20-F


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________ 
FORM 20-F
¨
Registration Statement Pursuant to Section 12(b) or 12(g) of The Securities Exchange Act of 1934
OR
ý
Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 for the fiscal year ended December 31, 2015
OR
¨
Transition Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
OR
¨
Shell Company Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
Commission file number 0-30752
AETERNA ZENTARIS INC.
(Exact Name of Registrant as Specified in its Charter)
Not Applicable
(Translation of Registrant's Name into English)
Canada
(Jurisdiction of Incorporation)
c/o Norton Rose Fulbright Canada LLP
1 Place Ville Marie, Suite 2500
Montréal, Quebec
Canada H3B 1R1
(Address of Principal Executive Offices)
Philip Theodore
Telephone: 843-900-3211
E-mail: ptheodore@aezsinc.com
315 Sigma Drive, Suite 302D
Summerville, South Carolina
29483
(Name, Telephone, E-mail and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of Each Class                
  
Name of Each Exchange on Which Registered                
Common Shares
  
NASDAQ Capital Market
Toronto Stock Exchange
Securities registered or to be registered pursuant to Section 12(g) of the Act: NONE
Securities for which there is a reporting obligation pursuant to Section 15(d) of the ACT: NONE
Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as at the close of the period covered by the annual report: 9,928,697 Common Shares as at December 31, 2015.
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  ¨      No  ý
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.  Yes  ¨      No  ý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  ý     No  ¨ 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  ¨      No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or, or a non-accelerated filer. See definitions of "accelerated filer" and "large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer    ¨    Accelerated filer     ¨    Non-accelerated filer     ý
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
US GAAP    ¨    International Financial Reporting Standards as issued by the     Other    ¨
International Accounting Standards Board    ý
If "other" has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17  ¨    Item 18  ¨
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ¨      No  ý





Basis of Presentation
General
Except where the context otherwise requires, all references in this Annual Report on Form 20-F to the "Company", "Aeterna Zentaris Inc.", "we", "us", "our" or similar words or phrases are to Aeterna Zentaris Inc. and its subsidiaries, taken together. In this Annual Report on Form 20-F, references to "$" and "US$" are to United States dollars, references to "CAN$" are to Canadian dollars and references to "EUR" are to euros. Unless otherwise indicated, the statistical and financial data contained in this Annual Report on Form 20-F are presented as at December 31, 2015.
All share, option and share purchase warrant as well as per share, option and share purchase warrant information presented in this Annual Report on Form 20-F has been adjusted, including proportionate adjustments being made to each option and share purchase warrant exercise price, to reflect and to give effect to a share consolidation (or reverse split), on November 17, 2015, of our issued and outstanding common shares on a 100-to-1 basis (the "Share Consolidation"). The Share Consolidation affected all shareholders, optionholders and warrantholders uniformly and thus did not materially affect any securityholder's percentage of ownership interest.
This Annual Report on Form 20-F also contains certain information regarding products or product candidates that may potentially compete with our products and product candidates, and such information has been primarily derived from information made publicly available by the companies developing such potentially competing products and product candidates and has not been independently verified by Aeterna Zentaris Inc.
Forward-Looking Statements
This Annual Report on Form 20-F contains forward-looking statements made pursuant to the safe harbor provisions of the U.S. Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as: "intend," "believe," "designed to," "vision," "aimed at," "expect," "may," "should," "would," "will" and similar references. Such statements include, but are not limited to, statements about the progress of our research, development and clinical trials and the timing of, and prospects for, regulatory approval and commercialization of our product candidates, the timing of expected results of our studies and the anticipated results of these studies, statements about the status of our efforts to establish a commercial operation and to obtain the right to promote or sell products that we did not develop, and estimates regarding our capital requirements and our needs for, and our ability to obtain, additional financing. Forward-looking statements involve known and unknown risks and uncertainties, which could cause the Company's actual results to differ materially from those in the forward-looking statements. Such risks and uncertainties include, among others, the availability of funds and resources to pursue our research and development ("R&D") projects, the successful and timely completion of clinical studies, the risk that safety and efficacy data from any of our Phase 3 trials may not coincide with the data analysis from previously reported Phase 1 and/or Phase 2 clinical trials, the rejection or non-acceptance of any new drug application by one or more regulatory authorities and, more generally, uncertainties related to the regulatory process, the ability of the Company to efficiently commercialize one or more of our products or product candidates, the degree of market acceptance once our products are approved for commercialization, the ability of the Company to take advantage of business opportunities in the pharmaceutical industry, the ability of the Company to protect its intellectual property and general changes in economic conditions. Investors should consult the Company's quarterly and annual filings with the Canadian and United States ("U.S.") securities commissions for additional information on risks and uncertainties relating to the forward-looking statements. Investors are cautioned not to place undue reliance on these forward-looking statements. The Company does not undertake to update these forward-looking statements and disclaims any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements contained herein to reflect future results, events or developments, except if required to do so by a governmental authority or applicable law.





TABLE OF CONTENTS
GENERAL INFORMATION
Page
 
 
Item 1.
 
 
B. Advisers
 
Item 2.
 
 
Item 3.
 
 
 
 
Item 4.
 
 
 
 
Item 4A.
Item 5.
 
A. Operating results
 
B. Liquidity and capital resources
 
C. Research and development, patents and licenses, etc.
 
D. Trend information
 
E. Off-balance sheet arrangements
 
F. Tabular disclosure of contractual obligations
Item 6.
 
 
 
 
 
Item 7.
 
 
 
Item 8.
 
 
Item 9.
 
 
 
 
 





 
Item 10.
 
 
 
 
 
 
 
 
 
Item 11.
Item 12.
 
 
 
 
 
 
 
 
 
Item 13.
Item 14.
Item 15.
Item 16A.
Item 16B.
Item 16C.
Item 16D.
Item 16E.
Item 16F.
Item 16G.
Item 16H.
 
 
 
 
 
Item 17.
Item 18.
Item 19.






PART I

Item 1.
Identity of Directors, Senior Management and Advisers
A.
Directors and senior management
Not applicable.
B.
Advisers
Not applicable.
C.
Auditors
Not applicable.
Item 2.
Offer Statistics and Expected Timetable
A.
Offer statistics
Not applicable.
B.
Method and expected timetable
Not applicable.
Item 3.
Key Information
A.
Selected financial data
The consolidated statement of comprehensive (loss) income data set forth in this Item 3.A with respect to the years ended December 31, 2015, 2014 and 2013 and the consolidated statement of financial position data as at December 31, 2015 and 2014 have been derived from the audited consolidated financial statements set forth in Item 18, which have been prepared in accordance with International Financial Reporting Standards ("IFRS"), as issued by the International Accounting Standards Board ("IASB"). The consolidated statement of comprehensive (loss) income information with respect to the years ended December 31, 2012 and 2011 and the consolidated statement of financial position information as at December 31, 2013, 2012 and 2011 set forth in this Item 3.A. have been derived from our previous consolidated financial statements not included herein, and have also been prepared in accordance with IFRS, as issued by the IASB. The selected financial data should be read in conjunction with our audited consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 20-F, as well as "Item 5. Operating and Financial Review and Prospects" of this Annual Report on Form 20-F.

1



Consolidated Statements of Comprehensive (Loss) Income Information
(in thousands of US dollars, except share and per share data)
Derived from consolidated financial statements prepared in accordance with IFRS, as issued by the IASB
 
 
Years ended December 31,
 
 
2015
 
2014
 
2013
 
2012
 
2011
 
 
$
 
$
 
$
 
$
 
$
Revenues
 
 
 
 
 
 
 
 
 
 
Sales commission and other
 
297

 

 
96

 
834

 
250

License fees
 
248

 
11

 
6,079

 
1,219

 
4,455

 
 
545

 
11

 
6,175

 
2,053

 
4,705

Operating expenses
 
 
 
 
 
 
 
 
 
 
Cost of sales
 

 

 
51

 
591

 
212

Research and development costs
 
17,234

 
23,716

 
21,284

 
20,592

 
24,245

General and administrative expenses
 
11,308

 
9,840

 
11,091

 
9,226

 
10,046

Selling expenses
 
6,887

 
3,850

 
1,225

 
1,380

 
1,909

 
 
35,429

 
37,406

 
33,651

 
31,789

 
36,412

Loss from operations
 
(34,884
)
 
(37,395
)
 
(27,476
)
 
(29,736
)
 
(31,707
)
Finance income
 
305

 
20,319

 
1,748

 
6,974

 
6,239

Finance costs
 
(15,649
)
 

 
(1,512
)
 
(382
)
 
(8
)
Net finance (costs) income
 
(15,344
)
 
20,319

 
236

 
6,592

 
6,231

Loss before income taxes
 
(50,228
)
 
(17,076
)
 
(27,240
)
 
(23,144
)
 
(25,476
)
Income tax expense
 

 
(111
)
 

 

 
(1,104
)
Net loss from continuing operations
 
(50,228
)
 
(17,187
)
 
(27,240
)
 
(23,144
)
 
(26,580
)
Net income from discontinued operations
 
85

 
623

 
34,055

 
2,732

 
(487
)
Net (loss) income
 
(50,143
)
 
(16,564
)
 
6,815

 
(20,412
)
 
(27,067
)
Other comprehensive (loss) income:
 
 
 
 
 
 
 

 

Items that may be reclassified subsequently to profit or loss:
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
1,509

 
(1,158
)
 
1,073

 
(504
)
 
(789
)
Items that will not be reclassified to profit or loss:
 
 
 
 
 
 
 
 
 
 
Actuarial gain (loss) on defined benefit plans
 
844

 
(1,833
)
 
2,346

 
(3,705
)
 
(1,335
)
Comprehensive (loss) income
 
(47,790
)
 
(19,555
)
 
10,234

 
(24,621
)
 
(29,191
)
Net loss per share (basic and diluted) from continuing operations1
 
(18.17
)
 
(29.12
)
 
(92.41
)
 
(117.04
)
 
(168.75
)
Net income per share (basic and diluted) from discontinued operations1
 
0.03

 
1.06

 
115.53

 
13.79

 
(3.09
)
Net (loss) income per share (basic and diluted)1
 
(18.14
)
 
(28.06
)
 
23.12

 
(103.22
)
 
(171.84
)
Weighted average number of shares outstanding:1
 
 
 
 
 
 
 


 


Basic
 
2,763,603

 
590,247

 
294,765

 
197,751

 
157,513

Diluted
 
3,424,336

 
590,247

 
294,765

 
198,067

 
157,513

1 
Adjusted to reflect the November 17, 2015 100-to-1 Share Consolidation


2



Consolidated Statement of Financial Position Information
(in thousands of US dollars)
Derived from consolidated financial statements prepared in accordance with IFRS, as issued by the IASB
 
 
As at December 31,
 
 
2015
 
2014
 
2013
 
2012
 
2011
 
 
$
 
$
 
$
 
$
 
$
Cash and cash equivalents
 
41,450

 
34,931

 
43,202

 
39,521

 
46,881

Restricted cash equivalents
 
255

 
760

 
865

 
826

 
806

Total assets
 
51,498

 
47,435

 
59,196

 
67,665

 
75,369

Warrant liability (current and non-current portion)
 
10,891

 
8,225

 
18,010

 
6,176

 
9,162

Share capital
 
204,596

 
150,544

 
134,101

 
122,791

 
101,884

Shareholders' equity (deficiency)
 
21,615

 
14,484

 
17,064

 
(6,695
)
 
(4,546
)
B.
Capitalization and indebtedness
Not applicable.
C.
Reasons for the offer and use of proceeds
Not applicable.
D.     Risk factors
Risks Relating to Us and Our Business
Investments in biopharmaceutical companies are generally considered to be speculative.
The prospects for companies operating in the biopharmaceutical industry are uncertain, given the very nature of the industry, and, accordingly, investments in biopharmaceutical companies should be considered to be speculative assets.
We have a history of operating losses and we may never achieve or maintain operating profitability.
We have incurred, and expect to continue to incur, substantial expenses in our efforts to develop and market products. Consequently, we have incurred operating losses historically and in each of the last several years. As at December 31, 2015, we had an accumulated deficit of approximately $271.6 million. Our operating losses have adversely impacted, and will continue to adversely impact, our working capital, total assets, operating cash flow and shareholders’ equity. We do not expect to reach operating profitability in the immediate future, and our operating expenses are likely to continue to represent a significant component of our overall cost profile as we continue our R&D and clinical study programs, seek regulatory approval for our product candidates and carry out commercial activities. Even if we succeed in developing, acquiring or in-licensing new commercial products, we could incur additional operating losses for at least the next several years. If we do not ultimately generate sufficient revenue from commercialized products to achieve or maintain operating profitability, an investment in our Common Shares or other securities could result in a significant or total loss.
Our revenues and expenses may fluctuate significantly, and any failure to meet financial expectations may disappoint securities analysts or investors and result in a decline in the price or the value of our Common Shares or other securities.
We have a history of operating losses. Our revenues and expenses have fluctuated in the past and may continue to do so in the future. These fluctuations could cause our share price or the value of our other securities to decline. Some of the factors that could cause our revenues and expenses to fluctuate include but are not limited to:
the inability to complete product development in a timely manner that results in a failure or delay in receiving the required regulatory approvals to commercialize our product candidates;
the timing of regulatory submissions and approvals;
the timing and willingness of any current or future collaborators to invest the resources necessary to commercialize our product candidates;
the nature and timing of licensing fee revenues;
the outcome of litigation, including the securities class action litigation pending against us that is described elsewhere in this Annual Report on Form 20-F;
foreign currency fluctuations;

3



the timing of the achievement and the receipt of milestone payments from current or future collaborators; and
failure to enter into new or the expiration or termination of current agreements with collaborators.
Due to fluctuations in our revenues and expenses, we believe that period-to-period comparisons of our results of operations are not necessarily indicative of our future performance. It is possible that in some future quarters or years, our revenues and expenses will be above or below the expectations of securities analysts or investors. In this case, the price of our Common Shares and/or the value of our other securities could fluctuate significantly or decline.
Our clinical trials may not yield results that will enable us to obtain regulatory approval for our products, and a setback in any of our clinical trials would likely cause a drop in the price of our Common Shares or a decline in the value of our other securities.
We will only receive regulatory approval for a product candidate if we can demonstrate, in carefully designed and conducted clinical trials, that the product candidate is both safe and effective. We do not know whether our pending or any future clinical trials will demonstrate sufficient safety and efficacy to obtain the requisite regulatory approvals or will result in marketable products. Unfavorable data from those studies could result in the withdrawal of marketing approval for approved products or an extension of the review period for developmental products. Preclinical testing and clinical development are inherently lengthy, complex, expensive and uncertain processes and have a high risk of failure. It typically takes many years to complete testing, and failure can occur at any stage of testing. Results attained in preclinical testing and early clinical studies, or trials, may not be indicative of results that are obtained in later studies. In addition, we have limited experience in conducting and managing the clinical trials necessary to obtain regulatory approval and, accordingly, may encounter unforeseen problems and delays in the approval process. Furthermore, errors in the conduct, monitoring and/or auditing of a clinical trial, whether made by us or by a contract research organization (a “CRO”) that we retain could invalidate the results from a regulatory perspective.
None of our current product candidates has to date received regulatory approval for their intended commercial sale. We cannot market a pharmaceutical product in any jurisdiction until it has completed rigorous preclinical testing and clinical trials and passed such jurisdiction’s extensive regulatory approval process. In general, significant R&D and clinical studies are required to demonstrate the safety and efficacy of our product candidates before we can submit regulatory applications. Even if a product candidate is approved by the applicable regulatory authority, we may not obtain approval for an indication whose market is large enough to recover our investment in that product candidate. In addition, there can be no assurance that we will ever obtain all or any required regulatory approvals for any of our product candidates.
We are currently developing our product candidates based on R&D activities, preclinical testing and clinical trials conducted to date, and we may not be successful in developing or introducing to the market these or any other new products or technology. If we fail to develop and deploy new products successfully and on a timely basis, we may become non-competitive and unable to recover the R&D and other expenses we incur to develop and test new products.
Interim results of preclinical or clinical studies do not necessarily predict their final results, and acceptable results in early studies might not be obtained in later studies. Safety signals detected during clinical studies and preclinical animal studies may require us to perform additional studies, which could delay the development of the drug or lead to a decision to discontinue development of the drug. Product candidates in the later stages of clinical development may fail to show the desired safety and efficacy traits despite positive results in initial clinical testing. Results from earlier studies may not be indicative of results from future clinical trials and the risk remains that a pivotal program may generate efficacy data that will be insufficient for the approval of the drug, or may raise safety concerns that may prevent approval of the drug. Interpretation of the prior preclinical and clinical safety and efficacy data of our product candidates may be flawed and there can be no assurance that safety and/or efficacy concerns from the prior data were overlooked or misinterpreted, which in subsequent, larger studies appear and prevent approval of such product candidates.
Furthermore, we may suffer significant setbacks in advanced clinical trials, even after promising results in earlier studies. Based on results at any stage of clinical trials, we may decide to repeat or redesign a trial or discontinue development of one or more of our product candidates. Further, actual results may vary once the final and quality‑controlled verification of data and analyses has been completed. If we fail to adequately demonstrate the safety and efficacy of our products under development, we will not be able to obtain the required regulatory approvals to commercialize our product candidates.
A failure in the development of any one of our programs or product candidates could have a negative impact on the development of the others. Setbacks in any phase of the clinical development of our product candidates would have an adverse financial impact (including with respect to any agreements and partnerships that may exist between us and other entities), could jeopardize regulatory approval and would likely cause a drop in the price of our Common Shares and/or a decline in the value of our other securities.



4



If we are unable to successfully complete our clinical trial programs, or if such clinical trials take longer to complete than we project, our ability to execute our current business strategy will be adversely affected.
Whether or not and how quickly we complete clinical trials is dependent in part upon the rate at which we are able to engage clinical trial sites and, thereafter, the rate of enrollment of patients, and the rate at which we collect, clean, lock and analyze the clinical trial database. Patient enrollment is a function of many factors, including the design of the protocol, the size of the patient population, the proximity of patients to and availability of clinical sites, the eligibility criteria for the study, the perceived risks and benefits of the drug under study and of the control drug, if any, the efforts to facilitate timely enrollment in clinical trials, the patient referral practices of physicians, the existence of competitive clinical trials, and whether existing or new drugs are approved for the indication we are studying. Certain clinical trials are designed to continue until a pre-determined number of events have occurred to the patients enrolled. Such trials are subject to delays stemming from patient withdrawal and from lower than expected event rates and may also incur increased costs, if enrollment is increased in order to achieve the desired number of events. If we experience delays in identifying and contracting with sites and/or in patient enrollment in our clinical trial programs, we may incur additional costs and delays in our development programs, and may not be able to complete our clinical trials on a cost-effective or timely basis. In addition, conducting multi-national studies adds another level of complexity and risk as we are subject to events affecting countries other than the US and Canada. Moreover, negative or inconclusive results from the clinical trials we conduct or adverse medical events could cause us to have to repeat or terminate the clinical trials. Accordingly, we may not be able to complete the clinical trials within an acceptable time-frame, if at all. If we or any third party have difficulty enrolling a sufficient number of patients to conduct our clinical trials as planned, we may need to delay or terminate ongoing clinical trials.
Clinical trials are subject to continuing oversight by governmental regulatory authorities and institutional review boards and must (i) meet the requirements of these authorities; (ii) meet the requirements for informed consent; and (iii) meet the requirements for good clinical practices. We may not be able to comply with these requirements in respect of one or more of our product candidates.
Additionally, we have limited experience in filing an NDA or similar application for approval in the US or in any other country for our current product candidates, which may result in a delay in, or the rejection of, our filing of an NDA or similar application. During the drug development process, regulatory agencies will typically ask questions of drug sponsors. While we endeavor to answer all such questions in a timely fashion, some questions may not be answered in time to prevent the delay of acceptance of an NDA or the rejection of an NDA.
We have incurred, and expect to continue to incur, substantial expenses, and we have made, and expect to continue to make, substantial financial commitments to establish a commercial operation. There can be no assurance how quickly, if ever, we will realize a profit from our commercial operation.
Our business strategy is to become a specialty biopharmaceutical company with commercial operations to market and sell products that we may develop, acquire or in‑license. To that end, our commercial operations consist of 21 full-time sales representatives, who provide services pursuant to our agreement with a contract sales organization, and our sales-management employees. We have to date incurred, and expect to continue to incur, substantial expenses, and we have made, and expect to continue to make, substantial financial commitments to build out our commercial operations. Establishing a commercial operation is expensive and time-consuming, and there can be no assurance how quickly, if ever, we will realize a profit from our commercial operations. Factors that may inhibit our efforts to realize a profit from our commercial operations include:
our inability to recruit, train and retain adequate numbers of effective sales and marketing personnel and representatives;
the inability of our sales personnel to obtain access to or to persuade adequate numbers of physicians to prescribe our products or the products that we in-license or co-promote;
the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; and
unforeseen costs and expenses associated with creating an independent sales and marketing organization.
Our financial viability depends, in part, on our ability to acquire, in-license or otherwise obtain the right to sell other products. If we are unable to do so, our business, financial condition and results of operations may be materially adversely affected.
In connection with our strategy to further transform the Company into a commercially operating specialty biopharmaceutical organization, we may enter into commercial arrangements with third parties, including but not limited to promotion, co-promotion, acquisition or in-licensing agreements, in efforts to establish and expand our commercial revenue base. These business activities entail numerous operational and financial risks, including:
the difficulty or inability to secure financing to acquire or in-license products;
the incurrence of substantial debt or dilutive issuances of securities to pay for the acquisition or in-licensing of new products;
the disruption of our business and diversion of our management’s time and attention;
higher than expected development, acquisition or in-license and integration costs;
exposure to unknown liabilities; and

5



the difficulty in locating products that are in our targeted therapeutic areas and that are compatible with other products in our portfolio.
We can provide no assurance that we will be able to identify potential product candidates or strategic commercial partners or, if we identify such product candidates or partners, that any related commercial arrangements will be consummated on terms that are favorable to us. To the extent that we are successful in entering into any strategic commercial arrangements, including promotional, co-promotional or marketing agreements, or acquisition or in-licensing agreements with third parties, we cannot provide any assurance that any resulting initiatives or activities will be successful. To the extent that any related investments in such arrangements do not yield the expected benefits, our business, financial condition and results of operations may be materially adversely affected.
We have limited resources to identify and execute the procurement of additional products and to integrate them into our current commercial operations. The failure to successfully integrate the personnel and operations of businesses that we may acquire or of products that we may in-license in the future with our existing operations, business and products could have a material adverse effect on our operations and results. We compete with larger pharmaceutical companies and other competitors in our efforts to acquire, in-license, and/or obtain the right to market and/or detail new products. Our competitors likely will have access to greater financial resources than us and may have greater expertise in identifying and evaluating new opportunities. Moreover, we may devote resources to potential acquisition, in-licensing, promotion or co-promotion opportunities that are never completed, or we may fail to realize the anticipated benefits of such efforts.
We will require significant additional financing, and we may not have access to sufficient capital.
We will require significant additional capital to fund our commercial operations and may require additional capital to pursue planned clinical trials and regulatory approvals, as well as further R&D and marketing efforts for our product candidates and potential products. We do not anticipate generating significant revenues from operations in the near future, and we currently have no committed sources of capital.
We may attempt to raise additional funds through public or private financings, collaborations with other pharmaceutical companies or CROs or from other sources, including, without limitation, through at-the-market offerings and issuances of Common Shares. Additional funding may not be available on terms that are acceptable to us. If adequate funding is not available to us on reasonable terms, we may need to delay, reduce or eliminate one or more of our product development programs or obtain funds on terms less favorable than we would otherwise accept. To the extent that additional capital is raised through the sale of equity securities or securities convertible into or exchangeable or exercisable for equity securities (collectively, “Convertible Securities”), the issuance of those securities would result in dilution to our shareholders. Moreover, the incurrence of debt financing or the issuance of dividend-paying preferred shares, could result in a substantial portion of our future operating cash flow, if any, being dedicated to the payment of principal and interest on such indebtedness or the payment of dividends on such preferred shares and could impose restrictions on our operations and on our ability to make certain expenditures and/or to incur additional indebtedness, which could render us more vulnerable to competitive pressures and economic downturns.
We anticipate that our cash and cash equivalents as at December 31, 2015 will be sufficient to fund our commercial operations, development programs, clinical trials and other operating expenses at least through December 31, 2016. However, our future capital requirements are substantial and may increase beyond our current expectations depending on many factors, including:
the duration of, changes to and results of our clinical trials for our various product candidates going forward;
unexpected delays or developments in seeking regulatory approvals;
the time and cost involved in preparing, filing, prosecuting, maintaining and enforcing patent claims;
unexpected developments encountered in implementing our business development and commercialization strategies;
the potential addition of commercialized products to our portfolio;
lower sales commission than expected;
the outcome of litigation, including the securities class action litigation pending against us that is described elsewhere in this Annual Report on Form 20-F; and
further arrangements, if any, with collaborators.
In addition, global economic and market conditions as well as future developments in the credit and capital markets may make it even more difficult for us to raise additional financing in the future.
If we are unsuccessful in generating new revenues, increasing our revenues and/or raising additional funding, we may possibly cease to continue operating as we currently do.
We have incurred sustained operating losses, deficits and negative cash flows from operating activities over the past several years, and we expect that we will continue to do so for an extended period.
Our ability to continue as a going concern is dependent on the successful execution of our business plan, which will require an increase in revenue and/or additional funding to be provided by potential investors and/or non-traditional sources of financing. There can be no assurance that we will achieve profitability or positive cash flows or be able to obtain additional funding or that,

6



if obtained, they will be sufficient, or whether any other initiatives will be successful such that we may continue as a going concern. There could also be material uncertainties related to certain adverse conditions and events that could impact our ability to remain a going concern. If the going concern assumptions were deemed no longer appropriate for our consolidated financial statements, adjustments to the carrying value of assets and liabilities, reported expenses and consolidated statement of financial position classifications would be necessary. Such adjustments could be material.
Additional funding may be in the form of debt or equity or a hybrid instrument depending on our needs, the demands of investors and market conditions. Depending on the prevailing global economic and credit market conditions, we may not be able to raise additional liquidity through these traditional sources of financing. Although we may also pursue non-traditional sources of financing with third parties, the global equity and credit markets may adversely affect the ability of potential third parties to pursue such transactions with us. Accordingly, as a result of the foregoing, we continue to review traditional sources of financing, such as private and public debt or various equity financing alternatives, as well as other alternatives to enhance shareholder value, including, but not limited to, non-traditional sources of financing, such as strategic alliances with third parties, the sale of assets or licensing of our technology or intellectual property, a combination of operating and related initiatives or a substantial reorganization of our business.
We are and will be subject to stringent ongoing government regulation for our products and our product candidates, even if we obtain regulatory approvals for the latter.
The manufacture, marketing and sale of our products and product candidates are and will be subject to strict and ongoing regulation, even if regulatory authorities approve any of the latter. Compliance with such regulation will be expensive and consume substantial financial and management resources. For example, an approval for a product may be conditioned on our agreement to conduct costly post-marketing follow-up studies to monitor the safety or efficacy of the products. In addition, as clinical experience with a drug expands after approval because the drug is used by a greater number and more diverse group of patients than during clinical trials, side effects or other problems may be observed after approval that were not observed or anticipated during pre-approval clinical trials. In such a case, a regulatory authority could restrict the indications for which the product may be sold or revoke the product’s regulatory approval.
We and our contract manufacturers will be required to comply with applicable current Good Manufacturing Practice regulations for the manufacture of our products. These regulations include requirements relating to quality assurance, as well as the corresponding maintenance of rigorous records and documentation. Manufacturing facilities must be approved before we can use them in the commercial manufacturing of our products and are subject to subsequent periodic inspection by regulatory authorities. In addition, material changes in the methods of manufacturing or changes in the suppliers of raw materials are subject to further regulatory review and approval.
If we, or if any future marketing collaborators or contract manufacturers, fail to comply with applicable regulatory requirements, we may be subject to sanctions including fines, product recalls or seizures and related publicity requirements, injunctions, total or partial suspension of production, civil penalties, suspension or withdrawals of previously granted regulatory approvals, warning or untitled letters, refusal to approve pending applications for marketing approval of new products or of supplements to approved applications, import or export bans or restrictions, and criminal prosecution and penalties. Any of these penalties could delay or prevent the promotion, marketing or sale of our products and product candidates.
Even if we receive marketing approval for our product candidates, such product approvals could be subject to restrictions or withdrawals. Regulatory requirements are subject to change.
Regulatory authorities generally approve products for particular indications. If an approval is for a limited indication, this limitation reduces the size of the potential market for that product. Product approvals, once granted, are subject to continual review and periodic inspections by regulatory authorities. Our operations and practices are subject to regulation and scrutiny by the US government, as well as governments of any other countries in which we do business or conduct activities. Later discovery of previously unknown problems or safety issues and/or failure to comply with domestic or foreign laws, knowingly or unknowingly, can result in various adverse consequences, including, among other things, a possible delay in the approval or refusal to approve a product, warning letters, fines, injunctions, civil penalties, recalls or seizures of products, total or partial suspension of production, refusal of the government to renew marketing applications, complete withdrawal of a marketing application, criminal prosecution, withdrawal of an approved product from the market and/or exclusion from government healthcare programs. Such regulatory enforcement could have a direct and negative impact on the product for which approval is granted, but also could have a negative impact on the approval of any pending applications for marketing approval of new drugs or supplements to approved applications.
Because we operate in a highly regulated industry, regulatory authorities could take enforcement action against us in connection with our, or our licensees’ or collaborators’, business and marketing activities for various reasons.
From time to time, new legislation is passed into law that could significantly change the statutory provisions governing the approval, manufacturing, and marketing of products regulated by the U.S. Food and Drug Administration ("FDA") and other health authorities. Additionally, regulations and guidance are often revised or reinterpreted by health agencies in ways that may significantly affect

7



our business and our products. It is impossible to predict whether further legislative changes will be enacted, or whether regulations, guidance, or interpretations will change, and what the impact of such changes, if any, may be.
Healthcare reform measures could hinder or prevent the commercial success of our product candidates and adversely affect our business.
The business prospects and financial condition of pharmaceutical and biotechnology companies are affected by the efforts of governmental and third-party payers to contain or reduce the costs of healthcare. In the US and in other jurisdictions there have been, and we expect that there will continue to be, a number of legislative and regulatory proposals aimed at changing the healthcare system, such as proposals relating to the pricing of healthcare products and services in the US or internationally, the reimportation of drugs into the US from other countries (where they are then sold at a lower price), and the amount of reimbursement available from governmental agencies or other third party payers. For example, drug manufacturers are required to have a national rebate agreement with the Department of Health and Human Services in order to obtain state Medicaid coverage, which requires manufacturers to pay a rebate on drugs dispensed to Medicaid patients.
The Patient Protection and Affordable Care Act and the Healthcare and Education Affordability Reconciliation Act of 2010 (collectively, the “ACA”) may have far-reaching consequences for most healthcare companies, including specialty biopharmaceutical companies like us. For example, if reimbursement for our product candidates is substantially less than we expect, our revenue prospects could be materially and adversely impacted.
Regardless of the impact of the ACA on us, the US government and other governments have shown significant interest in pursuing healthcare reform and reducing healthcare costs. Any government-adopted reform measures could cause significant pressure on the pricing of healthcare products and services, including our product candidates, in the US and internationally, as well as the amount of reimbursement available from governmental agencies and other third-party payers.
In addition, on September 27, 2007, the Food and Drug Administration Amendments Act of 2007 was enacted, giving the FDA enhanced post-market authority, including the authority to require post-marketing studies and clinical trials, labeling changes based on new safety information, and compliance with risk evaluations and mitigation strategies approved by the FDA. The FDA’s exercise of this authority may result in delays or increased costs during the period of product development, clinical trials and regulatory review and approval, which may also increase costs related to complying with new post-approval regulatory requirements, and increase potential FDA restrictions on the sale or distribution of approved products.
If we market products in a manner that violates healthcare fraud and abuse laws, we may be subject to civil or criminal penalties, including exclusion from participation in government healthcare programs.
As a pharmaceutical company, even though we do not provide healthcare services or receive payments directly from or bill directly to Medicare, Medicaid or other third-party payers for our products, certain federal and state healthcare laws and regulations pertaining to fraud and abuse are and will be applicable to our business. We are subject to healthcare fraud and abuse regulation by both the federal government and the states in which we conduct our business.
The laws that may affect our ability to operate include the federal healthcare program anti-kickback statute, which prohibits, among other things, knowingly and willfully offering, paying, soliciting, or receiving remuneration to induce, or in return for, the purchase, lease, order, or arrangement for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid or other federally financed healthcare programs. This statute applies to arrangements between pharmaceutical manufacturers and prescribers, purchasers and formulary managers. Although there are a number of statutory exceptions and regulatory safe harbors protecting certain common activities, the exceptions and safe harbors are drawn narrowly, and practices that involve remuneration intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exception or safe harbor.
Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, or knowingly making, or causing to be made, a false statement to get a false claim paid. Pharmaceutical companies have been prosecuted under these laws for a variety of alleged promotional and marketing activities, such as providing free product to customers with the expectation that the customers would bill federal programs for the product; reporting to pricing services inflated average wholesale prices that were then used by federal programs to set reimbursement rates; engaging in off-label promotion that caused claims to be submitted to Medicaid for non-covered off-label uses; and submitting inflated best price information to the Medicaid Drug Rebate Program.
The Health Insurance Portability and Accountability Act of 1996 also created prohibitions against healthcare fraud and false statements relating to healthcare matters. The healthcare fraud statute prohibits knowingly and willfully executing a scheme to defraud any healthcare benefit program, including private payers. The false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services.

8



In addition, there has been a recent trend of increased federal and state regulation of payments made to physicians. The ACA imposed new requirements on manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to the Centers for Medicare and Medicaid Services (“CMS”) information related to payments or other “transfers of value” made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, and applicable manufacturers and group purchasing organizations to report annually to CMS ownership and investment interests held by physicians (as defined above) and their immediate family members and payments or other “transfers of value” to such physician owners and their immediate family members. Manufacturers are required to report such data to the government by the 90th calendar day of each year.
The majority of states also have statutes or regulations similar to these federal laws, which apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payer. In addition, some states have laws that require pharmaceutical companies to adopt comprehensive compliance programs. For example, under California law, pharmaceutical companies must comply with both the April 2003 Office of Inspector General Compliance Program Guidance for Pharmaceutical Manufacturers and the PhRMA Code on Interactions with Healthcare Professionals, as amended. Certain states also mandate the tracking and reporting of gifts, compensation, and other remuneration paid by us to physicians and other healthcare providers.
Although compliance programs can mitigate the risk of investigation and prosecution for violations of these laws, the risks cannot be entirely eliminated. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. Moreover, achieving and sustaining compliance with applicable federal and state laws may prove costly.
Because of the breadth of these laws and the narrowness of the safe harbors, it is possible that some of our business activities could be subject to challenge under one or more of such laws. The ACA also made several important changes to the federal Anti-Kickback Statute, false claims laws, and healthcare fraud statute by weakening the intent requirement under the anti-kickback and healthcare fraud statutes that may make it easier for the government or whistleblowers to charge such fraud and abuse violations. A person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it. In addition, the ACA provides that the government may assert that a claim including items or services resulting from a violation of the federal anti-kickback statute constitutes a false or fraudulent claim for purposes of the false claims statutes. In addition, the ACA increases penalties for fraud and abuse violations. If our past, present or future operations are found to be in violation of any of the laws described above or other similar governmental regulations to which we are subject, we may be subject to significant civil, criminal and administrative penalties, damages, fines, imprisonment, exclusion from government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and negatively impact our financial results.
If our products do not gain market acceptance, we may be unable to generate significant revenues.
Even if our products are approved for commercialization, they may not be successful in the marketplace. Market acceptance of any of our products will depend on a number of factors, including, but not limited to:
demonstration of clinical efficacy and safety;
the prevalence and severity of any adverse side effects;
limitations or warnings contained in the product’s approved labeling;
availability of alternative treatments for the indications we target;
the advantages and disadvantages of our products relative to current or alternative treatments;
the availability of acceptable pricing and adequate third-party reimbursement; and
the effectiveness of marketing and distribution methods for the products.
If our products do not gain market acceptance among physicians, patients, healthcare payers and others in the medical community, who may not accept or utilize our products, our ability to generate significant revenues from our products would be limited, and our financial condition could be materially adversely affected. In addition, if we fail to further penetrate our core markets and existing geographic markets or to successfully expand our business into new markets, the growth in sales of our products, along with our operating results, could be negatively impacted.
Our ability to further penetrate our core markets and existing geographic markets in which we compete or to successfully expand our business into additional countries in Europe, Asia or elsewhere is subject to numerous factors, many of which are beyond our control. Our products, if successfully developed, may compete with a number of drugs, therapies, products and tests currently manufactured and marketed by major pharmaceutical and other biotechnology companies. Our products may also compete with new products currently under development by others or with products which may be less expensive than our products. There can be no assurance that our efforts to increase market penetration in our core markets and existing geographic markets will be successful. Our failure to do so could have an adverse effect on our operating results and would likely cause a drop in the price of our Common Shares and/or a decline in the value of our other securities.

9



We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications for which there may be a greater likelihood of success.
Because we have limited financial and managerial resources, we are currently focusing our efforts on our lead, clinical-stage development compounds, Zoptrex™ (zoptarelin doxorubicin) and Macrilen™ (macimorelin), and we are doing so for specific indications. As a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications for which there may be a greater likelihood of success or may prove to have greater commercial potential. Notwithstanding our investment to date and anticipated future expenditures on Zoptrex™, Macrilen™ and any earlier-stage programs, we have not yet developed, and may never successfully develop, any marketed treatments using these products. Research programs to identify new product candidates or pursue alternative indications for current product candidates require substantial technical, financial and human resources. These activities may initially show promise in identifying potential product candidates or indications, yet fail to yield product candidates or indications for further clinical development.
We may not achieve our projected development goals in the time-frames we announce and expect.
We set goals and make public statements regarding the timing of the accomplishment of objectives material to our success, such as the commencement, enrollment and anticipated completion of clinical trials, anticipated regulatory submission and approval dates and time of product launch. The actual timing of these events can vary dramatically due to factors such as delays or failures in our clinical trials, the uncertainties inherent in the regulatory approval process and delays in achieving manufacturing or marketing arrangements sufficient to commercialize our products. There can be no assurance that our clinical trials will be completed, that we will make regulatory submissions or receive regulatory approvals as planned or that we will be able to adhere to our current schedule for the launch of any of our products. If we fail to achieve one or more of these milestones as planned, the price of our Common Shares and/or the value of our other securities would likely decline.
If we fail to obtain acceptable prices or adequate reimbursement for our products, our ability to generate revenues will be diminished.
Our ability to successfully commercialize our products will depend significantly on our ability to obtain acceptable prices and the availability of reimbursement to the patient from third-party payers, such as governmental and private insurance plans. These third-party payers frequently require companies to provide predetermined discounts from list prices, and they are increasingly challenging the prices charged for pharmaceuticals and other medical products. Our products may not be considered cost-effective, and reimbursement to the patient may not be available or sufficient to allow us to sell our products on a competitive basis. It may not be possible to negotiate favorable reimbursement rates for our products. Adverse pricing and reimbursement conditions would also likely diminish our ability to induce third parties to co-promote our products.
In addition, the continuing efforts of third-party payers to contain or reduce the costs of healthcare through various means may limit our commercial opportunity and reduce any associated revenue and profits. We expect proposals to implement similar government controls to continue. In addition, increasing emphasis on managed care will continue to put pressure on the pricing of pharmaceutical and biopharmaceutical products. Cost control initiatives could decrease the price that we or any current or potential collaborators could receive for any of our products and could adversely affect our profitability. In addition, in the US, in Canada and in many other countries, pricing and/or profitability of some or all prescription pharmaceuticals and biopharmaceuticals are subject to government control.
If we fail to obtain acceptable prices or an adequate level of reimbursement for our products, the sales of our products would be adversely affected or there may be no commercially viable market for our products.
Competition in our targeted markets is intense, and development by other companies could render our products or technologies non-competitive.
The biopharmaceutical field is highly competitive. New products developed by other companies in the industry could render our products or technologies non-competitive. Competitors are developing and testing products and technologies that would compete with the products that we are developing. Some of these products may be more effective or have an entirely different approach or means of accomplishing the desired effect than our products. We expect competition from pharmaceutical and biopharmaceutical companies and academic research institutions to continue to increase over time. Many of our competitors and potential competitors have substantially greater product development capabilities and financial, scientific, marketing and human resources than we do. Our competitors may succeed in developing products earlier and in obtaining regulatory approvals and patent protection for such products more rapidly than we can or at a lower price.
We may not obtain adequate protection for our products through our intellectual property.
We rely heavily on our proprietary information in developing and manufacturing our product candidates. Our success depends, in large part, on our ability to protect our competitive position through patents, trade secrets, trademarks and other intellectual property rights. The patent positions of pharmaceutical and biopharmaceutical firms, including us, are uncertain and involve complex questions of law and fact for which important legal issues remain unresolved. We have filed and are pursuing applications

10



for patents and trademarks in the US, in Canada and in other territories. Pending patent applications may not result in the issuance of patents and we may not be able to obtain additional issued patents relating to our technology or products.
The laws of some countries do not protect intellectual property rights to the same extent as the laws of the US and Canada. Many companies have encountered significant problems in protecting and defending such rights in foreign jurisdictions. Many countries, including certain countries in Europe, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In addition, many countries limit the enforceability of patents against government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value of the patent. Compulsory licensing of life-saving drugs is also becoming increasingly popular in developing countries either through direct legislation or international initiatives. Such compulsory licenses could be extended to include some of our product candidates, which could limit our potential revenue opportunities. Moreover, the legal systems of certain countries, particularly certain developing countries, do not favor the aggressive enforcement of patent and other intellectual property protection, which makes it difficult to stop infringement.
Our patents and/or the patents that we license from others may be challenged, narrowed, invalidated, held to be unenforceable or circumvented, which could limit our ability to stop competitors from marketing similar products or limit the length of term of patent protection we may have for our products. Changes in either patent laws or in interpretations of patent laws in the US and other countries may diminish the value of our intellectual property or narrow the scope of our patent protection. The patents issued or to be issued to us may not provide us with any competitive advantage or protect us against competitors with similar technology. In addition, it is possible that third parties with products that are very similar to ours will circumvent our patents by means of alternate designs or processes. We may have to rely on method-of-use, methods of manufacture and/or new-formulation protection for our compounds in development, and any resulting products, which may not confer the same protection as claims to compounds per se.
In addition, our patents may be challenged by third parties in patent litigation, which is becoming widespread in the biopharmaceutical industry. There may be prior art of which we are not aware that may affect the validity or enforceability of a patent claim. There may also be prior art of which we are aware, but which we do not believe affects the validity or enforceability of a claim, which may, nonetheless, ultimately be found to affect the validity or enforceability of a claim. No assurance can be given that our patents would, if challenged, be held by a court to be valid or enforceable or that a competitor’s technology or product would be found by a court to infringe our patents. Our granted patents could also be challenged and revoked in US post-grant proceedings as well as in opposition or nullity proceedings in certain countries outside the US.  In addition, we may be required to disclaim part of the term of certain patents.
Patent applications relating to or affecting our business have been filed by a number of pharmaceutical and biopharmaceutical companies and academic institutions. A number of the technologies in these applications or patents may conflict with our technologies, patents or patent applications, and any such conflict could reduce the scope of patent protection which we could otherwise obtain. Because patent applications in the US and many other jurisdictions are typically not published until eighteen months after their first effective filing date, or in some cases not at all, and because publications of discoveries in the scientific literature often lag behind actual discoveries, we cannot be certain that we were the first to make the inventions claimed in issued patents or pending patent applications, or that we were the first to file for protection of the inventions set forth in the patent applications. If a third party has also filed a patent application in the US covering our product candidates or a similar invention, we may have to participate in adversarial proceedings, such as interferences and deviation proceedings, before the United States Patent and Trademark Office to determine which party is entitled to a US patent claiming the disputed invention. The costs of these proceedings could be substantial and it is possible that our efforts could be unsuccessful, resulting in a loss of our US patent position.
We also rely on trade secrets and proprietary know-how to protect our intellectual property. If we are unable to protect the confidentiality of our proprietary information and know-how, the value of our technology and products could be adversely affected. We seek to protect our unpatented proprietary information in part by requiring our employees, consultants, outside scientific collaborators and sponsored researchers and other advisors to enter into confidentiality agreements. These agreements provide that all confidential information developed or made known to the individual during the course of the individual’s relationship with us is to be kept confidential and not disclosed to third parties except in specific circumstances. In the case of our employees, the agreements provide that all of the technology which is conceived by the individual during the course of employment is our exclusive property. These agreements may not provide meaningful protection or adequate remedies in the event of unauthorized use or disclosure of our proprietary information. In addition, it is possible that third parties could independently develop proprietary information and techniques substantially similar to ours or otherwise gain access to our trade secrets. If we are unable to protect the confidentiality of our proprietary information and know-how, competitors may be able to use this information to develop products that compete with our products and technologies, which could adversely impact our business.
We currently have the right to use certain patents and technologies under license agreements with third parties. Our failure to comply with the requirements of one or more of our license agreements could result in the termination of such agreements, which could cause us to terminate the related development program and cause a complete loss of our investment in that program. Inventions

11



claimed in certain in-licensed patents may have been made with funding from the US government and may be subject to the rights of the US government and we may be subject to additional requirements in the event we seek to commercialize or manufacture product candidates incorporating such in-licensed technology.
As a result of the foregoing factors, we may not be able to rely on our intellectual property to protect our products in the marketplace.
Some of our patents have expired or will be expiring in 2016.
The product development timeline for our products is lengthy and it is possible that our issued patents covering our product candidates in the US and other jurisdictions may expire prior to commercial launch of the products. The patent that covers Zoptrex™ and other related targeted cytotoxic anthracycline analogues, pharmaceutical compositions comprising the compounds as well as their medical use for the treatment of cancer expired in the US in November 2015 and will expire in the European Union, Japan, China and Hong Kong in November 2016. We did not apply for patent term extension for this US patent. As a result, our ability to protect this compound from competition will be based on the protections provided in the US for new chemical entities and similar protections, if any, provided in other countries. We cannot assure you that Zoptrex™ or any of our other drug candidates will obtain new chemical entity exclusivity or any other market exclusivity in the US, the European Union or any other territory, or that we will be the first to receive the respective regulatory approval for such drugs so as to be eligible for any market exclusivity protection.
We may infringe the intellectual property rights of others.
Our commercial success depends significantly on our ability to operate without infringing the patents and other intellectual property rights of third parties. There could be issued patents of which we are not aware that our products or methods may be found to infringe, or patents of which we are aware and believe we do not infringe but which we may ultimately be found to infringe. Moreover, patent applications and their underlying discoveries are in some cases maintained in secrecy until patents are issued. Because patents can take many years to issue, there may be currently pending applications of which we are unaware that may later result in issued patents that our products or technologies are found to infringe. Moreover, there may be published pending applications that do not currently include a claim covering our products or technologies but which nonetheless provide support for a later drafted claim that, if issued, our products or technologies could be found to infringe.
If we infringe or are alleged to infringe intellectual property rights of third parties, it will adversely affect our business. Our research, development and commercialization activities, as well as any product candidates or products resulting from these activities, may infringe or be accused of infringing one or more claims of an issued patent or may fall within the scope of one or more claims in a published patent application that may subsequently be issued and to which we do not hold a license or other rights. Third parties may own or control these patents or patent applications in the US and abroad. These third parties could bring claims against us or our collaborators that would cause us to incur substantial expenses and, if successful against us, could cause us to pay substantial damages. Further, if a patent infringement suit were brought against us or our collaborators, we or they could be forced to stop or delay research, development, manufacturing or sales of the product or product candidate that is the subject of the suit.
The biopharmaceutical industry has produced a proliferation of patents, and it is not always clear to industry participants, including us, which patents cover various types of products. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform. In the event of infringement or violation of another party’s patent or other intellectual property rights, we may not be able to enter into licensing arrangements or make other arrangements at a reasonable cost. Any inability to secure licenses or alternative technology could result in delays in the introduction of our products or lead to prohibition of the manufacture or sale of products by us or our partners and collaborators.
Patent litigation is costly and time consuming and may subject us to liabilities.
If we become involved in any patent litigation, interference, opposition or other administrative proceedings we will likely incur substantial expenses in connection therewith, and the efforts of our technical and management personnel will be significantly diverted. In addition, an adverse determination in litigation could subject us to significant liabilities.
We may not obtain trademark registrations for our product candidates.
We have filed applications for trademark registrations in connection with Zoptrex™ and Macrilen™ in various jurisdictions, including the US. We may file applications for other possible trademarks for our product candidates in the future. No assurance can be given that any of our trademarks will be registered in the US or elsewhere, or that the use of any registered or unregistered trademarks will confer a competitive advantage in the marketplace. Furthermore, even if we are successful in our trademark registrations, the FDA and regulatory authorities in other countries have their own process for drug nomenclature and their own views concerning appropriate proprietary names. The FDA and other regulatory authorities also have the power, even after granting market approval, to request a company to reconsider the name for a product because of evidence of confusion in the marketplace. No assurance can be given that the FDA or any other regulatory authority will approve of any of our trademarks or will not request

12



reconsideration of one of our trademarks at some time in the future. The loss, abandonment, or cancellation of any of our trademarks or trademark applications could negatively affect the success of the product candidates to which they relate.
We are currently dependent on certain strategic relationships with third parties and we may enter into future collaborations for the R&D of our product candidates.
We are currently dependent on certain strategic relationships with third parties and may enter into future collaborations for the R&D of our product candidates. Our arrangements with these third parties may not provide us with the benefits we expect and may expose us to a number of risks.
We are dependent on, and rely upon, third parties to perform various functions related to our business, including, but not limited to, R&D with respect to some of our product candidates. Our reliance on these relationships poses a number of risks.
We may not realize the contemplated benefits of such agreements nor can we be certain that any of these parties will fulfill their obligations in a manner which maximizes our revenue. These arrangements may also require us to transfer certain material rights or to issue our equity, voting or other securities to third parties. Any license or sublicense of our commercial rights may reduce our product revenue.
These agreements create certain additional risks. The occurrence of any of the following or other events may delay product development or impair commercialization of our products:
not all of the third parties are contractually prohibited from developing or commercializing, either alone or with others, products and services that are similar to or competitive with our product candidates and, with respect to our contracts that do contain such contractual prohibitions or restrictions, prohibitions or restrictions do not always apply to the affiliates of the third parties and they may elect to pursue the development of any additional product candidates and pursue technologies or products either on their own or in collaboration with other parties, including our competitors, whose technologies or products may be competitive with ours;
the third parties may under-fund or fail to commit sufficient resources to marketing, distribution or other development of our products;
the third parties may cease to conduct business for financial or other reasons;
we may not be able to renew such agreements;
the third parties may not properly maintain or defend certain intellectual property rights that may be important to the commercialization of our products;
the third parties may encounter conflicts of interest, changes in business strategy or other issues which could adversely affect their willingness or ability to fulfill their obligations to us (for example, pharmaceutical companies historically have re-evaluated their priorities following mergers and consolidations, which have been common in recent years in this industry);
delays in, or failures to achieve, scale-up to commercial quantities, or changes to current raw material suppliers or product manufacturers (whether the change is attributable to us or the supplier or manufacturer) could delay clinical studies, regulatory submissions and commercialization of our product candidates; and
disputes may arise between us and the third parties that could result in the delay or termination of the development or commercialization of our product candidates, resulting in litigation or arbitration that could be time-consuming and expensive, or causing the third parties to act in their own self-interest and not in our interest or those of our shareholders or other stakeholders.
In addition, the third parties can terminate our agreements with them for a number of reasons based on the terms of the individual agreements that we have entered into with them. If one or more of these agreements were to be terminated, we would be required to devote additional resources to developing and commercializing our product candidates, seek a new third party with which to contract or abandon the product candidate, which would likely cause a drop in the price of our Common Shares and/or a decline in the value of our other securities.
We rely on third parties to conduct, supervise and monitor our clinical trials, and those third parties may not perform satisfactorily.
We rely on third parties such as CROs, medical institutions and clinical investigators to enroll qualified patients and conduct, supervise and monitor our clinical trials. Our reliance on these third parties for clinical development activities reduces our control over these activities. Our reliance on these third parties, however, does not relieve us of our regulatory responsibilities, including ensuring that our clinical trials are conducted in accordance with Good Clinical Practice guidelines and the investigational plan and protocols contained in an Investigational New Drug application, or a comparable foreign regulatory submission. Furthermore, these third parties may also have relationships with other entities, some of which may be our competitors. In addition, they may not complete activities on schedule, or may not conduct our preclinical studies or clinical trials in accordance with regulatory requirements or our trial design. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, our efforts to obtain regulatory approvals for, and to commercialize, our product candidates may be delayed or prevented.

13



In carrying out our operations, we are dependent on a stable and consistent supply of ingredients and raw materials.
There can be no assurance that we, our contract manufacturers or our licensees, will be able, in the future, to continue to purchase products from our current suppliers or any other supplier on terms similar to current terms or at all. An interruption in the availability of certain raw materials or ingredients, or significant increases in the prices we pay for them, could have a material adverse effect on our business, financial condition, liquidity and operating results.
The failure to perform satisfactorily by third parties upon which we expect to rely to manufacture and supply products may lead to supply shortfalls.
We expect to rely on third parties to manufacture and supply marketed products. We also have or may have certain supply obligations vis-à-vis our existing and potential licensees, who are or will be responsible for the marketing of the products. To be successful, our products have to be manufactured in commercial quantities in compliance with quality controls and regulatory requirements. Even though it is our objective to minimize such risk by introducing alternative suppliers to ensure a constant supply at all times, there are a limited number of contract manufacturers or suppliers that are capable of manufacturing our product candidates or the materials used in their manufacture. If we are unable to do so ourselves or to arrange for third-party manufacturing or supply of these product candidates or materials, or to do so on commercially reasonable terms, we may not be able to complete development of these product candidates or commercialize them ourselves or through our licensees. Reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured products ourselves, including reliance on the third party for regulatory compliance, the possibility of breach of the manufacturing agreement by the third party because of factors beyond our control, and the possibility of termination or non-renewal of the agreement by the third party, based on its own business priorities, at a time that is costly or inconvenient for us.
We are subject to intense competition for our skilled personnel, and the loss of key personnel or the inability to attract additional personnel could impair our ability to conduct our operations.
We are highly dependent on our management and our clinical, regulatory and scientific staff, the loss of whose services might adversely impact our ability to achieve our objectives. Recruiting and retaining qualified management and clinical, scientific and regulatory personnel is critical to our success. Reductions in our staffing levels have eliminated redundancies in key capabilities and skill sets among our full-time staff and required us to rely more heavily on outside consultants and third parties. We have been unable to increase the compensation of our associates to the extent required to remain fully competitive for their services, which increased our employee retention risk. The competition for qualified personnel in the biopharmaceutical field is intense, and if we are not able to continue to attract and retain qualified personnel and/or maintain positive relationships with our outside consultants, we may not be able to achieve our strategic and operational objectives.
We are currently subject to securities class action litigation and we may be subject to similar or other litigation in the future.
We and certain of our current and former officers are defendants in a purported class-action lawsuit pending in the US District Court for the District of New Jersey (the “Court”), brought on behalf of shareholders of the Company. The lawsuit alleges violations of the Securities Exchange Act of 1934 (the “Exchange Act”) in connection with allegedly false and misleading statements made by the defendants between April 2, 2012 and November 6, 2014, or the Class Period, regarding the safety and efficacy of Macrilen™, a product we developed for use in the diagnosis of AGHD, and the prospects for the approval of the Company’s NDA for the product by the FDA. The plaintiffs seek to represent a class comprised of purchasers of our Common Shares during the Class Period and seek damages, costs and expenses and such other relief as determined by the Court. On September 14, 2015, the Court dismissed the lawsuit stating that the plaintiffs failed to state a claim, but granted the plaintiffs leave to amend. On October 14, 2015, the plaintiffs filed a Second Amended Complaint against us. We filed a motion to dismiss the Second Amended Complaint on November 11, 2015, because we believe that the Second Amended Complaint also fails to state a claim. The hearing of the motion to dismiss the Second Amended Complaint occurred on January 19, 2016.
On March 2, 2016, the Court issued an order granting our motion to dismiss the complaint in part and denying it in part.  The Court dismissed certain of our current and former officers from the lawsuit.  The Court allowed the claim that we omitted material facts from our public statements during the Class Period to proceed against us and our former CEO who departed in 2013, while dismissing such claims against other current and former officers.  The Court also allowed a claim for “controlling person” liability to proceed against certain current and former officers.  We disagree with the Court's decision and we filed a motion for reconsideration on March 16, 2016.
While we believe we have meritorious defenses and intend to continue to defend this lawsuit vigorously, we cannot predict the outcome. Furthermore, we may, from time to time, be parties to other litigation in the normal course of business. Monitoring and defending against legal actions, whether or not meritorious, is time-consuming for our management and detracts from our ability to fully focus our internal resources on our business activities. In addition, legal fees and costs incurred in connection with such activities may be significant and we could, in the future, be subject to judgments or enter into settlements of claims for significant monetary damages. A decision adverse to our interests could result in the payment of substantial damages and could have a material adverse effect on our cash flow, results of operations and financial position.

14



With respect to any litigation, our insurance may not reimburse us or may not be sufficient to reimburse us for the expenses or losses we may suffer in contesting and concluding such lawsuit. Substantial litigation costs or an adverse result in any litigation may adversely impact our business, operating results or financial condition. We believe that our directors’ and officers’ liability insurance will cover our potential liability with respect to the securities class-action lawsuit described above; however, the insurer has reserved its rights to contest the applicability of the insurance to such claim, the limits of the insurance may be insufficient to cover our eventual liability, and we will be required to satisfy a substantial self-insured retention before any insurance coverage applies to the claim.
We are subject to the risk of product liability claims, for which we may not have or be able to obtain adequate insurance coverage.
The use of Zoptrex™ and Macrilen™ on human participants in our clinical trials subjects us to the risk of liability to such participants, who may suffer unintended consequences. If Zoptrex™ and/or Macrilen™ are approved for commercialization or if we acquire a marketed product from a third party, the sale and use of such products will involve the risk of product liability claims and associated adverse publicity. Product liability claims might be made against us directly by patients, healthcare providers or pharmaceutical companies or others selling, buying or using our products. We attempt to manage our liability risks by means of insurance. We maintain insurance covering our liability for our preclinical and clinical studies. However, we may not have or be able to obtain or maintain sufficient and affordable insurance coverage, including coverage for potentially very significant legal expenses, and without sufficient coverage any claim brought against us could have a materially adverse effect on our business, financial condition or results of operations. We do not currently maintain product liability insurance because we do not currently market, sell, distribute or handle any products. We may not be able to obtain product liability insurance on reasonable terms, if at all, when we begin to market, sell, distribute or handle products.
Our business involves the use of hazardous materials. We are required to comply with environmental and occupational safety laws regulating the use of such materials. If we violate these laws, we could be subject to significant fines, liabilities or other adverse consequences.
Our discovery and development processes involve the controlled use of hazardous materials. We are subject to federal, provincial and local laws and regulations governing the use, manufacture, storage, handling and disposal of such materials and certain waste products. The risk of accidental contamination or injury from these materials cannot be completely eliminated. In the event of an accident or a failure to comply with environmental or occupational safety laws, we could be held liable for any damages that result, and any such liability could exceed our resources. We may not be adequately insured against this type of liability. We may be required to incur significant costs to comply with environmental laws and regulations in the future, and our operations, business or assets may be materially adversely affected by current or future environmental laws or regulations.
We are a holding company, and claims of creditors of our subsidiaries will generally have priority as to the assets of such subsidiaries over our claims and those of our creditors and shareholders.
Aeterna Zentaris Inc. is a holding company and a substantial portion of our non-cash assets is the share capital of our subsidiaries. AEZS Germany, our principal operating subsidiary, based in Frankfurt, Germany, holds most of our intellectual property rights, which represent the principal non-cash assets of our business.
Because Aeterna Zentaris Inc. is a holding company, our obligations to our creditors are structurally subordinated to all existing and future liabilities of our subsidiaries. Therefore, our rights and the rights of our creditors to participate in any distribution of the assets of any subsidiary in the event that such subsidiary were to be liquidated or reorganized or in the event of any bankruptcy or insolvency proceeding relating to or involving such subsidiary, and therefore the rights of the holders of our Common Shares to participate in those assets, are subject to the prior claims of such subsidiary’s creditors. To the extent that we may be a creditor with recognized claims against any such subsidiary, our claims would still be subject to the prior claims of our subsidiary’s creditors to the extent that they are secured or senior to those held by us.
Holders of our Common Shares are not creditors of our subsidiaries. Claims to the assets of our subsidiaries will derive from our own ownership interest in those operating subsidiaries. Claims of our subsidiaries’ creditors will generally have priority as to the assets of such subsidiaries over our own ownership interest claims and will therefore have priority over the holders of our Common Shares. Our subsidiaries’ creditors may from time to time include general creditors, trade creditors, employees, secured creditors, taxing authorities, and creditors holding guarantees. Accordingly, in the event of any foreclosure, dissolution, winding-up, liquidation or reorganization, or a bankruptcy or insolvency proceeding relating to us or our property, or any subsidiary, there can be no assurance as to the value, if any, that would be available to holders of our Common Shares.
In addition, any distributions to us by our subsidiaries could be subject to monetary transfer restrictions in the jurisdictions in which our subsidiaries operate.
Our subsidiaries may incur additional indebtedness and other liabilities.

15



It may be difficult for US investors to obtain and enforce judgments against us because of our Canadian incorporation and German presence.
We are a company existing under the laws of Canada. A number of our directors and officers, and certain of the experts named herein, are residents of Canada or otherwise reside outside the US, and all or a substantial portion of their assets, and a substantial portion of our assets, are located outside the US. Consequently, although we have appointed an agent for service of process in the US, it may be difficult for investors in the US to bring an action against such directors, officers or experts or to enforce against those persons or us a judgment obtained in a US court predicated upon the civil liability provisions of federal securities laws or other laws of the US.  Investors should not assume that foreign courts (1) would enforce judgments of US courts obtained in actions against us or such directors, officers or experts predicated upon the civil liability provisions of the US federal securities laws or the securities or “blue sky” laws of any state within the US or (2) would enforce, in original actions, liabilities against us or such directors, officers or experts predicated upon the US federal securities laws or any such state securities or “blue sky” laws. In addition, we have been advised by our Canadian counsel that in normal circumstances, only civil judgments and not other rights arising from US securities legislation (for example, penal or similar awards made by a court in a regulatory prosecution or proceeding) are enforceable in Canada and that the protections afforded by Canadian securities laws may not be available to investors in the US.
We are subject to various internal control reporting requirements under applicable Canadian securities laws and the Sarbanes-Oxley Act in the US. We can provide no assurance that we will at all times in the future be able to report that our internal controls over financial reporting are effective.
As a public company, we are required to comply with Section 404 of the US Sarbanes-Oxley Act (“Section 404”) and National Instrument 52-109 - Certification of Disclosure in Issuers’ Annual and Interim Filings. In any given year, we cannot be certain as to the time of completion of our internal control evaluation, testing and remediation actions or of their impact on our operations. Upon completion of this process, we may identify control deficiencies of varying degrees of severity under applicable SEC and Public Company Accounting Oversight Board (US) rules and regulations. As a public company, we are required to report, among other things, control deficiencies that constitute material weaknesses or changes in internal controls that, or that are reasonably likely to, materially affect internal controls over financial reporting. A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual consolidated financial statements will not be prevented or detected on a timely basis. If we fail to comply with the requirements of Section 404, similar Canadian requirements or if we report a material weakness, we might be subject to regulatory sanction and investors may lose confidence in our consolidated financial statements, which may be inaccurate if we fail to remedy such material weakness.
We believe we were a passive foreign investment company for the 2015 taxable year and we may be a passive foreign investment company for the 2016 taxable year, which could result in adverse tax consequences to US investors.
Adverse US federal income tax rules apply to “US Holders” (as defined in “Item 10.E - Taxation - Certain Material US Federal Income Tax Considerations” in this Annual Report on Form 20-F) who directly or indirectly hold common shares of a passive foreign investment company (“PFIC”). We will be classified as a PFIC for US federal income tax purposes for a taxable year if (i) at least 75% of our gross income is “passive income” or (ii) at least 50% of the average value of our assets, including goodwill (based on annual quarterly average), is attributable to assets which produce passive income or are held for the production of passive income.
We believe we were a PFIC for the 2015 taxable year. The PFIC determination depends on the application of complex US federal income tax rules concerning the classification of our assets and income for this purpose, and these rules are uncertain in some respects. In addition, the fair market value of our assets may be determined in large part by the market price of our Common Shares, which is likely to fluctuate, and the composition of our income and assets will be affected by how, and how quickly, we spend any cash that is raised in any financing transaction. No assurance can be provided that we will not be classified as a PFIC for any future taxable year.
Since we believe we were a PFIC in 2015, US Holders may suffer adverse US federal income tax consequences. In particular, absent certain elections, a US Holder would generally be subject to US federal income tax at ordinary income tax rates, plus a possible interest charge, in respect of a gain derived from a disposition of our Common Shares, as well as certain distributions by us. A US Holder may be able to minimize the adverse tax consequences by making an election to "mark to market" Common Shares each taxable year and recognize ordinary income pursuant to such election based upon increases in the value of the Common Shares. In addition, US Holders may mitigate the adverse tax consequences of the PFIC rules by making a "qualified electing fund" ("QEF") election. We will endeavor to satisfy the record keeping requirements that apply to a QEF and to supply requesting US Holders with the information that such US Holders are required to report under the QEF rules. However, there can be no assurance that we will satisfy the record keeping requirements or provide the information required to be reported by US Holders.

16



In addition, if we are a PFIC, US Holders will generally be required to file an annual information return with the Internal Revenue Service (the “IRS”) (on IRS Form 8621, which PFIC shareholders will be required to file with their US federal income tax or information returns) relating to their ownership of Common Shares.
For a more detailed discussion of the potential tax impact of us being a PFIC, see “Item 10.E - Taxation - Certain Material US Federal Income Tax Considerations” in this Annual Report on Form 20-F. The PFIC rules are complex. US Holders should consult their tax advisors regarding the potential application of the PFIC regime and any reporting obligations to which they may be subject under that regime.
We may incur losses associated with foreign currency fluctuations.
Our operations are in many instances conducted in currencies other than our functional currency or the functional currencies of our subsidiaries. Fluctuations in the value of currencies could cause us to incur currency exchange losses. We do not currently employ a hedging strategy against exchange rate risk. We cannot assert with any assurance that we will not suffer losses as a result of unfavorable fluctuations in the exchange rates between the US dollar, the euro, the Canadian dollar and other currencies.
Legislative actions, new accounting pronouncements and higher insurance costs may adversely impact our future financial position or results of operations.
Changes in financial accounting standards or implementation of accounting standards may cause adverse, unexpected revenue or expense fluctuations and affect our financial position or results of operations. New pronouncements and varying interpretations of pronouncements have occurred with greater frequency and are expected to occur in the future, and we may make or be required to make changes in our accounting policies in the future. Compliance with changing regulations of corporate governance and public disclosure, notably with respect to internal controls over financial reporting, may result in additional expenses. Changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for companies such as ours, and insurance costs are increasing as a result of this uncertainty.
Security breaches may disrupt our operations and adversely affect our operating results.
Our network security and data recovery measures and those of third parties with which we contract, may not be adequate to protect against computer viruses, cyber-attacks, break-ins, and similar disruptions from unauthorized tampering with our computer systems. The misappropriation, theft, sabotage or any other type of security breach with respect to any of our proprietary and confidential information that is electronically stored, including research or clinical data, could cause interruptions in our operations, could result in a material disruption of our clinical activities and business operations and could expose us to third-party legal claims. Furthermore, we could be required to make substantial expenditures of resources to remedy the cause of cyber attacks or break-ins. This disruption could have a material adverse impact on our business, operating results and financial condition. Additionally, any break-in or trespass of our facilities that results in the misappropriation, theft, sabotage or any other type of security breach with respect to our proprietary and confidential information, including research or clinical data, or that results in damage to our R&D equipment and assets could have a material adverse impact on our business, operating results, and financial condition.
Risks Relating to our Common Shares
Our Common Shares may be delisted from NASDAQ or TSX, which could affect their market price and liquidity. If our Common Shares were to be delisted, investors may have difficulty in disposing of their shares.
Our Common Shares are currently listed on NASDAQ under the symbol “AEZS” and on TSX under the symbol “AEZ”. We must meet continuing listing requirements to maintain the listing of our Common Shares on NASDAQ and TSX. For continued listing, NASDAQ requires, among other things, that listed securities maintain a minimum closing bid price of not less than $1.00 per share. There can be no assurance that the market price of our Common Shares will not fall below $1.00 in the future or that, if it does, we will regain compliance with the minimum bid price requirement.
In addition to the minimum bid price requirement, the continued listing rules of NASDAQ require us to meet at least one of the following listing standards: (i) stockholders’ equity of at least $2.5 million, (ii) market value of listed securities (calculated by multiplying the daily closing bid price of our Common Shares by our total outstanding Common Shares) of at least $35 million or (iii) net income from continuing operations (in the latest fiscal year or in two of the last three fiscal years) of at least $500,000 (collectively, the “Additional Listing Standards”). If we fail to meet at least one of the Additional Listing Standards, our securities may be subject to delisting after the expiration of the period of time, if any, that we are allowed for regaining compliance.
There can be no assurance that our Common Shares will remain listed on NASDAQ or TSX. If we fail to meet any of NASDAQ’s or TSX’s continued listing requirements, our Common Shares may be delisted. Any delisting of our Common Shares may adversely affect a shareholder’s ability to dispose, or obtain quotations as to the market value, of such shares.

17



Our share price is volatile, which may result from factors outside of our control.
Our valuation and share price since the beginning of trading after our initial listings, first in Canada and then in the US, have had no meaningful relationship to current or historical financial results, asset values, book value or many other criteria based on conventional measures of the value of shares.
As adjusted for and giving effect to the Share Consolidation, between January 1, 2015 and December 31, 2015, the closing price of our Common Shares ranged from $4.00 to $84.20 per share on NASDAQ and from C$ 5.39 to C$ 104.00 per share on TSX. Our share price may be affected by developments directly affecting our business and by developments out of our control or unrelated to us. The stock market generally, and the biopharmaceutical sector in particular, are vulnerable to abrupt changes in investor sentiment. Prices of shares and trading volume of companies in the biopharmaceutical industry can swing dramatically in ways unrelated to, or that bear a disproportionate relationship to, operating performance. Our share price and trading volume may fluctuate based on a number of factors including, but not limited to:
clinical and regulatory developments regarding our product candidates;
delays in our anticipated development or commercialization timelines;
developments regarding current or future third-party collaborators;
announcements by us regarding technological, product development or other matters;
arrivals or departures of key personnel;
governmental or regulatory action affecting our product candidates and our competitors’ products in the US, Canada and other countries;
developments or disputes concerning patent or proprietary rights;
actual or anticipated fluctuations in our revenues or expenses;
general market conditions and fluctuations for the emerging growth and biopharmaceutical market sectors; and
economic conditions in the US, Canada or abroad.
Our listing on both NASDAQ and TSX may increase price volatility due to various factors, including different ability to buy or sell our Common Shares, different market conditions in different capital markets and different trading volumes. In addition, low trading volume may increase the price volatility of our Common Shares. A thin trading market could cause the price of our Common Shares to fluctuate significantly more than the stock market as a whole.
We do not intend to pay dividends in the near future.
To date, we have not declared or paid any dividends on our Common Shares. We currently intend to retain our future earnings, if any, to finance further research and the overall commercial expansion of our business. As a result, the return on an investment in our Common Shares will depend upon any future appreciation in value. There is no guarantee that our Common Shares or any of our other securities will appreciate in value or even maintain the price at which shareholders have purchased them.
Future issuances of securities and hedging activities may depress the trading price of our Common Shares.
Any additional or future issuance of Common Shares or Convertible Securities, including the issuance of Common Shares upon the exercise of stock options and upon the exercise of warrants, could dilute the interests of our existing shareholders, and could substantially decrease the trading price of our Common Shares. We may issue equity securities in the future for a number of reasons, including to finance our operations and business strategy, to satisfy our obligations upon the exercise of options or warrants or for other reasons. Our Stock Option Plan generally permits us to have outstanding, at any given time, stock options that are exercisable for a maximum number of Common Shares equal to 11.4% of all then issued and outstanding Common Shares. As at March 29, 2016, there were:
9,928,697 Common Shares issued and outstanding;
no issued and outstanding Preferred Shares;
2,842,309 Common Shares issuable upon exercise of outstanding warrants (excluding any exercises of Series B Warrants under the alternate cashless exercise feature of such warrants); and
275,041 stock options outstanding.
In addition, the price of Common Shares could also be affected by possible sales of Common Shares by investors who view other investment vehicles as more attractive means of equity participation in us and by hedging or arbitrage trading activity that may develop involving our Common Shares. This hedging or arbitrage could, in turn, affect the trading price of our Common Shares.
We believe that there is a reasonable likelihood that we may lose our foreign private issuer status as of June 30, 2016, which would require us to comply with the Exchange Act’s domestic reporting regime and cause us to incur additional legal, accounting and other expenses.
In order to maintain our current status as a foreign private issuer, either (1) a majority of our common shares must not be either directly or indirectly owned of record by residents of the US or (2) (a) a majority of our executive officers and of our directors must not be US citizens or residents, (b) more than 50 percent of our assets cannot be located in the US and (c) our business must

18



be administered principally outside the US. We believe that there is a reasonable likelihood that we may lose our foreign private issuer status when it is next reassessed as of June 30, 2016.  If we lose this status, we would be required to comply with the Exchange Act reporting and other requirements applicable to US domestic issuers, which are more detailed and extensive than the requirements for foreign private issuers. We may also be required to make changes in our corporate governance practices in accordance with various SEC rules and NASDAQ listing standards. The regulatory and compliance costs to us of complying with the reporting requirements applicable to a US domestic issuer under US securities laws may be higher than the cost we have historically incurred as a foreign private issuer. In addition, if we lose our foreign private issuer status, we would no longer qualify under the Canada-US multijurisdictional disclosure system to benefit from being able to file registration statements on Form F-10, which could make it longer and more difficult to register our securities and raise funds by way of public, registered offerings in the US, and we would become subject to “baby shelf” rules that place limitations on our ability to issue an amount of securities above a certain threshold depending on our market capitalization and public float at a given point in time.  As a result, we expect that a loss of foreign private issuer status may increase our legal and financial compliance costs, and it is difficult at this time to estimate by how much our legal and financial compliance costs may increase.
Our articles of incorporation contain “blank check” preferred share provisions, which could delay or impede an acquisition of our company.
Our articles of incorporation, as amended, authorize the issuance of an unlimited number of “blank check” Preferred Shares, which could be issued by our board of directors without shareholder approval and which may contain liquidation, dividend and other rights equivalent or superior to our Common Shares. In addition, we have implemented in our constating documents an advance notice procedure for shareholder approvals to be brought before an annual meeting of our shareholders, including proposed nominations of persons for election to our board of directors. These provisions, among others, whether alone or together, could delay or impede hostile takeovers and changes in control or changes in our management. Any provision of our constating documents that has the effect of delaying or deterring a change in control could limit the opportunity for our shareholders to receive a premium for their Common Shares and could also affect the price that some investors are willing to pay for our Common Shares.
Our business could be negatively affected as a result of the actions of activist shareholders.
Proxy contests have been waged against many companies in the biopharmaceutical industry over the last few years. If faced with a proxy contest, we may not be able to successfully respond to the contest, which would be disruptive to our business. Even if we are successful, our business could be adversely affected by a proxy contest because:
responding to proxy contests and other actions by activist shareholders may be costly and time‑consuming, and may disrupt our operations and divert the attention of management and our employees;
perceived uncertainties as to the potential outcome of any proxy contest may result in our inability to consummate potential acquisitions, collaborations or in‑licensing opportunities and may make it more difficult to attract and retain qualified personnel and business partners; and
if individuals that have a specific agenda different from that of our management or other members of our board of directors are elected to our board as a result of any proxy contest, such an election may adversely affect our ability to effectively and timely implement our strategic plan and to create value for our shareholders.
Item 4.
Information on the Company
A.
History and development of the Company
We are a specialty biopharmaceutical company engaged in developing and commercializing novel treatments in oncology, endocrinology and women’s health.
We were incorporated on September 12, 1990 under the Canada Business Corporations Act (the "CBCA") and continue to be governed by the CBCA. Our registered address is located at 1 Place Ville Marie, Suite 2500, Montréal, Quebec, Canada H3B 1R1, c/o Norton Rose Fulbright Canada LLP. Our executive offices are located at 315 Sigma Drive, Suite 302D, Summerville, South Carolina 29483; our telephone number is (843) 900-3223 and our website is www.aezsinc.com. None of the documents or information found on our website shall be deemed to be included in or incorporated by reference into this Annual Report on Form 20-F, unless such document is specifically incorporated herein by reference.
On December 30, 2002, we acquired Zentaris AG, a biopharmaceutical company based in Frankfurt, Germany. Zentaris was a spin-off of Asta Medica GmbH, a former pharmaceutical company affiliated with Degussa AG.
In May 2004, we changed our name to Aeterna Zentaris Inc. and on May 11, 2007, Zentaris GmbH was renamed Aeterna Zentaris GmbH. Aeterna Zentaris GmbH conducts our drug development efforts. In September 2007, we incorporated Aeterna Zentaris, Inc. under the laws of Delaware. This wholly-owned subsidiary, which is based in the Charleston, South Carolina area, conducts our commercial operations.

19



On October 1, 2013, we announced the completion of our previously announced agreements with various partners and licensees
with respect to the manufacturing rights and obligations for our Cetrotide® product. The principal outcome of such agreements was the transfer of all manufacturing rights and the grant of a license to a subsidiary of Merck KGaA of Darmstadt, Germany for the manufacture, testing, assembling, packaging, storage and release of Cetrotide® in all territories (the "Cetrotide® Business"). Following this transfer, the Cetrotide® Business has been presented in our consolidated financial statements as a discontinued operation. Except for this discontinued operation, we have not made any material divestitures or capital expenditures from 2013 to present.
On November 17, 2015, we effected a 100-to-1 Share Consolidation (reverse stock split). Our Common Shares commenced trading on a consolidated and adjusted basis on both NASDAQ and TSX on November 20, 2015.
We currently have three wholly-owned direct and indirect subsidiaries, AEZS GmbH, based in Frankfurt, Germany; Zentaris IVF GmbH, a direct wholly-owned subsidiary of AEZS Germany based in Frankfurt, Germany; and Aeterna Zentaris, Inc., an entity incorporated in the State of Delaware with an office in the Charleston, South Carolina area in the United States.
 
 
 
 
Aeterna Zentaris Inc.
(Canada)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
100%
 
 
100%
 
 
 
 
Aeterna Zentaris GmbH
(Germany)
 
Aeterna Zentaris, Inc.
(Delaware)
 
 
 
 
 
 
 
 
100%
 
 
 
 
 
Zentaris IVF GmbH
(Germany)
 
 
 
 
 
 
 
 
 

Our Common Shares are listed for trading on the TSX under the trading symbol "AEZ" and on NASDAQ under the trading symbol "AEZS".
Our agent for service of process and SEC matters in the United States is our wholly-owned subsidiary, Aeterna Zentaris, Inc., located at 315 Sigma Drive, Suite 302D, Summerville, South Carolina 29483.
There have been no public takeover offers by third parties with respect to us or by us in respect of other companies' shares during the last or current fiscal year.
Recent Developments
For a complete description of our recent corporate and pipeline developments, refer to "Item 5. - Operating and Financial Review and Prospects - Key Developments".
B.
Business overview
We are engaged in drug development activities and in the promotion of products for others. We are now conducting Phase 3 studies of two internally developed compounds. The focus of our business development efforts is the acquisition or license of products that are relevant to our therapeutic areas of focus. We also intend to license out certain commercial rights of internally developed products to licensees in territories where such out-licensing would enable us to ensure development, registration and launch of our product candidates. Our goal is to become a growth-oriented specialty biopharmaceutical company by pursuing successful development and commercialization of our product portfolio and by achieving successful commercial presence and growth, while consistently delivering value to our shareholders, employees and the medical providers and patients who will benefit from our products.

20



Our Business Strategy
Our primary business strategy is to pursue the development of our principal product candidates -- Zoptrex™ (zoptarelin doxorubicin) and Macrilen™ (macimorelin) in oncology and endocrinology, respectively -- and to commercialize oncology, endocrinology and women's health products that we may acquire, in-license or promote. Our vision is to become a growth-oriented specialty biopharmaceutical company.
Overview of our Drug Development Efforts
Our product pipeline
(1)
Phase 2 in ovarian cancer completed.
(2)
Investigator-driven and sponsored Phase 2 trial in castration and taxane resistant prostate cancer completed.
(3)
Potential oral prostate cancer vaccine available for co-development/out-licensing, subject to an option granted to a third party.
(4)
Available for co-development/out-licensing.
(5)
Compound library transferred to Medical University of South Carolina. Aeterna Zentaris has access to future potential development candidates.
Our drug development efforts are focused currently on two compounds, Zoptrex™ and Macrilen™, which are in Phase 3 clinical development, and on a LHRH-disorazol Z conjugate (AEZS-138), which is in pre-clinical development in oncology and is available for partnering. We made the decision to focus our efforts in pre-clinical development on one compound following a review of our portfolio, during which we concluded that we lack the resources to pursue other earlier-stage opportunities. As a result of this decision, we discontinued drug discovery efforts, including basic research activities in medicinal chemistry and biology and our high-throughput-screening operations, which resulted in a reduction of our research and development staff by approximately 29 personnel during 2014.
Zoptrex™
Overview
Zoptrex™ represents a new targeting concept in oncology using a hybrid molecule composed of a synthetic peptide carrier, zoptarelin, and a well-known chemotherapy agent, doxorubicin, resulting in a cytotoxic conjugate. Most chemotherapeutic agents, including doxorubicin, are toxic to normally growing, healthy cells as well as to tumor cells that grow uncontrolled. Therefore, a method for targeting such drugs specifically to cancerous tissue offers a potential benefit for patients with tumors, and particularly with advanced or metastatic tumors.

21



The illustration above depicts the believed mode of action of our hybrid cytotoxic compound Zoptrex™. The LHRH receptor targeting part of the hybrid is believed to transport doxorubicin to a cancer cell presenting the LHRH receptor, which leads to the death of this cancer cell.
Zoptrex™ is the first intravenous drug in advanced clinical development that is considered to direct the chemotherapy agent specifically to LHRH-receptor expressing tumors, which then could result in a more targeted treatment with less damage to healthy tissue. This design is believed to allow for the specific binding and selective uptake of the cytotoxic conjugate by LHRH receptor-positive tumors. Potential benefits of this targeted approach include better efficacy and a more favorable safety profile with lower incidence and severity of side effects as compared to doxorubicin. In addition, the targeted approach may enable treatment of LHRH receptor-positive cancers that have become resistant to doxorubicin.
We are conducting a pivotal Phase 3 clinical study of Zoptrex™ in women with locally advanced, recurrent or metastatic endometrial cancer who have progressed and who have received one chemotherapeutic regimen with platinum and taxane (either as adjuvant or first-line treatment). The clinical study is known as the “ZoptEC” study (zoptarelin doxorubicin in endometrial cancer). ZoptEC is a fully-recruited (over 500 patients), open-label, randomized-controlled study, comparing the efficacy and safety of Zoptrex™ to doxorubicin alone. Patients are centrally randomized in a 1:1 ratio and receive either Zoptrex™ (267 mg/m2) or doxorubicin (60 mg/m2) intravenously, every three weeks and for up to nine cycles. Response is being evaluated every three cycles during treatment and thereafter every 12 weeks until progression.
We are conducting ZoptEC under a Special Protocol Assessment (“SPA”) with the FDA. The SPA agreement states that the proposed trial protocol design, clinical endpoints and planned analyzes are acceptable to the FDA to support a regulatory submission. Final marketing approval depends on the results of efficacy, the adverse event profile and an evaluation of the benefit/risk of treatment demonstrated in ZoptEC. The primary efficacy endpoint of the ZoptEC trial is improvement in median Overall Survival (“OS”). Secondary endpoints include progression-free survival, objective response rate and clinical benefit rate.
On October 13, 2015, we announced that the independent Data and Safety Monitoring Board (“DSMB”) appointed to monitor ZoptEC recommended that ZoptEC continue as planned to completion. The DSMB's decision followed completion of its pre- specified second interim analysis on efficacy and safety for ZoptEC at approximately 192 events. In April 2015, the DSMB made the same recommendation following its first pre-specified analysis on safety and futility at approximately 124 events. A final analysis of the data is expected at approximately 384 events.
ZoptEC is being conducted by Ergomed plc, a contract clinical development organization with which we have entered into a co-development and profit-sharing agreement. Under the terms of the agreement, Ergomed has agreed to assume 30% (up to $10 million) of the clinical and regulatory costs for ZoptEC, which are estimated at approximately $32.5 million. Ergomed will receive

22



its return on investment based on an agreed single-digit percentage of any net income or net proceeds from licensing activity we receive for Zoptrex™ in this indication, up to a specified maximum amount.
We are attempting to commercialize Zoptrex™ as a treatment for endometrial cancer because, according to the American Cancer Society, endometrial cancer is the most common invasive gynecologic cancer in women in the United States, with approximately 50,000 new cases annually. This disease primarily affects postmenopausal women at an average age of 60 years at diagnosis. In the United States, it is estimated that approximately 8,000 women will die of endometrial cancer annually. To the best of our knowledge, there is also no systemic therapy approved in either the United States or Europe (except Germany, where doxorubicin is approved for this indication) for treating advanced or recurrent endometrial cancer.
We expect to complete the ZoptEC trial in the third quarter of 2016 and, if the results of the trial warrant doing so, to file a new drug application ("NDA") in the United States for Zoptrex™ in 2017. We are now moving forward with our planning to commercialize Zoptrex™, looking toward commercial launch of the product in 2018, assuming positive Phase 3 results and that the NDA is granted.
Development History
The following is a summary of the history of our development of Zoptrex™ in ovarian and endometrial cancer:
In 2007, a Phase 2 open-label, non-comparative, multicenter two-indication trial stratified with two stages Simon Design was prepared. The study was planned to involve up to 82 patients, with up to 41 patients each with a diagnosis of platinum-resistant ovarian cancer (stratum A) or disseminated endometrial cancer (stratum B). Under coordination by Prof. Günter Emons, M.D., Chairman of the Department of Obstetrics & Gynecology at the University of Göttingen, Germany, this open-label, multicenter and multinational Phase 2 study “AGO-GYN 5” was conducted by the German AGO Study Group (Arbeitsgemeinschaft Gynäkologische Onkologie / Gynaecological Oncology Working Group), in cooperation with clinical sites in Europe. An intravenous infusion of Zoptrex™ (267 mg/m2) was administered on every first day of a 21-day (three-week) cycle. The proposed duration of the study treatment was six cycles. The study was performed with 14 centers of the German Gynaecological Oncology Working Group, in cooperation with three clinical sites in Europe. The primary efficacy endpoint was a response rate with a success criterion at the end of Stage II defined as five or more patients with partial or complete tumor responses according to Response Evaluation Criteria in Solid Tumors (“RECIST”) and/or Gynaecologic Cancer Intergroup (“GCIG”) guidelines. Secondary endpoints included time to progression (“TTP”), survival and toxicity, as well as adverse effects. In October 2008, we announced that we had entered the second stage of patient recruitment for the Phase 2 trial in the platinum-resistant ovarian cancer indication. This decision was taken following the report of two partial responses (“PR”) among patients with ovarian cancer. The second stage of patient recruitment for the endometrial cancer indication was reached in November 2008 and was based on the report of one complete response (“CR”) and two PR among 14 patients with endometrial cancer.
On June 7, 2010, Prof. Emons initially presented positive efficacy and safety data for Zoptrex™ in ovarian cancer at the American Society of Clinical Oncology’s (“ASCO”) Annual Meeting, now published in an article entitled "Phase 2 study of AEZS-108, a targeted cytotoxic LHRH analog, in patients with LHRH receptor-positive platinum resistant ovarian cancer" in the journal Gynecologic Oncology (Gynecol.Oncol. (2014) 133:427). Efficacy included PR in six patients (14.3%) and stable disease for more than twelve weeks in 16 patients (38%). Based on those data, a clinical benefit rate (“CBR”) of 52% was estimated. Median TTP and OS were evaluated at 2.8 months (12 weeks) and 12.2 months (53 weeks), respectively. Prof. Emons concluded that (i) Zoptrex™ was efficacious and well tolerated in patients with heavily pre-treated platinum- and taxane-resistant ovarian cancer; (ii) the safety profile confirmed the dose of 267 mg/m2; (iii) hematological toxicity was rapidly reversible; (iv) non-hematological toxicities were usually limited to lower severity; (v) tolerability and CBR compared with topotecan and liposomal doxorubicin; (vi) no cardiotoxic events were observed; and (vii) overall survival was encouraging as all patients treated with Zoptrex™ had platinum-resistant disease.
On September 14, 2011, Prof. Emons presented positive final Phase 2 efficacy and safety data for zoptarelin doxorubicin in advanced endometrial cancer at the European Society of Gynecological Oncology in Milan, Italy. The results of the study were published in an article by Prof. Emons, et al. in the journal Gynecologic Oncology (Gynecol.Oncol. (2014) 24:260). The study involved 43 patients with LHRH positive advanced or recurrent endometrial cancer. Patients received Zoptrex™ at a dose of 267 mg/m2 by intravenous infusion, with retreatment every three weeks, for up to six courses. Response rate per RECIST was defined as the primary endpoint. Secondary endpoints were safety, TTP and OS. The responses, as confirmed by independent review, included two patients with complete response (5%), eight patients with PR (18%) and 20 patients with stable disease (“SD”) (47%). Based on such data, the estimated overall response rate (“ORR”) (ORR=CR+PR) was 23% and the CBR was 70%. Responses were also achieved in patients with prior chemotherapy - two PR and three SD in eight of the patients pre-treated with platinum/taxane regimens. Median TTP and OS were seven months (30 weeks) and 14.9 months (62 weeks), respectively. Prof. Emons concluded as follows: (i) Zoptrex™ was efficacious and well tolerated in patients with advanced endometrial cancer; (ii) the safety profile confirmed the dose of 267 mg/m2; (iii) hematological toxicity was rapidly reversible; (iv) non-hematological toxicities were usually not severe, causing few deviations from scheduled treatment; (v) no cardiotoxic events were observed; (vi)

23



the ORR of 23% compares well with those of single-agent platinum or taxane treatment; (vii) responders included patients pre-treated with platinum/taxane combination; (viii) in addition, the rate of SD was 47%, resulting in a CBR of 70%; and (ix) the OS after single agent Zoptrex™ was similar to that reported for modern triple combination chemotherapy, but was achieved with lower toxicity.
Competition
The following products are among some of the many products currently in clinical trial in endometrial cancer:
Drug
Co-administered drugs & comparator arm
Target
Indication
Clinical Trial/ Approval Status
Innovator
Primary Endpoint
Comments/
Clinical History/
Commercial History
Ixabepilone (Ixempra; BMS-247550)
Doxorubicin, paclitaxel
Tubulin-micro- tubules; epothilone B analog
Second-line endometrial cancer
IXAMPLE2; Phase III (not in Bristol-Myers Squibb's pipe-line, did not meet OS primary endpoint)
BMS
Overall survival
(OS)
500-patient trial; did not improve OS at interim analysis in Q4/13
Ixabepilone (Ixempra; BMS- 247550)
Paclitaxel, carboplatin, temsirolimus, bevacizumab (Avastin)
As above
Stage III/IV, recurrent endometrial cancer
Phase III
US NCI
PFS out to five years (RECIST)
330-patient trial, PFS data expected in 2016
Lenvatinib
(E7080)
Monotherapy
Tyrosine kinase
VEGFR2 inhibitor,
multi-targeted
Second-line
endometrial
cancer
Phase II, open-label
single-arm (still active, but not recruiting patients)
Eisai
Objective
response rate to six months
167-patient trial, tumor response data was expected in H2/12
MK-2206
Monotherapy
Serine/
threonine kinase Akt inhibitor
Recurrent, advanced endometrial cancer
Phase II, two-arm, only patients with PIK3CA mutation
US NCI (Astra--Zeneca-Merck partnered drug)
Objective response, PFS
90-patient trial, PFS/tumor response data in 2016
Buparlisib (BKM120)
Monotherapy
Phosphatidyl inositol-3-kinase (PI3K)-Akt-mTOR
pathway inhibitor
Second-line endometrial cancer
Phase II (ENDOPIK)
Novartis
ORR/PFS out to six months
56-patient trial, PFS/tumor response data in H2/16
BMN 673
(BioMarin)
Monotherapy
Poly-ADP ribose polymerase inhibitor
Inoperable, advanced endometrial cancer
Phase II (PANDA trial)
BioMarin, University College London
PFS at six months, time-to-recurrence
100-patient trial, started in June 2015, data probably by H1/18
GSK
2141795
Mekinist (trametinib, MEK inhibitor)
Akt inhibitor
Recurrent, persistent endometrial cancer
Phase II, control arm is Mekinist alone
US NCI (is GSK drug, but GSK not identified as sponsor)
PFS, up to five years, impact of Kras status on response
148-patients, interim PFS data by H1/17

24



Virexxa
(Cridanimod
sodium)
Progesterone
Carboxymethyl
-acridinone;
elevates PrR
expression
Recurrent,
persistent endometrial cancer
(PrR-negative)
Phase II
Pharmsynthez
(Estonia), AS
Kevelt
ORR at one year, PFS at two years
58-patients, first enrolled in Jan/15; data in H2/18
Cabozantinib s-malate (Exelixis' Comitriq)
Monotherapy
Multi-kinase inhibitor, already approved in thyroid cancer
Recurrent, metastatic endometrial cancer
Phase II
US NCI (Exelixis not identified as
partner)
ORR/PFS out to three months
72-patient, PFS data expected by Q3/16
LY3023414
Monotherapy
PI3K-mTOR dual inhibitor
Recurrent endometrial cancer
Phase II (multiple cancer forms)
MSKC, Eli Lilly
Three-month CBR, one-year O/S
25-patient, single-arm, clinical benefit rate data by Q4/16
IMMU-132
Monotherapy
TROP-2-targeted mAb linked to SN38 (metabolite of irinotecan)
Endometrial cancer
Phase I/II (multiple epithelial cancers being tested simultane-ously)
Immuno medics
Safety, tumor response
250-patient, three- month response rate data in H2/16
KPT-330
(Selinexor)
Monotherapy
XPO1 (nuclear export protein) antagonist
Advanced gynecologic cancers
Phase II
Karyopharm Therapeutics
Safety, survival, QoL
105-patient, two-year survival data in H2/17
HuMax-TF- ADC
Monotherapy
Tissue factor- targeted mAb lined to auristatin
Solid tumors, including endometrial cancer
Phase I/II
Genmab
Safety, PK, response rate
80-patient, adverse event rate & response rate data in H2/17
Source: D. Loe, “Aeterna Zentaris: Recalibrating Valuation Following Capital Structure De-construction, But Still Positive on Zoptarelin Prospects” (Euro Pacific Canada) December 11, 2015 (quoting NIH data)
Additional Indications
We believe that Zoptrex™ may be useful in treating other cancers, including breast cancer, bladder cancer and prostate cancer. We terminated early clinical trials of the compound as a treatment for triple-negative breast cancer and bladder cancer as part of our ongoing review of our development activities to ensure the most effective use of our resources.
We assisted Dr. Jacek Pinski, Associate Professor of Medicine at the Norris Comprehensive Cancer Center of the University of Southern California, to conduct a Phase 1/2 study in refractory prostate cancer with Zoptrex™. Dr. Pinski received a $1.6 million grant from The National Institutes of Health (“NIH”) to conduct the study. The study, entitled “A Phase I/II Trial of AN-152 [AEZS-108] in Castration-and Taxane-Resistant Prostate Cancer”, was conducted in two portions: an abbreviated dose-escalation study followed by a single arm, Simon Optimum two-stage design Phase 2 study, using the dose selected in the Phase 1 portion.

25



The following is a summary of Dr. Pinski's study:
On December 14, 2010, we announced the initiation of the Phase 1/2 trial.
On February 3, 2012, we reported updated results for the Phase 1 portion of the study. The results were based on 13 patients who had been previously treated with androgen-deprivation therapy (LHRH agonist) and at least one taxane-based chemotherapy regimen, who were treated on three dose levels of Zoptrex™: three at 160 mg/m2, three at 210 mg/m2, and seven at 267 mg/m2. Overall, Zoptrex™ was well tolerated among this group of heavily pretreated older patients. There were two dose-limiting toxicities, each of which having been a case of asymptomatic Grade 4 neutropenia at the 267 mg/m2 dose level and both patients fully recovered. The Grade 3 and 4 toxicities were primarily hematologic. There was minimal non-hematologic toxicity, most frequently fatigue and alopecia. Despite the low doses of Zoptrex™ in the first cohorts, there was some evidence of antitumor activity. One patient received eight cycles (at 210 mg/m2) due to continued benefit. Among the five evaluable patients with measurable disease, four achieved stable disease. At the time of submission of the abstract, a decrease in PSA was noted in six patients. Six of 13 (46%) treated patients received at least five cycles of therapy with no evidence of disease progression at twelve weeks. Correlative studies on CTC demonstrated the uptake of zoptarelin doxorubicin into the targeted tumor.
On November 12, 2012, we announced the initiation of the Phase 2 portion of Dr. Pinski’s Phase 1/2 study of Zoptrex™ in prostate cancer. This was a single-arm Simon Optimum design Phase 2 study of Zoptrex™ in 25 patients with CRPC. Patients received Zoptrex™ (210 mg/m2) intravenously over two hours, every three weeks. The primary endpoint was CB, defined as remaining progression-free by RECIST and PSA after treatment for 12+ weeks. Secondary endpoints were progression free survival (“PFS”), best overall response, toxicity, pain and OS.
On June 3, 2013, we announced that final data for the Phase 1 portion of Dr. Pinski’s Phase 1/2 trial with Zoptrex™ in prostate cancer demonstrated the compound's promising anti-tumor activity. Results were presented by Dr. Pinski during a poster session at the ASCO Annual Meeting in Chicago. The results of the study were published in an article by Liu et al in the journal Clinical Cancer Research (Clin. Cancer Res. (2014) 20:6277). Eighteen men were treated at three dose levels: (160 mg/m2; (ii) 210 mg/m2; and (iii) 267 mg/m2). Overall Zoptrex™ was well tolerated among this group of heavily pretreated patients. There were two dose-limiting toxicities (grade four neutropenia and grade three febrile neutropenia), prompting de-escalation to 210 mg/m2 and establishing it as the Maximum Tolerated Dose. Among the 15 evaluable patients with measurable disease, ten achieved SD, and a drop in PAS was noted in three patients.
On September 28, 2015, Dr. Pinski announced during a poster session at the 18th ECCO - 40th ESMO European Cancer Congress in Vienna, Austria, that among the 25 patients in the Phase 2 portion of the trial, 11 patients experienced clinical benefit as the primary endpoint and 13 patients achieved SD. Maximal PSA response was stable in 20 patients. Pain assessment improved for 11 patients. Zoptrex™ was well tolerated in this heavily pretreated patient population with hematological toxicities, usually limited to grade three, as the most common adverse events. Dr. Pinski concluded that Zoptrex™ was well tolerated and met the primary efficacy endpoint in castration- and taxane-resistant prostate cancer patients.
We believe that immuno-modulatory and targeted therapies have been key areas of innovation in oncology over the last few years. Zoptrex™ is a targeted cytotoxic therapy using a peptide as the targeting agent and is therefore part of the ongoing innovation in the treatment of cancer. Furthermore, we believe that Zoptrex™ is ahead of many of the immuno-oncology products that are in development. Due to our lack of resources, we intend to pursue the development of Zoptrex™ for indications other than endometrial cancer by seeking development partners to assist with the effort. In this regard, on December 1, 2014, we entered into an exclusive license and technology transfer agreement with Sinopharm A-Think Pharmaceuticals Co., Ltd. for the compound, for the initial indication of endometrial cancer and for all other human indications, in the territories of China, Hong Kong and Macau. We are currently seeking to sublicense the compound to others for development in additional markets.
Macrilen™
Macrilen™ is a novel orally available peptidomimetic ghrelin receptor agonist that stimulates the secretion of growth hormone by binding to the ghrelin receptor (GHSR-1a) and that has potential uses in both endocrinology and oncology indications. Macrilen™ has been granted orphan-drug designation by the FDA for use in evaluating growth hormone deficiency (“GHD”). If approved by the FDA, Macrilen™ would be the first orally administered drug indicated for the evaluation of adult growth hormone deficiency (“AGHD”). Competitors for Macrilen™ as a product for the evaluation of AGHD are principally the diagnostic tests currently performed by endocrinologists, although none of these tests are approved by the FDA for this purpose. The most commonly used diagnostic tests for GHD are:
Measurement of blood levels of Insulin Growth Factor (“IGF”)-1, which is typically used as the first test when GHD is suspected. However, this test is not used to definitively diagnose GHD because many growth hormone deficient patients show normal IGF-1 levels.
The insulin tolerance test (“ITT”), which is considered the historical gold standard for the evaluation of AGHD because of its high sensitivity and specificity. However, the ITT is inconvenient to both patients and physicians and contra-indicated in certain patients, such as patients with coronary heart disease or seizure disorder, because it requires the patient

26



to experience hypoglycemia to obtain a result. Some physicians will not induce full hypoglycemia, intentionally compromising accuracy to increase safety and comfort for the patient. Furthermore, administration of the ITT is expensive because the patient must be constantly monitored by a physician for the two- to four-hour duration of the test and the test must be administered in a setting where emergency equipment is available and where the patient may be quickly hospitalized. The ITT is not used for patients with co-morbidities, such as cardiovascular disease, seizure disorder or a history of brain cancer or for patients who are elderly and frail, due to safety concerns.
The Glucagon test, which is simple to perform and is considered relatively safe by endocrinologists. The mechanism of action for this test is unclear. Also, this test takes up to three to four hours. It produces side effects in up to one-third of the patients. This test is administered intramuscularly.
The GHRH + ARG test, which is an easier test to perform in an office setting and has a good safety profile but is considered to be costly to administer compared to ITT and Glucagon. GHRH + ARG is approved in the EU and has been proposed to be the best alternative to ITT, but GHRH is no longer available in the United States. This test is administered intravenously.
Oral administration of Macrilen™ offers more convenience and simplicity over the current GHD tests used, all of which require either intravenous or intramuscular administration. Additionally, Macrilen™ may demonstrate a more favorable safety profile than existing diagnostic tests, some of which may be inappropriate for certain patient populations, e.g. diabetes mellitus or coronary heart disease, and have demonstrated a variety of side effects, which Macrilen™ has not thus far. These factors may be limiting the use of GHD testing and may potentially enable Macrilen™ to become the product of choice in evaluating AGHD. We believe that Macrilen™, if it is approved, is likely to rapidly displace the ITT as the preferred means of evaluating AGHD for the following reasons:
it is safer than the ITT because it does not require the patient to become hypoglycemic;
Macrilen™ is administered orally, while the ITT requires an intravenous injection of insulin;
the evaluation of AGHD using Macrilen™ is much less time consuming and labor intensive than the ITT and, therefore, it is less expensive to conduct; and
the evaluation can be conducted in the physician's office rather than in a hospital-like setting.
There are approximately 36,000 AGHD tests performed annually in the U.S. Based on published information from the U.S. Centers for Disease Control and Prevention, different scientific publications and by Navigant Research, we estimate that the total potential U.S. market for AGHD evaluation is approximately 158,000 tests per year, including the evaluation of patients who have suffered traumatic brain injury (“TBI”). In patients with TBI, GHD is frequent and may contribute to cognitive sequel and reduction in quality of life. GHD develops in approximately 19% of both severe and moderate hospitalized TBI victims.
The following is a summary of the history of our development of Macrilen™:
We out-licensed the development compound macimorelin acetate to Ardana Bioscience in 2004. Ardana Bioscience subsequently initiated the clinical development program of macimorelin acetate as an orally active compound intended to be used in the diagnosis of adult growth hormone deficiency. Following agreement with the FDA on the study design, Ardana Bioscience initiated a pivotal Phase 3 study in 2007, which tested the compound compared to a test of growth hormone-releasing hormone (“GHRH”) + L-Arginine (“ARG”), using a competitor's compound. The study was discontinued in 2008 due to Ardana Bioscience's bankruptcy. We terminated Ardana Bioscience's license to the compound due to its bankruptcy.
On October 19, 2009, we announced that we had initiated activities intended to complete the clinical development of Macrilen™ for use in evaluating AGHD. We had already assumed the sponsorship of the IND from Ardana Bioscience and discussed with the FDA the best way to complete the ongoing Phase 3 clinical trial and subsequently to file an NDA for approval of Macrilen™ for use in evaluating AGHD. The pivotal Phase 3 trial was designed to investigate the safety and efficacy of the oral administration of Macrilen™ as a growth hormone stimulator for use in evaluating AGHD. It was accepted by the FDA that for the ongoing part of the study, Macrilen™ would not be compared to the GHRH + ARG test because the competitor's compound had been removed from the market.
On December 20, 2010, we announced we had reached agreement with the FDA on a SPA for Macrilen™, enabling us to complete the ongoing registration study required to gain approval for use in evaluating AGHD. The first part of the study, conducted by our former licensee, Ardana, was a two-way cross-over study and included 42 patients with confirmed AGHD or multiple pituitary hormone deficiencies and a low IGF-1. A control group of ten subjects without AGHD was matched to patients for age, gender, body mass index and (for females) estrogen status.
On July 26, 2011, we announced the completion of the Phase 3 study of Macrilen™ as a first oral product for use in evaluating AGHD and the decision to meet with the FDA for the future filing of an NDA for the registration of Macrilen™ in the United States.
On June 26, 2012, we announced that the final results from a Phase 3 trial for Macrilen™ showed that the drug is safe and effective in evaluating AGHD. Jose M. Garcia, MD, PhD, then of the Baylor College of Medicine and the Michael E. DeBakey VA Medical Center, disclosed these data during an oral presentation at the 94th ENDO Annual Meeting and

27



Expo in Houston, Texas. The study had originally been designed as a cross-over trial of Macrilen™ compared to the GHRH + ARG test in AGHD patients and in controls matched for body mass index (“BMI”), estrogen status, gender and age. After 43 AGHD patients and ten controls had been tested, the GHRH + ARG test became unavailable because the competitor's compound was withdrawn from the market. The study was completed by testing ten more AGHD patients and 38 controls with Macrilen™ alone. Of the 53 AGHD subjects enrolled, 52 received Macrilen™, and 50 who had confirmed AGHD prior to study entry were included in this analysis, along with 48 controls. Two AGHD subjects could not be matched due to the combination of young age, high BMI and estrogen use. The objective of this clinical trial was to determine the efficacy and safety of Macrilen™ in the evaluation of AGHD. Mean peak growth hormone ("GH") levels in AGHD patients and controls following Macrilen™ administration were 2.36ng/mL (range 0.03-33) and 17.71ng/mL (range 10.5-94), respectively. The ROC plot analysis yielded an optimal GH cut-point of 2.7ng/mL, with 82% sensitivity, 92% specificity and a 13% misclassification rate. Obesity (BMI>30) was present in 58% of cases and controls, and peak GH levels were inversely associated with BMI in controls. Adverse events ("AE") were seen in 37% of AGHD patients and in 21% of controls following Macrilen™. In contrast, 61% of AGHD subjects and 30% of controls experienced AEs with L ARG+GHRH. The most common AEs after Macrilen™ were unpleasant taste (19.2%) and diarrhea (3.8%) for the AGHD patients and unpleasant taste (4.2%) and diarrhea (4.2%) for the matched controls. No clinically meaningful changes from baseline in ECG results during the study for AGHD patients were observed; however, one control subject had an ECG change (T wave abnormality and QTc interval prolongation) one hour after treatment with Macrilen™ that was considered a serious treatment-related adverse event and resolved spontaneously within 24 hours. The subject had been pre-treated with citalopram, a drug that was later reported by the FDA to be associated with QT prolongation, although the patient had stopped this medication seven days prior to dosing. In an expert statement of January 9, 2015, Prof. Dr. W. Haverkamp, Centrum Herz-, Kreislauf- und Gefäßmedizin, Charité, Berlin, considered the observed QT prolongation to be not related to Macrilen™. Overall, this study demonstrated that Macrilen™ is safe and effective for use in evaluating AGHD.
In November 2013, we filed an NDA for Macrilen™ for the evaluation of AGHD by evaluating the pituitary gland secretion of growth hormone in response to an oral dose of the product. The FDA accepted the NDA for substantive review in January 2014. On November 6, 2014, the FDA informed us, by issuing a Complete Response Letter (“CRL”), that it had determined that our NDA could not be approved in its then present form. The CRL stated that the planned analysis of our pivotal trial did not meet its stated primary efficacy objective as agreed to in the SPA. The CRL further mentioned issues related to the lack of complete and verifiable source data for determining whether patients were accurately diagnosed with AGHD. The FDA concluded that, “in light of the failed primary analysis and data deficiencies noted, the clinical trial does not by itself support the indication.” To address the deficiencies identified above, the CRL stated that we needed to demonstrate the efficacy of Macrilen™ as a diagnostic test for GHD in a new, confirmatory clinical study. The CRL also stated that a serious event of electrocardiogram QT interval prolongation occurred for which attribution to drug could not be excluded. Therefore, a dedicated thorough QT study to evaluate the effect of macimorelin on the QT interval would be necessary.
Following receipt of the CRL, we assembled a panel of experts in the field of growth-hormone deficiency, including experts in the field from both the United States of America and the EU. The panel met on January 8, 2015, during which we discussed our conclusions from the CRL, as well as the potential design of a new pivotal study. The panel advised us to continue to seek approval for Macrilen™ because of their confidence in its efficacy and because there currently is no FDA-approved diagnostic test for AGHD. In parallel, we collected information on timelines and costs for such a study.
During an end-of-review meeting with the FDA on March 6, 2015, we agreed with the FDA on the general design of the confirmatory study Phase 3 study of Macrilen™ for the evaluation of AGHD, as well as evaluation criteria. We agreed with the FDA that the confirmatory study will be conducted as a two-way crossover with the ITT as the benchmark comparator.
On April 13, 2015, we announced plans to conduct a new, confirmatory Phase 3 clinical study to demonstrate the efficacy of Macrilen™ for the evaluation of AGHD, as well as a dedicated thorough QT study to evaluate the effect of Macrilen™ on myocardial repolarization. The confirmatory Phase 3 clinical study of Macrilen™, entitled “Confirmatory validation of oral macimorelin as a growth hormone (GH) stimulation test (ST) for the diagnosis of adult growth hormone deficiency (AGHD) in comparison with the insulin tolerance test (ITT)”, is designed as a two-way crossover study with the ITT as the benchmark comparator and will involve some 30 sites in the United States and Europe. The study population will consist of approximately 110 subjects (at least 55 ITT-positive and 55 ITT-negative) with a medical history documenting risk factors for AGHD, and will include a spectrum of subjects from those with a low risk of having AGHD to those with a high risk of having the condition. The primary endpoint is validation of a single oral dose of Macrilen™ for the diagnosis of AGHD, using the ITT as a comparator.
On May 26, 2015, we announced that we had received written scientific advice from the European Medicines Agency (“EMA”) regarding the further development plan, including the study design, for the new confirmatory Phase 3 clinical study of Macrilen™ for use in evaluating AGHD. As a result of the advice, we believe that the confirmatory Phase 3

28



study that was agreed with the FDA meets the EMA's study-design expectations as well, allowing for US and European approval, if the study is successful.
On November 19, 2015, we announced the enrollment of the first patient in the confirmatory Phase 3 clinical study of Macrilen™. Based on the current rate of enrollment, we expect the confirmatory Phase 3 clinical study of Macrilen™ to be concluded in the third quarter of 2016. Furthermore, we expect to be able to submit an NDA for Macrilen™ to the FDA by mid-year 2017 and, if the study is successful in meeting its primary endpoint, to obtain approval of the drug by year-end 2017.
LHRH-Disorazol Z (AEZS-138)
In search of new antitumor agents, we found that disorazol Z, a compound that was isolated from the myxobacterium Sorangium cellulosum, possesses cytotoxic activity in the picomolar range in a panel of different tumor cell lines. Inhibition of tubulin polymerization, cell cycle arrest and efficient induction of apoptosis have been identified as modes of action. AEZS-138 is a cytotoxic conjugate of disorazol Z and a synthetic peptide carrier that targets the LHRH receptor. It is, therefore, an outgrowth of our research that lead to our formulation of Zoptrex™. The following is a summary of our development efforts with respect to AEZS-138:
On March 24, 2011, we were awarded a $1.5 million grant from the German Ministry of Education and Research to develop, up to the clinical stage, cytotoxic conjugates of the proprietary cytotoxic compound disorazol Z and peptides targeting G-protein coupled receptors, including the LHRH receptors. The compounds combine the targeting principle being studied in Phase 3 with zoptarelin doxorubicin with the novel cytotoxic disorazol Z. The grant was payable as a partial reimbursement of qualifying expenditures over a three-year period, until January 31, 2014. The qualified project was performed with Morphisto GmbH and the Helmholtz Institute in Saarbrücken, Germany, which received additional funding of approximately US$0.7 million. Researchers from the departments of Gynecology and Obstetrics at both the University of Göttingen and the University of Würzburg, Germany, were also part of the collaboration.
On November 16, 2011, we announced the presentation of a poster at the AACR-NCI-EORTC International Conference on Molecular Targets and Cancer Therapeutics on encouraging preclinical data for disorazol Z. The data showed that disorazol Z possesses cytotoxicity in a highly diverse panel of 60 different tumor cell lines, and also underlined the identification of important aspects of this novel natural compound's mechanism of action. Disorazol Z has been identified as a tubulin binding agent with highly potent antitumor properties. Cell cycle analysis revealed that disorazol Z arrested cells in the G2/M cell cycle phase and subsequently induced apoptosis with remarkable potency, as shown by sub-nanomolar EC50 values. To expand our zoptarelin doxorubicin technology platform, we aim to evaluate the utility of disorazol Z as a cytotoxic component in a drug-targeting approach utilizing GPCR ligands as the targeting moieties for the treatment of GPCR over-expressing cancers.
On April 10, 2013, we announced at the American Association for Cancer Research's ("AACR") annual meeting encouraging updated proof-of-concept results for disorazol Z cytotoxic conjugates, such as AEZS-138, in human ovarian and endometrial cancer xenograft models. Data demonstrated that conjugates of D-Lys6-LHRH and disorazol Z retained strong binding to the LHRH receptor and showed potent inhibition of tubulin polymerization. Cellular cytotoxicity of the conjugates was in the low nanomolar EC50 range. Increased cytotoxicity in cells over-expressing the LHRH receptor, support receptor targeting as a mechanism of action. The LHRH receptor-dependent efficacies of disorazol Z - D-Lys6-LHRH conjugates in vitro and in mouse xenograft models that were presented support the principle of tumor targeting by the LHRH receptor as considered to be employed by zoptarelin doxorubicin.
On February 11, 2014, at the 11th International Symposium on GnRH in Salzburg, Austria, we presented further data on the mechanism of action and proof of concept of the disorazol Z cytotoxic conjugate, AEZS-138, which had led to the initiation of its preclinical development during the second quarter of 2013.
Overview of our Commercial Operations
Our commercial operations consist of a full-time sales force and a sales-management staff. We currently have 21 sales representatives in the United States, who provide services solely for us pursuant to our agreement with inVentiv Commercial Services, LLC, an affiliate of inVentiv Health, Inc. (“inVentiv”), a contract-sales organization. Our sales force is managed by two Regional Sales Managers, a National Sales Director and led by our Senior Vice President and Chief Commercial Officer. Our sales force currently promotes EstroGel®, Saizen® and APIFINY®.
Our agreement with inVentiv provides that the inVentiv personnel who provide services to us are independent contractors and not our employees. Furthermore, inVentiv is solely responsible for the human-resource and performance-management functions of all such personnel. It is also responsible for paying the compensation, benefits, payroll-related or withholding taxes and any governmental charges or benefits, including unemployment and disability insurance contributions or benefits and workers compensation contributions with respect to such personnel and for reimbursing them for their expenses. We pay a fixed monthly fee to inVentiv for the services of the sales representatives it provides for us, which is subject to adjustment if the assumptions

29



regarding the annual salaries paid to the sales representatives prove to be too high or too low, and we also reimburse inVentiv for certain expenses that it incurs as a result of providing sales representatives to us.
Our agreement with inVentiv has a two-year term that started in November 2014. The term may be extended for additional periods of one year, if we reach a written agreement with inVentiv regarding the terms of the extension not less than 60 days before the end of the expiring term. The agreement is subject to customary termination provisions for non-payment of amounts due, material breach and bankruptcy or insolvency. In addition, we may terminate the agreement without cause by giving inVentiv at least 90 days' prior written notice.
We promote EstroGel®, a leading non-patch transdermal hormone replacement therapy product, pursuant to a co-promotion agreement (the “Ascend Agreement”) with ASCEND Therapeutics US LLC (“ASCEND”), which we entered into in August 2014. The Ascend Agreement provides that we will promote EstroGel® in specific agreed-upon U.S. territories in exchange for a sales commission that is based upon incremental sales volumes of the product that are generated over pre-established baselines.
The Ascend Agreement has a two-year term that commenced in November 2014. It is subject to extension for successive periods of two years each upon our agreement with ASCEND. The Ascend Agreement has customary termination provisions and, in addition, is subject to termination for convenience by either party upon the provision of not less than six months' written notice to the other party. During the term of the Ascend Agreement, either party may offer other products that it acquires to the other party for inclusion in the co-promotion arrangement established by the Ascend Agreement.
Saizen® [somatropin (rDNA origin) for injection] is a prescription medicine indicated for the treatment of growth hormone deficiency in children and adults. We promote Saizen® pursuant to our co-promotion agreement (the “EMD Serono Agreement”) with EMD Serono Inc. (“EMD Serono”), which we entered into in May 2015. The EMD Serono Agreement provides that we will promote Saizen® in specific agreed-upon U.S. territories in exchange for a sales commission that is based upon incremental new patient starts of the product that are generated over pre-established baselines.
The EMD Serono Agreement has a five-year term that began in May 2015, which is not subject to an agreed extension period, and is subject to customary termination provisions. EMD Serono has the right to terminate the EMD Serono Agreement for convenience at any time by giving us three months' advance written notice. EMD Serono has certain payment obligations to us that will arise if it terminates the EMD Serono Agreement for convenience, the type and amount of which will depend on the date that EMD exercises its right to terminate. We may terminate the EMD Serono Agreement for convenience at any time after the second anniversary of its date by giving EMD Serono three month’s advance written notice.
APIFINY®, is the only cancer-specific, non-PSA blood test for the evaluation of the risk of prostate cancer. The test was developed by Armune BioScience, Inc. (“Armune”), a medical diagnostics company that develops and commercializes unique proprietary technology exclusively licensed from the University of Michigan for diagnostic and prognostic tests for cancer. We entered into a co-marketing agreement with Armune in November 2015 (the “Armune Agreement”), pursuant to which we have the right to promote APIFINY® to designated medical professionals in our 21 U.S. territories. We receive a commission for each test performed resulting from our targeted promotion without regard to a baseline. The Armune Agreement has a one-year term that renews automatically for successive one-year periods, unless either party terminates it by giving not less than 60 days' advance written notice to the other, which either party may do at any time with or without cause.
A description of the principal geographic areas in which we compete, including a geographical and categorical breakdown of our revenues in the past three years is presented in note 27 (Segment information) to our consolidated financial statements included in this Annual Report on Form 20-F at Item 18.
Raw Materials
Raw materials and supplies are generally available in quantities adequate to meet the needs of our business. We will be dependent on third-party manufacturers for the pharmaceutical products that we will market. An interruption in the availability of certain raw materials or ingredients, or significant increases in the prices paid by us for them, could have a material adverse effect on our business, financial condition, liquidity and operating results.
Regulation of Drug Development
Generally. Governmental authorities in the United States, Canada, Europe and other countries extensively regulate the preclinical and clinical testing, manufacturing, labeling, storage, record keeping, advertising, promotion, export, marketing and distribution, among other things, of pharmaceuticals. Under the laws of the United States, the countries of the EU, and other countries, we and the institutions at which we sponsor research are subject to obligations to ensure that our clinical trials are conducted in accordance with Good Clinical Practices ("GCP") guidelines and the investigational plan and protocols contained in an IND application, or comparable foreign regulatory submission. The Japanese regulatory process for approval of new drugs is similar to the FDA approval process described below except that Japanese regulatory authorities request bridging studies to verify that foreign clinical data are applicable to Japanese patients and also require the tests to determine appropriate dosages for Japanese patients to be

30



conducted on Japanese patient volunteers. Due to these requirements, delays of two to three years in introducing a drug developed outside of Japan to the Japanese market are customary. Set forth below is a brief summary of the material governmental regulations affecting us in the major markets in which we intend to market our products and/or promote products that we acquire or in-license or to which we obtain promotional rights.
The United States. In the United States, the FDA under the United States Food, Drug and Cosmetic Act of 1938, as amended (the “FDA Act”), the Public Health Service Act and other federal statutes and regulations, subjects pharmaceutical products to rigorous review. In order to obtain approval of a new product from the FDA, we must, among other requirements, submit proof of safety and efficacy as well as detailed information on the manufacture and composition of the product. In most cases, this proof entails extensive preclinical, clinical, and laboratory tests. Before approving a new drug or marketing application, the FDA also typically conducts pre-approval inspections of the company, its CROs and/or its clinical trial sites to ensure that clinical, safety, quality control, and other regulated activities are compliant with GCP, or Good Laboratory Practices ("GLP"), for specific non-clinical toxicology studies. Manufacturing facilities used to produce a product are also subject to ongoing inspection by the FDA. The FDA may also require confirmatory trials, post-marketing testing, and extra surveillance to monitor the effects of approved products, or place conditions on any approvals that could restrict the commercial applications of these products. Once approved, the labeling, advertising, promotion, marketing, and distribution of a drug or biologic product must be in compliance with FDA regulatory requirements.
The first stage required for ultimate FDA approval of a new biologic or drug involves completion of preclinical studies and the submission of the results of these studies to the FDA. This, together with proposed clinical protocols, manufacturing information, analytical data, and other information in an IND, must become effective before human clinical trials may commence. Preclinical studies involve laboratory evaluation of product characteristics and animal studies to assess the efficacy and safety of the product. The FDA regulates preclinical studies under a series of regulations called the current GLP regulations. If the sponsor violates these regulations, the FDA may require that the sponsor replicate those studies.
After the IND becomes effective, a sponsor may commence human clinical trials. The sponsor typically conducts human clinical trials in three sequential phases, but the phases may overlap. In Phase 1 trials, the sponsor tests the product in a small number of patients or healthy volunteers, primarily for safety at one or more doses. Phase 1 trials in cancer are often conducted with patients who have end-stage or metastatic cancer. In Phase 2, in addition to safety, the sponsor evaluates the efficacy of the product in a patient population somewhat larger than Phase 1 trials. Phase 3 trials typically involve additional testing for safety and clinical efficacy in an expanded population at geographically dispersed test sites. The sponsor must submit to the FDA a clinical plan, or "protocol", accompanied by the approval of the institutions participating in the trials, prior to commencement of each clinical trial. The FDA may order the temporary or permanent discontinuation of a clinical trial at any time. In the case of product candidates for cancer, the initial human testing may be done in patients with the disease rather than in healthy volunteers. Because these patients are already afflicted with the target disease, such studies may provide results traditionally obtained in Phase 2 studies. Accordingly, these studies are often referred to as “Phase 1/2” studies. Even if patients participate in initial human testing and a Phase 1/2 study is carried out, the sponsor is still responsible for obtaining all the data usually obtained in both Phase 1 and Phase 2 studies.
The sponsor must submit to the FDA the results of the preclinical and clinical testing, together with, among other things, detailed information on the manufacture and composition of the product, in the form of an NDA or, in the case of a biologic, a Biologics License Applications (“BLA”). In a process that can take a year or more, the FDA reviews this application and, when and if it decides that adequate data are available to show that the new compound is both safe and effective for a particular indication and that other applicable requirements have been met, approves the drug or biologic for marketing. The amount of time taken for this approval process is a function of a number of variables, including the quality of the submission and studies presented and the potential contribution that the compound will make in improving the treatment of the disease in question.
Orphan-drug designation is granted by the FDA Office of Orphan Drug Products to novel drugs or biologics that treat a rare disease or condition affecting fewer than 200,000 patients in the U.S. The designation provides the drug developer with a seven-year period of U.S. marketing exclusivity if the drug is the first of its type approved for the specified indication or if it demonstrates superior safety, efficacy or a major contribution to patient care versus another drug of its type previously granted the designation for the same indication. We have been granted orphan drug designations for Zoptrex™ for the treatment of advanced ovarian cancer and for Macrilen™ for the evaluation of growth hormone deficiency.
Under the Drug Price Competition and Patent Term Restoration Act of 1984 (the "Hatch-Waxman Act"), newly-approved drugs and indications may benefit from a statutory period of non-patent data exclusivity. The Hatch-Waxman Act provides five-year data exclusivity to the first applicant to gain approval of an NDA for a new chemical entity, or NCE, meaning that the FDA has not previously approved any other drug containing the same active pharmaceutical ingredient, or active moiety. Although protection under the Hatch-Waxman Act will not prevent the submission or approval of another full NDA, such an NDA applicant would be required to conduct its own preclinical and adequate, well-controlled clinical trials to demonstrate safety and effectiveness.

31



The Hatch-Waxman Act also provides three years of data exclusivity for the approval of new and supplemental NDAs, including Section 505(b)(2) applications, for, among other things, new indications, dosage forms, routes of administration, or strengths of an existing drug, or for a new use, if new clinical investigations that were conducted or sponsored by the applicant are determined by the FDA to be essential to the approval of the application. This exclusivity, which is sometimes referred to as clinical investigation exclusivity, would not prevent the approval of another application if the applicant has conducted its own adequate, well-controlled clinical trials demonstrating safety and efficacy, nor would it prevent approval of a generic product that did not incorporate the exclusivity-protected changes of the approved drug product.
The labeling, advertising, promotion, marketing, and distribution of a drug or biologic product must be in compliance with FDA regulatory requirements. Failure to comply with applicable requirements can lead to the FDA demanding that production and shipment cease and, in some cases, that the manufacturer recall products, or to enforcement actions that can include seizures, injunctions, and criminal prosecution. These failures can also lead to FDA withdrawal of approval to market a product.
Canada. In Canada, the Therapeutic Products Directorate of Health Canada is the Canadian federal authority that regulates pharmaceutical drugs and medical devices for human use. Prior to being given market authorization, a manufacturer must present substantive scientific evidence of a product's safety, efficacy and quality as required by the Food and Drugs Act and other legislation and regulations. The requirements for the development and sale of pharmaceutical drugs in Canada are substantially similar to those in the United States, which are described above.
The European Union. Medicines can be authorized in the EU by using either the centralized authorization procedure or national authorization procedures. The EU has implemented a centralized procedure coordinated by the EMA for the approval of human medicines, which results in a single marketing authorization issued by the European Commission that is valid across the EU, as well as Iceland, Liechtenstein and Norway. The centralized procedure is compulsory for human medicines that are derived from biotechnology processes, such as genetic engineering, that contain a new active substance indicated for the treatment of certain diseases, such as HIV/AIDS, cancer, diabetes, neurodegenerative disorders or autoimmune diseases and other immune dysfunctions, and designated orphan medicines. For medicines that do not fall within these categories, an applicant has the option of submitting an application for a centralized marketing authorization to the EMA, as long as the medicine concerned is a significant therapeutic, scientific or technical innovation, or if its authorization would be in the interest of public health.
There are also two other possible routes to authorize medicinal products in several EU countries, which are available for investigational drug products that fall outside the scope of the centralized procedure:
Decentralized procedure. Using the decentralized procedure, an applicant may apply for simultaneous authorization in more than one EU country of medicinal products that have not yet been authorized in any EU country and that do not fall within the mandatory scope of the centralized procedure. The application will be reviewed by a selected Reference Member State ("RMS"). The Marketing Authorization granted by the RMS will then be recognized by the other Member States involved in this procedure.
Mutual recognition procedure. In the mutual recognition procedure, a medicine is first authorized in one EU Member State, in accordance with the national procedures of that country. Following this, further marketing authorizations can be sought from other EU countries in a procedure whereby the countries concerned agree to recognize the validity of the original, national marketing authorization.
Regulation of Commercial Operations
The marketing, promotional, and pricing practices of human pharmaceutical manufacturers, as well as the manner in which manufacturers interact with purchasers and prescribers, are subject to various U.S. federal and state laws, including the federal anti-kickback statute and the False Claims Act and state laws governing kickbacks, false claims, unfair trade practices, and consumer protection, and to similar laws in other countries. In the United States, these laws are administered by, among others, the Department of Justice (DOJ), the Office of Inspector General of the Department of Health and Human Services, the Federal Trade Commission, the Office of Personnel Management, and state attorneys general. Over the past several years, the FDA, the DOJ, and many other agencies have increased their enforcement activities with respect to pharmaceutical companies and increased the inter-agency coordination of enforcement activities.
In the United States, biopharmaceutical and medical device manufacturers are required to record any transfers of value made to licensed physicians and teaching hospitals and to disclose such data to the Department of Health and Human Services (“HHS”). In addition to civil penalties for failure to report transfers of value to physicians or teaching hospitals, there will be criminal penalties if a manufacturer intentionally makes false statements or excludes information in such reports. The payment data across biopharmaceutical and medical device companies is posted by HHS on a publicly available website. Increased access to such data by fraud and abuse investigators, industry critics and media will draw attention to our collaborations with reported entities and will importantly provide opportunities to underscore the critical nature of our collaborations for developing new medicines and exchanging scientific information. This national payment transparency effort coupled with industry commitment to uphold voluntary codes of conduct (such as the PhRMA Code on Interactions with Healthcare Professionals and PhRMA Guiding

32



Principles Direct to Consumer Advertisements About Prescription Medicines) and rigorous internal training and compliance efforts will complement existing laws and regulations to help ensure ethical collaboration and truthful product communications.
The Canadian association of Research-Based Pharmaceutical Companies (“Rx & D”) has adopted “Guidelines for Transparency in Stakeholder Funding” that require member companies to regularly disclose, by means of the web sites and annual reports, a list of all stakeholders to which they provide direct funding. The term “stakeholder” is defined in Rx & D’s Code of Ethical Practices to include “Health Care Professionals”. In the EU, the disclosure code of transfers of value to healthcare professionals and organizations adopted by the European Federation of Pharmaceutical Industries and Associations (“EFPIA”) requires all members of EFPIA to disclose transfers of value to healthcare professionals and healthcare organizations beginning in 2016, covering the relevant transfers in 2015. Each member company will be required to document and disclose: (i) the names of healthcare professionals and associations that have received payments or other transfers of value and (ii) the amounts or value transferred, and the type of relationship.
For more information about the regulatory risks associated with our business operations, see “Item 3. - Key Information - Risk Factors”.
Intellectual Property - Patents
We seek to protect our compounds, manufacturing processes, compositions and methods of medical use for our lead drugs and drug candidates through a combination of patents, trade secrets and know-how. Our patent portfolio consists of approximately 13 owned and in-licensed patent families (issued, granted or pending in the United States, Europe and other jurisdictions). The patent positions of companies in the biotechnology and pharmaceutical industries are highly uncertain and involve complex legal and factual questions. Therefore, we cannot predict the breadth of claims, if any, that may be allowed under any of our patent applications, or the enforceability of any of our allowed patents. See "Item 3D. Risk Factors - We may not obtain adequate protection for our products through our intellectual property."
Patents extend for varying periods according to the date of patent filing or grant and the legal term of patents in the various countries where patent protection is obtained. The actual protection afforded by a patent, which can vary from country to country, depends on the type of patent, the scope of its coverage and the availability of legal remedies in the country. In the United States, the patent term of a patent that covers an FDA-approved drug may also be eligible for patent term extension, which permits patent term restoration as compensation for the patent term lost during the FDA regulatory review process. The Hatch-Waxman Act permits a patent term extension of up to five years beyond the expiration of the patent, in which the patentee may file an application for yearly interim extensions within five years if the patent will expire and the FDA has not yet approved the NDA. The length of the patent term extension is related to the length of time the drug is under regulatory review. Patent extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval and only one patent applicable to an approved drug may be extended.
Similar provisions are available in Europe and other foreign jurisdictions to extend the term of a patent that covers an approved drug. In these jurisdictions, however, no interim extensions exist and the marketing approval must be granted before the patent expires. In the future, if and when our pharmaceutical products receive FDA approval, we expect to apply for patent term extensions on patents covering those products. While we anticipate that any such applications for patent term extensions will likely be granted, we cannot predict the precise length of time for which such patent terms would be extended in the United States, Europe or other jurisdictions. If we are not able to secure patent term extensions on patents covering our products for meaningful periods of additional time, we may not achieve or sustain profitability, which would adversely affect our business.
In addition to patent protection, our products may benefit from the market-exclusivity provisions contained in the orphan-drug regulations or the pediatric-exclusivity provisions or other provisions of the FDA Act, such as new chemical entity exclusivity or new formulation exclusivity. Orphan drug regulations provide incentives to pharmaceutical and biotechnology companies to develop and manufacture drugs for the treatment of rare diseases, currently defined as diseases that exist in fewer than 200,000 individuals in the U.S., or diseases that affect more than 200,000 individuals in the U.S. but that the sponsor does not realistically anticipate will generate a net profit. Under these provisions, a manufacturer of a designated orphan drug can seek tax benefits, and the holder of the first FDA approval of a designated orphan product will be granted a seven-year period of marketing exclusivity for such FDA-approved orphan product. In the U.S., the FDA has the authority to grant additional data protection for approved drugs where the sponsor conducts specified testing in pediatric or adolescent populations. If granted, this pediatric exclusivity provides an additional six months which are added to the term of data protection as well as to the term of any relevant patents, to the extent these protections have not already expired. We may also seek to utilize market exclusivities in other territories, such as in the EU. We cannot assure you that any of our drug candidates will obtain such orphan drug designation, pediatric exclusivity, new chemical entity exclusivity or any other market exclusivity in the U.S., the EU or any other territory, or that we will be the first to receive the respective regulatory approval for such drugs so as to be eligible for any market exclusivity protection.

33



Our drug development efforts are currently focused on two compounds, zoptarelin doxorubicin (Zoptrex™) and macimorelin (Macrilen™), which are in clinical development, and on an LHRH-disorazol Z conjugate (AEZS-138), which is in pre-clinical development. The following is a description of our intellectual property rights with respect to these compounds.
Zoptrex™:
We license intellectual property and associated rights relating to LHRH agonists and LH-RH antagonists carrying various cytotoxic radicals (including zoptarelin doxorubicin) from the Administrators of the Tulane Educational Fund ("Tulane") pursuant to a License Agreement dated September 17, 2002 between Tulane, as licensor, and AEZS Gmbh, as licensee (the "Tulane Agreement"). The Tulane Agreement grants to us an exclusive worldwide license for all therapeutic uses of LH-RH agonists and LH-RH antagonists carrying various cytotoxic radicals, to the extent covered by one of the patents listed below. The term of the Tulane Agreement continues for ten years after the first commercial sale of a product based on the licensed intellectual property (a "Licensed Product") or until the expiration of the last to expire of the patents listed below, whichever is longer, on a country-by-country basis.
Pursuant to the Tulane Agreement, we are required to pay Tulane the following amounts: (i) US$400,000 upon the first grant of regulatory approval for a Licensed Product in the United States, Canada, the European Union or Japan; (ii) 10% of all consideration received by us from a sublicensee for authorization to use the licensed intellectual property to develop, manufacture, market, distribute and sell a Licensed Product; (iii) 5% of our net sales of Licensed Products; and (iv) 50% of any royalties that we receive from a sublicensee with respect to its net sales of Licensed Products; provided, however, that the payment with respect to royalties received from a sublicensee shall not be less than 3.5% nor more than 5% of the sublicensee's net sales of the Licensed Product.
The following patents are covered by the Tulane Agreement:
US patent 5,843,903 covers zoptarelin doxorubicin and other related targeted cytotoxic anthracycline analogs, pharmaceutical compositions comprising the compounds as well as their medical use for the treatment of tumors. This patent expired in November 2015.
European patent 0 863 917 B1 covers zoptarelin doxorubicin and other related targeted cytotoxic anthracycline analogs, pharmaceutical compositions comprising the compounds as well as their medical use for the treatment of tumors. This patent expires in November 2016.
Japanese patent 3 987 575 covers zoptarelin doxorubicin and other related targeted cytotoxic anthracycline analogs, pharmaceutical compositions comprising the compounds as well as their medical use for the treatment of tumors. This patent expires in November 2016.
Chinese patent ZL96198605.0 covers zoptarelin doxorubicin and other related targeted cytotoxic anthracycline analogs, pharmaceutical compositions comprising the compounds as well as their medical use for the treatment of tumors. This patent expires in November 2016.
Hong Kong patent 1017363 covers zoptarelin doxorubicin and other related targeted cytotoxic anthracycline analogs, pharmaceutical compositions comprising the compounds as well as their medical use for the treatment of tumors. This patent expires in November 2016.
In early 2015, we filed a European patent application directed to a novel method of manufacturing Zoptrex™. Within the 12 months priority period, we also filed an international patent application for the manufacturing process, as well as national patent applications in selected countries, including the US, China, and Taiwan, Japan and India. We decided to file patent applications in additional territories after the European Patent Office issued a search report for the European patent application that we consider to be favorable. The claimed manufacturing process is expected to result in a significant reduction in our cost of manufacturing Zoptrex™, providing us with what should be a stronger competitive position and discouraging competition from generic manufacturers after our five-year period of data exclusivity expires.
Macrilen™:
We hold the worldwide rights to macimorelin pursuant to an exclusive license agreement with The French Centre National de la Recherche Scientifique, as licensor, and AEZS GmbH, as licensee.
The following patents relate to Macrilen™:
U.S. patent 6,861,409 covers Macrilen™ and U.S. patent 7,297,681 covers other related growth hormone secretagogue compounds, each also covering pharmaceutical compositions comprising the compounds as well as their medical use for elevating the plasma level of growth hormone. U.S. patent 6,861,409 and U.S. patent 7,297,681 both expire in August 2022.
European patent 1 289 951 covers Macrilen™ and European patent 1 344 773 covers other related growth hormone secretagogue compounds, pharmaceutical compositions comprising the compounds as well as their medical use for elevating the plasma level of growth hormone. EP patent 1 289 951 and EP patent 1 344 773 both expire in June 2021.
Japanese patent 3 522 265 covers Macrilen™ and pharmaceutical compositions comprising the compounds as well as their medical use for elevating the plasma level of growth hormone. This patent expires in June 2021.

34



Canadian patent 2,407,659 covers Macrilen™ and pharmaceutical compositions comprising the compounds as well as their medical use for elevating the plasma level of growth hormone. This patent expires in June 2021.
U.S. patent 8,192,719 covers a method of assessing pituitary-related growth hormone deficiency in a human or animal subject comprising an oral administration of the compound Macrilen™ and determination of the level of growth hormone in the sample and assessing whether the level of growth hormone in the sample is indicative of growth hormone deficiency. This patent expires in October 2027.
European patent 1 984 744 covers a method of assessing pituitary-related growth hormone deficiency by oral administration of Macrilen™. This patent expires in February 2027.
Japanese patent 4 852 728 covers a method of assessing pituitary-related growth hormone deficiency by oral administration of Macrilen™. This patent expires in February 2027.
Disorazol Z - LHRH conjugates (AEZS-138):
We own a number of patents that relate to our Disorazol Z - LHRH conjugates, as follows:
U.S. patent 7,741,277 covers AEZS-138 (disorazol Z - LHRH conjugate). This patent will expire in January 2028 (including PTA).
U.S. patent 8,470,776 covers methods of treatment for compound AEZS-138 (disorazol Z - LHRH conjugate). This patent will expire in February 2029 (including PTA).
European patent application 2,066,679 covers AEZS-138 (disorazol Z - LHRH conjugate) as well as methods of treatment for this compound. If granted, this patent will expire in September 2027.
Japanese patent 5,340,155 covers AEZS-138 (disorazol Z - LHRH conjugate) as well as methods of treatment for this compound. This patent will expire in September 2027.
C.
Organizational structure
Our corporate structure, the jurisdiction of incorporation of our direct and indirect subsidiaries and the percentage of shares that we held in those subsidiaries as at December 31, 2015 is depicted in the chart set forth under the caption "Item 4-A. History and development of the Company".
D.
Property, plants and equipment
Our corporate head office is located in Summerville, South Carolina, which is a suburb of Charleston, South Carolina. The following table sets forth information with respect to our main facilities as at December 31, 2015.
Location
 
Use of space
 
Square Footage
 
Type of interest
315 Sigma Drive, Suite 302D, Summerville SC 29483
 
Partially occupied for management, administration, commercial operations and business development
 
4,623

 
Leasehold
Weismüllerstr. 50
D-60314
Frankfurt-am-Main, Germany
 
Occupied for management, R&D, business development and administration
 
36,168

 
Leasehold
Item 4A    Unresolved Staff Comments
None.

35



Item 5.
Operating and Financial Review and Prospects
Key Developments
Zoptrex™
ZoptrexTM is a complex molecule that combines a synthetic peptide carrier with doxorubicin, a well-known chemotherapy agent. The synthetic peptide carrier is a luteinizing hormone-releasing hormone ("LHRH") agonist, a modified natural hormone with affinity for the LHRH receptor. The design of the compound allows for the specific binding and selective uptake of the cytotoxic conjugate by LHRH receptor-positive tumors. Potential benefits of this targeted approach include a better efficacy and a more favorable safety profile with lower incidence and severity of side effects as compared to doxorubicin alone.
We believe that ZoptrexTM has the potential to become the first FDA-approved medical therapy for advanced, recurrent endometrial cancer, potentially resulting in the compound's rapid adoption as a novel core therapy for patient treatment and management, representing a significant potential market opportunity for us. Moving forward, we will continue to develop our commercialization plans regarding ZoptrexTM in this indication. In addition, contingent on the success of the ZoptEC (Zoptarelin Doxorubicin in Endometrial Cancer) pivotal Phase 3 clinical trial in women with advanced, recurrent or metastatic endometrial cancer, we have additional areas of interest for further therapeutic development for zoptarelin doxorubicin, including ovarian, prostate, breast cancer and potentially bladder cancer.
On April 16, 2015, we announced that we had filed an application for a European patent on a novel method of manufacturing ZoptrexTM. Because this compound is a complex molecule, it is expensive to synthesize, and the requested patent, if granted, may make it difficult for generic manufacturers to produce ZoptrexTM on a financially feasible basis once our composition of matter patent on the compound expires. Further, the claimed manufacturing process is expected to result in a significant reduction in cost of goods sold, which should place us in a stronger competitive position.
On April 27, 2015, we announced that an independent Data and Safety Monitoring Board ("DSMB") for the pivotal Phase 3 ZoptrexTM clinical trial with zoptarelin doxorubicin in women with advanced, recurrent or metastatic endometrial cancer had completed a pre-specified first interim futility analysis at approximately 128 events, and on June 30, 2015, we announced that we had reached our goal of completing enrollment of 500 patients for this clinical trial.
On September 28, 2015, we announced that ZoptrexTM had met the primary end point of the investigator-driven and sponsored Phase 2 clinical trial in castration and taxane resistant prostate cancer ("CRPC") and demonstrated good tolerability. This was a single-arm Simon Optimum design Phase 2 study in 25 patients with CRPC.
On October 13, 2015, we announced that the independent DSMB had recommended that the pivotal Phase 3 ZoptEC study continue as planned. The DSMB's decision followed completion of its pre-specified second interim analysis on efficacy and safety at approximately 192 events. A final analysis of the data is expected at approximately 384 events.
Macrilen™
On April 13, 2015, we announced plans to conduct a new confirmatory Phase 3 clinical trial to demonstrate the efficacy of Macrilen™ for the evaluation of AGHD, as well as a dedicated thorough QT study to evaluate the effect of Macrilen™ on myocardial repolarization. During an end-of-review meeting with the FDA on March 6, 2015, we and the FDA agreed on the general design of the confirmatory Phase 3 clinical trial of Macrilen™, as well as on evaluation criteria.
On May 26, 2015, we announced that we had received written scientific advice from the European Medicines Agency (the "EMA") regarding the further development plan, including the study design, for the new confirmatory Phase 3 clinical trial of Macrilen™ for use in evaluating AGHD, following a Scientific Advice Meeting that had been held earlier that month. As a result of the advice, we believe that the confirmatory Phase 3 clinical trial that was agreed with the FDA meets the EMA's study-design expectations allowing for US and European approval if the study is successful.
On June 25, 2015, we announced that we had entered into an agreement with Ergomed PLC (formerly Ergomed Clinical Research Limited, hereafter referred to as "Ergomed"), pursuant to which Ergomed will manage the new confirmatory Phase 3 clinical trial of Macrilen™. Ergomed is already the clinical research organization supporting our pivotal Phase 3 ZoptEC clinical trial.
On November 19, 2015, we announced the first patient enrolled for confirmatory Phase 3 trial of Macrilen™ for the evaluation of AGHD. The confirmatory Phase 3 clinical study of Macrilen™ is designed as a two-way crossover study with the insulin tolerance test ("ITT") as the benchmark comparator and will involve some 30 sites in the US and Europe. The study population will consist of approximately 110 subjects (at least 55 ITT-positive and 55 ITT-negative) with a medical history documenting risk factors for AGHD, and will include a spectrum of subjects from those with a low risk of having AGHD to those with a high risk

36



of having the condition. The primary endpoint is validation of a single oral dose of macimorelin for the diagnosis of AGHD, using the ITT as a comparator. 
Pre-clinical developments
On March 31, 2015, we announced the transfer of our discovery library of roughly 100,000 unique compounds to the South Carolina Center for Therapeutic Discovery and Development (the "Center") which is part of The Medical University of South Carolina ("MUSC"). Our material transfer agreement with the Center will result in the continued use of the library for the discovery of drug development candidates for the Company in the areas of oncology, neurology, endocrinology and women's health. The Center may make the library available to all investigators in the University of South Carolina system without restriction on its use and will own any therapeutic compounds discovered outside our areas of therapeutic interest.
The Center has agreed to conduct screening and pre-clinical activities with respect to the library with a view toward submitting to us at least one development candidate per year in our areas of therapeutic interest over a ten-year period beginning in 2018. We also have a right of first refusal to in-license any submitted development candidates. Should we decide to further develop a development candidate submitted by the Center, MUSC will license the compound candidate to us and be entitled to a royalty on the net sales of all commercialized products developed from the development candidate. However, should we decide not to further develop the development candidate submitted by the Center, MUSC is required to pay us a royalty on net sales of all commercialized products developed from the development candidate.
On July 28, 2015, we announced that we had granted to German life sciences entrepreneurs with a proven track-record of funding the development and commercialization of biotechnology (the "Optionee"), an option to license our live recombinant allogenic oral cancer vaccine technology (the "Technology"), including AEZS-120, the most advanced product candidate for prostate cancer which is ready to enter into a Phase 1 clinical trial. This option was granted to the Optionee worldwide, for a period of twelve months, in exchange for an upfront fee. Pursuant to the option agreement, the Optionee has the right to obtain a worldwide exclusive license to develop, use and sell products relating to the Technology and AEZS-120, in exchange for milestone payments and royalties on net sales of any product developed from the Technology and an equity interest in the company formed to develop the Technology. At the present time, we hold worldwide rights to the Technology, including AEZS-120.
On July 29, 2015, we announced that we had selected an optimized Erk inhibitor molecule, AEZS-140 and back-up candidates, for development. We have since decided to suspend our efforts on internally developing this class of potential cancer therapies to conserve our resources for other projects. Therefore, we are seeking proposals from parties who are interested in either co-developing or licensing the compounds.
On January 13, 2016, during our participation in the annual J.P. Morgan Healthcare conference, we announced that, in addition to our focus on Zoptrex™, we are also focusing on Disorazol Z, because it is an ideal compound for the formation of cytotoxic conjugates with peptides, proteins and antibodies to selectively target cancer cells. We have one cytotoxic conjugate, AEZS-138, in preclinical development. It is a conjugate based on Disorazol Z and the LHRH receptor agonist that is utilized in Zoptrex™. We believe that the peptide directs the compound specifically to LHRH receptor expressing tumor cells, and mediates binding and uptake via endocytosis. Within the cancer cell, the conjugates are cleaved and Disorazol Z can deploy its potent anti-proliferative activity. We have patented the cytotoxic agent Disorazol Z in 35 countries, including the US, Japan, Europe, China, Russia, Korea and Taiwan. This patent protection expires in 2026. The conjugate of Disorazol Z and the LHRH receptor agonist as a targeted cytotoxic agent is patented in 15 countries, including the US, Japan, China, Russia, Korea and Taiwan. This patent protection expires in 2027. We expect the European patent to be granted in the near future.

Commercial Operations

Our commercial operations consist of 21 full-time sales representatives and a sales-management staff. The sales representatives provide services pursuant to our agreement with a contract sales organization. The structuring and implementation of our commercial operations organization is felt to provide direct value through our existing co-promotion commercial activities, discussed below, as well as in support of our efforts to in-license and/or acquire products into our portfolio.

EstroGel® 

During 2015, we ramped up selling efforts related to our co-promotion agreement with Ascend, which we entered into in August 2014, for EstroGel®, a leading non-patch transdermal hormone replacement therapy product, in specific agreed-upon US territories in exchange for a sales commission that is based upon incremental sales volumes of the product that are generated over pre-established baselines.


37



Detailing efforts associated with EstroGel® commenced in earnest early in the first quarter of 2015, following the completion of sales force training and other knowledge-transfer activities that had been underway since late 2014. During 2015, we began exceeding pre-established unit sales baseline thresholds on a total nation basis.

Saizen® 

On May 8, 2015, we announced that we had entered into a promotional services agreement with EMD Serono, allowing us to promote Saizen® [somatropin (rDNA origin) for injection] to designated medical professionals in specified US territories. Saizen® is a recombinant human growth hormone registered in the US for the treatment of growth hormone deficiency in children and adults. Under this agreement, we are detailing Saizen® to designated medical professionals, representing an important incremental field promotion activity in support of EMD Serono's product. Payment to Aeterna Zentaris is based on new, eligible patient starts on Saizen® above an agreed-upon baseline.

We are currently promoting Saizen® in 21 US territories, with efforts having commenced during the third quarter of 2015.

APIFINY® 

On December 1, 2015, we announced the finalization of a co-marketing agreement that allows us to promote Armune's APIFINY®, the only cancer specific, non-PSA blood test for the detection of prostate cancer. Pursuant to this co-marketing agreement, we promote APIFINY to designated medical professionals in 20 US territories and are entitled to receive a commission for each test performed resulting from our targeted promotion.
Corporate Activities
Share consolidation
On November 18, 2015, we announced the details and implementation of the consolidation of our issued and outstanding common shares approved by shareholders at a special meeting held on November 16, 2015, which occurred at a consolidation ratio of 100-to-1 and became legally effective on November 17 2015. Our common shares began trading on a consolidated basis on each of the NASDAQ and the TSX at the opening of markets on November 20, 2015 under our current NASDAQ and TSX trading symbols, “AEZS” and “AEZ”, respectively. All common share and warrant data presented in the MD&A and pertaining to pre-share consolidation events or transactions have been retroactively adjusted to reflect this share consolidation.
On December 8, 2015, we announced that the NASDAQ had notified the Company that we regained compliance with Rule 5450(a)(1), which requires a minimum bid price of $1.00 for continued listing on the NASDAQ.
Public offerings and related events
On March 11, 2015, we completed a public offering of 596,775 units (the "Units"), generating net proceeds of approximately $34.4 million, with each Unit consisting of either one common share or one pre-funded warrant to purchase one common share ("Series C Warrant"), 0.75 of a warrant to purchase one common share ("Series A Warrant") and 0.50 of a warrant to purchase one common share ("Series B Warrant"), at a purchase price of $62.00 per Unit (the "March 2015 Offering"). The Series A Warrants are exercisable during a five-year term at an initial exercise price of $81.00 per share, and the Series B Warrants are exercisable during an 18-month term at an initial exercise price of $81.00 per share. Both the Series A and Series B warrants are subject to certain anti-dilution provisions. The Series C Warrants were exercisable for a period of five years at an exercise price of $62.00 per share. Total gross proceeds payable to us in connection with the exercise of the Series C Warrants were pre-paid by investors at the closing of the March 2015 Offering and therefore are included in the aforementioned proceeds. Between March 23, 2015 and June 16, 2015, all of the pre-funded Series C Warrants were exercised, resulting in the issuance of a total of 346,294 common shares.
Both the Series A and Series B Warrants may at any time be exercised on a standard cashless basis. In addition, the Series B Warrants may be exercised on an alternate net cashless basis. The exercise of Series B Warrants performed on an alternate net cashless basis results in the issuance of a substantially larger number of the Company's common shares than otherwise would be issued following a standard cash or cashless exercise. Specifically, between May 26, 2015 and December 31, 2015, 290,318 Series B Warrants were exercised on an alternate net cashless basis, resulting in the issuance of approximately 5.7 million common shares. The remaining 8,064 Series B Warrants expire on September 12, 2016.
In connection with the March 2015 Offering, the holders of 211,230 of the 219,000 outstanding warrants issued in connection with previous public offerings completed in November 2013 and January 2014 each entered into an amendment agreement that caused such previously issued warrants to expire and terminate in consideration for a cash payment made by us in the aggregate amount of approximately $5.7 million out of the proceeds of the March 2015 Offering.

38



On November 2, 2015, we announced that the holders (the "Participating Holders") of substantially all of the remaining outstanding Series B Warrants at that time had agreed to exercise all of the Series B Warrants held by them, as promptly as practicable, at a maximum exercise ratio of approximately 33.23 common shares per warrant in accordance with the alternate cashless exercise feature in such Series B Warrants. Following the exercise of Series B Warrants by the Participating Holders in accordance with the terms of the agreements, 8,064 Series B Warrants, with an expiry date of September 12, 2016, remain outstanding, representing approximately 2.7% of the originally issued number of Series B Warrants. A total of $2.9 million in cash was paid to the Participating Holders pursuant to the aforementioned agreements.
On December 14, 2015, we completed an underwritten public offering (the “December 2015 Offering”) of 3.0 million common shares and warrants to acquire 2.1 million common shares with a combined purchase price of $5.55 for one common share together with a warrant to purchase 0.7 of a common share, generating net proceeds of approximately $15.0 million. In addition, the Company granted the underwriter a 45-day option to purchase up to an additional 330,000 common shares and/or warrants to purchase up to an additional 231,000 common shares, to cover over-allotments, if any. Prior to closing, the underwriter exercised its over-allotment option with respect to the warrants to acquire an additional 231,000 common shares, resulting in an issuance of warrants to acquire an aggregate of approximately 2.3 million common shares at closing.
The warrants are exercisable immediately and expire five years following issuance at an exercise price of $7.10 per share. The warrants do not contain any price or other adjustment provision, except for customary adjustment provisions that apply in the event of certain corporate events or transactions that affect all outstanding common shares. The warrants may at any time be exercised on a standard cashless basis in accordance with a customary formula but do not contain an alternate cashless exercise feature contained in our previously issued Series B common shares purchase warrants. The warrants are not listed on any stock exchange.
On December 30, 2015, we announced that we had filed a preliminary short form base shelf prospectus (the “Shelf Prospectus”) with the securities regulatory authorities in each of the provinces of Canada, and a corresponding shelf registration statement on Form F-10 with the SEC under the US/Canada Multijurisdictional Disclosure System. The Shelf Prospectus and corresponding shelf registration statement, which became effective subsequent to year-end on January 13, 2016, will allow us to offer up to $150 million of common shares, preferred shares, debt securities, subscription receipts, warrants or units comprised of one or more of such securities during the 25-month period that the Shelf Prospectus is effective.
Class action lawsuit
The Company and certain of its current and former officers are defendants in a putative class-action lawsuit brought on behalf of shareholders of the Company. The pending lawsuit is the result of the consolidation of several lawsuits, the first of which was filed on November 11, 2014. The plaintiffs filed their amended consolidated complaint on April 10, 2015. The amended complaint alleged violations of the Securities Exchange Act of 1934 in connection with allegedly false and misleading statements made by the defendants between August 30, 2011 and November 6, 2014 (the "Class Period"), regarding the safety and efficacy of Macrilen™ and the prospects for the approval of the Company's new drug application for the product by the FDA. The plaintiffs seek to represent a class comprised of purchasers of the Company's common shares during the Class Period and seek unspecified damages, costs and expenses and such other relief as determined by the court.
On September 14, 2015, the Court dismissed the lawsuit, but granted the plaintiffs leave to amend. In dismissing the lawsuit, the court affirmed that the plaintiffs had failed to state a claim. On October 14, 2015, the plaintiffs filed a second amended complaint. We subsequently filed a motion to dismiss, because we believe that the second amended complaint also fails to state a claim. The hearing of the motion to dismiss the Second Amended Complaint occurred on January 19, 2016. On March 2, 2016, the Court issued an order granting our motion to dismiss the complaint in part and denying it in part.  The Court dismissed certain of our current and former officers from the lawsuit.  The Court allowed the claim that we omitted material facts from our public statements during the Class Period to proceed against us and our former CEO who departed in 2013, while dismissing such claims against other current and former officers.  The Court also allowed a claim for “controlling person” liability to proceed against certain current and former officers.  We disagree with the Court's decision and we filed a motion for reconsideration on March 16, 2016.
Restructuring
On October 12, 2015, we announced that our Board of Directors had approved a plan to restructure our finance and accounting operations and to close our Quebec City office (the “Corporate Restructuring”). We transferred all functions performed by the five employees in our Quebec City office to other personnel and we intend to add new finance and accounting personnel, including a new Chief Financial Officer, in our Summerville, South Carolina, office. We estimate that the Corporate Restructuring will be completed by September 2016.


39



Consolidated Statements of Comprehensive (Loss) Income Information
 
 
Three-month periods ended December 31,
 
Years ended December 31,
(in thousands, except share and per share data)
 
2015
 
2014
 
2015
 
2014
 
2013
 
 
$
 
$
 
$
 
$
 
$
Revenues
 
 
 
 
 
 
 
 
 
 
Sales commission and other
 
41

 

 
297

 

 
96

License fees
 
61

 
11

 
248

 
11

 
6,079

 
 
102

 
11

 
545

 
11

 
6,175

Operating expenses
 
 
 
 
 
 
 
 
 
 
Cost of sales
 

 

 

 

 
51

R&D costs
 
4,243

 
6,282

 
17,234

 
23,716

 
21,284

General and administrative expenses
 
3,953

 
2,633

 
11,308

 
9,840

 
11,091

Selling expenses
 
1,764

 
2,043

 
6,887

 
3,850

 
1,225

 
 
9,960

 
10,958

 
35,429

 
37,406

 
33,651

Loss from operations
 
(9,858
)
 
(10,947
)
 
(34,884
)
 
(37,395
)
 
(27,476
)
Finance income
 
26

 
15,053

 
305

 
20,319

 
1,748

Finance costs
 
(211
)
 

 
(15,649
)
 

 
(1,512
)
Net finance (costs) income
 
(185
)
 
15,053

 
(15,344
)
 
20,319

 
236

(Loss) income before income taxes
 
(10,043
)
 
4,106

 
(50,228
)
 
(17,076
)
 
(27,240
)
Income tax expense
 

 
(111
)
 

 
(111
)
 

Net (loss) income from continuing operations
 
(10,043
)
 
3,995

 
(50,228
)
 
(17,187
)
 
(27,240
)
Net income from discontinued operations
 
25

 
158

 
85

 
623

 
34,055

Net (loss) income
 
(10,018
)
 
4,153

 
(50,143
)
 
(16,564
)
 
6,815

Other comprehensive (loss) income:
 
 
 
 
 
 
 
 
 
 
Items that may be reclassified subsequently to profit or loss:
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
249

 
(677
)
 
1,509

 
(1,158
)
 
1,073

Items that will not be reclassified to profit or loss:
 
 
 
 
 
 
 
 
 
 
Actuarial (loss) gain on defined benefit plans
 
(116
)
 
1,336

 
844

 
(1,833
)
 
2,346

Comprehensive (loss) income
 
(9,885
)
 
4,812

 
(47,790
)
 
(19,555
)
 
10,234

Net (loss) income per share (basic and diluted) from continuing operations1
 
(1.46
)
 
6.11

 
(18.17
)
 
(29.12
)
 
(92.41
)
Net income per share (basic and diluted) from discontinued operations1
 

 
0.24

 
0.03

 
1.06

 
115.53

Net (loss) income per share (basic and diluted)1 
 
(1.46
)
 
6.35

 
(18.14
)
 
(28.06
)
 
23.12

Weighted average number of shares outstanding:1
 
 
 
 
 
 
 
 
 
 
Basic
 
6,874,460

 
653,833

 
2,763,603

 
590,247

 
294,765

Diluted
 
7,302,816

 
653,833

 
3,424,336

 
590,247

 
294,765


1 
Adjusted to reflect the November 17, 2015 100-to-1 Share Consolidation





40



A.
Operating Results
Our operating and financial review and prospects should be read in conjunction with our consolidated financial statements, accompanying notes and other information appearing in this Annual Report.
2015 compared to 2014
Revenues
Revenues were $0.1 million and $0.5 million for the three-month period and the year ended December 31, 2015, respectively, compared to $0.0 million and $6.2 million for the same periods in 2014.
The revenues recorded during the year ended December 31, 2015 resulted primarily from the amortization of a one-time, non-refundable payment made to us in December 2014 in connection with a master collaboration agreement, a technology transfer and technical assistance agreement and a license agreement that we entered into with Sinopharm A-Think Pharmaceuticals Co., Ltd. ("Sinopharm") related to ZoptrexTM. We deferred this non-refundable payment and we amortize it on a straightline basis over a four-year period. In addition, we started to generate sales commission in connection with our co-promotion efforts related to EstroGel®, pursuant to the co-promotion services agreement entered into with Ascend.
We expect revenues during the year ended December 31, 2016 to be higher than those recorded during the year ended December 31, 2015 due to the recording of expected higher sales commissions associated with our promotional efforts related to EstroGel® and as we begin to generate sales commissions related to Saizen®, provided that we are able to begin to exceed the pre-established baselines outlined in the related co-marketing agreement, as well as sales commissions related to APIFINY®.
Operating Expenses
R&D costs were $4.2 million and $17.2 million for the three-month period and the year ended December 31, 2015, respectively, compared to $6.3 million and $23.7 million for the same periods in 2014.
The decrease for the three-month period ended December 31, 2015, as compared to the same period in 2014, is attributable to lower comparative third-party costs, as described below, lower employee compensation and benefits costs and lower facilities rent and maintenance costs. A substantial portion of this decrease is due to the realization of cost savings in connection with our effort to streamline our R&D activities and to increase our commercial operations and flexibility by reducing our R&D staff, which was started in 2014 (the "Resource Optimization Program"), for which a provision had been recorded in the third quarter of 2014. In addition, the decrease is also due to the weakening, in 2015, of the EUR against the US dollar, which has appreciated quarter-over-quarter on average by approximately 12.0% from the quarter ended December 31, 2014 to the same period in 2015.

The decrease for the year ended December 31, 2015, as compared to the same period in 2014, is attributable to lower comparative employee compensation and benefits costs, facilities rent and maintenance costs as well as other costs. A substantial portion of this decrease is due to the realization of cost savings in connection with our Resource Optimization Program rolled out in the third quarter of 2014, as well as to the weakening, in 2015, of the EUR against the US dollar, which has appreciated on average by approximately 16.5% from the year ended December 31, 2014 to the same period in 2015. The decrease for the year ended December 31, 2015 was partly offset by higher third-party costs, as described below.
The following table summarizes our net R&D costs by nature of expense:
 
 
Three-month periods ended December 31,
 
Years ended December 31,
(in thousands)
 
2015
 
2014
 
2015
 
2014
 
2013
 
 
$
 
$
 
$
 
$
 
$
Third-party costs
 
2,899

 
3,967

 
11,891

 
11,356

 
10,049

Employee compensation and benefits
 
905

 
1,231

 
3,699

 
8,430

*
7,864

Facilities rent and maintenance
 
224

 
887

 
940

 
2,160

 
1,758

Other costs**
 
231

 
197

 
727

 
1,901

 
2,130

R&D tax credits and grants
 
(16
)
 

 
(23
)
 
(131
)
 
(517
)
 
 
4,243

 
6,282

 
17,234

 
23,716

 
21,284

 _________________________
* Includes a provision for restructuring in the amount of $2.2 million.
** Includes depreciation, amortization, impairment charges, loss (gain) on disposal of property, plant and equipment and onerous lease provision recognized.


41



The following table summarizes primary third-party R&D costs, by product candidate, incurred by the Company during the three-month periods ended December 31, 2015 and 2014.
(in thousands, except percentages)
 
Three-month periods ended December 31,
Product Candidate
 
2015
 
2014
 
 
$
 
%
 
$
 
%
Zoptrex™ (zoptarelin doxorubicin)
 
1,488

 
51.3

 
3,609

 
91.0

Macrilen™ (macimorelin)
 
977

 
33.7

 
192

 
4.8

Erk inhibitors
 
71

 
2.5

 
112

 
2.8

LHRH - Disorazol Z
 
73

 
2.5

 
54

 
1.4

Other
 
290

 
10.0

 

 

 
 
2,899

 
100.0

 
3,967

 
100.0

The following table summarizes primary third-party R&D costs, by product candidate, incurred by the Company during the years ended December 31, 2015, 2014 and 2013.
(in thousands, except percentages)
 
Years ended December 31,
Product Candidate
 
2015
 
2014
 
2013
 
 
$
 
%
 
$
 
%
 
$
 
%
Zoptrex™ (zoptarelin doxorubicin)
 
8,635

 
72.6

 
9,668

 
85.1

 
4,934

 
49.1

Macrilen™ (macimorelin)
 
1,555

 
13.1

 
404

 
3.6

 
1,238

 
12.3

Erk inhibitors
 
1,081

 
9.1

 
488

 
4.3

 
1,128

 
11.2

LHRH - Disorazol Z
 
212

 
1.8

 
257

 
2.3

 
659

 
6.6

Perifosine
 
29

 
0.2

 
196

 
1.7

 
1,134

 
11.3

Other
 
379

 
3.2

 
343

 
3.0

 
956

 
9.5

 
 
11,891

 
100.0

 
11,356

 
100.0

 
10,049

 
100.0

As shown above, a substantial portion of the quarter-to-date and year-to-date third-party R&D costs relates to development initiatives associated with ZoptrexTM, and in particular with our pivotal Phase 3 ZoptEC clinical trial initiated in 2013 with Ergomed. Excluding the impact of the foreign exchange rate fluctuations, third-party costs attributable to ZoptrexTM increased slightly during the year ended December 31, 2015, as compared to the same period in 2014, mainly due to a higher comparative number of patients enrolled in the clinical trial, which is now fully enrolled. However, the quarter-over-quarter decrease is explained by the fact that the number of patients in active treatment in the clinical trial was lower in 2015 as compared to the same period in 2014.
During the year ended December 31, 2015, ongoing services provided by Ergomed included the conducting of monitoring visits at various clinical sites, screening and enrollment initiatives, investigation-related management and analysis as well as regulatory and quality assurance support. ZoptEC-related efforts are progressing in accordance with pre-established timelines. As we continue to closely monitor all initiatives supported by Ergomed, we may decide to revise some of the trial's parameters or expand the scope of work performed by Ergomed and, consequently, total estimated costs in connection with the co-development and revenue sharing agreement may be adjusted. To date, our arrangement with Ergomed has been revised following our decision to open additional clinical sites and to perform additional sub-studies, resulting in overall, cumulative cost increases of approximately $2.4 million, as compared to our original expectations. We currently estimate that we will incur approximately $6 million pursuant to our agreement with Ergomed over the next 12 months as we proceed with and complete our ZoptEC trial.
In addition, during the year 2015, we started the new confirmatory Phase 3 clinical trial of Macrilen™, which explains the increase in costs for this product candidate.
Excluding the impact of foreign exchange rate fluctuations, we expect R&D costs for 2016 to increase, as compared to 2015, with the recent initiation of our confirmatory Phase 3 clinical trial for MacrilenTM. Based on currently available information and taking into account our more detailed forecasts for the MacrilenTM trial, and excluding the impact of foreign exchange rate fluctuations, we expect that we will incur overall R&D costs of between $19 million and $20 million for the year ended December 31, 2016.
General and administrative ("G&A") expenses were $4.0 million and $11.3 million for the three-month period and the year ended December 31, 2015, respectively, as compared to $2.6 million and $9.8 million for the same periods in 2014. The increase is mainly attributable to the recording of a provision related to our Corporate Restructuring in the fourth quarter of 2015, as well as to the recording of certain transaction costs associated with the completion of the March 2015 Offering and the December 2015 Offering, discussed above.

42



During 2016, excluding the impact of foreign exchange rate fluctuations and the recording of transaction costs related to potential financing activities (not currently known or estimable), we expect G&A expenses to be lower as compared to 2015, ranging between $6 million and $7 million, because we do not expect to record any restructuring charges in 2016 as we had in 2015.
Selling expenses were $1.8 million and $6.9 million for the three months and the year ended December 31, 2015, respectively, as compared to $2.0 million and $3.9 million for the same periods in 2014.
The decrease in selling expenses for the three-month period ended December 31, 2015 is explained by the start-up costs related to the deployment of our contracted sales force related to the co-promotion activities, which were launched during the fourth quarter of 2014.
The increase in selling expenses for the year ended December 31, 2015 as compared to the same period in 2014 is attributable to the fact that 2014 was not a full year of sales activity. During the third quarter of 2015, we also expanded the size of our contracted sales force from 19 to 21 sales representatives in order to support our promotional efforts associated with Saizen®. This sales force expense will also cover the recently initiated selling in support of APIFINY®.
During 2016, we expect selling expenses to increase slightly to reach a range of between $7 million and $8 million.
Net finance (costs) income are comprised predominantly of the change in fair value of warrant liability and of gains and losses recorded due to changes in foreign currency exchange rates, as presented below.
 
 
Three-month periods ended December 31,
 
Years ended December 31,
 
 
2015
 
2014
 
2015
 
2014
 
2013
 
 
$
 
$
 
$
 
$
 
$
Finance income
 
 
 
 
 
 
 
 
 
 
Change in fair value of warrant liability
 
3,030

 
14,079

 

 
18,272

 
1,563

Gain associated with the extinguishment of warrant liability
 

 

 
162

 

 

Gains due to changes in foreign currency exchange rates
 

 
924

 

 
1,879

 

Interest income
 
26

 
50

 
143

 
168

 
185

 
 
3,056

 
15,053

 
305

 
20,319

 
1,748

Finance costs
 
 
 
 
 
 
 
 
 
 
Change in fair value of warrant liability
 

 

 
(10,956
)
 

 

Warrant exercise inducement fee *
 
(2,926
)
 

 
(2,926
)
 

 

Losses due to changes in foreign currency exchange rates
 
(315
)
 

 
(1,767
)
 

 
(1,512
)
 
 
(3,241
)
 

 
(15,649
)
 

 
(1,512
)
 
 
(185
)
 
15,053

 
(15,344
)
 
20,319

 
236

 _________________________
*
Recorded in connection with the agreement with the Participating Holders, as discussed above.
The change in fair value of our warrant liability results from the periodic "mark-to-market" revaluation, via the application of the intrinsic valuation and the Black-Scholes option pricing model, of currently outstanding share purchase warrants. The "mark-to-market" warrant valuation has been most notably impacted by the issuance of 3.1 million additional share purchase warrants and by the closing price of our common shares, which, on the NASDAQ, has fluctuated from $4.00 to $84.20 during the year ended December 31, 2015, from $52.00 to $150.00 for the same period in 2014 and from $103.00 to $323.00 for the same period in 2013.
With specific reference to 2014, we recorded substantial fair value gains on our warrant liability, resulting from the significant reduction in our share price following our announcement, in November, that the FDA had issued a complete response letter ("CRL") in connection with our new drug application ("NDA") for Macrilen™. The lower closing price of our shares following our announcement of the CRL has resulted in a lower Black-Scholes valuation of our outstanding share purchase warrants during the fourth quarter of 2014.
In 2015, the change in fair value of warrant liability was significantly impacted by the issuance of the Series B Warrants. More than 97% of the Series B Warrants were exercised before the end of the year.

43



Net (loss) income for the three-month period and the year ended December 31, 2015 was ($10.0) million and ($50.1) million, or ($1.46) and ($(18.14) per basic and diluted share, respectively, compared to $4.2 million and ($16.6) million, or $6.35 and ($28.06) per basic and diluted share for the same periods in 2014.
The increase in our net loss from continuing operations for the three-month period and for the year ended December 31, 2015, as compared to the same period in 2014, is due to the higher comparative G&A and selling expenses and net finance costs, partly offset by lower comparative R&D costs, as presented above.
2014 compared to 2013
Revenues
Revenues recorded during the year ended December 31, 2013 resulted predominantly from the non-recurring, accelerated recognition of remaining unamortized deferred revenue associated with an upfront payment received from a licensee following the termination of related R&D activities.
Operating Expenses
R&D costs were $23.7 million for the year ended December 31, 2014, compared to $21.3 million for the same period in 2013.
The increase for the year ended December 31, 2014, as compared to the same period in 2013, is attributable to higher comparative employee compensation and benefits costs, which in turn are mainly due to the recording of R&D restructuring costs. Following the approval of our aforementioned Resource Optimization Program, we recorded a provision for restructuring costs, amounting to approximately $2.5 million, for severance payments, onerous lease provisions and other directly related costs associated with the Resource Optimization Program. This increase was partly offset by lower comparative salaries and short-term employee benefits and share-based compensation costs.
A substantial portion of the increase in 2013-to-2014 third-party R&D costs relates to development initiatives associated with Zoptrex™, and in particular with our Phase 3 ZoptEC trial initiated in 2013 with Ergomed. This increase was partially offset by the lower comparative development costs associated with most of our other product candidates.
General and administrative ("G&A") expenses were $9.8 million for the year ended December 31, 2014, compared to $11.1 million for the same period in 2013.
For the year ended December 31, 2014, the decrease in G&A expenses, as compared to the same period in 2013, is mainly related to recognition in the second quarter of 2013 of non-recurring termination benefits paid to our former Chief Executive Officer and to the recording of related non-cash based compensation costs, partially offset by the recording of restructuring costs related to administrative staff redundancies resulting from the Resource Optimization Program.
Selling Expenses were $3.9 million for the year ended December 31, 2014 compared to $1.2 million for the same period in 2013.
For the year ended December 31, 2014, the increase in selling expenses, as compared to the same period in 2013, mainly relates to the ramping up of our pre-commercialization activities and the deployment of our contracted sales force related to our co-promotion activities.
Net finance income (costs) are comprised predominantly of the change in fair value of warrant liability and of gains and losses recorded due to changes in foreign currency exchange rates.
The change in fair value of our warrant liability results from the periodic "mark-to-market" revaluation, via the application of the Black-Scholes option pricing model, of currently outstanding share purchase warrants. The Black-Scholes "mark-to-market" warrant valuation most notably has been impacted by the issuance of 8.8 million additional share purchase warrants and by the closing price of our common shares, which, on the NASDAQ, fluctuated from $52.00 to $150.00 during the year ended December 31, 2014 and from $103.00 to $323.00 for the same period in 2013.
With specific reference to 2014, we recorded substantial fair value gains on our warrant liability, resulting from the significant reduction in our share price following our announcement, in November, that the FDA had issued a CRL in connection with our NDA for Macrilen™. The lower closing price of our shares following our announcement of the CRL has resulted in a lower Black-Scholes valuation of our outstanding share purchase warrants during the fourth quarter of 2014.
Gains or losses due to changes in foreign currency exchange rates are mainly related to the US dollar, which strengthened against the EUR by approximately 12.2%, during the twelve-month period ended December 31, 2014. During the twelve-month period ended December 31, 2013, however, the US dollar weakened against the EUR by approximately 4.5%.

44



Net loss from continuing operations for the year ended December 31, 2014 was $(17.2) million, or $(29.12) per basic and diluted share, compared to $(27.2) million, or $(92.41) per basic and diluted share for the same period in 2013.
The decrease in net loss from continuing operations for the year ended December 31, 2014, as compared to the same period in 2013, is due largely to higher comparative net finance income, partly offset by lower comparative license fee revenues and by higher comparative net R&D costs and G&A and selling expenses, as presented above.
Discontinued Operations
Following a strategic review of our risks and prospects with respect to the manufacturing of Cetrotide® and related activities (collectively, the "Cetrotide® Business") and, in particular, having taken into account, as discussed below, the previous monetization of the corresponding royalty stream, we decided to transfer all manufacturing rights of Cetrotide® and to discontinue our involvement with the Cetrotide® Business. On April 3, 2013 (the "Cetrotide® Effective Date"), we entered into a transfer and service agreement ("TSA") and concurrent agreements with various partners and licensees with respect to our manufacturing rights for Cetrotide®, marketed for therapeutic use as part of in vitro fertilization programs. The principal effect of these agreements was to transfer, effective October 1, 2013 (the "Cetrotide®Closing Date"), our manufacturing rights for Cetrotide® to Merck Serono in all territories. Also per the TSA, we agreed to provide certain transition services to Merck Serono over a period of 36 months from the Cetrotide® Effective Date in order to assist Merck Serono in managing overall responsibility for the Cetrotide® Business.
Under the TSA, during the period commencing on the Cetrotide® Effective Date and ending on the Cetrotide® Closing Date (the "Cetrotide® Interim Period"), we were obligated to continue to conduct the Cetrotide® Business in the ordinary course in a manner consistent with past practices, subject to certain conditions. Per the TSA, we received a non-refundable, one-time payment of €2.5 million (approximately $3.3 million) in consideration for the transfer of our manufacturing rights referred to above, as well as other payments in exchange for the transfer, also on the Cetrotide® Closing Date, of certain assets, such as inventory and equipment used solely for the manufacture of Cetrotide®. We recognized the non-refundable, one-time payment on the Cetrotide® Closing Date, as we no longer had managerial involvement or effective control over the manufacturing of goods sold through the Cetrotide® Business. We provide the aforementioned transition services to Merck Serono in exchange for a monthly service fee. As a result of the transfer of substantially all of the risks and rewards associated with the Cetrotide® Business on the Cetrotide® Closing Date, the Cetrotide® Business has been classified as a discontinued operation in the consolidated financial statements. As such, relevant amounts in our consolidated statements of comprehensive (loss) income have been retroactively reclassified to reflect the Cetrotide® Business as a discontinued operation.
 
 
Three-month periods ended December 31,
 
Years ended December 31,
(in thousands)
 
2015
 
2014
 
2015
 
2014
 
2013
 
 
$
 
$
 
$
 
$
 
$
Revenues
 
 
 
 
 
 
 
 
 
 
Sales and royalties
 

 

 

 

 
63,755

License fees and other*
 
59

 
118

 
331

 
1,037

 
4,589

 
 
59

 
118

 
331

 
1,037

 
68,344

Operating expenses
 
 
 
 
 
 
 
 
 
 
Cost of sales
 

 

 

 

 
30,002

Research and development costs
 
2

 
8

 
31

 
25

 
8

General and administrative expenses
 

 

 

 
1

 
15

Selling Expenses
 
32

 
(48
)
 
215

 
388

 
4,264

 
 
34

 
(40
)
 
246

 
414

 
34,289

Net income from discontinued operations
 
25

 
158

 
85

 
623

 
34,055

 _________________________
*
Includes the non-refundable, one-time payment made by Merck Serono in exchange for the manufacturing rights for Cetrotide®and revenues from certain transition services provided pursuant to the aforementioned agreement.
The decrease in sales and royalties from discontinued operations, in cost of sales from discontinued operations and in selling expenses from discontinued operations during the year ended December 31, 2014, as compared to the same period in 2013, reflects the fact that we recorded no sales of Cetrotide® and royalties during the year ended December 31, 2014, as compared to the corresponding period of 2013, given that the transfer of the Cetrotide® Business was effective on October 1, 2013.

45



Net (loss) income
Net (loss) income for the year ended December 31, 2014 was $(16.6) million or $(28.06) per basic and diluted share compared to $6.8 million, or $23.12 per basic and diluted share, for the same period in 2013. The decrease in net income for the year ended December 31, 2014, as compared to the same period in 2013, is due largely to higher loss from operations and to lower net income from discontinued operations, partially offset by higher comparative net finance income.
Quarterly Consolidated Results of Operations Information
(in thousands, except for per share data)
 
Three-month periods ended
 
 
December 31, 2015
 
September 30,
2015
 
June 30,
2015
 
March 31, 2015
 
 
$
 
$
 
$
 
$
Revenues
 
102

 
173

 
197

 
73

Loss from operations
 
(9,858
)
 
(7,501
)
 
(7,989
)
 
(9,536
)
Net loss from continuing operations
 
(10,043
)
 
(15,401
)
 
(15,148
)
 
(9,636
)
Net loss
 
(10,018
)
 
(15,290
)
 
(15,099
)
 
(9,736
)
Net loss per share from continuing operations (basic and diluted)*
 
(1.46
)
 
(6.71
)
 
(13.69
)
 
(13.45
)
Net loss per share (basic and diluted)*
 
(1.46
)
 
(6.66
)
 
(13.65
)
 
(13.59
)

(in thousands, except for per share data)
 
Three-month periods ended
 
 
December 31, 2014
 
September 30, 2014
 
June 30,
2014
 
March 31, 2014
 
 
 
 
$
 
$
 
$
Revenues
 
11

 

 

 

Loss from operations
 
(10,947
)
 
(9,843
)
 
(8,410
)
 
(8,195
)
Net income (loss) from continuing operations
 
3,995

 
(11,629
)
 
(5,249
)
 
(4,304
)
Net income (loss)
 
4,153

 
(11,337
)
 
(5,024
)
 
(4,356
)
Net income (loss) per share from continuing operations (basic and diluted)*
 
6.11

 
(19.66
)
 
(9.29
)
 
(7.84
)
Net income (loss) per share (basic and diluted)*
 
6.35

 
(19.16
)
 
(8.89
)