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 2019
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):        






This report on Form 6-K, including the exhibit hereto, shall be deemed incorporated by reference into the Registrant’s Registration Statements on Form S-8 (File Nos. 333-224737, 333-210561, 333-200834) and to be a part thereof from the date on which this report is filed, to the extent not superseded by documents or reports subsequently filed or furnished.

DOCUMENTS INDEX

Exhibit
 
Description
99.1
 
99.2
 
99.3
 
99.4
 






 






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 7, 2019
 
By:
 
/s/ Michael V. Ward
 
 
 
 
Michael V. Ward
 
 
 
 
Chief Executive Officer





Exhibit 99.1


Condensed Interim Consolidated Financial Statements
(Unaudited)




Aeterna Zentaris Inc.

As at March 31, 2019 and for the three-month periods ended March 31, 2019 and 2018
(presented in thousands of US dollars)



 
























Aeterna Zentaris Inc.
Condensed Interim Consolidated Financial Statements
(Unaudited)
As at March 31, 2019 and for the three-month periods ended March 31, 2019 and 2018




( 2 )


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

(Unaudited)
 
March 31, 2019
 
December 31, 2018
 
 
$
 
$
ASSETS
 
 
 
 
Current assets
 
 
 
 
Cash and cash equivalents
 
11,357

 
14,512

Trade and other receivables (note 6)
 
612


294

Inventory
 
540


240

Prepaid expenses and other current assets
 
894

 
1,210

Total current assets
 
13,403

 
16,256

Restricted cash equivalents
 
363

 
418

Right of use assets (note 4)
 
451

 

Property, plant and equipment
 
59

 
65

Identifiable intangible assets
 
55

 
62

Goodwill
 
8,053

 
8,210

Total assets
 
22,384

 
25,011

LIABILITIES
 
 
 
 
Current liabilities
 
 
 
 
Payables and accrued liabilities (note 7)
 
2,668

 
2,966

Provision for restructuring and other costs (note 8)
 
200

 
887

Income taxes payable
 
1,637


1,669

Current portion of deferred revenues
 
74

 
74

Current portion of lease liabilities (note 4)
 
624

 

Current portion of warrant liability (note 9)
 
420

 

Total current liabilities
 
5,623

 
5,596

Deferred revenues
 
240

 
258

Lease liabilities (note 4)
 
718

 

Warrant liability (note 9)
 
5,275

 
3,634

Employee future benefits (note 10)
 
13,647

 
13,205

Non-current portion of provision for restructuring and other costs (note 8)
 
441

 
411

Total liabilities
 
25,944

 
23,104

SHAREHOLDERS' (DEFICIENCY) EQUITY
 
 
 
 
Share capital
 
222,335

 
222,335

Other capital
 
89,437

 
89,342

Deficit
 
(315,427
)
 
(309,781
)
Accumulated other comprehensive income
 
95

 
11

Total shareholders' (deficiency) equity
 
(3,560
)
 
1,907

Total liabilities and shareholders' (deficiency) equity
 
22,384

 
25,011

Commitments and contingencies (note 18)
Subsequent events (note 19)
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
Approved by the Board of Directors
/s/ Carolyn Egbert
 
/s/ Gérard Limoges
Carolyn Egbert
Chair of the Board
 
Gérard Limoges
Director

( 3 )


Aeterna Zentaris Inc.
Condensed Interim Consolidated Statements of Changes in Shareholders' (Deficiency) Equity
For the three months ended March 31, 2019 and 2018
                                                                                  (in thousands of US dollars, except share data)

(Unaudited)
Common shares (number of) 1
 
Share capital
 
Other capital
 
Deficit
 
Accumulated other comprehensive income (loss)
 
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 income (loss):
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments

 

 

 

 
84

 
84

Actuarial loss on defined benefit plan (note 10)

 

 

 
(735
)
 

 
(735
)
Comprehensive income (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
)

(Unaudited)
 
Common shares (number of) 1
 
Share capital
 
Other capital
 
Deficit
 
Accumulated other comprehensive income (loss)
 
Total
 
 
 
 
$
 
$
 
$
 
$
 
$
Balance - January 1, 2018
 
16,440,760

 
222,335

 
88,772

 
(314,161
)
 
271

 
(2,783
)
Net income
 

 

 

 
14,424

 

 
14,424

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 

 

 

 

 
(222
)
 
(222
)
Comprehensive loss
 

 

 

 
14,424

 
(222
)
 
14,202

Share-based compensation costs
 

 

 
123

 

 

 
123

Balance - March 31, 2018
 
16,440,760

 
222,335

 
88,895

 
(299,737
)
 
49

 
11,542

_____________________________
1  
Issued and paid in full.



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

( 4 )


Aeterna Zentaris Inc.
Condensed Interim Consolidated Statements of Comprehensive (Loss) Income
For the three months ended March 31, 2019 and 2018
                                                                       (in thousands of US dollars, except share and per share data)

 
 
Three months ended March 31,
(Unaudited)
 
2019
 
2018
 
 
$
 
$
Revenues
 
 
 
 
Royalty income (note 5)
 
13

 

Licensing revenue (note 5)
 
18

 
24,568

Sales commission and other
 
6

 
90

Total revenues
 
37

 
24,658

 
 
 
 
 
Operating expenses
 
 
 
 
Research and development costs
 
528

 
833

General and administrative expenses
 
1,637

 
2,786

Selling expenses
 
304

 
1,641

Impairment of right of use asset (note 4)
 
337

 

Write-off of other current assets
 
169

 

Total operating expenses
 
2,975

 
5,260

(Loss) income from operations
 
(2,938
)
 
19,398

 
 
 
 
 
Gain due to changes in foreign currency exchange rates
 
64

 
48

Fair value (loss) gain on warrant liability (note 9)
 
(2,061
)
 
1,828

Other finance income
 
24

 
18

Net finance (loss) income
 
(1,973
)
 
1,894

(Loss) income before income taxes
 
(4,911
)
 
21,292

Income tax expense
 

 
(6,868
)
Net (loss) income
 
(4,911
)
 
14,424

Other comprehensive (loss) income:
 
 
 
 
Items that may be reclassified subsequently to profit or loss:
 
 
 
 
Foreign currency translation adjustments
 
84

 
(222
)
Items that will not be reclassified to profit or loss:
 
 
 
 
Actuarial loss on defined benefit plans
 
(735
)
 

Comprehensive (loss) income
 
(5,562
)
 
14,202

Net (loss) income per share [basic]
 
(0.30
)
 
0.88

Net (loss) income per share [diluted]
 
(0.30
)
 
0.87

Weighted average number of shares outstanding (note 17):
 
 
 
 
    Basic
 
16,440,760

 
16,440,760

    Diluted
 
16,440,760

 
16,493,363

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

( 5 )


Aeterna Zentaris Inc.
Condensed Interim Consolidated Statements of Cash Flows
For the three months ended March 31, 2019 and 2018
                                                                                          (in thousands of US dollars)

 
 
Three months ended March 31,
(Unaudited)
 
2019
 
2018
 
 
$
 
$
Cash flows from operating activities
 
 
 
 
Net (loss) income for the period
 
(4,911
)
 
14,424

Items not affecting cash and cash equivalents:
 
 
 
 
Change in fair value of warrant liability (note 9)
 
2,061

 
(1,828
)
Provision for restructuring costs (note 8)
 
(17
)
 
(219
)
Depreciation and amortization
 
66

 
14

Impairment of right of use asset (note 4)
 
337

 

Write-off of other current assets
 
169

 

Deferred income taxes
 

 
3,479

Share-based compensation costs
 
95

 
123

Employee future benefits (note 10)
 
134

 
78

Amortization of deferred revenues
 
(18
)
 
(541
)
Foreign exchange loss (gain) on items denominated in foreign currencies
 
(45
)
 
(100
)
(Gain) loss on disposal of property, plant and equipment
 
(3
)
 
9

Other non-cash items
 

 
16

Changes in operating assets and liabilities (note 13)
 
(874
)
 
1,262

Net cash (used in) provided by operating activities
 
(3,006
)
 
16,717

Cash flows from financing activities
 
 
 
 
Payments on lease liabilities
 
(151
)
 

Net cash provided by financing activities
 
(151
)
 

Cash flows from investing activities
 
 
 
 
Proceeds from disposal of property, plant and equipment
 

 
11

Change in restricted cash equivalents
 
50

 

Net cash provided by investing activities
 
50

 
11

Effect of exchange rate changes on cash and cash equivalents

(48
)
 
40

Net change in cash and cash equivalents
 
(3,155
)
 
16,768

Cash and cash equivalents – Beginning of period
 
14,512

 
7,780

Cash and cash equivalents – End of period
 
11,357

 
24,548



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

( 6 )

Aeterna Zentaris Inc.
Notes to Condensed Interim Consolidated Financial Statements (Unaudited)
As at March 31, 2019 and for the three months ended March 31, 2019 and 2018
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)



1 Summary of business and basis of preparation
Summary of business
Aeterna Zentaris Inc. ("Aeterna Zentaris" or the "Company") is a specialty biopharmaceutical company which is commercializing novel pharmaceutical therapies. On December 20, 2017, the United States Food and Drug Administration ("FDA") granted marketing approval for Macrilen™ (macimorelin) to be used in the diagnosis of patients with adult growth hormone deficiency ("AGHD"). On January 16, 2018, the Company, through Aeterna Zentaris GmbH, entered into a license and assignment agreement with Strongbridge Ireland Limited ("Strongbridge") to carry out development, manufacturing, registration, regulatory and supply chain services for the commercialization of Macrilen™ (macimorelin) in the United States and Canada (the "License and Assignment Agreement"). Effective December 19, 2018, Strongbridge was sold to Novo Nordisk A/S ("Novo").
Basis of presentation
These unaudited condensed interim consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") 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, 2018 .
The accounting policies in these condensed interim consolidated financial statements are consistent with those presented in the Company's annual consolidated financial statements, except for the adoption, of IFRS 16, Leases, effective January 1, 2019. See note 4 for the impact of the adoption of IFRS 16.
These unaudited condensed interim consolidated financial statements were approved by the Company's Board of Directors on May 7, 2019
These unaudited condensed interim consolidated financial statements were prepared on a going concern basis.

2 Assessment of liquidity and management's plans

Since inception, the Company has incurred significant expenses in its efforts to develop and commercialize 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 TM (macimorelin) in the United States and Canada (note 5). As at March 31, 2019, the Company had an accumulated deficit of $ 315 million .
The Company has $11,357 of cash and cash equivalents as at March 31, 2019, and management believes it has sufficient liquidity to meet its current obligations of $5,623 and continue its planned level of expenses for at least, but not limited to the next twelve months from the date of issuance of these unaudited condensed interim consolidated financial statements. The Company is focused on managing its operating expenses, and has the discretion to limit research and development costs, administrative expenses and capital expenditures in order to maintain its liquidity, until such time that additional sources of funding can be obtained. The Company’s principal focus is on the licensing and development of Macrilen TM (macimorelin) and it currently does not have any other approved product. Under the terms of License and Assignment Agreement, Novo is funding 70% of the pediatric clinical trial submitted to the EMA and FDA, the Company's sole development priority.
On March 12, 2019, the Company announced that its board of directors has formed a special committee of independent directors (the "Special Committee") to review strategic options available to the Company. The Special Committee has approved the engagement by the Company of a financial advisor that is working with management to assist the Special Committee and the board of directors in considering a wide range of transactions (including opportunities for the license of Macrilen TM (macimorelin) outside of the United States and Canada, or other monetization transactions relating to

( 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, 2019 and 2018
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)


Macrilen TM (macimorelin). Management has evaluated whether material uncertainties exist relating to events or conditions and has considered the following in making that critical judgment.
The Company’s current operating budget and cash flows from operating activities in 2019 are expected to decline compared with 2018; however, the Company believes its forecasted cash flows will provide sufficient liquidity to finance operations and meet its commitments for at least, but not limited to, twelve months from the date of approval of these unaudited condensed interim consolidated financial statements.

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.

Critical accounting estimates and assumptions, as well as critical judgments used in applying accounting policies in the preparation of the Company's condensed interim consolidated financial statements, were the same as those found in note 4 to the Company's annual consolidated financial statements as of December 31, 2018 and 2017 and for the years ended December 31, 2018 , and 2017 except for those related to the adoption of IFRS 16, as follows:
Critical judgments in determining the lease term and discount rate
In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated).
In determining the appropriate discount rate, management identified the rate for the building based on the type and location of the Company's office, laboratory and storage facility in Frankfurt and, for vehicle and equipment leases, used the risk-free rate, credit spread and lease specific adjustment for similar assets.
4 Recent accounting pronouncements
Impact of adoption significant new IFRS standards in 2019
The following new IFRS standards have been adopted by the Company effective January 1, 2019:
A) IFRS 16, Leases
The Company has adopted IFRS 16 on a modified retrospective basis from January 1, 2019 with no restatement of comparatives, as permitted under the specific transitional provisions in the standard.
(i) Adjustments recognized on adoption of IFRS 16
Lease liabilities
The Company has operating leases for building, cars and equipment leases at its location in Frankfurt. Upon adoption of IFRS 16, the Company recognized lease liabilities in relation to leases which had previously been classified as ‘operating leases’ under the principles of IAS 17 Leases. Under IFRS 16, these liabilities were measured at the present value of the remaining lease payments excluding renewal options as they are not expected to be exercised, discounted using the Company’s incremental borrowing rate as of January 1, 2019. The Company’s incremental annual borrowing rate applied to the lease liabilities on January 1, 2019 were:

( 8 )

Aeterna Zentaris Inc.
Notes to Condensed Interim Consolidated Financial Statements (Unaudited)
As at March 31, 2019 and for the three months ended March 31, 2019 and 2018
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)


Building lease 5.5%
Car leases ranging from 4.84% to 5.32%
Equipment leases 3.88%
The weighted average incremental borrowing rate applied to lease liabilities recognized in the statement of financial position at January 1, 2019 was 5.45%.
 
 
2019
 
 
 
Operating lease commitments disclosed as at December 31, 2018
 
1,620

 
 
 
Discounted using the lessee’s incremental borrowing rate of at the date of initial application:
 
 
 
 
 
Lease liability recognized as at January 1, 2019
 
1,522

  Current lease liabilities
 
629

  Non-current lease liabilities
 
893

 
 
 
During the three-month period ended March 31, 2019
 
 
  Cash lease payments made
 
171

  Interest paid as charged to comprehensive income (loss) as other finance income
 
20

Payments against lease liabilites
 
151

 
 
 
Lease liability recognized as at March 31, 2019
 
1,342

  Current lease liabilities
 
624

  Non-current lease liabilities
 
718

The Company's lease liabilities come due, as at March 31, 2019 , as follows:
 
 
 
$
Less than 1 year
 
 
624

1 - 3 years
 
 
704

4 - 5 years
 
 
14

More than 5 years
 
 

Total
 
 
1,342

Right of use assets
The Company’s related right of use assets were measured at the amount equal to the lease liability at the date of initial application. Only the building right of use asset was further adjusted by the application of $663 in related onerous lease provision to the value at inception.

( 9 )

Aeterna Zentaris Inc.
Notes to Condensed Interim Consolidated Financial Statements (Unaudited)
As at March 31, 2019 and for the three months ended March 31, 2019 and 2018
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)


 
 
March 31,
 
January 1,
 
 
2019
 
2019
Gross right of use assets
 
 
 
 
   Building
 
383
 
735
   Cars and equipment
 
122
 
124
Total
 
505
 
859
 
 
 
 
 
Accumulated amortization
 
 
 
 
   Building
 
(41)
 
   Cars and equipment
 
(13)
 
Total
 
(54)
 
 
 
 
 
 
Net right of use assets
 
 
 
 
   Building
 
342
 
735
   Cars and equipment
 
109
 
124
Total
 
451
 
859
 
 
 
 
 
During the three-month period ended March 31, 2019, management continued its search for a sub-lessee. However, there have been delays which led to a reassessment of its onerous lease provision as the Company has determined that its plan to exit its building lease, in full, as at December 31, 2019 was not probable. As such, the Company recognized an impairment of its right of use building asset of $337 in the statement of comprehensive income and loss.
Overall impact from adoption
The change in accounting policy affected the following items in the balance sheet on January 1, 2019:
Right to use assets - increase by $859
Onerous lease contracts - decrease by $663
Lease liabilities - increase by $1,522
Loss per share for the three months to March 31, 2019 was not affected as a result of the adoption of IFRS 16.
(ii) Practical expedients applied
In applying IFRS 16 for the first time, the Company has used the following practical expedients permitted by the standard:
the use of a single discount rate to a portfolio of leases with reasonably similar characteristics
reliance on previous assessments on whether leases are onerous;
the exclusion of initial direct costs for the measurement of the right of use asset at the date of initial application; and
the use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease.

The Company has also elected not to reassess whether a contract is or contains a lease at the date of initial application. Instead, for contracts entered into before the transition date, the Company relied on its assessment made applying IAS 17 and IFRIC 4 Determining whether an Arrangement contains a Lease.
(iii) The Company’s leasing activities and how these are accounted for
The Company leases various office and lab premises (building), cars and equipment. The building lease was originally for 10 years with one five-year extension, such extension is ending on April 30, 2021. Car lease contracts are typically made for fixed periods of three to four years while the equipment lease is for five years ending April 30, 2020. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. and the lease agreements do not impose any covenants, but leased assets may not be used as security for borrowing purposes.

( 10 )

Aeterna Zentaris Inc.
Notes to Condensed Interim Consolidated Financial Statements (Unaudited)
As at March 31, 2019 and for the three months ended March 31, 2019 and 2018
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)


Until the 2018 financial year, leases of property, plant and equipment were classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) were charged to profit or loss on a straight-line basis over the period of the lease.
From January 1, 2019, leases are recognized as a right of use asset and a corresponding liability at the date at which the leased asset is available for use by the Company. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to comprehensive profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right of use assets are measured at cost and are depreciated over the shorter of the assets' useful life and the lease terms on a straight-line basis, less any accumulated impairment losses and adjusted for any remeasurement of the lease liability.
Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of its fixed payments (including in-substance fixed payments), less any lease incentives receivable
The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, the lessee’s incremental borrowing rate is used, being the rate that the lessee would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions.
Right of use assets are measured at cost comprising the following:
the amount of the initial measurement of lease liability;
any lease payments made at or before the commencement date less any lease incentives received;
any initial direct costs;
onerous lease provisions as previously determined (note 8); and
any restoration costs.
Payments associated with short-term leases and leases of low-value assets are recognized on a straight-line basis as an expense in the statement of comprehensive profit or loss.
B) IFRIC 23, " Uncertainty over Income Tax Treatment " ("IFRIC 23")
In June 2017, IFRIC 23, was issued and it provides guidance on how to value uncertain income tax positions based on the probability of whether the relevant tax authorities will accept the company's tax treatments. A company is to assume that a taxation authority with the right to examine any amounts reported to it will examine those amounts and will have full knowledge of all relevant information when doing so. IFRIC 23 is effective for annual periods beginning on or after January 1, 2019.  The adoption of this interpretation did not have a significant impact on the Company's condensed interim consolidated financial statements.
C) Amendments in Plan Amendment, Curtailment or Settlement (Amendments to IAS 19)

In June 2015, the IASB published ED/2015/5 Remeasurement on a Plan Amendment, Curtailment or Settlement/Availability of a Refund from a Defined Benefit Plan (Proposed amendments to IAS 19 and IFRIC 14) combining two issues submitted separately to the IFRS Interpretations Committee into a single package of narrow-scope amendments to IAS 19 Employee Benefits and IFRIC 14 IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction . However, in April 2017 the IASB decided to pursue the amendments to IAS 19 and in September 2017 confirmed it would do so despite putting off the amendments to IFRIC 14. The amendments in Plan Amendment, Curtailment or Settlement (Amendments to IAS 19) are: (i) if a plan amendment, curtailment or settlement occurs, it is now mandatory that the current service cost and the net interest for the period after the remeasurement are determined using the assumptions used for the remeasurement and (ii) amendments have been included to clarify the effect of a plan amendment, curtailment or settlement on the requirements regarding the asset ceiling. An entity applies the amendments to plan amendments, curtailments or settlements occurring on or after the beginning of the first annual reporting period that begins on or after January 1, 2019. The adoption of these amendments did not have a significant impact on the Company's condensed interim consolidated financial statements.


( 11 )

Aeterna Zentaris Inc.
Notes to Condensed Interim Consolidated Financial Statements (Unaudited)
As at March 31, 2019 and for the three months ended March 31, 2019 and 2018
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)


5 Licensing arrangement
On January 16, 2018, the Company, through Aeterna Zentaris GmbH, entered into the License and Assignment Agreement with Strongbridge to carry out development, manufacturing, registration, regulatory and supply chain services for the commercialization of Macrilen™ (macimorelin) in the United States and Canada, which provides for (i) the "right to use" license relating to the Adult Indication; (ii) the sale of the right to acquire a license of a future FDA-approved Pediatric Indication; (iii) Strongbridge has agreed to fund 70% of the costs of a pediatric clinical trial submitted for approval to the EMA and FDA to be run by the Company with customary oversight from a joint steering committee; and (iv) for an Interim Supply Arrangement. Effective December 19, 2018, Strongbridge sold the entity which owned the License and Assignment Agreement for the United States and Canadian rights to Macrilen™ to Novo.
Royalty income earned under the License and Assignment Agreement for the first quarter of 2019 was $13 (2018- $nil). During the first quarter of 2019, the Company recognized a receivable from Novo of $308 for its share of PIP study costs.

6 Trade and other receivables

 
March 31,
 
December 31,
 
2019
 
2018
 
$
 
$
Trade accounts receivable (net of allowance for doubtful accounts of $55 (December 31, 2018 - $55)
313

 
142

Value added tax
284

 
49

Other
15

 
103

 
612

 
294


7 Payables and accrued liabilities
 
 
March 31,
 
December 31,
 
 
2019
 
2018
 
 
$
 
$
Trade accounts payable
 
964

 
1,282

Accrued research and development costs
 

 
26

Salaries, employment taxes and benefits
 
232

 
183

Financing of insurance premiums (a)
 
416

 
738

Other accrued liabilities
 
1,056

 
737

 
 
2,668

 
2,966

(a)
Represents financing of the Company's 2019 insurance premiums, carrying interest at 6.5% and repayable in eight equal monthly installments commencing January 31, 2019.
8 Provision for restructuring and other costs
In the third quarter of 2017, Aeterna Zentaris GmbH, and its Works Council approved a restructuring program (the "2017 German Restructuring"), which was rolled out as a part of the continued strategy to transition into a commercially operating specialty biopharmaceutical organization focused on the commercialization of Macrilen™ (macimorelin). The changes in the Company's provision for restructuring and other costs can be summarized as follows:

( 12 )

Aeterna Zentaris Inc.
Notes to Condensed Interim Consolidated Financial Statements (Unaudited)
As at March 31, 2019 and for the three months ended March 31, 2019 and 2018
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)


 
 
Cetrotide (R) onerous contracts
 
2017 German Restructuring: onerous lease
 
2017 German Restructuring: severance
 
Total
 
 
$
 
$
 
$
 
$
Balance – January 1, 2019
 
547

 
663

 
88

 
1,298

 
 
 
 
 
 
 
 

Adoption of IFRS 16 (note 4)
 

 
(663
)
 

 
(663
)
Utilization of provision
 
(52
)
 

 

 
(52
)
Change in provision
 
60

 

 
9

 
69

Impact of foreign exchange rate changes
 
(11
)
 

 

 
(11
)
Balance – March 31, 2019
 
544

 

 
97

 
641

Less current portion
 
(103
)
 

 
(97
)
 
(200
)
Non-current portion
 
441

 

 

 
441

9 Warrant liability
The change in the Company's warrant liability can be summarized as follows:
 
Three months ended March 31, 2019
 
$
Balance – January 1, 2019
3,634

Change in fair value of warrant liability
2,061

Balance – March 31, 2019
5,695

Current portion of warrant liability
420

Long-term portion of warrant liability
5,275

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, 2019
 
Year ended December 31, 2018
 
 
 
Number
 
Weighted average exercise price
 
Number
 
Weighted average exercise price
 
 
 
 
 
$
 
 
 
$
 
Balance – Beginning of period
 
3,391,844

 
6.23

 
3,417,840

 
7.59

 
Expired
 

 

 
(25,996
)
 
185.00

 
Balance – End of period
 
3,391,844

 
6.23

 
3,391,844

 
6.23

 
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, 2019 . 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 15 - Financial instruments and financial risk management .

( 13 )

Aeterna Zentaris Inc.
Notes to Condensed Interim Consolidated Financial Statements (Unaudited)
As at March 31, 2019 and for the three months ended March 31, 2019 and 2018
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)


 
 
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)
March 2015 Series A Warrants (e)
 
115,844

 
4.65

 
1.07

 
2.39
%
 
82.13
%
 
0.94
 
0.00
%
December 2015 Warrants
 
2,331,000

 
4.65

 
7.10

 
2.29
%
 
102.66
%
 
1.71
 
0.00
%
November 2016 Warrants (f)
 
945,000

 
4.65

 
4.70

 
2.37
%
 
80.38
%
 
1.09
 
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 March 2015 Series A Warrants, the inputs and assumptions applied to the Black-Scholes option pricing model have been further adjusted to take into consideration the value attributed to certain anti-dilution provisions. Specifically, the weighted average exercise price is subject to adjustment (see note 11 - Share and other capital ).
(f)
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.

10 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, 2019
Year ended December 31, 2018
 
 
Pension benefit plans
 
Other benefit plans
 
Total
Total
 
 
$
 
$
 
$
$
Balances – Beginning of the period
 
13,100

 
105

 
13,205

14,229

Current service cost
 
13

 
2

 
15

72

Interest cost
 
55

 

 
55

225

Actuarial loss (gain) arising from changes in financial assumptions
 
735

 

 
735

(174
)
Benefits paid
 
(109
)
 

 
(109
)
(494
)
Impact of foreign exchange rate changes
 
(252
)
 
(2
)
 
(254
)
(653
)
Balances – End of the period
 
13,542

 
105

 
13,647

13,205

Amounts recognized:
 
 
 
 
 
 
 
In net loss
 
(68
)
 
(2
)
 
(70
)
(316
)
In other comprehensive loss
 
(483
)
 
2

 
(481
)
846

The calculation of the pension benefit obligation is sensitive to the discount rate assumption. Effective January 1, 2019, management determined that the discount rate assumption should be adjusted from 1.9% to 1.45%.

( 14 )

Aeterna Zentaris Inc.
Notes to Condensed Interim Consolidated Financial Statements (Unaudited)
As at March 31, 2019 and for the three months ended March 31, 2019 and 2018
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)


11 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.
Shareholder rights plan
The Company has a 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. The Rights Plan was approved, ratified and confirmed by the Company's shareholders at its annual meeting of shareholders held on May 10, 2016.
The Board of Directors reviewed the terms of the Existing Rights Plan for conformity with current Canadian securities laws, as well as the evolving practices of public corporations in Canada, with respect to shareholder rights plan design and has made some minor amendments thereto as a result. The Board of Directors determined it appropriate and in the best interests of the shareholders to continue the Rights Plan and approved the amended and restated rights plan (the "Amended Rights Plan") on March 26, 2019 The Amended Rights Plan will take effect immediately upon receipt of approval of the shareholders of the Corporation at the annual and special meeting of shareholders scheduled to be held on May 8, 2019
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
During 2018, the Company granted Deferred Share Units (DSU) and stock options. The following tables summarizes the activity under the LTIP and the Stock Option Plan:
 
 
Three months ended March 31,
 
Year ended December 31,
 
 
2019
 
2018
US dollar-denominated stock options and DSU
 
Number
 
Weighted average exercise price
(US$)
 
Number
 
Weighted average exercise price
(US$)
Balance – Beginning of the period
 
888,816

 
3.66

 
712,415

 
4.66

Granted
 

 

 
426,000

 
1.74

Forfeited
 

 

 
(249,599
)
 
3.23

Balance – End of period
 
888,816

 
3.66

 
888,816

 
3.66


( 15 )

Aeterna Zentaris Inc.
Notes to Condensed Interim Consolidated Financial Statements (Unaudited)
As at March 31, 2019 and for the three months ended March 31, 2019 and 2018
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)


 
 
Three months ended March 31,
 
Year ended December 31,
 
 
2019
 
2018
Canadian dollar-denominated options
 
Number
 
Weighted average exercise price
(CAN$)
 
Number
 
Weighted average exercise price
(CAN$)
Balance – Beginning of the period
 
869

 
743.56

 
1,503

 
605.84

Forfeited
 

 

 
(104
)
 
668.65

Expired
 

 

 
(530
)
 
367.70

Balance – End of the period
 
869

 
743.56

 
869

 
743.56


( 16 )

Aeterna Zentaris Inc.
Notes to Condensed Interim Consolidated Financial Statements (Unaudited)
As at March 31, 2019 and for the three months ended March 31, 2019 and 2018
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)


12 Operating expenses
The nature of the Company's operating expenses from continuing operations include the following:
 
 
Three months ended March 31,
 
 
2019
 
2018
 
 
$
 
$
Key management personnel: *
 
 
 
 
Salaries and short-term employee benefits
 
395

 
654

Consultants fees
 
63

 

Share-based compensation costs
 
80

 
39

Post-employment benefits
 
13

 
15

    
 
551

 
708

Other employees:
 
 
 
 
Salaries and short-term employee benefits
 
508

 
304

Share-based compensation costs
 
15

 
25

Post-employment benefits
 
75

 
25

Termination benefits
 
10

 
16

 
 
608

 
370

 
 

 

Professional fees
 
779

 
3,176

Insurance
 
221

 
307

Third-party R&D
 
54

 
121

Contracted sales force
 

 
18

Travel
 
75

 
169

Marketing services
 
2

 
141

Laboratory supplies
 
7

 
25

Other goods and services
 
29

 
89

Leasing costs, net of sublease receipts of $29 in 2019 and $32 in 2018
 
53

 
113

Impairment of right of use asset (note 4)
 
337

 

Write-off of other current assets
 
169

 

Depreciation and amortization
 
66

 
14

Operating foreign exchange losses
 
24

 
9

 
 
2,975

 
5,260

_________________________
* Key management includes the Company's directors and members of the executive management team.


( 17 )

Aeterna Zentaris Inc.
Notes to Condensed Interim Consolidated Financial Statements (Unaudited)
As at March 31, 2019 and for the three months ended March 31, 2019 and 2018
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)


13 Supplemental disclosure of cash flow information
 
 
Three months ended March 31,
 
 
 
2019
 
2018
 
 
 
$
 
$
 
Changes in operating assets and liabilities:
 
 
 
 
 
Trade and other receivables
 
(329
)
 
(80
)
 
Inventory
 
(305
)
 
(437
)
 
Prepaid expenses and other current assets
 
144

 
(171
)
 
Payables and accrued liabilities
 
(255
)
 
135

 
Provision for restructuring costs
 

 
(1,352
)
 
Income taxes payable
 

 
3,300

 
Employee future benefits
 
(109
)
 
(117
)
 
  Lease liabilities
 
(20
)
 

 
Provisions and other non-current liabilities
 

 
(16
)
 
 
 
(874
)
 
1,262

 
14 Capital risk management
The Company's objective in managing capital, consisting of shareholders' equity, with cash and cash equivalents and restricted cash equivalents being its primary components, is to ensure sufficient liquidity to fund R&D costs, selling expenses, G&A expenses and working capital requirements.
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, as discussed in note 11 - Share and other capital.
The capital management objective of the Company remains the same as that in previous periods. The policy on dividends is to retain cash to keep funds available to finance the activities required to advance the Company's product development portfolio and to pursue appropriate commercial opportunities as they may arise.
The Company is not subject to any capital requirements imposed by any regulators or by any other external source.
15 Financial instruments and financial risk management
Financial assets (liabilities) as at March 31, 2019 and December 31, 2018 are presented below.

( 18 )

Aeterna Zentaris Inc.
Notes to Condensed Interim Consolidated Financial Statements (Unaudited)
As at March 31, 2019 and for the three months ended March 31, 2019 and 2018
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)


March 31, 2019
 
Financial assets at amortized cost
 
Financial
liabilities at
FVTPL
 
Financial
liabilities at amortized cost
 
Total
 
 
$
 
$
 
$
 
$
Cash and cash equivalents *
 
11,357

 

 

 
11,357

Trade and other receivables
 
328

 

 

 
328

Restricted cash equivalents
 
363

 

 

 
363

Payables and accrued liabilities
 

 

 
(2,668
)
 
(2,668
)
Restructuring and other costs
 

 

 
(641
)
 
(641
)
Warrant liability
 

 
(5,695
)
 

 
(5,695
)
 
 
12,048

 
(5,695
)
 
(3,309
)
 
3,044

December 31, 2018
 
Financial assets at amortized cost
 
Financial
liabilities at
FVTPL
 
Financial
liabilities at amortized cost
 
Total
 
 
$
 
$
 
$
 
$
Cash and cash equivalents *
 
14,512

 

 

 
14,512

Trade and other receivables
 
245

 

 

 
245

Restricted cash equivalents
 
418

 

 

 
418

Payables and accrued liabilities
 

 

 
(2,940
)
 
(2,940
)
Restructuring and other costs
 

 

 
(1,298
)
 
(1,298
)
Warrant liability
 

 
(3,634
)
 

 
(3,634
)
 
 
15,175

 
(3,634
)
 
(4,238
)
 
7,303

_____________________    
* As of March 31, 2019 and December 31, 2018 , cash and cash equivalents consisted only of balances with banks.
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 9 - 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 equivalents, payables and accrued liabilities and current portion of provision for restructuring costs and onerous contracts 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.

( 19 )

Aeterna Zentaris Inc.
Notes to Condensed Interim Consolidated Financial Statements (Unaudited)
As at March 31, 2019 and for the three months ended March 31, 2019 and 2018
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)


Financial risk factors
The following provides disclosures relating to the nature and extent of the Company's exposure to risks arising from financial instruments, including credit risk, liquidity risk and market risk (share price risk) and how the Company manages those risks.
(a)
Credit risk
Credit risk is the risk of an unexpected loss if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Company regularly monitors credit risk exposure and takes steps to mitigate the likelihood of this exposure resulting in losses. The Company's exposure to credit risk currently relates to the financial assets at amortized cost in the table above. The Company holds its available cash in amounts that are readily convertible to known amounts of cash and deposits its cash balances with financial institutions that have an investment grade rating of at least "P-2" or the equivalent. This information is supplied by independent rating agencies where available and, if not available, the Company uses publicly available financial information to ensure that it invests its cash in creditworthy and reputable financial institutions. Once there are indicators that there is no reasonable expectation of recovery, such financial assets are written off but are still subject to enforcement activity.
As at March 31, 2019, trade accounts receivable for an amount of approximately $368 were with four counterparties of which $55 was past due and impaired and fully provided for (December 31, 2018 - $197 with four counterparties and $55 past due and impaired and fully provided for). The licensee is obligated to pay its quarterly royalties, 60 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 when accounts are determined to be uncollectible. On this basis, as at March 31, 2019, the Company has provided for all outstanding and unpaid amounts relating to its operations before its licensing of Macrilen TM (macemorelin). The licensee has paid all amounts owing within 90 days of invoicing.
The maximum exposure to credit risk approximates the amount recognized in the Company's consolidated statement of financial position.
(b)
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. As indicated in note 14 - Capital risk management, 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 2 - Assessment of liquidity and management's plans. 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.
(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 $3.03 to $4.65 during the three -months ended March 31, 2019 .

( 20 )

Aeterna Zentaris Inc.
Notes to Condensed Interim Consolidated Financial Statements (Unaudited)
As at March 31, 2019 and for the three months ended March 31, 2019 and 2018
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)


If variations in the market price of our common shares of - 30% and + 30% were to occur, the impact on the Company's net loss related to the warrant liability held at March 31, 2019 would be as follows:
    
 
 
Carrying
amount
 
-30%
 
+30%
 
 
$
 
$
 
$
Warrant liability
 
5,695

 
2,463

 
(2,944
)
Total impact on net loss – decrease / (increase)
 
 
 
2,463

 
(2,944
)
(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, 2019, 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, 2019 would have been lower or higher by approximately $270 (2018 - $1,450).
16 Segment information
The Company operates in a single operating segment, being the biopharmaceutical segment.
17 Net (loss) income per share
The following table sets forth pertinent data relating to the computation of basic and diluted net (loss) income per share attributable to common shareholders:
 
 
Three months ended March 31,
 
 
 
2019
 
2018
 
 
 
$
 
$
 
Net (loss) income
 
(4,911
)
 
14,424

 
Basic weighted average number of shares outstanding
 
16,440,760

 
16,440,760

 
Net (loss) income per share [basic]
 
(0.30
)
 
0.88

 
 
 
 
 
 
 
Dilutive effect of share purchase warrants
 

 
52,603

 
Diluted weighted average number of shares outstanding
 
16,440,760

 
16,493,363

 
Net (loss) income per share [diluted]
 
(0.30
)
 
0.87

 
 
 
 
 
 
 
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
 
889,685

 
710,196

 
Warrants (number of equivalent shares)
 
3,391,844

 
3,301,996

 
Net (loss) income 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

( 21 )

Aeterna Zentaris Inc.
Notes to Condensed Interim Consolidated Financial Statements (Unaudited)
As at March 31, 2019 and for the three months ended March 31, 2019 and 2018
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)


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.

18 Commitments and contingencies
The Company is committed to various operating leases for its premises which are now accounted with the implementation of IFRS 16. Future payments in connection with service and manufacturing agreements, as at March 31, 2019 , are as follows:
 
 
 
Service and manufacturing
 
 
 
$
Less than 1 year
 
 
2,049

1 - 3 years
 
 
25

4 - 5 years
 
 
21

More than 5 years
 
 
33

Total
 
 
2,128

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
The Company and certain of its current and former officers are defendants in a class-action lawsuit pending in the U.S. District Court for the District of New Jersey, brought on behalf of shareholders of the Company. The lawsuit alleges violations of the Securities Exchange Act of 1934 in connection with allegedly false and misleading statements made by the defendants between August 30, 2011 and November 6, 2014 (the "Class Period"), regarding the safety and efficacy of Macrilen™ (macimorelin) and the prospects for the approval of the Company's New Drug Application for the product by the FDA. The plaintiffs represent a class comprised of purchasers of the Company's common shares during the Class Period and seek damages, costs and expenses and such other relief as determined by the Court. The Company considers the claims that have been asserted in the lawsuit to be without merit and is vigorously defending against them.  The Company cannot, however, predict at this time the outcome or potential losses, if any, with respect to this lawsuit.
Other lawsuits
On December 21, 2018, the Company settled a dispute with its former President and Chief Executive Officer and with its former Senior Vice President, Chief Administrative Officer, General Counsel and Corporate Secretary with the Company agreeing to make a payment in the amount of $775.

On November 5, 2018, the Company settled a dispute with Cogas Consulting, LLC with the Company agreeing to make a payment of $625.
19 Subsequent events
In April 2019, there were 87,850 stock options, 23,000 deferred share units and 87,700 warrants exercised for gross proceeds of $313,522 with 191,650 common shares issued.


( 22 )

Exhibit 99.2
AETERNAZENTARISLOGOA86.JPG

First Quarter 2019     
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Introduction
This Management's Discussion and Analysis ("MD&A") provides a review of the results of operations, financial condition and cash flows of Aeterna Zentaris Inc. for the three months ended March 31, 2019 . 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 our unaudited condensed interim consolidated financial statements and the accompanying notes thereto as at March 31, 2019 and for the three months ended March 31, 2019 and 2018 and the audited consolidated financial statements and MD&A for the years ended December 31, 2018 and 2017, which were prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"). All amounts in this MD&A are presented in US dollars, except as otherwise noted.
We have three wholly-owned direct and indirect subsidiaries, Aeterna Zentaris GmbH, based in Frankfurt, Germany; Zentaris IVF GmbH, a direct wholly-owned subsidiary of AEZS Zentaris GmbH, based in Frankfurt, Germany; and Aeterna Zentaris, Inc., an entity incorporated in the State of Delaware with an office in the Charleston, South Carolina area in the United States. Our common shares are listed on both the NASDAQ Capital Market and on the Toronto Stock Exchange under the symbol "AEZS".
This MD&A was approved by our Board of Directors on May 7, 2019 .
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. 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 MD&A 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 ("SEC"). 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 now heavy dependence on the success of Macrilen™ (macimorelin) and related out-licensing arrangements and the continued availability of funds and resources to successfully launch the product, our strategic review process, the ability of the Special Committee to carry out its mandate, the ability of Aeterna Zentaris to enter into out-licensing, development, manufacturing and marketing and distribution agreements with other pharmaceutical companies and keep such agreements in effect, 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, and, more generally, uncertainties related to the regulatory process, our ability to efficiently commercialize or out-license 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 products, the impact of securities class action litigation or other litigation on our cash flow, results of operations and financial position; our ability to take advantage of business opportunities in the pharmaceutical industry, our ability to protect our intellectual property, 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 commissions 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 )

AETERNAZENTARISLOGOA86.JPG
First Quarter MD&A - 2019

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.aezsinc.com , www.sedar.com and www.sec.gov .
Company Overview
Aeterna Zentaris Inc. is a specialty biopharmaceutical company engaged in commercializing novel pharmaceutical therapies, principally through out-licensing arrangements. We are a party to a license and assignment agreement with a subsidiary of Novo Nordisk A/S (“Novo”) to carry out development, manufacturing, registration, regulatory and supply chain services for the commercialization of Macrilen™ (macimorelin), which is to be used in the diagnosis of patients with adult growth hormone deficiency (“AGHD”), in the United States and Canada (the "License and Assignment Agreement"). In addition, we are actively pursuing business development opportunities for macimorelin in the rest of the world and to monetize the value of our non-strategic assets.
Key Developments
On March 12, 2019, the Company announced that its board of directors formed a special committee of independent directors (the "Special Committee") to review strategic options available to the Company. The Special Committee has approved the engagement by the Company of a financial advisor that is working with management to assist the Special Committee and the board of directors in considering a wide range of transactions, including opportunities for the license of Macrilen TM (macimorelin) outside of the United States and Canada, or other monetization transactions relating to Macrilen TM (macimorelin). Management has evaluated whether material uncertainties exist relating to events or conditions and believes that the commercial success of Macrilen™ (macimorelin) will depend on several factors, including, but not limited to, the receipt of approvals from foreign regulatory authorities; Novo developing appropriate distribution and marketing infrastructure and arrangements and launching and growing commercial sales of Macrilen™ (macimorelin); and acceptance of Macrilen™ (macimorelin) in the medical community, among patients and with third party payers.
On January 16, 2018, the Company through Aeterna Zentaris GmbH entered into the License and Assignment Agreement with Strongbridge Ireland Limited ("Strongbridge") to carry out development, manufacturing, registration, regulatory and supply chain services for the commercialization of Macrilen™ (macimorelin) in the United States and Canada, which provides for (i) the "right to use" license relating to the Adult Indication; (ii) the sale of the right to acquire a license of a future pediatric indication if and when approved by the United States Food and Drug Administration ("FDA"); (iii) Strongbridge to fund 70% of the costs of a pediatric clinical trial submitted for approval to the EMA and FDA to be run by the Company with customary oversight from a joint steering committee (the "JSC"); and (iv) an Interim Supply Arrangement. Effective December 19, 2018, Strongbridge was sold to Novo. Product sales of Macrilen™ (macimorelin) began on July 23, 2018.
On January 16, 2019, we announced that the European Medicines Agency ("EMA") granted marketing authorization for
macimorelin for the diagnosis of AGHD. We believe that this marks an important development in our European commercialization strategy based on research evaluating the prevalence of AGHD in adults in Europe. We are in discussions with a variety of companies regarding licensing and/or distribution opportunities in the rest of the world ("ROW").
The Company received notice from Novo that royalty income earned for the first quarter of 2019 was $13,000.
During the first quarter of 2019, the Company incurred $308,000 of Pediatric Investigation Plan ("PIP") study costs.
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, discovery research for ERK-inhibitors for Oncology indications; and discovery research conducted at the Medical University of South Carolina on Compound Library as well as other research and clinical development projects which have been undertaken by our German subsidiary, Aeterna Zentaris GmbH.

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First Quarter MD&A - 2019

Outlook for 2019
The following represents forward-looking information and users are cautioned that actual results may vary.
Following Novo's acquisition of the U.S. and Canadian rights to Macrilen™ (macimorelin), the JSC met in January 2019 to discuss Novo's commercialization plan for the United States, their supply chain needs and the enrollment of patients and protocols of the PIP study. The Company expects that quarterly meetings will continue to occur as forecasts for sales and inventory build and needs for the PIP study continue to occur.

The Company believes that the EMA's January 2019 announcement of marketing authorization for macimorelin for the diagnosis of AGHD has further validated the clinical profile and commercial value of macimorelin.

The Special Committee has approved the engagement of Torreya, a global investment bank specializing in life sciences, as its financial advisor. Torreya is working with management to assist the Special Committee and the board of directors in considering a wide range of transactions, including opportunities for the license of macimorelin outside of the United States and Canada, other monetization transactions relating to macimorelin or the potential sale of the Company, which may create value for our shareholders and other stakeholders.

Our priority is the commercialization of macimorelin; however, we continue to pursue out-licensing opportunities of our non-strategic assets, as they arise.
Summary of key expectations for revenues, operating expenditures and cash flows
The further development and commercialization of Macrilen™ (macimorelin) in 2019 is the Company's primary focus.

To that end, we expect that research and development costs will be up to $2.0 million for the year ending December 31, 2019 and will comprise commercial service, consultant, employee and patent costs related to the PIP study and to follow-up studies agreed with the EMA. In the third quarter of 2018, we began invoicing our licensee for its 70% share of the PIP study costs. In 2019, we have continued this collaboration and are working with Novo to optimize this trial.

In addition, we expect our general and administrative expenses to range between $6.5 million and $7.5 million for the year ending December 31, 2019 and to consist primarily of employee, insurance, rent, legal and public company costs.
We are working with Torreya on European and other rest of world business development activities to support the commercialization of macimorelin outside of Canada and the United States.

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First Quarter MD&A - 2019

Condensed Interim Consolidated Statements of Comprehensive (Loss) Income
 
 
Three months ended March 31,
 
(in thousands, except share and per share data)
 
2019
 
2018
 
 
 
$
 
$
 
Revenues
 
 
 
 
 
Royalty income
 
13

 

 
Licensing revenue
 
18

 
24,568

 
Sales commission and other
 
6

 
90

 
Total revenues
 
37

 
24,658

 

 
 
 
 
 
Research and development costs
 
528

 
833

 
General and administrative expenses
 
1,637

 
2,786

 
Selling expenses
 
304

 
1,641

 
Impairment of right of use asset
 
337

 

 
Write-off of other current assets
 
169

 

 
Total operating expenses
 
2,975

 
5,260

 
 
 
 
 
 
 
(Loss) income from operations
 
(2,938
)
 
19,398

 
Net finance (loss) income
 
(1,973
)
 
1,894

 
(Loss) income before income taxes
 
(4,911
)
 
21,292

 
Income tax expense
 

 
(6,868
)
 
Net (loss) income
 
(4,911
)
 
14,424

 
Total other comprehensive income (loss) adjustments
 
(651
)
 
(222
)
 
Comprehensive (loss) income
 
(5,562
)
 
14,202

 
 
 
 
 
 
 
Net (loss) income per share [basic]
 
(0.30
)
 
0.88

 
Net (loss) income per share [diluted]
 
(0.30
)
 
0.87

 
Weighted average number of shares outstanding:
 
 
 
 
 
Basic
 
16,440,760

 
16,440,760

 
Diluted
 
16,440,760

 
16,493,363

 

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First Quarter MD&A - 2019

Condensed Interim Consolidated Statement of Financial Position Information
(in thousands, except share and per share data)
 
As at March 31,
 
As at December 31,
 
 
2019
 
2018
 
 
$
 
$
Cash and cash equivalents
 
11,357

 
14,512

Trade and other receivables and other current assets
 
1,506

 
1,504

Inventory
 
540

 
240

Restricted cash equivalents
 
363

 
418

Property, plant and equipment
 
59

 
65

Right of use asset
 
451

 

Other non-current assets
 
8,108

 
8,272

Total assets
 
22,384

 
25,011

Payables and other current liabilities
 
2,668

 
2,966

Current portion of deferred revenues
 
74

 
74

Warrant liability
 
5,695

 
3,634

Current provision for restructuring costs and other costs
 
200

 
887

Taxes payable
 
1,637

 
1,669

Employee future benefits
 
13,647

 
13,205

Lease liabilities
 
1,342

 

Long-term portion of restructuring and other costs and deferred revenues
 
681

 
669

Total liabilities
 
25,944

 
23,104

Shareholders' (deficiency) equity
 
(3,560
)
 
1,907

Total liabilities and shareholders' equity (deficiency)
 
22,384

 
25,011

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.
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 found in note 4 to our annual consolidated financial statements as of December 31, 2018 and 2017 and for the years ended December 31, 2018 , and 2017 except for those related to the adoption of IFRS 16, as follows:
Critical judgments in determining the lease term and discount rate
In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated).
In determining the appropriate discount rate, management identified the rate for the building based on the type and location of the Company's office, laboratory and storage facility in Frankfurt and, for vehicle and equipment leases, used the risk-free rate, credit spread and lease specific adjustment for similar assets.

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First Quarter MD&A - 2019


Results of operations for the three-month period ended March 31, 2019
For the three-month period ended March 31, 2019 , we reported a consolidated net loss of $ 4.9 million , or $ 0.30 loss per common share, as compared with a consolidated net income of $ 14.4 million , or $ 0.88 income per common share, for the three-month period ended March 31, 2018 . The $ 19.3 million decline in net results is primarily from a reduction of $ 24.6 million in total revenues and $ 3.9 million increase in net finance loss offset by a reduction of tax expense of $ 6.9 million and of operating expenses of $ 2.3 million .
Revenues
Our total revenue for the three-month period ended March 31, 2019 was $ 37,000 as compared with $ 24.7 million for the same period in 2018, representing a decline of $ 24.6 million . The 2019 revenue was comprised of $ 18,000 in licensing revenue, $ 13,000 in royalty income and $ 6,000 in sales commission and other, as compared with $ 24.6 million in license fees and $ 90,000 in sales commission and other in 2018. The decline in total revenue in 2019 relates to a $24.0 million cash payment received from executing the Macrilen™ (macimorelin) License and Assignment Agreement in January 2018.
Operating expenses
Our total operating expense for the three-month period ended March 31, 2019 was $ 3.0 million as compared with $ 5.3 million for the same period in 2018, representing a decrease of $ 2.3 million . This net decline arises primarily from a $ 0.3 million reduction in research and development costs, a $ 1.1 million reduction in general and administration expenses and a $ 1.3 million reduction in selling expenses, offset by $ 0.3 million impairment in right to use asset and $0.1 million write-off of other current assets. The reductions in research and development, general and administrative and selling expense are in-line with the expected impact of our cost control initiatives which were implemented in late 2018.
During the three-month period ended March 31, 2019, management continued its search for a sub-lessee. However, there have been delays which led to a reassessment of its onerous lease provision as the Company has determined that its plan to exit its building lease, in full, as at December 31, 2019 was not probable. As such, the Company recognized an impairment of its right of use building asset of $337 in the statement of comprehensive income and loss.
Also during this period, management evaluated the probability of collecting $ 0.2 million paid in a prior year to our supply chain partner for the serialization of Macrilen™ (macimorelin) sachet and packaging and is subject to a repayment arrangement. As the timing and amount of such partner's future revenues cannot be reasonably estimated, the full amount was written off and the Company expects to recognize any associated revenues in the period in which cash, if any, is received. The Company received $ 6,000 in sales commission and other revenue in the quarter ended March 31, 2019 in connection with this arrangement.
Net finance loss
Our net finance loss for the three-month period ended March 31, 2019 was $ 2.0 million as compared with a net gain of $ 1.9 million for the same period in 2018, representing a decrease of $ 3.9 million . This is primarily due to a $ 3.9 million change in fair value of warrant liability. Such a non-cash change in fair value results from the periodic "mark-to-market" revaluation, which occurs through the application of our pricing model, to our outstanding share purchase warrants.

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First Quarter MD&A - 2019

Quarterly Consolidated Results of Operations Information
(in thousands, except for per share data)
 
Three months ended
 
 
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) income per share [diluted]*
 
(0.30
)
 
(0.31
)
 
(0.15
)
 
(0.16
)

(in thousands, except for per share data)
 
Three months ended
 
 
March 31, 2018
 
December 31, 2017
 
September 30, 2017
 
June 30, 2017
 
 
$
 
$
 
$
 
$
Revenues
 
24,658

 
178

 
241

 
243

Net loss
 
14,424

 
(484
)
 
(9,631
)
 
(2,550
)
Net (loss) per share [basic]*
 
0.88

 
(0.03
)
 
(0.61
)
 
(0.18
)
Net (loss) income per share [diluted]*
 
0.87

 
(0.03
)
 
(0.61
)
 
(0.18
)
_________________________
*
Net income (loss) per share is based on the weighted average number of shares outstanding during each reporting period, which may differ on a quarter-to-quarter basis. As such, the sum of the quarterly net loss per share amounts may not equal full-year net loss per share.

Historical quarterly results of operations and net income (loss) cannot be taken as reflective of recurring revenue or expenditure patterns or of predictable trends, largely given the non-recurring nature of certain components of our historical revenues, due most notably to unpredictable quarterly variations attributable to our net finance income, which in turn are comprised mainly of the impact of the periodic "mark-to-market" revaluation of our warrant liability and of foreign exchange gains and losses. In addition, we cannot predict what the revenues from royalties will be from the Macrilen™ (macimorelin) License and Assignment Agreement.

Use of Proceeds
We began 2019 with $ 14.5 million in cash and cash equivalents. During the three-month period ended March 31, 2019, our operating expenses were $ 3.0 million . We closed the period with $ 11.4 million of cash and cash equivalents.

Liquidity and capital resources

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First Quarter MD&A - 2019

Summary of cash flows:
(in thousands)
Three months ended March 31,
 
2019
 
2018
 
 
 
 
Cash and cash equivalents - Beginning of period
14,512

 
7,780

Cash flows from operating activities:
 
 
 
Net cash (used in) provided by operating activities
(3,006
)
 
16,717

Cash flows from financing activities:
 
 
 
Net cash used in financing activities
(151
)
 

Cash flows from investing activities:
 
 
 
Net cash provided by investing activities
50

 
11

Effect of exchange rate changes on cash and cash equivalents
(48
)
 
40

Cash and cash equivalents - End of period
11,357

 
24,548

Operating Activities
Cash (used by) operating activities totaled $3.0 million for the three months ended March 31, 2019 , as compared to $16.7 million provided by operating activities in the same period in 2018 . In the first quarter of 2018, the Company had net income of $14.4 million and the impact of deferred tax assets of $6.9 million offset by a $1.8 million change in fair value of warrant liability whereas in the first quarter of 2019, the Company had a net loss of $4.9 million with no deferred tax asset offset by a $2 million change in fair value of warrant liability.
Financing Activities
Cash (used by) financing activities totaled $151,000 for the three months ended March 31, 2019, as compared with nil in the same period in 2018. In 2019, the Company paid $151,000 in lease liabilities upon adoption of IFRS 16.
Investing Activities
Cash provided by investing activities totaled $50,000 for the three months ended March 31, 2019, as compared with $11,000 provided by investing activities in the same period in 2018. In 2019, the Company received $50,000 in restricted cash when it closed out certain banking arrangements, while in 2018, the Company sold certain property, plant and equipment for $11,000.
Common shares

As at March 31, 2019, the Company had 16,440,780 issued and outstanding common shares.

Warrants as at March 31, 2019
 
Warrants
Exercise Price
Expiry date
 
#
$
 
March 2015 registered direct offering - Series A
115,844

1.07
March 10, 2020
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
 
3,391,844

 
 
Long-term incentive plan

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First Quarter MD&A - 2019

There were 888,816 stock options and deferred share untis outstanding at March 31, 2019; with exercise prices denominated in U.S. dollars (December 31, 2018 - 888,816). During the three-month period ended March 31, 2019, none of these options were exercised, no options were granted, forfeited or expired (twelve month period ended December 31, 2018 - none, 426,000 and 249,599, respectively).
There were 869 stock options outstanding at March 31, 2019 (December 31, 2018 - 869). During the three-month period ended March 31, 2109, no options were forfeited or expired (twelve months ended December 31, 2018 - none and 634, respectively).
Subsequent to quarter-end
In April 2019, there were 87,850 stock options, 23,000 deferred share units and 87,700 warrants exercised for gross proceeds of $313,522 with 191,650 common shares being issued.

Liquidity and capital resources

Since inception, the Company has incurred significant expenses in its efforts to develop and commercialize 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 TM (macimorelin) in the United States and Canada. As at March 31, 2019, the Company had an accumulated deficit of $315 million.
The Company has $11.4 million of cash and cash equivalents as at March 31, 2019, and management believes it has sufficient liquidity to meet its current obligations of $5.6 million and continue its planned level of expenses for at least, but not limited to the next twelve months from the date of issuance of this MD&A. The Company is focused on managing its operating expenses, and has the discretion to limit research and development costs, administrative expenses and capital expenditures in order to maintain its liquidity, until such time that additional sources of funding can be obtained. The Company’s principal focus is on the licensing and development of Macrilen TM (macimorelin) and it currently does not have any other approved product. Under the terms of the License and Assignment Agreement, Novo is funding 70% of the pediatric clinical trial submitted to the EMA and FDA, the Company's sole development priority.
The Special Committee has approved the engagement by the Company of a financial advisor that is working with management to assist the Special Committee and the board of directors in considering a wide range of transactions, including opportunities for the license of Macrilen TM (macimorelin) outside of the United States and Canada, or other monetization transactions rel