6-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

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 2023

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):

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 S-8 (No. 333-224737, No. 333-210561 and No. 333-200834), Forms F-3 (No. 333-254680) and Forms F-1 (No.333-239264, No. 333-248561 and No. 333-239019)and shall be deemed to be a part thereof from the date on which this report is furnished, to the extent not superseded by documents or reports subsequently filed or furnished.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, 2022 and December 31, 2021 and for the years ended December 31, 2022, 2021 and 2020
99.2	The Registrant’s Management’s Discussion and Analysis of Financial Condition and Results of Operations for the financial year ended December 31, 2022

(2)

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 22, 2023	By:	/s/ Klaus Paulini
		Klaus Paulini
		President and Chief Executive Officer

(3)

EX-99.1

Exhibit 99.1

Aeterna Zentaris Inc.

Consolidated Financial Statements

As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020

Report of Independent Registered Public Accounting Firm (PCAOB ID:1263)	2
Report of Predecessor Independent Registered Public Accounting Firm (PCAOB ID:271)	4
Consolidated Statements of Financial Position	5
Consolidated Statements of Changes in Shareholders’ Equity	6
Consolidated Statements of Loss and Comprehensive Loss	7
Consolidated Statements of Cash Flows	8
Notes to Consolidated Financial Statements	9

1

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 statements of financial position of Aeterna Zentaris Inc. (the Company) as of December 31, 2022 and 2021, the related consolidated statements of changes in shareholders’ equity, loss and comprehensive loss, and cash flows, for each of the two years in the period ended December 31, 2022, 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, 2022 and 2021, and its financial performance and its cash flows for each of the two years in the period ended December 31, 2022, 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 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 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 audits, 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 audits 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 audits provide 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 the 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 matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.

2

Goodwill impairment
Description of the matter	As disclosed in notes 2, 3 and 11 of the consolidated financial statements, the Company tests goodwill for impairment at least annually, or if there is an indication that the group of CGUs to which goodwill has been allocated may be impaired. Impairment is determined by assessing whether the carrying value of the group of CGUs, including the allocated goodwill, exceeds its recoverable amount, which is determined based on the higher of fair value less costs of disposal (“FVLCD”) and value in use (“VIU”). For the year ended December 31, 2022, the Company recorded an impairment charge on its goodwill for an amount of $7.6 million. Management determined the recoverable amount of the group of CGUs based on a FVLCD model which was determined to be higher than VIU. FVLCD was determined based on a market approach and derived from market data, including information from market participants regarding the price that the Company could receive in a sale of the group of CGUs. VIU was determined using cash flow projections covering a five-year period and discounted to their present value using an estimated pre-tax discount rate.
	We identified the impairment of goodwill for the group of CGUs as a critical audit matter because of the significant judgments made by management to determine the appropriate methodology and assumptions made to estimate the recoverable amount of the group of CGUs.
How we addressed the matter in our audit	To test the estimated recoverable amount for the goodwill impairment test, our audit procedures included, among others, obtaining the analysis prepared by management and, with the assistance of our valuation specialists, assessing the methodology used by management for developing the recoverable amount estimate. We compared the estimated FVLCD to supporting documentation and available market data, including, information from market participants regarding the price that the Company could receive in a sale of the group of CGUs. We also obtained management’s VIU model and assessed the reasonableness of management’s estimates and assumptions related to cash flow projections by comparing to historical data, current agreements and market information. With the assistance of our valuation specialists, we tested the discount rate by developing a range of independent estimates and compared those to the discount rate selected by management.

/s/ Ernst & Young LLP

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

Montreal, Canada

March 22, 2023

3

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 statements of changes in shareholders’ equity, loss and comprehensive loss and cash flows for the year 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 results of the Company’s operations and its cash flows for the year ended December 31, 2020 in conformity 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 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 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. 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 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 audit 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.

/s/ PricewaterhouseCoopers LLP

Chartered Professional Accountants, Licensed Public Accountants

Toronto, Canada

March 24, 2021

Except for adjustments to reflect the reverse stock split as described in note 16, for which the date is March 22, 2023.

We have 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.

4

Aeterna Zentaris Inc.

Consolidated Statements of Financial Position

As of December 31, 2022 and 2021

(in thousands of US dollars)

	2022			2021
	$			$
ASSETS
Current assets
Cash and cash equivalents (note 6)		50,611			65,300
Trade and other receivables (note 7)		732			1,314
Inventory		229			73
Income taxes receivable		1,428			2,361
Prepaid expenses and other current assets (note 8)		2,488			1,772
Total current assets		55,488			70,820
Non-current assets
Restricted cash equivalents (note 6)		322			335
Property and equipment (note 9)		216			192
Identifiable intangible assets (note 10)		—			625
Goodwill (note 11)		—			8,130
Total non-current assets		538			9,282
Total assets		56,026			80,102
LIABILITIES
Current liabilities
Payables and accrued liabilities (note 12)		3,828			2,672
Provisions (note 13)		45			34
Income taxes payable (note 22)		108			115
Deferred revenues (note 5)		2,949			4,815
Lease liabilities (note 14)		114			130
Total current liabilities		7,044			7,766
Non-current liabilities
Deferred revenues (note 5)		1,684			1,493
Deferred gain (note 10)		110			98
Lease liabilities (note 14)		65			31
Employee future benefits (note 15)		11,159			17,485
Provisions (note 13)		188			243
Total non-current liabilities		13,206			19,350
Total liabilities		20,250			27,116
Shareholders’ equity
Share capital (note 16)		293,410			293,410
Warrants (note 17)		5,085			5,085
Other capital (note 18)		90,332			89,788
Deficit		(352,084	)		(334,619	)
Accumulated other comprehensive loss		(967	)		(678	)
Total Shareholders’ equity		35,776			52,986
Total liabilities and shareholders’ equity		56,026			80,102

Commitments (note 27)

Subsequent event (note 28)

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

5

Aeterna Zentaris Inc.

Consolidated Statements of Changes in Shareholders’ Equity

For the years ended December 31, 2022, 2021 and 2020

(in thousands of US dollars)

	Share capital			Warrants			Other capital			Deficit			Accumulated other comprehensive income (loss)			Total
	$			$			$			$			$			$
Balance – January 1, 2020		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 plans and remeasurement of the net defined benefit liability (note 15)		—			—			—			(650	)		—			(650	)
Comprehensive loss		—			—			—			(5,768	)		(1,139	)		(6,907	)
Reclassification of warrants to equity (note 17)		—			7,377			—			—			—			7,377
Issuance of common shares and warrants, net of transaction costs (note 16)		10,480			5,025			(362	)		—			—			15,143
Share-based compensation costs		—			—			61			—			—			61
Balance - December 31, 2020		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 plans and remeasurement of the net defined benefit liability (note 15)		—			—			—			(3,592	)		—			(3,592	)
Comprehensive loss		—			—			—			(11,960	)		367			(11,593	)
Issuance of common shares and warrants, net of transaction costs (note 16)		29,082			1,897			—			—			—			30,979
Exercise of warrants (note 17)		29,833			(9,746	)		—			—			—			20,087
Transfer of warrant issuance costs upon exercise of warrants (note 17)		(532	)		532			—			—			—			—
Exercise of deferred share units		19			—			(28	)		—			—			(9	)
Share-based compensation costs		—			—			311			—			—			311
Balance - December 31, 2021		293,410			5,085			89,788			(334,619	)		(678	)		52,986
Net loss		—			—			—			(22,727	)		—			(22,727	)
Other comprehensive loss:
Foreign currency translation adjustments		—			—			—			—			(289	)		(289	)
Actuarial gain on defined benefit plans and remeasurement of the net defined benefit liability (note 15)		—			—			—			5,262			—			5,262
Comprehensive loss		—			—			—			(17,465	)		(289	)		(17,754	)
Share-based compensation costs		—			—			544			—			—			544
Balance – December 31, 2022		293,410			5,085			90,332			(352,084	)		(967	)		35,776

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

6

Aeterna Zentaris Inc.

Consolidated Statements of Loss and Comprehensive Loss

For the years ended December 31, 2022, 2021 and 2020

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

	Years ended December 31,
	2022			2021			2020
	$			$			$
Revenues (notes 5 and 25)		5,640			5,260			3,652
Expenses (note 19)
Cost of sales		157			90			2,317
Research and development		12,506			6,574			1,506
Selling, general and administrative		8,230			7,267			5,893
Gain on modification of building lease		—			—			(219	)
Impairment of intangible assets (note 10)		584			—			—
Impairment of goodwill (note 11)		7,642			—			—
(Reversal of) impairment of other assets (note 7)		124			—			(139	)
Total operating expenses		29,243			13,931			9,358
Loss from operations		(23,603	)		(8,671	)		(5,706	)
Gains due to changes in foreign currency exchange rates		879			215			572
Change in fair value of warrant liability (note 17)		—			—			1,147
Other finance costs		(3	)		(21	)		(736	)
Net finance income		876			194			983
Loss before income taxes		(22,727	)		(8,477	)		(4,723	)
Income tax recovery (expense) (note 22)		—			109			(395	)
Net loss		(22,727	)		(8,368	)		(5,118	)
Other comprehensive loss:
Items that may be reclassified subsequently to profit or loss:
Foreign currency translation adjustments		(289	)		367			(1,139	)
Items that will not be reclassified to profit or loss:
Actuarial gain (loss) on defined benefit plans and remeasurement of the net defined benefit liability		5,262			(3,592	)		(650	)
Comprehensive loss		(17,754	)		(11,593	)		(6,907	)
Basic and diluted loss per share (note 26)		(4.68	)		(1.82	)		(3.11	)
Weighted average number of shares outstanding (basic and diluted)		4,855,876			4,596,980			1,643,327

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

7

Aeterna Zentaris Inc.

Consolidated Statements of Cash Flows

For the years ended December 31, 2022, 2021 and 2020

(in thousands of US dollars)

	Years ended December 31,
	2022			2021			2020
	$			$			$
Cash flows from operating activities
Net loss		(22,727	)		(8,368	)		(5,118	)
Items not affecting cash and cash equivalents:
Amortization of deferred revenues		(1,704	)		(1,670	)		1,257
Share-based compensation costs		544			311			61
Provision for restructuring and other costs		(28	)		23			(383	)
Impairment of intangible assets (note 10)		584			—			—
Impairment of goodwill (note 11)		7,642			—			—
(Reversal of) impairment of other assets		124			—			(139	)
Depreciation and amortization		135			145			232
Employee future benefits		295			161			217
Gain on modification of building lease		—			—			(219	)
Change in fair value of warrant liability		—			—			(1,147	)
Transaction costs of warrants issued, expensed as finance cost		—			—			732
Gain on disposal of property and equipment		—			(1	)		(2	)
Interest accretion on lease liabilities		4			7			(19	)
Net foreign exchange differences		16			(179	)		(688	)
Other non-cash items		-			95			133
Refund (Payment) of income taxes		831			(1,605	)		(1,448	)
Changes in operating assets and liabilities (note 21)		604			2,500			2,402
Net cash used in operating activities		(13,680	)		(8,581	)		(4,129	)
Cash flows from financing activities
Proceeds from issuances of common shares and warrants (note 16)		—			34,200			23,500
Transaction costs		—			(3,221	)		(2,767	)
Proceeds from exercise of warrants and deferred share units		—			20,087			—
Proceeds on deferred gain		16			98			—
Payments on lease liabilities		(134	)		(127	)		(265	)
Net cash (used in) provided by financing activities		(118	)		51,037			20,468
Cash flows from investing activities
Purchase of intangible assets		—			(609	)		—
Purchase of property and equipment		(11	)		(30	)		—
Proceeds for disposals of property and equipment		—			1			6
(Decrease) increase in restricted cash equivalents		(1	)		(20	)		50
Net cash (used in) provided by investing activities		(12	)		(658	)		56
Effect of exchange rate changes on cash and cash equivalents		(879	)		(769	)		38
Net change in cash and cash equivalents		(14,689	)		41,029			16,433
Cash and cash equivalents – beginning of year		65,300			24,271			7,838
Cash and cash equivalents – end of year		50,611			65,300			24,271

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

8

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020

(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 U.S. 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 (the “Novo Amendment”) between the Company and Novo Nordisk Health Care AG (“Novo”) until May 2023 and in the United Kingdom and Europe through a license agreement with Consilient Healthcare Inc (“Consilient” or “CH”) under the trade name of Ghryvelin®. 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 several indications with a focus on rare or orphan indications with the potential for pediatric use.

Impact of COVID-19 and the Russian invasion of Ukraine

The impact of the COVID-19 variants and the Russian invasion of Ukraine continue to cause delays in site initiation and patient enrollment in our DETECT-trial and may be impacting sales activities for Macrilen™ in the US and for Ghryvelin® in Europe. As a result of these delays in our DETECT-trial, the DETECT-trial will now continue until later into 2023, as compared to the end of the 2022 year as anticipated at the end of the previous fiscal year. The delays associated with COVID-19 and the Russian invasion of Ukraine have resulted in additional costs to the program and an increase in the estimated costs to complete the DETECT-trial. The Company will continue to monitor the impact of the COVID-19 pandemic and the Russian invasion of Ukraine in future periods and assess the impact of these on its judgments, estimates, accounting policies and amounts recognized in the consolidated financial statements. Actual results could differ from these estimates, and such differences may be material.

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 “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.

Basis of presentation

(a) Statement of compliance

These consolidated financial statements as of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020 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 on March 22, 2023.

9

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020

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

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.

(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.

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 loss and 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.

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.

10

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020

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

Inventory

Inventory is 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. As of December 31, 2022 and 2021, all inventory related to work in process.

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 and equipment

Items of property 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%
Computer equipment	Straight-line	25% to 331/3%

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

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.

Identifiable intangible assets

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 fifteen years for in-process R&D and patents and are ten years for trademarks. Amortization expense, which is recorded in the consolidated statement of loss and comprehensive loss, is allocated to the appropriate functional expense categories to which the underlying identifiable intangible assets relate.

11

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020

(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 and equipment 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 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.

Goodwill is not subject to amortization, but instead is tested for impairment annually or more often if there is an indication that the group of CGUs to which the goodwill has been allocated may be impaired. Impairment is determined for goodwill by assessing whether the carrying value of the group of CGUs, including the allocated goodwill, exceeds the group of CGU’s recoverable amount, which is the higher of fair value less costs of disposal and the group of CGU’s value in use. Fair value less costs of disposal is determined based on a market approach and also derived from market data, including, information from market participants regarding the price that the Company could receive in a sale of the group of CGUs. Value in use is determined based on cash flow projections from financial budgets approved by senior management covering a five-year period. The 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 group of CGUs. In the event that the carrying amount of the group of CGU’s, including the allocated 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 loss and 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 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.

12

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020

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

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 loss and comprehensive loss.

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 loss and 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 loss and comprehensive loss.

Post-employment benefits

The Company has partially funded and unfunded 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 in Germany. Provisions for pension obligations are established for benefits payable in the form of retirement, disability and surviving dependent pensions. The Company also provides defined contribution plans to some of its employees.

13

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020

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

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 loss and comprehensive loss in subsequent periods.

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

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 loss and 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 loss and comprehensive loss in the period in which they arise. As of December 31, 2022 and 2021, 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 loss and 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 loss and comprehensive loss. As of December 31, 2022 and 2021, 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 loss and comprehensive loss.

14

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020

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

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, 2022 and 2021, 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.

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 loss and comprehensive loss. At the time of redemption, each DSU may be exchanged for one common share of the Company, net of applicable holding taxes. 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.

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”), 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.

15

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020

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

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 loss and 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.

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.

16

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020

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

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.

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.

17

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020

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

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.

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.

Government assistance

Amounts received or receivable resulting from government assistance programs, including grants and refundable investment tax credits for research and development, are accounted for in accordance with IAS 20, Accounting for Government Grants and Disclosure of Government Assistance, and are recognized where there is reasonable assurance that the amount of government assistance will be received, and all attached conditions will be complied with. When the amount relates to an expense item such as research and development costs, it is recognized as income on a systematic basis as a reduction to the costs that it is intended to compensate. When the grant relates to an asset, it reduces the carrying amount of the asset and is then recognized as income over the useful life of the depreciable asset by way of a reduced depreciation charge.

18

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020

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

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, warrants and similar instruments. The number of shares included with respect to options, warrants and similar instruments is computed using the treasury stock method. Diluted net loss per share is equal to the basic net loss per share as the Company is in a loss position and all securities, comprised of options and warrants, would be anti-dilutive.

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 modifications

The Novo Amendment as well as the Novo notice of termination of the Novo Amendment received on August 26, 2022, as defined and discussed in note 5 – License, supply and distribution arrangements, and which were determined to be modifications pursuant to the provisions of IFRS 15, required management to apply significant judgments, including: assessment of any changes to the scope of the license agreement; assessment of whether the remaining goods or services are distinct from goods or services transferred before the modifications; 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 modifications. 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.

19

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020

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

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 is the higher of an asset’s fair value less costs of disposal and value in use. Management has determined that using fair value less cost of disposal results in the higher estimated recoverable value. The carrying amount of its consolidated net assets is compared to the fair value less cost of disposal. Based on this calculation, management determined that goodwill was impaired (see note 11).

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 15 - Employee future benefits.

Research and development accruals

As part of the process of preparing our financial statements, management is required to estimate accrued expenses including those pertaining to the Company’s 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 the Company’s behalf and estimating the level of service performed and the associated cost incurred for the service when the Company has 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 management’s estimate, the Company adjusts 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

New standards and interpretations not yet adopted

Certain new accounting standards, amendments to accounting standards and interpretations have been published that are not mandatory for 31 December 2022 reporting periods and have not been early adopted by the Company. These standards, amendments or interpretations are not expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions.

20

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020

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

5. Revenue

Disaggregation of revenue

The Company derives revenue from the transfer of goods and services over time and at a point in time in the following categories:

	Years ended December 31,
	2022		2021		2020
	$		$		$
License fees		1,704		1,670		911
Development services		3,617		3,337		—
Product sales		57		—		2,370
Royalties		101		68		67
Supply chain		161		185		304
		5,640		5,260		3,652

Revenues of approximately $5,555 (2021 – $5,260 and 2020 - $3,634) are derived from Novo Nordisk.

License, supply and distribution arrangements

Novo Nordisk Health Care AG - Macrilen™ - United States and Canada

On January 16, 2018, the Company entered into a 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 (the “DETECT-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 2020, the Interim Supply Arrangement was concluded and Novo contracted the Company to provide supply chain services for the manufacture of Macrilen™ (macimorelin).

On November 16, 2020, the Company 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 $40,000 and returns to 15% or more for annual net sales of macimorelin over $40,000. 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 DETECT-trial in partnership with a contract research organization (“CRO”). Given the transfer of development activities to Aeterna, the percentage of DETECT-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 DETECT-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.

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Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020

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

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 Novo Amendment also confirms that Aeterna has the right to use the results from the DETECT-trial, 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 loss and 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 loss and comprehensive loss.

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 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.

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Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020

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

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.

Notice of termination

On August 26, 2022, Novo provided the Company with a notice of termination of the Novo Amendment. Under the terms of the Novo Amendment, the termination is effective May 23, 2023 upon the completion of a 270 day notice period (“notice period”). Upon termination, the rights and licenses granted by the Company to Novo under the Novo Amendment will be returned to the Company, and the Company will regain full rights to continue the clinical development and future commercialization of Macrilen™. Following the notice of termination and throughout the 270 day notice period, as per the terms of the Novo Amendment, Novo will continue to fund all DETECT-trial costs up to $9.6 million (€9 million), and any additional DETECT-trial costs incurred over $9.6 million (€9 million) up to $10.5 million (€9.8 million) will be shared equally between Novo and the Company.

The Company concluded that the notice of termination represents a contract modification for accounting purposes. The Company further concluded that upon receipt of the notice of termination, the remaining goods and services to be performed during the notice period are considered distinct goods and services and therefore, the contract modification is to be accounted for prospectively. As of the date of receipt of the notice of termination from Novo, the Company had recognized total license fees associated with the Pediatric Indication of $1,615 (€1,880) and total development services revenue of $3,865 (€4,448). Subsequent to the receipt of the notice of termination, management estimated the combined transaction price of the remaining services to be performed as $7,937 (€7,776), comprised of Pediatric Indication license fees of $2,872 (€2,814) and development services revenue of $5,065 (€4,962). Revenue associated with this combined performance obligation will be recognized as pediatric development services are incurred during the notice period, until the date of termination on May 23, 2023, using the cost-to-cost method. As such, all amounts in deferred revenue are classified as current as of December 31, 2022 to reflect the revised timing. Management will continue to reevaluate the transaction price at the end of each reporting period.

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.

Consilient Healthcare Limited - Macimorelin - European Union and United Kingdom

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”).

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Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020

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

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 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.

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.

In May 2022, the list price was approved in Germany which triggered a $213 (€0.2 million) pricing milestone payment. In December 2022, the list price was also approved in Spain which triggered a further $106 (€0.1 million) pricing milestone payment. Both payments were 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 as of December 31, 2022 was $1,591 (€1,483) and as of December 31, 2021 was $1,358 (€1,200). The Company expects to recognize the balance of the relevant deferred revenue over the remaining period of nine 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, 2022, the Company recognized $18 (2021 - $nil) as license fee revenue associated with the CH Agreement.

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Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020

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

NK Meditech Limited - 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.

Liabilities related to contracts with customers

The Company has recognized the following deferred revenue balances related to contracts with customers:

	December 31, 2022
	Current		Non-Current		Total
	$		$		$
Novo Nordisk Health Care		2,914		—		2,914
Consilient Healthcare Limited		35		1,556		1,591
NK Meditech Limited		—		128		128
		2,949		1,684		4,633

	December 31, 2021
	Current		Non-Current		Total
	$		$		$
Novo Nordisk Health Care		4,791		23		4,814
Consilient Healthcare Limited		24		1,334		1,358
NK Meditech Limited		—		136		136
		4,815		1,493		6,308

25

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020

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

6. Cash and cash equivalents

	December 31,
	2022		2021
	$		$
Cash on hand and balances with banks		50,611		55,600
Interest-bearing deposits with maturities of three months or less		—		9,700
		50,611		65,300

The Company had restricted cash equivalents amounting to $322 at December 31, 2022 (2021 - $335). These balances consist of certificates of deposit that are used as collateral for corporate credit cards and leases.

7. Trade and other receivables

	December 31,
	2022		2021
	$		$
Trade accounts receivable		403		877
Value added tax		275		248
Other receivables		54		189
		732		1,314

During the year ended December 31, 2022, the Company recorded a write-down within other receivables of $124 (2021 - $nil).

8. Prepaid expenses and other current assets

	December 31,
	2022		2021
	$		$
Prepaid insurance		428		421
Prepaid research and development		1,998		1,329
Other		62		22
		2,488		1,772

26

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020

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

9. Property and equipment

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

	Cost
	Equipment			Computer Equipment			Right of use building			Right of use vehicles			Total
	$			$			$			$			$
At January 1, 2021		215			335			546			94			1,190
Additions		6			24			16			—			46
Modification of building lease		—			—			109			—			109
Disposals		(5	)		(69	)		—			—			(74	)
Impact of foreign exchange rate changes		(17	)		(22	)		(48	)		(7	)		(94	)
At December 31, 2021		199			268			623			87			1,177
Additions		—			11			—			38			49
Modification of lease		—			—			98			18			116
Disposals		—			(1	)		(10	)		—			(11	)
Impact of foreign exchange rate changes		(11	)		(13	)		(26	)		(7	)		(57	)
At December 31, 2022		188			265			685			136			1,274

	Accumulated Depreciation
	Equipment			Computer Equipment			Right of use building			Right of use vehicles			Total
	$			$			$			$			$
At January 1, 2021		199			329			437			46			1,011
Disposals		(5	)		(69	)		—			—			(74	)
Depreciation		4			5			94			26			129
Impact of foreign exchange rate changes		(17	)		(21	)		(38	)		(5	)		(81	)
At December 31, 2021		181			244			493			67			985
Disposals		—			(1	)		(10	)		—			(11	)
Depreciation		2			9			94			25			130
Impact of foreign exchange rate changes		(10	)		(12	)		(21	)		(3	)		(46	)
At December 31, 2022		173			240			556			89			1,058

	Carrying amount
	Equipment		Computer Equipment		Right of use building		Right of use vehicles		Total
	$		$		$		$		$
At December 31, 2021		18		24		130		20		192
At December 31, 2022		15		25		129		47		216

On September 30, 2022 the Company and its landlord mutually agreed to a one-year plus 6 months’ notice extension to its existing building lease agreement for its German subsidiary, continuing such terms until March 31, 2024, resulting in a modification being recorded to the building right of use asset in the amount of $98 (2021 - $109).

27

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020

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

10. Identifiable intangible assets

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

	December 31, 2022									December 31, 2021
	Cost			Accumulated amortization			Carrying value			Cost			Accumulated amortization			Carrying value
	$			$			$			$			$			$
Balances – Beginning of the year		32,411			(31,786	)		625			35,020			(34,961	)		59
Additions		—			—			—			609			—			609
Amortization		—			(5	)		(5	)		—			(16	)		(16	)
Impairment of intangible assets		(584	)		—			(584	)		—			—			—
Impact of foreign exchange rate changes		(2,055	)		2,019			(36	)		(3,218	)		3,191			(27	)
Balances – End of the year		29,772			(29,772	)		—			32,411			(31,786	)		625

In 2021, the Company recorded additions of $609, for separately identified intangibles related to upfront payments under certain license agreements. These intangible assets were not subject to amortization in the years ended December 31, 2022 and 2021 as they are not ready for their intended use. Amortization of intangible assets with finite lives of $5 (2021 - $16 and 2020 - $20) is presented in research and development expenses.

During the year ended December 31, 2022, the Company ceased its development of both the COVID-19 and Chlamydia vaccine trials. The previously capitalized upfront payments for licenses relating to these two trials of $212 was fully impaired. Furthermore, as part of the Company’s annual goodwill and intangible asset impairment assessment, the Company identified the need for an additional impairment of $372 to intangible assets, as discussed in note 11.

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”).

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 2020 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.

28

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020

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

The carrying value of the trademarks underlying Cetrotide is $nil and the Company received proceeds of $16 (2021 - $98) in the year ended December 31, 2022 and as of December 31, 2022 has received total proceeds of $110 (2021 - $98). 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.

11. Goodwill

	December 31,
	2022			2021
	$			$
Balance – Beginning of period		8,130			8,815
Impairment of goodwill		(7,642	)		—
Impact of foreign exchange rate changes		(488	)		(685	)
Balance – End of period		—			8,130

The Company considers the relationship between its market capitalization and its book value, among other factors, when reviewing for indicators of impairment. As of December 31, 2022, the market capitalization of the Company was below the carrying value of its shareholders’ equity, indicating a potential impairment of goodwill and impairment of the assets of the group of CGUs. For the year ended December 31, 2022, the recoverable amount of the group of CGUs was determined based on a fair value less cost of disposal (“FVLCD”) model. FVLCD was determined based on a market approach and also derived from market data, including, information from market participants regarding the price that the Company could receive in a sale of the group of CGUs. The fair value measurement is categorized as a level 2 fair value based on the inputs in the valuation techniques used. Management determined that value-in-use resulted in a lower estimated recoverable value than FVLCD. Based on the Company’s assessment, the recoverable amount of the group of CGUs was lower than the carrying value and therefore an impairment charge was recorded on its goodwill and intangible assets for an amount of $7,642 and $372 respectively.

12. Payables and accrued liabilities

	December 31,
	2022		2021
	$		$
Trade accounts payable		2,038		934
Accrued research and development costs		751		531
Accrued employee benefits		325		533
Payroll tax and other statutory liabilities		74		63
Other accrued liabilities		640		611
		3,828		2,672

29

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020

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

13. Provisions

	December 31,
	2022			2021
	$			$
Balance – Beginning of period		277			371
Utilization of provision		(28	)		(90	)
Change in the provision		—			23
Unwinding of discount and impact of foreign exchange rate changes		(16	)		(27	)
Balances – End of the year		233			277
Less: current portion		45			34
Non-current portion		188			243

In 2013, the Company recognized a provision for certain non-cancellable contracts related to the Cetrotide activities, discussed in note 10, 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.

14. Lease liabilities

	December 31,
	2022			2021
	$			$
Balance – Beginning of period		161			184
Additions		38			15
Interest paid as charged to net loss as other finance costs		(4	)		(7	)
Payment against lease liabilities		(134	)		(127	)
Modification of lease liability		114			103
Impact of foreign exchange rate changes		4			(7	)
Balances – End of the year		179			161
Current lease liabilities		114			130
Non-current lease liabilities		65			31

The Company and its landlord mutually agreed to a one-year plus 6 months’ notice extension to its existing building lease agreement for its German subsidiary, continuing such terms until March 31, 2024, resulting in a modification being recorded to the lease liability in the amount of $98 (2021 - $103).

Future lease payments as of December 31, 2022 are as follows:

	$
Less than 1 year		114
1 – 3 years		65
Total		179

30

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020

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

15. Employee future benefits

The Company has partially funded and unfunded defined benefit multi-employer pension plans and unfunded post-employment benefit plans in Germany. The 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 members’ length of service and their salary in the final years leading up to retirement.

These plans are governed by the employment laws of Germany, which generally require final salary payments of each plan to be adjusted every third year for either an inflationary increase or a set 1% increase per annum. The form of increase varies for each plan and was an election made by each plan when it was initially established.

Since the pension liability is adjusted for either an increase in inflation or a set 1% increase per annum, the pension plan is exposed to the Company’s inflation, interest rate risks and changes in the life expectancy for pensioners. As the plan assets include significant investments in listed equity shares of entities and real estate, the Company is also exposed to equity market and property market risk. A decrease in corporate bond yields will also increase plan liabilities, although this will be partially offset by an increase in the value of the plans’ bond holdings.

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. In 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.

31

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020

(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 benefit obligation is summarized for the years ended:

	December 31,
	2022									2021
	Pension benefit plans			Other benefit plans			Total			Total
	$			$			$			$
Change in plan liabilities
Balances – Beginning of the period		29,313			99			29,412			15,435
Current service cost		122			20			142			65
Interest cost		294			1			295			88
Actuarial gain arising from changes in financial assumptions		(5,903	)		(12	)		(5,915	)		(1,130	)
Past service cost associated with multi-employer plan		—			—			—			16,137
Actuarial loss arising from change in current assumptions on funding of future pension increases		—			—			—			556
Benefits paid		(742	)		(10	)		(752	)		(511	)
Impact of foreign exchange rate changes		(1,427	)		(5	)		(1,432	)		(1,228	)
Balances – End of the period		21,657			93			21,750			29,412
Change in plan assets
Balances – Beginning of the period		11,927			—			11,927			—
Presentation of plan assets as of December 31, 2021		—			—			—			11,963
Interest income from plan assets		120			—			120			—
Employer contributions		45			—			45			—
Employee contributions		10			—			10			—
Benefits paid		(247	)		—			(247	)		—
Remeasurement of plan assets		(641	)		—			(641	)		—
Impact of foreign exchange rate changes		(623	)		—			(623	)		(36	)
Balances – End of the period		10,591			—			10,591			11,927
Net liability of the unfunded plans		10,694			93			10,787			12,749
Net liability of the funded plans		372			—			372			4,736
Net amount recognized as Employee future benefits		11,066			93			11,159			17,485
Amounts recognized:
In net loss		286			9			295			161
Actuarial gain (loss) on defined benefit plans and remeasurement of the net defined benefit liability in other comprehensive (gain) loss		5,262			—			5,262			(3,592	)

32

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020

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

The Company’s proportionate share of the multi-employer pension plan assets as of December 31, 2022 are as follows:

	December 31,
	2022		2021
	$		$
Equity instruments (Level 1)		846		826
Debt instruments (Level 1)		6,302		7,445
Cash and cash equivalents (Level 1)		46		67
Real estate (Level 3)		2,079		2,207
Other (Level 3)		1,318		1,382
		10,591		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	2022		2021		2020		2022		2021		2020
	%		%		%		%		%		%
Discount rate		3.75		1.10		0.60		3.75		1.10		0.60
Pension benefits increase		2.00		0.50		0.50		2.00		0.50		0.50
Rate of compensation increase		2.50		2.50		2.00		2.50		2.50		2.00

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:

	December 31,
	2022		2021		2020
	Years		Years		Years
Retiring at the end of the reporting period:
Male		21		21		20
Female		24		24		24

In accordance with the assumptions used as of December 31, 2022, undiscounted defined pension benefits expected to be paid are as follows:

	Total $
2023		829
2024		895
2025		894
2026		926
2027		1,083
Thereafter		35,976
		40,603

The weighted average duration of the defined benefit obligation is 14.4 years (2021 – 16.0 years).

33

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020

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

If variations in the following assumptions had occurred during 2022, the impact on the Company’s pension benefit obligation of $21,657 as of December 31, 2022 would have been as follows:

Assumption	Increase			Decrease
Change in discount rate of 0.25%		(730	)		771
Change in salary rate of 0.25%		16			(16	)
Change in pension rate assumption by 0.25%		456			(438	)
Change mortality by one year		1,014			(1,020	)

Total expenses for the defined benefit plan that the Company accounts for as a defined contribution plan amounted to approximately $20 for the year ended December 31, 2022 (2021 - $45 and 2020 - $38).

16. Share Capital

Authorized

The Company has unlimited number of 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.

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.

Issued and outstanding	Common shares		Amount
	#		$
Balance – December 31, 2019		799,780		224,528
Issuance of common shares, net of transaction costs		1,707,365		10,480
Balance – December 31, 2020		2,507,145		235,008
Issuance of common shares, net of transaction costs		943,448		29,082
Exercise of warrants, net of issuance costs upon exercise		1,404,443		29,301
Exercise of deferred share units		840		19
Balance – December 31, 2021		4,855,876		293,410
		—		—
Balance – December 31, 2022		4,855,876		293,410

On July 15, 2022, the Company’s shareholders and board of directors approved an amendment to the Company’s articles of incorporation to effect a 1-for-25 share consolidation (reverse split) of the Company’s common shares. The Company’s outstanding stock options, DSUs and warrants were also adjusted to reflect the 1-for-25 share consolidation (reverse split) of the Company’s common shares. Accordingly, all common shares, DSU, warrants, stock options and per share amounts in these consolidated financial statements have been retroactively adjusted for all years presented to give effect to the share consolidation (reverse split). Outstanding warrant and stock options were proportionately reduced and the respective exercise prices, if applicable, were proportionately increased. The share consolidation (reverse split) was affected on July 21, 2022.

34

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020

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

2021

On February 19, 2021, the Company completed an underwritten public offering of 820,390 common shares at $36.25 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 123,058 additional common shares at a price of $36.25 per common share (the “Underwriter Option”). Additionally, the Company issued warrants underlying 57,427 common shares to the Underwriter, with each warrant bearing an exercise price of $45.31 (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 123,058 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 8,614 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 139,130 common shares, at a purchase price of $32.25 per share, priced at-the-market. Additionally, 104,348 investor warrants were issued at an exercise price of $30.00 per common share and 9,739 broker warrants were issued at an exercise price of $40.50 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 loss and comprehensive loss.

On July 7, 2020, the Company closed a public offering of 1,066,667 units at a price of $11.25 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, 1,066,667 common shares, 1,066,667 investor warrants at an exercise price of $11.25 per share expiring July 7, 2025 (the “July 2020 Investor Warrants”) and 74,661 placement agent warrants with an exercise price of $14.06 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 497,115 common shares at a purchase price of $14.08 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 372,836 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 $11.75 per common share. In addition, the Company issued unregistered warrants to the placement agent to purchase up to an aggregate of 34,798 common shares, with an exercise price of $17.60 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 loss and comprehensive loss.

35

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020

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

17. Warrants

Warrant activity for the years ended December 31, 2022, 2021 and 2020, was as follows:

	Number			Weighted average exercise price		Amount
	#			$		$
December 31, 2019		—			—		—
Granted		1,141,328			11.44		5,025
Reclassification of warrant liability to equity		654,722			21.39		7,377
December 31, 2020		1,796,050			17.79		12,402
Granted		66,041			45.31		1,897
Exercised		(1,404,443	)		14.31		(9,746	)
Allocation of transaction costs to share capital		—			—		532
December 31, 2021		457,648			21.76		5,085
		—					—
December 31, 2022		457,648			21.76		5,085

Reclassification of warrant liability to equity

The Company had issued 133,000 unregistered investor warrants in the September 2019 closed direct offering (the “September 2019 Warrants”) as well as 104,348 unregistered investor warrants (the “February 2020 Investor Warrants”) and 9,739 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 loss and comprehensive loss. The carrying value of the warrants was then reclassified from warrant liability to other capital within equity.

The Company also issued 372,836 unregistered investor warrants (the “August 2020 Investor Warrants”) and 34,799 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 loss and comprehensive loss. The carrying value of the warrants was then reclassified from warrant liability to other capital within equity.

36

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020

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

The fair values of warrants are estimated using the Black-Scholes option pricing model. The weighted average assumptions used in the Black-Scholes valuation model for the periods presented were as follows:

	Years ended December 31,
	2021			2020
Expected dividend yield		0.00	%		0.00	%
Expected volatility		119.18	%		116.50	%
Risk-free annual interest rate		0.59	%		0.31	%
Expected life (years)		4.99			5.09
Weighted average share price	$	37.00		$	14.84
Weighted average exercise price	$	45.31		$	20.74

The expected volatility of these warrants was determined using historical volatility rates and the expected life was determined based on time to expiry from the issuance date.

18. Other capital

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.

Stock options

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.

37

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020

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

The compensation expense for the year end December 31, 2022 was $142 (2021 – $107 and 2020 – ($51)) recognized over the vesting period. Option activity for the years ended December 31, 2022, 2021 and 2020, was as follows:

	Number			Weighted average exercise price (US$)		Number			Weighted average exercise price (CAD$)
	#			$		#			$
December 31, 2019		29,645			90.25		18			22.80
Granted		7,200			9.15		—			—
Canceled/Forfeited		(13,214	)		64.00		—			—
Expired		(3,375	)		53.50		(18	)		22.80
December 31, 2020		20,256			36.43		—
Granted		23,200			10.51		—			—
Expired		(1	)		14,000.00		—			—
December 31, 2021		43,455			21.95		—
Granted		2,000			8.88		—			—
Canceled/Forfeited		(2,900	)		14.49		—			—
Expired		(525	)		165.08		—			—
December 31, 2022		42,030			20.05		—

On January 17, 2023, subsequent to year end, the Company granted 14,000 stock options under the LTIP. The stock options will be exercisable at $3.75 per share and will have a term of seven years and will vest over a period of three years.

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,
	2022			2021			2020
Expected dividend yield		0.00	%		0.00	%		0.00	%
Expected volatility		115.75	%		115.80	%		112.50	%
Risk-free annual interest rate		1.59	%		1.23	%		0.27	%
Expected life (years)		5.72			5.71			4.02
Weighted average share price	$	8.88		$	10.51		$	9.15
Weighted average exercise price	$	8.88		$	10.51		$	9.15
Weighted average grant date fair value	$	7.47		$	8.82		$	6.79

The expected volatility of these stock options was determined using historical volatility rates and the expected life was determined using the weighted average life of past options issued.

38

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020

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

At December 31, 2022, the following options were outstanding:

	Options outstanding						Options exercisable
Range of US dollar stock option exercise prices	Number (#)		Weighted average remaining contractual life (years)		Weighted average exercise price ($)		Number (#)		Weighted average remaining contractual life (years)		Weighted average exercise price ($)
8.88 to 10.00		8,800		5.20		9.09		4,538		4.95		9.15
10.01 to 20.00		21,200		5.96		10.51		7,072		5.96		10.51
20.01 to 30.00		6,000		3.91		22.68		6,000		3.91		22.68
50.01 to 60.00		3,400		2.21		51.99		3,400		2.21		51.99
60.01 to 87.50		2,630		0.84		86.37		2,630		0.84		86.37
		42,030		4.89		20.05		23,640		4.14		27.74

Deferred share units

The compensation expense for the year end December 31, 2022 was $402 (2021 – $204 and 2020 - $112) and is presented in selling, general and administrative expenses. DSU activity for the years ended December 31 are:

	Years ended December 31,
	2022		2021			2020
	#		#			#
Balance – Beginning of the year		16,920		6,920			8,480
Granted		80,000		11,200			4,800
Exercised		—		(1,200	)		(6,360	)
Balance – End of the year		96,920		16,920			6,920

39

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020

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

19. Expenses by nature

	Years ended December 31,
	2022		2021		2020
	$		$		$
Inventory expensed during the year		54		—		2,317
Provision for obsolete inventory		32		—		—
Third-party research and development		11,244		5,534		692
Salaries, wages and benefits		3,563		3,037		2,789
Professional and consulting fees		2,475		2,570		2,185
Insurance		1,687		1,077		861
Stock-based compensation		544		311		61
Software and IT services		386		387		275
Depreciation and amortization		135		144		232
Marketing, communications and investor relations		317		289		34
Impairment of goodwill		7,642		—		—
(Reversal of) impairment of other assets		124		—		(139	)
Impairment of intangible assets		584		—		—
Travel, meals and entertainment		225		111		49
Office, rent and telecommunications		120		162		272
License fees		19		139		27
Other		92		170		(78	)
Gain on modification of building lease		—		—		(219	)
		29,243		13,931		9,358

20. Compensation of key management

Key management includes the Corporation’s Directors, Chief Executive Officer, Chief Financial Officer, Chief Scientific Officer and Chief Medical Officer. Compensation awarded to key management is summarized as follows:

	Years ended December 31,
	2022		2021		2020
	$		$		$
Salaries and short-term benefits		1,848		1,646		1,540
Consultant’s fees		17		163		167
Post-retirement benefits		63		70		86
Stock-based compensation		460		295		160
		2,388		2,174		1,953

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.

40

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020

(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,
	2022			2021			2020
	$			$			$
Changes in operating assets and liabilities:
Trade and other receivables		592			120			(1,023	)
Inventory		(161	)		(56	)		1,182
Prepaid expenses and other current assets		(783	)		(750	)		(702	)
Payables and accrued liabilities		1,076			634			51
Income taxes payable		—			(109	)		395
Deferred revenues		441			3,010			3,031
Provision for restructuring and other costs		(2	)		—			—
Employee future benefits		(559	)		(349	)		(532	)
		604			2,500			2,402

22. Income taxes

Significant components of the current and deferred income tax recovery (expense) for the years ended December 31, 2022, 2021 and 2020 are as follows:

	Years ended December 31,
	2022			2021			2020
	$			$			$
Current income tax recovery (expense)		—			109			(395	)
Deferred tax:
Origination and reversal of temporary differences		2,885			1,291			1,509
Change in unrecognized tax assets		(2,885	)		(1,291	)		(1,509	)
Total income tax recovery (expense)		—			109			(395	)

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, 2022 and 2021, the tax authorities concluded the audit for those years. The subsequent years remain unaudited, and the Company has accrued $108 as an uncertain tax provision for those years.

41

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020

(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,
	2022			2021			2020
Combined Canadian federal and provincial statutory income tax rate		26.5	%		26.5	%		26.5	%

	Years ended December 31,
	2022			2021			2020
	$			$			$
Income tax recovery based on combined statutory income tax rate		6,023			2,246			1,252
Change in unrecognized tax assets		(2,885	)		(1,291	)		(1,872	)
Share issuance costs		—			367			363
Permanent difference attributable to impairment of goodwill		(2,407	)		—			—
Impact of expiring investment tax credits		(1,559	)		(1,724	)		(481	)
Provision to filed return adjustments		106			151			—
Permanent difference attributable to net change in fair value of warrant liability		—			—			304
Share-based compensation costs		(144	)		(82	)		(16	)
Difference in statutory income tax rate of foreign subsidiaries		902			226			99
Uncertain tax position		—			—			(123	)
Other		(36	)		216			79
		—			109			(395	)

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

	Years ended December 31,
	2022			2021			2020
	$			$			$
Germany		(16,756	)		(4,383	)		(2,042	)
Canada		(5,679	)		(3,860	)		(2,463	)
United States		(292	)		(234	)		(218	)
Total loss before income taxes		(22,727	)		(8,477	)		(4,723	)

42

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020

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

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

	December 31,
	2022		2021
	$		$
Deferred tax assets
Operating losses carried forward		582		205
Intangible assets		—		776
		582		981
Deferred tax liabilities
Accounts receivable		—		375
Payables and accrued liabilities		450		7
Property and equipment		55		47
Deferred revenues		—		492
Other		77		60
		582		981
Deferred tax assets (liabilities), net		—		—

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

	December 31,
	2022		2021
	$		$
Unrecognized deferred tax assets
Deferred revenues and other provisions		1,475		1,680
Operating losses carried forward		87,445		87,734
Capital losses carried forward		210		105
SR&ED Pool		9,138		9,138
Unused tax credits		1,559		2,945
Employee future benefits		1,317		3,396
Property and equipment		524		523
Intangible assets		95		—
Share issuance expenses		781		1,110
Other		294		84
Unrecognized deferred tax assets		102,838		106,715

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 $102,838.

43

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020

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

As of December 31, 2022, the Corporation has total accumulated non-capital losses of $84,234 federally and $82,833 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		3,501
2040		3,808		3,808
2041		4,822		4,822
2042		6,367		6,367
		84,234		82,833

The Company has non-refundable R&D investment tax credits of approximately $1,559 which can be carried forward to reduce Canadian federal income taxes payable and which expire at dates ranging from 2023 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 $208,656 in Germany (€ 195,006) for which there is no expiry date, and to $5,095 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
indefinite		1,224
indefinite		771
indefinite		516
indefinite		535
		5,095

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.

44

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020

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

23. Capital management

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 24. 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.

24. Financial instruments and financial risk management

Financial assets and liabilities as of December 31, 2022 and 2021 are presented below.

December 31, 2022	Financial assets at amortized cost		Financial liabilities at amortized cost
	$		$
Cash and cash equivalents		50,611		—
Trade and other receivables		457		—
Restricted cash equivalents		322		—
Payables and accrued liabilities		—		3,752
Lease liability		—		179
		51,390		3,931

December 31, 2021	Financial assets at amortized cost		Financial liabilities at amortized cost
	$		$
Cash and cash equivalents		65,300		—
Trade and other receivables		1,065		—
Restricted cash equivalents		335		—
Payables and accrued liabilities		—		2,609
Lease liability		—		161
		66,700		2,770

Assets and liabilities, such as value added taxes, that are not contractual and that arise as a result of statutory requirements imposed by governments, do not meet the definition of financial assets or financial liabilities and are, therefore, excluded from trade and other receivables and payables and accrued liabilities.

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).

45

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020

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

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).

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, 2022, three counterparties included in trade accounts receivable comprised a total receivable of approximately $403 (2021 - $932) of which $nil (2021 - $55) was past due, considered to be 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, 2022, the Company has provided for all outstanding and unpaid amounts relating to its operations.

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 23, the Company manages this risk through the management of its capital structure by monitoring rolling forecasts of the Company’s cash and cash equivalents on the basis of expected cash flows.

Management concluded that the Company has sufficient cash on hand to meet its obligations as they become due for the next 12 months, considering the Company’s planned research and development activities, selling expenses, general and administrative expenses and working capital requirements. The Company has the ability to scale its research and development activities, and will do so as necessary, based on cash availability. While the Company has $50,611 in cash and cash equivalents at December 31, 2022, it continues to have an ongoing need for additional capital resources to research and develop, commercialize and manufacture its products and technologies.

46

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020

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

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 14.

(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, 2022, 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, 2022 would have been lower or higher by approximately $823 (2021 - $300 and 2020 - $110).

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,
	2022		2021		2020
	$		$		$
Switzerland		5,395		5,075		905
Ireland		82		—		73
Denmark		160		185		2,655
Other		3		—		19
		5,640		5,260		3,652

Non-current assets include restricted cash equivalents, right of use assets, property and equipment, identifiable intangible assets, other asset and goodwill (2021 only) and are detailed by geographical area as follows:

	December 31,
	2022		2021
	$		$
Germany		463		9,212
Canada		4		—
United States		71		70
		538		9,282

47

Aeterna Zentaris Inc.

Notes to Consolidated Financial Statements

As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020

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

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,
	2022			2021			2020
	$			$			$
Net loss		(22,727	)		(8,368	)		(5,118	)
Basic and diluted weighted-average number of shares outstanding		4,855,876			4,596,980			1,643,327
Items excluded from the calculation of diluted net loss per share due to their anti-dilutive effect:
Stock options and DSUs		138,950			60,375			27,176
Share purchase warrants		457,648			457,648			1,796,050

27. Commitments

Significant expenditure contracted for at the end of the reporting period but not recognized as liabilities is as follows:

	Service and manufacturing		R&D contracts		TOTAL
	$		$		$
Less than 1 year		9,250		1,577		10,827
1 – 3 years		1,362		218		1,580
4 – 5 years		29		—		29
More than 5 years		—		—		—
		10,641		1,795		12,436

In 2021, the Company executed various agreements including in-licensing and similar arrangements with development partners (note 10). 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 may have to pay up $38,458 upon achieving certain sales volumes, regulatory or other milestones related to specific products.

28. Subsequent event

On March 15, 2023, with the Company’s consent, Consilient Health entered into an assignment agreement to transfer the current licensing agreement for the commercialization of macimorelin in the European Economic Area and the United Kingdom to Atnahs Pharma UK Limited (“Pharmanovia”). Also on March 15, 2023, the Company and Pharmanovia entered into an exclusive supply agreement, pursuant to which the Company agreed to provide the Licensed Product to Pharmanovia.

29. Reclassification of comparative figures

Certain comparative amounts in the consolidated statements of financial position, consolidated statements of loss and comprehensive loss and the notes to these consolidated financial statements have been reclassified to conform to the presentation adopted in the current year.

48

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, 2022. 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 notes thereto as of December 31, 2022 and 2021 and for the years the ended December 31, 2022, 2021 and 2020. 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 thousands of United States (“U.S.”) dollars, except for share and per share data, or as otherwise noted. This MD&A was approved by the Company’s Board of Directors (the “Board”) on March 22, 2023. This MD&A is dated March 22, 2023.

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 Item 3, D. – “Risk factors” in this Annual Report on Form 20-F and those relating to: Aeterna’s expectations with respect to the DETECT-trial (as 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 neuromyelitis optica spectrum disorder (“NMOSD”), as well as Parkinson’s disease (“PD”), and developing a manufacturing process for selected candidates; Aeterna’s expectations regarding conducting assessments in relevant PD models; the University of Queensland’s undertaking a subsequent investigator initiated clinical trial evaluating macimorelin as a potential therapeutic for the treatment of amyotrophic lateral sclerosis (“ALS”), also known as Lou Gehrig’s disease, and Aeterna’s formulating a pre-clinical development plan for same; the commencement of Aeterna’s formal pre-clinical development of AEZS-150 (as defined below) in preparation for a potential investigational new drug (“IND”) filing for conducting the first in-human clinical study of AEZS-150; and the impacts associated with the termination of the license agreement with Novo Nordisk Healthcare AG (“Novo Nordisk” or “Novo”), as discussed below.

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); potential delays associated with the commencement of the DETECT-trial or failure to 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 childhood-onset growth hormone deficiency (“CGHD”); 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, including our reliance on the success of the Novo Amendment (as defined below) and on the continued availability of funds and resources to successfully commercialize the product; instability associated with the global COVID-19 pandemic and COVID-19’s unknown potential effect on our operations; our ability to enter into additional 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 Item 3, D. – “Risk factors” in this Annual Report on Form 20-F.

1

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 COVID-19 pandemic and of 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 currently available relevant information. The Company’s management 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.

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, 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, as discussed further below. On August 26, 2022, the Company announced that Novo had exercised its right to terminate the Novo Amendment. Following a 270-day notice period, Aeterna will regain full rights to Macrilen™ in the U.S. and Canada on May 23, 2023.

2

With respect to other global markets, we entered into an exclusive licensing agreement with Consilient Health Limited (“Consilient Health” or “CH”) for the commercialization of macimorelin in the European Economic Area and the United Kingdom. Commercialization in European countries began in Q2, 2022. On March 15, 2023, with the Company’s consent, Consilient Health entered into an assignment agreement to transfer the current licensing agreement for the commercialization of macimorelin in the European Economic Area and the United Kingdom to Atnahs Pharma UK Limited (“Pharmanovia”) and the Company and Pharmanovia entered into an exclusive supply agreement, pursuant to which the Company agreed to provide the Licensed Product to Pharmanovia. We have entered into a commercialization and supply agreement with MegaPharm Ltd., which is seeking regulatory approval and plans to subsequently commercialize macimorelin in Israel and the Palestinian Authority. 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 Eood (“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. We also are leveraging the clinical success and compelling safety profile of macimorelin to develop the compound for the diagnosis of CGHD, an area of significant unmet need. The Company is actively pursuing business development opportunities for the commercialization of macimorelin in Asia and the rest of the world.

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 pipeline across a number of indications, including NMOSD, PD, primary hypoparathyroidism and ALS.

Key Operational Developments

3

Macimorelin Commercialization Program

Novo is currently marketing macimorelin in the U.S. under the tradename Macrilen™ for the diagnosis of AGHD and most recently in accordance with the Novo Amendment, pursuant to which 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.

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.

Following the termination of the Novo Amendment, pursuant to the terms of the Novo Amendment, Novo is required to continue to fulfil its obligations during the 270-day notice period. The Company plans to engage in efforts to explore all options for Macrilen™.

On December 7, 2020, the Company entered into an exclusive licensing agreement with Consilient Health Limited (“CH” or “Consilient”) for the commercialization of macimorelin in the European Economic Area and the United Kingdom. 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. In Germany, a list price was approved on June 15, 2022 which triggered a second $226 (€0.2 million) pricing milestone payment from CH to the Company. We shipped initial batches of macimorelin (Ghryvelin®) to Consilient in the first quarter of 2022. Consilient launched the product meanwhile in the United Kingdom, Sweden, Denmark, Finland, Germany and Austria. More EU countries will follow pending re-imbursement negotiations. On April 19, 2022, we announced that European Patent Office had issued a patent providing intellectual property protection of macimorelin in 27 countries within the European Union as well as additional European non-EU countries, such as the UK and Turkey, for macimorelin (Ghryvelin®; Macrilen™) for use to diagnose GHD in adults. On March 15, 2023, with the Company’s consent, Consilient Health entered into an assignment agreement to transfer the current licensing agreement for the commercialization of macimorelin in the European Economic Area and the United Kingdom to Atnahs Pharma UK Limited (“Pharmanovia”). The Company also entered into an exclusive supply agreement with Pharmanovia, pursuant to which the Company agreed to provide the Licensed Product to Pharmanovia.

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, which was approved in November 2022.

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 Eood (“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.

4

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 2 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, we entered into the start-up phase for the clinical safety and efficacy study, AEZS-130-P02 (“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 Novo will fund DETECT-trial costs up to $9.6 million (€9 million), which includes reimbursement of Aeterna’s relevant budgeted internal labor costs. Any additional external jointly approved DETECT-trial costs incurred over $9.6 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 the rise of the Omicron variant in the COVID-19 pandemic. Our team has diligently worked 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. We have engaged a contract research organization (“CRO”) to conduct the DETECT-trial in the United States and in various European countries, including Russia and Ukraine, where, in February 2022, due to the Russian invasion of Ukraine, the clinical trial activities were halted. Consequently, no patients have been enrolled in either of these countries’ clinical sites to date. Russia’s invasion of Ukraine has impacted our ability to conduct our trial in the region.

On August 26, 2022, the Company announced it will regain full rights to Macrilen™ for the U.S. and Canada territories, following Novo’s termination of the development and commercialization license agreement, which triggered a 270-day notice period. Novo will continue to fund DETECT-trial costs up to $9.6 million (€9 million), which includes reimbursement of Aeterna’s relevant budgeted internal labor costs. Any additional DETECT-trial costs incurred over $9.6 million (€9 million) up to $10.5 million (€9.8 million) will be shared equally between Novo and Aeterna. The Company is actively engaged in exploring all options for Macrilen™.

5

On January 17, 2023, the Company provided a business update, highlighting that bolstered enrollment was expected by the replacement of inactive countries/sites and engagement of an additional Clinical Research Organization (CRO). Currently, four new countries (Armenia, Slovakia, Greece, and Turkey) have ongoing DETECT clinical trial application activities, with clinical trial approvals assumed in the first half of 2023. Enrollment completion was announced to be expected by the end of 2023. Management’s current estimated impacts of delays and higher-than-expected costs related to Macrilen’s ™ pediatric clinical development due to both COVID-19 and the Russia invasion of Ukraine are discussed further below.

Pipeline Expansion Opportunities

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 central nervous system 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. On May 12, 2022 the Company announced positive pre-clinical results in an innovative mouse model of Parkinson’s disease, where treatment with α-Synuclein specific AIM Biologicals showed a trend towards improved motoric function, as well as significant induction of regulatory T cells and rescue of substantia nigra neurons. The data were presented at IMMUNOLOGY2022™, the annual event of the American Association of Immunologists, held on May 6-10, 2022 in Portland, Oregon. On June 13, 2022 the Company announced that it achieved proof-of-concept for the treatment of NMOSD in both in-vitro and in mouse models. These findings were presented at the 13th International Congress on Autoimmunity on June 10-13, 2022 in Athens, Greece. In October 2022, the Company entered into a research and development agreement with Massachusetts General Hospital (MGH) in Boston and Dr. Michael Levy, to conduct pre-clinical ex-vivo and in-vivo studies in NMOSD.

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.

6

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 expanding the already available proof-of-concept data for the treatment of NMOSD in both 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 utilizes, 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. We are continuing in-vitro and in-vivo testing of antigen-specific AIM Biologics candidate molecules for the potential treatment of Parkinson’s disease.

AEZS-150 - Delayed Clearance (“DC”) Parathyroid Hormone (“PTH”) (“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 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 the U.S., 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. Recent progress includes the successful verification and reproduction of previous in-vivo data from the University of Sheffield, in a rat model of hypoparathyroidism, as well as ongoing development of the manufacturing process for AEZS-150 with the Company’s contract development and manufacturing organization, progressing toward establishment of a master cell bank for a cell line expressing AEZS-150 and a process suitable for larger scale good manufacturing practices. Our next steps include working with The University of Sheffield to conduct in depth characterization of development candidate (in-vitro and in-vivo); the establishment of a master cell bank for a cell line expressing AEZS-150, and formalizing the pre-clinical development of AEZS-150 in preparation for a potential IND filing for conducting the first in-human clinical study.

7

AEZS-130 - 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 ALS. 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.

The University of Queensland researchers have filed for supportive grants to conduct such clinical studies. In July 2022, the Company entered into a research and option to license agreement with UniQuest Pty Ltd., the commercialization company of The University of Queensland (UQ), Brisbane, Australia, to advance the development of macimorelin as a potential therapeutic for the treatment of ALS. The Company made substantial progress in the development of a suitable, alternative formulation for use in ALS and is continuing to evaluate AEZS-130 in transgenic mouse ALS models to demonstrate the therapeutic potential of macimorelin in this indication. Our next steps include completion of the ongoing toxicology and safety studies to support treatment over prolonged periods and following potential achievement of proof-of-concept, scientific advice with regulatory authorities to discuss program development next steps.

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

The COVID-19 vaccine landscape has continued to evolve profoundly in the past two years. There are highly effective vaccines available, an increasing number of therapeutic options are meanwhile approved or in later stage development and less lethal virus variants are spreading, all of which increase the financial risk associated with any early stage COVID-19 vaccine program. In order to ensure we are prudent with the use of resources, given the early stage of the Company’s vaccine development programs and the changes in the global situation, Aeterna has decided that it will not pursue further development of the vaccine platform for either COVID-19 or Chlamydia (which was based on the same vaccine platform as used in the Company’s COVID-19 program). As a result, the Company has also elected to terminate its existing license agreements with the University of Wuerzburg for that vaccine platform technology.

Key Corporate Developments

Changes in personnel

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 and Share Consolidation

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 US$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.

On July 15, 2022, we announced that our shareholders had approved consolidation of our issued and outstanding common shares on a twenty-five (25) to one (1) basis (the “Share Consolidation”), subject to approval of the Toronto Stock Exchange and the Nasdaq. On July 21, 2022 the Share Consolidation was effected and the Common Shares began trading on the TSX and Nasdaq on a post-Consolidation basis. The Share Consolidation reduced the number of Common Shares issued and outstanding from 121,397,007 to 4,855,876 Common Shares. Accordingly, all common shares, DSU and Warrants, stock options and per share amounts in the Company’s condensed interim consolidated financial statements have been retroactively adjusted for all periods presented to give effect to the reverse stock split. Outstanding stock options were proportionately reduced and the respective exercise prices, if applicable, were proportionately increased.

8

The Company proceeded with the Share Consolidation in order to satisfy the Bid Price Rule. As the Company did not trade at or above the U.S. $1.00 per Common Share for ten consecutive trading days by July 25, 2022, the current expiration date of its grace period, it received a notice of delisting on July 28, 2022. On August 3, 2022, Company received formal notice from Nasdaq that the Company evidenced compliance with the Bid Price Rule and all other applicable continued listing requirements and that the Nasdaq listing matter was closed.

Exposure to Epidemic or Pandemic Outbreak

We continue to monitor the impact of COVID-19 on our operations, including the interruption of our clinical trial activities and of our supply chain. 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 U.S. and Ghryvelin® in Europe have been impacted due to delays of diagnostic activities on AGHD. Further, the COVID-19 pandemic may continue to 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 can delay our ability to conduct clinical trials or release clinical trial results on a timely basis and has delayed 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.

The duration, scope and impact on our business operations, clinical studies and our financial results have been and are expected to continue to be impacted by the pandemic, as discussed further below. 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 section, 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”, in this Annual Report on Form 20-F.

Russian invasion of Ukraine

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. In 2022 our DETECT-trial activities in both Russia and Ukraine were halted due to the Russian invasion of Ukraine, which represented approximately 25 of the planned total patients in the trial, resulting in a delay in the expected completion of the trial. To replace these countries and ensue the timely completion of the DETECT-trial, the Company engaged a second CRO to establish testing sites in four new countries (Armenia, Slovakia, Greece, and Turkey). Clinical trial applications are ongoing, and the Company expects to receive the approvals to conduct the clinical trial in these new countries in the first half of 2023.

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 have become restricted under applicable sanctions laws, which require us to identify alternative trial sites, thereby increasing our development costs and delaying the clinical development of our product candidates.

9

Consolidated Statements of Financial Position Data

	As at December 31,
	2022		2021		2020
(in thousands)	$		$		$
Cash and cash equivalents		50,611		65,300		24,271
Trade and other receivables and other current assets		4,648		5,447		3,322
Inventory		229		73		21
Restricted cash equivalents		322		335		338
Property and equipment		216		192		179
Other non-current assets		—		8,755		8,874
Total assets		56,026		80,102		37,005
Payables and accrued liabilities and income taxes payable		3,936		2,787		2,322
Current portion of provisions		45		34		92
Current portion of deferred revenues		2,949		4,815		2,193
Lease liabilities		179		161		184
Non-financial non-current liabilities (1)		13,141		19,319		19,003
Total liabilities		20,250		27,116		23,794
Shareholders’ equity		35,776		52,986		13,211
Total liabilities and shareholders’ equity		56,026		80,102		37,005

⁽¹⁾ Comprised mainly of employee future benefits, deferred gain, non-current portion of deferred revenues and provisions.

Critical Accounting Estimates and Judgments

Our consolidated financial statements as of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020 have been prepared in accordance with IFRS as issued by the IASB.

A detailed discussion of our accounting estimates and judgements can be found in Note 3 to our audited consolidated financial statements as of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020, which are included in Item 17 – “Financial Statements” in this Annual Report on Form 20-F. Critical accounting estimates and judgments are those that require significant judgment and/or estimates by management at the time that financial statements are prepared such that materially different results might have been reported if other assumptions had been made. These estimates form the basis for and 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. Actual results could differ materially from these estimates.

Management reviews, on a regular basis, the Company’s accounting policies, assumptions, estimates and judgments 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.

The most significant accounting estimates and assumptions that the Company has made in the preparation of our consolidated financial statements include: accounting for a contract modification, license and collaboration arrangement with multiple elements, impairment of goodwill, employee future benefits and research and development accrual.

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Recent Accounting Pronouncements

IFRS Pronouncements issued but not yet effective

Certain new accounting standards, amendments to accounting standards and interpretations have been published that are not mandatory for December 31, 2022 reporting periods and have not been early adopted by the Company. These standards, amendments or interpretations are not expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions.

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 our audited consolidated financial statements as of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020, which are included in Item 17 – “Financial Statements” in this Annual Report on Form 20-F.

Results of operations

Consolidated Statements of Loss and Comprehensive Loss Information

	Three months ended December 31,						Years ended December 31,
(in thousands)	2022			2021			2022			2021			2020
	$			$			$			$			$
Revenues		2,485			956			5,640			5,260			3,652
Operating expenses
Cost of sales		51			18			157			90			2,317
Research and development		4,425			1,863			12,506			6,574			1,506
Selling, general and administrative		2,012			2,206			8,230			7,267			5,893
Gain on modification of building lease		—			—			—			—			(219	)
Impairment of intangible assets		584			—			584			—			—
Impairment of goodwill		7,642			—			7,642			—			—
(Reversal of) impairment of other assets		124			—			124			—			(139	)
Total operating expenses		14,838			4,087			29,243			13,931			9,358
Loss from operations		(12,353	)		(3,131	)		(23,603	)		(8,671	)		(5,706	)
Gains (loss) due to changes in foreign currency exchange rates		(98	)		257			879			215			572
Change in fair value of warrant liability		—			—			—			—			1,147
Other finance costs		—			—			(3	)		(21	)		(736	)
Net finance income (costs)		(98	)		257			876			194			983
Loss before income taxes		(12,451	)		(2,874	)		(22,727	)		(8,477	)		(4,723	)
Income tax (expense) recovery		—			(20	)		—			109			(395	)
Net loss		(12,451	)		(2,894	)		(22,727	)		(8,368	)		(5,118	)
Basic and diluted loss per share		(2.56	)		(0.63	)		(4.68	)		(1.82	)		(3.11	)

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Revenues

We generate 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”), 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.

	Three months ended December 31,
(in thousands)	2022		2021		Change			Change
	$		$		$			%
Revenues
License fees		873		361		512			142	%
Development services		1,526		528		998			189	%
Royalty income		44		21		23			110	%
Supply chain		42		46		(4	)		-8	%
Total revenues		2,485		956		1,529			160	%

Our total revenue for the three-month period ended December 31, 2022 was $2.5 million as compared to $1.0 million for the same period in 2021, representing an increase of $1.5 million, primarily due to $0.5 million increase in License fees and $1.0 million increase in Development services with Novo.

	Twelve months ended December 31,
(in thousands)	2022		2021		Change			Change
	$		$		$			%
Revenues
License fees		1,704		1,670		34			2	%
Development services		3,617		3,337		280			8	%
Product sales		57		—		57			100	%
Royalty income		101		68		33			49	%
Supply chain		161		185		(24	)		-13	%
Total revenues		5,640		5,260		380			7	%

Our total revenue for the twelve-month period ended December 31, 2022 was $5.6 million as compared to $5.3 million for the same period in 2021, representing an increase of $0.3 million, primarily due to $0.3 million increase in development services with Novo.

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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,
(in thousands)	2022		2021		CHANGE			CHANGE
	$		$		$			%
Macrilen™ (macimorelin) pediatric trial (DETECT-trial) direct research and development expenses		1,297		526		771			147	%
AEZS-130 direct research and development expenses		1,004		143		861			602	%
DC-PTH direct research and development expenses		697		63		634			1,006	%
Parkinsons direct research and development expenses		155		171		(16	)		-9	%
Covid-19 direct research and development expenses		222		137		85			62	%
NMOSD direct research and development expenses		320		106		214			202	%
Chlamydia direct research and development expenses		295		108		187			173	%
Additional programs’ direct research and development expenses		27		249		(222	)		-89	%
Total direct research and development expenses		4,017		1,503		2,514			167	%
Employee-related expenses		311		335		(24	)		-7	%
Facilities, depreciation, and other expenses		97		25		72			288	%
Total		4,425		1,863		2,562			138	%

Research and development expenses increased by $2.6 million for the quarter ended December 31, 2022 compared to the quarter ended December 31, 2021 primarily driven by a $2.5 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 $2.5 million increase in total direct research and development expenses for the quarter ended December 31, 2022 was primarily due to a $0.8 million increase in costs for the DETECT-trial and a $1.7 million increase in the expenses of our new pre-clinical projects with universities. In addition, during the quarter ended December 31, 2022, the Company ceased its development of both the COVID-19 and Chlamydia vaccine trials. The previously capitalized upfront payments for licenses relating to these two trials of $212 was fully impaired as discussed further below.

In the fourth quarter of 2022, the Company has seen a significant increase in the recruitment of patients for the DETECT-trial leading to the increase in cost from the previous year, when the company was primarily focused on establishing testing sites for patient enrollment 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. The increase in spend on these projects from the prior year is primarily driven by the advancement of these projects, in particular the AEZS-150 and DC-PTH projects which were in licensed in 2021.

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

	YEAR ENDED DECEMBER 31,
(in thousands)	2022		2021		$ CHANGE			CHANGE
	$		$		$			%
Macrilen™ (macimorelin) pediatric trial (DETECT-trial) direct research and development expenses		3,818		3,244		574			18	%
AEZS-130 direct research and development expenses		2,514		230		2,284			993	%
DC-PTH direct research and development expenses		1,999		154		1,845			1,198	%
Parkinsons direct research and development expenses		657		171		486			284	%
Covid-19 direct research and development expenses		527		712		(185	)		-26	%
NMOSD direct research and development expenses		637		453		184			41	%
Chlamydia direct research and development expenses		623		146		477			327	%
Additional programs’ direct research and development expenses		262		486		(224	)		-46	%
Total direct research and development expenses		11,037		5,596		5,441			97	%
Employee-related expenses		1,199		839		360			43	%
Facilities, depreciation, and other expenses		270		139		131			94	%
Total		12,506		6,574		5,932			90	%

Research and development expenses increased by $5.9 million for the year ended December 31, 2022 as compared to the year ended December 31, 2021 primarily driven by a $5.4 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 $5.4 million increase in total direct research and development expenses for the year ended December 31, 2022 was primarily due to a $0.6 million increase in costs for the DETECT-trial and a $4.8 million increase in expenses related to our new pre-clinical projects with universities for named projects. In 2022, the Company continued to accelerate the opening of new clinical sites and commenced the enrollment of patients in the DETECT-trial, in contrast to 2021 where the Company had not yet commenced patient enrollment. In addition to the DETECT-trial, the Company ran our six pre-clinical projects for the full year, in contrast to prior year when these 6 pre-clinical projects were in licensed during the year. Lastly, during the quarter ended December 31, 2022 the Company ceased its development of both the COVID-19 and Chlamydia vaccine trials. The previously capitalized upfront payments for licenses relating to these two trials of $212 was fully impaired as discussed further below.

Employee-related expenses have increased in 2022 by $0.4 million as compared to the year ended December 31, 2021 primarily due to the addition of two senior members to our research and development team.

Facilities, depreciation, and other expenses have increased in 2022 by $0.1 million as compared to 2021, primarily from higher Consulting and other service related expenses.

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Selling, general, and administrative expenses

	Three months ended December 31
(in thousands)	2022		2021		Change			Change
	$		$		$			%
Salaries & benefits		882		869		13			1	%
Insurance		420		406		14			3	%
Professional fees		222		310		(88	)		-28	%
Consulting fees		89		184		(95	)		-52	%
Other office & general expenses		399		437		(38	)		-9	%
Total selling, general & administrative expenses		2,012		2,206		(194	)		-9	%

Our total Selling, general and administrative expenses for the three-month period ended December 31, 2022, were $2.0 million as compared to $2.2 million for the same period in 2021 representing a decrease of $0.2 million. This decrease arose primarily from a $0.1 million decline in Professional fees and a $0.1 million decline in Consulting fees.

	Twelve months ended December 31,
(in thousands)	2022		2021		Change			Change
	$		$		$			%
Salaries & benefits		2,994		2,525		469			19	%
Insurance		1,678		1,040		638			61	%
Professional fees		1,163		1,207		(44	)		-4	%
Consulting fees		682		688		(6	)		-1	%
Other office & general expenses		1,713		1,807		(94	)		-5	%
Total selling, general & administrative expenses		8,230		7,267		963			13	%

Our total Selling, general and administrative expenses for the twelve-month period ended December 31, 2022 were $8.2 million as compared to $7.3 million for the same period in 2021, representing an increase of $1.0 million. This increase arose primarily from a $0.5 million increase in Salaries and Benefits, a $0.6 million increase in Insurance expenses offset by a $0.1 million decrease in other office and general expenses.

Impairment of goodwill & intangible assets

	Three months ended December 31
(in thousands)	2022		2021		Change		Change
	$		$		$		%
Impairment of goodwill		7,642		—		7,642		100	%
Impairment of intangible assets		584		—		584		100	%
		8,226		—		8,226		100	%

	Twelve months ended December 31
(in thousands)	2022		2021		Change		Change
	$		$		$		%
Impairment of goodwill		7,642		—		7,642		100	%
Impairment of intangible assets		584		—		584		100	%
		8,226		—		8,226		100	%

During the quarter ended December 31, 2022, the Company ceased its development of both the COVID-19 and Chlamydia vaccine trials. The previously capitalized upfront payments for licenses relating to these two trials of $212 was fully impaired. In addition, as part of the Company’s annual goodwill impairment assessment, the recoverable amount of the group of cash generating units (“CGUs”) that goodwill was allocated to was determined based on a fair value less cost of disposal (“FVLCD”) model. FVLCD was determined based on a market approach and also derived from market data including information from market participants regarding the price that the Company could receive in a sale of the group of CGUs. Based on the Company’s assessment, the recoverable amount of the group of CGUs was lower than the carrying value and therefore an impairment charge was recorded on its goodwill and intangible assets for an amount of $7,642 and $372 respectively, as discussed in note 11 of the Company’s audited consolidated financial statements.

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Net finance income (costs)

For the three-month period ended December 31, 2022, our net finance cost was $0.1 million as compared to a net finance income of $0.3 million for the three-month period ended December 31, 2021. This is primarily due to a $0.3 million decrease in foreign currency gains (loss). Our net finance income for the twelve-month period ended December 31, 2022 was $0.9 million as compared to $0.2 million for the same period in 2021, representing a increase of $0.7 million. This is primarily due to a $0.7 million increase in gain due to change in foreign currency.

Net loss

For the three-month period ended December 31, 2022, we reported a consolidated net loss of $12.5 million, or $2.56 loss per common share (basic and diluted), as compared to a consolidated net loss of $2.9 million, or $0.63 loss per common share (basic and diluted) for the three-month period ended December 31, 2021. The $9.6 million increase in net loss is primarily from a $10.8 million increase in total operating expenses and a $0.3 million decrease in net finance income (costs) offset by a $1.5 million increase in revenues, as discussed above.

For the twelve-month period ended December 31, 2022, we reported a consolidated net loss of $22.7 million, or $4.68 loss per common share (basic and diluted), as compared to a consolidated net loss of $8.4 million, or $1.82 loss per common share (basic and diluted), for the year ended December 31, 2021. The $14.3 million increase in net loss is primarily from a $15.3 million increase in operating expenses, offset by a $0.3 million increase in total revenues and a $0.7 million increase in net finance income, as previously discussed.

Selected quarterly financial data

	Three months ended
(in thousands, except for per share data)	Dec 31, 2022			Sep 30, 2022			Jun 30, 2022			Mar 31, 2022
	$			$			$			$
Revenues		2,485			1,860			(222	)		1,517
Net loss		(12,451	)		(3,420	)		(4,216	)		(2,640	)
Net loss per share (basic and diluted)(2)		(2.56	)		(0.70	)		(0.87	)		(0.54	)

	Three months ended
(in thousands, except for per share data)	Dec 31, 2021			Sep 30, 2021			Jun 30, 2021			Mar 31, 2021
	$			$			$			$
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)(1)		(0.63	)		(0.40	)		(0.43	)		(0.38	)

(1) 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.

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Liquidity and capital resources

The Company’s objective in managing capital, consisting of shareholders’ equity, with cash and cash equivalents being its primary components, is to ensure sufficient liquidity to fund research and development costs, selling expenses, general and administrative expenses and working capital requirements. Over the past several years, we have raised capital via public and private equity offerings and issuances and have entered into licensing and collaborative arrangements, consideration from which, together with proceeds from equity issuances, has been our primary source of liquidity. 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.

Cash flows

The following table shows a summary of our consolidated cash flows for the periods indicated (amounts in thousands):

	Years ended December 31,
(in thousands)	2022			2021			2020
	$			$			$
Cash and cash equivalents - beginning of year		65,300			24,271			7,838
Cash used in operating activities		(13,680	)		(8,581	)		(4,129	)
Cash flows (used in) provided by financing activities		(118	)		51,037			20,468
Cash flows (used in) provided by investing activities		(12	)		(658	)		56
Effect of exchange rate changes on cash and cash equivalents		(879	)		(769	)		38
Cash and cash equivalents - end of year		50,611			65,300			24,271

Operating activities

Cash used by operating activities totaled $13.7 million for the twelve months ended December 31, 2022, as compared to $8.6 million used by operating activities in the same period in 2021. This $5.1 million increase in spending in operating activities is attributed primarily to increased research and development and general and administrative expenses.

Financing activities

Cash spent on financing activities totaled $0.1 million for the twelve months ended December 31, 2022, as compared to cash provided by financing activities of $51.0 million in the same period in 2021. In February 2021, the Company completed a financing which provided $31.0 million in net funding and throughout 2021, holders exercised 35.1 million warrants resulting in proceeds to the Company of $20.0 million.

Investing activities

Cash used in investing activities totaled $0.01 million for the twelve months ended December 31, 2022, as compared to cash provided by investing activities of $0.7 million in the same period in 2021. The $0.7 million year-over-year decrease is attributable entirely to upfront payments made to universities under certain license agreements in 2021.

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 ongoing clinical trial costs. Consequently, the Company has incurred operating losses and has generated negative cash flow from operations 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™ 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.

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As of December 31, 2022, the Company had an accumulated deficit of $352.0 million. The Company also had a net loss of $22.7 million and negative cash flows from operations of $13.7 million for the year ended December 31, 2022. We believe that our existing cash on hand will be sufficient to fund our anticipated operating and capital expenditure requirements for the next 12 months. We plan to finance our future operations and capital expenditures primarily though cash on hand. We also believe that our existing cash on hand will be sufficient to fund our anticipated operating and capital expenditure requirements beyond the next 12 months and through 2025. 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.

Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially as a result of a number of factors. Our future capital requirements are difficult to forecast and will depend on many factors, including:

● the terms and timing of any other collaboration, licensing, and other arrangements that we may establish;

● the initiation, progress, timing, and completion of preclinical studies and clinical trials for our current and future potential product candidates, including the impact of COVID-19 on our ongoing and planned research and development efforts;

● our alignment with the FDA on regulatory approval requirements;

● the impact of COVID-19 on the operations of key governmental agencies, such as the FDA, which may delay the development of our current product candidates or any future product candidates;

● the number and characteristics of product candidates that we pursue;

● the outcome, timing, and cost of regulatory approvals;

● delays that may be caused by changing regulatory requirements;

● the cost and timing of hiring new employees to support our continued growth;

● the costs involved in filing and prosecuting patent applications and enforcing and defending patent claims;

● the costs of filing and prosecuting intellectual property rights and enforcing and defending any intellectual property-related claims;

● the costs of responding to and defending ourselves against complaints and potential litigation;

● the costs and timing of procuring clinical and commercial supplies for our product candidates; and

● the extent to which we acquire or in-license other product candidates and technologies.

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Contractual obligations and commitments

The following is a summary of our contractual obligations as of December 31, 2022:

	Service and manufacturing		R&D contracts		TOTAL
	$		$		$
Less than 1 year		9,250		1,577		10,827
1 – 3 years		1,362		218		1,580
4 – 5 years		29		—		29
More than 5 years		—		—		—
		10,641		1,795		12,436

In 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. The Company may have to pay up $38,458 to upon achieving certain sales volumes, regulatory or other milestones related to specific products.

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.

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, 2022, 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 Item 3, D. – “Risk factors” in this Annual Report on Form 20-F 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 of December 31, 2022. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosures.

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Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures were effective as of December 31, 2022.

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.

Remediation of material weakness

As disclosed in Item 15 – “Controls and Procedures” in our Annual Report on Form 20-F for the year ended December 31, 2021 and in each of our quarterly MD&As filed during 2022, 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 of 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.

During 2022, we executed our remediation plan to address the material weakness discussed above and to improve our internal control over financial reporting. Our remediation activities included:

● 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, a new corporate controller in September 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.

We tested such newly established policies, procedures, and control activities designed to address the above-described material weakness. As a result, we believe that this material weakness was remediated as of December 31, 2022.

Changes in Internal Controls over Financial Reporting

Other than completion of the actions taken to remediate the material weakness discussed above, there were no changes in our internal control over financial reporting during the year ended December 31, 2022 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting

Our management assessed our internal control over financial reporting as of December 31, 2022, the end the period covered by this Annual Report on Form 20-F. Management based its assessment on criteria established in “Internal Control—Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on management’s assessment of our internal control over financial reporting, management concluded that, as of December 31, 2022, our internal control over financial reporting was effective.

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