT SALES The Corporation markets and distributes approved commercial products through distribution partners or through its own sales force. The Corporation recognizes revenue from sales of these products, net of trade discounts, chargebacks, rebates and other allowances, upon shipment by either the distribution partners or the Corporation from their warehouses to wholesalers or customers, as applicable. The Corporation or its distribution partners estimate allowances for deductions from revenue using a combination of information received from third parties, including market data, inventory reports from major wholesalers, historical information and analyses. These estimates are subject to the inherent limitations of estimates that rely on third-party data, as certain third-party information may itself rely on estimates and reflect other limitations. Provisions for estimated rebates and other allowances, such as discounts and promotional and other credits, are estimated based on historical payment experience, historical relationship to revenues, estimated customer inventory levels and contract terms, and actual discounts offered. Management believes that such provisions are determinable due to the limited number of assumptions involved and the consistency of historical experience. Whether sold through a distribution partner or by the Corporation’s own sales force, recognition of revenue on product sales in the U.S. involves a provision for chargebacks. The provision for chargebacks is a significant and complex estimate that is calculated by combining current and historical sales data for each product. The Corporation or its distribution partners market and sell the Corporation’s products through commercial wholesalers (direct customers) who purchase them at a price referred to as the wholesale acquisition cost (“WAC”). Additionally, the Corporation or its distribution partners enter into agreements with indirect customers for a contracted price that is less than the WAC. The indirect customers, such as group-purchasing organizations, physician practice-management groups and hospitals, purchase the Corporation’s products from the wholesalers. Under the agreements with the wholesalers, the Corporation guarantees that it will credit them for the difference between the WAC and the indirect customers’ contracted price. This credit is referred to as a chargeback. Wholesalers provide detailed information regarding indirect customer purchases as part of the justification for their credit request. Once received by the Corporation, these requests are standardized and tracked within a software system that adjudicates and reconciles all indirect claims coming from wholesalers. The database with these claims is used for historical trending and estimating future indirect sales, which are used to estimate


accruals. Adjustments to these provisions are made periodically to reflect new facts and circumstances that may indicate that historical experience may not be indicative of current and/or future results. The Corporation makes subjective judgments primarily based on its evaluation of current market conditions and trade inventory levels related to the products. This evaluation may result in an increase or decrease in the experience rate that is applied to current and future sales, or as an adjustment to past sales, or both. CONTRACT SERVICES Revenue earned under contract-manufacturing agreements is for commercial manufacturing and development services. Revenue is recognized when goods are shipped or services are provided in accordance with the terms of the related agreements. Specifically, revenues from services provided are recognized by reference to the stage of completion. Stage of completion is measured by reference to the total costs incurred to date as a percentage of total estimated costs for the respective services obligated by the respective contract. Where the contract outcome cannot be measured reliably, revenue is recognized only to the extent that the expenses incurred are eligible to be recovered. Revenue from research contracts is recognized when the related costs are incurred and includes amounts received in respect of equipment purchased for research, which is recorded as deferred income when received and recognized over the useful life of the related asset. The Corporation has certain collaborative agreements with third parties that may include multiple elements. A delivered item is accounted for as a separate unit of accounting when the delivered item(s) has stand-alone value to the customer. Revenues associated with multiple-element arrangements are attributed to the various elements based on their relative fair value. Payments received under collaborative arrangements may include non-refundable upfront fees, funding for services performed and milestone payments for specific achievements. Non-refundable upfront fees are deferred and amortized into income on a systematic basis over the appropriate elements within the agreements. Non-refundable milestone payments are recognized into income upon the achievement of the specified milestones when the Corporation has no further involvement or obligation to perform related to that specific element of the arrangement. Milestone payments received that require the ongoing involvement of the Corporation are recorded as deferred income and amortized over the period of ongoing involvement. ROYALTIES Royalty revenue is recorded on an accrual basis in accordance with the substance of the relevant agreements.

INTEREST INCOME For all financial instruments measured at amortized cost, interest income is recorded using the EIR, which is the rate that exactly discounts the estimated future cash payments or receipts through the expected life of the financial instrument, or a shorter period where appropriate, to the net carrying amount of the financial asset. Interest income is separately recorded in the consolidated statement of income and comprehensive income. [r] Research and development expenses Research expenses, net of related tax credits, are charged to the consolidated statement of income and comprehensive income in the year they are incurred. Development costs are charged to operations in the period of the expenditure unless they satisfy the condition for recognition of an intangible asset, and it is probable that future economic benefits will flow to the Corporation and the cost of the intangible asset can be reliably measured. Where regulatory and other uncertainties are such that those criteria are not met, the expenditure is recognized in gross profit; this is almost invariably the case prior to approval of a drug by relevant regulatory authorities. Where recognition criteria are met however, intangible assets are capitalized and amortized on a straight-line basis over their useful economic lives. As at July 31, 2011 and July 31, 2010, no amounts of internally developed intangible assets have met recognition criteria. [s] Government assistance Government assistance in connection with research activities is recognized as a reduction to the related expense in the year incurred. Government assistance in connection with capital expenditures is treated as a reduction of the cost of the applicable asset. Federal and provincial investment tax credits are accounted for as a reduction of the cost of the related assets or expenditures in the year in which the credits are earned and when there is reasonable assurance that the credits can be used to recover taxes. [t] Leases The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement at its inception date, whether fulfilment of the arrangement is dependent on the use of a specific asset or assets, or whether the arrangement conveys a right to use the asset, even if that right is not explicitly specified in the arrangement. Leasing agreements that transfer substantially all the benefits and risks of ownership of an asset to the Corporation are treated as finance leases, as if the asset had been purchased outright. The assets are included in property, plant and equipment or in computer software, and the capital elements of the leasing commitments are shown as obligations under finance leases. The capitalization happens at the commencement date of the lease contract, at the fair value of the leased property or,



if lower, at the present value of the minimum lease payments. Assets held under finance leases are depreciated on a basis consistent with similar owned assets, or the lease term if shorter and there is not reasonable certainty that the Corporation will obtain ownership by the end of the lease term. Lease payments are apportioned between interest charges and reduction of the lease’s liability so as to achieve a constant rate of interest on the remaining balance of the liability. The interest element of the lease rental is included in the consolidated statement of income and comprehensive income within interest expense. All other leases are operating leases and the rental costs are charged to the consolidated statement of income and comprehensive income on a straight-line basis over the lease term. [u] Earnings per share The calculation of basic earnings per share is based on net income attributable to shareholders divided by the weighted-average number of common shares outstanding during the year. Diluted earnings per share reflects the assumed conversion of all dilutive securities using the treasury stock method. Under the treasury stock method, the weighted-average number of common shares outstanding is calculated assuming that the proceeds from the exercise of options are used to repurchase common shares at the average price during the year. [v] Stock-based compensation plans The Corporation records compensation expense for the cash-settled phantom-stock incentive plan, restricted share unit plan and deferred share unit plan as described in notes 11[a], 11[b] and 12 (the Corporation also has a stock option plan as described in note 11[c]; however, as there were no outstanding stock options during the years ended July 31, 2011 and July 31, 2010, no compensation expense related to this plan is recorded). EQUITY-SETTLED TRANSACTIONS The cost of equity-settled transactions is recognized, together with a corresponding increase in other capital reserves, in equity over the period in which the performance and/or service conditions are fulfilled. The cumulative expense recognized for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Corporation’s best estimate of the number of equity instruments that will ultimately vest. The expense or recovery for a period represents the movement in cumulative expense recognized as at the beginning and end of that period, and is recognized in employee benefits expense in the consolidated statement of income and comprehensive income. Where the terms of an equity-settled transaction award are modified, the minimum expense recognized is the expense as if the terms had not been modified, if the original terms of the award are met. An additional expense

is recognized for any modification that increases the total fair value of the share-based payment transaction or is otherwise beneficial to the employee as measured at the date of modification. Where an equity-settled award is cancelled, it is treated as if it vested on the date of cancellation, and any expense not yet recognized for the award is recognized immediately. This includes any award where non-vesting conditions within the control of either the entity or the employee are not met. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the previous paragraph. All cancellations of equity-settled transaction awards are treated equally. CASH-SETTLED TRANSACTIONS The cost of cash-settled transactions is measured initially at fair value at the grant date using a Black-Scholes option-pricing model, further details of which are given in note 11[a]. This fair value is expensed over the period until the vesting date, with recognition of a corresponding liability. The liability is re-measured to fair value at each reporting date, up to and including the settlement date, with changes in fair value recognized in employee benefits expense. [w] Operating segments Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker for the Corporation. This chief operating decision-maker is responsible for allocating resources and assessing performance of the operating segments. The chief operating decision-maker for the Corporation has been identified as its executive management team. 3. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS The preparation of the consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions about future events that may affect the reported amounts of assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting periods presented. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed in the following sections. The Corporation bases its assumptions and estimates on parameters available when the consolidated financial statements are prepared. Existing circumstances and assumptions about future developments, however, may change due to market conditions or circumstances beyond the control of the Corporation. Such changes are reflected in the assumptions when they occur.


[a] Taxes The Corporation recognizes deferred tax assets, related tax-loss carryforwards and other deductible temporary differences where it is probable that sufficient future taxable income can be generated in order to fully utilize such losses and deductions. Significant estimates and assumptions regarding future earnings, and the ability to implement certain tax planning opportunities are required to assess the likelihood of utilizing such losses and deductions. These estimates and assumptions are subject to uncertainty and if changed could materially affect the assessment of the ability to fully realize the benefit of the deferred tax assets. The Corporation is subject to income taxes in numerous tax jurisdictions. Significant judgment is required in determining the provision for taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain. The Corporation recognizes liabilities for anticipated tax audit issues based on estimates of whether additional taxes could be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred tax assets and liabilities in the period in which such determination is made. [b] Impairment of goodwill and non-financial assets An impairment exists when the carrying value of an asset or CGU exceeds its recoverable amount, which is the higher of its fair value less costs to sell or its value in use. The fair-value-less-costs-to-sell calculation is based on available data from binding sales transactions in arm’s length transactions of similar assets or observable market prices, less the incremental costs for disposing of the asset. The value-in-use calculation is based on a discounted-cash-flow model. These calculations require the use of estimates and forecasts of future cash flows. The cash flows are derived from the budget for the next five years and do not include restructuring activities that the Corporation is not yet committed to, or significant future investments that will enhance the performance of the CGU being tested. Qualitative factors, including market presence and trends, strength of customer relationships, strength of local management, strength of debt and capital markets, and degree of variability in cash flows, as well as other factors, are considered when making assumptions with regard to future cash flows and the appropriate discount rate. The recoverable amount is most sensitive to the discount rate used for the discounted-cash-flow model as well as the expected future cash inflows and the growth rate used for extrapolation purposes. A change in any of the significant assumptions or estimates used to evaluate goodwill and other non-financial assets could result in a material change to the results of operations. The Corporation tests whether goodwill has suffered any impairment at least annually in accordance with the accounting policy stated in note 2[k]. Other non-financial assets are tested for impairment when indicators of impairment arise.

The key assumptions used to determine the recoverable amount for the different CGUs are further explained in notes 6 and 7. [c] Revenue recognition Revenue from biopharmaceutical product sales, net of trade discounts and allowances, is recognized upon shipment or in accordance with the terms of the relevant agreements, when all significant contractual obligations have been satisfied and collection is reasonably assured. The Corporation recognizes its share of the revenue from sales of the products in accordance with the accounting policy stated in note 2[q]. The Corporation or its distribution partners estimate allowances for revenue-reducing obligations such as trade discounts, chargebacks, rebates and other allowances, using a combination of historical trends, contractual obligations and information received from third parties. The accuracy of these estimates is dependent upon the inherent limitations of extrapolating estimates from historical trends and upon the quality of the third-party information. During the year ended July 31, 2011, the Corporation revised its estimate of Medicaid accruals to reflect an expectation of lower claims resulting from the period from August 1, 2010 to January 1, 2011. This period was prior to the Corporation’s official start date in the Medicaid program. [d] Fair value of financial instruments Where the fair values of financial assets and financial liabilities recorded in the consolidated balance sheet cannot be derived from active markets, they are determined using valuation techniques including discounted-cash-flow models. The inputs into these models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values. The judgments include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments. [e] Share-based payments The Corporation measures the cost of equity- and cash-settled transactions with employees and directors by reference to the fair value of equity instruments at the date at which they are granted. Cash-settled, share-based payments are re-measured at fair value at every reporting date. Estimating fair value for share-based payments requires determining the most appropriate valuation model for a grant, which is dependent on the terms and conditions of the grant. This also requires determining the most appropriate inputs to the valuation model including the expected life of the instrument, volatility and any dividend yield. Refer to notes 11[a], 11[b] and 12 for further details.



[f] Royalty provision The Corporation’s royalty provision is re-measured to fair value at each reporting period and the changes in fair value are recorded in the consolidated statement of income and comprehensive income. This calculation requires the use of estimates and forecasts of future U.S. net sales of HepaGam B®. The cash-flow estimates are derived from the budget for the period to June 2016. Qualitative factors, including market presence and trends, strength of customer relationships and degree of variability in cash flows, as well as other factors, are considered when making assumptions with regard to future cash flows and the appropriate discount rate. The provision is impacted by the discount rate used for the discounted-cash-flow model as well as the expected future net sales and the growth rate used for extrapolation purposes. A change in any of the significant assumptions or estimates used could result in a material change provision. Refer to note 9[a] for further details. 4. STANDARDS ISSUED BUT NOT YET EFFECTIVE Standards issued but not yet effective up to the date of issuance of the Corporation’s consolidated financial statements are listed below. This listing is of standards and interpretations issued which the Corporation reasonably expects to be applicable at a future date. The Corporation intends to adopt these standards when they become effective. IFRS 7 – Financial Instruments: Disclosures The Accounting Standards Board (“AcSB”) approved the incorporation of the IASB’s amendments to IFRS 7 – Financial Instruments: Disclosures and the related amendment to IFRS 1 – First-time Adoption of International Financial Reporting Standards into Part I of the Canadian Institute of Chartered Accountants (“CICA”) Handbook. These amendments were made to Part I in January 2011, and are effective for annual periods beginning on or after July 1, 2011. Earlier application is permitted. The amendments relate to required disclosures for transfers of financial assets to help users of the financial statements evaluate the risk exposures relating to such transfers and the effect of those risks on an entity’s financial position. The Corporation has not yet fully assessed the impact of adopting IFRS 7; however, it anticipates that the impact will be limited. IFRS 9 – Financial Instruments IFRS 9 – Financial Instruments reflects the first phase of the IASB’s work on replacing the existing standards for financial instruments (IAS 39) and applies to classification and measurement of financial instruments as defined in IAS 39. The Standard is effective for annual periods beginning on or after January 1, 2013. In subsequent phases, the IASB will address classification and measurement of financial liabilities, hedge accounting and de-recognition. The adoption of the first phase of IFRS 9 will have an effect on the classification and measurement

of the Corporation’s financial assets. The Corporation will quantify the effect in conjunction with the other phases, when issued, to present a comprehensive picture. IFRS 10 – Consolidated Financial Statements IFRS 10 – Consolidated Financial Statements replaces the portion of IAS 27 – Consolidated and Separate Financial Statements that addresses the accounting for consolidated financial statements. It also includes the issues raised in Standing Interpretations Committee (“SIC”) -12 Consolidation – Special Purpose Entities. What remains in IAS 27 is limited to accounting for subsidiaries, jointly-controlled entities and associates in separate financial statements. IFRS 10 establishes a single-control model that applies to all entities (including “special purpose entities” or “structured entities” as they are now referred to in the new standards or “variable interest entities” as they are referred to in U.S. GAAP). The changes introduced by IFRS 10 will require management to exercise significant judgment to determine which entities are controlled and are therefore required to be consolidated by a parent, compared with the requirements that were in IAS 27. Under IFRS 10, an investor company controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee, and has the ability to affect those returns through its power over the investee. This principle applies to all investees, including structured entities. IFRS 10 is effective for annual periods commencing on or after January 1, 2013. The Corporation is currently evaluating the implications of this new Standard, if any. IFRS 11 – Joint Arrangements IFRS 11 – Joint Arrangements replaces IAS 31 – Interests in Joint Ventures and SIC-13 Jointly-controlled Entities – Non-monetary Contributions by Venturers. IFRS 11 uses some of the terms that were used by IAS 31, but with different meanings. Whereas IAS 31 identified three forms of joint ventures (i.e., jointly-controlled operations, jointly-controlled assets and jointly-controlled entities (“JCEs”)), IFRS 11 addresses only two forms of joint arrangements (joint operations and joint ventures) where there is joint control. IFRS 11 defines joint control as the contractually agreed sharing of control of an arrangement which exists only when the decisions about the relevant activities require the unanimous consent of the parties sharing control. Because IFRS 11 uses the principle of control in IFRS 10 to define joint control, the determination of whether joint control exists may change. In addition, IFRS 11 removes the option to account for JCEs using proportionate consolidation. Instead, JCEs that meet the definition of a joint venture must be accounted for using the equity method. For joint operations (which include former jointly-controlled operations and jointly-controlled assets, and potentially some former JCEs), an entity recognizes its assets, liabilities, revenues and expenses, and/or its


relative share of those items, if any. In addition, when specifying the appropriate accounting, IAS 31 focused on the legal form of the entity, whereas IFRS 11 focuses on the nature of the rights and obligations arising from the arrangement. IFRS 11 is effective for annual periods commencing on or after January 1, 2013. The Corporation is currently evaluating the implications of this new Standard, if any. IFRS 12 – Disclosure of Interests in Other Entities IFRS 12 – Disclosure of Interests in Other Entities includes all of the disclosures that were previously in IAS 27 related to consolidated financial statements, as well as all of the disclosures that were previously included in IAS 28 – Investment in Associates and IAS 31. These disclosures relate to an entity’s interests in subsidiaries, joint arrangements, associates and structured entities. A number of new disclosures are also required. One of the most significant changes introduced by IFRS 12 is that an entity is now required to disclose the judgments made to determine whether it controls another entity. IFRS 12 is effective for annual periods commencing on or after January 1, 2013. The Corporation is currently evaluating the implications of this new Standard, which will be limited to disclosure requirements for the financial statements. IFRS 13 – Fair Value Measurement IFRS 13 – Fair Value Measurement does not change the circumstances under which an entity is required to use fair value, but rather provides guidance on how to measure the fair value of financial and non-financial assets and liabilities when required or permitted by IFRS. While many of the concepts in IFRS 13 are consistent with current practice, certain principles, such as the prohibition on blockage discounts for all fair value measurements, could have a significant effect. The disclosure requirements are substantial and could present additional challenges. IFRS 13 is effective for annual periods commencing on or after January 1, 2013, and will be applied prospectively. The Corporation is currently evaluating the implications of this new Standard. IAS 12 (amendment) – Deferred Tax: Recovery of Underlying Assets On December 20, 2010, the IASB issued Deferred Tax: Recovery of Underlying Assets (amendments to IAS 12) concerning the determination of deferred tax on investment property measured at fair value.

The amendments incorporate SIC-21 Income Taxes – Recovery of Revalued Non-depreciable Assets into IAS 12 for non-depreciable assets measured using the revaluation model in IAS 16 – Property, Plant and Equipment. The aim of the amendments is to provide a practical solution for jurisdictions where entities currently find it difficult and subjective to determine the expected manner of recovery for investment property that is measured using the fair-value model in IAS 40 – Investment Property. IAS 12 has been updated to include:

a rebuttable presumption that deferred tax on investment property measured using the fair-value model in IAS 40 should be determined on the basis that its carrying amount will be recovered through sale; and

a requirement that deferred tax on non-depreciable assets, measured using the revaluation model in IAS 16, should always be measured on a sale basis.

The amendments are mandatory for annual periods beginning on or after January 1, 2012, but earlier application is permitted. This amendment is not expected to have any impact on the Corporation. IAS 24 (revised) – Related-party Disclosures IAS 24 (revised) – Related-party Disclosures was issued in November 2009. It supersedes IAS 24 – Related-party Disclosures, which was issued in 2003. IAS 24 (revised) is mandatory for annual periods beginning on or after January 1, 2011. Earlier application, in whole or in part, is permitted. The revised Standard clarifies and simplifies the definition of a related party and removes the requirement for government-related entities to disclose details of all transactions with the government and other government-related entities. The Corporation anticipates that the impact of its adoption of IAS 24 (revised) will be limited. IAS 34 (amendment) – Interim Financial Reporting The amendment to IAS 34 is effective for annual periods beginning on or after January 1, 2011. The amendment provides guidance on disclosing significant events and transactions that have occurred since the end of the last annual reporting period. The Corporation has not fully assessed the impact of this amendment; however, it anticipates that the impact will be limited.



5. INVENTORIES AND CONTRACTS IN PROGRESS


July 31, 2011 At

July 31, 2010

Raw materials $ 21,046 $ 25,528 Work in process – product costs 2,587 4,019 Finished goods 10,521 11,355 $ 34,154 $ 40,902

Long-term contracts: Raw materials 813 13,258 Work in process – product costs 27,557 21,065 Work in process – manufacturing process development costs 3,012 3,183 Work in process – development costs 1,158 1,533 Finished goods 483 5,927

$ 33,023 $ 44,966

$ 67,177 $ 85,868 At July 31, 2011, the Corporation has included in its inventories and contracts in progress $33.0 million [July 31, 2010 – $45.0 million] of costs under long-term contracts with the U.S. government (see note 22). During the year ended July 31, 2011, inventories and contracts in progress of $76.4 million [year ended July 31, 2010 – $65.6 million] were expensed through cost of sales. Write-downs of finished goods, and reserves for obsolete materials and supplies of $2.6 million and $8.0 million, respectively, were included in cost of sales during the year ended July 31, 2011 [year ended July 31, 2010 – $3.3 million and $11.5 million, respectively]. Reversals of write-downs of $2.2 million were recorded during the year ended July 31, 2011 [year ended July 31, 2010 – $0.4 million]. At July 31, 2011, inventory of $61.9 million is recorded at cost and $5.3 million is recorded at net realizable value. At July 31, 2010, inventory of $6.3 million was recorded at net realizable value, with the remaining inventories recorded at cost.


6. PROPERTY, PLANT AND EQUIPMENT At July 31, 2011, equipment and computer systems in the amount of $2.3 million [July 31, 2010 – $12.5 million] are currently under development and not being depreciated. Depreciation expense recognized in cost of sales – product sales and product services, and cost of sales – R&D services is described in note 13.

in thousands of U.S. dollars Land Buildings Equipment

Furniture and fixtures

Computer systems

Leasehold improvements

Construction in

progress Total As at August 1, 2009 Cost $ 332 $ 50,308 $ 56,372 $ 2,374 $ 3,591 $ 3,297 $ 1,277 $ 117,551 Accumulated

depreciation — (13,548) (33,477) (1,502) (2,376) (638) — (51,541)Net book value 332 36,760 22,895 872 1,215 2,659 1,277 66,010 Additions — 7,490 4,897 176 672 1,130 7,920 22,285 Disposals – cost — (269) (393) (29) (308) (110) — (1,109)Disposals – accumulated depreciation — 119 300 — 308 110 — 837

Transfers — 1,886 159 85 — (1,553) (577) — Depreciation charge — (1,992) (5,880) (180) (629) (481) — (9,162)Closing net book

value $ 332 $ 43,994 $ 21,978 $ 924 $ 1,258 $ 1,755 $ 8,620 $ 78,861 As at July 31, 2010 Cost $ 332 $ 59,415 $ 61,035 $ 2,606 $ 3,955 $ 2,764 $ 8,620 $ 138,727 Accumulated

depreciation — (15,421) (39,057) (1,682) (2,697) (1,009) — (59,866)Net book value 332 43,994 21,978 924 1,258 1,755 8,620 78,861 Additions — 558 2,134 159 202 26 4,451 7,530 Disposals – cost — (119) (481) — (246) (121) — (967)Disposals – accumulated depreciation — 119 430 — 217 110 — 876

Transfers — 8,981 3,058 (12) 114 — (12,148) (7)Impairment — — (201) (116) (169) (1,277) — (1,763)Depreciation charge — (2,438) (6,545) (208) (671) (493) — (10,355)Closing net book

value $ 332 $ 51,095 $ 20,373 $ 747 $ 705 $ — $ 923 $ 74,175 As at July 31, 2011 Cost $ 332 $ 68,835 $ 65,545 $ 2,637 $ 3,856 $ 1,392 $ 923 $ 143,520Accumulated

depreciation — (17,740) (45,172) (1,890) (3,151) (1,392) — (69,345)Closing net book value $ 332 $ 51,095 $ 20,373 $ 747 $ 705 $ — $ 923 $ 74,175

The Corporation identified that, at the Transition Date, indicators of impairment existed for the Henlow Bay facility CGU, which was included in the contract-services operating segment. An impairment test was conducted at the Transition Date. The recoverable amount of the CGU was initially determined on a value-in-use basis. This calculation used pre-tax cash flow projections based on long-term contract quotations. Gross margins were based on expected performance and on management’s expectations of market developments. The growth rates used were consistent with the forecasts included in industry reports. Cash flows beyond the 10-year period were extrapolated using the estimated growth rates which follow. Pre-tax discount rates reflect specific risks relating to the operating segment.



The key assumptions used for the future cash flow calculations at July 31, 2011 and July 31, 2010, and at the Transition Date are as follows:

At August 1, 2009 Gross margin 25–33% Long-term growth rate 3.0% Pre-tax discount rate 20.6% Weighted-average cost of capital (“WACC”) 17.5%

As a result of this analysis and an assessment of the fair value less costs to sell of the Henlow Bay CGU assets, the Corporation recognized a write-down, as at the Transition Date, of $3.3 million against the carrying value of property, plant and equipment of the Henlow Bay facility CGU. The Henlow Bay facility’s assets are recorded at fair value less costs to sell, which was determined by reference to external sources for liquidation values. The Corporation determined that there was no further impairment of the CGU as at July 31, 2010 and July 31, 2011. The Corporation recorded an impairment charge, as at the Transition Date, of $7.1 million in the carrying value of property, plant and equipment of the Cangene bioPharma CGU as a result of the future cash flow analysis described in note 7. The Corporation determined that there was no further impairment of the CGU as at July 31, 2010 and July 31, 2011. As at July 31, 2011, the Corporation recorded an impairment charge of $1.8 million in the Cangene Plasma Resources CGU as discussed in note 7. 7. GOODWILL AND INTANGIBLE ASSETS Intangible asset amortization expense recognized in cost of sales – product sales and product services, and cost of sales – R&D services is described in note 13.

in thousands of U.S. dollars Goodwill Patents Commercialization

rights Software Total

As at August 1, 2009 Cost $ 3,023 $ 865 $ — $ 6,959 $ 10,847 Accumulated

amortization (695) — — (5,164) (5,859) Net book value 2,328 865 — 1,795 4,988

Additions — — 14,000 413 14,413 Amortization charge — (96) (1,575) (624) (2,295) Closing net book value $ 2,328 $ 769 $ 12,425 $ 1,584 $ 17,106

As at July 31, 2010 Cost $ 3,023 $ 865 $ 14,000 $ 7,372 $ 25,260 Accumulated

amortization (695) (96) (1,575) (5,788) (8,154) Net book value 2,328 769 12,425 1,584 17,106

Additions — — — 271 271 Amortization charge — (96) (2,100) (555) (2,751) Impairment (2,328) — — — (2,328) Transfer — — — 7 7 Closing net book value $ — $ 673 $ 10,325 $ 1,307 $ 12,305

As at July 31, 2011 Cost $ — $ 865 $ 14,000 $ 7,650 $ 22,515Accumulated

amortization — (192) (3,675) (6,343) (10,210) Closing net book value $ — $ 673 $ 10,325 $ 1,307 $ 12,305


Impairment tests for goodwill Goodwill was allocated to two of the Corporation’s CGUs where goodwill was included in the balances that are monitored for internal management purposes. The CGUs containing goodwill that were tested for impairment at the Transition Date included Cangene bioPharma, Inc. and Cangene Plasma Resources, Inc. Cangene bioPharma is included in the Corporation’s contract-services operating segment and Cangene Plasma Resources is included in the Corporation’s biopharmaceutical-operations operating segment. The recoverable amount of the Cangene bioPharma CGU was determined on a fair-value-less-costs-to-sell basis at the Transition Date and at July 31, 2010. At July 31, 2011, the recoverable amount of property, plant and equipment in the Cangene bioPharma CGU was determined on a value-in-use basis. The recoverable amount of the Cangene Plasma Resources CGU was determined on a value-in-use basis at the Transition Date and at July 31, 2010. These calculations used pre-tax cash flow projections based on financial budgets approved by management covering a five-year period. Gross margins were based on past performance and on management’s expectations of market developments. The growth rates used were consistent with the forecasts included in industry reports. Cash flows beyond the five-year period were extrapolated using the estimated growth rates that follow. Pre-tax discount rates reflect specific risks relating to the operating segments. At July 31, 2011, the recoverable amount of the Cangene Plasma Resources CGU was determined on a fair-value-less-costs-to-sell basis, which was higher than its value in use. The fair value less costs to sell of the Cangene Plasma Resources CGU was determined by reference to external sources for liquidation values. The key assumptions used for the future cash flow calculations at July 31, 2011 and July 31, 2010, and at the Transition Date for the purposes of impairment testing of goodwill, and property, plant and equipment are as follows:

At July 31, 2011 At July 31, 2010 At August 1, 2009

Cangene bioPharma Gross margin 20–25% 20–25% 15.0% Long-term growth rate 2.5% 2.5% 2.5% Pre-tax discount rate 19.5% 19.5% 17.8% WACC 15.0% 15.0% 15.0%

Cangene Plasma Resources Gross margin 0–10% 6–10% 6–10% Long-term growth rate 2.5% 2.5% 2.5% Pre-tax discount rate 19.0% 19.0% 20.9% WACC 17.0% 13.0% 13.0%

As a result of this analysis, the Corporation recorded an impairment charge, as at the Transition Date, of $34.2 million; $27.1 million against goodwill and $7.1 million in the carrying value of property, plant and equipment of the Cangene bioPharma CGU. The Corporation determined that there was no further impairment in the Cangene bioPharma CGU as at July 31, 2011 and July 31, 2010. At the Transition Date, no impairment was identified in the Cangene Plasma Resources CGU to which $2.3 million of goodwill was allocated. However, the Corporation determined that there was an impairment to the Cangene Plasma Resources CGU as at July 31, 2011, and recorded impairment charges of $2.3 million against goodwill and $1.8 million against property, plant and equipment as a result of this impairment.

8. OPERATING LINE OF CREDIT As at July 31, 2011, the Corporation has available a C$20.0-million [July 31, 2010 – C$20.0-million] revolving term loan from a Canadian chartered bank, collateralized by a general security agreement in respect to all assets; as at July 31, 2011, C$Nil was utilized [July 31, 2010 – C$Nil]. Interest is payable on this line of credit at either LIBOR plus 1.6%, the prime lending rate plus 0.6% or the U.S.-dollar base rate plus 0.6%, depending on the duration of the borrowing and the currency borrowed. The agreement has no fixed expiry date, but is subject to periodic review by the bank.



9. PROVISIONS [a] Royalty provision On October 16, 2009, the Corporation’s Board of Directors approved an agreement under which Cangene, through Cangene bioPharma, acquired the U.S. commercialization rights for HepaGam B® (see note 23[a]). As per the agreement, Apotex will be paid royalties on net U.S. HepaGam B® sales occurring through June 2016. The effective date of this transfer of rights was November 1, 2009. The $7.0-million present value of the estimated future royalty stream on U.S. sales of HepaGam B® through June 2016 was initially recorded as a royalty provision effective November 1, 2009. This provision is being amortized monthly into cost of sales on the basis of the present value calculations. This amortization for the year ended July 31, 2011 is $1.1 million [year ended July 31, 2010 – $0.9 million]. Concurrently, the Corporation is recording a royalty expense in cost of sales for the actual royalty paid or payable in the period. The royalty expense for the year ended July 31, 2011 is $0.9 million [year ended July 31, 2010 – $0.7 million]. The royalty expense is based on the net U.S. sales of HepaGam B®. Therefore, for the year ended July 31, 2011, a recovery of $0.2 million is recorded in cost of sales [year ended July 31, 2010 – recovery of $0.2 million]. Amortization of the commercialization rights acquired is also recorded in cost of sales (see note 7). The Corporation is required to re-measure the royalty provision at each reporting period. At July 31, 2011, the Corporation has calculated the net present value of future royalty payments using a WACC of 13% and projected net sales of HepaGam B® for the duration of the agreement. As a result of the revaluation of the provision at each reporting period, the Corporation has reduced the royalty provision by $1.7 million for the year ended July 31, 2011 [year ended July 31, 2010 – $Nil]. At July 31, 2011, the royalty provision was $3.3 million [July 31, 2010 – $6.1 million]. At July 31, 2011, the Corporation has recorded accounts payable of $0.2 million [July 31, 2010 – $Nil] representing the current royalty provision payable to Apotex. [b] Provisions for chargebacks, administrative fees, rebates and other allowances The Corporation estimates allowances for revenue-reducing obligations such as trade discounts, chargebacks, administrative fees, rebates and other allowances using a combination of historical trends, contractual obligations and information received from third parties. Administrative fees include administrative fees as well as additional rebates for a primary distributor. Rebates include Medicaid rebates, Medicare rebates, and other government programs. Other allowances include distribution fees, no-return fees, prompt payment discounts and centralized shipping fees.

in thousands of U.S. dollars Chargebacks Administrative fees Rebates Other

allowances Total

As at August 1, 2009 $ — $ — $ — $ — $ — Actual payments/credits

issued — (3) — — (3) Provisions/reversals

charged 1,365 162 — 355 1,882 Balance at July 31, 2010 $ 1,365 $ 159 $ — $ 355 $ 1,879 Actual payments/credits

issued $ (8,645) $ (971) $ (15) $ (1,937) $ (11,568) Provisions/reversals

charged 9,423 1,642 316 1,972 13,353 Balance at July 31, 2011 $ 2,143 $ 830 $ 301 $ 390 $ 3,664


10. SHARE CAPITAL [a] Authorized and issued The Corporation’s authorized share capital comprises an unlimited number of non-voting preferred shares with a 4% non-cumulative dividend entitlement; Class A preferred shares, issuable in series with rights to be determined at issuance by the Board of Directors; and an unlimited number of common shares with no par value. Issued share capital comprises common shares as follows: in thousands of U.S. dollars except share data Number of shares Share capital

As at August 1, 2009 68,736,770 $ 52,376 Shares cancelled under Normal Course Issuer Bids (893,200) (680)

As at July 31, 2010 67,843,570 51,696 Shares cancelled under Normal Course Issuer Bid (1,096,700) (836)

As at July 31, 2011 66,746,870 $ 50,860

[b] Normal Course Issuer Bids April 25, 2009 to April 24, 2010 (the “2009 Bid”) On April 22, 2009, the Corporation announced regulatory approval of a share repurchase program, through the facilities of the Toronto Stock Exchange, for purchase and subsequent cancellation of up to 1,000,000 common shares (approximately 1.4% of the Corporation’s total issued and outstanding common shares as at April 20, 2009) by way of a Normal Course Issuer Bid. Under the 2009 Bid, purchases of common shares were made from time to time at market prices and in accordance with the rules of the Toronto Stock Exchange. On November 12, 2009, the Corporation announced an amendment to the 2009 Bid to increase the maximum number of common shares of the Corporation available for purchase to 1,500,000, representing 2.2% of the outstanding common shares as at April 20, 2009. The 2009 Bid expired on April 24, 2010. June 1, 2010 to May 31, 2011 (the “2010 Bid”) On May 27, 2010, the Corporation announced regulatory approval of a share repurchase program, through the facilities of the Toronto Stock Exchange, for purchase and subsequent cancellation of up to 1,500,000 common shares (approximately 2.2% of the Corporation’s total issued and outstanding common shares as at May 25, 2010) by way of a Normal Course Issuer Bid. Under the 2010 Bid, purchases of common shares were made from time to time at market prices and in accordance with the rules of the Toronto Stock Exchange. The 2010 Bid expired on May 31, 2011. When shares are repurchased and cancelled under a Normal Course Issuer Bid, the excess of purchase price over the average stated capital of the shares is charged to retained earnings. Summaries of the activity under Normal Course Issuer Bids for the years ended July 31, 2011 and July 31, 2010 are presented below:

Year ended July 31, 2011

in thousands of U.S. dollars except share data Shares cancelled Cost Share capital Retained earnings

2010 Bid 1,096,700 $ 3,300 $ (836) $ (2,464) Total 1,096,700 $ 3,300 $ (836) $ (2,464)


in thousands of U.S. dollars except share data Shares cancelled Cost Share capital Retained earnings

2009 Bid 489,900 $ 2,402 $ (373) $ (2,029)

2010 Bid 403,300 1,386 (307) (1,079) Total 893,200 $ 3,788 $ (680) $ (3,108)



11. EMPLOYEE BENEFIT PLANS [a] Phantom-stock incentive plan (“PSIP”) The phantom-stock units mature three years and 90 days after the effective date of grant. The phantom-stock units are valued based on the weighted-average market price of the Corporation’s common shares on the Toronto Stock Exchange for the 90 days preceding the maturity date. Participants in the PSIP will receive cash awards equal to any increase in value of the phantom-stock units between the effective date of grant and the date of maturity. The PSIP provides for vesting of the phantom-stock units evenly over three years and, in the event of retirement, death or termination without cause, participants may be entitled to receive early cash awards for vested phantom-stock units based on the weighted-average market price of the Corporation’s common shares on the Toronto Stock Exchange for the 90 days preceding the applicable date of retirement, death or termination. Participation in the PSIP requires mandatory participation in a share ownership plan, which stipulates that the participants must acquire a minimum investment in the Corporation’s common shares by a pre-determined future date. The following table summarizes changes in the number of phantom-stock units outstanding during the years ended July 31, 2011 and July 31, 2010:

Phantom-stock units Year ended


July 31, 2010

Outstanding at beginning of year 2,941,994 3,673,835 Issued — — Redeemed — (40,110) Matured with no value (652,747) (508,103) Cancelled with no value (373,895) (183,628) Outstanding at end of year 1,915,352 2,941,994

The Corporation recognized a compensation recovery of $1.0 million for the year ended July 31, 2011 [year ended July 31, 2010 – recovery of $1.4 million]. The following tables summarize information about phantom-stock units outstanding and related liabilities as at July 31, 2011 and July 31, 2010:


Grant price Fiscal year of

grant Number of units

outstanding Weighted-average

remaining contractual life Liability at

July 31, 2011

C$ 4.51 2009 1,915,352 0.3 years $ — C$ 4.51 1,915,352 0.3 years $ —


Grant price Fiscal year of

grant Number of units



July 31, 2010

C$ 7.09 2008 670,980 0.3 years $ —

4.51 2009 2,271,014 1.3 years 1,032 C$ 4.51–7.09 2,941,994 1.1 years $ 1,032

No phantom-stock units were issued during years ended July 31, 2011 and July 31, 2010.


The PSIP liability is determined using the Black-Scholes option-pricing model; the principal assumptions used in applying the Black-Scholes option-pricing model were as follows:

At July 31, 2011 At July 31, 2010 Weighted-average fair value $ 0.00 $ 0.35 Key weighted average

assumptions: Share price C$ 1.84 C$ 3.69 Exercise price C$ 4.51 C$ 4.51–7.09 Risk-free interest rate 0.91 % 0.80–1.20 % Volatility factor 36.1 % 37.6–46.8 % Expected life 0.3 years 0.3–1.3 years

Effective August 1, 2009, the deferred share unit plan and restricted share unit plan (as described in notes 12 and 11[b], respectively), replaced the PSIP as the primary instrument for long-term incentive compensation. [b] Restricted share unit plan (“RSU plan”) In 2009, the Board of Directors authorized an RSU plan for members of management. Pursuant to the RSU plan, members of management may be granted restricted share units (“RSUs”) as the long-term incentive component of their compensation. An RSU is equivalent in value to a common share of the Corporation, credited by means of a bookkeeping entry in the books of the Corporation to an account in the name of the member of management. Each RSU entitles the participant to receive a cash payment no later than December 31 of the third calendar year following the year in which the RSU was granted. The RSUs are valued based on the weighted-average market price of the Corporation’s common shares on the Toronto Stock Exchange for the 90 days preceding the maturity date. The RSU plan provides for vesting of the RSUs, with 25% vesting immediately and an additional 25% vesting on each anniversary of the grant date for three years and, in the event of retirement, death or termination without cause, participants may be entitled to receive cash awards for vested RSUs based on the weighted-average market price of the Corporation’s common shares on the Toronto Stock Exchange for the 90 days preceding the applicable date of retirement, death or termination. In the event the Corporation declares a dividend on its common shares, the participant would be entitled to receive an equivalent amount of RSUs. Compensation cost for RSUs granted under the RSU plan is recorded as an expense with a corresponding increase in accrued liabilities and is measured at fair value. Changes in fair value between the grant date and the measurement date result in a change in the measurement of compensation cost. Participation in the RSU plan requires mandatory participation in a share ownership plan, which stipulates that the participants must acquire a minimum investment in the Corporation’s common shares by a pre-determined future date. RSUs held count towards the ownership requirement. The following table summarizes changes in the number of RSUs outstanding during the years ended July 31, 2011 and July 31, 2010:

Restricted share units Year ended


July 31, 2010

Outstanding at beginning of year 1,010,651 — Issued 1,157,965 1,052,723 Redeemed (229,022) (24,636) Cancelled (89,093) (17,436) Outstanding at end of year 1,850,501 1,010,651

As at July 31, 2011, 1,850,501 [July 31, 2010 – 1,010,651] RSUs were outstanding under the RSU plan. As a result, the Corporation recognized compensation expense of $0.7 million for the year ended July 31, 2011 [year ended July 31, 2010 – $2.6 million]. During the year ended July 31, 2011, 229,022 RSUs were redeemed with a value of $0.4 million [year ended July 31, 2010 – 24,636 RSUs were redeemed with a value of less than $0.1 million].



The following tables summarize information about RSUs outstanding and related liabilities as at July 31, 2011 and July 31, 2010:

in thousands of U.S. dollars Fiscal year

of grant Number of units



July 31, 2011

2010 855,115 1.3 years $ 1,498 2011 995,386 2.3 years 1,346

Total 1,850,501 1.8 years $ 2,844

in thousands of U.S. dollars Fiscal year

of grant Number of units



July 31, 2010

2010 1,010,651 2.3 years $ 2,562 Total 1,010,651 2.3 years $ 2,562

[c] Stock option plan The Board of Directors may authorize the issuance of options to acquire common shares under a stock option plan, provided that the number of options outstanding to any one individual at any time does not exceed 5% of the outstanding shares. As at July 31, 2011, 3.1 million [July 31, 2010 – 2.7 million] options remain available to be granted under the plan. The exercise price of options granted under the plan cannot be lower than the arithmetic average of the daily high and low board-lot trading prices of the Corporation’s common shares on the Toronto Stock Exchange for the five days immediately prior to the date of the grant. Under the plan, options expire no later than five and eight years after the date they are granted for non-executive directors and employees, respectively, and vest over four fiscal years. A summary of the status of the Corporation’s stock option plan as at July 31, 2011 and July 31, 2010, and changes during the years ended on those dates, is presented below: Year ended July 31, 2011 Year ended July 31, 2010

Stock options Number of


exercise price Number of


exercise price

Outstanding at beginning of year 339,200 C$ 10.60 711,200 C$ 9.96 Forfeited, expired and cancelled (339,200) 10.60 (372,000) 9.37

Outstanding at end of year — C$ — 339,200 C$ 10.60

Exercisable at end of year — C$ — 339,200 C$ 10.60 No stock-based compensation expense was recorded in the years ended July 31, 2011 and July 31, 2010 as all options had vested in prior years. No stock options were granted during the years ended July 31, 2011 and July 31, 2010. Stock options were issued subsequent to July 31, 2011 (see note 24[c]). [d] Employee share purchase plan Under the terms of the Corporation’s employee share purchase plan, employees can choose to have up to 5% of their annual gross earnings, to a yearly maximum of $10,000, withheld to purchase common shares of the Corporation on the open market. The Corporation will match 20% of all contributions made by employees. The total contribution vests immediately. During the year ended July 31, 2011, the Corporation’s contribution was $0.1 million [year ended July 31, 2010 – $0.1 million], which is recorded as compensation expense. Under the plan, employees acquired 245,808 shares during the year ended July 31, 2011 [year ended July 31, 2010 – 142,723]. [e] Defined-contribution pension plan – Canadian employees The Corporation has a defined-contribution pension plan for its Canadian employees. The Corporation contributes to the plan at rates of up to 4% of a non-executive employee’s salary or up to 6% of an executive employee’s salary, subject to the legislated maximum. The expense and payments for the year ended July 31, 2011 were $1.1 million [year ended July 31, 2010 – $1.1 million].


[f] Defined-contribution pension plan – United States employees The Corporation has a defined-contribution 401(k) pension plan for its United States employees. The Corporation contributes to the plan at rates of up to 4% of the employee’s salary, subject to the legislated maximum. The expense and payments for the year ended July 31, 2011 were $0.3 million [year ended July 31, 2010 – $0.2 million]. 12. DEFERRED SHARE UNIT PLAN (“DSU plan”) In 2009, the Board of Directors authorized a DSU plan for non-executive directors. Pursuant to the DSU plan, non-executive directors are entitled to receive all or any portion of their annual cash retainer in the form of deferred share units (“DSUs”) instead of cash. DSUs are issued quarterly and vest immediately on issuance. A DSU is equivalent in value to a common share of the Corporation, credited by means of a bookkeeping entry in the books of the Corporation to an account in the name of the non-executive director. Each DSU entitles the participant to receive cash payment upon termination of directorship that is valued based on the weighted-average market price of the Corporation’s common shares on the Toronto Stock Exchange for the 90 days preceding the termination date. In the event the Corporation declares a dividend on its common shares, the participant would be entitled to receive an equivalent amount of DSUs. Compensation cost for DSUs granted under the DSU plan is recorded as an expense with a corresponding increase in accrued liabilities and is measured at fair value. Changes in fair value between the grant date and the measurement date result in a change in the measurement of compensation cost. Participation in the DSU plan requires mandatory participation in the share ownership plan, which stipulates that the participants must acquire a minimum investment in the Corporation’s common shares by a pre-determined future date. DSUs held count towards the ownership requirement. The following table summarizes changes in the number of DSUs outstanding during the years ended July 31, 2011 and July 31, 2010:

Deferred share units Year ended


July 31, 2010

Outstanding at beginning of year 49,069 — Issued 65,836 49,069 Outstanding at end of year 114,905 49,069

The following tables summarize information about DSUs outstanding and related liabilities as at July 31, 2011 and July 31, 2010:


Number of units outstanding Liability at July 31, 2011

114,905 $ 222

Total 114,905 $ 222


Number of units outstanding Liability at July 31, 2010

49,069 $ 174

Total 49,069 $ 174



13. EXPENSES BY NATURE The following is a breakdown of depreciation, amortization, foreign-exchange differences, employee benefits expense and cost of inventories that are included in the consolidated statements of income and comprehensive income:



July 31, 2010

Cost of sales – product sales and product services: Depreciation of property, plant and equipment $ 9,115 $ 8,181 Amortization of intangible assets 469 522 Foreign-exchange gain (652) (23) Cost of inventories recognized as an expense 75,806 71,401

Total cost of sales – product sales and product services 84,738 80,081

Cost of sales – R&D services: Depreciation of property, plant and equipment 205 157 Amortization of intangible assets 3 5 Investment tax credits (1,858) (2,977) Foreign-exchange loss (gain) (135) 20 Cost of inventories recognized as an expense 13,058 17,399

Total cost of sales – R&D services 11,273 14,604

Administrative expense includes: Depreciation of property, plant and equipment 415 355 Amortization of intangible assets 2,269 1,760 Foreign-exchange gain (314) (29)

Independent R&D expense includes: Depreciation of property, plant and equipment 620 475 Amortization of intangible assets 10 15 Investment tax credits (8,088) (6,403) Foreign-exchange loss (gain) (363) 26

Employee benefits expense: Salaries and other short-term employee benefits 57,326 53,296 Termination and retirement benefits 1,719 1,056 Post-employment benefits 1,282 1,317 Share-based compensation (624) 1,335

Total employee benefits expense $ 59,703 $ 57,004 14. EARNINGS PER SHARE The following is a reconciliation between basic and diluted earnings per share:

in thousands of U.S. dollars except share-related data Year ended


July 31, 2010

Net income $ 1,509 $ 16,467 Weighted-average number of common shares outstanding # 67,141,337 # 68,408,137 Dilutive effect of stock options — — Diluted weighted-average number of common shares outstanding # 67,141,337 # 68,408,137

Earnings per share: Basic and diluted $ 0.02 $ 0.24

For the year ended July 31, 2011, no options were outstanding, so there was no dilutive effect of stock options. For the year ended July 31, 2010, 339,200 options were excluded from the calculation of diluted earnings per share based upon the treasury stock method, under which options are excluded from the calculation when their exercise price exceeds the average market price of the Corporation’s common shares on the Toronto Stock Exchange for the period.


15. GOVERNMENT ASSISTANCE AND TAX CREDITS For the year ended July 31, 2011, federal and provincial investment tax credits relating to scientific research and experimental development (“SR&ED”) activities that amounted to $9.9 million [year ended July 31, 2010 – $9.4 million] were included in the determination of income as a reduction of R&D expenses. At July 31, 2011, $1.3 million [July 31, 2010 – $1.5 million] of SR&ED tax credits were included as a reduction of long-term contract costs in inventories and contracts in progress. In addition, for the year ended July 31, 2011, investment tax credits relating to SR&ED capital expenditures amounted to $0.3 million [year ended July 31, 2010 – $0.4 million], while provincial investment tax credits related to manufacturing and processing capital expenditures amounted to $0.2 million [year ended July 31, 2010 – $0.4 million]. Both of these were accounted for as a reduction of the cost of the applicable assets. To qualify for federal and provincial SR&ED investment tax credits, the work must advance the understanding of scientific relations or technologies, address scientific or technological uncertainty, and incorporate a systematic investigation by qualified personnel. To qualify for the Manitoba manufacturing investment tax credit, the building, machinery and equipment must be purchased for first-time use in manufacturing or processing in Manitoba.

Conditions related to Canadian government funding include a 10% holdback receivable upon completion of the research project, completion and submission to the Canadian government of regular progress reports, and ongoing monitoring and acceptance of the deliverables by Canadian government technical authorities. 16. TAXES [a] Tax expense (benefit) The components of the Corporation’s tax expense (benefit) for the years ended July 31, 2011 and July 31, 2010 are as follows:



July 31, 2010

Current tax: Current tax on profits for the year $ (2,518) $ 2,231 Adjustments in respect of prior years (3) 194

Total current tax (2,521) 2,425

Deferred tax: Origination and reversal of temporary differences (584) (1,006) Impact of change in tax rate 864 (83)

Total deferred tax 280 (1,089)

Income tax expense (benefit) $ (2,241) $ 1,336



Factors affecting tax expense (benefit) for the year: The standard rate of Canadian corporate tax is 28.5% [2010 – 30.1%]. The tax on the consolidated entities’ income (loss) before tax differs from the theoretical amount that would arise using the weighted-average tax rate applicable to income (loss) of the consolidated entities as follows:



July 31, 2010

Combined statutory federal and provincial tax rate at 28.5% [2010 – 30.1%] $ (209)

$ 5,349 Adjusted for:

Income taxes recorded at rates different from the Canadian tax rate 414 32 Unrecognized temporary difference for unrealized foreign-exchange loss on

advances to U.S. subsidiaries 2,069

1,252 Recognition of previously unrecorded timing differences from prior years — (1,890) Expenses not deductible for tax purposes 73 92 Tax losses for which no benefit is recognized 44 44 Non-taxable foreign-exchange gain on translation (6,127) (3,276) Re-measurement of deferred tax—change in tax rate 864 (82) Uncertain tax provisions — (383) Impairment of goodwill 664 — Other (31) 4 Adjustment in respect of prior years (2) 194

Tax expense (benefit) $ (2,241) $ 1,336 The effective tax expense (benefit) rate for the year ended July 31, 2011 of (306.1)% differs from the statutory tax rate of 28.5%, primarily due to the effects of the translation of the operations into U.S. functional currency, which is partially offset by income taxes recorded at rates different from the Canadian rate, an unrealized foreign-exchange loss on advances to U.S. subsidiaries, a change in the state deferred tax rate and the impairment of goodwill in the Cangene Plasma Resources CGU (see note 7). During the year ended July 31, 2010, the Corporation’s effective tax rate of 7.5% was lower than the statutory Canadian corporate tax rate of 30.1%, primarily due to the recognition of previously unrecognized state deferred tax assets and the effects of the translation of the operations into U.S. functional currency. [b] Deferred tax The movement in deferred tax assets and liabilities during the years ended July 31, 2011 and July 31, 2010, without taking into consideration the offsetting of balances within the same tax jurisdictions, are as follows:


Deferred tax assets

Property, plant and

equipment

Inventory and other reserves

Intangible assets

Deferred income

Loss carryforwards Other Total

As at August 1, 2009 $ 2,441 $ 4,454 $ 53 $ 1,249 $ 4,287 $ 3,209 $ 15,693 Credited (charged) to

income statement 1,813 1,415 388 (607) (3,032) 457 434 Acquisitions/disposals — — — — — — — Other movements — — — — — (287) (287) Exchange differences — — — — — — —

As at July 31, 2010 $ 4,254 $ 5,869 $ 441 $ 642 $ 1,255 $ 3,379 $ 15,840

Credited (charged) to income statement $ 1,300 $ 245 $ (41) $ (165) $ (769) $ (72) $ 498 Acquisitions/disposals — — — — — — —Other movements — — — — — — —Exchange differences — — — — — — —

As at July 31, 2011 $ 5,554 $ 6,114 $ 400 $ 477 $ 486 $ 3,307 $ 16,338



Deferred tax liabilities SR&ED

investment tax credits Deferred development

costs Other Total

As at August 1, 2009 $ 1,277 $ 1,282 $ 158 $ 2,717 Charged (credited) to

income statement (208) (411) (36) (655) Acquisitions/disposals — — — — Other movements — — — — Exchange differences — — — —

As at July 31, 2010 $ 1,069 $ 871 $ 122 $ 2,062

Charged (credited) to income statement $ 902 $ (109) $ (15) $ 778

Acquisitions/disposals — — — —Other movements — — 1 1Exchange differences — — — —

As at July 31, 2011 $ 1,971 $ 762 $ 108 $ 2,841 At July 31, 2011, the Corporation has U.S. state tax losses carried forward that, at current U.S. state tax rates, have an estimated value of $0.5 million. Additionally, the Corporation has $3.8 million of capital losses carried forward, which may only be used to offset future capital gains. In respect of these, the Corporation has not recognized a deferred tax asset. At July 31, 2010, the Corporation had U.S. state tax losses carried forward that, at the then current U.S. state tax rates, had an estimated value of $1.2 million. Additionally, the Corporation had $3.8 million of capital losses carried forward, which may only be used to offset future capital gains. In respect of these, the Corporation has not recognized a deferred tax asset. In a prior year, the Corporation recorded an impairment loss on Cangene bioPharma’s viral-vaccine-filling facility. A deferred tax asset of approximately $6.2 million related to the impairment has not been recognized. The analysis of deferred tax assets and deferred tax liabilities is as follows:


July 31, 2011 At

July 31, 2010 At

August 1, 2009 Deferred tax assets:

To be recovered after more than 12 months $ 6,917 $ 6,592 $ 4,272

To be recovered within 12 months 9,421 9,248 11,421 16,338 15,840 15,693

Deferred tax liabilities: To be recovered after more than 12

months 870 993 1,440 To be recovered within 12 months 1,971 1,069 1,277 2,841 2,062 2,717

Net deferred tax $ 13,497 $ 13,778 $ 12,976 The gross movement on the deferred tax account is as follows:


July 31, 2011 At

July 31, 2010 Opening balance $ 13,778 $ 12,976 Exchange differences — — Income statement credit (charge) (280) 1,089 Other (1) (287)

Closing balance $ 13,497 $ 13,778



17. SUPPLEMENTARY INFORMATION FOR CONSOLIDATED STATEMENTS OF CASH FLOWS Effect on cash flow of net change in non-cash working capital balances and other assets related to operations:



July 31, 2010

Accounts receivable $ (1,835) $ 13,525 Inventories and contracts in progress 18,691 (3,987) Taxes recoverable (12,637) (10,366) Prepaid expenses and deposits, and other

assets 701 307 Accounts payable and accrued liabilities (2,817) (6,169) Taxes payable 19 (593) $ 2,122 $ (7,283)

18. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT The Corporation has the following financial instruments: cash, accounts receivable, accounts payable and accrued liabilities, and U.S.–Canadian-dollar currency swaps. [a] Fair-value hierarchy The Corporation primarily applies the market approach for recurring fair value measurements. Three levels of inputs may be used to measure fair value:

LEVEL 1 – Unadjusted, quoted prices in active markets for identical assets or liabilities. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. LEVEL 2 – Observable inputs other than level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. LEVEL 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The following table presents information about the Corporation’s assets and liabilities measured at fair value on a recurring basis as at July 31, 2011, and the fair-value hierarchy of the valuation techniques used to determine such fair value.

in thousands of U.S. dollars Level 1 Level 2 Level 3 TotalCash $ 45,176 $ — $ — $ 45,176Derivative financial instruments — (1,775) — (1,775)

As at July 31, 2011 and 2010, the carrying values of current assets and liabilities, including cash, accounts receivable, and accounts payable and accrued liabilities, approximate their fair value. These short-term financial instruments approximate the fair value due to the relatively short period to maturity. All derivatives are recorded at fair value in the consolidated balance sheets. The fair values of the Corporation’s derivative financial instruments used to manage exposure to interest rate risk are estimated based on quoted market prices for the same or similar financial instruments, or on the current rates offered to the Corporation for financial instruments of the same maturity, as well as by the use of discounted future cash flows using current rates for similar financial instruments subject to similar risks and maturities. The Corporation has reviewed all significant contractual arrangements and determined that there are no material embedded derivatives that must be separated from the host contract and accounted for separately.


[b] Risk management policies The Corporation manages risk and risk exposures through a combination of insurance, derivative financial instruments, a system of internal and disclosure controls, and sound business practices. The Corporation is exposed to significant currency risk and uses derivative financial instruments to manage the risk of fluctuation in foreign-exchange rates. The Corporation enters into forward-foreign-exchange contracts to limit exposure on certain anticipated future U.S.-dollar sales and cash flows. The maximum length of time over which the Corporation hedges its exposure to the variability of future cash flows is one year. The Corporation has also entered into currency swaps to limit the interest expense associated with the Canadian-dollar usage of its operating line of credit. [c] Credit risk Credit risk is the risk that a customer will fail to perform an obligation or fail to pay amounts due, causing a financial loss. The Corporation is not exposed to significant credit risk. The majority of the Corporation’s sales are made to governments and large, well-established companies. In the normal course of business, the Corporation monitors the financial condition of its customers and reviews the credit history of each new customer. An allowance for doubtful accounts is established to correspond to the specific credit risk of its customers, historical trends and economic circumstances. The table below sets out the details of the accounts receivable balances outstanding based on the status of the receivable in relation to when the receivable was due and payable:


July 31, 2011 At

July 31, 2010 Neither impaired nor past due $ 13,432 $ 14,306 Not impaired but past the due date as follows:

Within 30 days 3,574 2,750 31–60 days 2,081 2 Over 60 days 1,037 1,353

Allowance for doubtful accounts (41) (163) Total $ 20,083 $ 18,248

There are no impaired accounts receivable. A continuity of the allowance for doubtful accounts for the years ended July 31, 2011 and 2010 is as follows:



July 31, 2010 Opening, beginning of year $ 163 $ 153 Foreign-exchange impact 10 5 Additional allowances 32 87 Collection of doubtful accounts — (77) Write-off of uncollectible accounts (164) (5) Closing, end of year $ 41 $ 163



[d] Interest rate risk The Corporation’s Canadian-dollar operating line of credit is at a floating interest rate and is therefore subject to interest rate cash flow risk. The Corporation has entered into U.S.–Canadian-dollar currency swaps whereby the Corporation received Canadian funds in return for U.S. funds at the trade-date exchange rate. At the maturity date, the Corporation repays the U.S. funds with Canadian funds at the same exchange rate for a fixed fee. These swaps are entered into for the purpose of lowering interest expense associated with the Canadian-dollar utilization of its operating line of credit. The Corporation does not enter into these instruments for trading or speculative purposes. The swaps are classified as held for trading. The Corporation had currency swaps outstanding at July 31, 2011 as follows:


Notional amount Maturity date Fair value

at July 31, 2011 $ 5,000 August 25, 2011 $ (212) 5,000 September 12, 2011 (142) 5,000 September 23, 2011 (221) 10,000 October 13, 2011 (134) 5,000 November 4, 2011 (24) 5,000 November 28, 2011 (142) 10,000 December 22, 2011 (838) 5,000 January 26, 2012 (21) 10,000 January 30, 2012 (41)

$ 60,000 $ (1,775) The fair values reflect the cost to unwind the instruments. If the currency swaps are held to maturity, the Corporation will pay $0.8 million in fixed-fee swap costs for the instruments. The Corporation had currency swaps outstanding at July 31, 2010 as follows:


Notional amount Maturity date Fair value

at July 31, 2010 $ 5,000 September 7, 2010 $ (89) 5,000 October 13, 2010 98 5,000 November 26, 2010 (154) 5,000 December 22, 2010 2 5,000 January 24, 2011 (140) 10,000 January 31, 2011 (279)

$ 35,000 $ (562) The Corporation paid $0.3 million in fixed-fee swap costs.


[e] Currency risk The Corporation receives the majority of its revenues and incurs significant expenses in U.S. dollars. However, the Corporation does receive certain revenues and incurs certain expenses in Canadian dollars and, as a result, fluctuations in the rate of exchange between U.S. and Canadian dollars can have an effect on the Corporation’s reported results. On occasion, forward-foreign-exchange contracts and foreign-exchange option collars are utilized by the Corporation to manage its foreign-exchange exposure on anticipated Canadian-dollar expenditures. The Corporation does not enter into these instruments for trading or speculative purposes. These instruments are not accounted for as hedges and are marked to market at the consolidated balance sheet dates. The gains and losses are recognized in income during the period and the contracts are classified as held for trading. As at July 31, 2011 and July 31, 2010, the Corporation had no forward-foreign-exchange contracts or foreign-exchange option collars outstanding. Furthermore, the Corporation maintains a Canadian-dollar operating line of credit, which may also affect the Corporation’s reported results when there are fluctuations in the rate of exchange between Canadian and U.S. dollars. However, as at July 31, 2011, C$Nil was utilized [July 31, 2010 – C$Nil] on this facility. The Corporation maintains Canadian-dollar bank accounts; Canadian-dollar cash balances at July 31, 2011 were in an overdraft position of C$0.7 million [July 31, 2010 – cash balance of C$3.7 million]. [f] Liquidity risk Liquidity risk is the risk that the Corporation will encounter difficulties in meeting its financial liability obligations. The Corporation manages its liquidity risk through cash and debt management. In managing liquidity, the Corporation has access to a C$20.0-million operating line of credit as well as to debt and equity markets, the availability of which are dependent on market conditions. The Corporation believes it has sufficient funding through the use of the existing credit facility to meet foreseeable borrowing requirements. Trade payables are due within one year. [g] Sensitivity analysis The Corporation’s sales denominated in Canadian dollars in the year ended July 31, 2011 were C$12.9 million and the total of its cost of sales and selling, general and administrative expense denominated in that currency was C$73.5 million. Accordingly, a 10% increase or decrease in the exchange rate between Canadian and U.S. dollars would result in a $1.3 million increase or decrease in sales, and a total increase or decrease of $7.1 million in cost of sales plus selling, general and administrative expense. 19. CAPITAL STRUCTURE The Corporation’s capital structure is composed of equity. The Corporation’s objectives when managing its capital structure are to maintain and preserve its access to capital markets, continue its ability to meet its financial obligations, fund research and development activities, and finance organic growth and acquisitions. Organic growth is achieved primarily through development of new products and expansion of sales into new markets. The Corporation monitors its capital structure using non-IFRS financial metrics including the ratios of long-term debt to earnings before interest, taxes, depreciation and amortization (“EBITDA”) for the immediately preceding 12-month period, and long-term debt to equity. The Corporation may manage its capital to meet the targets by issuing new shares, utilizing the line of credit, acquiring new debt or purchasing shares under Normal Course Issuer Bids. The table below reconciles the non-IFRS financial measure EBITDA to the net income for the preceding 12-month periods:



July 31, 2010

Net income $ 1,509 $ 16,467 Add back:

Interest expense 15 1 Tax expense (benefit) (2,241) 1,336 Depreciation and amortization 13,106 11,457

EBITDA $ 12,389 $ 29,261



The Corporation’s targeted capital structure is to maintain the ratio of long-term debt to equity at levels below 1:2. The ratio is calculated in the following table:

in thousands of U.S. dollars except ratio At July 31, 2011 At July 31, 2010

Long-term debt $ — $ — Equity 223,200 224,991

Ratio — —

The Corporation’s targeted capital structure is to maintain the ratio of long-term debt to EBITDA at levels below 3:1. The ratio is calculated in the following table based on EBITDA achieved in the preceding 12-month periods:


Long-term debt $ — $ — EBITDA 12,389 29,261

Ratio — —

The Corporation’s targeted capital structure is to maintain the ratio of EBITDA to interest expense plus current portion of long-term debt and capital leases at levels above 1.5:1. The ratio is calculated in the following table based on EBITDA achieved in the preceding 12-month periods:


EBITDA $ 12,389 $ 29,261 Interest expense 15 1 Current portion of long-term debt and capital

leases — —

Ratio 826:1 29,261:1 The Corporation’s targeted capital structure is to maintain its working capital ratio at 1.1:1 or higher. The working capital ratio is current assets divided by current liabilities. The ratio is calculated in the following table:


Current assets $ 146,990 $ 157,944 Current liabilities 26,957 28,709

Working capital ratio 5.5:1 5.5:1 The Corporation’s capital management objectives, and evaluation measures, definitions and targets have remained unchanged over the periods presented. The Corporation is subject to externally imposed capital requirements associated with its C$20.0-million operating line of credit (see note 8), which must be maintained to avoid acceleration of the termination of the agreement. The externally imposed capital requirements are the same as the financial metrics used on an internal basis to monitor capital structure. The Corporation is in compliance with all its financial covenants.


20. SEGMENT INFORMATION The Corporation manages its business and evaluates performance based on two operating segments: biopharmaceutical operations and contract services. The products and services provided by biopharmaceutical operations include approved product and commercial plasma sales, and royalties. Contract services provides manufacturing and R&D services to unrelated parties. The accounting policies of the Corporation’s operating segments are the same as those described in note 2. There are no significant inter-segment transactions. The following presents segment operating results for the years ended July 31, 2011 and July 31, 2010, and identifiable assets as at July 31, 2011 and July 31, 2010:



Biopharma-ceutical

operations Contract services Total

Biopharma-ceutical

operations Contract services Total

Revenues Product sales $ 51,172 $ — $ 51,172 $ 43,300 $ — $ 43,300 Product services — 78,872 78,872 — 80,504 80,504 R&D services — 16,437 16,437 — 19,644 19,644 Royalties 3,226 — 3,226 7,023 — 7,023 54,398 95,309 149,707 50,323 100,148 150,471

Cost of sales Product sales 34,509 — 34,509 30,655 — 30,655 Product services — 50,229 50,229 — 49,426 49,426 R&D services — 11,273 11,273 — 14,604 14,604 34,509 61,502 96,011 30,655 64,030 94,685

Gross profit 19,889 33,807 53,696 19,668 36,118 55,786

Expenses 36,770 12,801 49,571 26,465 11,627 38,092

Operating profit (loss) (16,881) 21,006 4,125 (6,797) 24,491 17,694

Short-term interest income — 51 51 — 45 45

Foreign-exchange gain (loss) (1,783) (3,125) (4,908) 21 43 64

Income (loss) before taxes $ (18,664) $ 17,932 $ (732) $ (6,776) $ 24,579 $ 17,803

Total assets $ 103,521 $ 162,575 $ 266,096 $ 107,328 $ 167,867 $ 275,195

Additions to property, plant and equipment, and goodwill and intangible assets, net $ 1,305 $ 6,496 $ 7,801 $ 12,171 $ 17,527 $ 29,698



Geographic information about the Corporation’s revenue is based on the product-shipment destination or the location of the contracting organization. Assets are based on their physical location as at July 31, 2011 and July 31, 2010.


in thousands of U.S. dollars Revenues

Property, plant and equipment, and goodwill

and intangible assets, net Revenues

Property, plant and equipment, and goodwill

and intangible assets, net

Canada $ 12,745 $ 59,295 $ 17,473 $ 64,730 United States 126,197 27,185 126,295 31,237 Rest of world 10,765 — 6,703 — $ 149,707 $ 86,480 $ 150,471 $ 95,967

For the year ended July 31, 2011, sales to one customer represent 70% [year ended July 31, 2010 – one customer, 78%] of the revenue of the contract-services segment. For the year ended July 31, 2011, sales to one customer represent 16% [year ended July 31, 2010 – sales to one customer represent 26%] of the revenue of the biopharmaceutical-operations segment. 21. COMMITMENTS [a] Operating leases At July 31, 2011, the Corporation had commitments under operating leases requiring future minimum annual payments as follows: in thousands of U.S. dollars

2012 $ 1,646 2013 1,294 2014 1,119 2015 653 2016 294 Thereafter 1,368 $ 6,374 During the year ended July 31, 2011, the Corporation recorded expenses of $1.7 million related to operating leases.

[b] Cross-currency swap contracts At July 31, 2011, the Corporation had entered into nine U.S.–Canadian currency swaps with a combined notional amount of $60.0 million (see note 20[d]). If the instruments are held to maturity, the Corporation will pay fixed-fee swap costs of $0.8 million. [c] Purchase commitments At July 31, 2011, the Corporation had entered into commitments of $0.2 million to purchase property, plant and equipment. 22. SIGNIFICANT AGREEMENTS [a] Heptavalent botulism antitoxin (“BAT”) On May 31, 2006, Cangene was awarded a five-year development and supply contract by the U.S. Department of Health and Human Services (“HHS”) for the supply of 200,000 doses of BAT that are intended for treating individuals who have been exposed to the toxins that cause botulism. In addition to the base contract, optional task orders may be awarded at HHS’s discretion. On March 29, 2010, the Corporation reported that it had signed a no-cost modification to extend the BAT contract an additional two years. This modification allowed an additional two years to pursue U.S. Food and Drug Administration (“FDA”) licensure and also extended the product delivery schedule out to May 2013. On June 3, 2011, the Corporation announced that the

Biomedical Advanced Research and Development Authority (“BARDA”; the department within HHS that manages the stockpiling contracts) would exercise options under the BAT stockpiling contract that are expected to generate approximately $61 million in additional contract revenue over the next three to four years. In addition, the delivery schedule under the existing contract was further extended out to 2018, with a heavier weighting in 2017 and 2018. The additional work included primarily involves plasma collection in the next three years, along with additional stability studies and licensure-related work. BARDA also retained a contract option under which some of the collected plasma may be fractionated or used to manufacture bulk product over the period from 2012 to 2016.


The base contract provides for revenue of $362 million, which includes a potential supplementary payment based upon achieving FDA approval for the product. The price per dose is a discounted fixed price with the discount representing the supplemental payment. The base contract requires that the Corporation pursue FDA licensure for the use of this product. If FDA licensure is received by May 2013, the Corporation will receive a prorated portion of the supplemental payment based on the quantity of doses delivered to that point as specified in the contract schedule. The Corporation would receive the remaining portion of the supplemental payment in the form of an increased price per dose. The optional task orders, which include the $61 million discussed above, are worth up to an additional $234 million in revenue. These tasks include ongoing testing to support long-term product shelf life, maintaining product manufacturing and additional clinical testing in special populations. During the year ended July 31, 2011, the Corporation recorded revenues of $24.9 million [year ended July 31, 2010 – $49.3 million] related to the BAT contract. As at July 31, 2011, costs of $32.3 million have been charged to inventories and contracts in progress, prepaid expenses, and other assets [July 31, 2010 – $28.7 million] related to this contract. [b] Anthrax immune globulin (“AIG”) On July 28, 2006, HHS exercised its option to purchase 10,000 doses of AIG under a modification to an earlier development and supply contract, which was originally signed in 2005. In addition to the base contract, there is a possibility of optional task orders, which could increase the final value of the contract. AIG is to be made available for treating inhalational anthrax. This modification to the contract will provide approximately $143 million in revenue, which includes a potential supplementary payment based upon achieving FDA licensure. The contract requires that Cangene pursue FDA licensure for use of this product. Under the contract, the price per dose is a discounted fixed price with the discount representing the supplemental payment. If FDA licensure is received during the term of the contract, the Corporation will receive the supplemental payment. Optional task orders could include maintaining product manufacturing and additional clinical testing in special populations.

During 2008, Cangene committed to delivery of an additional batch of AIG doses, valued at approximately $1.1 million, as a result of a late delivery on the AIG contract. The additional doses were delivered in the fourth quarter of 2011 upon completion of the scheduled 10,000 contract doses. The cost of the additional doses was recorded proportionately over the remaining AIG contract deliveries. In order to account for the consideration, the Corporation deferred a proportionate amount of revenue associated with each AIG contract delivery until delivery was completed. As at July 31, 2011, $Nil is recorded in deferred income [July 31, 2010 – $1.1 million]. During the year ended July 31, 2011, Cangene recorded revenues of $39.4 million [year ended July 31, 2010 – $25.9 million] related to the AIG contract. As at July 31, 2011, costs of $0.8 million have been charged to inventories and contracts in progress, prepaid expenses, and other assets [July 31, 2010 – $17.1 million] related to this contract. 23. RELATED-PARTY TRANSACTIONS [a] Apotex transactions Apotex (see note 1) is Cangene’s majority shareholder and holds 64% of the Corporation’s common shares as at July 31, 2011. Effective April 13, 2009, the Corporation signed an agreement with Apotex under which Cangene obtained rights to commercialize certain recombinant biopharmaceutical products that had been developed under an earlier agreement with Apotex. Under the new agreement, Apotex no longer funded further development of these products. Due to the extent of Apotex’s investment in two of these drugs, both companies have the right to take them to market and would pay the other company a small royalty based on any sales. On November 5, 1996, the Corporation acquired royalty rights on the drug Ferriprox® (deferiprone) from Apotex. Under this 1996 agreement with Apotex, the Corporation was entitled to receive 50% of any net profits from sales of the drug worldwide. Under the April 13, 2009 agreement, this royalty phased out over three fiscal years; it continued at 50% to the end of fiscal 2009, decreased to 37.5% for fiscal 2010 and terminated at 18.75% in the year ended July 31, 2011.



On May 1, 2006, the Corporation entered into a distribution agreement with Apotex for it to market and distribute HepaGam B® in the U.S. Under the terms of that agreement, the Corporation manufactured and held licence to the product. Profits were shared between the two parties. On October 16, 2009, the Corporation’s Board of Directors approved an agreement under which Cangene, through Cangene bioPharma, acquired the U.S. commercialization rights to HepaGam B®. As per the agreement, Apotex was paid $7.0 million in the first quarter of 2010 and receives royalties on net U.S. HepaGam B® sales occurring through June 2016. The effective date of this transfer of rights was November 1, 2009. Cangene’s independent directors approved this new agreement after having determined that it is fair to Cangene and its shareholders. The $7.0 million was recorded in intangible assets along with the present value of the estimated future royalty stream on U.S. sales of HepaGam B® through June 2016 of $7.0 million. The total commercialization rights intangible asset is $14.0 million, which, less amortization of $3.7 million, results in a net book value of $10.3 million at July 31, 2011 (see note 7). During the year ended July 31, 2011, Cangene recorded revenues of $3.2 million [year ended July 31, 2010 – $8.8 million] from Apotex, and as at July 31, 2011, $1.6 million [July 31, 2010 – $1.6 million] is included in accounts receivable. During the year ended July 31, 2011, Cangene recorded expenses payable to Apotex of $0.9 million for royalties payable related to net U.S. sales of HepaGam B® [year ended July 31, 2010 – $1.5 million for royalties and consulting]. As at July 31, 2011, $0.2 million [July 31, 2010 – $0.3 million] is recorded in accounts payable and accrued liabilities owing to Apotex. These transactions occurred in the normal course of operations and were recorded at their exchange amounts.

[b] Compensation of key management Key management includes the roles of CEO, President, CFO, Senior Vice President and Vice President. The compensation paid or payable to key management for employee services is shown below:




Salaries and

other short-term employee benefits $ 1,864 $ 1,825

Retirement benefits 941 —

Post-employment benefits 83 70

Share-based compensation (374) 193

Total $ 2,514 $ 2,088

24. SUBSEQUENT EVENTS [a] Deferred share units Effective August 1, 2011, the Corporation issued 44,568 DSUs to its non-executive directors under the DSU plan described in note 12. [b] Financial instruments On August 25, 2011, the Corporation entered into a U.S.–Canadian currency swap with a notional amount of $5.0 million and a maturity date of February 27, 2012. If the instrument is held to maturity, the Corporation will pay a fixed-fee swap cost of $0.1 million. On September 12, 2011, the Corporation entered into a U.S.–Canadian currency swap with a notional amount of $5.0 million and a maturity date of March 12, 2012. If the instrument is held to maturity, the Corporation will pay a fixed-fee swap cost of $0.1 million. On September 23, 2011, the Corporation entered into a U.S.–Canadian currency swap with a notional amount of $5.0 million and a maturity date of March 23, 2012. If the instrument is held to maturity, the Corporation will pay a fixed-fee swap cost of $0.1 million. [c] Stock options Mr. John Sedor, the Corporation’s new President and Chief Executive Officer, was granted 750,000 stock options at a grant price of C$1.37 effective September 12, 2011 under the stock option plan described in note 11[c]. These stock options vest 25% immediately upon grant; 25% then vest on August 1, 2012, 25% on August 1, 2013 and finally, 25% vest on August 1, 2014. In accordance with Mr. Sedor’s employment contract, he is also scheduled to receive a further 750,000 stock options on the one-year anniversary date, September 12, 2012.


25. TRANSITION TO IFRS The Corporation's consolidated annual financial statements were previously prepared in accordance with Canadian GAAP. The Corporation’s consolidated financial statements for the year ended July 31, 2011 are the first annual financial statements prepared in accordance with IFRS and were prepared as described in note 2, including the application of IFRS 1. IFRS 1 requires an entity to adopt IFRS in its first annual financial statements prepared under IFRS by making an explicit and unreserved statement in those consolidated financial statements of compliance with IFRS. The Corporation has included this statement in note 2[a]. IFRS 1 also requires that comparative financial information be provided. As a result, the first date at which the Corporation has applied IFRS was August 1, 2009 (the “Transition Date”). IFRS 1 requires first-time adopters to retrospectively apply all effective IFRS standards as of the reporting date, which for the Corporation is July 31, 2011. However, it also provides for certain optional exemptions and certain mandatory exceptions for first-time IFRS adopters. The IFRS 1 applicable exemptions and exceptions that have been applied in the conversion from Canadian GAAP to IFRS by the Corporation are set forth below. Initial elections upon adoption IFRS 1 – First-time Adoption of IFRS: IFRS 1 provides entities adopting IFRS for the first time with a number of optional exemptions and mandatory exceptions to the general requirement for full retrospective application of IFRS. The Corporation analyzed the various accounting policy options available and has implemented those that it determined to be the most appropriate for its specific circumstances. The IFRS 1 exemptions most relevant to Cangene are as follows:

BUSINESS COMBINATIONS An exemption is available within IFRS 1 that allows an entity to carry forward its previous GAAP accounting for business combinations prior to the transition date. The exemption is optional and can be applied to any business combination transaction prior to the transition date. However, should an entity choose to adjust a prior business combination to comply with IFRS, all business combinations subsequent to the date of the adjusted transaction must also be retrospectively adjusted.

Cangene elected to retrospectively apply IFRS 3 – Business Combinations to business combinations that occurred subsequent to June 30, 2009.

SHARE-BASED PAYMENT TRANSACTIONS This exemption allows first-time adopters to not apply IFRS 2 – Share-based Payments to equity instruments that were granted prior to November 7, 2002. It also allows the first-time adopter to not apply IFRS 2 to equity instruments granted after November 7, 2002 that vested before transition to IFRS. The Corporation has applied this exemption to all outstanding equity-settled instruments prior to its Transition Date of August 1, 2009 to the extent possible. As all the stock option plan awards had vested before the transition to IFRS, an equity adjustment to reclassify contributed surplus to retained earnings was recorded.

FAIR VALUE OR REVALUATION AS DEEMED COST This exemption allows an entity to revalue property, plant and equipment at fair value at its transition date and use this fair value as the deemed transition cost. This election applies to individual assets. Cangene did not apply this exemption.

CUMULATIVE TRANSLATION DIFFERENCE This exemption allows cumulative translation gains and losses to be deemed zero at transition. Cangene applied this exemption to the extent possible.

BORROWING COSTS This exemption allows an entity to adopt IAS 23 – Borrowing Costs prospectively for property, plant and equipment construction projects for which the capitalization commencement date is after its transition date. Cangene applied this exemption to the extent possible. Cangene has availed itself of the recent IASB annual improvements guidance on IFRS 1 – Borrowing Costs, and will not restate any borrowing costs that were capitalized prior to August 1, 2009.

ESTIMATES IFRS 1 stipulates a mandatory exemption from full retrospective application of IFRS as it relates to the use of estimates. It requires that a company’s estimates in accordance with IFRS at the date of transition to IFRS must be consistent with estimates made for the same date in accordance with previous Canadian GAAP (after adjustments to reflect any difference in accounting policies), unless there is objective evidence that those estimates were in error. The Corporation did not use hindsight in its estimates upon transition to IFRS, nor did it find any evidence that any of its previously made estimates were in error.



Reconciliations of Canadian GAAP to IFRS IFRS 1 requires an entity to reconcile equity, comprehensive income and cash flows for prior periods. Reconciliation of Consolidated Balance Sheet as at August 1, 2009:

in thousands; U.S. dollars except as noted

Canadian GAAP accounts

Canadian GAAP balances

Adjustment for transition to

IFRS IFRS

balances Endnote IFRS accounts ASSETS ASSETS Current Cash C$ 56,131 $ (4,359) $ 51,772 1 Cash Accounts receivable 34,547 (2,774) 31,773 1 Accounts receivable Inventories and

contracts in progress 92,430 (10,549) 81,881 1 Inventories and

contracts in progress Income and other

taxes recoverable 6,281 (776) 5,505 2 Taxes recoverable Future income taxes 8,231 (8,231) — 3 Prepaid expenses and

deposits 2,830 (337) 2,493 1 Prepaid expenses and

deposits Total current assets 200,450 (27,026) 173,424 Total current assetsProperty, plant and

equipment, net 96,347 (30,337) 66,010 4 Property, plant and

equipment, net Future income taxes — 15,693 15,693 5 Deferred tax Goodwill and intangible

assets, net 43,578 (38,590) 4,988 6 Goodwill and intangible

assets, net

Other assets 5,460 (4,611) 849 7 Other assets C$ 345,835 $ (84,871) $ 260,964 LIABILITIES AND SHAREHOLDERS’ EQUITY

LIABILITIES AND EQUITY

Current Current Accounts payable and

accrued liabilities C$ 27,948 $ (2,093) $ 25,855 8 Accounts payable and

accrued liabilities Income and other taxes

payable 4,126 (321) 3,805 9 Taxes payable Current portion of

deferred income 5,875 (770) 5,105 1 Current portion of

deferred income Total current liabilities 37,949 (3,184) 34,765 Total current liabilitiesDeferred income 9,906 (1,202) 8,704 1 Deferred income Incentive plan liabilities 122 2,344 2,466 10 Incentive plan liabilities Future income taxes 5,522 (2,805) 2,717 11 Deferred tax Total liabilities 53,499 (4,847) 48,652 Total liabilities Shareholders’ equity Equity Share capital 65,655 (13,279) 52,376 1 Share capital Contributed surplus 3,239 (3,239) — 12 Accumulated other

comprehensive loss (4,467) 4,467 — 13 Retained earnings 227,909 (67,973) 159,936 Retained earnings Total shareholders’

equity 292,336 (80,024) 212,312 Total equity C$ 345,835 $ (84,871) $ 260,964


Endnotes as referenced in the preceding reconciled financial statement:

Applicable IFRS Standard Resulting Adjustment Amount

Reconciliation of Consolidated Balance Sheet as at August 1, 2009 1 IAS 21 Change of functional and reporting currency to USD All

2 IAS 12 Reclassification to long-term deferred tax asset (287) IAS 21 Change of functional and reporting currency to USD (489) (776)

3 IAS 12 Reclassification to long-term deferred tax asset (8,463) IAS 21 Change of functional and reporting currency to USD 232 (8,231)

4 IAS 36 Building and equipment Impairment of Henlow Bay CGU (3,347) IAS 16 Componentization and change in useful lives 1,275 IAS 36 Building and equipment impairment of CBI Baltimore CGU (7,163) IAS 21 Change of functional and reporting currency to USD (21,102)

(30,337)

5 IAS 12 Reclassification to long-term deferred tax asset 8,750 Various Tax impact from adoption of other IFRS standards 2,984 IAS 12 Recognition of deferred tax on intercompany transfer of assets 3,372 IAS 21 Change of functional and reporting currency to USD 587 15,693

6 IAS 36 Goodwill impairment of CBI Baltimore CGU (27,144) IAS 21 Change of functional and reporting currency to USD (11,446) (38,590)

7 IAS 12 Recognition of deferred tax on intercompany transfer of assets (4,514) IAS 21 Change of functional and reporting currency to USD (97) (4,611)

8 IAS 19 Service award liability 138 IAS 21 Change of functional and reporting currency to USD (2,231) (2,093)

9 IAS 12 Recognition of deferred taxes on intercompany transfer of assets (386) IAS 21 Change of functional and reporting currency to USD 65 (321)

10 IFRS 2 Adjustment to fair value of share-based payments 2,354 IAS 21 Change of functional and reporting currency to USD (10) 2,344

11 Various Tax impact from adoption of other IFRS standards (2,651) IAS 21 Change of functional and reporting currency to USD (154) (2,805)

12 IFRS 1 Reclassification of contributed surplus to retained earnings (3,239)

13 IFRS 1 Reclassification of cumulative translation adjustment to retained earnings 4,467



The following represents the reconciliations from Canadian GAAP to IFRS for the respective periods noted for equity and net income: Reconciliation of Equity:

in thousands; U.S. dollars except as noted At

July 31, 2010 At

August 1, 2009

Shareholders’ equity under Canadian GAAP C$ 296,608 C$ 292,336

Differences increasing (decreasing) reported shareholders’ equity: A. Change in functional currency $ (38,272) $ (46,032) B. Impairments (37,654) (37,654) C. Share-based compensation (1,032) (2,354) D. Property, plant and equipment 2,481 1,275 E. Employee benefits (241) (138) F. Inventories — — G. Taxes 3,101 4,879

Total change in equity on transition to IFRS (71,617) (80,024)

Total equity under IFRS $ 224,991 $ 212,312 Reconciliation of Net Income:

in thousands; U.S. dollars except as noted Year ended

July 31, 2010

Net income (loss) under Canadian GAAP C$ 8,396

Differences increasing (decreasing) reported net income: A. Change in functional currency $ 7,424 C. Share-based compensation 1,322 D. Property, plant and equipment 1,206 E. Employee benefits (103) F. Inventories — G. Taxes (1,778)

Net income under IFRS $ 16,467 The impact of converting to IFRS on the Corporation’s consolidated statements of cash flows compared with its previously released Canadian GAAP consolidated statements of cash flows is directly related to the impacts on the consolidated statements of income and comprehensive income, and the consolidated balance sheets as described below. The lines of the consolidated statements of cash flows most affected by the conversion to IFRS are: net income (loss) for the period, depreciation of property, plant and equipment, amortization of intangible assets, incentive plan liabilities, unrealized foreign-exchange loss (gain), and purchase of property, plant and equipment. Cash flows related to non-monetary assets were especially impacted by the conversion to IFRS, since non-monetary assets were converted to IFRS at historical rates when there were often pronounced differences between the values of the U.S. and Canadian dollars.

Differences in accounting policies In addition to the optional exemptions and mandatory exceptions discussed above, the following narratives explain the significant differences between the previous historical Canadian GAAP accounting policies and the current IFRS policies applied by the Corporation. A. IAS 21 – The Effects of Changes in Foreign-exchange

Rates: In accordance with Canadian GAAP, the Corporation had determined that Cangene’s functional currency was the Canadian dollar, and that its U.S. subsidiaries were integrated foreign operations. IFRS requires that the functional currency of each entity in a consolidated group be determined separately based on the currency of the primary economic environment in which the entity operates. A list of primary and secondary indicators is used under IFRS in this determination, and these differ in content and emphasis from those factors used under Canadian GAAP. Accordingly, for IFRS, Cangene has determined that the functional


currency of the Corporation, including its U.S. subsidiaries, is the U.S. dollar and in particular, August 1, 2002 is the date at which the U.S. dollar became the functional currency of the Corporation’s Canadian operations. The net result going forward will be a decrease in earnings volatility that is due to foreign-exchange fluctuations as the Corporation’s exposure to Canadian-dollar revenues and expenses is significantly less than its exposure to U.S.-dollar revenues and expenses. The Corporation has retrospectively applied the functional currency determination to prior periods. Accordingly, non-monetary assets and liabilities, including: inventory; prepaid expenses; property, plant and equipment; intangible assets; goodwill; other assets; and deferred income, were required to be restated in U.S. dollars based on historical conversion rates and monetary assets were required to be restated in U.S. dollars at the exchange rates in effect at the period-end balance sheet dates. Revenues and expenses were converted to U.S. dollars at either the exchange rates that were in effect on the dates that they were incurred or at the average exchange rates in the months in which they were incurred. The Corporation also changed its reporting currency to the U.S. dollar as at the same date.

B. IAS 36 – Impairment of Assets: Upon adoption of IFRS, the Corporation is required to test its goodwill for impairment in accordance with IAS 36. Furthermore, IFRS requires that the Corporation conduct a long-lived asset-impairment test at the date of adoption of IFRS if indicators of impairment exist. There are several differences that exist between current Canadian GAAP and IFRS for impairment of non-financial assets, which include:

the test for non-financial asset impairment requires

the use of a discounted-cash-flow model, whereas Canadian GAAP uses a two-step impairment test that is first based on undiscounted cash flows and then discounted cash flows;

testing for impairment occurs at the level of CGUs, which is the lowest level of assets that generate largely independent cash inflows, whereas Canadian GAAP requires impairment tests at the asset group level;

testing for goodwill impairment occurs at the lowest level at which management monitors goodwill (goodwill CGU); however, it cannot be higher than an operating segment, whereas Canadian GAAP requires the impairment test to be assessed at the reporting unit level; and

IFRS allows the reversal of previous impairment losses, with the exception of goodwill, whereas Canadian GAAP prohibits the reversal of non-financial asset impairments.

Upon adoption of IAS 36 at transition, the Corporation identified both a goodwill impairment loss and a long-lived asset impairment loss at one of its CGUs and a long-lived asset impairment loss at another one of its CGUs.

C. IFRS 2 – Share-based Payments: Under Canadian GAAP, the Corporation’s cash-settled PSIP, RSU plan and DSU plan were accounted for based on their intrinsic values. Under IFRS, share-based payment liabilities are required to be accounted for at fair value using an option-pricing model.

D. IAS 16 – Property, Plant and Equipment (“PP&E”): Under IFRS, each component of an item of PP&E with a cost that is significant in relation to the total cost of the item shall be depreciated separately. This is known as the component approach. Compound assets, such as a building or plant, consist of significant parts, and each significant part is depreciated separately. Further, under IAS 16, the residual value and the useful life of an asset shall be reviewed on an annual basis and, if expectations differ from the previous estimate, the change is accounted for as a change in accounting estimate. The Corporation finalized its assessment of the component approach under IFRS and has determined that a building’s foundation, which typically consists of a combination of concrete and steel, is a separate component from the rest of the building. Accordingly, all of the Corporation’s buildings have been retrospectively assigned a life of 60 years for the structure component and 25 to 30 years for the rest of building component. Under Canadian GAAP, the useful lives of the Corporation’s buildings were between 25 and 30 years. Under IFRS, an entity is required to reassess its PP&E useful-life estimates at the end of each fiscal year. Under Canadian GAAP, the timing of this review is less specific. In accordance with IAS 16, the Corporation reviewed its capital asset useful lives of its various components as at August 1, 2009 and July 31, 2010. It has determined that equipment has useful lives of five to fifteen years, depending upon equipment type. Under Canadian GAAP, the Corporation had assigned useful lives to manufacturing and laboratory equipment of five to ten years.

E. IAS 19 – Employee Benefits:

The Corporation has a service award program that provides each employee with prescribed cash awards at defined years of service intervals. Under Canadian GAAP, this type of program is not considered to be obligatory and thus a liability does not exist at the balance sheet date. Under IFRS, this program is considered to represent a liability at the balance sheet date based on the likelihood that this program will



continue for the foreseeable future and is earned as employees render service. A liability is recorded and is determined using actuarial estimating, which in this case takes into account age, years of service and projected turnover.

F. IAS 34 – Interim Financial Reporting: Under Canadian GAAP, the Corporation was allowed to assess its normal manufacturing capacity on an annual basis. At the end of each quarter, it did an assessment of projected manufacturing activity for the remainder of the year and used its latest projection of its current-year manufacturing-capacity utilization to determine how much fixed overhead to capitalize to inventory in the current quarter. Under IFRS, the Corporation still assesses its normal manufacturing capacity on an annual basis. However, IAS 34 does not allow companies to use projected manufacturing activity as a basis for determining over- or under-applied fixed overhead at the end of each quarter. Any unallocated overheads incurred in a quarter are treated as an expense in that quarter.

G. IAS 12 – Income Taxes: Canadian GAAP prohibits the recognition of deferred taxes on the intercompany transfer of assets. Deferred tax is not recognized in the consolidated financial statements for the difference between the tax basis of the buyer and the cost as it is reported in the consolidated financial statements. Any taxes paid or recovered by the transferor as a result of the transfer are recorded as an asset or liability in the consolidated financial statements until the gain or loss is recognized by the consolidated entity. IAS 12 contains no exception to prohibit the recognition of deferred tax on the intercompany transfer of assets. Therefore, deferred tax is recognized for temporary differences arising on intercompany transactions measured at the tax rate of the buyer, and cash tax paid or recovered on intercompany transactions is recognized in the period incurred. Deferred tax assets have been recorded with respect to these temporary differences. In addition, certain deferred tax assets and liabilities have been reclassified to conform to IAS 12 standards. Canadian GAAP allows current and deferred income tax liabilities and assets to be offset if they relate to the same taxable entity and the same taxation authority.

However, if a company classifies assets and liabilities as current and non-current, the current portion of the balance cannot be offset with the non-current portion. When a group of companies is taxed by the same taxation authority, a deferred tax asset of one of the companies cannot be offset with the liability of one of the other companies, unless tax planning strategies could be implemented such that an offset would be available. IAS 12 does not permit deferred tax assets and liabilities to be classified as current assets or liabilities. In addition, IAS 12 allows for the offset of deferred tax assets and liabilities if, and only if:

the entity has a legally enforceable right to set off current tax assets against current tax liabilities; and

the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either: - the same taxable entity; or - different taxable entities that intend either to

settle current tax liabilities and assets on a net basis, or to realize the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered.

H. IAS 1 – Presentation of Financial Statements:

Canadian GAAP requires certain profit or loss expense categories to be disclosed separately on the statement of income and comprehensive income. Under IFRS, a company has a choice of adopting the nature-of-expense method or the function-of-expense method in presenting its analysis of expenses, whichever provides information that is reliable and most relevant. The Corporation has elected the function-of-expense method which classifies expenses according to their function. Accordingly, depreciation, amortization, foreign-exchange gains (losses), and gains or losses on disposal of property, plant and equipment, which were previously disclosed separately under Canadian GAAP, have now been allocated to cost of sales, independent R&D, and selling, general and administrative expenses. Any foreign-exchange gains (losses) related to finance expenses, such as those used to hedge against interest rate or currency rate risk, remain as a separate line of disclosure on the statements of income and comprehensive income (loss) under IFRS.

GLOSSARY


AIG Anthrax immune globulin Antibody A protein made by white blood cells that reacts with a specific foreign protein (antigen) as part of the immune response; autoimmune disorders occur when the body inappropriately makes antibodies against its own tissues or cells Antigen See antibody BARDA Biomedical Advanced Research and Development Authority; a department within the U.S. Department of Health and Human Services BAT Botulism antitoxin (also known as botulinum toxin immune globulin) CDC United States Centers for Disease Control and Prevention FDA United States Food and Drug Administration: a regulatory body

Fractionation Separate into components; term often used in connection with the separation of plasma into its protein components

GAAP Generally accepted accounting principles

Hemolytic disease of the newborn or HDN A serious blood-type incompatibility between a pregnant woman and the fetus Heptavalent Describes the fact that the BAT product has antibodies specific for seven different toxins HHS United States Department of Health and Human Services Hyperimmune A highly purified preparation of specific antibodies made from specialty plasma IFRS International Financial Reporting Standards IGIV Immune Globulin Intravenous

Immune globulin or immunoglobulin Class of proteins that function as antibodies. Hyperimmunes are preparations of immune globulins. Indication Symptom or circumstance that indicates the advisability or necessity of a particular medical treatment ITP Immune thrombocytopenia: an autoimmune disorder causing abnormal destruction of blood platelets, potentially leading to severe bleeding Monoclonal antibodies Antibodies made from a single source or clone of cells; they recognize only one kind of antigen Orphan Drug FDA designation for drugs aimed at treating limited patient populations (<200,000); guarantees U.S. market exclusivity for seven years and certain regulatory fees may be waived Peptide Two or more amino acids joined together; proteins can be broken down into peptides Plasma The fluid (non-cellular) portion of blood. Specialty plasma is plasma that contains a high level of a specific antibody. Non-specialty plasma collected from human donors for use in manufacturing pharmaceuticals is generally referred to as normal source plasma.

Platelet Small disk-shaped body in the blood, critical for normal blood clotting

R&D Research and development Recombinant protein Protein made from recombinant DNA; describes proteins made by introducing their genetic information into a selected host cell for commercial production SNS United States Strategic National Stockpile Thrombocytopenia A disorder in which there are reduced numbers of platelets; may be associated with abnormal bleeding VIG Vaccinia immune globulin

CANGENE LEADERSHIP


OFFICERS William Bees – Senior Vice President, Operations Mr. Bees earned a BSc (Hons) in Microbiology and an MSc in Biochemistry from the University of Manitoba. He later earned an MBA from Athabasca University. He joined Rh Pharmaceuticals Inc. in 1981 and continued with Cangene after the companies amalgamated in 1995. Mr. Bees is the Treasurer of the Plasma Protein Therapeutics Association’s Source Board of Directors, and a member of the Parenteral Drug Association, the American Association of Blood Banks and the Associates within the Asper School of Business at the University of Manitoba. Paul Brisebois – Vice President, Commercial Development Mr. Brisebois holds a BComm from the University of Saskatchewan. He also graduated from Columbia University’s Executive Marketing Management Program, Wharton’s Competitive Marketing Strategy Program, Queen’s University Executive Development Leadership Program and the UC Berkeley Bio-Executive program. Before joining Cangene in 2009, he was Assistant Vice President, Marketing and Sales, at Richardson International Limited. Prior to joining Richardson, he held the Director of Sales and Marketing position with Monsanto Canada’s Agricultural Products division. Mr.Brisebois is on the North American Plasma Protein Therapeutics Association Board of Directors and is a board member of the Life Sciences Association of Manitoba. Michael Graham – Chief Financial Officer Mr. Graham is a Chartered Accountant with a BComm in Accounting and Finance in addition to a BSc in Zoology/Genetics from the University of Manitoba. He has more than 25 years of senior management and finance experience with public and privately held corporations. Prior to joining Cangene in 2004, he was Chief Financial Officer of The Boyd Group Inc., the largest operator of collision repair centres in Canada and among the largest in North America. Prior to joining Boyd, he was Senior Vice President of Finance with Motor Coach Industries International, Inc. Mr. Graham also served as interim President and CEO of Cangene from January until September 2011, following the retirement of Dr. John Langstaff. Grant McClarty – Vice President, Research & Development Dr. McClarty has a PhD in Microbiology from the University of Manitoba where he is currently a professor in the Department of Medical Microbiology and Infectious Diseases. Before joining Cangene in 2007, Dr. McClarty was Director of Biomedical Research at the National Microbiology Laboratory (“NML”), a division of the Public Health Agency of Canada, for six years. The NML is located in Winnipeg, Manitoba and is Canada’s leading public health infectious disease laboratory; it is responsible for the identification, control and prevention of infectious diseases.

Francis St. Hilaire – General Counsel & Secretary Mr. St. Hilaire obtained a BSc degree from the University of Manitoba and then went on to obtain a Juris Doctor degree (magna cum laude) and an MBA from the University of Ottawa. Prior to joining Cangene in 2008, he was Assistant Vice President and Senior Counsel at The Great-West Life Assurance Company where he practised corporate and securities law. A member of the Manitoba Bar since 1992, he started his career practising general corporate and commercial law with the Winnipeg law firm of Aikins, MacAulay & Thorvaldson LLP. Mr. St. Hilaire has completed the ICD Director Education Program. John Sedor – President, CEO and Director John Sedor holds a BS in Pharmacy and Chemistry from Duquesne University. He joined Cangene as President and Chief Executive Officer on August 16, 2011, bringing more than 30 years of proven leadership in the global biopharmaceutical, consumer product and generic drug industries to the role. Prior to joining Cangene, he most recently served as President, CEO and Director of CPEX Pharmaceuticals, Inc., a specialty drug delivery pharmaceutical company, and during that time managed its spin-off from Bentley Pharmaceuticals, Inc. Prior to that, he was President of Bentley, which expanded its nanotechnology programs and added more than 20 new product approvals in the European market under his guidance. Previously, he created Centeon LLC, to develop and commercialize plasma protein biotherapeutics. Other previous roles include various senior positions at Sandoz Inc. (USA), Verion, Rorer Pharmaceutical Co., Revlon Health Care Group and Armour Pharmaceutical Company. Andrew Storey – Senior Vice President, Quality and Regulatory Affairs Mr. Storey earned a BSc from the University of Manitoba. He has also obtained a Quality Assurance Management certificate from the University of Manitoba and a Chemical Technology diploma from New Brunswick College. He is a graduate of the Ivey Executive Program at the University of Western Ontario. Prior to joining Rh Pharmaceuticals Inc. in 1986, which amalgamated with Cangene in 1995, he worked in the environmental sciences field. Mr. Storey is a past President of the Health Care Products Association of Manitoba, and a member of the Drug Information Association, the Regulatory Affairs Professional Society, the Parenteral Drug Association and the American Association of Pharmaceutical Scientists.

CANGENE LEADERSHIP continued


DIRECTORS R. Craig Baxter – Board Chair and Director Mr. Baxter graduated with a BComm from Concordia University and is a Certified Management Accountant. He has 30 years of business experience, 25 of which have been in the pharmaceutical industry. Currently, Mr. Baxter is President of Apotex Holdings Inc. D. Bruce Burlington1,3 – Director and Human Resource & Compensation Committee Chair Dr. Burlington received his medical degree from Louisiana State University. His extensive background in infectious disease medicine and the U.S. regulatory environment includes 17 years at the U.S. Food and Drug Administration in various positions involving both biologics and generic drugs, and nine years within the Wyeth Pharmaceuticals organization. He retired from his position as Executive Vice President, Business Practices and Compliance at Wyeth in 2007 and is currently working as a consultant in pharmaceutical development and regulatory affairs. Dr. Burlington is a member of the board of directors of AstraZeneca. Jeremy Desai3 – Director Dr. Desai graduated as a pharmacist in the U.K. and then went on to complete his PhD in Pharmacy and an MBA. Dr. Desai has 25 years of experience working for both branded and generic pharmaceutical companies. He is currently Chief Operating Officer of Apotex Inc., a position he has held since January 2011. Prior to that, he was Executive Vice President Global Research, Development & Quality at Apotex Inc.; he joined the company in 2003. In 2009, Dr. Desai received the professional designation ICD.D from the Canadian Institute of Corporate Directors. Philip Johnson2,3 – Director and Governance & Nominating Committee Chair Dr. Johnson received his medical degree from the University of North Carolina at Chapel Hill. His extensive medical background, largely in pediatrics and vaccine technology, includes work at the U.S. National Institutes of Health and the Columbus Children’s Research Institute at Children’s Hospital, Inc. He is currently Chief Scientific Officer and Executive Vice President at The Children’s Hospital of Philadelphia and Professor of Pediatrics at the University of Pennsylvania School of Medicine. Jack Kay1 – Director Mr. Kay has 45 years’ experience in pharmaceutical management and sales, including 28 years with Apotex. He has academic training in business administration from the University of Manitoba and McGill University. Mr. Kay is President and COO of Apotex Inc., and serves on the board of Helix BioPharma Corp., a company listed on the Toronto and Frankfurt stock exchanges. He is a Past Chair of the Canadian Generic Pharmaceutical Association, the International Schizophrenia Foundation and the Humber River Regional Hospital in Toronto.

J. Robert Lavery1,2 – Lead Director and Audit Committee Chair Mr. Lavery, a Chartered Accountant, is President of Shaunnara ULC, an investment management company he has owned since forming the company in 1977. Until his retirement in 2003, Mr. Lavery was also President and CEO of Winpak Ltd., a position he held since co-founding the company in 1977. He continues as a member of the board of directors of Winpak Ltd. and all its subsidiary companies. Mr. Lavery is on the Advisory Council of Friesen Corporation, and has served on the boards of a number of community healthcare organizations. He has also received the professional designation ICD.D from the Canadian Institute of Corporate Directors. R. Scott Lillibridge1,2 – Director Dr. Lillibridge obtained his medical degree from the Uniformed Services University of the Health Sciences in Bethesda, MD. He has spent much of his public career with the U.S. Centers for Disease Control and Prevention (“CDC”). While at the CDC, he was the founding Director of the Bioterrorism Preparedness and Response Program and also served as Special Assistant to the Secretary for the Department of Health and Human Services. He is Professor of Epidemiology at the Texas A&M Health Science Center School of Rural Public Health. He has been on the faculty at Texas A&M Health Sciences Center since 2007. He also serves as the President and CEO of the National Biosecurity Foundation, an organization dedicated to promoting translational pharmaceutical research and manufacturing in central Texas. John Sedor – President, CEO and Director See facing page John Vivash2,3 – Director Mr. Vivash is President and CEO of Tesseract Financial Inc., positions he has held since founding the financial services consultancy in 1989. Prior to that, he held various senior positions during his lengthy career in the investment community. He has also participated on committees for the Toronto, Montreal and Vancouver stock exchanges, and the Ontario Securities Commission. He has lectured extensively at the university level and at business and public conferences. He has also accumulated 25 years of board experience. He is on the board of directors of The Institute for Intellectual Capital Research and on the board of governors of OCAD University as well as being Chair of the OCAD University Foundation. 1. Member of Audit Committee 2. Member of Governance & Nominating Committee 3. Member of Human Resource & Compensation Committee

CORPORATE INFORMATION


HEAD OFFICE AND MANUFACTURING FACILITY

155 Innovation Drive Winnipeg, Manitoba, R3T 5Y3 Telephone (204) 275-4200 Facsimile (204) 269-7003 REGISTERED OFFICE AND CORPORATE COMMUNICATIONS 180 Attwell Drive, Suite 360 Toronto, Ontario, M9W 6A9 Telephone (416) 675-8300 Facsimile (416) 675-8301 Corporate Communications Direct telephone (416) 675-8280 e-mail at [email protected] CANGENE BIOPHARMA, INC. 1111 South Paca Street Baltimore, MD, USA, 21230 Telephone (410) 843-5000 Facsimile (410) 843-4414

WEBSITES www.cangene.com www.cangenebiopharma.com www.cangeneplasma.com www.hepagamb.com www.winrho.com www.winrho.ca FISCAL YEAR END July 31st TRADING SYMBOL CNJ (Toronto Stock Exchange) 52-WEEK TRADING RANGE C$1.52–C$3.87 (at July 31, 2011) AVERAGE DAILY TRADING VOLUME 32,903 (fiscal 2011) SHARE REGISTRAR AND TRANSFER AGENT Computershare Investor Services Inc. 100 University Avenue, 9th Floor Toronto, Ontario, M5J 2Y1 SHAREHOLDER INQUIRIES For further information about Cangene Corporation and its activities, please contact Ms. Jean Compton, Manager of Corporate Communications by e-mail at [email protected], by telephone at (416) 675-8280 or by mail to the Toronto address above.

“Cangene”, “HepaGam B”, “Twinstrand Therapeutics”, “Vaccinia Immune Globulin Intravenous”, “VariZIG”, “WinRho”, and “WinRho SDF” are trademarks belonging to Cangene Corporation. The term “WinRho” may be used in this document to refer to any of the WinRho family of products. “Ferriprox” is a trademark belonging to the Apotex Group. Unless stated otherwise, dollar amounts are in U.S. dollars. Scientific information that relates to unapproved products or unapproved uses of products is preliminary and investigative. No conclusions can or should be drawn regarding the safety or efficacy of such products. Only regulatory authorities can determine whether products are safe and effective for the uses being investigated. The information contained in this document is intended as an investor summary only and space does not permit a full discussion of medical, safety and risk information related to approved or experimental drugs. Where applicable, patients and healthcare professionals are directed to refer to approved labelling for products, product monographs or prescribing information, and not to rely on information discussed in this report. Prescribing information or drug names may differ in various countries. No information in this report is intended to promote the products discussed.

Date post:	13-Aug-2020
Category:	Documents
Upload:	others
View:	0 times
Download:	0 times

1 Cangene 26604 CV - Annual report · 2012-06-11 · a renovation at Cangene bioPharma, Inc., our...

Documents