UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 6-K

 

REPORT OF FOREIGN PRIVATE ISSUER

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

 

For the month of May 2020

 

Commission File Number: 001-38064

 

Aeterna Zentaris Inc.

(Translation of registrant’s name into English)

 

315 Sigma Drive, Summerville, South Carolina, USA 29486

(Address of principal executive office)

 

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

 

Form 20-F [X] Form 40-F [  ]

 

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

 

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

 

 

 

     

 

 

Exhibits 99.1, 99.2, 101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB and 101.PRE included with this report on Form 6-K are hereby incorporated by reference into the Registrant’s Registration Statements on Form F-3 (File No. 333-232935) and Forms S-8 (File Nos. 333-224737, 333-210561, 333-200834) and shall be deemed to be a part thereof from the date on which this report is furnished, to the extent not superseded by documents or reports subsequently filed or furnished.

 

DOCUMENTS INDEX

 

Exhibit   Description
99.1   Aeterna Zentaris’ Condensed Interim Consolidated Financial Statements – First Quarter 2020 (Q1)
99.2   Aeterna Zentaris’ Management’s Discussion and Analysis of Financial Condition and Results of Operations – First Quarter 2020 (Q1)
99.3   Certification of the Chief Executive Officer pursuant to National Instrument 52-109
99.4   Certification of the Principal Financial Officer pursuant to National Instrument 52-109
101   INS XBRL
101.   SCH XBRL
101.   CAL XBRL
101.   DEF XBRL
101.   LAB XBRL
101.   PRE XBRL

 

     

 

 

SIGNATURE

 

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

 

    AETERNA ZENTARIS INC.
       
Date: May 6, 2020   By: /s/ Klaus Paulini
      Klaus Paulini
      President and Chief Executive Officer

 

     

 

 

 

Exhibit 99.1

 

Condensed Interim Consolidated Financial Statements

(Unaudited)

 

Aeterna Zentaris Inc.

 

As at March 31, 2020 and for the three-month period ended March 31, 2020 and 2019

(presented in thousands of US dollars)

 

     

 

 

Aeterna Zentaris Inc.
As at March 31, 2020 and for the three-month period ended March 31, 2020 and 2019
Condensed Interim Consolidated Financial Statements
(Unaudited)

 

Condensed Interim Consolidated Statements of Financial Position 3
Condensed Interim Consolidated Statements of Changes in Shareholders’ Equity (Deficiency) 5
Condensed Interim Consolidated Statements of Comprehensive Income (Loss) 6
Condensed Interim Consolidated Statements of Cash Flows 7
Notes to Condensed Interim Consolidated Financial Statements 8

 

2

 

 

Aeterna Zentaris Inc.    
Condensed Interim Consolidated Statements of Financial Position    

(in thousands of US dollars)    
       
(Unaudited)   March 31, 2020     December 31, 2019  
    $     $  
ASSETS                
Current Assets                
Cash and cash equivalents     9,182       7,838  
Trade and other receivables (note 6)     665       658  
Inventory     367       1,203  
Prepaid expenses and other current assets     833       1,211  
Total current assets     11,047       10,910  
Restricted cash equivalents     358       364  
Right of use assets (note 7)     288       582  
Property, plant and equipment     31       35  
Identifiable intangible assets     35       40  
Goodwill (note 8)     7,882       8,050  
Total assets     19,641       19,981  
LIABILITIES                
Current liabilities                
Payables and accrued liabilities (note 9)     1,656       2,148  
Provision for restructuring and other costs (note 10)     96       418  
Income taxes     637       1,448  
Current portion of deferred revenues     585       991  
Current portion of lease liabilities (note 11)     216       648  
Current portion of warrant liability (note 12)     1       6  
Total current liabilities     3,191       5,659  
Deferred revenues     166       185  
Lease liabilities (note 11)     144       255  
Warrant liability (note 12)     2,109       2,249  
Employee future benefits (note 13)     12,056       13,788  
Non-current portion of provision for restructuring and other costs (note 10)     288       308  
Total liabilities     17,954       22,444  
SHAREHOLDERS’ EQUITY (DEFICIENCY)                
Share capital     226,413       224,528  
Other capital     89,694       89,806  
Deficit     (314,724 )     (316,891 )
Accumulated other comprehensive income     304       94  
Total shareholders’ equity (deficiency)     1,687       (2,463 )
Total liabilities and shareholders’ equity (deficiency)     19,641       19,981  

 

Going concern (note 1)

Commitments and contingencies (note 21)

 

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

 

3

 

 

Aeterna Zentaris Inc.
Condensed Interim Consolidated Statements of Financial Position
(in thousands of US dollars)  

 

Approved by the Board of Directors

 

/s/ Carolyn Egbert   /s/ Pierre-Yves Desbiens

Carolyn Egbert

Chair of the Board

 

Pierre-Yves Desbiens

Director

 

4

 

 

Aeterna Zentaris Inc.

Condensed Interim Consolidated Statements of Changes in Shareholders’ Equity (Deficiency)

For the three months ended March 31, 2020 and 2019

(in thousands of US dollars, except share data)  
       
(Unaudited)   Common shares (number of)     Share capital     Other capital     Deficit    

Accumulated other comprehensive

Income

    Total  
          $     $     $     $     $  
Balance - January 1, 2020     19,994,510       224,528       89,806       (316,891 )     94       (2,463 )
Net income                       779             779  
Other comprehensive loss:                                                
Foreign currency translation adjustments                             210       210  
Actuarial gain on defined benefit plan (note 13)                       1,388             1,388  
Comprehensive income                       2,167       210       2,377  
Issuance of common shares and warrants, net (note 14)     3,478,261       1,885                         1,885  
Share-based compensation costs                 (112 )                 (112 )
Balance – March 31, 2020     23,472,771       226,413       89,694       (314,724 )     304       1,687  

 

(Unaudited)   Common shares (number of)     Share capital     Other capital     Deficit    

Accumulated other comprehensive

Income

    Total  
          $     $     $     $     $  
Balance - January 1, 2019     16,440,760       222,335       89,342       (309,781 )     11       1,907  
Net (loss)                       (4,911 )           (4,911 )
Other comprehensive loss:                                                
Foreign currency translation adjustments                             84       84  
Actuarial (loss) on defined benefit plan                       (735 )           (735 )
Comprehensive (loss)                       (5,646 )     84       (5,562 )
Share-based compensation costs                 95                   95  
Balance – March 31, 2019     16,440,760       222,335       89,437       (315,427 )     95       (3,560 )

 

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

 

5

 

 

Aeterna Zentaris Inc.  

Condensed Interim Consolidated Statements of Comprehensive Income (Loss)

For the three months ended March 31, 2020 and 2019

(in thousands of US dollars, except share and per share data)  
       
    Three months ended March 31,  
(Unaudited)   2020     2019  
    $     $  
Revenues (note 5)                
Royalty income     14       13  
Product sales     1,016        
Supply chain     41       6  
Licensing revenue     19       18  
Total revenues     1,090       37  
Operating expenses                
Cost of sales     862        
Research and development costs     319       528  
General and administrative expenses     1,124       1,637  
Selling expenses     248       304  
Impairment of right of use asset           337  
Gain on modification of building lease (notes 7 and 11)     (185 )      
Impairment of prepaid asset           169  
Total operating expenses (note 15)     2,368       2,975  
Loss from operations     (1,278 )     (2,938 )
(Loss) gain due to changes in foreign currency exchange rates     (104 )     64  
Change in fair value of warrant liability (note 12)     2,470       (2,061 )
Other finance (costs) income     (309 )     24  
Net finance income (costs)     2,057       (1,973 )
                 
Net income (loss)     779       (4,911 )
Other comprehensive income (loss):                
Items that may be reclassified subsequently to profit or loss:                
Foreign currency translation adjustments     210       84  
Items that will not be reclassified to profit or loss:                
Actuarial gain (loss) on defined benefit plans (note 13)     1,388       (735 )
Comprehensive income (loss)     2,377       (5,562 )
Net income (loss) per share [basic]     0.04       (0.30 )
Net income (loss) per share [diluted]     0.04       (0.30 )
Weighted average number of shares outstanding (note 20):                
Basic     21,523,416       16,440,760  
Diluted     21,860,416       16,440,760  

 

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

 

6

 

 

Aeterna Zentaris Inc.

Condensed Interim Consolidated Statements of Cash Flows

For the three months ended March 31, 2020 and 2019

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

 

   

Three months ended

March 31,

 
(Unaudited)   2020     2019  
    $     $  
Cash flows from operating activities                
Net income (loss) for the period     779       (4,911 )
Items not affecting cash and cash equivalents:                
Change in fair value of warrant liability (note 12)     (2,470 )     2,061  
Transaction costs of warrants issued and expensed as finance cost     310        
Provision for restructuring costs utilized (note 10)     (327 )     (17 )
Depreciation and amortization     107       66  
Impairment of right of use asset           337  
Impairment of prepaid asset           169  
Gain on modification of building lease (notes 7 and 11)     (185 )      
Share-based compensation costs     (112 )     95  
Employee future benefits (note 13)     49       134  
Amortization of deferred revenues     (14 )     (18 )
Foreign exchange gain (loss) on items denominated in foreign currencies     52       (45 )
Gain on disposal of long-term assets           (3 )
Other non-cash items     (15 )      
Interest accretion on lease liabilities (note 11)     (11 )      
Changes in operating assets and liabilities (note 16)     (607 )     (874 )
Net cash used in operating activities     (2,444 )     (3,006 )
Cash flows from financing activities                
Issuance of common shares and warrants (notes 12 and 14)     4,500        
Transaction costs (note 14)     (600 )      
Payments on lease liabilities (note 11)     (158 )     (151 )
Net cash provided by (used in) financing activities     3,742       (151 )
Cash flows from investing activities                
Change in restricted cash           50  
Net cash provided by investing activities           50  
Effect of exchange rate changes on cash and cash equivalents     46       (48 )
Net change in cash and cash equivalents     1,344       (3,155 )
Cash and cash equivalents – Beginning of period     7,838       14,512  
Cash and cash equivalents – End of period     9,182       11,357  

 

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

 

7

 

 

Aeterna Zentaris Inc.
Notes to Condensed Interim Consolidated Financial Statements (Unaudited)
As at March 31, 2019 and for the three months ended March 31, 2020 and 2019
(amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)

 

1 Going Concern

 

Aeterna Zentaris Inc. (“Aeterna Zentaris” or the “Company”) has incurred significant expenses in its efforts to develop and co-promote products. Consequently, the Company has incurred operating losses and negative cash flow from operations historically and in each of the last several years except for the year ended December 31, 2018 when the Company earned revenue from the sale of a license for the adult indication of Macrilen™ (macimorelin) in the United States and Canada (the “License Agreement”) to Novo Nordisk A/S (“Novo”) (note 5). As at March 31, 2020, the Company had an accumulated deficit of $315 million. The Company also had net income of $779 for the three months ended March 31, 2020, and negative cash flow from operations of $2,444 in this period.

 

Management has evaluated whether material uncertainties exist relating to events or conditions that may cast substantial doubt about the Company’s ability to continue as a going concern and has considered the following in making that critical judgment.

 

The ability of the Company to realize its assets and meet its obligations as they come due is dependent on earning sufficient revenues under the License Agreement, developing opportunities for Macrilen™ (macimorelin) in the rest of the world, realizing other monetizing transactions, and raising additional sources of funding, the outcome of which cannot be predicted at this time. The revenue provided under the License Agreement was $14 for the three months ended March 31, 2020 and as at March 31, 2020, the Company had cash of $9,182. On February 21, 2020, the Company closed an equity financing for $3,900 in net cash proceeds.

 

A significant portion of the Company’s cash is held in Aeterna Zentaris GmbH (“AEZS Germany”), the Company’s principle operating subsidiary. AEZS Germany is the counter-party to the License Agreement, which is expected to generate future revenue. Management considers the cash resources available to AEZS Germany in executing its obligations under the License Agreement. In the event the current and medium term liabilities of AEZS Germany exceeds the fair values ascribed to its assets, under German solvency laws, it may no longer be possible for AEZS Germany’s operations to continue or for AEZS Germany to transfer cash to Aeterna Zentaris Inc or its U.S. subsidiary. This imposes additional and material uncertainties on the Company when evaluating liquidity and the going concern assumption.

 

The Company has some discretion to manage its planned research and development costs, administrative expenses and capital expenditures in order to manage its cash liquidity, particularly in AEZS Germany. Furthermore, AEZS Germany is focused on opportunities to either license or sell the European or worldwide rights to Macrilen™ (macimorelin) to third parties. As of the date of issuance of these consolidated financial statements, there are no assurances that cash will be generated from such arrangements. Management may also need to consider other sources of financing in order to continue its planned operations.

 

Additionally, in 2020, the COVID-19 pandemic began causing significant financial market declines and social dislocation. The situation is dynamic with various cities and countries around the world responding in different ways to address the outbreak. The spread of COVID-19 may impact the Company’s operations, including the potential interruption of our clinical trial activities and our supply chain. For example, the COVID-19 outbreak may delay enrollment in our pediatric clinical trial due to prioritization of hospital resources toward the outbreak, and some patients may be unwilling to enroll in our trials or be unable to comply with clinical trial protocols if quarantines impede patient movement or interrupt healthcare services, which would delay our ability to conduct clinical trials or release clinical trial results and could delay our ability to obtain regulatory approval and commercialize our product candidates. The spread of an infectious disease, including COVID-19, may also result in the inability of our suppliers to deliver components or raw materials on a timely basis or at all. In addition, hospitals may reduce staffing and reduce or postpone certain treatments in response to the spread of an infectious disease. Such events may result in a period of business disruption and, in reduced operations, doctors or medical providers may be unwilling to participate in our clinical trials, any of which could materially affect our business, financial condition or results of operations.

 

8

 

 

Aeterna Zentaris Inc.
Notes to Condensed Interim Consolidated Financial Statements (Unaudited)
As at March 31, 2020 and for the three months ended March 31, 2020 and 2019
(amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)

 

Management has assessed the Company’s ability to continue as a going concern and concluded that additional capital will be required. There can be no assurance that the Company will be able to execute license or purchase agreements or to obtain equity or debt financing, or on terms acceptable to it. Factors within and outside the Company’s control could have a significant bearing on its ability to obtain additional financing. As a result, management has determined that there are material uncertainties that may cast substantial doubt upon the Company’s ability to continue as a going concern.

 

These unaudited condensed interim consolidated financial statements have been prepared on a going concern basis, which asserts the Company has the ability in the near term to continue to realize its assets and discharge its liabilities and commitments in a planned manner giving consideration to the above and expected possible outcomes. Conversely, if the going concern assumption is not appropriate, adjustments to the carrying amounts of the Company’s assets, liabilities, revenues, expenses and balance sheet classifications may be necessary, and these adjustments could be material.

 

2 Summary of business and basis of preparation

 

Summary of business

 

Aeterna Zentaris is a specialty biopharmaceutical company commercializing and developing therapeutics and diagnostic tests. The Company’s lead product, Macrilen™ (macimorelin), is the first and only United States Food and Drug Administration (“FDA”) and European Commission approved oral test indicated for the diagnosis of patients with adult growth hormone deficiency (“AGHD”). Macrilen™ (macimorelin) is currently marketed in the U.S. through a license and assignment agreement (the “License Agreement”) with Novo. Aeterna Zentaris is also pursuing the development of macimorelin for the diagnosis of child-onset growth hormone deficiency (“CGHD”), an area of significant unmet need. In addition, we are actively pursuing business development opportunities for the commercialization of macimorelin in Europe and the rest of the world in addition to other non-strategic assets to monetize their value (see COVID-19 impacts in note 1).

 

The Company’s principal focus is on the commercialization of Macrilen™ (macimorelin) and it currently does not have any other approved products. Under the terms of License Agreement (as defined below), Novo is funding 70% of the pediatric clinical trial submitted to the EMA and FDA, the Company’s sole development activity (see COVID-19 impacts in note 1). In November 2019, Novo contracted AEZS Germany, our wholly owned German subsidiary, to provide supply chain services for the manufacture of Macrilen™ (macimorelin).

 

9

 

 

Aeterna Zentaris Inc.
Notes to Condensed Interim Consolidated Financial Statements (Unaudited)
As at March 31, 2020 and for the three months ended March 31, 2020 and 2019
(amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)

 

Basis of presentation

 

These unaudited condensed interim consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”) applicable to the preparation of interim financial statements, including IAS 34, Interim Financial Reporting. These unaudited condensed interim consolidated financial statements should be read in conjunction with the Company’s annual consolidated financial statements as at and for the year ended December 31, 2019.

 

The accounting policies in these condensed interim consolidated financial statements are consistent with those presented in the Company’s annual consolidated financial statements.

 

These unaudited condensed interim consolidated financial statements were approved by the Company’s Board of Directors on May 5, 2020.

 

As described in Note 1, these unaudited condensed interim consolidated financial statements were prepared on a going concern basis.

 

3 Critical accounting estimates and judgments

 

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

 

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

 

Measurement uncertainty:

 

The significant spread of COVID-19 with the U.S., Canada, Germany and elsewhere has resulted in a widespread health crisis and has had adverse effects on local, national and global economies generally, the markets the Company serves, its operations and the market price of its common shares.

 

Uncertain factors, including the duration of the outbreak, the severity of he disease and the actions to contain or treat its impact, could cause interruption of the Company’s operations and supply chain, which could impact the Company’s ability to accurately measure the net realizable value of inventory and fair value of trade and other receivables.

 

Critical accounting estimates and assumptions, as well as critical judgments used in applying accounting policies in the preparation of our interim condensed consolidated financial statements were the same as those that applied to our annual consolidated financial statements as of December 31, 2019 and December 31, 2018 and for the years ended December 31, 2019, 2018 and 2017.

 

10

 

 

Aeterna Zentaris Inc.
Notes to Condensed Interim Consolidated Financial Statements (Unaudited)
As at March 31, 2020 and for the three months ended March 31, 2020 and 2019
(amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)

 

4

Impact of adoption of new IFRS standards in 2020

 

  (a) IAS 1 Presentation of Financial Statements and IAS 8 Accounting policies, changes in accounting estimates and errors (amendment)

 

The amendments to IAS 1 and IAS 8 clarify the definition of material and seek to align the definition used in the Conceptual Framework with that in the standards themselves as well as ensuring the definition of material is consistent across all IFRS. The Company adopted these amendments effective January 1, 2020. The adoption of these amendments did not have a significant impact on the Company’s condensed interim consolidated financial statements.

 

  (b) Conceptual Framework for Financial Reporting

 

Together with the revised Conceptual Framework published in March 2018, the IASB also issued Amendments to References to the Conceptual Framework in IFRS Standards. The Company adopted the Revised Conceptual Framework effective January 1, 2020. The adoption of these amendments did not have a significant impact on the Company’s condensed interim consolidated financial statements.

 

IFRS pronouncements issued but not yet effective

 

  (c) IAS 1 – Presentation of Financial Statements

 

The amendment to IAS 1 clarifies how to classify debt and other liabilities as either current or non-current. The amendment will be effective for periods beginning on or after January 1, 2022. The Company is currently evaluating the new guidance and impacts on its consolidated financial statements.

 

5 Licensing arrangement and supply chain agreement

 

On January 16, 2018, the Company entered into the License Agreement which provides (i) for the “right to use” license relating to the Adult Indication, (ii) for the right to acquire a license for the Pediatric Indication if and when the FDA approves a pediatric indication, (iii) that the licensee is to fund 70% of the costs of a pediatric clinical trial submitted for approval to the EMA under the agreed Pediatric Investigation Plan (“PIP”) studies to be run by the Company with customary oversight from a joint steering committee (the “JSC”) and (iv) an interim supply arrangement (“Supply Arrangement”). Strongbridge Ireland Limited (“Strongbridge”), effective December 19, 2018, sold the U.S. and Canadian rights to Macrilen™ (macimorelin) to Novo for a payment plus tiered royalties on net sales. The service agreement under which Novo agreed to fund Strongbridge’s Macrilen™ (macimorelin) field organization as a contract field force to promote the product in the U.S. was terminated as of December 1, 2019.

 

Following Novo’s acquisition of the U.S. and Canadian rights to Macrilen™ (macimorelin), the JSC met in January, May, August and December 2019 and March 2020 to discuss Novo’s commercialization plan for the U.S. and Canada, their supply chain needs and the enrollment of patients and protocols of the two PIP studies.

The Company expects that quarterly meetings will continue as forecasts for sales, inventory build and needs for the PIP study progresses.

 

Royalty income earned under the License Agreement for the three-month period ending March 31, 2020 was $14 (2019 - $13) and, during the three-month period ended March 31, 2020, the Company invoiced Novo $193 for its share of PIP study costs (2019 - $308).

 

The Company agreed, in the Interim Supply Arrangement to the License Agreement, to supply ingredients for the manufacture of Macrilen™ (macimorelin) during an interim period at a price that is set ‘at cost’ without any profit margin. In November 2019, Novo contracted AEZS Germany, to provide supply chain services including API batch production and delivery of certain API and semi-finished goods, as well as the provision of ongoing support activities. During the three-month period ended March 31, 2020, the Company invoiced Novo $41 for supply chain activities (2019 – $6) and invoiced $1,016 in product sales (2019 - $nil).

 

11

 

 

Aeterna Zentaris Inc.
Notes to Condensed Interim Consolidated Financial Statements (Unaudited)
As at March 31, 2020 and for the three months ended March 31, 2020 and 2019
(amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)

 

6 Trade and other receivables

 

    March 31, 2020     December 31, 2019  
    $     $  
Trade accounts receivable (net of expected credit losses of $55 (December 31, 2019 - $55))     161       210  
Value added tax     329       254  
Other     175       194  
      665       658  

 

7 Right of use assets

 

    Building     Vehicles and equipment     Total  
    $     $     $  
Cost                        
At January 1, 2020     757       106       863  
Modification of building lease     (182 )           (182 )
Disposals           (19 )     (19 )
Impact of foreign exchange rate changes     (16 )     (3 )     (19 )
At March 31, 2020     559       84       643  

 

    Building     Vehicles and equipment     Total  
    $     $     $  
Accumulated Depreciation                        
At January 1, 2020     242       39       281  
Disposals           (19 )     (19 )
Depreciation     91       10       101  
Impact of foreign exchange rate changes     (7 )     (1 )     (8 )
At March 31, 2020     326       29       355  

 

    Building     Vehicles and equipment     Total  
    $     $     $  
Carrying amount                        
At March 31, 2020     233       55       288  
At December 31, 2019     515       67       582  

 

Upon the renegotiation of the building lease agreement on March 31, 2020 (note 11), a modification was recorded to the building right of use asset in the amount of $182, representing the reduction in the square footage leased from the landlord.

 

12

 

 

Aeterna Zentaris Inc.
Notes to Condensed Interim Consolidated Financial Statements (Unaudited)
As at March 31, 2020 and for the three months ended March 31, 2020 and 2019
(amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)

 

8 Goodwill

 

The change in carrying value is as follows:

 

    Carrying amount  
    $  
At January 1, 2019     8,210  
Impact of foreign exchange rate changes     (160 )
At December 31, 2019     8,050  
Impact of foreign exchange rate changes     (168 )
At March 31, 2020     7,882  

 

Management evaluated goodwill for impairment based on declines in both the economy and the Company’s share price during the three months ended March 31, 2020 resulting from the impact of COVID-19. This assessment is based on fair value less costs of disposal based on the Company’s market capitalization at March 31, 2020, its issued and outstanding common shares less estimated cost of disposal of approximately $720. There was no impairment assessed at March 31, 2020.

 

9 Payables and accrued liabilities

 

    March 31, 2020     December 31, 2019  
      $       $  
Trade accounts payable     679       1,087  
Salaries, employment taxes and benefits     67       64  
Accrued audit fees     186       216  
PIP study payables     47       118  
Accrued severance     306       427  
Other accrued liabilities     371       236  
      1,656       2,148  

 

10 Provision for restructuring and other costs

 

On June 6, 2019, the Company announced that it was reducing the size of its German workforce to more closely reflect the Company’s ongoing commercial activities in Frankfurt. AEZS Germany and its Works Council approved a restructuring that affects 8 employees that was completed by January 31, 2020.

 

The changes in the Company’s provision for restructuring and other costs can be summarized as follows:

 

    Cetrotide(R) onerous contracts     German Restructuring: severance     Total  
    $     $     $  
Balance – January 1, 2020     396       330       726  
Utilization of provision     (19 )     (323 )     (342 )
Change in provision     15             15  
Impact of foreign exchange rate changes     (8 )     (7 )     (15 )
Balance – March 31, 2020     384             384  
Less current portion     (96 )           (96 )
Non-current portion     288             288  

 

13

 

 

Aeterna Zentaris Inc.
Notes to Condensed Interim Consolidated Financial Statements (Unaudited)
As at March 31, 2020 and for the three months ended March 31, 2020 and 2019
(amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)

 

11 Lease liabilities

 

    Three months ended
March 31, 2020
    Year ended
December 31, 2019
 
      $       $  
Balance – beginning of period     903       1,522  
Interest paid as charged to comprehensive income (loss) as other finance costs     (11 )     (66 )
Payment against lease liabilities     (158 )     (614 )
Modification of lease liability     (367 )      
Impact of foreign exchange rate changes     (7 )     61  
                 
Balance – end of period     360       903  
Current lease liabilities     216       648  
Non-current lease liabilities     144       255  

 

Effective March 31, 2020, the Company and its landlord mutually agreed to modify its existing building lease agreement for its German subsidiary, extended the lease term for its portion of the reduced space from April 30, 2021 to March 31, 2022 and, retained one sub-lessee until April 30, 2021. On May 5, 2020, the sub-lessee terminated its lease with the Company effective April 30, 2020 and signed a lease directly with the landlord.

 

12 Warrant liability

 

The change in the Company’s warrant liability can be summarized as follows:

 

   

Three months ended

March 31, 2020

   

Year ended

December 31, 2019

 
      $       $  
Balance – beginning of period     2,255       3,634  
Issuance of warrants     2,325       3,457  
Warrants exercised during the year           (318 )
Change in fair value of warrant liability     (2,470 )     (4,518 )
Balance – end of period     2,110       2,255  
Current portion of warrant liability     1       6  
Long-term portion of warrant liability     2,109       2,249  

 

14

 

 

Aeterna Zentaris Inc.
Notes to Condensed Interim Consolidated Financial Statements (Unaudited)
As at March 31, 2020 and for the three months ended March 31, 2020 and 2019
(amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)

 

A summary of the activity related to the Company’s share purchase warrants that are classified as a liability is provided below.

 

   

Three months ended

March 31, 2020

   

Year ended

December 31, 2019

 
    Number     Weighted average exercise price     Number    

Weighted average exercise

price

 
          $     $        
Balance – Beginning of period     6,629,144       4.00       3,391,844       6.23  
Exercised                 (87,700 )     1.07  
Issued     2,852,174       1.24       3,325,000       1.65  
Expired     (28,144 )     1.07              
Balance – End of period     9,453,174       3.17       6,629,144       4.00  

 

The table presented below shows the inputs and assumptions applied to the Black-Scholes option pricing model in order to determine the fair value of all warrants outstanding as at March 31, 2020. The Black-Scholes option pricing model uses “Level 2” inputs, as defined by IFRS 13, Fair value measurement (“IFRS 13”) and as discussed in note 18 - Financial instruments and financial risk management.

 

    Number of equivalent shares     Market value per share price     Weighted average exercise price     Risk-free annual interest rate     Expected volatility     Expected life (years)     Expected dividend yield  
          ($)     ($)     (a)     (b)     (c)     (d)  
December 2015 Warrants     2,331,000       0.51       7.10       0.17 %     99.50 %     0.71       0.00 %
November 2016 Warrants (e)     945,000       0.51       4.70       0.17 %     124.96 %     0.08       0.00 %
September 2019 Warrants (f)     3,325,000       0.51       1.65       0.35 %     111.56 %     4.48       0.00 %
February 2020 Investor Warrants (g)     2,608,696       0.51       1.20       0.40 %     116.98 %     5.39       0.00 %
February 2020 Broker Warrants (g)     243,478       0.51       1.62       0.37 %     118.82 %     4.89       0.00 %

 

 

  (a) Based on United States Treasury Government Bond interest rates with a term that is consistent with the expected life of the warrants.
  (b) Based on the historical volatility of the Company’s stock price over the most recent period consistent with the expected life of the warrants, as well as on future expectations.
  (c) Based upon time to expiry from the reporting period date.
  (d) The Company has not paid dividends and it does not intend to pay dividends in the foreseeable future.
  (e) For the November 2016 Warrants, the Company reduced the fair value of these warrants to take into consideration the fair value of the $10.00 call option, which was also calculated using the Black-Scholes pricing model.
  (f) For the September 2019 Warrants, the Company, used the Black-Scholes pricing model to fair value the warrants and allocated the gross proceeds. The remaining gross proceeds were allocated to share capital
  (g) For the February 2020 Investor and Broker Warrants, the Company, used the Black-Scholes pricing model to fair value the warrants and allocated the gross proceeds. The remaining gross proceeds were allocated to share capital.

 

15

 

 

Aeterna Zentaris Inc.
Notes to Condensed Interim Consolidated Financial Statements (Unaudited)
As at March 31, 2020 and for the three months ended March 31, 2020 and 2019
(amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)

 

13 Employee future benefits

 

The Company sponsors a pension plan in Germany (The Aeterna Zentaris GmbH Pension Plan). The change in the Company’s accrued benefit obligations is summarized as follows:

 

   

Three months ended

March 31, 2020

    Year ended December 31, 2019  
    Pension benefit plans     Other benefit plans     Total     Total  
    $     $     $     $  
Balances – Beginning of the period     13,705       83       13,788       13,205  
Current service cost     11       1       12       49  
Interest cost     37             37       241  
Actuarial (gain) loss arising from changes in financial assumptions     (1,388 )           (1,388 )     1,040  
Benefits paid     (105 )           (105 )     (483 )
Impact of foreign exchange rate changes     (287 )     (1 )     (288 )     (264 )
Balances – End of the period     11,973       83       12,056       13,788  
Amounts recognized:                                
In net income (loss)     48       1       49       (262 )
In other comprehensive loss     (1,675 )     (1 )     (1,676 )     (810 )

 

The calculation of the pension benefit obligation is sensitive to the discount rate assumption. Effective March 31, 2020, the Company has incorporated a decline of 10.35% in its pension liabilities based on publicly available actuarial information. The discount rate as at March 31, 2020 was 1.8% (December 31, 2019 – 1.1%)

 

14 Share and other capital

 

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

 

On February 21, 2020, the Company closed a registered direct offering for 3,478,261 common shares, at a purchase price of $1.29 per share, priced at-the-market. Additionally, the Company issued to the investors unregistered warrants to purchase up to an aggregate of 2,608,696 common shares in a concurrent private placement. The warrants have an exercise price of $1.20 per common share, are exercisable immediately and will expire five and one-half years following the date of issuance. The Company also issued 243,478 warrants to the placement agent with an exercise price of $1.62 per common share, which are exercisable immediately and will expire five years following the date of issuance. The net cash proceeds to the Company from the offering totaled approximately $3,900. The gross proceeds of $4,500 was allocated as $2,325 to warrants based on the ascribed fair value (note 12) and the remaining gross proceeds of $2,175 were allocated to share capital. The transaction costs of $600 were allocated between share capital and warrants based on their relative fair values. The fair value of the share capital was recorded within equity net of the allocated transaction costs. The transaction costs of $310 allocated to the warrant liability were recorded as expense in the statement of comprehensive income (loss).

 

16

 

 

Aeterna Zentaris Inc.
Notes to Condensed Interim Consolidated Financial Statements (Unaudited)
As at March 31, 2020 and for the three months ended March 31, 2020 and 2019
(amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)

 

On September 20, 2019, the Company entered into a securities purchase agreement with U.S. institutional investors to purchase $4,988 (before total transaction costs of $786) of its common shares in a registered direct offering and warrants to purchase common shares in a concurrent private placement (together, the “Offering”). The combined purchase price for one common share and one warrant was $1.50. Under the terms of the securities purchase agreement, the Company sold 3,325,000 common shares. In a concurrent private placement, the Company issued warrants to purchase up to an aggregate of 3,325,000 common shares. The warrants are exercisable commencing six months from the date of issuance, have an exercise price of $1.65 per share and expire 5 years following the date of issuance. The gross proceeds of $4,988 was allocated as $3,457 to warrants based on the ascribed fair value and the remaining gross proceeds of $1,531 were allocated to share capital. The transaction costs of $795 were allocated between share capital and warrants based on their relative fair values. The fair value of the share capital was recorded within equity net of the allocated transaction costs. The transaction costs of $550 allocated to the warrant liability were recorded as expense in the statement of comprehensive income (loss).

 

Shareholder rights plan

 

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

 

Other capital

 

The Company accounts for costs associated with share-based compensation from security grants under its long-term incentive plan and stock option plans as other capital in its consolidated statements of changes in shareholders’ equity (deficiency) and as general and administrative expenses in its consolidated statements of comprehensive income (loss).

 

Long-term incentive plan

 

The following tables summarizes the activity under the LTIP and the Stock Option Plan:

 

    Three months ended     Year ended  
    March 31, 2020     December 31, 2019  
US dollar-denominated stock options and DSU   Number     Weighted average exercise price
(US$)
    Number     Weighted average exercise price
(US$)
 
Balance – Beginning of the period     953,116       3.38       888,816       3.66  
Granted                 335,000       2.00  
Exercised                 (163,850 )     2.42  
Canceled/Forfeited     (330,350 )     2.14       (6,000 )     13.39  
Expired     (77,850 )     2.37       (100,850 )     2.24  
      544,916       4,27       953,116       3.38  

 

17

 

 

Aeterna Zentaris Inc.
Notes to Condensed Interim Consolidated Financial Statements (Unaudited)
As at March 31, 2020 and for the three months ended March 31, 2020 and 2019
(amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)

 

    Three months ended     Year ended  
    March 31, 2020     December 31, 2019  
Canadian dollar-denominated options   Number     Weighted average exercise price
(CAN$)
    Number     Weighted average exercise price
(CAN$)
 
Balance – Beginning of the period     441       912.00       869       743.56  
Expired                 (428 )     570.00  
Balance – End of the period     441       912.00       441       912.00  

 

15 Operating expenses

 

The nature of the Company’s operating expenses from operations include the following:

 

    Three months ended March 31,  
    2020     2019  
    $     $  
Key management personnel:                
Salaries and short-term employee benefits     163       395  
Consultant fees     46       63  
Share-based compensation costs     11       80  
Post-employment benefits     14       13  
      234       551  
Other employees:                
Salaries and short-term employee benefits     316       508  
Share-based compensation costs     (123 )     15  
Post-employment benefits     45       75  
Termination benefits           10  
      238       608  
                 
Cost of inventory used and services provided     862        
Professional fees     498       779  
Consulting fees     141        
Insurance     221       221  
Third-party research and development     97       54  
Travel     33       75  
Marketing services     36       2  
Laboratory supplies           7  
Other goods and services     30       29  
Leasing costs, net of sublease receipts of $98 (2019 - $29)     46       53  
Gain on modification of building lease (notes 7 and 11)     (185 )      
Impairment of right of use asset           337  
Write-off of other current assets           169  
Depreciation and amortization     6       66  
Depreciation of right to use assets (note 7)     101        
Operating foreign exchange losses     10       24  
      2,368       2,975  

 

18

 

 

Aeterna Zentaris Inc.
Notes to Condensed Interim Consolidated Financial Statements (Unaudited)
As at March 31, 2020 and for the three months ended March 31, 2020 and 2019
(amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)

 

16 Supplemental disclosure of cash flow information

 

   

Three months ended

March 31,

 
    2020     2019  
    $     $  
Changes in operating assets and liabilities:                
Trade and other receivables     (7 )     (329 )
Inventory     836       (305 )
Prepaid expenses and other current assets     378       144  
Payables and accrued liabilities     (492 )     (255 )
Income taxes payable     (811 )      
Current portion of deferred revenues     (406 )      
Employee future benefits (note 13)     (105 )     (109 )
Lease liabilities           (20 )
      (607 )     (874 )

 

17 Capital disclosures

 

The Company’s objective in managing capital, consisting of shareholders’ equity, with cash and cash equivalents and restricted cash being its primary components, is to ensure sufficient liquidity to fund R&D costs, selling expenses, general and administrative expenses and working capital requirements (see note 1 - Going Concern). Over the past several years, the Company has raised capital via public equity offerings and issuances under various ATM sales programs as its primary source of liquidity. The policy on dividends is to retain cash to keep funds available to finance the activities required to advance the Company’s product development portfolio and to pursue appropriate commercial opportunities as they may arise. The Company is not subject to any capital requirements imposed by any regulators or by any other external source.

 

18 Financial instruments and financial risk management

 

Financial assets and liabilities as at March 31, 2020 and December 31, 2019 are presented below.

 

March 31, 2020   Financial assets at amortized cost     Financial
liabilities at
FVTPL
    Financial
liabilities at amortized cost
    Total  
    $     $     $     $  
Cash and cash equivalents     9,182                   9,182  
Trade and other receivables     336                   336  
Restricted cash     358                   358  
Payables and accrued liabilities                 1,656       1,656  
Lease liabilities                 360       360  
Warrant liability           2,110             2,110  
      9,876       2,110       2,016       5,750  

 

19

 

 

Aeterna Zentaris Inc.
Notes to Condensed Interim Consolidated Financial Statements (Unaudited)
As at March 31, 2020 and for the three ended March 31, 2020 and 2019
(amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)

 

December 31, 2019   Financial assets at amortized cost     Financial
liabilities at
FVTPL
    Financial
liabilities at amortized cost
    Total  
    $     $     $     $  
Cash and cash equivalents     7,838                   7,838  
Trade and other receivables     404                   404  
Restricted cash equivalents     364                   364  
Payables and accrued liabilities                 2,148       2,148  
Lease liabilities                 903       903  
Warrant liability           2,255             2,255  
      8,606       2,255       3,051       3,300  

 

Fair value

 

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

 

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

 

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

 

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

 

As discussed above in note 12 - Warrant liability, the Black-Scholes valuation methodology uses “Level 2” inputs in calculating fair value.

 

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

 

Financial risk factors

 

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

 

20

 

 

Aeterna Zentaris Inc.
Notes to Condensed Interim Consolidated Financial Statements (Unaudited)
As at March 31, 2020 and for the three months ended March 31, 2020 and 2019
(amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)

 

  (a) Credit risk

 

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

 

As at March 31, 2020, trade accounts receivable for an amount of approximately $161 were with four counterparties of which $55 was past due and impaired and fully provided for (December 31, 2019 - $265 with four counterparties and $55 past due and impaired and fully provided for). The licensee is obligated to pay its quarterly royalties, 45 days after quarter-end.

 

Generally, the Company does not require collateral or other security from customers for trade accounts receivable; however, credit is extended following an evaluation of creditworthiness. In addition, the Company performs ongoing credit reviews of all of its customers and establishes an allowance for doubtful accounts. On this basis, as at March 31, 2020, the Company has provided for all outstanding and unpaid amounts relating to its operations before its licensing of MacrilenTM (macimorelin). The licensee has paid all amounts owing within 60 days of invoicing.

 

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

 

  (b) Liquidity risk

 

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. As indicated in note 17 - Capital disclosure, the Company manages this risk through the management of its capital structure. It also manages liquidity risk by continuously monitoring actual and projected cash flows as further discussed in note 1 - Going Concern. The Board of Directors reviews and approves the Company’s operating and capital budgets, as well as any material transactions occurring outside of the ordinary course of business. The Company has adopted an investment policy in respect of the safety and preservation of its capital to ensure the Company’s liquidity needs are met. The instruments are selected with regard to the expected timing of expenditures and prevailing interest rates.

 

21

 

 

Aeterna Zentaris Inc.
Notes to Condensed Interim Consolidated Financial Statements (Unaudited)
As at March 31, 2020 and for the three months ended March 31, 2020 and 2019
(amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)

 

  (c) Market risk

 

Share price risk

 

The change in fair value of the Company’s warrant liability, which is measured at FVTPL, results from the periodic “mark-to-market” revaluation, via the application of option pricing models, of currently outstanding share purchase warrants. These valuation models are impacted, among other inputs, by the market price of the Company’s common shares. As a result, the change in fair value of the warrant liability, which is reported in the consolidated statements of comprehensive loss, has been and may continue in future periods to be materially affected most notably by changes in the Company’s common share closing price, which on the NASDAQ ranged from $0.42 to $1.44 during the three-months ended March 31, 2020.

 

If variations in the market price of our common shares of -30% and +30% were to occur, the impact on the Company’s net income related to the warrant liability held at March 31, 2020 would be $741 to $(774) respectively.

 

  (d) Foreign exchange risk

 

Entities using the Euro as their functional currency

 

The Company is exposed to foreign exchange risk due to its investments in foreign operations whose functional currency is the Euro. As at March 31, 2020, if the US dollar had increased or decreased by 10% against the Euro, with all variables held constant, net income for the three-month period ended March 31, 2020 would have been lower or higher by approximately $50 (2019 - $270).

 

19 Segment information

 

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

 

22

 

 

Aeterna Zentaris Inc.
Notes to Condensed Interim Consolidated Financial Statements (Unaudited)
As at March 31, 2020 and for the three months ended March 31, 2020 and 2019
(amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)

 

20 Net income (loss) per share

 

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

 

   

Three months ended

March 31,

 
    2020     2019  
    $     $  
Net income (loss)     779       (4,911 )
Basic weighted average number of shares outstanding     21,523,416       16,440,760  
Net income (loss) per share (basic)     0.04       (0.30 )
                 
Dilutive effect of stock options and DSUs     337,000        
Dilutive effect of share purchase warrants            
Diluted weighted average number of shares outstanding     21,860,416       16,440,760  
Net income (loss) per share (diluted)     0.04       (0.30 )
                 
Items excluded from the calculation of diluted net loss per share because the exercise price was greater than the average market price of the common shares or due to their anti-dilutive effect                
Stock options     208,357       889,685  
Deferred stock units            
Warrants (number of equivalent shares)     9,453,174       3,391,844  

 

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

  

23

 

 

Aeterna Zentaris Inc.
Notes to Condensed Interim Consolidated Financial Statements (Unaudited)
As at March 31, 2020 and for the three months ended March 31, 2020 and 2019
(amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)

 

21 Commitments and contingencies

 

    Service and manufacturing  
    $  
Less than 1 year     931  
1 - 3 years     12  
4 - 5 years     4  
More than 5 years     3  
Total     950  

 

Contingencies

 

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

 

Securities class action lawsuit

 

On March 9, 2020, the Company settled the previously disclosed class-action lawsuit against it pending in the U.S. District Court for New Jersey. The settlement payment of $6,500 will be funded entirely by the Company’s insurers. The class-action lawsuit alleged that the Company and certain of its former officers and directors violated the Securities Exchange Act of 1934 in connection with certain public statements between August 30, 2011 and November 6, 2014, regarding the safety and efficacy of Macrilen™ (macimorelin) and the prospects for the approval of the Company’s NDA for the product by the FDA. This settlement remains subject to execution of final settlement documents and approval by the U.S. District Court for the District of New Jersey.

 

24

 

 

Exhibit 99.2

 

 

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

 

Introduction

 

This Management’s Discussion and Analysis (“MD&A”) provides a review of the financial condition as of March 31, 2020, and the results of operations and cash flows for the three months ended March 31, 2020 and 2019 of Aeterna Zentaris Inc. In this MD&A, “Aeterna Zentaris”, the “Company”, “we”, “us” and “our” mean Aeterna Zentaris Inc. and its subsidiaries. This discussion should be read in conjunction with the information contained in the Company’s unaudited condensed consolidated financial statements and the accompanying notes thereto as at March 31, 2020 and for the three months ended March 31, 2020 and 2019 and the audited consolidated financial statements and MD&A for the years ended December 31, 2019 and 2018, which were prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). The Company’s common shares are listed on both the NASDAQ Capital Market (“NASDAQ”) and on the Toronto Stock Exchange (“TSX”) under the symbol “AEZS”.

 

All amounts in this MD&A are presented in U.S. dollars, except for share, option and share purchase warrant data, or as otherwise noted.

 

This MD&A was approved by the Company’s Board of Directors on May [5], 2020. This MD&A is dated May [5], 2020.

 

Company Overview

 

Aeterna Zentaris is a specialty biopharmaceutical company commercializing and developing therapeutics and diagnostic tests. The Company’s lead product, Macrilen™ (macimorelin), is the first and only United States Food and Drug Administration (“FDA”) and European Commission approved oral test indicated for the diagnosis of patients with adult growth hormone deficiency (“AGHD”). Macrilen™ (macimorelin) is currently marketed in the United States through a license and assignment agreement (the “License Agreement”) with Novo Nordisk A/S (“Novo”). Aeterna Zentaris is also pursuing the development of macimorelin for the diagnosis of child-onset growth hormone deficiency (“CGHD”), an area of significant unmet need. In addition, we are actively pursuing business development opportunities for the commercialization of macimorelin in Europe and the rest of the world in addition to other non-strategic assets to monetize their value.

 

About Forward-Looking Statements

 

This document contains forward-looking statements (as defined by applicable securities legislation) made pursuant to the safe-harbor provision of the U.S. Private Securities Litigation Reform Act of 1995, which reflect our current expectations regarding future events. Forward-looking statements may include, but are not limited to statements preceded by, followed by, or that include the words “will,” “expects,” “believes,” “intends,” “would,” “could,” “may,” “anticipates,” and similar terms that relate to future events, performance, or our results. Forward-looking statements involve known and unknown risks and uncertainties, including those discussed in this press release and in our Annual Report on Form 20-F, under the caption “Key Information - Risk Factors” filed with the relevant Canadian securities regulatory authorities in lieu of an annual information form and with the U.S. Securities and Exchange Commission. Known and unknown risks and uncertainties could cause our actual results to differ materially from those in forward-looking statements. Such risks and uncertainties include, among others, our ability to raise capital and obtain financing to continue our currently planned operations, our ability to continue to list our Common Shares on the NASDAQ, our ability to continue as a going concern is dependent, in part, on our ability to transfer cash from Aeterna Zentaris GmbH (“AEZS Germany”) to Aeterna Zentaris and our U.S. subsidiary and secure additional financing, our now heavy dependence on the success of Macrilen™ (macimorelin) and related out-licensing arrangements and the continued availability of funds and resources to successfully commercialize the product, including our heavy reliance on the success of the License Agreement with Novo, our ability to enter into out-licensing, development, manufacturing, marketing and distribution agreements with other pharmaceutical companies and keep such agreements in effect, our reliance on third parties for the manufacturing and commercialization of Macrilen™ (macimorelin), potential disputes with third parties, leading to delays in or termination of the manufacturing, development, out-licensing or commercialization of our product candidates, or resulting in significant litigation or arbitration, uncertainties related to the regulatory process, unforeseen global instability, including the instability due to the global pandemic of the novel coronavirus or COVID-19, our ability to efficiently commercialize or out-license Macrilen™ (macimorelin), our reliance on the success of the pediatric clinical trial in the European Union (“E.U.”) and U.S. for Macrilen™ (macimorelin), the degree of market acceptance of Macrilen™ (macimorelin), our ability to obtain necessary approvals from the relevant regulatory authorities to enable us to use the desired brand names for our product, our ability to successfully negotiate pricing and reimbursement in key markets in the E.U. for Macrilen™ (macimorelin), any evaluation of potential strategic alternatives to maximize potential future growth and shareholder value may not result in any such alternative being pursued, and even if pursued, may not result in the anticipated benefits, our ability to take advantage of business opportunities in the pharmaceutical industry, our ability to protect our intellectual property, and the potential of liability arising from shareholder lawsuits and general changes in economic conditions. Investors should consult our quarterly and annual filings with the Canadian and U.S. securities regulatory authorities for additional information on risks and uncertainties. Given these uncertainties and risk factors, readers are cautioned not to place undue reliance on these forward-looking statements. We disclaim any obligation to update any such factors or to publicly announce any revisions to any of the forward-looking statements contained herein to reflect future results, events or developments, unless required to do so by a governmental authority or applicable law.

 

  (1)  

 

 

About Material Information

 

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

 

We are a reporting issuer under the securities legislation of all of the provinces of Canada, and our securities are registered with the SEC. We are therefore required to file or furnish continuous disclosure information, such as interim and annual financial statements, MD&A, proxy or information circulars, annual reports on Form 20-F, material change reports and press releases with the appropriate securities regulatory authorities. Copies of these documents may be obtained free of charge upon request from our Corporate Secretary or on the Internet at the following addresses: www.zentaris.com, www.sedar.com and www.sec.gov.

 

Key Developments

 

Financing activities

 

On February 21, 2020, the Company closed a registered direct offering for 3,478,261 common shares, at a purchase price of $1.29375 per share, priced at-the-market. Additionally, the Company issued to the investors in the offering unregistered warrants to purchase up to an aggregate of 2,608,696 common shares in a concurrent private placement. The warrants have an exercise price of $1.20 per common share, are exercisable immediately and will expire five and one-half years following the date of issuance. The net cash proceeds to the Company from the offering totaled $3.9 million. The Company issued 243,478 warrants to the placement agent with an exercise price of $1.61719 per common share, which are exercisable immediately and will expire five years following the date of issuance. Collectively, this financing is referred to as the “February 2020 Financing”.

 

Commercialization of Macrilen™ (macimorelin) in U.S. and Canada

 

On January 16, 2018, the Company entered into the License Agreement which provides (i) for the “right to use” license relating to the adult indication, (ii) for the right to acquire a license for the Pediatric Indication if and when the FDA approves a pediatric indication, (iii) that the licensee is to fund 70% of the costs of a pediatric clinical trial submitted for approval to the European Medicines Agency (“EMA”) under the agreed Pediatric Investigation Plan (“PIP”) studies to be run by the Company with customary oversight from a joint steering committee (the “JSC”) and (iv) an interim supply arrangement (“Supply Arrangement”). Strongbridge Ireland Limited (“Strongbridge”), effective December 19, 2018, sold the U.S. and Canadian rights to Macrilen™ (macimorelin) to Novo for a payment plus tiered royalties on net sales. The service agreement under which Novo agreed to fund Strongbridge’s Macrilen™ (macimorelin) field organization as a contract field force to promote the product in the U.S. was terminated as of December 1, 2019.

 

  (2)  

 

 

Following Novo’s acquisition of the U.S. and Canadian rights to Macrilen™ (macimorelin), the JSC has met quarterly to discuss Novo’s commercialization plan for the U.S. and Canada, their supply chain needs and the enrollment of patients and protocols of the two PIP studies. The Company expects that quarterly meetings will continue as forecasts for sales, inventory build and needs for the PIP study progresses.

 

Royalty income earned under the License Agreement for the three-month period ending March 31, 2020 was $0.01 million (2019 - $0.01 million) and, during the three-month period ended March 31, 2020, the Company invoiced Novo $0.2 million for its share of PIP study costs (2019 - $0.3 million).

 

The Company agreed, in the Interim Supply Arrangement to the License Agreement, to supply ingredients for the manufacture of Macrilen™ (macimorelin) during an interim period at a price that is set ‘at cost’ without any profit margin. In November 2019, Novo contracted AEZS Germany, to provide supply chain services including API batch production and delivery of certain API and semi-finished goods, as well as the provision of ongoing support activities. During the three-month period ending March 31, 2020, the Company invoiced Novo $0.04 million for supply chain activities (2019 – $0.01 million) and invoiced $1.0 million in product sales (2019 - $nil).

 

Pediatric clinical trial for Macrilen™ (macimorelin)

 

On January 28, 2020, the Company announced the successful completion of patient recruitment for the first pediatric study of macimorelin as a growth hormone stimulation test for the evaluation of growth hormone deficiency (“GHD”) in children. This study, AEZS-130-P01 (“Study P01”), was the first of two studies as agreed with the European Medicines Agency in the Company’s PIP for macimorelin. Macimorelin, a ghrelin agonist, is an orally active small molecule that stimulates the secretion of growth hormone from the pituitary gland into the circulatory system. The goal of Study P01was to establish a dose that can both be safely administered to pediatric patients and cause a clear rise in growth hormone concentration in subjects ultimately diagnosed as not having GHD. The recommended dose derived from Study P01 will be evaluated in the pivotal second study AEZS-130-P02 (“Study P02”) on diagnostic efficacy and safety. Study P01 was an international, multicenter study which was conducted in Hungary, Poland, Ukraine, Serbia, Belarus and Russia. Study P01 was an open label, group comparison, dose escalation trial designed to investigate the safety, tolerability, and pharmacokinetic/pharmacodynamic (“PK/PD”) of macimorelin acetate after ascending single oral doses of macimorelin at 0.25, 0.5, and 1.0 mg per kg body weight in pediatric patients from 2 to less than 18 years of age with suspected GHD. The Company enrolled a total of 24 pediatric patients across the three cohorts of the study. Per study protocol, all enrolled patients completed four study visits after successful completion of the screening period. At Visit 1 and Visit 3, a provocative GH stimulation test was conducted according to the study sites’ local practices. At Visit 2, the macimorelin test was performed: following the oral administration of the macimorelin solution, blood samples were taken at predefined times for PK/PD assessment. Visit 4 was a safety follow-up visit at study end. For more information about Study P01, please visit EU Clinical Trials Register and reference EudraCT #2018-001988-23.

 

Study P01 was the first of two studies as agreed with the EMA in the Company’s PIP for macimorelin as a GHD diagnostic. Study P01 final study results are expected in the second quarter of 2020. Thereafter, we plan to proceed with the pivotal Study P02 with an expected start date in the fourth quarter of 2020 and an expected completion date in July 2022, according to the PIP agreement with EMA.

 

On April 7, 2020 the Company announced the decision of the EMA to accept a modification request by Aeterna Zentaris of the Company’s PIP as originally approved in March 2017, which covered the conduct of two pediatric studies and defined relevant key elements in the outline of these studies. This EMA decision supports the development of one globally harmonized study protocol for test validation - Study P02 - which will be accepted both in Europe and the U.S.

 

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Changes in personnel

 

On December 16, 2019, the Company announced changes to its director composition planned for the first quarter of 2020. Mr. Gilles Gagnon (M.Sc., MBA, ICD.D) joined the board of directors of the Company (the “Board”) on January 1, 2020. Mr. Gérard Limoges, who has served on the Board since 2004, retired from the Board on March 31, 2020, and was replaced by Mr. Pierre-Yves Desbiens (CPA, CA, CF, MBA), who also replaced Mr. Limoges as Chair of the Audit Committee.

 

NASDAQ notifications

 

On April 8, 2020, the Company received notice from the Listing Qualifications Department (the “Staff”) of NASDAQ indicating that the Company was not in compliance with the minimum $1.00 per share bid price requirement set forth in Nasdaq Listing Rule 5550(a)(2) as the bid price for the Company’s common stock had closed below $1.00 per share for the prior 30 consecutive business day period. On April 17, 2020, NASDAQ implemented a rule change that allows any listed company that is in the midst of a compliance period of this price-based requirement to remain at the same stage of its compliance process (and not subject to delisting on this basis) until July 1, 2020, and that such companies will have following July 1, 2020 the balance of any compliance period that was in effect at the time of such rule change. As a result, the Company has until December 21, 2020 to report a closing bid price of at least $1.00 per share for a minimum of 10, and generally not more than 20, consecutive business days.

 

The Company was also notified that, based upon the net loss for the fiscal year ended December 31, 2019, the Company no longer satisfied the minimum net income requirement for continued listing on NASDAQ under Nasdaq Listing Rule 5550(b)(3) and did not otherwise satisfy the alternative requirements of market value of listed securities or stockholders’ equity. The Company intends to submit its plan to regain compliance with Nasdaq Listing Rule 5550(b)(3) for the Staff’s review within the 45-day window provided. The Staff has the discretion to grant the Company an extension of up to 180 days, through October 5, 2020, to evidence compliance with this requirement.

 

NASDAQ’s notice has no immediate effect on the listing of the Company’s common shares on NASDAQ and does not otherwise impact the Company’s listing on the Toronto Stock Exchange. In the event the Company does not evidence compliance with the Nasdaq Listing Rules within any prescribed period and is not otherwise eligible for additional time to do so, the Company would be subject to delisting from NASDAQ. In that event, the Company would have the right to request a hearing before a Nasdaq Hearings Panel, which request would stay any further action by the Staff pending such hearing.

 

For more information, please see the Risk Factor entitled “Our Common Shares may be delisted from the NASDAQ or the TSX, which could affect their market price and liquidity. If our Common Shares were to be delisted, investors may have difficulty in disposing their Common Shares” in our Annual Report on Form 20-F for the year ended December 31, 2019.

 

Settlement of class-action lawsuit

 

On March 9, 2020, the Company settled the previously disclosed class-action lawsuit against it pending in the U.S. District Court for New Jersey. The settlement payment of $6.5 million will be funded entirely by our insurers. The class-action lawsuit alleged that the Company and certain of its former officers and directors violated the Securities Exchange Act of 1934 in connection with certain public statements between August 30, 2011 and November 6, 2014, regarding the safety and efficacy of Macrilen™ (macimorelin) and the prospects for the approval of the Company’s NDA for the product by the FDA. This settlement remains subject to execution of final settlement documents and approval by the U.S. District Court for the District of New Jersey.

 

Renegotiation of German building lease

 

Effective March 31, 2020, the Company and its landlord mutually agreed to modify its existing building lease agreement for its German subsidiary for 30,343 square feet for management, R&D, business development and administration whereby 9,882 square feet was retained for business development, clinical development, manufacturing, supply chain and management purposes, extended the lease term for its portion of the reduced space from April 30, 2021 to March 31, 2022 and, retained one sub-lessee until April 30, 2021. On May [ ], the sub-lessee terminated its lease with the Company and signed a lease directly with the landlord. AEZS Germany’s revised square footage is 6,835 for business development, clinical development, manufacturing, supply chain and management purposes.

 

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Exposure to epidemic or pandemic outbreak

 

As of May 5, 2020, coronavirus or COVID-19, a contagious disease that was characterized by the World Health Organization as a pandemic in early 2020, is affecting the global community and is adversely affecting our business operations. Given this rapidly evolving situation, the duration, scope and impact on our business operations, clinical studies and financial results cannot at this time be fully determined or quantified. Aeterna Zentaris has developed protocols and procedures should they be required to deal with any potential epidemics and pandemics and has implemented these protocols and procedures in place to address the current COVID-19 pandemic. Despite appropriate steps being taken to mitigate such risks, there can be no assurance that existing policies and procedures will ensure that the Company’s operations will not be further adversely affected.

 

The COVID-19 pandemic has resulted in a widespread health crisis that has adversely affected the economies and financial markets of many regions and countries. While the COVID-19 outbreak may still be in its early stages, international stock markets have begun to reflect the uncertainty associated with the potential economic impact of the outbreak and the significant declines and volatility in the TSX Composite Index, the NASDAQ and other major indices around the world in the latter part of February and in March 2020 has largely been attributed to the effects of COVID-19. There can be no assurance that a disruption in financial markets, regional economies and the world economy would not negatively affect Aeterna Zentaris’ access to capital or the financial performance of the Company.

 

Uncertain factors, including the duration of the outbreak, the severity of the disease and the actions to contain or treat its impact, could impair our operations including, among other things, employee mobility and productivity, availability of our facilities, conduct of our clinical trials and the availability and the productivity of third party product and service suppliers. Please see the Risk Factor entitled “The economic effects of a pandemic, epidemic or outbreak of an infectious disease could adversely affect our operations or the market price of our Common Shares” in our Annual Report on Form 20-F for the year ended December 31, 2019.

 

Monetization of non-strategic assets

 

Opportunities for the Company to monetize non-strategic assets include preclinical work done on AEZS-120, a prostate cancer vaccine and preclinical and clinical work done on AEZS-108 (zoptarelin doxorubicin) and AEZS-104 (perifosine).

 

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Condensed Consolidated Statements of Comprehensive Income (Loss)

 

(in thousands, except share and per share data)

 

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

 

   

Three months ended

March 31,

 
(Unaudited)   2020     2019  
    $     $  
Revenues                
Royalty income     14       13  
Product sales     1,016        
Supply chain     41       6  
Licensing revenue     19       18  
Total revenues     1,090       37  
Operating expenses                
Cost of sales     862        
Research and development costs     319       528  
General and administrative expenses     1,124       1,637  
Selling expenses     248       304  
Impairment of right of use asset           337  
Gain on modification of building lease     (185 )      
Impairment of prepaid asset           169  
Total operating expenses     2,368       2,975  
Loss from operations     (1,278 )     (2,938 )
(Loss) gain due to changes in foreign currency exchange rates     (104 )     64  
Change in fair value of warrant liability     2,470       (2,061 )
Other finance (costs) income     (309 )     24  
Net finance income (costs)     2,057       (1,973 )
                 
Net income (loss)     779       (4,911 )
Other comprehensive income (loss):                
Items that may be reclassified subsequently to profit or loss:                
Foreign currency translation adjustments     210       84  
Items that will not be reclassified to profit or loss:                
Actuarial gain (loss) on defined benefit plans     1,388       (735 )
Comprehensive income (loss)     2,377       (5,562 )
Net income (loss) per share [basic]     0.04       (0.30 )
Net income (loss) per share [diluted]     0.04       (0.30 )
Weighted average number of shares outstanding:                
Basic     21,523,416       16,440,760  
Diluted     21,860,416       16,440,760  

 

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Condensed Consolidated Interim Statements of Financial Position

 

(in thousands)  

As at
March 31, 2020

    As at
December 31, 2019
 
    (Unaudited)        
    $     $  
Cash and cash equivalents     9,182       7,838  
Trade and other receivables and other current assets     1,498       1,869  
Inventory     367       1,203  
Restricted cash equivalents     358       364  
Property, plant and equipment     31       35  
Right of use assets     288       582  
Other non-current assets     7,917       8,090  
Total assets     19,641       19,981  
Payables and accrued liabilities and income taxes payable     2,293       3,596  
Current portion of provision for restructuring and other costs     96       418  
Current portion of deferred revenues     585       991  
Lease liabilities     360       903  
Warrant liability     2,110       2,255  
Non-financial non-current liabilities (1)     12,510       14,281  
Total liabilities     17,954       22,444  
Shareholders’ equity (deficiency)     1,687       (2,463 )
Total liabilities and shareholders’ equity (deficiency)     19,641       19,981  

 

 

(1) Comprised mainly of employee future benefits, provisions for restructuring and other costs and non-current portion of deferred revenues.

 

Critical Accounting Policies, Estimates and Judgments

 

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

 

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

 

Measurement uncertainty:

 

The significant spread of COVID-19 with the U.S., Canada, Germany and elsewhere has resulted in a widespread health crisis and has had adverse effects on local, national and global economies generally, the markets the Company serves, its operations and the market price of its common shares.

 

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Uncertain factors, including the duration of the outbreak, the severity of he disease and the actions to contain or treat its impact, could cause interruption of the Company’s operations and supply chain, which could impact the Company’s ability to accurately measure the net realizable value of inventory and fair value of trade and other receivables.

 

Critical accounting estimates and assumptions, as well as critical judgments used in applying accounting policies in the preparation of our interim condensed consolidated financial statements were the same as those that applied to our annual consolidated financial statements as of December 31, 2019 and December 31, 2018 and for the years ended December 31, 2019, 2018 and 2017.

 

Impact of adoption of new IFRS standards in 2020

 

(a) IAS 1 Presentation of Financial Statements and IAS 8 Accounting policies, changes in accounting estimates and errors (amendment)

 

The amendments to IAS 1 and IAS 8 clarify the definition of material and seek to align the definition used in the Conceptual Framework with that in the standards themselves as well as ensuring the definition of material is consistent across all IFRS. The Company adopted these amendments effective January 1, 2020. The adoption of these amendments did not have a significant impact on the Company’s condensed interim consolidated financial statements.

 

(b) Conceptual Framework for Financial Reporting

 

Together with the revised Conceptual Framework published in March 2018, the IASB also issued Amendments to References to the Conceptual Framework in IFRS Standards. The Company adopted the Revised Conceptual Framework effective January 1, 2020. The adoption of these amendments did not have a significant impact on the Company’s condensed interim consolidated financial statements.

 

IFRS pronouncements issued but not yet effective

 

(c) IAS 1 – Presentation of Financial Statements

 

The amendment to IAS 1 clarifies how to classify debt and other liabilities as either current or non-current. The amendment will be effective for periods beginning on or after January 1, 2022. The Company is currently evaluating the new guidance and impacts on its consolidated financial statements.

 

Financial Risk Factors and Other Instruments

 

The nature and extent of our exposure to risks arising from financial instruments, including credit risk, liquidity risk and market risk (share price risk) and how we manage those risks are described in note 24 to the Company’s annual audited consolidated financial statements as at December 31, 2019 and 2018 and for the years ended December 31, 2019, 2018 and 2017.

 

Results of operations for the three-month period ended March 31, 2020

 

For the three-month period ended March 31, 2020, we reported a consolidated net income of $0.8 million, or $0.04 income per common share (basic), as compared with a consolidated net loss of $4.9 million, or $0.30 loss per common share for the three-month period ended March 31, 2019. The $5.7 million improvement in net results is primarily from a gain in fair value of warrant liability of $4.5 million and increase in revenues of $1.1 million.

 

Revenues

 

Our total revenue for the three-month period ended March 31, 2020 was $1.1 million as compared with $0.04 million for the same period in 2019, representing an increase of $1.06 million. The 2020 revenue was comprised of $0.01 million in royalty revenue (2019 - $0.01 million), $1.0 million in product sales of Macrilen™ (macimorelin) to Novo (2019 - $nil), $0.04 million in supply chain revenue (2019 - $0.01 million) and $0.02 million in licensing revenue (2019 – $0.02 million). The product sales in 2020 represented sales of Macrilen™ (macimorelin) to Novo.

 

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Operating expenses

 

Our total operating expense for the three-month period ended March 31, 2020 was $2.4 million as compared with $3.0 million for the same period in 2019, representing a decrease of $0.6 million. This decrease arises primarily from a $0.5 million decline in general and administrative, a $0.2 million decline in research and development costs, a $0.2 million gain on modification of building lease, $0.3 million impact from impairment in right of use assets, $0.2 million impact in impairment of prepaid asset, and a $0.1 million decline in selling expenses, offset by a $0.9 million increase in cost of sales. The impact of our June 2019 restructuring in our German subsidiary, namely for payroll and share based compensation costs, is a key influence in the declines in general and administrative expenses, selling and research and development expenses. The further impact on the decline in research and development costs is attributed to the different phases of activity of Study P01. In the first quarter of 2019, study activities included study start with document development, medication manufacturing, study feasibility testing at different sites and clinical trial applications in Hungary, Poland, Belarus, Russia, Ukraine and Serbia, while in 2020, all sites had completed their enrollment and clinical activities. The gain on modification of building lease of $0.2 million results from our March 31, 2020 renegotiation of our lease for AEZS Germany. The increase in cost of sales results primarily from the sale of Macrilen™ (macimorelin) to Novo in the quarter ended March 31, 2020 (2019 - no such sales).

 

Net finance income (costs)

 

Our net finance income for the three-month period ended March 31, 2020 was $2.1 million as compared with a net finance costs of $2.0 million for the same period in 2019, representing an increase of $4.1 million. This is primarily due to a $4.5 million change in fair value of warrant liability offset by increased finance costs of $0.3 million from the February 2020 Financing and $0.1 million from changes in currency exchange rates. Such a non-cash change in fair value in warrant liability results from the periodic “mark-to-market” revaluation, which occurs through the application of our pricing model, of our outstanding share purchase warrants.

 

Selected quarterly financial data

 

(in thousands, except for per share data)   Three months ended  
(Unaudited)   March 31,
2020
    December 31,
2019
    September 30,
2019
    June 30,
2019
 
    $     $     $     $  
Revenues     1,090       18       283       194  
Net income (loss)     779       (1,006 )     (331 )     206  
Net income (loss) per share [basic]*     0.04       (0.05 )     (0.02 )     0.01  
Net income (loss) per share [diluted]*     0.04       (0.05 )     (0.02 )     0.01  

 

(in thousands, except for per share data)   Three months ended  
(Unaudited)   March 31,
2019
    December 31,
2018
    September 30,
2018
    June 30,
2018
 
    $     $     $     $  
Revenues     37       1,392       663       168  
Net (loss) income     (4,911 )     (5,126 )     (2,509 )     (2,602 )
Net (loss) income per share [basic]*     (0.30 )     (0.31 )     (0.15 )     (0.16  
Net loss per share [basic and diluted]*     (0.30 )     (0.31 )     (0.15 )     (0.16  

 

 

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

 

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Historical quarterly results of operations and net income (loss) cannot be taken as reflective of recurring revenue or expenditure patterns of predictable trends, largely given the non-recurring nature of certain components of our historical revenues, due most notably to unpredictable quarterly variations in net finance income, which are impacted by periodic “mark-to-market” revaluations of our warrant liability and of foreign exchange gains and losses. In addition, we cannot predict what the revenues from royalties will be earned from the License Agreement.

 

Use of proceeds

 

We began 2020 with $7.8 million in cash and cash equivalents. During the three-month period ended March 31, 2020, our operating activities consumed $2.4 million, our financing activities provided $3.7 million and the effect of exchange rates on cash and cash equivalents accounted for $0.02 million. As at March 31, 2020 we had $9.2 million of cash and cash equivalents.

 

Liquidity and capital reserves

 

Our operations and capital expenditures have been generally been financed through certain transactions impacting our cash flows from operating activities, public equity offerings and issuances under various “at-the-market” (“ATM”) offering programs. In the first quarter of 2020, we closed the February 2020 Financing. The net cash proceeds to the Company from the February 2020 Financing totaled $3.9 million.

(in thousands)   Three months ended
March 31,
 
(Unaudited)   2020     2019  
             
Cash and cash equivalents - Beginning of period     7,838       14,512  
Cash flows from operating activities:                
Net cash (used in) provided by operating activities     (2,444 )     (3,006 )
Cash flows from financing activities:                
Net cash provided by (used in) financing activities     3,742       (151 )
Cash flows from investing activities:                
Net cash provided by investing activities           50  
Effect of exchange rate changes on cash and cash equivalents     46       (48 )
Cash and cash equivalents - End of period     9,182       11,357  

 

Operating Activities

 

Cash used by operating activities totaled $2.4 million for the three months ended March 31, 2020, as compared to $3.0 million used by operating activities in the same period in 2019. This $0.6 million improvement in operating activities is attributed primarily to the increase in product sales and supply chain activities, the impact of the June 2019 restructuring in Germany, primarily impacting payroll and share-based compensation costs, and the reduced costs of the Study P01 given the differing stage of execution, in the first quarter of 2020 as compared to the first quarter of 2019.

 

Financing Activities

 

Cash provided by financing activities totaled $3.7 million for the three months ended March 31, 2020, as compared with cash used of $0.2 million in the same period in 2019. On February 21, 2020, the Company closed the February 2020 Financing.

 

  (10)  

 

 

Common shares

 

As at March 31, 2020, we have 23,472,771 Common Shares issued and outstanding, as well as 545,357 stock options and deferred share units outstanding and 9,453,174 share purchase warrants outstanding.

 

Warrants as at March 31, 2020

 

    Warrants     Exercise Price      
    #     $     Expiry date
December 2015 registered direct offering     2,331,000       7.10     December 13, 2020
November 2016 registered direct offering     945,000       4.70     May 1, 2020
September 2019 registered direct offering     3,325,000       1.65     September 24, 2024
February 2020 Financing     2,608,696       1.20     August 21, 2025
February 2020 Financing     243,478       1.61719     February 19, 2025
      9,453,174              

 

On March 10, 2020, we had 28,144 share purchase warrants expire, each with an exercise price of $1.07.

 

Long-term incentive and stock option plan

 

There were 544,916 stock options and deferred share units outstanding as at March 31, 2020, with exercise prices denominated in U.S. dollars (March 31, 2019 - 888,816). During the three-month period ended March 31, 2020, 330,350 of these securities were canceled or forfeited and 77,850 expired (three-month period ended March 31, 2019 – nil and nil, respectively).

 

There were 441 stock options as at March 31, 2020, with exercise prices denominated in Canadian dollars (March 31, 2019 – 869). None of these stock options were exercised, cancelled or forfeited during the first quarter of both 2020 and 2019.

 

Adequacy of financial resources

 

Since inception, the Company has incurred significant expenses in its efforts to develop and co-promote products. Consequently, the Company has incurred operating losses and negative cash flow from operations historically and in each of the last several years except for the year ended December 31, 2018 when the Company earned revenue from the sale of a license for the adult indication of Macrilen™ (macimorelin) in the United States and Canada. As at March 31, 2020, the Company had an accumulated deficit of $314.7 million. The Company also had a net income of $0.8 million for the three months ended March 31, 2020, and negative cash flow from operations of $2.4 million.

 

The Company’s principal focus is on the commercialization of Macrilen™ (macimorelin) and it currently does not have any other approved products. Under the terms of License Agreement, Novo is funding 70% of the pediatric clinical trial submitted to the EMA and FDA, the Company’s sole development activity. In November 2019, Novo contracted AEZS Germany, our wholly owned German subsidiary, to provide supply chain services for the manufacture of Macrilen™ (macimorelin).

 

Management has evaluated whether material uncertainties exist relating to events or conditions that may cast substantial doubt about the Company’s ability to continue as a going concern and has considered the following in making that critical judgment.

 

The ability of the Company to realize its assets and meet its obligations as they come due is dependent on earning sufficient revenues under the License Agreement, developing opportunities for Macrilen™ (macimorelin) in the rest of the world, realizing other monetizing transactions, and raising additional sources of funding, the outcome of which cannot be predicted at this time. The revenue provided under the License Agreement was $0.02 million for the three months ended March 31, 2020 and as at March 31, 2020, the Company had cash of $9.2 million. On February 21, 2020, the Company closed an equity financing for $3.9 million in net cash proceeds.

 

  (11)  

 

 

A significant portion of the Company’s cash is held in AEZS Germany, the Company’s principle operating subsidiary. AEZS Germany is the counter-party to the License Agreement described above with Novo, and as such, for generating future revenue earned under the License Agreement. As such, management considers the cash resources available to AEZS Germany in executing its obligations under the License Agreement. In the event the current and medium term liabilities of AEZS Germany exceed the fair values ascribed to its assets, under German solvency laws, it may no longer be possible for AEZS Germany’s operations to continue or for AEZS Germany to transfer cash to Aeterna Zentaris Inc or its U.S. subsidiary. This imposes additional and material uncertainties on the Company when evaluating liquidity and the going concern assumption.

 

The Company has some discretion to manage its planned research and development costs, administrative expenses and capital expenditures in order to manage its cash liquidity, particularly in AEZS Germany. Furthermore, AEZS Germany is focused on opportunities to either license or sell the European or worldwide rights to Macrilen™ (macimorelin) to third parties. As of the date of issuance of these consolidated financial statements, there are no assurances that cash will be generated from such arrangements. As such, management may also need to consider other sources of financing in order to continue its planned operations.

 

In 2020, the COVID-19 pandemic began causing significant financial market declines and social dislocation. The situation is dynamic with various cities and countries around the world responding in different ways to address the outbreak. The spread of COVID-19 may impact our operations, including the potential interruption of our clinical trial activities and our supply chain. For example, the COVID-19 outbreak may delay enrollment in our pediatric clinical trial due to prioritization of hospital resources toward the outbreak, and some patients may be unwilling to enroll in our trials or be unable to comply with clinical trial protocols if quarantines impede patient movement or interrupt healthcare services, which would delay our ability to conduct clinical trials or release clinical trial results and could delay our ability to obtain regulatory approval and commercialize our product candidates. The spread of an infectious disease, including COVID-19, may also result in the inability of our suppliers to deliver components or raw materials on a timely basis or at all. In addition, hospitals may reduce staffing and reduce or postpone certain treatments in response to the spread of an infectious disease. Such events may result in a period of business disruption and, in reduced operations, doctors or medical providers may be unwilling to participate in our clinical trials, any of which could materially affect our business, financial condition or results of operations.

 

Management has assessed the Company’s ability to continue as a going concern and concluded that additional capital will be required. There can be no assurance that the Company will be able to execute license or purchase agreements or to obtain equity or debt financing, or on terms acceptable to it. Factors within and outside the Company’s control could have a significant bearing on its ability to obtain additional financing. As a result, management has determined that there are material uncertainties that may cast significant doubt upon the Company’s ability to continue as a going concern.

 

Contractual obligations and commitments

 

(in thousands)   Service and
manufacturing
 
    $  
Less than 1 year     931  
1 - 3 years     12  
4 - 5 years     4  
More than 5 years     3  
Total     950  

 

  (12)  

 

 

Contingencies

 

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

 

Securities class action lawsuit

 

On March 9, 2020, the Company settled the previously disclosed class-action lawsuit against it pending in the U.S. District Court for New Jersey. This settlement remains subject to execution of final settlement documents and approval by the U.S. District Court for the District of New Jersey.

 

Related Party Transactions and Off-Balance Sheet Arrangements

 

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

 

As at March 31, 2020, we did not have any interests in special purpose entities or any other off-balance sheet arrangements.

 

Risk Factors and Uncertainties

 

An investment in our securities involves a high degree of risk. In addition to the other information included in this MD&A and in the related consolidated financial statements, investors are urged to carefully consider the risks described under the caption “Risk Factors and Uncertainties” in our most recent Annual Report on Form 20-F for the year ended December 31, 2019 for a discussion of the various risks that may materially affect our business. The risks and uncertainties not presently known to us or that we currently deem immaterial may also materially harm our business, operating results and financial condition and could result in a complete loss of your investment.

 

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

 

Disclosure Controls and Procedures

 

Under the supervision and with the participation of our management, including the Chief Executive Officer and the Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as at March 31, 2020. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures were effective as at March 31, 2020.

 

  (13)  

 

 

Management’s Annual Report on Internal Control over Financial Reporting

 

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

 

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

 

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

 

Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria established in Internal Control – Integrated Framework: 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management has concluded that our internal control over financial reporting was effective as at March 31, 2020.

 

Changes in Internal Controls over Financial Reporting

 

There were no changes in our internal control over financial reporting during the quarter ended March 31, 2020 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

The design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of certain events. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, including conditions that are remote.

 

  (14)  

 

 

Exhibit 99.3

 

Form 52-109F2

Certification of interim filings

Full certificate

 

I, Klaus Paulini, President and Chief Executive Officer of Aeterna Zentaris Inc., certify the following:

 

1. Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Aeterna Zentaris Inc. (the “issuer”) for the interim period ended March 31, 2020.

 

2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.

 

3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.

 

4. Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in Regulation 52-109 respecting Certification of Disclosure in Issuers’ Annual and Interim Filings (c. V-1.1, r. 27), for the issuer.

 

5. Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings

 

  A.  designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that

 

  I. material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and
     
  II. information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and

 

  B. designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.

 

5.1 Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is Internal Control – Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission.

 

5.2 N/A

 

5.3 N/A

 

 

 

 

6. Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on January 1, 2020 and ended on March 31, 2020 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.

 

Date: May 6, 2020

 

/s/ Klaus Paulini  
Klaus Paulini  
President and Chief Executive Officer  
   
     
M.O. 2008-16, Sch. 52-109F2; M.O. 2010-17, s. 5.  

 

 

 

 

Exhibit 99.4

 

Form 52-109F2

Certification of interim filings

Full certificate

 

I, Leslie Auld, Chief Financial Officer of Aeterna Zentaris Inc., certify the following:

 

1. Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Aeterna Zentaris Inc. (the “issuer”) for the interim period ended March 31, 2020.

 

2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.

 

3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.

 

4. Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in Regulation 52-109 respecting Certification of Disclosure in Issuers’ Annual and Interim Filings (c. V-1.1, r. 27), for the issuer.

 

5. Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings

 

  A. designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that

 

  I. material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and
     
  II. information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and

 

  B. designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.

 

5.1 Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is Internal Control – Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission.

 

5.2 N/A

 

5.3 N/A

 

 

 

 

6. Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on January 1, 2020 and ended on March 31, 2020 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.

 

Date: May 6, 2020

 

/s/ Leslie Auld  
Leslie Auld  
Chief Financial Officer  
   
     
M.O. 2008-16, Sch. 52-109F2; M.O. 2010-17, s. 5.