6-K/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K/A

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16 OF THE SECURITIES EXCHANGE ACT OF 1934

For the month of March 2022

Commission File Number: 001-38064

Aeterna Zentaris Inc.

(Translation of registrant’s name into English)

c/o Norton Rose Fulbright Canada, LLP, 222 Bay Street, Suite 3000, PO Box 53, Toronto ON M5K 1E7

(Address of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F ☒ Form 40-F ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

EXPLANATORY NOTE

Aeterna Zentaris Inc. (the “Company”) hereby furnishes this amended Report of Foreign Private Issuer on Form 6-K/A (this “Amended Form 6-K”) to amend the Form 6-K furnished by the Company to the Securities and Exchange Commission on March 29, 2022 (the “Original Form 6-K”). The sole purpose of this Amended Form 6-K is to reflect the correction of clerical errors contained in the incorporation by reference of exhibits language below in the Original Form 6-K. The exhibits have not been changed, but are being re-filed with this Amended Form 6-K for ease of reference.

Exhibits 99.1 and 99.2, included with this report on Form 6-K are hereby incorporated by reference into the Registrant’s Registration Statements on Forms F-1 (No.333-239264, No. 333-248561 and No. 333-239019), Forms F-3 (File No. 333-232935 and No. 333-254680), and Forms S-8 (File Nos. 333-224737, 333-210561, 333-200834) and shall be deemed to be a part thereof from the date on which this report is furnished, to the extent not superseded by documents or reports subsequently filed or furnished.

DOCUMENTS INDEX

Exhibit	Description
99.1	The Registrant’s Annual Audited Consolidated Financial Statements as at December 31, 2021 and December 31, 2020 and for the years ended December 31, 2021, 2020 and 2019
99.2	The Registrant’s Management’s Discussion and Analysis of Financial Condition and Results of Operations for the financial year ended December 31, 2021

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	AETERNA ZENTARIS INC.
Date: March 31, 2022	By:	/s/ Klaus Paulini
		Klaus Paulini
		President and Chief Executive Officer

EX-99.1

Exhibit 99.1

Aeterna Zentaris Inc.

Consolidated Financial Statements

As of December 31, 2021 and December 31, 2020 and for the years ended

December 31, 2021, 2020 and 2019

Report of Independent Registered Public Accounting Firm (PCAOB ID:1263)	3
Report of Predecessor Independent Registered Public Accounting Firm (PCAOB ID:271)	5
Consolidated Statements of Financial Position	6
Consolidated Statements of Changes in Shareholders’ Equity (Deficiency)	7
Consolidated Statements of Comprehensive Loss	8
Consolidated Statements of Cash Flows	9
Notes to Consolidated Financial Statements	10

2

Report of independent registered public accounting firm

To the shareholders and the board of directors of

Aeterna Zentaris Inc.

Opinion on the financial statements

We have audited the accompanying consolidated statement of financial position of Aeterna Zentaris Inc. (the Company) as of December 31, 2021, the related consolidated statement of changes in shareholders’ equity (deficiency), comprehensive loss, and cash flows, for the year ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and its financial performance and its cash flows for the year ended December 31, 2021, in conformity with International Financial Reporting Standards (“IFRSs”) as issued by the International Accounting Standards Board.

Basis for opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.

Critical audit matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which they relate.

3

Revenue from License and Collaboration Arrangements
Description of the matter	As described in Note 2, Note 3 and Note 5, the Company enters into license and collaboration arrangements that may include non-refundable upfront license fees, the provision of development services, milestone payments, royalties on future product sales and supply arrangements. The Company has recorded $5.3 million of total revenues during the year ended December 31, 2021 and $6.3 million as deferred revenues as of December 31, 2021.  Management analyzes each agreement and applies significant judgment to determine whether contracts entered into at or near the same time should be accounted for as a single arrangement and whether all parts of the contract fall within the scope of IFRS 15. In addition, each agreement is analyzed to identify all performance obligations and to determine whether a performance obligation is distinct or should be combined with other promised goods and services,  determine and allocate the transaction price on a relative stand-alone selling price basis, determine whether a performance obligation is satisfied at a point in time or over time, and, for performance obligations satisfied over time, in concluding upon the appropriate method of measuring progress to be applied for purposes of recognizing revenue.
	Auditing the Company’s accounting for revenues from the license and collaboration arrangements was complex given the significant judgment required in evaluating the terms and multiple elements of the related agreements. A high degree of auditor judgment and effort was required in performing procedures to evaluate the reasonableness of management’s assessment to identify all performance obligations and to determine whether a performance obligation is distinct or should be combined with other promised goods and services.
How we addressed the matter in our audit	To test the Company’s accounting for revenue from license and collaboration arrangements, our audit procedures included, among others, obtaining and evaluating management’s accounting analyses for all significant arrangements. We inspected the Company’s agreements and we evaluated whether management’s assessments considered all relevant terms included in the agreements. We assessed management’s consideration of whether contracts should be accounted for as a single arrangement and whether all elements fall within the scope of IFRS 15. We assessed management’s identification of performance obligations and whether they are distinct or combined with other promised goods and services. We evaluated the reasonableness of management’s recognition of revenue based on when each performance obligation will be satisfied in conformity with the Company’s accounting policies.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2021.

Montreal, Canada

March 28, 2022

4

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Aeterna Zentaris Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated statement of financial position of Aeterna Zentaris Inc. and its subsidiaries (together, the Company) as of December 31, 2020, and the related consolidated statements of changes in shareholders’ equity (deficiency), comprehensive loss and cash flows for each of the two years in the period ended December 31, 2020, including the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and its financial performance and its cash flows for each of the two years in the period ended December 31, 2020 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

Chartered Professional Accountants, Licensed Public Accountants

Toronto, Canada

March 24, 2021

We served as the Company’s auditor from 1993 to 2021.

PricewaterhouseCoopers LLP

PwC Tower, 18 York Street, Suite 2600, Toronto, Ontario, Canada M5J

0B2 T: +1 416 863 1133, F: +1 416 365 8215

“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.

5

Aeterna Zentaris Inc.

Consolidated Statements of Financial Position

(in thousands of US dollars)

	December 31, 2021			December 31, 2020
	$			$
ASSETS
Current assets
Cash and cash equivalents (note 6)		65,300			24,271
Trade and other receivables (note 7)		1,314			1,681
Inventory (note 8)		73			21
Income taxes receivable (note 22)		2,361			601
Prepaid expenses and other current assets (note 9)		1,772			1,040
Total current assets		70,820			27,614
Restricted cash equivalents (note 10)		335			338
Property, plant and equipment (note 11)		42			22
Right of use assets (note 12)		150			157
Identifiable intangible assets (note 13)		625			59
Goodwill (note 14)		8,130			8,815
Total assets		80,102			37,005
LIABILITIES
Current liabilities
Payables and accrued liabilities (note 15)		2,672			2,199
Current portion of provisions (note 16)		34			92
Income taxes payable (note 22)		115			123
Current portion of deferred revenues (note 5)		4,815			2,193
Current portion of lease liabilities (note 17)		130			135
Total current liabilities		7,766			4,742
Deferred revenues (note 5)		1,493			3,289
Deferred gain (note 13)		98			—
Lease liabilities (note 17)		31			49
Employee future benefits (note 18)		17,485			15,435
Provisions (note 16)		243			279
Total liabilities		27,116			23,794
SHAREHOLDERS’ EQUITY
Share capital (note 19)		293,410			235,008
Warrants (note 19)		5,085			12,402
Other capital (note 19)		89,788			89,505
Deficit		(334,619	)		(322,659	)
Accumulated other comprehensive loss		(678	)		(1,045	)
Total shareholders’ equity		52,986			13,211
Total liabilities and shareholders’ equity		80,102			37,005

Commitments and contingencies (note 27)

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

Approved by the Board of Directors

/s/ Carolyn Egbert	/s/ Dennis Turpin
Carolyn Egbert Chair of the Board	Dennis Turpin Director

6

Aeterna Zentaris Inc.

Consolidated Statements of Changes in Shareholders’ Equity (Deficiency)

(in thousands of US dollars, except share data)

	Common shares		Share capital			Warrants			Other capital			Deficit			Accumulated other comprehensive income (loss)			Total
	(number of)1		$			$			$			$			$			$
Balance - January 1, 2019		16,440,760		222,335			—			89,342			(309,781	)		11			1,907
Net loss		—		—			—			—			(6,042	)		—			(6,042	)
Other comprehensive loss:							—
Foreign currency translation adjustments		—		—			—			—			—			83			83
Actuarial loss on defined benefit plans (note 18)		—		—			—			—			(1,068	)		—			(1,068	)
Comprehensive loss		—		—			—			—			(7,110	)		83			(7,027	)
Share issuance from the exercise of warrants, stock options and deferred share units		228,750		906			—			(329	)		—			—			577
Issuance of common shares and warrants, net (note 19)		3,325,000		1,287			—			—			—			—			1,287
Share-based compensation costs		—		—			—			793			—			—			793
Balance - December 31, 2019		19,994,510		224,528			—			89,806			(316,891	)		94			(2,463	)
Net loss		—		—			—			—			(5,118	)		—			(5,118	)
Other comprehensive loss:
Foreign currency translation adjustments		—		—			—			—			—			(1,139	)		(1,139	)
Actuarial loss on defined benefit plan (note 18)		—		—			—			—			(650	)		—			(650	)
Comprehensive loss		—		—			—			—			(5,768	)		(1,139	)		(6,907	)
Reclassification of warrants to equity (note 19)		—		—			7,377			—			—			—			7,377
Issuance of common shares and warrants, net of transaction costs (note 19)		42,684,103		10,480			5,025			(362	)		—			—			15,143
Share-based compensation costs (note 19)		—		—			—			61			—			—			61
Balance - December 31, 2020		62,678,613		235,008			12,402			89,505			(322,659	)		(1,045	)		13,211
Net loss		—		—			—			—			(8,368	)		—			(8,368	)
Other comprehensive loss:
Foreign currency translation adjustments		—		—			—			—			—			367			367
Actuarial loss on defined benefit plan (note 18)		—		—			—			—			(3,592	)		—			(3,592	)
Comprehensive loss		—		—			—			—			(11,960	)		367			(11,593	)
Issuance of common shares and warrants, net of transaction costs (note 19)		23,586,207		29,082			1,897			—			—			—			30,979
Exercise of warrants (note 19)		35,111,187		29,833			(9,746	)		—			—			—			20,087
Transfer of warrant issuance costs upon exercise of warrants (note 19)		—		(532	)		532			—			—			—			—
Exercise of deferred share units (note 19)		21,000		19			—			(28	)		—			—			(9	)
Share-based compensation costs (note 19)		—		—			—			311			—			—			311
Balance - December 31, 2021		121,397,007		293,410			5,085			89,788			(334,619	)		(678	)		52,986

¹ Issued and paid in full.

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

7

Aeterna Zentaris Inc.

Consolidated Statements of Comprehensive Loss

(in thousands of US dollars, except share and per share data)

	Years ended December 31,
	2021			2020			2019
		$			$			$
Revenues (notes 5 and 25)
License fees		1,670			911			74
Development services		3,337			—			—
Product sales		—			2,370			129
Royalties		68			67			45
Supply chain revenue		185			304			284
Total revenues		5,260			3,652			532
Operating expenses (note 20)
Cost of sales		90			2,317			410
Research and development expenses		6,574			1,506			1,837
General and administrative expenses		5,916			4,759			6,615
Selling expenses		1,351			1,134			1,214
Restructuring costs		—			—			507
Impairment of right of use asset		—			—			22
Gain on modification of building lease (notes 12 and 17)		—			(219	)		—
(Reversal) impairment of other asset		—			(139	)		169
Total operating expenses		13,931			9,358			10,774
Loss from operations		(8,671	)		(5,706	)		(10,242	)
Gains due to changes in foreign currency exchange rates		215			572			87
Change in fair value of warrant liability		—			1,147			4,518
Other finance costs		(21	)		(736	)		(593	)
Net finance income		194			983			4,012
Loss before income taxes		(8,477	)		(4,723	)		(6,230	)
Income tax recovery (expense) (note 22)		109			(395	)		188
Net loss		(8,368	)		(5,118	)		(6,042	)
Other comprehensive loss:
Items that may be reclassified subsequently to profit or loss:
Foreign currency translation adjustments		367			(1,139	)		83
Items that will not be reclassified to profit or loss:
Actuarial loss on defined benefit plans		(3,592	)		(650	)		(1,068	)
Comprehensive loss		(11,593	)		(6,907	)		(7,027	)
Net loss per share (basic) (note 26)		(0.07	)		(0.12	)		(0.35	)
Net loss per share (diluted) (note 26)		(0.07	)		(0.12	)		(0.35	)
Weighted average number of shares outstanding (note 26)
Basic		114,924,497			41,083,163			17,494,472
Diluted		114,924,497			41,083,163			17,494,472

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

8

Aeterna Zentaris Inc.

Consolidated Statements of Cash Flows

(in thousands of US dollars, except share data)

	Years ended December 31,
	2021			2020			2019
		$			$			$
Cash flows from operating activities
Net loss		(8,368	)		(5,118	)		(6,042	)
Items not affecting cash and cash equivalents:
Change in fair value of warrant liability		—			(1,147	)		(4,518	)
Transaction costs of warrants issued, expensed as finance cost		—			732			550
Provision for restructuring and other costs (note 16)		23			(383	)		511
Impairment of right of use asset		—			—			22
(Reversal) impairment of other asset		—			(139	)		169
Gain on modification of building lease (notes 12 and 17)		—			(219	)		—
Depreciation and amortization (notes 11, 12 and 13)		145			232			315
Share-based compensation costs (note 19)		311			61			793
Employee future benefits (note 18)		161			217			262
Amortization of deferred revenues		(1,670	)		1,257			(74	)
Foreign exchange gain on items denominated in foreign currencies		(179	)		(688	)		(87	)
(Gain) loss on disposal of property, plant and equipment (note 12)		(1	)		(2	)		10
Other non-cash items		95			133			(126	)
Interest accretion on lease liabilities (note 17)		7			(19	)		(66	)
Payment of income taxes (note 22)		(1,605	)		(1,448	)		—
Changes in operating assets and liabilities (note 21)		2,500			2,402			(2,444	)
Net cash used in operating activities		(8,581	)		(4,129	)		(10,725	)
Cash flows from financing activities
Proceeds from issuance of common shares (note 19)		34,200			—			—
Proceeds from issuances of common shares and warrants (note 19)		—			23,500			4,988
Transaction costs		(3,221	)		(2,767	)		(795	)
Proceeds from exercise of warrants, stock options and deferred share units		20,087			—			314
Proceeds on deferred gain (note 13)		98			—			—
Payments on lease liabilities (note 17)		(127	)		(265	)		(614	)
Net cash provided by financing activities		51,037			20,468			3,893
Cash flows from investing activities
Proceeds for disposals of property, plant and equipment (note 11)		1			6			—
Purchase of intangible assets (note 13)		(609	)		—			—
Purchase of property, plant and equipment (note 11)		(30	)		—			—
(Decrease) increase in restricted cash equivalents		(20	)		50			50
Net cash (used in) provided by investing activities		(658	)		56			50
Effect of exchange rate changes on cash and cash equivalents		(769	)		38			108
Net change in cash and cash equivalents		41,029			16,433			(6,674	)
Cash and cash equivalents – beginning of year		24,271			7,838			14,512
Cash and cash equivalents – end of year (note 6)		65,300			24,271			7,838

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

9

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2021 and December 31, 2020 and for the years ended

December 31, 2021, 2020 and 2019

(in thousands of US dollars, except share and per share data and where otherwise noted)

1. Business overview

Summary of business

Aeterna Zentaris (the “Company” or “Aeterna”) is a specialty biopharmaceutical company commercializing and developing therapeutics and diagnostic tests. The Company’s lead product, Macrilen™ (macimorelin), is the first and only United States (“US”) Food and Drug Administration (“FDA”) and European Medicines Agency-approved oral test indicated for the diagnosis of patients with adult growth hormone deficiency (“AGHD”). Macrilen™ is currently marketed in the US through a license agreement, as amended, between the Company and Novo Nordisk Health Care AG (“Novo”). The Company is also dedicated to the development of therapeutic assets and has recently taken steps to establish a pre-clinical pipeline to potentially address unmet medical needs across a number of indications with a focus on rare or orphan indications and with the potential for pediatric use.

COVID-19 impact

Coronavirus, or COVID-19, a contagious disease that was characterized by the World Health Organization as a pandemic in early 2020, continues to affect the global community.

The spread of COVID-19 may continue to impact our operations, including the potential interruption of our clinical trial activities and of our supply chain. For example, the rise in the Omicron variant in the COVID-19 pandemic has caused delays in site initiation and patient enrollment in our Phase 3 DETECT clinical trial for diagnostic use in childhood-onset growth hormone deficiency. Additionally, sales activities for Macrilen™ in the US may be impacted due to delays of diagnostic activities on AGHD in the US. Further, the COVID-19 pandemic may also cause some patients to be unwilling to enroll in our trials or be unable to comply with clinical trial protocols if quarantines impede patient movement or interrupt healthcare services, which would delay our ability to conduct clinical trials or release clinical trial results on a timely basis and could delay our ability to obtain regulatory approval and commercialize our product candidates. Management will continue to monitor and assess the impact of the pandemic on its judgments, estimates, accounting policies and amounts recognized in these consolidated financial statements. As of December 31, 2021, the Company assessed the possible impacts of COVID-19 on its consolidated financial results. The Company has evaluated its financial assets, property, plant and equipment, intangible assets, and goodwill for impairment and no changes from the carrying amount were required in the reporting period.

Reporting entity

The accompanying consolidated financial statements include the accounts of Aeterna Zentaris Inc., an entity incorporated under the Canada Business Corporations Act, and its wholly owned subsidiaries. The Company and its subsidiaries are collectively referred to as the “Group”. Aeterna Zentaris Inc. is the ultimate parent company of the Group. The Company currently has three wholly owned direct and indirect subsidiaries, Aeterna Zentaris GmbH (“AEZS Germany”), based in Frankfurt, Germany, Zentaris IVF GmbH, a wholly owned subsidiary of AEZS Germany, based in Frankfurt, Germany, and Aeterna Zentaris, Inc., an entity incorporated in the state of Delaware and with offices in Summerville, South Carolina, in the US.

The registered office of the Company is located at 222 Bay Street, Suite 3000, P.O. Box 53, Toronto, Ontario M5K 1E7, Canada.

The Company’s common shares are listed on both the Toronto Stock Exchange and on the NASDAQ Capital Market.

10

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2021 and December 31, 2020 and for the years ended

December 31, 2021, 2020 and 2019

(in thousands of US dollars, except share and per share data and where otherwise noted)

Basis of presentation

(a) Statement of compliance

These consolidated financial statements as of December 31, 2021 and December 31, 2020 and for the years ended December 31, 2021, 2020 and 2019 have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”).

These consolidated financial statements were approved by the Company’s Board of Directors, subject to confirmation by the Audit Committee of the Board of Directors, which confirmation was received on March 28, 2022.

The preparation of financial statements in accordance with IFRS requires the use of certain critical accounting estimates and the exercise of management’s judgment in applying the Company’s accounting policies. Areas involving a high degree of judgment or complexity and areas where assumptions and estimates are significant to the Company’s consolidated financial statements are discussed in note 3 - Critical accounting estimates and judgments. Certain comparative figures for the year ended December 31, 2020 were reclassified to conform to the presentation adopted for December 31, 2021.

(b) Basis of measurement

The consolidated financial statements have been prepared under a historical cost convention.

(c) Principles of consolidation

These consolidated financial statements include any entity in which the Company directly or indirectly holds more than 50% of the voting rights or over which the Company exercises control. The Company controls an entity when the Company is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. An entity is included in the consolidation from the date that control is transferred to the Company, while any entities that are sold are excluded from the consolidation from the date that control ceases. All inter-company balances and transactions are eliminated on consolidation.

(d) Foreign currency

Items included in the financial statements of the Group’s entities are measured using the currency of the primary economic environment in which the entities operate (the “functional currency”) which is the US dollar for the Company and its US subsidiary, Aeterna Zentaris, Inc., and the Euro (“EUR” or “€”) for its German subsidiaries.

Assets and liabilities of the German subsidiaries are translated from EUR balances at the period-end exchange rates, and the results of operations are translated from EUR amounts at average rates of exchange for the period. The resulting translation adjustments are included in accumulated other comprehensive loss within shareholders’ equity (deficiency).

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the underlying transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities not denominated in the functional currency are recognized in the consolidated statements of comprehensive loss.

2. Summary of significant accounting policies

The accounting policies set out below have been applied consistently to all years presented in these consolidated financial statements and have been applied consistently by all Group entities.

11

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2021 and December 31, 2020 and for the years ended

December 31, 2021, 2020 and 2019

(in thousands of US dollars, except share and per share data and where otherwise noted)

Cash and cash equivalents

Cash and cash equivalents consist of unrestricted cash on hand and balances with banks, as well as short-term interest-bearing deposits, such as money market accounts, that are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value, with a maturity of three months or less from the date of acquisition.

Inventories

Inventories are valued at the lower of cost or net realizable value. Cost is determined using the first-in, first-out method. The Company’s policy is to write down inventory that has become obsolete and inventory that has a cost basis in excess of its expected net realizable value. Increases in the reserve are recorded as charges in cost of sales. For product candidates that have not been approved by the FDA, inventory used in clinical trials is written down at the time of production and recorded as research and development (“R&D”) costs. For products that have been approved by the FDA, inventory used in clinical trials is expensed at the time the inventory is packaged for the clinical trial. All direct manufacturing costs incurred after approval are capitalized into inventory.

Restricted cash equivalents

Restricted cash equivalents are comprised of bank deposits, which are related to a guarantee for a long-term operating lease obligation, and for corporate credit card programs that cannot be used for current purposes.

Property, plant and equipment and depreciation

Items of property, plant and equipment are recorded at cost, net of accumulated depreciation and impairment charges. Depreciation is calculated using the following methods, annual rates and period:

	Methods	Annual rates and period
Equipment	Declining balance and straight-line	20%
Furniture and fixtures	Declining balance and straight-line	10% to 20%
Computer equipment	Straight-line	25% to 331/3%
Leasehold improvements	Straight-line	Remaining lease term

Depreciation expense, which is recorded in the consolidated statement of comprehensive loss, is allocated to the appropriate functional expense categories to which the underlying items of property, plant and equipment relate.

Identifiable intangible assets and amortization

Identifiable intangible assets with finite useful lives consist of in-process R&D acquired in business combinations, patents, trademarks, in-licensed technology and rights to serialization equipment located at the Company’s third-party macimorelin manufacturer. In-process R&D acquired in business combinations is recognized at fair value at the acquisition date. Patents and trademarks are comprised of costs, including professional fees incurred in connection with the filing of patents and the registration of trademarks for product marketing and manufacturing purposes, net of related government grants, impairment losses and accumulated amortization. Identifiable intangible assets with finite useful lives are amortized beginning at the time at which the assets are available for use, on a straight-line basis over the assets’ estimated useful lives, which range from seven to 15 years for in-process R&D and patents and are ten years for trademarks. Amortization expense, which is recorded in the consolidated statement of comprehensive loss, is allocated to the appropriate functional expense categories to which the underlying identifiable intangible assets relate.

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Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2021 and December 31, 2020 and for the years ended

December 31, 2021, 2020 and 2019

(in thousands of US dollars, except share and per share data and where otherwise noted)

Contingent payments

The Company accounts for contingent variable payments for separately acquired intangible assets, such as in-licensed technology, under the cost accumulation approach. Contingent consideration is not considered on initial recognition of the asset but instead is added to the cost of the asset initially recorded, when incurred.

Goodwill

Goodwill is recognized as the fair value of the consideration transferred, including the recognized amount of any non-controlling interest in the acquiree, less the fair value of the net identifiable assets acquired, and liabilities assumed, as of the acquisition date. Subsequent to initial recognition, goodwill is measured at cost less accumulated impairment losses. Goodwill acquired in business combinations is allocated to groups of cash generating units (“CGU”) that are expected to benefit from the synergies of the combination.

Impairment of long-lived assets

Items of property, plant and equipment, right of use assets and identifiable intangible assets with finite lives that are subject to depreciation or amortization, respectively, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be recoverable. Intangible assets that are not subject to amortization are tested when there are indications that their carrying value may not be recoverable, or, at a minimum, annually. Management is required to assess at each reporting date whether there is any indication that an asset may be impaired. Where such an indication exists, the asset’s recoverable amount is compared to its carrying value, and an impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows, or CGU. In determining value in use of a given asset or CGU, estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

Items of property, plant and equipment and identifiable intangible assets with finite lives that have suffered impairment are reviewed for possible reversal of the impairment if there has been a change, since the date of the most recent impairment test, in the estimates used to determine the impaired asset’s recoverable amount. However, an asset’s carrying amount, increased due to the reversal of a prior impairment loss, must not exceed the carrying amount that would have been determined, net of depreciation or amortization, had the original impairment not occurred.

13

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2021 and December 31, 2020 and for the years ended

December 31, 2021, 2020 and 2019

(in thousands of US dollars, except share and per share data and where otherwise noted)

Goodwill is not subject to amortization, but instead is tested for impairment annually or more often if there is an indication that the CGU to which the goodwill has been allocated may be impaired. Impairment is determined for goodwill by assessing whether the carrying value of a CGU, including the allocated goodwill, exceeds the CGU’s recoverable amount, which is the higher of fair value less costs to sell and the CGU’s value in use. Fair value less costs of disposal is determined based on the Company’s market capitalization, as well as relevant market data, such as control premiums, and other assumptions. In the event that the carrying amount of goodwill exceeds its recoverable amount, an impairment loss is recognized in an amount equal to the excess. Impairment losses related to goodwill, which are recorded in the consolidated statement of comprehensive loss, are not subsequently reversed.

Provisions

Provisions represent liabilities to the Company for which the amount or timing is uncertain. Provisions are recognized when the Company has a present legal or constructive obligation as a result of past events, such as organizational restructuring, when it is probable that an outflow of resources will be required to settle the obligation and where the amount can be reliably estimated. Provisions are not recognized for future operating losses.

Provisions are made for any contracts which are deemed onerous. A contract is onerous if the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it. Provisions for onerous contracts are measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Present value is determined based on expected future cash flows that are discounted at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognized in finance costs.

Leases

At the inception of a contract, the Company assesses whether a contract is or contains a lease. A lease is a contract in which the right to control the use of an identified asset is granted for an agreed-upon period of time in exchange for consideration. The Company assesses whether a contract conveys the right to control the use of an identified asset when there is both the right to direct the use of the asset and obtain substantially all the economic benefits from that use. The Company recognizes a right of use asset and a lease liability at the lease commencement date.

The lease liability is initially measured at the present value of the non-cancellable lease payments over the lease term and discounted at the rate implicit in the lease. If that rate cannot be determined, the Company’s incremental borrowing rate, or the rate that Company would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions, is used. Lease payments include fixed payments and such variable payments that depend on an index or a rate less any lease incentives receivable.

The lease liability is subsequently measured at amortized cost using the effective interest method and is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Company’s estimate of the amount expected to be payable under a residual value guarantee or if the Company changes its assessment of whether it will exercise a purchase, extension or termination option. When the lease liability is remeasured, a corresponding adjustment is made to the carrying amount of the right of use asset, with any difference recorded in the statement of comprehensive loss.

Right of use assets are measured at cost, which comprises the initial lease liability, lease payments made at or before the lease commencement date, initial direct costs and restoration obligations, less lease incentives. Right of use assets are subsequently measured at amortized cost. The assets are depreciated over the shorter of the assets’ useful life and the lease terms on a straight-line basis, less any accumulated impairment losses, and adjusted for any remeasurement of the lease liability. The lease term includes periods covered by an option to extend if the Company is reasonably certain to exercise that option.

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Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2021 and December 31, 2020 and for the years ended

December 31, 2021, 2020 and 2019

(in thousands of US dollars, except share and per share data and where otherwise noted)

The Company accounts for a lease modification as a separate lease if both of the following conditions exist: (a) the modification increases the scope of the lease by adding the right to use one or more underlying assets; and (b) the consideration for the lease increases by an amount equivalent to the standalone price for the increase in scope and any appropriate adjustments to that stand-alone price to reflect the circumstances of the particular contract. Where the Company accounts for a lease modification as a new lease, the separate lease is accounted for in the same way as a new lease, as described above.

Where the Company does not account for a lease modification as a separate lease, the lease liability is remeasured by: (a) decreasing the carrying amount of the right of use asset to reflect the partial or full termination of the lease for lease modifications that decrease the scope of the lease, with any gain or loss relating to the partial or full termination of the lease recorded in the consolidated statement of comprehensive loss; or (b) making a corresponding adjustment to the right of use asset for all other lease modifications.

Payments associated with short-term leases and leases of low-value assets are recognized on a straight-line basis as an expense in the consolidated statement of comprehensive loss.

Employee benefits

Salaries and other short-term benefits

Salaries and other short-term benefit obligations are measured on an undiscounted basis and are recognized in the consolidated statement of comprehensive loss over the related service period or when the Company has a present legal or constructive obligation to make payments as a result of past events and when the amount payable can be estimated reliably.

Post-employment benefits

AEZS Germany provides unfunded and partially funded defined benefit multi-employer pension plans, namely the DUPK pension plan and the RUK 1990 and 2006 pension plans, (the “Pension Benefit Plans”) and unfunded post-employment benefit plans for certain groups of employees. Provisions for pension obligations are established for benefits payable in the form of retirement, disability and surviving dependent pensions. The Company also provides a defined contribution plans to some of its employees.

For defined benefit pension plans and other post-employment benefits, net periodic pension expense is actuarially determined on a quarterly basis using the projected unit credit method. The cost of pension and other benefits earned by employees is determined by applying certain assumptions, including discount rates, rate of pension benefit increases, the projected age of employees upon retirement and the expected rate of future compensation.

The employee future benefits liability is recognized at its present value, which is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating the terms of the related future benefit liability. Actuarial gains and losses that arise in calculating the present value of the defined benefit obligation are recognized in other comprehensive loss, net of tax, and simultaneously reclassified in the deficit in the consolidated statement of financial position in the year in which the actuarial gains and losses arise and without recycling to the consolidated statement of comprehensive loss in subsequent periods.

For defined contribution plans, expenses are recorded in the consolidated statement of comprehensive loss as incurred–namely, over the period that the related employee service is rendered.

Termination benefits

Termination benefits are recognized in the consolidated statement of comprehensive loss when the Company is demonstrably committed, without the realistic possibility of withdrawal, to a formal detailed plan to terminate employment earlier than originally expected. Termination benefit liabilities expected to be settled after 12 months from the end of a given reporting period are discounted to their present value, where material.

15

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2021 and December 31, 2020 and for the years ended

December 31, 2021, 2020 and 2019

(in thousands of US dollars, except share and per share data and where otherwise noted)

Financial instruments

The Company classifies its financial instruments in the following categories: financial assets at fair value through profit or loss (“FVTPL”); financial liabilities at FVTPL; financial assets at amortized cost; financial liabilities at amortized cost and financial assets at fair value through other comprehensive income (“FVTOCI”).

Financial assets at FVTPL: Financial assets carried at FVTPL are initially recorded at fair value, and transaction costs directly attributable to issuing the financial assets are expensed in the statement of comprehensive loss. Realized and unrealized gains and losses arising from changes in the fair value of the financial assets held at FVTPL are included in the statement of comprehensive loss in the period in which they arise. As of December 31, 2021 and 2020, the Company did not have any financial assets at FVTPL.

Financial liabilities at FVTPL: These financial liabilities are initially recognized at fair value, and transaction costs directly attributable to issuing the financial liabilities are expensed in the statement of comprehensive loss. Financial liabilities that are required to be measured at FVTPL are re-measured at each reporting date, with changes in fair value reported in the statement of comprehensive loss. As of December 31, 2021 and 2020, the Company did not have any financial liabilities at FVTPL.

Financial assets at amortized cost: A financial asset is measured at amortized cost if the objective of the business model is to hold the financial asset for the collection of contractual cash flows, and the asset’s contractual cash flows are comprised solely of payments of principal and interest. Financial assets at amortized cost are classified as current or non-current based on their maturity date and are initially recognized at fair value and subsequently carried at amortized cost, less any impairment.

Financial liabilities at amortized cost: Financial liabilities classified as amortized cost are initially recognized at fair value, less directly attributable transaction costs. After initial recognition, costs are subsequently measured at amortized cost using the effective interest rate method with interest expense recognized on an effective yield basis. The effective interest rate is the rate that discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period. Interest accretion is recorded in interest expense in the consolidated statement of comprehensive loss.

Financial assets at FVTOCI: Investments in equity instruments at FVTOCI are initially recognized at fair value, plus incremental transaction costs. Subsequently, financial assets at FVTOCI are measured at fair value, with gains and losses arising from changes in fair value recognized in other comprehensive loss in the period in which those gains or losses arise. As of December 31, 2021 and 2020, the Company did not have any financial assets at FVTOCI.

Impairment of financial assets at amortized cost: The Company applies the simplified approach on trade receivables, which allows for the use of a lifetime expected credit loss (“ECL”) provision considering the probability of default over the expected life of the financial asset. The 12-month ECL only considers default events that are possible within the year following the reporting date. The Company uses a provision matrix to calculate ECLs for trade receivables. The provision matrix is initially based on the Company’s historical observed default rates and is subsequently evaluated and updated based on new and forward-looking information.

Share capital

Common shares are classified as equity. Incremental costs that are directly attributable to the issuance of common shares are recognized as a deduction from equity, net of any tax effects.

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Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2021 and December 31, 2020 and for the years ended

December 31, 2021, 2020 and 2019

(in thousands of US dollars, except share and per share data and where otherwise noted)

Where offerings result in the issuance of units (where each unit is comprised of a common share of the Company and a warrant, exercisable in order to purchase a common share or fraction thereof) and the Company does not have the unconditional right to avoid delivering cash to the holders in the future, proceeds received in connection with those offerings are allocated between share capital and warrants. Transaction costs in connection with such offerings are allocated to the liability and equity unit components in proportion to the allocation of proceeds.

Where offerings result in the issuance of units (where each unit is comprised of a common share of the Company and a warrant, exercisable in order to purchase a common share or fraction thereof) and the warrants issued meet the fixed-for-fixed criteria, discussed below, proceeds received in connection with those offerings are allocated between share capital and warrants based on the relative fair value method. Transaction costs in connection with such offerings are allocated to share capital and warrant components within equity in proportion to the allocation of proceeds.

Warrants

Warrants are classified as liabilities when the Company does not have the unconditional right to avoid delivering cash to the holders in the future, or when they can be settled with a variable number of common shares. Each of the Company’s warrants contains a written put option, arising upon the occurrence of a fundamental transaction, as that term is defined in the warrants, including a change of control.

The warrant liability is initially measured at fair value, and any subsequent changes in fair value are recognized as gains or losses through profit or loss. Any transaction costs related to the warrants are expensed as incurred. Fair value of such warrants is determined at the issue date using the Black-Scholes option pricing model.

The warrant liability is classified as non-current, unless the underlying warrants will expire or be settled within 12 months from the end of a given reporting period.

When issued warrants meet the fixed-for-fixed criteria under IAS 32, Financial Instruments, either upon initial issue or upon subsequent registration of the common shares underlying the warrants, the Company classifies such warrants as equity-settled. Such warrants are accounted for by using the relative fair value method whereby the total gross proceeds from the offering are allocated to each of common shares and warrants based on their relative fair values. Fair value of such warrants is determined at the issue date using the Black-Scholes option pricing model.

Share-based compensation costs

The Company operates an equity-settled share-based compensation plan under which the Company receives services from directors, senior executives, employees and other collaborators as consideration for equity instruments of the Company. The Company accounts for all forms of share-based compensation using the fair value-based method. Fair value of stock options is determined at the date of grant using the Black-Scholes option pricing model, which includes estimates of the number of awards that are expected to vest over the vesting period. Where granted share options vest in installments over the vesting period (defined as graded vesting), the Company treats each installment as a separate share option grant. Share-based compensation expense is recognized over the vesting period, or as specified vesting conditions are satisfied, and credited to other capital. Any consideration received by the Company in connection with the exercise of stock options is credited to share capital. Any other capital component of the share-based compensation is transferred to share capital upon the issuance of shares.

The Company grants deferred share units (“DSUs”) to members of its Board of Directors who are not employees or officers of the Company. DSUs cannot be redeemed until the holder is no longer a director of the Company and are considered equity-settled instruments. Under the terms of the DSU agreement, the DSUs vest immediately upon grant. The value attributable to the DSUs is based on the market value of the share price at the time of grant and share based compensation expense is recognized in general and administrative expenses in the consolidated statement of comprehensive loss. At the time of redemption, each DSU may be exchanged for one common share of the Company. Any consideration received by the Company in connection with the exercise of DSUs is credited to share capital. Any other capital component of the share-based compensation is transferred to share capital upon the issuance of shares.

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Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2021 and December 31, 2020 and for the years ended

December 31, 2021, 2020 and 2019

(in thousands of US dollars, except share and per share data and where otherwise noted)

Revenue recognition

The Company generates revenue from license and collaboration agreements with customers (license fees, milestone revenue, royalties), the provision of development services, the sale of certain active pharmaceutical ingredients (“API”) and semi-finished goods and finished goods, and from certain supply chain activities, which are comprised largely of oversight or supervisory support services related to stability studies or development activities carried out with respect to API batch production as specified in underlying contracts with customers.

The Company applies the provisions of IFRS 15, Revenue from Contracts with Customers (“IFRS 15”), a single, comprehensive set of criteria for revenue recognition. IFRS 15 applies to all contracts with customers except for contracts that are within the scope of other standards. IFRS 15 prescribes a five-step framework through which revenue is recognized when control of promised goods or services is transferred to a customer at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Goods and services that are determined not to be distinct are combined with other promised goods or services until a distinct bundle is identified. The Company allocates the transaction price (the amount of consideration to which the Company expects to be entitled in exchange for the promised goods or services) to each performance obligation and recognizes the associated revenue when (or as) each performance obligation is satisfied. The Company’s estimate of the transaction price for each contract includes all variable consideration to which the Company expects to be entitled, and that estimate is reassessed at the end of each reporting period. When two or more contracts are entered into with the same customer at or near the same time, the Company evaluates the contracts to determine whether the contracts should be accounted for as a single arrangement.

The transaction price is allocated among the performance obligations on a relative standalone selling price basis, and the applicable revenue recognition criteria are applied to each of the separate performance obligations. Standalone selling prices may be estimated via methods that include, but are not limited to, an adjusted market assessment approach, an expected cost-plus-margin approach or a residual approach. Determining the standalone selling price for performance obligations requires significant judgment.

The Company applies judgment in determining whether a combined performance obligation is satisfied at a point in time or over time, and, for performance obligations satisfied over time, in concluding upon the appropriate method of measuring progress to be applied for purposes of recognizing revenue. The Company evaluates the measure of progress each reporting period and, as estimates related to the measure of progress change, related revenue recognition is adjusted accordingly. Changes in the Company’s estimated measure of progress are accounted for on a cumulative catch-up basis as a change in accounting estimate and are recorded in the consolidated statement of comprehensive loss in the period of adjustment.

License fees

If the license to the Company’s intellectual property is determined to be distinct from the other promises or performance obligations identified in the arrangement, the Company recognizes revenue from non-refundable, upfront fees allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license. In assessing whether a license is distinct from the other promises, the Company considers whether the collaboration partner can benefit from the license for its intended purpose without the receipt of the remaining promises, whether the value of the license is dependent on the unsatisfied promises, whether there are other vendors that could provide the remaining promises and whether it is separately identifiable from the remaining promises. For licenses that are combined with other promises, the Company utilizes judgment to assess the nature of the combined performance obligation and whether the license is the predominant promise within the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue.

18

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2021 and December 31, 2020 and for the years ended

December 31, 2021, 2020 and 2019

(in thousands of US dollars, except share and per share data and where otherwise noted)

Development services

Arrangements that include a promise for the Company to provide development services are assessed to determine whether the services are capable of being distinct, are not highly interdependent or do not significantly modify one another, and if so, the services are accounted for as a separate performance obligation as the services are provided to the customer. Otherwise, when development services are determined not to be capable of being distinct, such services are added to the performance obligation that includes the underlying license. For development services that are combined with other promises, the Company applies judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time. The Company utilizes judgment to determine the appropriate method of measuring progress for purposes of recognizing revenue, which is generally an input measure such as costs incurred.

Milestone payments

At the inception of any contracts with a customer that includes milestone payments, which are oftentimes payable upon the successful achievement of development or regulatory events, the Company evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method. If the Company concludes it is highly probable that a significant revenue reversal will not occur, the associated milestone payment is included in the transaction price. Milestone payments that are not within the control of the Company or the licensee, such as regulatory approvals, are generally not considered probable of being achieved until those approvals are received. The transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis, for which the Company recognizes revenue when (or as) the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, the Company reassesses the probability of achievement of milestones and any related constraints, and, if necessary, adjusts the estimate of the overall transaction price on a cumulative catch-up basis.

Royalty payments

For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and when the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (a) when the related sales occur, or (b) when the performance obligation to which some or all of the royalty has been allocated has been satisfied or partially satisfied.

Product sales

The Company recognizes revenue from the sale of certain API and semi-finished goods, including Macrilen^TM, upon delivery of such items to its customer.

19

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2021 and December 31, 2020 and for the years ended

December 31, 2021, 2020 and 2019

(in thousands of US dollars, except share and per share data and where otherwise noted)

Supply chain revenue

Supply chain services are contracted with fixed fees and are provided over a period of time. The Company recognizes revenue on a straight-line basis over time as it best represents the pattern of performance of the services.

While providing services, the Company incurs certain direct costs for subcontractors and other expenses that are recoverable directly from its customers. The recoverable amounts of these direct costs are included in the Company’s operating expenses as the Company controls the services before they are transferred to the customer and acts as a principal in these arrangements.

Contract costs

The Company recognizes as an asset the incremental costs of obtaining a contract with a customer if the costs are expected to be recovered, and any capitalized contract costs are amortized on a systematic basis that is consistent with the transfer to the customer of the goods or services to which the asset relates. As a practical expedient, the Company recognizes the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that it otherwise would have recognized is one year or less. To date, the Company has not incurred any incremental costs of obtaining a contract with a customer.

Contract modifications

Contract modifications are defined in IFRS 15 as changes in the scope or price (or both) of a contract that are approved by the parties to the contract, such as a contract amendment. Contract modifications exist when the parties to a contract approve a modification that either creates new or changes existing enforceable rights and obligations of the parties to the contract. Depending on facts and circumstances, the Company accounts for a contract modification in one of the following ways: (a) as a separate contract; (b) as a termination of the existing contract and a creation of a new contract; or (c) as a combination of the preceding treatments. A contract modification is accounted for as a separate contract if the scope of the contract increases because of the addition of promised goods or services that are distinct and the price of the contract increases by an amount of consideration that reflects the Company’s standalone selling prices of the additional promised goods or services. When a contract modification is not considered a separate contract and the remaining goods or services are distinct from the goods or services transferred on or before the date of the contract modification, the Company accounts for the contract modification as a termination of the existing contract and a creation of a new contract. When a contract modification is not considered a separate contract and the remaining goods or services are not distinct, the Company accounts for the contract modification as an add-on to the existing contract and as an adjustment to revenue on a cumulative catch-up basis.

Income tax

Income tax on profit or loss comprises current and deferred tax. Tax is recognized in profit or loss, except that a change attributable to an item of income or expense recognized as other comprehensive loss or directly in equity is also recognized directly in other comprehensive loss or directly in equity. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation and establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

The current income tax charge is calculated in accordance with tax rates and laws that have been enacted or substantively enacted by the reporting date in the countries where the Company’s subsidiaries operate and generate taxable income.

20

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2021 and December 31, 2020 and for the years ended

December 31, 2021, 2020 and 2019

(in thousands of US dollars, except share and per share data and where otherwise noted)

Deferred income tax is recognized on temporary differences (other than, where applicable, temporary differences associated with unremitted earnings from foreign subsidiaries and associates, to the extent that the investment is essentially permanent in duration, and temporary differences associated with the initial recognition of goodwill) arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements and on unused tax losses or R&D non-refundable tax credits in the Group. Deferred income tax is determined using tax rates and laws that have been enacted or substantively enacted by the reporting date.

Deferred income 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 income 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 income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

The Company provides reserves for potential payments of tax to various tax authorities related to uncertain tax positions and other issues. Reserves are based on a determination of whether and how much of a tax benefit taken by the Company in its tax filing is more likely than not to be realized following resolution of any potential contingencies present related to the tax benefit.

Research and development expenses

Research costs are expensed as incurred. Development costs are expensed as incurred, except for those that meet the criteria for deferral, in which case the costs are capitalized and amortized to operations over the estimated period of benefit. No development costs have been capitalized during any of the periods presented.

Net loss per share

Basic net loss per share is calculated using the weighted average number of common shares outstanding during the year.

Diluted net loss per share is calculated based on the weighted average number of common shares outstanding during the year, plus the effects of dilutive common share equivalents, such as stock options and warrants. This method requires that diluted net loss per share be calculated using the treasury stock method, as if all common share equivalents had been exercised at the beginning of the reporting period, or period of issuance, as the case may be, and that the funds obtained thereby were used to purchase common shares of the Company at the average trading price of the common shares during the period.

21

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2021 and December 31, 2020 and for the years ended

December 31, 2021, 2020 and 2019

(in thousands of US dollars, except share and per share data and where otherwise noted)

3. Critical accounting estimates and judgments

The preparation of consolidated financial statements in accordance with IFRS requires management to make judgments, estimates and assumptions that affect the reported amounts of the Company’s assets, liabilities, revenues, expenses and related disclosures. Judgments, estimates and assumptions are based on historical experience, expectations, current trends and other factors that management believes to be relevant at the time at which the Company’s consolidated financial statements are prepared.

Management reviews, on a regular basis, the Company’s accounting policies, assumptions, estimates and judgments in order to ensure that the consolidated financial statements are presented fairly and in accordance with IFRS. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

Critical accounting estimates and assumptions are those that have a significant risk of causing material adjustment and are often applied to matters or outcomes that are inherently uncertain and subject to change. As such, management cautions that future events often vary from forecasts and expectations and that estimates routinely require adjustment.

The following discusses the most significant accounting estimates and assumptions that the Company has made in the preparation of the consolidated financial statements.

Accounting for a contract modification

The Novo Amendment, as defined and discussed in note 5 – License, supply and distribution arrangements, and which was determined to be a modification pursuant to the provisions of IFRS 15, required management to apply significant judgments, including: assessment of any increases to the scope of the license agreement; assessment of whether the remaining goods or services are distinct from goods or services transferred before the modification; and assessment as to whether a portion of the changes in the transaction price was attributable to the amount of variable consideration promised before the modification. Any changes in the judgments or assumptions applied to account for this agreement could have a significant impact on the Company’s revenue and deferred revenue.

License and collaboration arrangements with multiple elements

The Company enters into licensing and supply agreements related to the licensing, development, supply and distribution for macimorelin in various territories. Each agreement may contain specific terms or clauses that require careful analysis by management under IFRS 15 in order to ensure the appropriate accounting treatment is reached. The agreements may include non-refundable upfront payments and licensing fees, the provision of development services, pre- and post-commercialization milestone payments, royalties on future product sales derived from such license agreements, and supply arrangements. Management analyzes each agreement and applies significant judgment to determine whether contracts entered into at or near the same time should be accounted for as a single arrangement, whether all parts of the contract are scoped within IFRS 15, to identify all performance obligations, determine whether a performance obligation is distinct or should be combined with other promised goods and services, determine and allocate the transaction price on a relative stand-alone selling price basis, determine whether a combined performance obligation is satisfied at a point in time or over time, and, for performance obligations satisfied over time, in concluding upon the appropriate method of measuring progress to be applied for purposes of recognizing revenue. Any changes in the judgments or assumptions applied can give rise to a significant impact on the Company’s revenues and deferred revenues 

Impairment of goodwill

The annual impairment assessment related to goodwill requires management to estimate the recoverable amount, which has been determined using fair value less cost of disposal. The Company has a single cash generating unit and reportable segment, and management monitors goodwill based on an overall entity basis. The carrying amount of its consolidated net assets is compared to its overall market capitalization less estimated cost of disposal. Based on this calculation, including a control premium, management determined that goodwill was not impaired. Future events could cause the assumptions utilized in the impairment tests to change, resulting in a potentially adverse effect on the Company’s future results due to increased impairment charges.

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Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2021 and December 31, 2020 and for the years ended

December 31, 2021, 2020 and 2019

(in thousands of US dollars, except share and per share data and where otherwise noted)

Employee future benefits

The determination of expenses and obligations associated with employee future benefits requires the use of assumptions, such as the discount rate to measure obligations, rate of pension benefit increases, the projected age of employees upon retirement and the expected rate of future compensation. Because the determination of the costs and obligations associated with employee future benefits requires the use of various assumptions, there is measurement uncertainty inherent in the actuarial valuation process. Actual results will differ from results that are estimated based on the aforementioned assumptions. Additional information is included in note 18 - Employee future benefits.

Research and development accrual

As part of the process of preparing our financial statements, we are required to estimate accrued expenses including those pertaining to our research and development expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrued or prepaid expense balance accordingly. Although the Company does not expect estimates to be materially different from amounts actually incurred, if those estimates of the status and timing of services performed differ from the actual status and timing of services performed, the Company may report amounts that are too high or too low in any particular period.

4. Recent accounting pronouncements

IFRS Pronouncements issued but not yet effective

(a) IAS 37, Provisions, Contingent Liabilities and Contingent Assets (“IAS 37”)

The amendment to IAS 37 clarifies the meaning of costs to fulfil a contract and that before a separate provision for an onerous contract is established, an entity recognizes any impairment loss that has occurred on assets used in fulfilling the contract, rather than on assets dedicated to the contract. This amendment will be effective for annual periods beginning on or after January 1, 2022. The Company is currently evaluating this guidance and the impacts that the amendments may have on the Company’s consolidated financial statements.

5. License, supply and distribution arrangements

License and supply agreements for Macrilen™ - United States and Canada

On January 16, 2018, the Company, through AEZS Germany, entered into License Agreement with Strongbridge Ireland Limited (“Strongbridge”) to carry out development, manufacturing, registration, regulatory and supply chain services for the commercialization of Macrilen™ (macimorelin) in the U.S. and Canada, which provides for (i) a right to use license relating to the adult indication (the “Adult Indication”); (ii) a license for a future FDA-approved pediatric indication (the “Pediatric Indication”); (iii) the licensee to fund 70% of the costs of a pediatric clinical trial submitted for approval to the EMA and FDA to be run by the Company with oversight from a joint steering committee (the “PIP”); and (iv) for an Interim Supply Arrangement. In January 2018, the Company received a cash payment of $24,000 from Strongbridge and on July 23, 2018, Strongbridge launched product sales of Macrilen™ (macimorelin) in the U.S. The Company is also entitled to receive a milestone payment of $5,000 upon FDA approval of the Pediatric Indication. Effective December 19, 2018, Strongbridge sold the entity which owned the License Agreement for the U.S. and Canadian rights to Macrilen™ (macimorelin) to Novo. In 2019, the Interim Supply Arrangement was concluded and Novo contracted AEZS Germany to provide supply chain services for the manufacture of Macrilen™ (macimorelin).

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Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2021 and December 31, 2020 and for the years ended

December 31, 2021, 2020 and 2019

(in thousands of US dollars, except share and per share data and where otherwise noted)

On November 16, 2020, the Company, through AEZS Germany, entered into an amendment (the “Novo Amendment”) of its existing License Agreement with Novo related to the development and commercialization of macimorelin.

Under the Novo Amendment, Aeterna continues to retain all rights to macimorelin outside of the U.S. and Canada but Novo agreed to make an upfront payment to Aeterna of $6,109 (€5,000), which the Company received in December 2020. Under the Novo Amendment, the royalty payment Aeterna receives on sales in the U.S. and Canada was reduced from 15% to 8.5% for annual net sales up to U.S.$40 million and returns to 15% or more for annual net sales of macimorelin over U.S.$40 million. Additionally, the $5,000 variable payment owing to Aeterna by Novo, upon FDA approval of the pediatric indication, was waived. Under the Novo Amendment, Novo and Aeterna agreed that solely Aeterna will conduct the pivotal Study P02 in partnership with a contract research organization (“CRO”). Given the transfer of development activities to Aeterna, the percentage of Study P02 clinical trial costs that Novo is required to reimburse to Aeterna was adjusted from 70% to 100% of costs up to €9,000 (approximately $10,980). Any additional external jointly approved Study P02 trial costs incurred over €9,000 will be shared equally between Novo and Aeterna. In addition, certain changes to rights and responsibilities of the joint steering committee were made.

Under the amended terms, Novo was also granted co-ownership of the U.S. and Canadian patents and trademarks owned by Aeterna on macimorelin but will be required to transfer co-ownership in those patents back to Aeterna on the occurrence of certain termination events.

Management has determined that the modification that grants co-ownership of the U.S. and Canadian patents and trademarks that were previously licensed by the Company to Novo is not a distinct performance obligation as the related benefits are highly interdependent and interrelated with the licensed indications granted under the existing license contract prior to the modification.

In addition, upon regulatory approval of macimorelin in the U.S. for the diagnosis of CGHD, if Novo determines not to commercialize macimorelin in Canada, then Aeterna has the option to exclusively license rights to macimorelin in Canada (but not in U.S.) to a third party. The Amendment also confirms that Aeterna has the right to use the results from Study P02, if successful, to support Aeterna seeking regulatory approval and ongoing efforts to seek partnering opportunities for macimorelin in other regions outside of the two countries licensed to Novo, the U.S. and Canada.

Analysis prior to modification

At contract inception, upon analysis of the total discounted cash flows of both the $24,000 payment and the $5,000 payment upon FDA approval of the Pediatric Indication, the Company determined that 84% of the future revenue streams would be derived from the Adult Indication and 16% from the Pediatric Indication. On a relative fair value basis, the Company had allocated the transaction price to the performance obligations resulting in $23,600 being allocated to the Adult Indication and being recognized as license fee revenue in the consolidated statement of comprehensive loss for the year ended, December 31, 2018, and $400 being allocated to the Pediatric Indication, which was recognized as deferred revenue on the consolidated statement of financial position and amortized on a straight-line basis beginning January 2018, over a period of 5.4 years, into the consolidated statements of comprehensive loss.

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Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2021 and December 31, 2020 and for the years ended

December 31, 2021, 2020 and 2019

(in thousands of US dollars, except share and per share data and where otherwise noted)

Under the License Agreement, the Company considered the funding arrangement under the PIP to be a collaboration arrangement under IFRS 11 and has accounted for the invoicing as a reduction of costs incurred. During 2020, the Company invoiced its licensee $1,099 (2019 - $979) as its share of the costs incurred by the Company.

Analysis post modification

On November 16, 2020, the Company announced that it had entered into the Novo Amendment of its existing License Agreement and received an upfront payment of $6,109 (€5,000) in December 2020. Management determined that the remaining performance obligation under the contract which provides the customer with the license of a future FDA approved Pediatric Indication is a distinct performance obligation before and after the modification. Accordingly, the Company accounted for the modification to the License Agreement as an adjustment to the existing License Agreement with Novo, on a prospective basis. The portion of the changes in the transaction price that was attributable to the change in royalty rate was allocated to both the Adult Indication and the Pediatric Indication. Based on the change in future royalty rates, the Company determined that $550 of the additional upfront payment should be allocated to the Adult Indication. Accordingly, the Company allocated $550 (€470) to the Adult Indication which was recognized in revenues for the year ended December 31, 2020 and deferred $5,559 (€4,530).

As required per IFRS 11, given changes in facts and circumstances with respect to the development activities associated with the pediatric indication—namely, the substantive changes to rights and responsibilities granted to Novo pursuant to the Novo Amendment—management reassessed whether the classification of those activities should change. Management concluded that the parties to the Novo Amendment no longer share joint control of the related activities. As such, the Pediatric Indication development activities are no longer accounted for under IFRS 11, and the incremental performance obligation associated with the Pediatric Indication development services has been combined with the pediatric license for revenue recognition purposes. No other additional performance obligations were identified in the Novo Amendment.

Based on the preceding analysis, management determined that the total modified transaction price was $5,754 (€4.7 million), which is comprised of $195 (€0.2 million) pre-Novo Amendment unamortized pediatric license fee and $5,559 (€4.5 million) post-Novo Amendment Pediatric Indication and has been allocated to the remaining combined performance obligation. Revenue associated with this performance obligation is being recognized as pediatric development services using a cost-to-cost measure of progress method. The transfer of control to Novo occurs over time, and as such, in management’s judgment, this input method is the best measure of progress towards satisfying the performance obligation and reflects a faithful depiction of the transfer of goods and services. As of December 31, 2021, management expects that the remaining performance obligation will be recognized through December 31, 2022. Management reevaluates the transaction price at the end of each reporting period or as changes in circumstances occur and adjusts the transaction price and the timing of recognition thereof as necessary.

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Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2021 and December 31, 2020 and for the years ended

December 31, 2021, 2020 and 2019

(in thousands of US dollars, except share and per share data and where otherwise noted)

Supply Chain Arrangement

The Company agreed, in the Interim Supply Arrangement to the License Agreement, to supply ingredients for the manufacture of Macrilen™ (macimorelin) during an interim period at a price that is set ‘at cost’ without any profit margin. The Company believes the stand-alone selling price of the manufacturing ingredients to be their cost, as that approximates the amount at which Novo would be able to procure those same goods with other suppliers. In November 2019, Novo contracted with AEZS Germany, to provide supply chain services including provision of supervision of stability studies (support services) as well as API batch production and delivery of certain API and semi-finished goods.

License and supply agreements for macimorelin - European Union and United Kingdom

Background

On December 7, 2020, the Company entered into an exclusive licensing agreement with Consilient Health Limited (“CH”) for the commercialization of macimorelin (the “Licensed Product”) in the European Economic Area and the United Kingdom (the “CH License Agreement”).

Under the terms of the CH License Agreement, CH agreed to make a non-refundable, non-creditable upfront payment to the Company of $1,209 (€1.0 million), which the Company received in January 2021. The Company also is eligible to receive additional consideration, including regulatory milestones related to agreed-upon pricing and reimbursement parameters; net sales milestones; and royalties, ranging from 10%-20% of net sales of macimorelin, subject to reduction in certain cases, or sublicense income recorded by CH. Also on December 7, 2020, the Company and CH entered into an exclusive supply agreement, pursuant to which the Company agreed to provide the Licensed Product to CH, with such Licensed Product to be manufactured by third-party manufacturers for a period of ten years, subject to renewal (the “CH Supply Agreement”).

The total transaction price associated with the CH Agreement is $1,209 (€1.0 million), which consists of the non-refundable, non-creditable upfront payment, discussed above. At the inception of the contract, all other contractual consideration to which the Company may be entitled represents variable consideration, including the regulatory milestones, which were determined to be zero, based on management’s estimate of the most likely amount, given that the achievement of the underlying milestones is uncertain and highly susceptible to factors outside of the Company’s control.

The Company allocated the transaction price to the two combined performance obligation of the license agreement and the supply agreement for the adult and pediatric indication, using the application of an adjusted market assessment approach. Revenue will be recognized over time using an outputs method based on units of Licensed Product supplied to CH. The total units that the Company expects to supply to CH pursuant to the CH Agreement is an estimate, based on current projections and anticipated market demand, and therefore will be a significant judgment that will be relied upon when using the outputs method to recognize revenue.

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Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2021 and December 31, 2020 and for the years ended

December 31, 2021, 2020 and 2019

(in thousands of US dollars, except share and per share data and where otherwise noted)

In December 2021, the Department of Health and Social Care in the United Kingdom approved a list price which triggered a $226 (€0.2 million) pricing milestone payment, which was allocated to the Adult license performance obligation and deferred to the consolidated statement of financial position.

The aggregate amount of the transaction price allocated to the Company’s unsatisfied or partially unsatisfied performance obligations under the CH Agreement was $1,358 (€1.2 million) as of December 31, 2021. The Company expects to recognize the balance of the relevant deferred revenue over the remaining period of ten years, subject to extension based on the outcome of the ongoing clinical development related to the Pediatric Indication and related patent application initiatives.

For the year ended December 31, 2021, the Company recognized $nil as license fee revenue associated with the CH Agreement.

License and supply agreements for macimorelin - Korea

The Company and NK Meditech Limited (“NK”) entered into a licensing agreement, effective November 30, 2021 and pursuant to which the Company granted to NK the exclusive right to commercialize (including marketing, selling and offering to sell) macimorelin in the Republic of Korea (the “ROK”) and as applicable, in the Democratic People’s Republic of Korea (“DPRK”) to the extent NK is allowed to use the aforementioned licensed rights in the latter (“NK License Agreement”).

Under the terms of the NK License Agreement, NK agreed to make a non-refundable, non-creditable upfront payment to the Company of $136 (€0.1 million), which the Company received in December 2021. The Company also is eligible to receive additional consideration, including a regulatory milestone related to the approval of macimorelin in the Pediatric Indication in the ROK and/or DPRK. Additionally, NK has agreed to pay AEZS royalties of 12% of any sublicense income (i.e., royalties, upfront payments, license or option fees, lump sum payments, equity securities, milestone payments or other non-cash consideration) that may be received by NK from any future sublicensees (“Sublicense Income”).

Also, effective November 30, 2021, the Company and NK entered into an exclusive supply agreement, pursuant to which the Company agreed to provide macimorelin to NK for a period of ten years, subject to renewal (the “NK Supply Agreement”).

Management determined that the total transaction price associated with the NK License Agreement was $136 (€0.1 million), which consists of the upfront payment, discussed above, that was received by the Company in 2021. The Company allocated the $136 (€0.1 million) transaction price to the single combined performance using an outputs method based on units of macimorelin supplied to NK over a 10-year period.

Distribution agreement for macimorelin - Israel and the Palestinian Authority

In June 2020, the Company entered into an exclusive distribution and quality agreement with MegaPharm Ltd. (“MegaPharm”) for the commercialization in Israel and in the Palestinian Authority of Macrilen^TM, to be used in the diagnosis of patients with adult growth hormone deficiency and in clinical development for the diagnosis of pediatric growth hormone deficiency (the “MegaPharm Agreement”). Under the terms of the MegaPharm Agreement, MegaPharm will be responsible for obtaining registration to market Macrilen^TM in Israel and the Palestinian Authority, while the Company will be responsible for manufacturing, product supply, quality assurance and control, regulatory support, and maintenance of the relevant intellectual property. In June 2021 MegaPharm filed an application to the Ministry of Health of Israel for regulatory approval of macimorelin in Israel and, as of December 31, 2021, there have been no products supplied under this agreement.

Summary of revenue recognized, deferred revenue and contract asset balances associated with license, supply and distribution arrangements

The following table provides a summary of deferred revenue balances for the Novo Amendment, CH Agreement and NK License Agreement as of December 31:

	2021
	Current		Non-Current		Total
	$		$		$
Novo Amendment		4,791		23		4,814
CH Agreement		24		1,334		1,358
NK License Agreement		—		136		136
Total		4,815		1,493		6,308

	2020
	Current		Non-Current		Total
	$		$		$
Novo Amendment		2,193		3,289		5,482
Total		2,193		3,289		5,482

The following table provides a summary of revenue recognized for the Strongbridge agreement and Novo Amendment:

	Years ended December 31,
	2021		2020		2019
		$		$		$
License fee associated with the Strongbridge Agreement		—		68		74
License fee associated with the Novo Amendment (of which $1,670 (2020 - $264 and 2019 - $nil) in deferred revenue was recognized)		1,670		843		—
Development services associated with Novo Amendment		3,337		—		—
Product sales associated with Novo Supply Agreement (of which $nil (2020 - $852 and 2019 - $nil) in deferred revenue was recognized for prepayments received from Novo)		—		2,370		129
Royalties associated with the Strongbridge Agreement		—		56		45
Royalties associated with the Novo Amendment		68		11		—
Supply chain revenue associated with the Novo Supply Agreement (of which $nil (2020 - $67 and 2019 - $nil) in deferred revenue was recognized upon sale of Macrilen™ to Novo)		185		304		284
Total		5,260		3,652		532

As of December 31, 2021, the Company had $132 in contract assets associated with the Novo Amendment which is presented in other receivables in the Company’s consolidated statement of financial position (note 7).

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Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2021 and December 31, 2020 and for the years ended

December 31, 2021, 2020 and 2019

(in thousands of US dollars, except share and per share data and where otherwise noted)

6. Cash and cash equivalents

	December 31,
	2021		2020
		$		$
Cash on hand and balances with banks		55,600		23,920
Interest-bearing deposits with maturities of three months or less		9,700		351
		65,300		24,271

7. Trade and other receivables

	December 31,
	2021		2020
		$		$
Trade accounts receivable (net of expected credit losses of $55 (2020 - $55))		877		1,190
Value added tax		372		468
Other receivables		65		23
		1,314		1,681

See also note 24 - Financial instruments and financial risk management for discussion of credit losses.

8. Inventory

	December 31,
	2021		2020
		$		$
Work in process		73		21
		73		21

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Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2021 and December 31, 2020 and for the years ended

December 31, 2021, 2020 and 2019

(in thousands of US dollars, except share and per share data and where otherwise noted)

The Company recognized $nil of inventory costs and $nil as impairment in inventory in the consolidated statement of comprehensive loss for the year ended December 31, 2021 (2020 - $1,980 and $131, respectively and 2019 - $101 and $106, respectively).

9. Prepaid expenses and other current assets

	December 31,
	2021		2020
		$		$
Prepaid insurance		421		1,021
Prepaid research and development		1,329		—
Other		22		19
		1,772		1,040

10. Restricted cash equivalents

The Company had restricted cash equivalents amounting to $335 at December 31, 2021 (2020 - $338). These balances consist of certificates of deposit that are used as collateral for corporate credit cards and leases.

11. Property, plant and equipment

Components of the Company’s property, plant and equipment are summarized below.

	Cost
	Equipment			Furniture and fixtures			Computer equipment			Leasehold improvements			Total
	$			$			$			$			$
At January 1, 2020		422			7			314			34			777
Disposals / Retirements		(245	)		(7	)		(3	)		(38	)		(293	)
Impact of foreign exchange rate changes		38			—			24			4			66
At December 31, 2020		215			—			335			—			550
Additions		6			—			24			—			30
Disposals / Retirements		(5	)		—			(69	)		—			(74	)
Impact of foreign exchange rate changes		(17	)		—			(22	)		—			(39	)
At December 31, 2021		199			—			268			—			467

	Accumulated Depreciation
	Equipment		Furniture and fixtures		Computer equipment		Leasehold improvements		Total
	$		$		$		$		$
At January 1, 2020	400		7		307		28		742
Disposals / Retirements	(247	)	(7	)	(3	)	(38	)	(295	)
Depreciation expense	6		—		3		—		9
Impact of foreign exchange rate changes	40		—		22		10		72
At December 31, 2020	199		—		329		—		528
Disposals / Retirements	(5	)	—		(69	)	—		(74	)
Depreciation expense	4		—		5		—		9
Impact of foreign exchange rate changes	(17	)	—		(21	)	—		(38	)
At December 31, 2021	181		—		244		—		425

	Carrying amount
	Equipment	Furniture and fixtures	Computer equipment	Leasehold improvements	Total
	$	$	$	$	$
At December 31, 2020	16	—	6	—	22
At December 31, 2021	18	—	24	—	42

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Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2021 and December 31, 2020 and for the years ended

December 31, 2021, 2020 and 2019

(in thousands of US dollars, except share and per share data and where otherwise noted)

12. Right of use assets

	Building			Vehicles and equipment			Total
	$			$			$
Cost
At January 1, 2020		757			106			863
Modification of building lease		(259	)		—			(259	)
Additions		—			7			7
Disposals		—			(21	)		(21	)
Impact of foreign exchange rate changes		48			2			50
At December 31, 2020		546			94			640
Additions		16			—			16
Modification of building lease		109			—			109
Impact of foreign exchange rate changes		(48	)		(7	)		(55	)
At December 31, 2021		623			87			710

	Building	Vehicles and equipment	Total
	$	$	$
Accumulated Depreciation
At January 1, 2020	242	39	281
Disposals	—	(21)	(21)
Depreciation	180	23	203
Impact of foreign exchange rate changes	15	5	20
At December 31, 2020	437	46	483
Depreciation	94	26	120
Impact of foreign exchange rate changes	(38)	(5)	(43)
At December 31, 2021	493	67	560

	Building		Vehicles and equipment		Total
	$		$		$
Carrying amount
As of December 31, 2020		109		48		157
As of December 31, 2021		130		20		150

Effective August 25, 2021, the Company and its landlord mutually agreed to a one-year extension to its existing building lease agreement for its German subsidiary, continuing such terms until March 31, 2023, resulting in a modification being recorded to the building right of use asset in the amount of $109. Upon the renegotiation of the building lease agreement completed on April 30, 2020, a modification was recorded to the building right of use asset in the amount of $259, representing the reduction in the square footage leased from the landlord. Also see note 17 - Lease liabilities.

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Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2021 and December 31, 2020 and for the years ended

December 31, 2021, 2020 and 2019

(in thousands of US dollars, except share and per share data and where otherwise noted)

13. Identifiable intangible assets

Changes in the carrying value of the Company’s identifiable intangible assets are summarized below.

	Year ended December 31, 2021									Year ended December 31, 2020
	Cost			Accumulated amortization			Carrying value			Cost		Accumulated amortization			Carrying value
		$			$			$			$		$			$
Balances – Beginning of the year		35,020			(34,961	)		59			31,422		(31,382	)		40
Additions		609			—			609			34		—			34
Amortization expense		—			(16	)		(16	)		—		(20	)		(20	)
Impact of foreign exchange rate changes		(3,218	)		3,191			(27	)		3,564		(3,559	)		5
Balances – End of the year		32,411			(31,786	)		625			35,020		(34,961	)		59

During 2021, the Company recorded additions of $609, for separately identified intangibles related to upfront payments under certain license agreements with the University of Wuerzburg €400 ($471) and the University of Sheffield £100 ($138). These intangible assets were not subject to amortization in the year ended December 31, 2021 as they are not ready for their intended use. Amortization of intangible assets with finite lives of $16 (2020 - $20 and 2019 - $20) is presented in research and development expenses.

Cetrotide

On August 10, 2021, the Company entered into a trademark maintenance and assignment option agreement with ARES Trading SA, a subsidiary of Merck KGaA (“Merck”), with respect to the trademarks owned by the Company on Cetrotide® (cetrorelix acetate for injection), a luteinizing hormone-releasing hormone antagonist approved for therapeutic use as part of in vitro fertilization programs in women undergoing infertility treatment (the “Cetrotide Agreement”). The Company had transferred all Cetrotide activities to Merck in 2013 via a license and supply agreement (“LSA”).

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Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2021 and December 31, 2020 and for the years ended

December 31, 2021, 2020 and 2019

(in thousands of US dollars, except share and per share data and where otherwise noted)

Pursuant to the Cetrotide Agreement, the Company has granted to Merck the exclusive option to acquire any and all rights in the Cetrotide trademarks at the end of the term of the LSA (the “Option”), which currently is May 2029 (the “Transfer Date”), when, as agreed, the Company will convey and assign to Merck all rights and interest in, as well as title to, the Cetrotide trademarks. The transfer of the trademarks on the Transfer Date shall constitute a sale, after which the Company will no longer have any ownership in or obligations related to the Cetrotide trademarks.

As consideration for having been granted the Option, Merck has agreed to pay the Company a total of $566 (€0.5 million) a portion of which is to be calculated as a reimbursement of all internal and external trademark fees incurred by the Company for all years beginning with 2019 until the Transfer Date. If the Company is not able to transfer the trademarks to Merck on the Transfer Date, all consideration paid by Merck to the Company through the Transfer Date shall be refunded to Merck, and all rights associated with the Trademarks shall revert back to the Company.

The carrying value of the trademarks underlying Cetrotide is $nil and the Company received proceeds of $98 through December 31, 2021. Any proceeds that are received pursuant to the Cetrotide Agreement have been or will be recorded as a deferred gain in the Company’s consolidated statement of financial position. The Company will recognize the entirety of the gain on the Transfer Date to the extent that the transfer is successful.

14. Goodwill

	Cost			Accumulated impairment loss		Carrying amount
	$			$		$
Balances at January 1, 2020		8,050			—		8,050
Impact of foreign exchange rate changes		765			—		765
Balances at December 31, 2020		8,815			—		8,815
Impact of foreign exchange rate changes		(685	)		—		(685	)
Balances at December 31, 2021		8,130			—		8,130

Management’s evaluation of impairment in goodwill is based on fair value less costs of disposal based on the Company’s market capitalization at December 31, 2021, including a control premium, less estimated cost of disposal of approximately $1,774. There was no impairment assessed at December 31, 2021.

15. Payables and accrued liabilities

	December 31,
	2021		2020
		$		$
Trade accounts payable		934		1,187
Accrued research and development costs		531		23
Salaries, employment taxes and benefits		596		474
Other accrued liabilities		611		515
		2,672		2,199

32

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2021 and December 31, 2020 and for the years ended

December 31, 2021, 2020 and 2019

(in thousands of US dollars, except share and per share data and where otherwise noted)

16. Provisions

	Cetrotide onerous contracts			German restructuring: severance			Total
		$			$			$
Balance at January 1, 2020		396			330			726
Utilization of provision		(93	)		(323	)		(416	)
Change in the provision		33			—			33
Unwinding of discount and impact of foreign exchange rate changes		35			(7	)		28
Balance at December 31, 2020		371			—			371
Utilization of provision		(90	)		—			(90	)
Change in the provision		23			—			23
Unwinding of discount and impact of foreign exchange rate changes		(27	)		—			(27	)
Balance at December 31, 2021		277			—			277
Less: current portion		34			—			34
Non-current portion		243			—			243

In 2013, the Company recognized a provision for certain non-cancellable contracts related to the Cetrotide activities, discussed in note 13 – Identifiable intangible assets, that were deemed onerous. The provisions for onerous contracts represent the present value of estimated unavoidable future royalty and patent costs associated with the intellectual property underlying Cetrotide.

On June 6, 2019, the Company announced that it was reducing the size of its German workforce to more closely reflect the Company’s ongoing commercial activities. This restructuring was completed on January 31, 2020.

17. Lease liabilities

	Years Ended December 31,
	2021			2020
		$			$
Balance – Beginning of period		184			903
Additions		15			7
Interest paid as charged to comprehensive loss as other finance costs		(7	)		(19	)
Payment against lease liabilities		(127	)		(265	)
Modification of lease liability		103			(463	)
Impact of foreign exchange rate changes		(7	)		21
Balance – End of period		161			184
Current lease liabilities		130			135
Non-current lease liabilities		31			49

33

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2021 and December 31, 2020 and for the years ended

December 31, 2021, 2020 and 2019

(in thousands of US dollars, except share and per share data and where otherwise noted)

Effective March 31, 2020, the Company and its landlord mutually agreed to modify its existing building lease agreement for its German subsidiary, extended the lease term for its portion of the reduced space from April 30, 2021 to March 31, 2022 and retained one sub-lessee until April 30, 2021. On May 5, 2020, the sub-lessee terminated its lease with the Company effective April 30, 2020. Concurrent with this termination, the Company was able to renegotiate a further reduction in leased square footage with the landlord, which resulted in a lease modification and a resulting gain of $34 which was recorded in the consolidated statement of comprehensive loss. Effective August 25, 2021, the Company and its landlord mutually agreed to a one-year extension to its existing building lease agreement for its German subsidiary, continuing such terms until March 31, 2023, resulting in a lease modification and a resulting gain of $nil (2020 - $34) which was recorded in the consolidated statement of comprehensive loss.

Future lease payments as of December 31, 2021 are as follows:

	$
Less than 1 year		130
1 – 3 years		31
Total		161

18. Employee future benefits

AEZS Germany provides unfunded and partially funded defined benefit multi-employer pension plans, namely the DUPK pension plan and the RUK 1990 and 2006 pension plans, (the “Pension Benefit Plans”) and unfunded post-employment benefit plans for certain groups of employees. Provisions for pension obligations are established for benefits payable in the form of retirement, disability and surviving dependent pensions. The Company also provides a defined contribution plans to some of its employees.

The Pension Benefit Plans are final salary pension plans, which provide benefits to members (or to their surviving dependents) in the form of a guaranteed level of pension payable for life. The level of benefits provided depends on the member’s length of service and on the member’s base salary in the final years leading up to retirement. Current pensions vary in accordance with applicable statutory requirements, which foresee an adjustment every three years on an individual basis that is based on inflationary increases or in relation to salaries of comparable groups of active employees in the Company. Generally, the Company has not authorized actual pension increases, given the economic situation of the Company, and any legally required increases have been funded from the related pension surpluses. In 2020, the Company became responsible for pension increases for one of its Pension Benefit Plans and, in 2021, the Company became additionally responsible for pension increases for two of its Pension Benefit Plans.

An increase may be denied by the Company if the Company’s financial situation does not allow for an increase in pensions. As most German pension plans grant lifelong pension benefits, rising life expectancy could increase the Company’s benefit obligation. These plans are fully or partially unfunded and the Company meets benefit payment obligations as they fall due.

In the past, certain Pension Benefit Plans were accounted for as defined contribution plans as sufficient information was not available for the Company to account for its proportionate share of the defined benefit obligation, plan assets and cost associated with such Pension Benefit Plans. During 2021, additional information became available to the Company, which began to account for its proportionate share of the defined benefit obligation and plan assets amounting to $16,137 and $11,963, respectively, which amounts were recorded through other comprehensive income.

34

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2021 and December 31, 2020 and for the years ended

December 31, 2021, 2020 and 2019

(in thousands of US dollars, except share and per share data and where otherwise noted)

The change in the Company’s accrued benefit obligations associated with the Employee future obligation is summarized for the year ended December 31, 2021:

	Pension Benefit Plans			Other benefit plan			Total
		$			$			$
Change in benefit obligation:
Balances – Beginning of the year		15,341			94			15,435
Current service cost		60			5			65
Interest cost		87			1			88
Actuarial loss (gain) arising from changes in financial assumptions		(1,138	)		8			(1,130	)
Past service cost associated with multi-employer plan		16,137			—			16,137
Actuarial loss arising from change in current assumptions on funding of future pension increases		556			—			556
Benefits paid		(509	)		(2	)		(511	)
Impact of foreign exchange rate changes		(1,221	)		(7	)		(1,228	)
Balances – End of the year		29,313			99			29,412
Obligation is attributable to:
Active members		4,242			99			4,341
Vested terminees		13,799			—			13,799
Retirees		11,272			—			11,272
		29,313			99			29,412
Change in plan assets
Balances – Beginning of the year		—			—			—
Presentation of plan assets as of December 31, 2021		11,963			—			11,963
Impact of foreign exchange rate changes		(36	)		—			(36	)
Balances – End of the year		11,927			—			11,927
Net liability of the unfunded plans		12,650			99			12,749
Net liability of the funded plans		4,736			—			4,736
Net amount recognized as Employee future benefits		17,386			99			17,485
Amounts recognized:
In net loss		(147	)		(6	)		(153	)
In other comprehensive (loss)		2,407			1			2,408

35

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2021 and December 31, 2020 and for the years ended

December 31, 2021, 2020 and 2019

(in thousands of US dollars, except share and per share data and where otherwise noted)

The cumulative amount of actuarial net losses recognized in other comprehensive loss as of December 31, 2021 is $9,385 ($5,793 as of December 31, 2020 and $5,143 as of December 31, 2019).

The change in the Company’s accrued benefit obligations associated with the Employee future benefits is summarized for the years ended December 31, 2020 and 2019:

	Pension Benefit Plans Years ended December 31,						Other benefit plans Years ended December 31,
	2020			2019			2020			2019
		$			$			$			$
Balances – Beginning of the year		13,704			13,100			84			105
Current service cost		50			41			4			8
Interest cost		162			239			1			2
Actuarial loss (gain) arising from changes in financial assumptions		650			1,068			1			(28	)
Benefits paid		(529	)		(483	)		(3	)		—
Impact of foreign exchange rate changes		1,304			(261	)		7			(3	)
Balances – End of the year		15,341			13,704			94			84
Amounts recognized:
In net loss		(212	)		(280	)		(6	)		18
In other comprehensive loss		(1,954	)		(807	)		(7	)		3

The Company’s proportionate share of the multi-employer pension plan assets as of December 31, 2021 is as follows:

	$
Quoted equities (Level 1)		826
Quoted bonds (Level 1)		7,445
Cash (Level 1)		67
Real estate (Level 3)		2,207
Other (Level 3)		1,382
Total		11,927

The significant actuarial assumptions applied to determine the Company’s accrued benefit obligations are as follows:

	Pension Benefit Plans						Other benefit plans
	Years ended December 31,						Years ended December 31,
Actuarial assumptions	2021		2020		2019		2021		2020		2019
		%		%		%		%		%		%
Discount rate		1.10		0.60		1.10		1.10		0.60		1.90
Pension benefits increase		0.50		0.50		1.50		0.50		0.50		1.50
Rate of compensation increase		2.50		2.00		2.00		2.50		2.00		2.00

During 2020, management expanded its assumptions of possible future compensation scenarios from its current three-year forecast to a thirty-year forecast and from using an expected average inflation rate to an expected inflation rate. Additionally, the Company included the potential claims of retirees within the thirty-year time horizon. The Company expects to invest in its R&D opportunities, which would not change its economic situation in the short term but, if successful, does allow for scenarios that such pension increases would be owing. Such potential future pension compensation obligations have been included in the revised forecast assumptions, at a rate of 0.50%, in addition to an expected inflation rate of 1.75%. These assumptions remain unchanged in 2021.

36

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2021 and December 31, 2020 and for the years ended

December 31, 2021, 2020 and 2019

(in thousands of US dollars, except share and per share data and where otherwise noted)

Assumptions regarding future mortality are set based on actuarial advice in accordance with published statistics and experience in Germany. These assumptions translate into an average remaining life expectancy in years for a pensioner retiring at age 65:

	2021		2020		2019
Retiring at the end of the reporting period:
Male		21		20		20
Female		24		24		24
Retiring 20 years after the end of the reporting period:
Male		28		28		28
Female		31		31		31

The most recent actuarial reports give effect to the pension and post-employment benefit obligations as of December 31, 2021. The next actuarial reports are planned for December 31, 2022.

In accordance with the assumptions used as of December 31, 2021, undiscounted defined pension benefits expected to be paid are as follows:

	Total $
2022	801
2023	823
2024	853
2025	868
2026	894
Thereafter	32,685
	36,924

The weighted average duration of the defined benefit obligation is 16.0 years.

If variations in the following assumptions had occurred during 2021, the impact on the Company’s pension benefit obligation of $29,313 as of December 31, 2021 would have been as follows:

Assumption	Increase			Decrease
Change in discount rate of 0.25%		(1,252	)		1,338
Change in salary rate of 0.25%		18			(18	)
Change in pension rate assumption by 0.25%		905			(867	)
Change mortality by one year		968			(974	)

Total expenses for the defined benefit plan that the Company accounts for as a defined contribution plan amounted to approximately $45 for the year ended December 31, 2021 (2020 - $38 and 2019 - $54).

37

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2021 and December 31, 2020 and for the years ended

December 31, 2021, 2020 and 2019

(in thousands of US dollars, except share and per share data and where otherwise noted)

19. Share capital, warrants and other capital

(a) Share capital

The Company has an unlimited number of authorized common shares (being voting and participating shares) with no par value, as well as an unlimited number of preferred, first and second ranking shares, issuable in series, with rights and privileges specific to each class, with no par value.

2021

During the year ended December 31, 2021, certain warrant holders exercised outstanding warrants to purchase 35,111,187 of our common shares for gross proceeds of approximately $20.1 million (such exercises, the “2021 Warrant Exercises”).

On February 19, 2021, the Company completed an underwritten public offering of 20,509,746 common shares at $1.45 per common share, resulting in aggregate gross proceeds of $29,739, less underwriting discounts, commissions and offering expenses of $2,837 (the “February 2021 Financing”). The Company also granted to the underwriter and placement agent (the “Underwriter”), a 30-day over-allotment option to purchase up to 3,076,461 additional common shares at a price of $1.45 per common share (the “Underwriter Option”). Additionally, the Company issued warrants underlying 1,435,682 common shares to the Underwriter, with each warrant bearing an exercise price of $1.8125 (the “February 2021 Placement Agent Warrants”). The February 2021 Placement Agent Warrants expire on February 17, 2026.

On February 22, 2021, the Underwriter exercised the Underwriter Option and received 3,076,461 common shares in exchange for gross proceeds to the Company of $4,461. Upon exercise of the Underwriter Option, the Underwriter also received an additional 215,352 February 2021 Placement Agent Warrants.

Aggregate gross proceeds received in connection with the February 2021 Financing totaled $34,200, less cash transaction costs of $3,221 and non-cash transaction costs, which represent the issue-date fair value of the February 2021 Placement Agent Warrants, of $1,897.

2020

On February 21, 2020, the Company closed a registered direct offering for 3,478,261 common shares, at a purchase price of $1.29 per share, priced at-the-market. Additionally, 2,608,696 investor warrants were issued at an exercise price of $1.20 per common share and 243,478 broker warrants were issued at an exercise price of $1.62 per common share. The net cash proceeds to the Company from the offering totaled $3,900. The gross proceeds of $4,500 was allocated as $2,325 to warrant liability based on the ascribed fair value and the remaining gross proceeds of $2,174 were allocated to share capital. The transaction costs of $600 were allocated between share capital and warrants based on their relative fair values. The fair value of the share capital was recorded within equity net of the allocated transaction costs. The transaction costs of $311 allocated to the warrant liability were recorded as expense in the consolidated statement of comprehensive loss.

38

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2021 and December 31, 2020 and for the years ended

December 31, 2021, 2020 and 2019

(in thousands of US dollars, except share and per share data and where otherwise noted)

On July 7, 2020, the Company closed a public offering of 26,666,666 units at a price of $0.45 per unit, for net cash proceeds to the Company of $10,596. Each unit contained one common share (or common share equivalent in lieu thereof) and one investor warrant to purchase one common share. In total, 26,666,666 common shares, 26,666,666 investor warrants at an exercise price of $0.45 per share expiring July 7, 2025 (the “July 2020 Investor Warrants”) and 1,866,667 placement agent warrants with an exercise price of $0.5625 per share, expiring July 1, 2025 (the “July 2020 Placement Agent Warrants”) were issued. As these warrants were registered and can be settled for a fixed number of the Company’s underlying common shares, the warrants meet the requirements of the fixed-for-fixed rule and have been classified as equity.

Because the warrants were classified as equity, the gross proceeds of $12,000 were allocated as $6,308 to share capital and $5,691 to warrants based on their relative fair values. The transaction costs of $1,420 were reduced from share capital and warrants in the amounts of $754 and $666, respectively, and charged to share issuance costs and classified as equity. The values ascribed to the share capital and warrants were recorded within equity, net of the allocated transaction costs.

On August 5, 2020, the Company closed a securities purchase agreement of 12,427,876 common shares at a purchase price of $0.56325 per common share. The offering resulted in gross proceeds of $7,000. Concurrently, the Company issued to the purchasers unregistered warrants to purchase up to an aggregate of 9,320,907 common shares. The warrants are exercisable for a period of five and one-half years, exercisable immediately following the issuance date and have an exercise price of $0.47 per common share. In addition, the Company issued unregistered warrants to the placement agent to purchase up to an aggregate of 869,952 common shares, with an exercise price of $0.7040625 per share and an expiration date of August 3, 2025. The gross proceeds of $7,000 was allocated as $3,944 to warrant liability based on the ascribed fair value and the remaining gross proceeds of $3,056 were allocated to share capital. The transaction costs of $748 were allocated between share capital and warrants based on their relative fair values. The fair value of the share capital was recorded within equity net of the allocated transaction costs of $327. The transaction costs of $421 allocated to the warrant liability were recorded as expense in the consolidated statement of comprehensive loss.

2019

On September 20, 2019, the Company entered into a securities purchase agreement with US institutional investors to purchase $4,988 (before total transaction costs of $795) of its common shares in a registered direct offering and warrants with a cashless exercise feature to purchase common shares in a concurrent private placement (together, the “Offering”). The combined purchase price for one common share and one warrant was $1.50. Under the terms of the securities purchase agreement, the Company sold 3,325,000 common shares. The gross proceeds of $4,988 was allocated as $3,457 to warrants based on the ascribed fair value and the remaining gross proceeds of $1,531 were allocated to share capital. The transaction costs of $795 were allocated between share capital and warrants based on their relative fair values. The fair value of the share capital was recorded within equity net of the allocated transaction costs. The transaction costs of $550 allocated to the warrant liability were recorded as expense in the consolidated statements of comprehensive loss.

39

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2021 and December 31, 2020 and for the years ended

December 31, 2021, 2020 and 2019

(in thousands of US dollars, except share and per share data and where otherwise noted)

Shareholder rights plan

Effective May 8, 2019, the shareholders re-approved the Company’s shareholder rights plan (the “Rights Plan”) that provides the board of directors and the Company’s shareholders with additional time to assess any unsolicited take-over bid for the Company and, where appropriate, to pursue other alternatives for maximizing shareholder value. Under the Rights Plan, one right has been issued for each currently issued common share, and one right will be issued with each additional common share that may be issued from time to time.

(b) Warrants

				Weighted average exercise price
	Number			($)		$
Balance – January 1, 2020		—			—		—
Warrant liability reclassified to equity		16,368,033			0.8556		7,377
Warrants issued as equity		28,533,333			0.4574		5,025
Balance – December 31, 2020		44,901,366			0.6025		12,402
February 2021 Placement Agent Warrants		1,651,034			1.8125		1,897
Warrants exercised		(35,111,187	)		0.5725		(9,746	)
Allocation of transaction costs to share capital		—			—		532
Balance – December 31, 2021		11,441,213			0.8668		5,085

i) Warrants granted in 2021

The table presented below shows the inputs and assumptions applied to the Black-Scholes option pricing model in order to determine the fair value of the February 2021 Placement Agent Warrants:

	Number of equivalent shares		Market value per share price		Weighted average exercise price		Risk-free annual interest rate			Expected volatility			Expected life (years)		Expected dividend yield
	#		$		$		(i)			(ii)			(iii)		(iv)
February 2021 Placement Agent Warrants issued on February 19, 2021		1,435,682		1.48		1.8125		0.58734	%		119.18	%		4.99		0.00	%
February 2021 Placement Agent Warrants issued on February 22, 2021		215,352		1.48		1.8125		0.58544	%		119.57	%		4.98		0.00	%

(i)	Based on United States Treasury Government Bond interest rates with a term that is consistent with the expected life of the warrants.
(ii)	Based on the historical volatility of the Company’s stock price over the most recent period consistent with the expected life of the warrants.
(iii)	Based upon time to expiry from the issuance date.
(iv)	The Company has not paid dividends and it does not intend to pay dividends in the foreseeable future.

40

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2021 and December 31, 2020 and for the years ended

December 31, 2021, 2020 and 2019

(in thousands of US dollars, except share and per share data and where otherwise noted)

ii) Warrants exercised in 2021

During 2021, certain warrant holders exercised their warrants as follows:

	Warrants exercised (number of underlying common shares)		Exercise Price		Aggregate proceeds to the Company
September 2019 Investor warrants		2,000,000	$	1.65	$	3,300
February 2020 Investor warrants		1,739,130		1.20		2,087
July 2020 Investor warrants		21,045,555		0.45		9,471
July 2020 Placement Agent warrants		1,866,667		0.5625		1,050
August 2020 Investor warrants		7,589,883		0.47		3,567
August 2020 Placement Agent warrants		869,952		0.7040625		612
		35,111,187			$	20,087

iii) Warrant liability reclassified to equity in 2020

The Company had issued 3,325,000 unregistered investor warrants in the September 2019 closed direct offering (the “September 2019 Warrants”) as well as 2,608,696 unregistered investor warrants (the “February 2020 Investor Warrants”) and 243,478 unregistered placement agent warrants (the “February 2020 Placement Agent Warrants”) in the February 2020 closed direct offering transaction. The terms of the warrant agreement stated that if the warrants remained unregistered, the warrant holder could elect to exercise the warrants by way of a cashless exercise. This violated the fixed-for-fixed criterion due to the cashless exercise option, and accordingly these warrants had been accounted for as a liability.

Effective June 16, 2020, the Company registered the common shares underlying these warrants by way of a registration statement which eliminated the cashless exercise option on the warrants, on a one-for-one basis. Accordingly, as of June 16, 2020, the warrant liability was remeasured at fair value using the Black-Scholes option pricing model, with the amount of the remeasurement loss recognized in the consolidated statement of comprehensive loss. The carrying value of the warrants was then reclassified from warrant liability to other capital within equity.

41

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2021 and December 31, 2020 and for the years ended

December 31, 2021, 2020 and 2019

(in thousands of US dollars, except share and per share data and where otherwise noted)

The Company also issued 9,320,907 unregistered investor warrants (the “August 2020 Investor Warrants”) and 869,952 unregistered placement agent warrants (the “August 2020 Placement Agent Warrants”) in the August 2020 registered direct offering transaction. The terms of the warrant agreement stated that if the warrants remained unregistered, the warrant holder could elect to exercise the warrants by way of a cashless exercise. This violated the fixed-for-fixed criterion due to the cashless exercise option, and accordingly these warrants were accounted for as a liability on issuance and measured at fair value using the Black-Scholes option pricing model. Effective September 14, 2020, the Company registered the common shares underlying these warrants by way of a registration statement which eliminated the cashless exercise option on the warrants, on a one-for-one basis. Accordingly, as of September 14, 2020, the warrant liability was remeasured at fair value using the Black-Scholes option pricing model, with the amount of the remeasurement loss recognized in the consolidated statement of comprehensive loss. The carrying value of the warrants was then reclassified from warrant liability to other capital within equity.

The table presented below shows the inputs and assumptions applied to the Black-Scholes option pricing model in order to determine the fair value of such warrants as of the noted dates of reclassification:

	Number of equivalent shares		Market value per share price		Weighted average exercise price		Risk-free annual interest rate			Expected volatility			Expected life (years)		Expected dividend yield
				($)		($)		(i)			(ii)			(iii)		(iv)
As of June 16, 2020:
September 2019 Warrants		3,325,000		0.96		1.65		0.30	%		104.5	%		4.3		0.00	%
February 2020 Investor Warrants		2,608,696		0.96		1.20		0.36	%		119.3	%		5.2		0.00	%
February 2020 Placement Agent Warrants		243,478		0.96		1.62		0.32	%		113.3	%		4.7		0.00	%
As of September 14, 2020:
August 2020 Investor Warrants		9,320,907		0.38		0.47		0.31	%		120.5	%		5.4		0.00	%
August 2020 Placement Agent Warrants		869,952		0.38		0.704063		0.26	%		114.6	%		4.9		0.00	%

(i)	Based on United States Treasury Government Bond interest rates with a term that is consistent with the expected life of the warrants.
(ii)	Based on the historical volatility of the Company’s stock price over the most recent period consistent with the expected life of the warrants, as well as on future expectations.
(iii)	Based upon time to expiry from the reporting period date.
(iv)	The Company has not paid dividends and it does not intend to pay dividends in the foreseeable future.

42

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2021 and December 31, 2020 and for the years ended

December 31, 2021, 2020 and 2019

(in thousands of US dollars, except share and per share data and where otherwise noted)

iv) Warrants issued as equity in 2020

On July 7, 2020, the Company closed a public offering of 26,666,666 units at a price of $0.45 per unit, for net cash proceeds to the Company of $10,596. Each unit contained one common share (or common share equivalent in lieu thereof) and one investor warrant to purchase one common share. In total, 26,666,666 common shares, 26,666,666 July 2020 Investor Warrants and 1,866,667 July 2020 Placement Agent Warrants were issued. As these warrants were registered and can be settled for a fixed number of the Company’s underlying common shares, the warrants meet the requirements of the fixed-for-fixed rule were classified as equity.

The table presented below shows the inputs and assumptions applied to the Black-Scholes option pricing model in order to determine the fair value of such warrants:

	Number of equivalent shares		Market value per share price		Weighted average exercise price		Risk-free annual interest rate			Expected volatility			Expected life (years)		Expected dividend yield
				($)		($)		(i)			(ii)			(iii)		(iv)
July 2020 Investor Warrants		26,666,666		0.52		0.457		0.2879	%		123.1048	%		5		0.00	%
July 2020 Placement Agent Warrants		1,866,667		0.52		0.5625		0.2879	%		123.1048	%		5		0.00	%

(i)	Based on United States Treasury Government Bond interest rates with a term that is consistent with the expected life of the warrants.
(ii)	Based on the historical volatility of the Company’s stock price over the most recent period consistent with the expected life of the warrants, as well as on future expectations.
(iii)	Based upon time to expiry from the reporting period date.
(iv)	The Company has not paid dividends and it does not intend to pay dividends in the foreseeable future.

(c) Other capital

Long-term incentive plan

At the 2018 annual and special meeting of shareholders, the Company’s shareholders approved the adoption of the 2018 long-term incentive plan (the “LTIP”), which allows the Board of Directors to issue up to 11.4% of the total issued and outstanding common shares at any given time to eligible individuals at an exercise price to be determined by the Board of Directors at the time of the grant, subject to a ceiling, as stock options, stock appreciation rights, stock awards, deferred stock units (“DSUs”), performance shares, performance units, and other stock-based awards. This LTIP replaces the stock option plan (the “Stock Option Plan”) for its directors, senior executives, employees and other collaborators who provide services to the Company. Options granted under the LTIP expire after seven years following the date of grant, vest over three years, beginning one year after date of grant. The Company’s Board of Directors amended the Stock Option Plan on March 20, 2014 and the Company’s Shareholders approved, ratified and confirmed the Stock Option Plan on May 10, 2016. Options granted under the Stock Option Plan prior to the 2014 amendment expire after a maximum period of 10 years following the date of grant. Options granted after the 2014 amendment expire after a maximum period of seven years following the date of grant.

43

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2021 and December 31, 2020 and for the years ended

December 31, 2021, 2020 and 2019

(in thousands of US dollars, except share and per share data and where otherwise noted)

The Company settles stock options exercised through the issuance of new common shares as opposed to purchasing common shares on the market to settle stock option exercises.

As of December 31, 2021, the total compensation cost related to unvested US dollar stock options not yet recognized amounted to $96 (2020 - $43 and 2019 - $101). This amount is expected to be recognized over a weighted average period of 1.54 years (2020 - 1.43 years and 2019 1.21 years).

	Year ended December 31, 2021
	Stock options			Weighted average exercise price		DSUs
	(Number)			($)		(Number)
Balance – January 1, 2021		506,400			1.44		173,000
Granted		580,000			0.42		280,000
Expired		(32	)		590.25		—
Exercised		—			—		(30,000	)
Balance – December 31, 2021		1,086,368			0.88		423,000

	Year ended December 31, 2019
	US$ Stock options			Weighted average exercise price		DSUs			CAN$ Stock options			Weighted average exercise price
	(Number)			(US$)		(Number)			(Number)			(CAN$)
Balance – Beginning of year		727,816			4.07		161,000			869			743.56
Granted		185,000			1.07		150,000			—			—
Exercised		(64,850	)		2.75		(99,000	)		—			—
Canceled/Forfeited		(6,000	)		13,39		—			—			—
Expired		(100,850	)		2.24		—			(428	)		570.00
Balance – End of year		741,116			3.61		212,000			441			912.00

	Year ended December 31, 2020
	US$ Stock options			Weighted average exercise price		DSUs			CAN$ Stock options			Weighted average exercise price
	(Number)			(US$)		(Number)			(Number)			(CAN$)
Balance – Beginning of year		741,116			3.61		212,000			441			912.00
Granted		180,000			0.37		120,000			—			—
Exercised		—			—		(159,000	)		—			—
Canceled/Forfeited		(330,350	)		2.56		—			—			—
Expired		(84,366	)		2.14		—			(441	)		912.00
Balance – End of year		506,400			1.44		173,000			—			—

44

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2021 and December 31, 2020 and for the years ended

December 31, 2021, 2020 and 2019

(in thousands of US dollars, except share and per share data and where otherwise noted)

Fair value input assumptions for US dollar stock option grants

The table below shows the assumptions, or weighted average parameters, applied to the Black-Scholes option pricing model in order to determine share-based compensation costs over the life of the awards.

		Years ended December 31,
		2021			2020			2019
Expected dividend yield	(a)		0.00	%		0.00	%		0.00	%
Expected volatility	(b)		115.80	%		112.50	%		110.02	%
Risk-free annual interest rate	(c)		1.23	%		0.27	%		1.86	%
Expected life (years)	(d)		5.71			4.02			5.94
Weighted average share price		$	0.42		$	0.37		$	2.00
Weighted average exercise price		$	0.42		$	0.37		$	2.00
Weighted average grant date fair value		$	0.35		$	0.27		$	2.00

(a)	The Company has not paid dividends and it does not intend to pay dividends in the foreseeable future.
(b)	Based on the historical volatility of the Company’s stock price over the most recent period consistent with the expected life of the stock options, as well as on future expectations.
(c)	Based on United States Treasury Government Bond interest rates with a term that is consistent with the expected life of the stock options.
(d)	Based upon historical data related to the exercise of stock options, on post-vesting employment terminations and on future expectations related to exercise behavior.

	Options outstanding						Options exercisable
Range of US dollar stock option exercise prices	Number (#)		Weighted average remaining contractual life (years)		Weighted average exercise price ($)		Number (#)		Weighted average remaining contractual life (years)		Weighted average exercise price ($)
0.37 to 0.50		760,000		6.72		0.41		60,006		5.95		0.37
0.51 to 1.78		160,000		4.91		0.91		106,672		4.91		0.90
1.79 to 3.14		85,000		3.21		2.08		76,667		3.06		2.07
3.15 to 217.00		81,368		1.70		3.95		81,368		1.70		3.95
		1,086,368		5.81		0.88		324,713		3.86		1.84

45

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2021 and December 31, 2020 and for the years ended

December 31, 2021, 2020 and 2019

(in thousands of US dollars, except share and per share data and where otherwise noted)

20. Operating expenses

The nature of the Company’s operating expenses includes the following:

	Years ended December 31,
	2021		2020			2019
	$		$			$
Key management personnel compensation(1)
Salaries and short-term employee benefits		1,646		1,540			1,705
Consultant’s fees		163		167			194
Termination benefits		—		—			503
Post-employment benefits, including defined contribution plan benefits of $33 in 2021, $33 in 2020 and $195 in 2019		70		86			257
Share-based compensation costs		295		160			784
		2,174		1,953			3,443
Other employees compensation:
Salaries and short-term employee benefits		1,160		1,004			1,257
Post-employment benefits, including defined contribution plan benefits of $15 in 2021, $9 in 2020 and $25 in 2019		139		159			78
Share-based compensation costs		16		(99	)		9
		1,315		1,064			1,344
Cost of inventory used and services provided		90		2,186			309
Professional fees		2,749		1,969			2,599
Insurance		1,077		861			890
Third-party research and development		5,047		414			322
Consulting fees		553		587			144
Restructuring costs		—		—			507
Travel		130		66			154
Marketing services		222		39			18
Laboratory supplies		114		36			23
Other goods and services		162		72			137
Leasing costs, net of sublease receipts of $nil in 2021, $nil in 2020 and $214 in 2019		112		218			247
Modification of building lease		—		(219	)		—
(Reversal) impairment of other asset and inventory		—		(8	)		270
Depreciation and amortization of property, equipment and intangibles		25		29			37
Depreciation - right to use assets		120		203			278
Impairment of right of use asset		—		—			22
Operating foreign exchange losses (gains)		41		(112	)		30
		10,442		6,341			5,987
		13,931		9,358			10,774

⁽¹⁾ Key management includes the Company’s executive management team and directors.

Most of the employment agreements entered into between the Company and its executive officers include termination provisions, whereby the executive officers would be entitled to receive benefits that would be payable if the Company were to terminate the executive officers’ employment without cause or if their employment is terminated following a change of control. Separation benefits generally are calculated based on an agreed-upon multiple of applicable base salary and incentive compensation and, in certain cases, other benefit amounts.

46

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2021 and December 31, 2020 and for the years ended

December 31, 2021, 2020 and 2019

(in thousands of US dollars, except share and per share data and where otherwise noted)

21. Supplemental disclosure of cash flow information

	Years ended December 31,
	2021			2020			2019
		$			$			$
Changes in operating assets and liabilities:
Trade and other receivables		120			(1,023	)		(371	)
Inventory		(56	)		1,182			(971	)
Prepaid expenses and other current assets		(750	)		(702	)		(170	)
Payables and accrued liabilities		634			51			(615	)
Income taxes payable		(109	)		395			(188	)
Deferred revenues		3,010			3,031			743
Provision for restructuring and other costs		—			—			(389	)
Employee future benefits (note 18)		(349	)		(532	)		(483	)
		2,500			2,402			(2,444	)

22. Income taxes

Significant components of the current and deferred income tax recovery (expense) for the years ended December 31, 2021, 2020 and 2019 are as follows:

	Years ended December 31,
	2021			2020			2019
		$			$			$
Current income tax recovery (expense)		109			(395	)		188
Deferred tax:
Origination and reversal of temporary differences		1,291			1,509			2,755
Change in unrecognized tax assets		(1,291	)		(1,509	)		(2,755	)
Total income tax recovery (expense)		109			(395	)		188

From time to time, the Company is subject to tax audits. While the Company believes that its filing positions are appropriate and supportable, periodically, certain matters are challenged by tax authorities. Although the Company believes its tax provisions are adequate, the final determination of tax audits and any related disputes could be materially different from historical income tax provisions and accruals. In 2020, AEZS Germany underwent a tax audit regarding the taxation years 2013 to 2016. As of December 31, 2021, the tax authorities concluded the audit for those years. The subsequent years remain unaudited, and the Company has accrued $115 as an uncertain tax provision for those years. In addition, as of December 31, 2021, AEZS Germany paid instalments in the amount of $1,605 for the 2021 tax year and $1,448 in estimated taxes payable for the 2020 tax year.

47

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2021 and December 31, 2020 and for the years ended

December 31, 2021, 2020 and 2019

(in thousands of US dollars, except share and per share data and where otherwise noted)

The reconciliation of the combined Canadian federal and provincial corporate income tax rate to the income tax expense is provided below:

	Years ended December 31,
	2021			2020			2019
Combined Canadian federal and provincial statutory income tax rate		26.5	%		26.5	%		26.5	%

	Years ended December 31,
	2021			2020			2019
	$			$			$
Income tax (expense) recovery based on combined statutory income tax rate		2,246			1,252			1,615
Change in unrecognized tax assets		(1,291	)		(1,872	)		(2,820	)
Share issuance costs		367			363			65
Permanent difference attributable to the use of local currency for tax reporting		—			—			35
Change in enacted rates used		—			—			(27	)
Impact of expiring tax credits		(1,724	)		(481	)		—
Provision to filed return adjustments		151			—			—
Permanent difference attributable to net change in fair value of warrant liability		—			304			1,197
Share-based compensation costs		(82	)		(16	)		(210	)
Difference in statutory income tax rate of foreign subsidiaries		226			99			321
Uncertain tax position		—			(123	)		—
Other		216			79			12
		109			(395	)		188

48

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2021 and December 31, 2020 and for the years ended

December 31, 2021, 2020 and 2019

(in thousands of US dollars, except share and per share data and where otherwise noted)

(Loss) income before income taxes

(Loss) income before income taxes is attributable to the Company’s tax jurisdictions as follows:

	Years ended December 31,
	2021			2020			2019
	$			$			$
Germany		(4,383	)		(2,042	)		(6,010	)
Canada		(3,860	)		(2,463	)		812
United States		(234	)		(218	)		(1,032	)
		(8,477	)		(4,723	)		(6,230	)

Significant components of deferred tax assets and liabilities are as follows:

	December 31,
	2021		2020
	$		$
Deferred tax assets
Operating losses carried forward		205		46
Intangible assets		776		1,318
		981		1,364
Deferred tax liabilities
Accounts receivable		375
Payables and accrued liabilities		7		126
Property, plant and equipment		47		49
Deferred revenues		492		1,073
Other		60		116
		981		1,364
		981		1,364
Deferred tax assets (liabilities), net		—		—

49

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2021 and December 31, 2020 and for the years ended

December 31, 2021, 2020 and 2019

(in thousands of US dollars, except share and per share data and where otherwise noted)

Significant components of deferred tax assets and losses are as follows:

	December 31,
	2021		2020
	$		$
Unrecognized deferred tax assets
Deferred revenues and other provisions		1,680		1,494
Operating losses carried forward		87,734		89,144
Capital losses carried forward		105		—
SR&ED Pool		9,138		9,138
Unused tax credits		2,945		4,668
Employee future benefits		3,396		2,570
Property, plant and equipment		523		495
Intangible assets		—		541
Share issuance expenses		1,110		623
Other		84		—
		106,715		108,673
Unrecognized deferred tax assets		106,715		108,673

Deferred income tax assets are recognized to the extent that the realization of the related tax benefit through reversal of temporary differences and future taxable profits is probable. Based on the current forecasted future taxable profits and reversal of temporary differences, the company does not believe it will have sufficient future earnings to offset the deferred tax assets and has an unrecognized deferred tax asset balance of $106,715.

As at December 31, 2021, the Corporation has total accumulated non-capital losses of $77,867 federally and $76,545 provincially, which may be carried forward for twenty years and used to reduce taxable income in future years. The Corporation has not recognized deferred tax assets on any of the non-capital losses, due to the uncertainty that there will be sufficient taxable income or that the taxable temporary differences will be reversing in the same reporting period and jurisdiction. The losses will be expiring as follows:

	Canada
	Federal		Provincial
	$		$
2028		8,054		6,668
2029		4,791		4,773
2030		4,104		4,089
2031		1,753		1,737
2032		4,250		4,250
2033		3,721		3,721
2034		4,153		4,153
2035		10,418		10,452
2036		10,592		10,592
2037		7,343		7,343
2038		6,557		6,557
2039		3,501		3,580
2040		3,808		3,808
2041		4,822		4,822
		77,867		76,545

50

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2021 and December 31, 2020 and for the years ended

December 31, 2021, 2020 and 2019

(in thousands of US dollars, except share and per share data and where otherwise noted)

The Company has non-refundable R&D investment tax credits of approximately $4,006 which can be carried forward to reduce Canadian federal income taxes payable and which expire at dates ranging from 2022 to 2035. Furthermore, the Company has unrecognized tax assets in respect of operating losses to be carried forward in Germany and in the US The federal tax losses amount to approximately $210,709 in Germany (€ 185,271) for which there is no expiry date, and to $4,793 in the US. The losses in the US will be expiring as follows:

	United States
	$
2028		369
2029		178
2034		151
2035		447
2036		195
2037		709
2038		1,224
2039		771
2040		515
2041		234
		4,793

The operating loss carryforwards and the tax credits claimed are subject to review, and potential adjustment, by tax authorities. Other deductible temporary differences for which tax assets have not been booked are not subject to a time limit, except for share issuance expenses which are amortizable over five years.

23. Capital disclosures

The Company’s objective in managing capital, consisting of shareholders’ equity, with cash and cash equivalents and restricted cash equivalents being its primary components, is to ensure sufficient liquidity to fund R&D costs, selling expenses, general and administrative expenses and working capital requirements. Over the past several years, the Company has raised capital via public and private equity offerings and issuances as its primary source of liquidity, as discussed in note 19 - share capital, warrants and other capital. The capital management objective of the Company remains the same as that in previous periods. The policy on dividends is to retain cash to keep funds available to finance the activities required to advance the Company’s product development portfolio and to pursue appropriate commercial opportunities as they may arise.

The Company is not subject to any capital requirements imposed by any regulators or by any other external source.

51

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2021 and December 31, 2020 and for the years ended

December 31, 2021, 2020 and 2019

(in thousands of US dollars, except share and per share data and where otherwise noted)

24. Financial instruments and financial risk management

Financial assets and liabilities as of December 31, 2021 and December 31, 2020 are presented below.

December 31, 2021	Financial assets at amortized cost		Financial liabilities at amortized cost
	$		$
Cash and cash equivalents (note 6)		65,300		—
Trade and other receivables (note 7)		1,314		—
Restricted cash equivalents (note 10)		335		—
Payables and accrued liabilities (note 15)		—		1,530
Lease liability (note 17)		—		161
		66,949		1,691

December 31, 2020	Financial assets at amortized cost		Financial liabilities at amortized cost
	$		$
Cash and cash equivalents (note 6)		24,271		—
Trade and other receivables (note 7)		1,681		—
Restricted cash equivalents (note 10)		338		—
Payables and accrued liabilities (note 15)		—		2,176
Lease liability (note 17)		—		184
		26,290		2,360

Fair value

IFRS 13, Fair Value Measurement (“IFRS 13”) establishes a hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).

The input levels discussed in IFRS 13 are:

Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2 – Inputs other than quoted prices included within Level 1 that are observable for an asset or liability, either directly (i.e. prices) or indirectly (i.e. derived from prices).

Level 3 – Inputs for an asset or liability that are not based on observable market data (unobservable inputs).

The carrying values of the Company’s cash and cash equivalents, trade and other receivables, restricted cash equivalents, payables and accrued liabilities and provision for restructuring and other costs approximate their fair values due to their short-term maturities or to the prevailing interest rates of the related instruments, which are comparable to those of the market.

52

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2021 and December 31, 2020 and for the years ended

December 31, 2021, 2020 and 2019

(in thousands of US dollars, except share and per share data and where otherwise noted)

Financial risk factors

The following provides disclosures relating to the nature and extent of the Company’s exposure to risks arising from financial instruments, including credit risk, liquidity risk and foreign exchange risk and how the Company manages those risks.

(a) Credit risk

Credit risk is the risk of an unexpected loss if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Company regularly monitors credit risk exposure and takes steps to mitigate the likelihood of this exposure resulting in losses. The Company’s exposure to credit risk currently relates to the financial assets at amortized cost in the table above. The Company holds its available cash in amounts that are readily convertible to known amounts of cash and deposits its cash balances with financial institutions that have an investment grade rating of at least “P-2” or the equivalent. This information is supplied by independent rating agencies where available and, if not available, the Company uses publicly available financial information to ensure that it invests its cash in creditworthy and reputable financial institutions. Once there are indicators that there is no reasonable expectation of recovery, such financial assets are written off but are still subject to enforcement activity.

As of December 31, 2021, trade accounts receivable for an amount of approximately $932 were with three counterparties of which $55 was past due and impaired and fully provided for (2020 - $1,245 with three counterparties and $55 past due and impaired and fully provided for).

Generally, the Company does not require collateral or other security from customers for trade accounts receivable; however, credit is extended following an evaluation of creditworthiness. In addition, the Company performs ongoing credit reviews of all of its customers and determines expected credit losses. On this basis, as of December 31, 2021, the Company has provided for all outstanding and unpaid amounts relating to its operations before its licensing of Macrilen^TM.

The maximum exposure to credit risk approximates the amount recognized in the Company’s consolidated statement of financial position.

(b) Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. As indicated in note 24, the Company manages this risk through the management of its capital structure. It also manages liquidity risk by continuously monitoring actual and projected cash flows.

A portion of the Company’s cash is held in AEZS Germany, which is the counter-party to various license and distribution agreements for the Company’s only approved product. In September 2019 and February, July and August of 2020 and February of 2021 the Company completed financings resulting in total funding (net of transaction costs) of $55,905 (note 19). Net cash proceeds were deposited in AEZS Canada accounts and such funds can be provided to its German subsidiary, if and when needed. During 2020, AEZS Germany signed agreements with NOVO and CH whereby AEZS Germany received cash payments of €5,000 ($6,109) in fiscal 2020 and €1,000 ($1,209) in January 2021, respectively (note 5), and expects to use this cash to fund its operations directly.

53

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2021 and December 31, 2020 and for the years ended

December 31, 2021, 2020 and 2019

(in thousands of US dollars, except share and per share data and where otherwise noted)

The Board of Directors reviews and approves the Company’s operating and capital budgets, as well as any material transactions occurring outside of the ordinary course of business. The Company has adopted an investment policy in respect of the safety and preservation of its capital to ensure the Company’s liquidity needs are met. The instruments are selected with regard to the expected timing of expenditures and prevailing interest rates.

All of the Company’s financial liabilities except lease liabilities are current liabilities with expected settlement dates within one year. The maturity analysis for lease liabilities is disclosed in note 17.

(c) Foreign exchange risk

Entities using the Euro as their functional currency

The Company is exposed to foreign exchange risk due to its investments in foreign operations whose functional currency is the Euro. As of December 31, 2021, if the US dollar had increased or decreased by 10% against the Euro, with all other variables held constant, net loss for the year ended December 31, 2021 would have been lower or higher by approximately $300 (2020 - $110 and 2019 - $841).

25. Segment information

The Company operates in a single operating segment, being the biopharmaceutical segment.

Geographical information

Revenues by geographical area have been allocated to geographic regions based on the country of residence of the Company’s external customers or licensees and are detailed as follows:

	Years ended December 31,
	2021		2020		2019
	$		$		$
Switzerland		5,075		905		—
Ireland		—		73		74
Denmark		185		2,655		413
Other		—		19		45
		5,260		3,652		532

Non-current assets include restricted cash equivalents, right of use assets, property, plant and equipment, identifiable intangible assets, other asset and goodwill and are detailed by geographical area as follows:

54

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2021 and December 31, 2020 and for the years ended

December 31, 2021, 2020 and 2019

(in thousands of US dollars, except share and per share data and where otherwise noted)

	December 31,
	2021		2020
	$		$
Germany		9,212		9,341
United States		70		50
		9,282		9,391

Major customers representing 10% or more of the Company’s revenues in each of the last three years are as follows:

	Years ended December 31,
	2021		2020		2019
	$		$		$
Company 1		5,260		3,634		532

26. Net loss per share

The following table sets forth pertinent data relating to the computation of basic and diluted net loss per share attributable to common shareholders.

	Years ended December 31,
	2021			2020			2019
	$			$			$
Net loss		(8,368	)		(5,118	)		(6,042	)
Basic weighted average number of shares outstanding		114,924,497			41,083,163			17,494,472
Diluted weighted average number of shares outstanding		114,924,497			41,083,163			17,494,472
Items excluded from the calculation of diluted net loss per share because the exercise price was greater than the average market price of the common shares or due to their anti-dilutive effect
Stock options and DSUs		1,509,368			679,400			953,557
Share purchase warrants		11,441,213			44,901,366			6,629,144

Net loss per share is calculated by dividing net loss by the weighted average number of shares outstanding during the relevant period. Diluted weighted average number of shares reflects the dilutive effect of equity instruments, such as any “in the money” stock options, DSUs and warrants. In periods with reported net losses, all stock options and warrants are deemed anti-dilutive such that basic net loss per share and diluted net loss per share are equal, and thus “in the money” stock options and warrants have not been included in the computation of net loss per share because to do so would be anti-dilutive.

55

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2021 and December 31, 2020 and for the years ended

December 31, 2021, 2020 and 2019

(in thousands of US dollars, except share and per share data and where otherwise noted)

27. Commitments and contingencies

Contractual obligations and commitments as of December 31, 2021

	Service and manufacturing		R&D contracts		TOTAL
	$		$		$
Less than 1 year		1,085		2,252		3,337
1 – 3 years		6		1,049		1,055
4 – 5 years		—		—		—
More than 5 years		—		—		—
Total		1,091		3,301		4,392

During 2021, the Company executed various agreements including in-licensing and similar arrangements with development partners (note 13). Such agreements may require the Company to make payments on achievement of stages of development, launch or revenue milestones, although the Company generally has the right to terminate these agreements at no penalty. The Company recognizes research and development milestones as an intangible asset once it is committed to the payment, which is generally when the Company reaches a set point in the development cycle.

Based on the closing exchange rates at December 31, 2021, the Company expects to pay $3,301, including $3,124 (€2.8 million), and $177 (£0.1 million), in R&D contracts and up to $8,937, including $7,386 (€6.5 million) and $1,551 (£1.2 million), in R&D milestone payments and up to $32,942, including $31,255 (€27.6 million) and $1,687 (£1.3 million), in revenue related milestone payments. The table below contains all potential R&D and revenue-related milestone payments that the Company may be required to make under such agreements:

	Future potential R&D milestone payments		Future potential revenue milestone payments		Total
	$		$		$
Less than 1 year		28		—		28
1 – 3 years		113		—		113
4 – 5 years		927		—		927
More than 5 years		7,869		32,942		40,811
Total		8,937		32,942		41,879

The table excludes any payments already capitalized in the consolidated statement of financial position. The future payments that are disclosed represent contract payments and are not discounted and are not risk-adjusted. The development of any pharmaceutical product candidates is a complex and risky process that may fail at any stage in the development process due to a number of factors. The timing of the payments is based on the Company’s current best estimate of achievement of the relevant milestone.

Securities class action lawsuit

On March 9, 2020, the Company settled the previously disclosed class-action lawsuit against it pending in the US District Court for the District of New Jersey. This settlement was approved by the US District Court for the District of New Jersey on June 3, 2021. The settlement payment was funded entirely by the Company’s insurers. As no appeals were filed within the 30-day appeal period, this matter is fully and finally settled.

56

EX-99.2

Exhibit 99.2

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

Introduction

This Management’s Discussion and Analysis (“MD&A”) provides a review of the results of operations, financial condition and cash flows of Aeterna Zentaris Inc. for the year ended December 31, 2021. In this MD&A, “Aeterna Zentaris”, “Aeterna”, the “Company”, “we”, “us” and “our” mean Aeterna Zentaris Inc. and its subsidiaries. This discussion should be read in conjunction with the information contained in the Company’s audited consolidated financial statements and the accompanying notes thereto as of December 31, 2021 and December 31, 2020 and for the years ended December 31, 2021, 2020 and 2019. Our audited consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

The Company’s common shares are listed on both The Nasdaq Capital Market (“Nasdaq”) and on the Toronto Stock Exchange (“TSX”) under the symbol “AEZS”.

All amounts in this MD&A are presented in United States (“U.S.”) dollars, except for share, option and warrant data, or as otherwise noted.

This MD&A was approved by the Company’s Board of Directors (the “Board”) on March 28, 2022. This MD&A is dated March 28 2022.

Company Overview

Aeterna Zentaris is a specialty biopharmaceutical company commercializing and developing therapeutics and diagnostic tests. The Company’s lead product, Macrilen™ (macimorelin), is the first and only U.S. Food and Drug Administration (“FDA”) and European Medicines Agency (“EMA”) approved oral test indicated for the diagnosis of patients with adult growth hormone deficiency (“AGHD”). Macimorelin is currently marketed in the U.S. under the tradename Macrilen™ through the license agreement and the amended license agreement (collectively the “Novo Amendment”) with Novo Nordisk Healthcare AG (“Novo Nordisk” or “Novo”), who was granted an exclusive license for the development, manufacturing, registration and commercialization of Macrilen™ (macimorelin) for the diagnosis of adult and pediatric growth hormone deficiency in the U.S. and Canada.

According to a commercialization and supply agreement, MegaPharm Ltd. is seeking regulatory approval and plans to subsequently commercialize macimorelin in Israel and the Palestinian Authority. Additionally, upon receipt of pricing and reimbursement approvals, Aeterna Zentaris expects that macimorelin will be marketed in Europe and the United Kingdom through license and supply agreements with Consilient Health Ltd. (“Consilient Health” or “CH”) under which Aeterna Zentaris is entitled to receive: regulatory milestone payments related to agreed-upon pricing and reimbursement parameters; net sales milestone payments; and royalties, ranging from 10%-20% of net sales, subject to reduction in certain cases, or sublicense income recorded by Consilient Health. The Company is also leveraging the clinical success and compelling safety profile of macimorelin to develop it for the diagnosis of childhood-onset growth hormone deficiency (“CGHD”), an area of significant unmet need. The Company is actively pursuing business development opportunities for the commercialization of macimorelin in Asia and in other countries which are not covered by existing license agreements. The Company is actively pursuing business development opportunities for the commercialization of macimorelin in Asia and the rest of the world. We entered into license and supply agreements with NK Meditech Ltd. (“NK”), a subsidiary of PharmBio Korea, effective November 30, 2021, and a distribution and commercialization agreement with ER Kim Pharmaceuticals Bulgaria Food (“ER-Kim”), effective February 1, 2022. The agreements with NK are related to the development and commercialization of macimorelin for the diagnosis of AGHD and CGHD in the Republic of Korea, while the agreement with ER-Kim is related to the commercialization of macimorelin for the diagnosis of growth hormone deficiency in children and adults in Turkey and some non-European Union Balkan countries.

The Company is also dedicated to the development of therapeutic assets and has recently taken steps to establish a pre-clinical pipeline to potentially address unmet medical needs across a number of indications with a focus on rare or orphan indications and with the potential for pediatric use. To date, we have signed agreements to establish this growing pipeline across a number of indications, including neuromyelitis optica spectrum disorder (“NMOSD”), Parkinson’s disease (“PD”), primary hypoparathyroidism and amyotrophic lateral sclerosis (“ALS”, also known as Lou Gehrig’s disease). Additionally, the Company is developing oral prophylactic bacterial vaccines against each of SARS-CoV-2, the virus that causes COVID-19, and chlamydia.

About Forward-Looking Statements

This document contains statements that may constitute forward-looking statements within the meaning of U.S. and Canadian securities legislation and regulations, and such statements are made pursuant to the safe-harbor provision of the U.S. Private Securities Litigation Reform Act of 1995. In some cases, these forward-looking statements can be identified by words or phrases such as “forecast”, “may”, “will”, “expect”, anticipate”, “estimate”, “intend”, “plan”, “indicate”, “believe”, “direct”, or “likely”, or the negative of these terms, or other similar expressions intended to identify forward-looking statements. In addition, any statements that refer to expectations, intentions, projections and other characterizations of future events or circumstances contain forward-looking information.

Forward-looking statements are based on the opinions and estimates of the Company as of the date of this MD&A, and they are subject to known and unknown risks, uncertainties, assumptions and other factors that may cause the actual results, level of activity, performance or achievements to be materially different from those expressed or implied by such forward-looking statements, including but not limited to the factors described under “Risk Factors” in our Annual Report on Form 20-F and those relating to: Aeterna’s expectations with respect to the DETECT-trial (as further defined below) (including regarding the enrollment of subjects in the DETECT-trial, the application of the Macimorelin growth hormone stimulation tests and the completion of the DETECT-trial); Aeterna’s expectations regarding conducting pre-clinical research to identify and characterize an AIM Biologicals-based development candidate for the treatment of NMOSD as well as Parkinson’s disease (as further defined below), and developing a manufacturing process for selected candidates; Aeterna’s expectations regarding conducting assessments in relevant Parkinson’s disease models; The University of Queensland’s undertaking a subsequent investigator initiated clinical trial evaluating macimorelin as a potential therapeutic for the treatment of ALS and Aeterna’s formulating a pre-clinical development plan for same; the commencement of Aeterna’s formal pre-clinical development of AEZS-150 (as further defined below) in preparation for a potential investigational new drug (“IND”) filing for conducting the first in-human clinical study of AEZS-150; Aeterna’s plans to perform challenge experiments, select a development candidate, start clinical development and establish a manufacturing process for the orally active COVID-19 (SARS-CoV-2) and Chlamydia live-attenuated bacterial vaccine.

Forward-looking statements involve known and unknown risks and uncertainties and other factors which may cause the actual results, performance or achievements stated herein to be materially different from any future results, performance or achievements expressed or implied by the forward-looking information. Such risks and uncertainties include, among others: our reliance on the success of the pediatric clinical trial in the European Union and U.S. for Macrilen™ (macimorelin); the commencement of the DETECT-trial may be delayed or we may not obtain regulatory approval to initiate that study; we may be unable to enroll the expected number of subjects in the DETECT-trial and the result of the DETECT-trial may not support receipt of regulatory approval in CGHD; the coronavirus vaccine platform technology (and any vaccine candidates using that technology) licensed from the University of Wuerzburg has never been tested in humans, and as such, further pre-clinical or clinical studies of that technology and any vaccine developed using that technology may not be effective as a vaccine against COVID-19 (SARS-CoV-2) or against any other coronavirus disease; the timeline to develop a vaccine may be longer than expected; such technology or vaccines may not be capable of being used orally or may not have the same characteristics as vaccines previously approved using the Salmonella Typhi Ty21a carrier strain; results from ongoing or planned pre-clinical studies of macimorelin by the University of Queensland or for our other products under development may not be successful or may not support advancing the product to human clinical trials; our ability to raise capital and obtain financing to continue our currently planned operations; our dependence on the success of Macrilen™ (macimorelin) and related out-licensing arrangements and the continued availability of funds and resources to successfully commercialize the product, including our reliance on the success of the Novo Amendment; the global instability due to the global pandemic of COVID-19 and COVID-19’s unknown potential effect on our operations; our ability to enter into out-licensing, development, manufacturing, marketing and distribution agreements with other pharmaceutical companies and to keep such agreements in effect; and our ability to continue to list our common shares on the Nasdaq or the TSX. These risk factors are not intended to represent a complete list of the risk factors that could affect the Company. These factors and assumptions, however, should be considered carefully. More detailed information about these and other factors is included under “Risk Factors” in our Annual Report on Form 20-F. Although the Company has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. Many of these factors are beyond our control. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements, particularly in light of the ongoing and developing COVID-19 pandemic and its impact on the global economy and its uncertain impact on the Company’s business. Accordingly, readers should not place undue reliance on forward-looking statements. The Company does not undertake to update any forward-looking statements contained herein, except as required by applicable securities laws. New factors emerge from time to time, and it is not possible for the Company to predict all of these factors, or to assess in advance the impact of each such factor on the Company’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement.

Certain forward-looking statements contained herein about prospective results of operations, financial position or cash flows may constitute a financial outlook. Such statements are based on assumptions about future events, are given as of the date hereof and are based on economic conditions, proposed courses of action and management’s assessment of the relevant information currently available. Management of the Company has approved the financial outlook as of the date hereof. Readers are cautioned that such financial outlook information contained herein should not be used for purposes other than for which it is disclosed herein.

About Material Information

This MD&A includes information that we believe to be material to investors after considering all circumstances. We consider information and disclosures to be material if they result in, or would reasonably be expected to result in, a significant change in the market price or value of our securities, or where it is likely that a reasonable investor would consider the information and disclosures to be important in making an investment decision.

We are a reporting issuer under the securities legislation of all of the provinces of Canada, and our securities are registered with the U.S. Securities and Exchange Commission (“SEC”). We are therefore required to file or furnish continuous disclosure information, such as interim and annual financial statements, management’s discussion and analysis, proxy or information circulars, annual reports on Form 20-F, material change reports and press releases with the appropriate securities regulatory authorities. Additional information about the Company and copies of these documents may be obtained free of charge upon request from our Corporate Secretary or on the Internet at the following addresses: www.zentaris.com, www.sedar.com and www.sec.gov.

Key Developments

Financing activities

During the year ended December 31, 2021, certain warrant holders exercised outstanding warrants to purchase 35,111,187 of our common shares for gross proceeds of approximately $20.1 million (such exercises, the “2021 Warrant Exercises”).

On February 19, 2021, the Company completed a bought deal public offering of 20,509,746 common shares at $1.45 per common share, resulting in aggregate gross proceeds of $29.7 million, less underwriting discounts, commissions and offering expenses of $2.8 million (the “February 2021 Financing”). The Company also granted to the underwriter and placement agent (the “Underwriter”), a 30-day over-allotment option to purchase up to 3,076,461 additional common shares at a price of $1.45 per common share (the “Underwriter Option”). In connection with the February 2021 Financing, the Company issued warrants to purchase 1,435,682 common shares to the Underwriter, with each warrant bearing an exercise price of $1.8125 (the “February 2021 Placement Agent Warrants”). The February 2021 Placement Agent Warrants expire on February 17, 2026.

On February 22, 2021, the Underwriter exercised the Underwriter Option and received 3,076,461 common shares in exchange for gross proceeds to the Company of $4.5 million. Upon exercise of the Underwriter Option, the Underwriter also received an additional 215,352 February 2021 Placement Agent Warrants.

Aggregate gross proceeds received in connection with the February 2021 Financing totaled $34.2 million, less cash transaction costs of $3.2 million and non-cash transaction costs, which represent the issue-date fair value of the February 2021 Placement Agent Warrants, of $1.9 million. The Company expects to use the net proceeds from the February 2021 Financing for general corporate purposes, including, to advance the investigation of further therapeutic uses of Macrilen™ (macimorelin), to expand pipeline development activities, to further expand commercial activities associated with macimorelin in available territories and to fund a potential pediatric clinical trial in the E.U. and U.S. for macimorelin.

Macimorelin Clinical Program

On January 28, 2020, we announced the successful completion of patient recruitment for the first pediatric study of macimorelin as a growth hormone stimulation test for the evaluation of GHD in children. This study, AEZS-130-P01 (“Study P01”), was the first of two studies as agreed with the EMA in our Pediatric Investigation Plan (the “PIP”) for macimorelin as a GHD diagnostic. Macimorelin, a ghrelin agonist, is an orally active small molecule that stimulates the secretion of growth hormone from the pituitary gland into the circulatory system. The goal of Study P01 was to establish a dose that can both be safely administered to pediatric patients and cause a clear rise in growth hormone concentration in subjects ultimately diagnosed as not having GHD. The recommended dose derived from Study P01 will be evaluated in the pivotal second study, Study P02, on diagnostic efficacy and safety. Study P01 was an international, multicenter study, which was conducted in Hungary, Poland, Ukraine, Serbia, Belarus and Russia. Study P01 was an open label, group comparison, dose escalation trial designed to investigate the safety, tolerability, and pharmacokinetic/pharmacodynamic (“PK/PD”) of macimorelin acetate after ascending single oral doses of macimorelin at 0.25, 0.5, and 1.0 milligram per kilogram body weight in pediatric patients from two to less than 18 years of age with suspected CGHD. We enrolled a total of 24 pediatric patients across the three cohorts of the study. Per study protocol, all enrolled patients completed four study visits after successful completion of the screening period. At Visit 1 and Visit 3, a provocative growth hormone stimulation test was conducted according to the study sites’ local practices. At Visit 2, the macimorelin test was performed, and following the oral administration of the macimorelin solution, blood samples were taken at predefined times for PK/PD assessment. Visit 4 was a safety follow-up visit at study end.

The final study results from Study P01 were published in the second quarter of 2020 indicating positive safety and tolerability data for use of macimorelin in CGHD, as well as PK/PD data observed in a range as expected from the adult studies.

On April 7, 2020 the Company announced the decision of the EMA to accept our modification request of our PIP as originally approved in March 2017, which covered the conduct of two pediatric studies and defined relevant key elements in the outline of these studies. We believe this EMA decision supports the development of one globally harmonized study protocol for test validation, specifically Study P02, which we expect to be accepted both in Europe and the U.S.

In late 2020, Aeterna entered into the start-up phase for the clinical safety and efficacy study, AEZS-130-P02 (“Study P02” or ““DETECT-trial”), evaluating macimorelin for the diagnosis of CGHD.The DETECT-trial is an open-label, single dose, multicenter and multinational study expected to enroll approximately 100 subjects worldwide, with at least 40 pre-pubertal and 40 pubertal subjects, and a minimum of 25 subjects expected to be enrolled in the U.S. The study design is expected to be suitable to support a claim for potential stand-alone testing, if successful. In addition, under the Novo Amendment, Novo and Aeterna agreed that the percentage of DETECT-trial clinical trial costs that Novo is required to reimburse to Aeterna was adjusted from 70% to 100% of costs up to $11 million (€9 million) and includes reimbursement of Aeterna’s budgeted internal labor costs. Any additional external jointly approved DETECT-trial costs incurred over $11 million (€9 million) will be shared equally between Novo and Aeterna. On April 22, 2021, the U.S. FDA Investigational New Drug Application associated with this clinical trial became active, see: https://clinicaltrials.gov/ct2/show/NCT04786873 and on May 13, 2021, we announced the opening of the first clinical site in the U.S. On January 26, 2022, the Company announced that it had experienced unavoidable delays in site initiation and patient enrollment due to rise of the Omicron variant in the COVID-19 pandemic. Our team is diligently working to get more clinical sites up and running with the goal of building momentum and bringing this study across the finish line while navigating as best as possible through this challenge. However, we have engaged a CRO to conduct the DETECT-trial outside the United States, including in Russia and Ukraine and clinical trial sites in those countries are being halted due to the conflict in Ukraine. To date, no patients have been enrolled in these clinical trials. Russia’s invasion of Ukraine in February 2022 may also impact our ability to conduct certain of our trials in the region. This could hinder the completion of our clinical trials and/or analyses of clinical results, which could materially harm our business.

Macimorelin Pre-clinical Program

On January 13, 2021, we entered into a material transfer agreement with Queensland University to provide macimorelin for the conduct of preclinical and clinical studies evaluating macimorelin as a therapeutic for the treatment of amyotrophic lateral sclerosis (“ALS” and commonly known as Lou Gehrig’s disease). Queensland University researchers have filed funding applications to dedicated organizations in Australia to finance parts of the abbreviated preclinical development program and to conduct a subsequent investigator-initiated clinical trial to evaluate the safety, tolerability and efficacy of macimorelin as a potential new treatment option for ALS patients. The Company expects to continue work with Queensland University to conduct proof-of-concept studies with macimorelin in disease specific animal models, assess alternative formulations and formalize a preclinical development plan.

The Company plans to evaluate the development of additional alternative formulations or administration routes with the goal of ensuring sufficient bioavailability and expects to provide updates on its progress as results become available.

Macimorelin Commercialization Program

On June 25, 2020, we announced that we entered into an exclusive distribution and related quality agreement with MegaPharm Ltd., a leading Israel-based biopharmaceutical company, for the commercialization in Israel and in the Palestinian Authority of macimorelin, to be used in the diagnosis of patients with AGHD and in clinical development for the diagnosis of CGHD.

Under the terms of the agreement, MegaPharm Ltd. will be responsible for obtaining registration to market macimorelin in Israel and the Palestinian Authority, while the Company will be responsible for manufacturing, product supply, quality assurance and control, regulatory support, and maintenance of the relevant intellectual property. In June 2021, MegaPharm Ltd. filed an application to the Ministry of Health of Israel for regulatory approval of macimorelin in Israel.

On November 16, 2020, the Company announced that it had entered into the Novo Amendment related to the development and commercialization of macimorelin. Novo is currently marketing macimorelin in the U.S. under the tradename Macrilen™ for the diagnosis of AGHD. Aeterna, in collaboration with Novo, is currently developing the expanded use of macimorelin for the diagnosis of CGHD, an area of significant unmet need.

Pursuant to the Novo Amendment, the Company agreed to grant to Novo additional rights with respect to ownership of the Aeterna Patent Rights and Trademarks, as defined, and to amend certain responsibilities between Aeterna and Novo with respect to the ongoing development initiatives for the use of Macrilen™ as a diagnostic in the pediatric indication (the “Pediatric Indication”). Additionally, the Novo Amendment: reflected the existence of a supply agreement; established total consideration to be provided by Novo as reimbursements for costs incurred in connection with the development activities related to the Pediatric Indication; provided for a non-refundable upfront payment of $6.1 million (€5.0 million) to be made by Novo to the Company; and modified future payment obligations, including a reduction of royalty rates and a waiver by the Company with respect to the $5 million pediatric milestone from the original agreement with Novo.

Per the Novo Amendment, total consideration to be payable by Novo to the Company as reimbursement for Pediatric Indication development-related costs was established at approximately $11.0 million (€9 million) plus 50% of any excess over this amount, limited specifically to clinical trial expenses, which were estimated to total $11.7 million (€9.9 million) (the “Pediatric Development Consideration”). The Pediatric Development Consideration was derived from development forecasts that were approved by both the Company and Novo.

As for the reduction in royalties, the Company agreed to reduce the Net Sales Royalties from 15% to 8.5% for annual net sales of Macrilen™ up to $40 million and to establish a royalty of 15% for annual net sales of Macrilen™ over $40 million.

On December 7, 2020, the Company entered into an exclusive licensing agreement with Consilient Health Limited (“CH”) for the commercialization of macimorelin (the “Licensed Product”) in the European Economic Area and the United Kingdom (the “CH License Agreement”).

Under the terms of the CH License Agreement, CH agreed to make a non-refundable, non-creditable upfront payment to the Company of $1.2 million (€1.0 million), which the Company received in January 2021. The Company also is eligible to receive additional consideration, including regulatory milestones related to agreed-upon pricing and reimbursement parameters; net sales milestones; and royalties, ranging from 10%-20% of net sales of macimorelin, subject to reduction in certain cases, or sublicense income recorded by CH.

Also on December 7, 2020, the Company and CH entered into an exclusive supply agreement, pursuant to which the Company agreed to provide the Licensed Product to CH, with such Licensed Product to be manufactured by third-party manufacturers for a period of ten years, subject to renewal (the “CH Supply Agreement”). In December 2021, the Department of Health and Social Care in the United Kingdom approved a list price which triggered a $226 (€0.2 million) pricing milestone payment from CH to the Company.

We entered into license and supply agreements with NK Meditech Ltd. (“NK”), a subsidiary of PharmBio Korea, effective November 30, 2021, and a distribution and commercialization agreement with ER Kim Pharmaceuticals Bulgaria Food (“ER-Kim”), effective February 1, 2022. The agreements with NK are related to the development and commercialization of macimorelin for the diagnosis of AGHD and CGHD in the Republic of Korea, while the agreement with ER-Kim is related to the commercialization of macimorelin for the diagnosis of growth hormone deficiency in children and adults in Turkey and some non-European Union Balkan countries.

Pipeline Expansion Opportunities

Bacterial Vaccine Platform: Orally active, live-attenuated bacterial vaccine platform with potential application against viruses and bacteria, such as coronaviruses and chlamydia bacteria

On February 2, 2021, the Company announced that it had entered into an exclusive option agreement to evaluate a preclinical potential COVID-19 vaccine developed at the University of Wuerzburg. On March 14, 2021, the Company exercised the option to enter into a license agreement with the University. Pursuant to the terms of the University License Agreement, the Company has been granted an exclusive, world-wide, license to certain patent applications and know-how owned by the University to research and develop, manufacture, and sell a potential COVID-19 vaccine using the University’s bacterial vaccine platform technology. The Company has paid an up-front payment under the University License Agreement and will conduct milestones payments upon achievement of certain development, regulatory, and sales milestones, as well as a percentage of any sub-licensing revenue received by the Company as well as royalty payments on net sales of the licensed vaccine products (including for by the Company or its sub-licensees). Pursuant to the University License Agreement, the University granted the Company an exclusive option for the exclusive use of the Licensed Rights in an undisclosed field. In September 2021, the Company exercised this option and disclosed the field to be chlamydia. Additionally, the Company has entered into the Research Agreement under which the Company has engaged the University on a fee-for-service basis to conduct supplementary research activities and preclinical development studies on the potential vaccines.

The vaccine technology developed at the University is based on the active live-attenuated bacterial typhoid fever vaccine Salmonella Typhi Ty21a with an excellent safety profile, as a carrier strain. Our vaccines have the potential to be administered orally, induce the mucosal immune system, induce a response to more than one antigen, and be stored and distributed at 2 to 8°C. We believe that, if there is sufficient data to advance into human clinical trials, the development program for these vaccines is expected to be abbreviated, as clinical safety data and manufacturing technology is already available for the underlying vaccine strain.

The Coronavirus outbreak began in the end of 2019 and in early 2022 was reaching its fourth infection peak worldwide with vaccinated people getting infected and with booster vaccinations being needed. As of January 12, 2022, there were three vaccines approved in US, and five in EU. At that time, over 9.5 billion doses had been administered, 59% of the world population had received at least one dose, and 35 million doses were being administered every day. The competition is large with 11 vaccines currently being in clinical studies only in Europe. Our COVID-19 vaccine candidate is unique in stimulating the mucosal immune system giving the potential to eliminate the virus when it enters the body, before an infection can occur, and drastically reducing the risk of vaccinated people getting infected and spreading the virus. In addition, the oral application and its storage stability greatly facilitates distribution and administration. Our next development steps include evaluating the administration route, dose and immunization scheme; initiating in-vivo immunology experiments with antigen variant candidates in relevant mice models; conducting virus challenge experiments in immunized transgenic animals; starting the manufacturing process assessment / development; and conducting pre-clinical safety and toxicology assessments.

Chlamydia trachomatis is a sexually transmitted bacterium infecting over 130 million subjects annually. In US, the prevalence 2.4 million per year, the incidence is 4 million per year, and the associated yearly health cost $691 million. The disease can spread to the reproductive tract eventually inducing infertility, miscarriage, or ectopic pregnancy, which is a life-threatening condition. Additionally, ocular infections can lead to inclusion conjunctivitis or trachoma, which is the primary source of visual impairment or infectious blindness. While diagnosed infections can be treated with antibiotics, three quarters of all infections are asymptomatic and currently no vaccine exists to protect against chlamydia. The potential strengths of our chlamydia vaccine candidate are the mucosal immunity, oral administration, good stability, and inexpensive production. Our next development steps include designing and preparing candidate vaccine strains; evaluating administration route, dose and immunization scheme; and initiating in-vivo immunology experiments with candidate strains in relevant mouse models.

On March 10, 2022, the Company announced the expansion of its research program with the University of Wuerzburg to include the development of human 3D intestinal tissue models to study infection biology in the gut, the site of Salmonella primary action.

Delayed Clearance Parathyroid Hormone (“DC-PTH”) Fusion Polypeptides: Potential treatment for chronic hypoparathyroidism

On March 11, 2021, the Company entered into an exclusive license agreement with The University of Sheffield, United Kingdom, for the intellectual property relating to parathyroid hormone (“PTH”) fusion polypeptides covering the field of human use, which will initially be studied by Aeterna for the potential therapeutic treatment of chronic hypoparathyroidism (“HypoPT”). Under the terms of the exclusive patent and know-how license agreement entered into with the University of Sheffield, Aeterna obtained worldwide rights to develop, manufacture and commercialize PTH fusion polypeptides covered by the licensed patent applications for all human uses for an up-front cash payment, and milestone payments to be paid upon the achievement of certain development, regulatory and sales milestones, as well as low single digit royalty payments on net sales of those products and certain fees payable in connection with sublicensing. Aeterna will be responsible for the further development, manufacturing, approval, and commercialization of the licensed products. Aeterna has also engaged the University of Sheffield under a research contract to conduct certain research activities to be funded by Aeterna, the results of which will be included within the scope of the license granted to Aeterna.

The researchers at the University of Sheffield have developed a method to increase the serum clearance time of peptides, which the Company is applying to the development of a treatment for HypoPT. HypoPT is an orphan disease where the PTH level is abnormally low or absent, with a prevalence per 100 000 of 37 in US, 22 in Denmark, 9.4 in Norway, and 5.3 to 27 in Italy. Standard treatment is calcium and vitamin D supplementation. In consultation with The University of Sheffield, Aeterna has selected AEZS-150 as the lead candidate in its DC-PTH program. AEZS-150 is being developed to provide a weekly treatment option of chronic hypoparathyroidism in adults and our next steps include working with The University of Sheffield to conduct in depth characterization of development candidate (in-vitro and in-vivo); developing the manufacturing process; and formalizing the pre-clinical development of AEZS-150 in preparation for a potential IND filing for conducting the first in-human clinical study.

AIM Biologicals: Targeted, highly specific autoimmunity modifying therapeutics for the potential treatment of neuromyelitis optica spectrum disorder and Parkinson’s disease

In January 2021, Aeterna entered into an exclusive patent license and research agreement with the University of Wuerzburg, Germany, for worldwide rights to develop, manufacture, and commercialize AIM Biologicals for the potential treatment of NMOSD. Additionally, the Company has engaged Prof. Dr. Joerg Wischhusen from the University Hospital in Wuerzburg as well as neuro-immunologist Dr. Michael Levy from the Massachusetts General Hospital in Boston as consultants for scientific support and advice in the field of inflammatory CNS disorders, autoimmune diseases of the nervous system, and NMOSD. In September 2021, the Company entered into an additional exclusive license with the University of Wuerzburg for early pre-clinical development towards the potential treatment of Parkinson’s disease.

AIM Biologicals is based on a natural process during pregnancy, which induces immunogenic tolerance of the maternal immune system to the partially foreign fetal antigens. Fetal proteins are processed and presented on certain immunosuppressive major histocompatibility complex class I molecules to induce this tolerance. In an autoimmune disease is the immune system misdirected and targets the body’s own protein. With AIM Biologicals, we aim to restore the tolerance against such proteins to treat autoimmune diseases.

NMOSD is an autoimmune disease targeting the protein aquaporin 4, primarily found in optic nerves and the spinal cord. The disease leading to blindness and paralysis has a prevalence of 0.7-10 in 100,000, more common in persons with Asian or African compared to European ancestors, and nine times more prevalent among women compared to men. NMOSD progresses in often life-threatening relapses, which are aggressively treated with high-dose steroids and plasmapheresis. Our pre-clinical plans include conducting in-vitro and in-vivo assessments to select an AIM Biologicals-based development candidate; and manufacturing process development for the selected candidate.

Parkinson’s disease is a neurological disease commonly associated with motoric problems with a slow and fast progression form. It is the second most common neurodegenerative disease affecting 10 million people worldwide. The hallmark of PD is the neuronal inclusion of mainly α-synuclein protein (αSyn) associated with the death of dopamine-producing cells. Dopaminergic medication is the mainstay treatment of PD symptoms, but currently there is no pharmacological therapy to prevent or delay disease progression leading to alternate treatments, such as deep brain stimulation with short electric bursts, being investigated for the treatment of symptoms. For the development of AIM Biologicals as potential PD therapeutics, Aeterna plans to utilize, among others, an innovative animal model on neurodegeneration by α-synuclein-specific T cells in AAV-A53T-α-synuclein Parkinson’s disease mice, which has recently been published by University of Wuerzburg researchers. Our next steps include designing and producing antigen-specific AIM Biologics molecules for the potential treatment of Parkinson’s disease; and conducting in-vitro and in-vivo assessments in relevant Parkinson’s disease models.

Macimorelin Therapeutic: Ghrelin agonist in development for the treatment of amyotrophic lateral sclerosis (Lou Gehrig’s disease)

In January 2021, the Company entered into a material transfer agreement with the University of Queensland, Australia, to provide macimorelin for the conduct of pre-clinical and subsequent clinical studies, evaluating macimorelin as a potential therapeutic for the treatment of ALS. The University of Queensland researchers have filed for supportive grants to conduct such clinical studies. AEZS and the University are currently in the final steps of negotiating a research agreement.

ALS is a rare progressive neurological disease primarily affecting the neurons controlling voluntary movement, leading to the disability to control movements such as walking, talking, and chewing. Most people with ALS die from respiratory failure, usually between 3-5 years after diagnosis. Currently there is no cure for ALS and no effective treatment to halt or reverse the progression of the disease. Ghrelin is a hormone with wide-ranging biological actions, most known for stimulating growth hormone release, which is demonstrating emerging evidence as therapeutic for ALS. As a ghrelin agonist, macimorelin has the potential as a treatment for ALS, which is evaluated in this research collaboration. Our next steps include working with the University of Queensland to conduct proof-of-concept studies with macimorelin in disease-specific animal models, assessing alternative formulations and formalizing a pre-clinical development plan.

Changes in personnel and advisors

On May 3, 2021, the Company announced the addition of Michael Teifel, Ph.D. as Senior Vice President, Non-Clinical Development and Chief Scientific Officer to drive forward our pre-clinical research initiatives. In the second quarter of 2021, Prof. Dr. Joerg Wischhusen (Wuerzburg University) and Dr. Michael Levy, MD, PhD, were engaged by the Company as scientific consultants to support the development of the AIM Biologicals in NMOSD. Dr. Thomas Rudel (Wuerzburg University) was engaged by the Company in September 2021 as a scientific consultant to support development of the salmonella-based vaccine platform for coronavirus and chlamydia vaccines. Effective January 24, 2022, Mr. Giuliano La Fratta joined the Company as the Senior Vice President, Chief Financial Officer, replacing Ms. Leslie Auld.

Nasdaq Letters

On July 28, 2021, we received a letter from the Listing Qualifications Staff of the Nasdaq, notifying us that during the 30 consecutive business days prior to the date of the letter, the closing bid price of our common shares was below $1.00 per share and, therefore, we did not meet the requirement for continued listing on Nasdaq as required by Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Rule”). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we were granted a grace period of 180 calendar days, through January 24, 2022. On January 26, 2022, we announced that the Listing Qualifications Staff of the Nasdaq had notified the Company that it has been granted an additional 180 calendar day period, through July 26, 2022, to comply with the US$1.00 minimum bid price requirement for continued listing on the Nasdaq. If at any time before July 26, 2022, the bid price for the Company’s common shares closes at or above US$1.00 per share for a minimum of 10 consecutive business days (and generally not more than 20 consecutive business days, in Nasdaq’s discretion), it is expected that Nasdaq would provide formal notice that the Company has regained compliance with the bid price requirement. In the event the Company does not provide, during the 180-day grace period, evidence to demonstrate compliance with Bid Price Rule, it is expected that Nasdaq would notify the Company that its shares are subject to delisting. At such time, the Company may appeal such determination to a Nasdaq Hearings Panel (the “Panel”) and it is expected that the Company’s securities would continue to be listed and available to trade on Nasdaq at least pending the completion of the appeal process. There can be no assurance that any such appeal would be successful or that the Company would be able to comply with the terms of any extension that may be granted by the Panel. There is no assurance that we will regain compliance with the Bid Price Rule in the future, and therefore there can be no assurance that our common shares will remain listed on Nasdaq. The aforementioned notification from the Nasdaq does not impact the Company’s listing status on the TSX.

Settlement of Class-Action Lawsuit

On March 9, 2020, the Company settled the previously disclosed class-action lawsuit against it pending in the U.S. District Court for the District of New Jersey. This settlement was approved by the U.S. District Court for the District of New Jersey on June 3, 2021. The settlement payment was funded entirely by the Company’s insurers. As no appeals were filed within the 30-day appeal period, this matter is fully and finally settled.

Extension of German building lease

Effective August 25, 2021, the Company and its landlord mutually agreed to a one-year extension to its existing building lease agreement for its German subsidiary, continuing such terms until March 31, 2023.

Exposure to Epidemic or Pandemic Outbreak

Coronavirus, or COVID-19, a contagious disease that was characterized by the World Health Organization as a pandemic in early 2020, continues to affect the global community. The significant spread of COVID-19 resulted in a widespread health crisis and has had adverse effects on national economies generally, on the markets that we serve on our operations and on the market price of our common shares.

The spread of COVID-19 may continue to impact our operations, including the potential interruption of our clinical trial activities and of our supply chain. For example, the rise in the Omicron variant in the COVID-19 pandemic has caused delays in site initiation and patient enrollment in our Phase 3 DETECT clinical trial for diagnostic use in childhood-onset growth hormone deficiency. Additionally, sales activities for Macrilen™ in the US may be impacted due to delays of diagnostic activities on AGHD in the US. Further, the COVID-19 pandemic may also cause some patients to be unwilling to enroll in our trials or be unable to comply with clinical trial protocols if quarantines impede patient movement or interrupt healthcare services, which would delay our ability to conduct clinical trials or release clinical trial results on a timely basis and could delay our ability to obtain regulatory approval and commercialize our product candidates. The spread of an infectious disease, including COVID-19, may also result in the inability of our suppliers to deliver components or raw materials on a timely basis or at all. In addition, hospitals may reduce staffing and reduce or postpone certain treatments in response to the spread of an infectious disease. Such events may result in a period of business disruption and, in reduced operations, doctors or medical providers may be unwilling to participate in our clinical trials, any of which could materially affect our business, financial condition or results of operations.

Given this rapidly evolving situation, the duration, scope and impact on our business operations, clinical studies and financial results cannot at this time be fully determined or quantified. Aeterna Zentaris has developed protocols and procedures should they be required to deal with any potential epidemics and pandemics and has implemented these protocols and procedures to address the current COVID-19 pandemic. Despite appropriate steps being taken to mitigate such risks, there can be no assurance that existing policies and procedures will ensure that the Company’s operations will not be adversely affected. The COVID-19 pandemic has resulted in a widespread health crisis that has adversely affected the economies and financial markets of many regions and countries. There can be no assurance that a disruption in financial markets, regional economies and the world economy would not negatively affect Aeterna Zentaris’ access to capital or its financial performance.

Uncertain factors, including the duration of the outbreak, the severity of the disease and the actions to contain or treat its impact, could impair our operations including, among other things, employee mobility and productivity, availability of our facilities, conduct of our clinical trials and the availability and the productivity of third-party product and service suppliers. Please see the Risk Factor entitled “The economic effects of a pandemic, epidemic or outbreak of an infectious disease could adversely affect our operations or the market price of our Common Shares”.

Russia/Ukraine Conflict

Conducting clinical trials in foreign countries, as in our ongoing DETECT-trial, presents additional risks that may delay completion of our clinical trials. These risks include the failure of enrolled patients in foreign countries to adhere to clinical protocol as a result of differences in healthcare services or cultural customs, managing additional administrative burdens associated with foreign regulatory schemes, as well as political and economic risks, including war, relevant to such foreign countries. For example, we have engaged a CRO to conduct the DETECT-trial outside the United States, including in Russia and Ukraine and clinical trial sites in those countries are being halted due to the conflict in Ukraine. To date, no patients have been enrolled in these clinical trials. Russia’s invasion of Ukraine in February 2022 may impact our ability to conduct certain of our trials in the region. This could hinder the completion of our clinical trials and/or analyses of clinical results, which could materially harm our business

In particular, we have engaged a CRO to conduct our DETECT-trial outside of the United States, including in Russia and Ukraine. As a result of Russia’s invasion of Ukraine in February 2022, clinical trial sites in Ukraine and the surrounding region are being halted. Furthermore, the United States and its European allies have imposed significant new sanctions against Russia, including regional embargoes, full blocking sanctions, and other restrictions targeting major Russian financial institutions. Our ability to conduct clinical trials in Russia, parts of Ukraine and elsewhere in the region may become restricted under applicable sanctions laws, which would require us to identify alternative trial sites, which may increase our development costs and delay the clinical development of our product candidates. All of the foregoing could impede the execution of our clinical development plans, which could materially harm our business.

Consolidated Statements of Financial Position Data

	As of December 31, 2021		As of December 31, 2020		As of December 31, 2019
(in thousands)
	$		$		$
Cash and cash equivalents		65,300		24,271		7,838
Trade and other receivables and other current assets		5,447		3,322		1,869
Inventory		73		21		1,203
Restricted cash equivalents		335		338		364
Property, plant and equipment		42		22		35
Right of use assets		150		157		582
Other non-current assets		8,755		8,874		8,090
Total assets		80,102		37,005		19,981
Payables and accrued liabilities and income taxes payable		2,787		2,322		3,596
Current portion of provisions		34		92		418
Current portion of deferred revenues		4,815		2,193		991
Lease liabilities		161		184		903
Warrant liability		—		—		2,225
Non-financial non-current liabilities (*)		19,319		19,003		14,281
Total liabilities		27,116		23,794		22,444
Shareholders’ equity (deficiency)		52,986		13,211		(2,463	)
Total liabilities and shareholders’ equity (deficiency)		80,102		37,005		19,981

^(*) Comprised mainly of employee future benefits, provisions, deferred gain and non-current portion of deferred revenues.

Consolidated Statements of Comprehensive Loss Data

	Three months ended December 31,						Years ended December 31,
(in thousands, except share and per share data)	2021			2020			2021			2020			2019
	$			$			$			$			$
Revenues
License fees		361			856			1,670			911			74
Development services		528			—			3,337			—			—
Product sales		—			1,354			—			2,370			129
Royalty income		21			20			68			67			45
Supply chain		46			136			185			304			284
Total revenues		956			2,366			5,260			3,652			532
Operating expenses
Cost of sales		18			1,410			90			2,317			410
Research and development expenses		1,863			626			6,574			1,506			1,837
General and administrative expenses		1,779			1,314			5,916			4,759			6,615
Selling expenses		427			404			1,351			1,134			1,214
Restructuring costs		—			—			—			—			507
Gain on modification of building lease		—			—			—			(219	)		—
Impairment of right of use asset		—			—			—			—			22
(Reversal)impairment of other asset		—			(139	)		—			(139	)		169
Total operating expenses		4,087			3,615			13,931			9,358			10,774
Loss from operations		(3,131	)		(1,249	)		(8,671	)		(5,706	)		(10,242	)
Gain due to changes in foreign currency exchange rates		257			335			215			572			87
Change in fair value of warrant liability		—			—			—			1,147			4,518
Other finance costs		—			(2	)		(21	)		(736	)		(593	)
Net finance income		257			333			194			983			4,012
Loss before income taxes		(2,874	)		(916	)		(8,477	)		(4,723	)		(6,230	)
Income tax (expense) recovery		(20	)		(395	)		109			(395	)		188
Net loss		(2,894	)		(1,311	)		(8,368	)		(5,118	)		(6,042	)
Other comprehensive loss
Foreign currency translation adjustments		(93	)		(657	)		367			(1,139	)		83
Actuarial (loss) gain on defined benefit plans		(3,725	)		15			(3,592	)		(650	)		(1,068	)
Comprehensive loss		(6,712	)		(1,953	)		(11,593	)		(6,907	)		(7,027	)
Net loss per share (basic)		(0.02	)		(0.02	)		(0.07	)		(0.12	)		(0.35	)
Net loss per share (diluted)		(0.02	)		(0.02	)		(0.07	)		(0.12	)		(0.35	)

Critical Accounting Policies, Estimates and Judgments

Our consolidated financial statements as of December 31, 2021 and December 31, 2020 and for the years ended December 31, 2021, 2020 and 2019 have been prepared in accordance with IFRS as issued by the IASB.

The preparation of consolidated financial statements in accordance with IFRS requires management to make judgments, estimates and assumptions that affect the reported amounts of our assets, liabilities, revenues, expenses and related disclosures. Judgments, estimates and assumptions are based on historical experience, expectations, current trends and other factors that management believes to be relevant when our consolidated financial statements are prepared.

Management reviews, on a regular basis, the Company’s accounting policies, assumptions, estimates and judgments in order to ensure that the consolidated financial statements are presented fairly and in accordance with IFRS. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. Further details can be found in note 3 in the consolidated financial statement as of December 31, 2021 and December 31, 2020 and for the years ended December 31, 2021, 2020 and 2019. Our most significant accounting estimates and assumptions that the Company has made in the preparation of the consolidated financial statements including: accounting for a contract modification, license and collaboration arrangement with multiple elements, impairment of goodwill, employee future benefits and research and development accrual.

Recent Accounting Pronouncements

IFRS Pronouncements issued but not yet effective

(a) IAS 37, Provisions, Contingent Liabilities and Contingent Assets (“IAS 37”)

The amendment to IAS 37 clarifies the meaning of costs to fulfil a contract and that before a separate provision for an onerous contract is established, an entity recognizes any impairment loss that has occurred on assets used in fulfilling the contract, rather than on assets dedicated to the contract. This amendment will be effective for annual periods beginning on or after January 1, 2022. The Company is currently evaluating this guidance and the impacts that the amendments may have on the Company’s consolidated financial statements.

Financial Risk Factors and Other Instruments

The nature and extent of our exposure to risks arising from financial instruments, including credit risk, liquidity risk and market risk and how we manage those risks are described in note 24 to the Company’s audited consolidated financial statements as of December 31, 2021 and 2020 and for the years ended December 31, 2021, 2020 and 2019.

Results of operations

Revenues

Our total revenue for the three-month period ended December 31, 2021 was $1.0 million as compared with $2.4 million for the same period in 2020, representing a decrease of $1.4 million, primarily due to $1.4 million decline in product sales of macimorelin to its licensees (as no product sales were generated in 2021), $0.5 million decline in license fees offset by $0.5 million increase in development services (as further discussed below). Our total revenue for the twelve-month period ended December 31, 2021 was $5.3 million as compared with $3.7 million for the same period in 2020, representing an increase of $1.6 million, primarily due to $3.3 million increase in development services with Novo (as further discussed below) and $0.8 million increase in license fees related to the partial recognition of the €5 million up front payment received from Novo in 2020 offset by a $2.4 million decline in product sales (as no product sales were generated in 2021).

In the fourth quarter of 2021, the Company restated its previously reported condensed consolidated interim financial statements for the three-month period ended March 31, 2021 and the three-month and six-month periods ended June 30, 2021 and three-month and nine-month periods ended September 30, 2021 with respect to the recognition of revenue for the Novo Amendment, signed in November 2020. During the fourth quarter of 2021, management reassessed the classification of the development activities associated with the DETECT-trial and concluded that subsequent to the Novo Amendment the parties no longer shared joint control of these activities and, as such, these development activities no longer met the definition of a joint operation, as defined in IFRS 11. Therefore, pursuant to the guidance in IFRS 15, the Company reclassified the charges to Novo, from research and development expenses to development services revenue , in the related periods. In addition, the license fees related to the pediatric indication were adjusted to reflect the revised pattern of recognition as the performance obligation for the development services has now been combined with the pediatric license. In addition, the accounting for prepaid expenses and other assets and deferred revenues related the DETECT-trial expenses incurred was restated

The impacts of these restatements are as follows (amounts in thousands, except for basic and diluted loss per share):

	Previously reported			Effect of restatement			Amended
	$			$			$
Consolidated interim statement of loss and comprehensive loss for the three-month period ended March 31, 2021
License fees		537			(13	)		524
Development service revenues		—			1,095			1,095
Research and development expenses		363			1,095			1,458
Net loss		(1,445	)		(13	)		(1,458	)
Total comprehensive loss		(16	)		(13	)		(29	)
Basic and diluted loss per share		(0.02	)		—			(0.02	)
Consolidated interim statement of financial position as of March 31, 2021
Prepaid expenses and other current assets		3,050			543			3,593
Current portion of deferred revenues		2,101			556			2,657
Deficit		(323,222	)		(13	)		(323,235	)

	Previously reported			Effect of restatement			Amended
	$			$			$
Consolidated interim statement of loss and comprehensive loss for the three-month period ended June 30, 2021
License fees		537			(45	)		492
Development service revenues		—			1,030			1,030
Research and development expenses		738			1,030			1,768
Net loss		(2,039	)		(45	)		(2,084	)
Total comprehensive loss		(3,133	)		(45	)		(3,178	)
Basic and diluted loss per share		(0.02	)		—			(0.02	)
Consolidated interim statement of loss and comprehensive loss for the six-month period ended June 30, 2021
License fees		1,074			(58	)		1,016
Development service revenues		—			2,125			2,125
Research and development expenses		1,101			2,125			3,226
Net loss		(3,484	)		(58	)		(3,542	)
Total comprehensive loss		(3,149	)		(58	)		(3,207	)
Basic and diluted loss per share		(0.03	)		—			(0.03	)
Consolidated interim statement of financial position as of June 30, 2021
Prepaid expenses and other current assets		3,308			1,067			4,375
Current portion of deferred revenues		2,125			1,111			3,236
Deficit		(326,229	)		(58	)		(326,287	)

	Previously reported			Effect of restatement			Amended
	$			$			$
Consolidated interim statement of loss and comprehensive loss for the three-month period ended September 30, 2021
License fees		527			(234	)		293
Development service revenues		—			684			684
Research and development expenses		801			684			1,485
Net loss		(1,698	)		(234	)		(1,932	)
Total comprehensive loss		(1,440	)		(234	)		(1,674	)
Basic and diluted loss per share		(0.01	)		(0.01	)		(0.02	)
Consolidated interim statement of loss and comprehensive loss for the nine-month period ended September 30, 2021
License fees		1,601			(292	)		1,309
Development service revenues		—			2,809			2,809
Research and development expenses		1,902			2,809			4,711
Net loss		(5,182	)		(292	)		(5,474	)
Total comprehensive loss		(4,589	)		(292	)		(4,881	)
Basic and diluted loss per share		(0.05	)		—			(0.05	)
Consolidated interim statement of financial position as of September 30, 2021
Prepaid expenses and other current assets		3,431			600			4,031
Current portion of deferred revenues		2,075			943			3,018
Deficit		(327,708	)		(292	)		(328,000	)

These restatements did not impact the Company’s cash and cash equivalent amounts and reported amounts of operating, investing and financing activities within the consolidated interim statements of cash flows for the three-month period ended March 31, 2021 and the three-month and six-month periods ended June 30, 2021 and three-month and nine-month periods ended September 30, 2021. Nor did these restatements have any impact on 2020 results. No amended financial statements will be filed.

Operating expenses

Our total operating expenses for the three-month period ended December 31, 2021 were $4.1 million as compared with $3.6 million for the same period in 2020, representing an increase of $0.5 million. This increase arose primarily from a $1.3 million increase in research and development expenses, a $0.5 million increase in general and administrative expenses and $0.1 million in costs incurred in 2020 and not incurred in 2021 (comprised of $0.1 million in reversal of impairment of other asset), offset by a decline of $1.4 million in cost of sales, as discussed below. Our total operating expenses for the twelve-month period ended December 31, 2021 was $13.9 million as compared with $9.4 million for the same period in 2020, representing an increase of $4.5 million. This increase arises primarily from a $5.1 million increase in research and development expenses, $1.1 million increase in general and administration expenses, $0.3 million in increase in selling expenses and $0.3 million in costs incurred in 2020 and not incurred in 2021 (comprised of $0.2 million in gain on modification of building lease and $0.1 million in reversal of impairment of other asset), offset by a $2.2 million decrease in cost of sales, as discussed below.

Research and development expenses

The following table summarizes our research and development expenses incurred during the periods indicated (amounts in thousands, except percentages):

	QUARTER ENDED DECEMBER 31,
	2021		2020			$ CHANGE			% CHANGE
Macrilen™ (macimorelin) pediatric trial (DETECT-trial) direct research and development expenses	$	526	$	(32	)	$	558			1,743.8	%
AEZS-130 direct research and development expenses		143		—			143			100.0	%
DC-PTH direct research and development expenses		63		—			63			100.0	%
Parkinsons direct research and development expenses		171		—			171			100.0	%
Covid-19 direct research and development expenses		137		—			137			100.0	%
NMOSD direct research and development expenses		106		—			106			100.0	%
Chlamydia direct research and development expenses		108		—			108			100.0	%
Additional programs’ direct research and development expenses		249		333			(84	)		(25.2	)%
Total direct research and development expenses		1,503		301			1,202			399.3	%
Employee-related expenses		335		226			109			48.2	%
Facilities, depreciation, and other expenses		25		99			(74	)		(74.7	)%
Total	$	1,863	$	626		$	1,237			197.6	%

Research and development expenses increased $1.2 million for the quarter ended December 31, 2021 compared to the quarter ended December 31, 2020 primarily due to $1.2 million increase in direct research and development expenses. Direct research and development expenses include expenses incurred under arrangements with third parties, such as a contract research organization for the DETECT-trial, contract manufacturers, and consultants. The $1.2 million increase in total direct research and development expenses for the quarter ended December 31, 2021 was primarily due to a $0.6 million increase in costs for the DETECT-trial and a $0.6 million increase in the initiation of our new pre-clinical projects with universities. During the fourth quarter of 2021, management reassessed the classification of the charges to Novo for development activities associated with the DETECT-trial and reclassified them from direct research and development expenses to development services revenue, as discussed in further detail above in “Revenues” in the Results from operations section of this MD&A. In 2020, the Company accounted for employee charges to Novo for the DETECT-trial relating as a reduction in the direct research and development costs, while the gross employee costs remained in the ‘Employee-related expenses’ in the analysis above. This classification led to the negative direct expenses for the DETECT-trial.

In the fourth quarter of 2021, the Company was actively recruiting patients for the DETECT-trial. This is in contrast to 2020, when we were primarily focused on the completion of our pediatric Study P01 for macimorelin which established the dose that is being used in the DETECT-trial. In addition to the DETECT-trial, the Company was actively working with its university research partners on the named pre-clinical programs, which primarily began in the first quarter of 2021. Of note, the Parkinsons’ project became active in the fourth quarter of 2021 after being in-licensed in the third quarter of 2021.

Employee-related expenses have increased in 2021 by $0.1 million for the quarter ended December 31, 2021 as compared to the quarter ended December 31, 2020 primarily from the impact of the addition of Dr. Michael Teifel as our Chief Scientific Officer in May 2021 and of our Head of Quality Control and CMC-Regulatory in March 2021, to better support our new pre-clinical initiatives.

Facilities, depreciation, and other expenses have declined by $0.1 million for the quarter ended December 31, 2021 as compared to the quarter ended December 31, 2020 primarily from the impact of lease negotiations for its German subsidiary initiated in 2020. Effective March 31, 2020, the Company modified its existing building lease agreement with its landlord, significantly reducing its leased space and leasing costs, and ultimately leading to the extension of its lease term to March 31, 2023.

The following table summarizes our research and development expenses incurred during the periods indicated (amounts in thousands, except percentages):

	YEAR ENDED DECEMBER 31,
	2021		2020		$ CHANGE			% CHANGE
Macrilen™ (macimorelin) pediatric trial (DETECT-trial) direct research and development expenses	$	3,244	$	184	$	3,060			1,663.0	%
AEZS-130 direct research and development expenses		230		—		230			100.0	%
DC-PTH direct research and development expenses		154		—		154			100.0	%
Parkinsons direct research and development expenses		171		—		171			100.0	%
Covid-19 direct research and development expenses		712		—		712			100.0	%
NMOSD direct research and development expenses		453		—		453			100.0	%
Chlamydia direct research and development expenses		146		—		146			100.0	%
Additional programs’ direct research and development expenses		486		475		11			2.3	%
Total direct research and development expenses		5,596		659		4,937			749.2	%
Employee-related expenses		839		653		186			28.5	%
Facilities, depreciation, and other expenses		139		194		(55	)		(28.4	)%
Total	$	6,574	$	1,506	$	5,068			336.5	%

Research and development expenses increased $5.1 million for the year ended December 31, 2021 as compared to the year ended December 31, 2020 primarily due to $4.9 million increase in direct research and development expenses. Direct research and development expenses include expenses incurred under arrangements with third parties, such as a contract research organization for the DETECT-trial, contract manufacturers, and consultants. The $4.9 million increase in total direct research and development expenses for the year ended December 31, 2021 was primarily due to a $3.1 million increase in costs for the DETECT-trial and a $1.8 million increase in the initiation of our new pre-clinical projects with universities for named projects. In the second quarter of 2021, the DETECT-trial became active and we announced the opening of the first clinical site in the U.S. During the fourth quarter of 2021, management reassessed the classification of the charges to Novo for development activities associated with the DETECT-trial and reclassified them from direct research and development expenses to development services revenue, as discussed in further detail above in “Revenues” in the Results from operations section of this MD&A.

Employee-related expenses have increased in 2021 by $0.2 million as compared to the year ended December 31, 2020 primarily from the addition of two senior members of our research and development team earlier in 2021.

Facilities, depreciation, and other expenses have declined in 2021 by $0.1 million as compared to the year ended December 31, 2020, primarily from the impact of lease negotiations for its German subsidiary which were completed early in 2020 and resulted in the negotiated reduction in leased space for its German subsidiary.

General and administrative expenses

General and administrative expenses increased by $0.5 million for the quarter ended December 31, 2021 compared to the quarter ended December 31, 2020, due to increased directors and officers’ insurance coverage of $0.2 million, for recruiting costs pertaining to the Chief Financial Officer role of $0.1 million, and increased salary and bonus costs of $0.1 million. General and administrative expenses increased by $1.1 million for the year ended December 31, 2021 compared to the year ended December 31, 2020, primarily from higher share based compensation of $0.2 million, higher spending on media and communication of $0.2 million, increased directors and officers’ insurance coverage of $0.2 million, higher professional fees of $0.2 million, increased higher public company costs of $0.2 million from holding our annual shareholders meeting in May 2021, subsequent to our issuance of common shares in the February 2021 Financing and the 2021 Warrant Exercises, in addition to recruiting costs for the Chief Financial Officer role of $0.1 million.

Cost of sales

Cost of sales decreased by $1.3 million in the fourth quarter of 2021 as compared with the same quarter in 2020, as there were no purchases of macimorelin by any licensee in 2021 as compared to the sale of one batch of Macrilen™ in the fourth quarter of 2020 to Novo. Similarly, cost of sales decreased by $2.2 million during the year ended December 31, 2021 as compared to the same period in 2020, as there were no purchases of macimorelin by any licensee in 2021 as compared to the sale of two batches of Macrilen™ to Novo in 2020.

Net finance income

For the three-month period ended December 31, 2021, our net finance income was $0.3 million as compared to $0.3 million for the three-month period ended December 31, 2020. Our net finance income for the twelve-month period ended December 31, 2021 was $0.2 million as compared with $1.0 million for the same period in 2020, representing a decrease of $0.8 million. This is primarily due to a $1.1 million change in fair value of warrant liability, a $0.4 million decline in gain due to change in foreign currency, offset by a $0.7 million decline in other finance costs. During the prior year, the Company registered the common shares underlying certain warrants which allowed the Company to reclassify such warrants from liability to shareholders’ equity in the consolidated statements of financial position. As such the change in fair value of such warrants liabilities was classified as a finance cost in the consolidated statements of loss in 2020; there was no such change in fair value in 2021.

Net loss

For the three-month period ended December 31, 2021, we reported a consolidated net loss of $2.9 million, or $0.02 loss per common share (basic and diluted), as compared with a consolidated net loss of $1.3 million, or $0.02 loss per common share (basic and diluted) for the three-month period ended December 31, 2020. The $1.6 million increase in net loss is primarily from a $0.5 million increase in total operating expenses and a $1.4 million decrease in revenues, partially offset by a $0.4 million reduction in income tax expense, as discussed above.

For the twelve-month period ended December 31, 2021, we reported a consolidated net loss of $8.4 million, or $0.07 loss per common share (basic and diluted), as compared with a consolidated net loss of $5.1 million, or $0.12 loss per common share (basic and diluted), for the year ended December 31, 2020. The $3.3 million increase in net loss is primarily from a $4.5 million increase in operating expenses and a $0.8 million decline in net finance income, partially offset by an increase of $1.6 million in total revenues and a change in income tax recovery of $0.5 million, as previously discussed.

Selected quarterly financial data

	Three months ended
(in thousands, except for per share data)	December 31, 2021			September 30, 2021(1)			June 30, 2021(1)			March 31, 2021(1)
	$			$			$			$
Revenues		956			1,052			1,584			1,668
Net loss		(2,894	)		(1,932	)		(2,084	)		(1,458	)
Net loss per share (basic and diluted)(2)		(0.02	)		(0.02	)		(0.02	)		(0.02	)

	Three months ended
(in thousands, except for per share data)	December 31, 2020			September 30, 2020			June 31, 2020			March 31, 2020
	$			$			$			$
Revenues		2,366			128			68			1,090
Net (loss) income		(1,311	)		(1,136	)		(3,450	)		779
Net (loss) income per share (basic and diluted)(2)		(0.02	)		(0.02	)		(0.15	)		0.04

(1)

The restatements are discussed above under “Revenues” in the Results from operations section of this MD&A. The interim financial statements for the periods ended March 31, 2021, June 30, 2021 and September 30, 2021 have not been refiled but the comparatives will be corrected when the interim financial statements for the periods ended March 31, 2022, June 30, 2022 and September 30, 2022 are filed. These restatements did not have any impact on 2020 results.

(2)

Net loss per share is based on the weighted average number of shares outstanding during each reporting period, which may differ on a quarter-to-quarter basis. As such, the sum of the quarterly net loss per share amounts may not equal full-year net loss per share.

Historical quarterly results of operations and net loss cannot be taken as reflective of recurring revenue or expenditure patterns of predictable trends, largely given the non-recurring nature of certain components of our revenues, unpredictable quarterly variations in net finance income and of foreign exchange gains and losses.

Use of cash and cash equivalents

We began 2021 with $24.3 million in cash and cash equivalents. During the twelve-month period ended December 31, 2021, our operating activities consumed $8.6 million, our financing activities provided $51.0 million and our investing activities used $0.7 million. As of December 31, 2021 we had $65.3 million of cash and cash equivalents.

Liquidity and capital reserves

Our operations and capital expenditures have generally been financed through certain transactions impacting our cash flows from operating activities, public equity offerings, registered direct offerings and issuances. A portion of the Company’s cash is held in AEZS Germany, which is the counterparty to various license, supply and distribution agreements for the Company’s only approved product Macrilen™ (macimorelin).

Via public and private financings between September 2019 and February 2021, the Company has received $55.9 million in total funding (net of transaction costs) and, throughout 2021, holders exercised 35.1 million warrants resulting in proceeds to the Company of $20.1 million ..

(in thousands)	Years ended December 31,
	2021			2020			2019
	$			$			$
Cash and cash equivalents - beginning of period		24,271			7,838			14,512
Cash used in operating activities		(8,581	)		(4,129	)		(10,725	)
Cash flows provided by financing activities		51,037			20,468			3,893
Cash flows (used in) provided by investing activities		(658	)		56			50
Effect of exchange rate changes on cash and cash equivalents		(769	)		38			108
Cash and cash equivalents - end of period		65,300			24,271			7,838

Operating Activities

Cash used by operating activities totaled $8.6 million for the twelve months ended December 31, 2021, as compared to $4.1 million used by operating activities in the same period in 2020. This $4.5 million increase in spending in operating activities is attributed primarily to $1.9 million spending on the pre-clinical development programs, four potential therapeutics and two potential vaccines initiated in 2021, balance being attributed to the year over year change in Deferred Revenue.

Financing Activities

Cash provided by financing activities totaled $51.0 million for the twelve months ended December 31, 2021, as compared with cash provided by financing activities of $20.5 million in the same period in 2020. In February 2021, the Company completed a financing which provided $31.0 million in net funding (2020 – the Company completed three financings for $20.7 million in net funding). Throughout 2021, holders exercised 35.1 million warrants resulting in proceeds to the Company of $20.1 million.

Capital stock

As of March 28, 2022, we had 121,397,007 common shares issued and outstanding, as well as 1,086,368 stock options, 423,000 deferred share units and 11,441,213 warrants outstanding. Each stock option, deferred stock unit and warrant is exercisable for one common share.

During the period beginning on January 1, 2021 and December 31, 2021, holders have exercised certain of our outstanding warrants, as follows:

	Number Exercised		Exercise Price		Cash Receipts
September 2019 Investor warrants		2,000,000	$	1.65	$	3,300,000
February 2020 Investor warrants		1,739,130	$	1.20	$	2,086,956
July 2020 Investor warrants		21,045,555	$	0.45	$	9,470,500
July 2020 Placement Agent warrants		1,866,667	$	0.5625	$	1,050,000
August 2020 Investor warrants		7,589,883	$	0.47	$	3,567,245
August 2020 Placement Agent warrants		869,952	$	0.7040625	$	612,501
		35,111,187			$	20,087,202

Long-term incentive and stock option plan

	Year ended December 31, 2021
	Stock options			Weighted average exercise price		DSUs
	(Number)			($)		(Number)
Balance – January 1, 2021		506,400			1.44		173,000
Granted		580,000			0.42		280,000
Expired		(32	)		590.25		—
Exercised		—			—		(30,000	)
Balance – December 31, 2021		1,086,368			0.88		423,000

Investing Activities

Cash used in investing activities totaled $0.7 million for the twelve months ended December 31, 2021, as compared with cash provided by investing activities of $0.1 million in the same period in 2020. The $0.6 million year-over-year increase is attributable entirely to five of the six pre-clinical development programs discussed above, for which we made payments to the University of Wuerzburg for $0.5 million and to the University of Sheffield for $0.1 million.

Adequacy of financial resources

Since inception, the Company has incurred significant expenses in its efforts to develop and co-promote products. Our current business focus is to: investigate further therapeutic uses of Macrilen™, expand pipeline development activities, further expand the commercialization of macimorelin in available territories and fund our 50% share of the DETECT-trial costs which exceed €9 million. Consequently, the Company has incurred operating losses and has generated negative cash flow from operations historically and in each of the last several years except for the year ended December 31, 2018 when the Company earned revenue from the sale of a license for the adult indication of Macrilen™ (macimorelin) in the U.S. and Canada. The Company expects to incur significant expenses and operating losses for the foreseeable future as it advances its product candidates through preclinical and clinical development, seeks regulatory approval and pursues commercialization of any approved product candidates. We expect that our research and development costs will increase in connection with our planned research and development activities.

As of December 31, 2021, the Company had cash and cash equivalents of $65.3 million and an accumulated deficit of $334.6 million. The Company also had a net loss of $8.4 million and negative cash flows from operations of $8.6 million for the year ended December 31, 2021. We believe that our existing cash on hand will be sufficient to fund our anticipated operating and capital expenditure requirements through 2023. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our capital resources sooner than we expect. We may also require additional capital to pursue in-licenses or acquisitions of other product candidates.

Contractual obligations and commitments as of December 31, 2021

	Service and manufacturing		R&D contracts		TOTAL
		$		$		$
Less than 1 year		1,085		2,252		3,337
1 – 3 years		6		1,049		1,055
4 – 5 years		—		—		—
More than 5 years		—		—		—
Total		1,091		3,301		4,392

During 2021, the Company executed various agreements including in-licensing and similar arrangements with development partners. Such agreements may require the Company to make payments on achievement of stages of development, launch or revenue milestones, although the Company generally has the right to terminate these agreements at no penalty.

Based on the closing exchange rates at December 31, 2021, the Company expects to pay $3.3 million, including $3.1 million (€2.8 million), and $0.2 million (£0.1 million), in R&D contracts and up to $8.9 million, including $7.4 million (€6.5 million) and $1.5 million (£1.2 million), in R&D milestone payments and up to $32.9 million, including $31.3 million (€27.6 million) and $1.6 million (£1.3 million), in revenue related milestone payments.

The table below contains all potential R&D and revenue-related milestone payments that the Company may be required to make under such agreements:

	Future potential R&D milestone payments		Future potential revenue milestone payments		Total
	$		$		$
Less than 1 year		28		—		28
1 – 3 years		113		—		113
4 – 5 years		927		—		927
More than 5 years		7,869		32,942		40,811
Total		8,937		32,942		41,879

The future payments that are disclosed represent contract payments and are not discounted and are not risk-adjusted. The development of any pharmaceutical product candidates is a complex and risky process that may fail at any stage in the development process due to a number of factors. The timing of the payments is based on the Company’s current best estimate of achievement of the relevant milestone.

Contingencies

In the normal course of operations, the Company may become involved in various claims and legal proceedings related to, for example, contract terminations and employee-related and other matters.

Securities class action lawsuit

On March 9, 2020, the Company settled the previously disclosed class-action lawsuit against it pending in the U.S. District Court for the District of New Jersey. This settlement was approved by the U.S. District Court for the District of New Jersey on June 3, 2021. The settlement payment was funded entirely by the Company’s insurers. As no appeals were filed within the 30-day appeal period, this matter is fully and finally settled.

Related Party Transactions and Off-Balance Sheet Arrangements

Other than employment agreements and indemnification agreements with our management, there are no related party transactions.

As of December 31, 2021, we did not have any interests in special purpose entities or any other off-balance sheet arrangements.

Risk Factors and Uncertainties

An investment in our securities involves a high degree of risk. In addition to the other information included in this MD&A and in the related consolidated financial statements, investors are urged to carefully consider the risks described under the caption “Risk Factors” in our most recent Annual Report on Form 20-F for the year ended December 31, 2021 for a discussion of the various risks that may materially affect our business. The risks and uncertainties not presently known to us or that we currently deem immaterial may also materially harm our business, operating results and financial condition and could result in a complete loss of your investment.

Our most recent Annual Report on Form 20-F was filed with the relevant Canadian securities’ regulatory authorities at www.sedar.com and with the SEC at www.sec.gov, and investors are urged to consult such risk factors.

Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including the Chief Executive Officer and the Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as at December 31, 2021. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures were not effective as of December 31, 2021 due to a material weakness in internal control over financial reporting, as described below.

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS as issued by the IASB.

Our internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of Aeterna Zentaris; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS, and that receipts and expenditures of the Company are being made only in accordance with authorizations of Company management; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of Company assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria established in Internal Control – Integrated Framework: 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management has concluded that our internal control over financial reporting was not effective as of December 31, 2021 because a material weakness in internal control over financial reporting existed as of that date, as described below.

Management identified a control deficiency that constitutes a material weakness. A material weakness is a control deficiency, or a combination of control deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our interim or annual consolidated financial statements or related disclosures will not be prevented or detected on a timely basis.

The material weakness resulted from a failure in the design and implementation of review controls over the accounting for license and collaboration agreements under IFRS and the related revenue recognition. Specifically, our review control was not sufficiently designed to adequately review and assess an accounting analysis for revenue recognition for complex revenue arrangements. This resulted in a restatement of our previously issued condensed interim consolidated financial statements as at and for the quarters and year-to-date periods ended March 31, 2021, June 30, 2021 and September 30, 2021, with respect to revenue recognition on one agreement. As a result, Management determined that a material weakness existed as described above.

We have developed and commenced implementation of a remediation plan to address the material weakness discussed above and to improve our internal control over financial reporting. The remediation plan includes:

● strengthening our revenue recognition and financial reporting controls by adding new or additional resources with adequate technical knowledge and training, including the hiring of a new Chief Financial Officer in January 2022, and utilizing the services of an external professional with requisite knowledge and experience in the area of revenue recognition and of IFRS more broadly.

● designing and implementing effective internal controls related to the involvement of appropriate finance and accounting staff in the review of strategic and complex transactions, such as license and collaboration agreements, including as those transactions are negotiated and executed, to ensure that any matters with accounting ramifications are addressed on a timely basis; and

● ensuring that all non-routine transactions, including those requiring the application of significant judgment or analysis, are thoroughly researched at the appropriate level and are sufficiently documented by qualified accounting and finance personnel (including third-party subject matter experts as necessary), with such documentation to be approved in a timely manner by the Company’s Chief Financial Officer.

There can be no assurance that the measures we take in response to the material weakness will be sufficient to remediate such material weakness or to avoid potential future material weakness or significant deficiencies.

Changes in Internal Controls over Financial Reporting

There were no changes in our internal control over financial reporting during the year ended December 31, 2021 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, except as described above.