Exhibit
99.2
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
Introduction
This
Management’s Discussion and Analysis (“MD&A”) provides a review of the results of operations, financial condition
and cash flows of Aeterna Zentaris Inc. for the three- and six months ended June 30, 2021. 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 June 30, 2021 and for the three- and six-months ended June 30, 2021 and
2020 and the audited consolidated financial statements and MD&A for the years ended December 31, 2020 and 2019. The unaudited condensed
interim consolidated financial statements as at June 30, 2021 and for the three- and six-months ended June 30, 2021 and 2020 were 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. The Company’s common
shares are listed on both The Nasdaq Capital Market (“Nasdaq”) and on the Toronto Stock Exchange under the symbol “AEZS”.
All
amounts in this MD&A are presented in United States (“U.S.”) dollars, except as otherwise noted.
This
MD&A was approved by the Company’s Board of Directors on August 4, 2021. This MD&A is dated August 4, 2021.
Company
Overview
Aeterna
Zentaris is a specialty biopharmaceutical company commercializing and developing therapeutics and diagnostic tests. The Company’s
lead product, Macrilen™ (macimorelin), is the first and only U.S. Food and Drug Administration and European Commission approved
oral test indicated for the diagnosis of patients with adult growth hormone deficiency (“AGHD”). Macimorelin is currently
marketed in the U.S. under the tradename Macrilen™ through a license agreement with Novo Nordisk Healthcare AG (“Novo Nordisk”)
under which Aeterna Zentaris receives royalties on net sales. According to a commercialization and supply agreement, MegaPharm Ltd. is
seeking regulatory approval and plans to subsequently commercialize macimorelin in Israel and the Palestinian Authority. Additionally,
upon receipt of pricing and reimbursement approvals, Aeterna Zentaris expects that macimorelin will be marketed in Europe and the United
Kingdom through a recently established license agreement with Consilient Health Ltd. (“Consilient Health”) under which Aeterna
Zentaris will receive regulatory milestones related to agreed-upon pricing and reimbursement parameters; net sales milestones;
and royalties, ranging from 10%-20% of net sales, subject to reduction in certain cases, or sublicense income recorded by Consilient
Health. The Company is also leveraging the clinical success and compelling safety profile of macimorelin to develop it for the diagnosis
of childhood-onset growth hormone deficiency (“CGHD”), an area of significant unmet need. The Company is actively pursuing
business development opportunities for the commercialization of macimorelin in Asia and the rest of the world, in addition to other non-strategic
assets, to monetize their value.
Aeterna
Zentaris intends to balance risks and secure growth opportunities by re-establishing a diversified, yet focused, development pipeline
to which the Company can best leverage its expertise and experience. The Company is focused on opportunistically utilizing its network
with universities in Europe and the U.S. which provides, what the Company believes will be, vital access to innovative development candidates
in different indications, with a focus on rare or orphan indications and potential for pediatric use. To date, we have signed agreements
to establish this growing pipeline across a number of indications, including neuromyelitis optica spectrum disorder (NMOSD), primary
hypoparathyroidism and amyotrophic lateral sclerosis (ALS, Lou Gehrig’s disease). Additionally, the Company is developing an oral prophylactic
bacterial vaccine against SARS-CoV-2, the virus that causes COVID-19.
About
Forward-Looking Statements
This
document contains statements that may constitute forward-looking statements within the meaning of U.S. and Canadian securities legislation
and regulations and such statements are made pursuant to the safe-harbor provision of the U.S. Private Securities Litigation Reform Act
of 1995. 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 40-F and annual
information form, under the caption “Risk Factors” filed with the relevant Canadian securities regulatory authorities and
with the U.S. Securities and Exchange Commission (“SEC”). Forward-looking statements in this MD&A include, but are not
limited to, those relating to: Aeterna’s expectation with respect to the DETECT trial (as defined below) (including the ability
to enroll subjects in the U.S. or elsewhere, and expectations that the DETECT trial will be suitable to support a claim (regulatory approval)
for potential stand-alone testing with macimorelin), Aeterna’s expectations with respect to the marketing of macimorelin
in Europe and the United Kingdom and with respect to the approvals and commercialization of macimroelin in Isreal and the Palestinian
Authority, the aims and details of the pre-clinical and potential clinical studies involving the use of macimorelin as potential
treatment of ALS (Lou Gehrig’s disease) being conducted by The University of Queensland in Australia (“Queensland
University”), the potential of the coronavirus vaccine platform technology licensed from the University of Wuerzburg (and any vaccine
candidates using that technology) to be effective as a vaccine against COVID-19 (SARS-CoV-2) or any other coronavirus disease or to offer
an alternative to other approved vaccines against COVID-19, the ability to obtain approval to commence any clinical trial or the timeline
to develop any potential vaccine and the characteristics of any potential vaccine, plans regarding the delayed clearance PTH (as defined
below) fusion polypeptides licensed from The University of Sheffield and the AEZS-150 candidate and the related potential IND filing,
plans regarding AIM-Biologicals (as defined below) in-licensed from the University of Wuerzburg in Germany and the potential
to treat NMOSD (as defined below), and Aeterna’s intentions with respect to growth opportunities and its business focus, including
with respect to its cash position and development pipeline (including the ability to accelerate its development pipeline).
Forward-looking
statements involve known and unknown risks and uncertainties, and other factors which may cause the actual results, performance or achievements
stated herein to be materially different from any future results, performance or achievements expressed or implied by the forward-looking
information. Such risks and uncertainties include, among others: the completion of the DETECT trial may be delayed, we may be
unable to enroll the expected number of subjects in the DETECT trial and the result of the DETECT trial may not support receipt of regulatory
approval in CGHD, that the University of Wuerzburg’s coronavirus vaccine platform technology (and any vaccine candidates using
that technology) has never been tested in humans and so further pre-clinical or clinical studies of that technology and any vaccine developed
using that technology may not be effective as a vaccine against COVID-19 (SARS-CoV-2) or any other coronavirus disease, that such technology
or vaccines may not receive the necessary approvals to be studied in human clinical trials, that the timeline to develop a vaccine may
be longer than expected, that such technology or vaccines may not be capable of being used orally, may not have the same characteristics
(including storage temperatures) as vaccines previously approved using the Salmonella Typhi Ty21a carrier strain, any such vaccine developed
using the University of Wuerzburg’s technology may not be efficacious against resistant viral mutants or may not be competitive
with vaccines developed by third parties against COVID-19, the risk that the pre-clinical research licensed from our partners, including
that done with the University of Wuerzburg for autoimmunity modifying biologicals for the potential treatment of NMOSD, does not
lead to clinical trials in humans, 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, results from ongoing or planned pre-clinical studies of macimorelin by Queensland
University or for our other products under development may not be successful or may not support advancing the product to human clinical
trials, our ability to raise capital and obtain financing to continue our currently planned operations, our dependence on the success
of Macrilen™ (macimorelin) and related out-licensing arrangements and the continued availability of funds and resources to successfully
commercialize the product, including our heavy reliance on the success of the License Agreement with Novo Nordisk, the global instability
due to the global pandemic of COVID-19, and its unknown potential effect on our planned operations, including studies, 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, 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 the 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 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 commissions
for additional information on risks and uncertainties, including those risks discussed in our Annual Report on Form 40-F and annual information
form, under the caption “Risk Factors”. 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.
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,
management’s discussion and analysis, proxy or information circulars, annual reports on Form 40-F, material change reports and
press releases with the appropriate securities regulatory authorities. Additional information about the Company and copies of these documents
may be obtained free of charge upon request from our Corporate Secretary or on the Internet at the following addresses: www.zentaris.com,
www.sedar.com and www.sec.gov.
Diagnostic
Commercial and Development Pipeline
Macimorelin
Commercialization Program
On
December 7, 2020, the Company entered into exclusive licensing and supply agreements with Consilient Health for the commercialization
in the European Union and the United Kingdom of macimorelin in any diagnostic application. As per the agreements’ terms, the Company
received a cash payment of €1 million in January 2021. This cash payment has been recognized in the consolidated statement
of financial position as long-term deferred revenue as it will be recognized over the supply of the licensed product that is expected
to start in 2023. Effective April 19, 2021 the Company received the European Medicines Agency’s approval to amend the marketing
authorization to allow Consilient Health to market macimorelin in the EU and effective May 14, 2021, the Company received similar approvals
in the United Kingdom.
Macimorelin
Clinical Program
As
previously disclosed, Aeterna Zentaris, in collaboration with Novo Nordisk, is currently developing the expanded use of macimorelin for
the diagnosis of CGHD, an area of significant unmet need. In late 2020, Aeterna Zentaris entered into the start-up phase for the clinical
safety and efficacy study, AEZS-130-P02 (the “DETECT” trial), evaluating macimorelin for the diagnosis of CGHD. The
DETECT trial is an open-label, single dose, multicenter and multinational pivotal study evaluating safety and efficacy of macimorelin
for the diagnosis of CGHD. Children and adolescents from two to less than 18 years of age with suspected GHD are to be included.
The study is expected to include approximately 100 subjects worldwide, with at least 40 subjects in pre-pubertal and 40 subjects in pubertal
status. Macimorelin growth hormone stimulation test (GHST) will be performed twice for repeatability data and two standard GHSTs will
be used as controls: arginine (i.v.) and clonidine (p.o.). On April 22, 2021, the U.S. FDA Investigational New Drug Application associated
with this clinical trial became active, see: https://clinicaltrials.gov/ct2/show/NCT04786873. On May 13, 2021, we announced the
opening of the first clinical site in the U.S..
Therapeutic
and Vaccine Development Pipeline
Key Developments
AIM
Biologicals
On
January 28, 2021, the Company announced that it had licensed the exclusive worldwide rights to develop, manufacture and commercialize
targeted, highly specific, autoimmunity modifying proteins (“AIM-Biologicals”), currently in early preclinical development,
for the potential treatment of neuromyelitis optica spectrum disorder (“NMOSD”) from the University of Wuerzburg and made
a payment of €100,000 to the University of Wuerzburg. The Company expects to conduct further preclinical research to identify and
characterize an AIM Biologicals-based development candidate for the treatment of NMOSD and develop manufacturing process for the selected
candidate. On June 7, 2021, we engaged neuroimmunologist, Michael Levy, MD, PhD, Research Director of the Division of Neuroimmunology
& Neuroinfectious Disease at Massachusetts General Hospital as a scientific consultant to support the development of the Company’s
AIM Biologicals for the potential treatment of NMOSD. Dr. Levy will provide scientific support and advice to Aeterna Zentaris in the
field of inflammatory central nervous system disorders, autoimmune diseases of the nervous system, and NMOSD. In 2021, we expect
to continue conducting further preclinical research to identify and characterize an AIM Biologicals-based development candidate for the
treatment of NMOSD and developing the manufacturing process for the selected candidate.
Macimorelin
Pre-clinical Program
On
January 13, 2021, we entered into a material transfer agreement with Queensland University to provide macimorelin for the conduct of
preclinical and clinical studies evaluating macimorelin as a therapeutic for the treatment of amyotrophic lateral sclerosis (“ALS”
and commonly known as Lou Gehrig’s disease). Queensland University researchers have filed funding applications to dedicated
organizations in Australia to finance parts of the abbreviated preclinical development program and to conduct a subsequent investigator-initiated
clinical trial to evaluate the safety, tolerability and efficacy of macimorelin as a potential new treatment option for ALS patients.
The Company expects to continue work with Queensland University to conduct proof-of-concept studies with macimorelin in disease specific
animal models, assess alternative formulations and formalize a preclinical development plan. Our next steps include working with Queensland
University to conduct proof-of-concept studies with macimorelin in disease-specific animal models, assess alternative formulations and
formalize our pre-clinical development plan.
AEZS-
150 (Delayed clearance parathyroid hormone)
On
March 11, 2021, the Company announced that it had received an exclusive license from The University of Sheffield, United Kingdom,
for the intellectual property relating to parathyroid hormone (“PTH”) fusion polypeptides covering the field of human use
which will initially be studied by Aeterna Zentaris for the potential therapeutic treatment of primary hypoparathyroidism and made a
cash payment of £100,000 to the University of Sheffield. Under the terms of the exclusive patent and know-how license agreement
entered into with The University of Sheffield, Aeterna Zentaris obtained worldwide rights to develop, manufacture and commercialize PTH
fusion polypeptides covered by the licensed patents for all human uses for an up-front cash payment and milestone payments to be paid
upon the achievement of certain development, regulatory and sales milestones, as well as low single digit royalty payments on net sales
of those products and certain fees payable in connection with sublicensing. Aeterna Zentaris is responsible for the further development,
manufacturing, approval and commercialization of the licensed products. Aeterna Zentaris has also engaged The University of Sheffield
under a research contract to conduct certain research activities to be funded by Aeterna Zentaris, the results of which will be included
within the scope of the license granted to Aeterna Zentaris. On May 6, 2021, Aeterna Zentaris selected AEZS-150 as the lead candidate
in the Company’s delayed clearance parathyroid hormone fusion polypeptides (DC-PTH) program. Aeterna Zentaris will now start the
formal preclinical development of AEZS-150 in preparation for a potential IND filing for conducting the first in-human clinical study
of AEZS-150. The Company expects to work with The University of Sheffield to conduct in depth characterization of the development
candidate (in-vitro and in-vivo), in addition to developing the manufacturing process.
Oral
Coronavirus Vaccine Platform
On
February 2, 2021, the Company announced that it had entered into an exclusive option agreement (the “Option Agreement”) to
evaluate a preclinical potential COVID-19 vaccine developed at the University of Wuerzburg and made a payment of €110,000 to the
University of Wuerzburg. The vaccine technology developed at the University of Wuerzburg uses a typhoid fever vaccine as a carrier strain
and has the potential to be an orally active COVID-19 (SARS-CoV-2) live-attenuated bacterial vaccine. Under the Option Agreement entered
into with the University of Wuerzburg, we have the right to negotiate an exclusive worldwide license to develop this technology for the
prevention of coronavirus diseases, including COVID-19. We believe that, if it is determined that there is sufficient data to advance
into human clinical trials, the development program for this particular COVID-19 vaccine is expected to be abbreviated because extensive
clinical safety data is already available for the underlying vaccine strain, Salmonella Typhi Ty21a.
On
March 14, 2021, the Company exercised the option under the Option Agreement and entered into a License Agreement with the University
of Wuerzburg (the “Wuerzburg License Agreement”). Pursuant to the terms of the Wuerzburg License Agreement, the Company has
been granted an exclusive, world-wide, license to certain patents and know-how owned by the University of Wuerzburg to research and develop,
manufacture, and sell a potential COVID-19 vaccine using the University of Wuerzburg’s bacterial vaccine platform technology (the
“Licensed Rights”). The Company paid an up-front payment under the Wuerzburg License Agreement of €140,000 and has
agreed to make certain milestones payments to be paid upon the achievement of certain development, and regulatory and sales milestones
as well as a percentage of any sub-licensing revenue received by the Company and royalty payments on net sales of the licensed vaccine
products (including by the Company or its sub-licensees). The Wuerzburg License Agreement will expire upon the latter of (i) the existence
of a valid patent claim of a Licensed Right or (ii) 10 years after the first commercial sale of a product that was developed, manufactured,
marketed, and sold using a least one Licensed Right. The Wuerzburg License Agreement may be terminated by the Company by providing six
months’ notice to the University of Wuerzburg. Pursuant to the Wuerzburg License Agreement, the University of Wuerzburg has also
granted the Company an exclusive option for the exclusive use of the Licensed Rights in an undisclosed field. The Company has six months
from the date of the Wuerzburg License Agreement to exercise this option. Additionally, the Company has entered into a Research Agreement
under which the Company has engaged the University of Wuerzburg on a fee-for-service basis to conduct supplementary research activities
and preclinical development studies on the potential vaccine. Our next steps include conducting in-vivo immunology experiments
with antigen variant candidates, initiating challenge experiments in immunized transgenic animals as proof of concept, selecting
a development candidate for initiation of the formal preclinical toxicology and safety studies and starting the manufacturing
process assessment and development.
Financing
activities
During
the period between January 1, 2021 and June 30, 2021, holders have exercised certain of our outstanding warrants to purchase 35,011,187
of our common shares for gross proceeds of approximately $20.0 million (such exercises, the “Warrant Exercises”).
On
February 19, 2021, the Company closed a public offering of 20,509,746 common shares at a price to the public of $1.45 per common share,
for gross proceeds of $29.7 million, before deducting underwriting discounts, commissions and offering expenses payable by the Company,
in the amount of $2.8 million. Aeterna also granted the underwriter, which was also the placement agent, a 30-day overallotment
option (the “Underwriter Option”) to purchase up to 3,076,461 additional common shares at the public offering price, less
underwriting discounts and commissions, and 1,435,682 placement agent warrants with an exercise price of $1.8125 and expiring
on February 17, 2026. The net cash proceeds to the Company from the offering totaled $26.9 million. On February 22, 2021, the underwriter
exercised the Underwriter Option in full and received 3,076,461 common shares for gross proceeds to the Company of $4.5 million. In connection
with the public offering and the exercise of the Underwriter Option, the Company paid commissions and other expenses of $0.4 million
and issued 215,352 placement agent warrants priced at $1.8125 and expiring on February 17, 2026. Collectively, this financing
is referred to as the “February 2021 Financing”.
Nasdaq
Letters
On July 28, 2021, we received a letter
from the Listing Qualifications Staff of the Nasdaq, notifying us that for the last 30 consecutive business days prior to the date of
the letter, the closing bid price of our common shares was below $1.00 per share and, therefore, we did not meet the requirement for
continued listing on Nasdaq as required by Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Rule”). In accordance with Nasdaq
Listing Rule 5810(c)(3)(A), we were granted a grace period of 180 calendar days, through January 24, 2022.
Changes
in personnel
On
May 3, 2021, the Company announced the addition of Michael Teifel, Ph.D. as Senior Vice President, Non-Clinical
Development and Chief Scientific Officer to drive forward our pre-clinical research initiatives. On May 5, 2021, Mr. Dennis Turpin
(CPA, CA) joined the Board and replaced Mr. Pierre-Yves Desbiens (CPA, CA, MBA) as Chair of the Audit Committee. On June
7, 2021, Dr. Michael Levy, MD, PhD was engaged by the Company as a scientific consultant to support the development of the AIM
Biologicals.
Securities class action lawsuit
On March 9, 2020, the Company settled the
previously disclosed class-action lawsuit against it pending in the U.S. District Court for the District of New Jersey. This settlement
was approved by the U.S. District Court for the District of New Jersey on June 3, 2021. The settlement payment will be funded entirely
by Aeterna Zentaris’s insurers. As no appeals were filed within the 30-day appeal period, this matter is fully and finally settled.
Exposure
to epidemic or pandemic outbreak
As
of August 4, 2021, coronavirus or COVID-19, a contagious disease that was characterized by the World Health Organization as a pandemic
in early 2020, continues to affect the global community and is also adversely affecting our business operations. To date, the Company
has not experienced significant business disruption from COVID-19. Given this rapidly evolving situation, the duration, scope and impact
on our business operations, clinical studies and financial results cannot at this time be fully determined or quantified. Aeterna Zentaris
has developed protocols and procedures should they be required to deal with any potential epidemics and pandemics and has implemented
these protocols and procedures to address the current COVID-19 pandemic. Despite appropriate steps being taken to mitigate such risks,
there can be no assurance that existing policies and procedures will ensure that the Company’s operations will not be 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. There can be no assurance that a disruption in financial markets, regional economies and the world economy
would not negatively affect Aeterna Zentaris’ access to capital or its financial performance.
Uncertain
factors, including the duration of the outbreak, the severity of the disease and the actions to contain or treat its impact, could impair
our operations including, among other things, employee mobility and productivity, availability of our facilities, conduct of our clinical
trials and the availability and the productivity of third-party product and service suppliers. Please see the Risk Factor entitled “The
economic effects of a pandemic, epidemic or outbreak of an infectious disease could adversely affect our operations or the market price
of our common shares” in our Annual Report on Form 40-F for the year ended December 31, 2020.
Condensed
Interim Consolidated Statements of Comprehensive (Loss) Income Data
(in
thousands, except share and per share data)
| | |
Three months ended | | |
Six months ended | |
| | |
June 30 | | |
June 30 | |
| | |
2021 | | |
2020 | | |
2021 | | |
2020 | |
| | |
$ | | |
$ | | |
$ | | |
$ | |
| Revenues | |
| | | |
| | | |
| | | |
| | |
| Royalty income | |
| 19 | | |
| 10 | | |
| 27 | | |
| 24 | |
| Product sales | |
| — | | |
| — | | |
| — | | |
| 1,016 | |
| Supply chain | |
| 43 | | |
| 40 | | |
| 84 | | |
| 81 | |
| Licensing revenue | |
| 537 | | |
| 18 | | |
| 1,074 | | |
| 37 | |
| Total revenues | |
| 599 | | |
| 68 | | |
| 1,185 | | |
| 1,158 | |
| Operating expenses | |
| | | |
| | | |
| | | |
| | |
| Cost of sales | |
| 12 | | |
| 12 | | |
| 41 | | |
| 874 | |
| Research and development costs | |
| 738 | | |
| 189 | | |
| 1,101 | | |
| 508 | |
| General and administrative expenses | |
| 1,645 | | |
| 1,141 | | |
| 2,909 | | |
| 2,265 | |
| Selling expenses | |
| 318 | | |
| 199 | | |
| 564 | | |
| 447 | |
| Gain on modification of building lease | |
| — | | |
| (34 | ) | |
| — | | |
| (219 | ) |
| Total operating expenses | |
| 2,713 | | |
| 1,507 | | |
| 4,615 | | |
| 3,875 | |
| Loss from operations | |
| (2,114 | ) | |
| (1,439 | ) | |
| (3,430 | ) | |
| (2,717 | ) |
| Gain (loss) due to changes in foreign currency exchange rates | |
| 82 | | |
| 130 | | |
| (166 | ) | |
| 26 | |
| Change in fair value of warrant liability | |
| — | | |
| (2,139 | ) | |
| — | | |
| 331 | |
| Other finance costs | |
| (7 | ) | |
| (2 | ) | |
| (17 | ) | |
| (311 | ) |
| Net finance income (costs) | |
| 75 | | |
| (2,011 | ) | |
| (183 | ) | |
| 46 | |
| Loss before income taxes | |
| (2,039 | ) | |
| (3,450 | ) | |
| (3,613 | ) | |
| (2,671 | ) |
| Income tax recovery | |
| — | | |
| — | | |
| 129 | | |
| — | |
| Net loss | |
| (2,039 | ) | |
| (3,450 | ) | |
| (3,484 | ) | |
| (2,671 | ) |
| Other comprehensive loss: | |
| | | |
| | | |
| | | |
| | |
| Items that may be reclassified subsequently to profit or loss: | |
| | | |
| | | |
| | | |
| | |
| Foreign currency translation adjustments | |
| (126 | ) | |
| (209 | ) | |
| 421 | | |
| 1 | |
| Items that will not be reclassified to profit or loss: | |
| | | |
| | | |
| | | |
| | |
| Actuarial gain (loss) on defined benefit plans | |
| (968 | ) | |
| (1,418 | ) | |
| (86 | ) | |
| (30 | ) |
| Comprehensive loss | |
| (3,133 | ) | |
| (5,077 | ) | |
| (3,149 | ) | |
| (2,700 | ) |
| Net loss per share [basic and diluted] | |
| (0.02 | ) | |
| (0.15 | ) | |
| (0.03 | ) | |
| (0.12 | ) |
| Weighted average number of shares outstanding: | |
| | | |
| | | |
| | | |
| | |
| Basic | |
| 121,203,227 | | |
| 23,515,579 | | |
| 108,395,537 | | |
| 22,519,497 | |
| Diluted | |
| 121,203,227 | | |
| 23,515,579 | | |
| 108,395,537 | | |
| 22,519,497 | |
Condensed
Interim Consolidated Statements of Financial Position Data
(in thousands) | |
As at June 30, 2021 | | |
As at December 31, 2020 | |
| | |
$ | | |
$ | |
| Cash and cash equivalents | |
| 69,868 | | |
| 24,271 | |
| Trade and other receivables and other current assets | |
| 4,801 | | |
| 3,594 | |
| Inventory | |
| 59 | | |
| 21 | |
| Restricted cash equivalents | |
| 328 | | |
| 338 | |
| Property, plant and equipment | |
| 38 | | |
| 22 | |
| Right of use assets | |
| 102 | | |
| 157 | |
| Other non-current assets | |
| 9,156 | | |
| 8,874 | |
| Total assets | |
| 84,352 | | |
| 37,277 | |
| Payables and accrued liabilities and income taxes payable | |
| 2,231 | | |
| 2,594 | |
| Current portion of provisions | |
| 85 | | |
| 92 | |
| Current portion of deferred revenues | |
| 2,125 | | |
| 2,193 | |
| Lease liabilities | |
| 118 | | |
| 184 | |
| Non-financial non-current liabilities (1) | |
| 18,446 | | |
| 19,003 | |
| Total liabilities | |
| 23,005 | | |
| 24,066 | |
| Shareholders’ equity | |
| 61,347 | | |
| 13,211 | |
| Total liabilities and shareholders’ equity | |
| 84,352 | | |
| 37,277 | |
| (1) |
Comprised
mainly of employee future benefits, provisions 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
consolidated financial statements are presented fairly and in accordance with IFRS applicable to interim financial statements. 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 applied to the Company’s annual consolidated financial
statements as of December 31, 2020 and 2019 and for the years then ended except for the following:
Intangible
assets
Separately
acquired intangible assets are recognized at the price paid in cash, less amortization and impairments. All intangible assets are tested
for impairment when there are indications that the carrying value may not be recoverable, or, at a minimum, annually. The recoverable
amount is determined as the higher of value in use or fair value less costs to sell using a discounted cash flow calculation, where the
products’ expected cash flows are risk-adjusted over their estimated remaining useful economic life. Any impairment losses are
recognized immediately in the consolidated statements of comprehensive (loss) income. Intangible assets relating to products which fail
during development (or for which development ceases for other reasons) are also tested for impairment and are written down to their recoverable
amount (which is usually nil). If, subsequent to an impairment loss being recognized, development restarts or other facts and circumstances
change indicating that the impairment is less or no longer exists, the value of the asset is re-estimated and its carrying value is increased
to the recoverable amount, but not exceeding the original value, by recognizing an impairment reversal in the consolidated statements
of comprehensive (loss) income. Amortization of such intangible assets begins once such assets are ready for their intended use.
Contingent
payments
The
Company accounts for contingent variable payments for separately acquired intangible assets with the cost accumulation approach. Contingent
consideration is not considered on initial recognition of the asset but is added to the cost of the asset initially recorded, when incurred.
Recent
accounting pronouncements issued but not yet effective
The
recent accounting pronouncements issued but not yet effective included in note 4 to the Company’s annual audited consolidated financial
statements as at December 31, 2020 and 2019 and for the years then ended are unchanged.
Financial
Risk Factors and Other Instruments
The
nature and extent of our exposure to risks arising from financial instruments, including credit risk, liquidity risk and market risk
and how we manage those risks are described in note 25 to the Company’s annual audited consolidated financial statements as at
December 31, 2020 and 2019 and for the years then ended. There were no significant changes in the six months of 2021 as compared with
the December 31, 2020 disclosure.
Results
of operations for the three-month period ended June 30, 2021
For
the three-month period ended June 30, 2021, we reported a consolidated net loss of $2.0 million, or $0.02 loss per common share (basic),
as compared with a consolidated net loss of $3.5 million, or $0.15 loss per common share (basic) for the three-month period ended June
30, 2020. The $1.5 million improvement in net loss is primarily from an increase in net finance income of $2.1 million and an increase
of $0.5 million in total revenues, partially offset by an increase of $1.2 million in total operating expenses.
Revenues
Our
total revenue for the three-month period ended June 30, 2021 was $0.60 million as compared with $0.07 million for the same period in
2020, representing an increase of $0.53 million. The 2021 revenue was comprised of $0.5 million in licensing revenue (2020 - $0.02 million),
$0.04 million in supply chain revenue (2020 - $0.04 million) and $0.02 million in royalty income (2020 - $0.01 million). The licensing
revenue was earned from the recognition of a portion of the deferred €5 million payment from Novo Nordisk received with the
amendment to the Novo License agreement in the fourth quarter of 2020.
Operating
expenses
Our
total operating expenses for the three-month period ended June 30, 2021 was $2.7 million as compared with $1.5 million for the
same period in 2020, representing an increase of $1.2 million. This increase arose primarily from a $0.5 million increase in research
and development costs and $0.5 million increases in general and administrative expenses and an increase of $0.1 million in selling
expenses. This increase in total operating expense is due to the initiation of research and development projects as announced in the
first quarter of 2021, higher public company costs incurred holding our annual shareholders meeting in May 2021, subsequent to
our issuance of common shares in the February 2021 financing and the 2021 warrant exercises, in addition to higher auditor fees
mostly related to F-3 warrant registration filings.
Net
finance income (costs)
Our
net finance income for the three-month period ended June 30, 2021 was $0.1 million as compared with net finance costs of ($2.0 million)
for the same period in 2020, representing an increase in net finance income of $2.1 million. This is primarily due to the $2.1 million
decrease in change in fair value of warrants. Unlike as at June 30, 2020, the Company did not account for its warrants as liabilities
as at June 30, 2021. As at June 30, 2020, the fair value of such liabilities was classified as a finance cost in the consolidated statements
of loss and comprehensive loss.
Results
of operations for the six-month period ended June 30, 2021
For
the six-month period ended June 30, 2021, we reported a consolidated net loss of $3.5 million, or $0.03 loss per common share (basic),
as compared with a consolidated net loss of $2.7 million, or $0.12 loss per common share (basic) for the six-month period ended
June 30, 2020. The $0.8 million increase in net loss is primarily from an increase in total operating expenses of $0.7 million and an
increase of $0.2 million in net finance costs, partially offset by an increase of $0.1 million in income tax recovery.
Revenues
Our
total revenue for the six-month period ended June 30, 2021 was unchanged at $1.2 million as compared with the same period in 2020. The
2021 revenue was comprised of $1.1 million in licensing revenue (2020 - $0.04 million), $0.1 million in supply chain revenue (2020 -
$0.1 million), $0.03 million in royalty income (2020 - $0.02 million) and $nil in product sales (2020 - $1.0 million). The main driver
of revenue in the first six months of 2021 was the licensing revenue earned primarily from the recognition of a portion of the
deferred €5 million payment from Novo Nordisk received with the amendment to the Novo License agreement in the fourth quarter of
2020 while product sales to Novo Nordisk drove the revenue earned in the first six months of 2020.
Operating
expenses
Our
total operating expenses for the six-month period ended June 30, 2021 was $4.6 million as compared with $3.9 million for the same
period in 2020, representing an increase of $0.7 million. This increase arose primarily from a $0.6 million increase in research and
development costs and $0.6 million increase in general and administrative expenses and $0.1 million increase in selling expenses and
a $0.2 million in one-time gain on modification of a lease that was incurred in 2020 only, offset by a decrease of $0.8 million in cost
of sales, as there have been no product sales in 2021. As described previously, this increase in total operating expenses
is due to the initiation of research and development projects as announced in the first quarter of 2021, and higher public company
costs incurred holding our annual shareholders meeting in May 2021, subsequent to our issuance of common shares in the February
2021 financing and the 2021 warrant exercises, in addition to higher auditor fees mostly related to F-3 warrant registration
filings.
Selected
quarterly financial data
| | |
Three months ended | |
| (in thousands, except for per share data) | |
June 30,
2021 | | |
March 31,
2021 | | |
December 31,
2020 | | |
September 30,
2020 | |
| | |
| | | |
| $ | | |
| $ | | |
| $ | |
| Revenues | |
| 599 | | |
| 586 | | |
| 2,366 | | |
| 128 | |
| Net loss | |
| (2,039 | ) | |
| (1,445 | ) | |
| (1,311 | ) | |
| (1,136 | ) |
| Net loss per share [basic and diluted]* | |
| (0.02 | ) | |
| (0.02 | ) | |
| (0.02 | ) | |
| (0.02 | ) |
| | |
Three months ended | |
| (in thousands, except for per share data) | |
June 30,
2020 | | |
March 31,
2020 | | |
December 31,
2019 | | |
September 30,
2019 | |
| | |
| | | |
| $ | | |
| $ | | |
| $ | |
| Revenues | |
| 68 | | |
| 1,090 | | |
| 18 | | |
| 283 | |
| Net (loss) income | |
| (3,450 | ) | |
| 779 | | |
| (1,006 | ) | |
| (331 | ) |
| Net (loss) income per share [basic and diluted]* | |
| (0.15 | ) | |
| 0.04 | | |
| (0.05 | ) | |
| (0.02 | ) |
| * |
Net
loss per share is based on the weighted average number of shares outstanding during each reporting period, which may differ on a
quarter-to-quarter basis. As such, the sum of the quarterly net loss per share amounts may not equal full-year net loss per share. |
Historical
quarterly results of operations and net (loss) income 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, the impact of costs associated with
launching a number of significant preclinical research and development programs in 2021, 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 cash and cash equivalents
We
began 2021 with $24.3 million in cash and cash equivalents. During the six-month period ended June 30, 2021, our operating activities
consumed $4.7 million, our financing activities provided $51.0 million and our investing activities used $0.5 million. As at June 30,
2021 we had $69.9 million of cash and cash equivalents.
Liquidity
and capital reserves
Our
operations and capital expenditures have generally been financed through certain transactions impacting our cash flows from operating
activities, public equity offerings, registered direct offerings and issuances under various “at-the-market” offering programs.
A portion of the Company’s cash is held in AEZS Germany, which is the counter-party to various license and distribution agreements
for the Company’s only approved product. In September 2019 and February, July and August of 2020 the Company completed financings
resulting in total funding (net of transaction costs) of $24.9 million. The Company also completed the February 2021 Financing resulting
in additional net cash proceeds of $31.0 million which were deposited in the Canadian parent company accounts and such funds can be provided
to AEZS Germany, if and when needed. During 2020, AEZS Germany signed agreements with Novo Nordisk and Consilient Health whereby AEZS
Germany received cash payments of €5 million ($6.1 million) in fiscal 2020 and €1 million ($1.2 million) in January 2021, respectively,
and expects to use this cash to fund its operations directly.
| | |
Six months ended June 30, | |
| (in thousands) | |
2021 | | |
2020 | |
| | |
| | |
| |
| Cash and cash equivalents - Beginning of period | |
| 24,271 | | |
| 7,838 | |
| Cash used in operating activities | |
| (4,680 | ) | |
| (4,854 | ) |
| Cash flows provided by financing activities | |
| 50,957 | | |
| 3,690 | |
| Cash flows provided by (used in) investing activities | |
| (509 | ) | |
| 56 | |
| Effect of exchange rate changes on cash and cash equivalents | |
| (171 | ) | |
| 13 | |
| Cash and cash equivalents - End of period | |
| 69,868 | | |
| 6,743 | |
Operating
Activities
Cash
used by operating activities totaled $4.7 million for the six months ended June 30, 2021, as compared to $4.9 million in the same period
in 2020. This $0.2 million improvement in operating activities is attributed primarily to the net change in operating assets which included
the receipt of the cash payment of €1 million in January 2021 from Consilient Health and recognized as deferred revenue.
Financing
Activities
Cash
provided by financing activities totaled $51.0 million for the six months ended June 30, 2021, as compared with cash provided by financing
activities of $3.7 million in the same period in 2020. On February 21, 2021, the Company completed the February 2021 Financing with net
cash proceeds of $31.0 million and, throughout the first six months of 2021, the Warrant Exercises contributed cash of approximately
$20.0 million. In February 2020, the Company also completed a financing with net proceeds of $3.9 million.
Investing
Activities
Cash
used by investing activities totaled $0.5 million for the six months ended June 30, 2021, as compared to cash provided by investing activities
of $0.06 in the same period in 2020. During the first half of 2021, the Company executed various agreements including in-licensing and
similar arrangements with development partners with $0.5 million reflecting the purchase of separately acquired intangible assets.
Capital
stock
As
at August 4, 2021, we had 121,297,007 common shares issued and outstanding, as well as 506,400 stock options, 423,000 deferred share
units and 11,541,213 warrants outstanding.
During
the first six months of 2021, holders have exercised certain of our outstanding warrants, as follows:
| | |
Number Exercised | | |
Exercise Price | | |
Cash Receipts | |
| September 2019 Investor warrants | |
| 2,000,000 | | |
$ | 1.65 | | |
$ | 3,300,000 | |
| February 2020 Investor warrants | |
| 1,739,130 | | |
$ | 1.20 | | |
$ | 2,086,956 | |
| July 2020 Investor warrants | |
| 20,945,555 | | |
$ | 0.45 | | |
$ | 9,425,500 | |
| July 2020 Placement Agent warrants | |
| 1,866,667 | | |
$ | 0.5625 | | |
$ | 1,050,000 | |
| August 2020 Investor warrants | |
| 7,589,883 | | |
$ | 0.47 | | |
$ | 3,567,245 | |
| August 2020 Placement Agent warrants | |
| 869,952 | | |
$ | 0.7040625 | | |
$ | 612,501 | |
| | |
| 35,011,187 | | |
| | | |
$ | 20,042,202 | |
Adequacy
of financial resources
Since
inception, the Company has incurred significant expenses in its efforts to develop and co-promote products. Our current business focus
is to: investigate further therapeutic uses of Macrilen™ (macimorelin), expand pipeline development activities, further expand
the commercialization of macimorelin in available territories and potentially fund the pediatric clinical trial in the E.U. and U.S.
for macimorelin if such trials exceed €9 million. 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 U.S. and Canada. As at June 30, 2021,
the Company had an accumulated deficit of $325.3 million. The Company also had a net loss of $3.5 million for the six months ended June
30, 2021, and negative cash flow from operations of $4.7 million.
Between
January 1, 2021 and August 4, 2021, the Company raised net proceeds of $31.0 million from the February 2021 Financing and $20.0 million
from the Warrant Exercises.
In
2020, the COVID-19 pandemic began causing significant financial market declines and social dislocation. To date, the Company has not
experienced significant business disruption from COVID-19. 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, or that of our licensee. For example, the COVID-19 outbreak may delay enrollment
in our clinical trial due to prioritization of hospital resources toward the outbreak, and some patients may be unwilling to be enrolled
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 pandemic may also impact the ability 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. Sales activities for Macrilen™ in the US by Novo Nordisk may be impacted due to
significant delays of diagnostic activities on AGHD in the U.S.
Contractual
obligations and commitments as at June 30, 2021
(in thousands) | |
Service and manufacturing | | |
R&D
contracts | | |
TOTAL | |
| | |
| $ | | |
| $ | | |
| $ | |
| Less than 1 year | |
| 660 | | |
| 1,109 | | |
| 1,769 | |
| 1 - 3 years | |
| 584 | | |
| 724 | | |
| 1,308 | |
| 4 - 5 years | |
| — | | |
| — | | |
| — | |
| More than 5 years | |
| — | | |
| — | | |
| — | |
| Total | |
| 1,244 | | |
| 1,833 | | |
| 3,077 | |
During
the first quarter of 2021, the Company executed various agreements including in-licensing and similar arrangements with development partners
with $0.5 million in additions of separately acquired intangible assets recognized in the condensed interim consolidated statements
of financial position. Such agreements may require the Company to make payments on achievement of stages of development, launch or revenue
milestones, although the Company generally has the right to terminate these agreements at no penalty. The Company recognizes research
and development milestones as an intangible asset once it is committed to the payment, which is generally when the Company reaches a
set point in the development cycle.
Based
on the closing exchange rates at June 30, 2021, the Company expects to pay $1.8 million, including $1.6 million
[EUR 1.5 million], and $0.2 million [GBP 0.2 million], in R&D contracts and up to $4.8 million, including
$3.2 million [EUR 2.7 million] and $1.6 million [GBP 1.2 million], in R&D milestone payments and up to
$7.7 million, including $6.0 million [EUR 5.1 million] and $1.7 million [GBP 1.3 million], in revenue
related milestone payments. The table below contains all potential R&D and revenue-related milestone payments that the Company may
be required to make under such agreements:
| (in thousands) | |
Future potential R&D milestone payments | | |
Future potential revenue milestone payments | | |
TOTAL | |
| | |
$ | | |
$ | | |
$ | |
| Less than 1 year | |
| 30 | | |
| — | | |
| 30 | |
| 1 - 3 years | |
| — | | |
| — | | |
| — | |
| 4 - 5 years | |
| 435 | | |
| — | | |
| 435 | |
| More than 5 years | |
| 4,305 | | |
| 7,733 | | |
| 12,038 | |
| Total | |
| 4,770 | | |
| 7,733 | | |
| 12,503 | |
The
table excludes any payments already capitalized in the condensed interim consolidated statements of financial position. The future payments
that are disclosed represent contract payments and are not discounted and are not risk-adjusted. The development of any pharmaceutical
product candidates is a complex and risky process that may fail at any stage in the development process due to a number of factors. The
timing of the payments is based on the Company’s current best estimate of achievement of the relevant milestone.
Contingencies
In
the normal course of operations, the Company may become involved in various claims and legal proceedings related to, for example, contract
terminations and employee-related and other matters.
Securities
class action lawsuit
On
March 9, 2020, the Company settled the previously disclosed class-action lawsuit against it pending in the U.S. District Court for the
District of New Jersey. This settlement was approved by the U.S. District Court for the District of New Jersey on June 3, 2021. The
settlement payment will be funded entirely by Aeterna Zentaris’s insurers. As no appeals were filed within the 30-day appeal period,
this matter is fully and finally settled.
Related
Party Transactions and Off-Balance Sheet Arrangements
Other
than employment agreements and indemnification agreements with our management, there are no related party transactions.
As
at June 30, 2021, we did not have any interests in special purpose entities or any other off-balance sheet arrangements.
Risk
Factors and Uncertainties
An
investment in our securities involves a high degree of risk. In addition to the other information included in this MD&A and in the
related consolidated financial statements, investors are urged to carefully consider the risks described under the caption “Risk
Factors” in our most recent Annual Report on Form 40-F and annual information form for the year ended December 31, 2020 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 40-F and annual information form were filed with the relevant Canadian and U.S. securities’ regulatory
authorities at www.sedar.com and with the SEC at www.sec.gov. Investors are urged to consult the risk factors in these documents.
Disclosure
Controls and Procedures and Internal Control over Financial Reporting
Management
is responsible for establishing and maintaining adequate internal control over financial reporting (“ICFR”) and disclosure
controls and procedures (“DC&P”). ICFR is a framework designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. Management has used
the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework)
in order to assess the effectiveness of the Company’s ICFR. DC&P form a broader framework designed to provide reasonable assurance
the information required to be disclosed by Aeterna in its annual and interim filings and other reports filed under securities legislation
is recorded, processed, summarized and reported within the time frame specified in securities legislation and includes controls and procedures
designed to ensure that information required to be disclosed by the Company in its annual and interim filings and other reports submitted
under securities legislation is accumulated and communicated to our management to allow timely decisions regarding required disclosure.
Together, the ICFR and DC&P frameworks provide internal control over financial reporting and disclosure. We maintain disclosure controls
and procedures that are designed to provide reasonable assurance that information, which is required to be disclosed in our annual and
interim filings and other reports filed under securities legislation, is accumulated and communicated in a timely fashion. Due to their
inherent limitations, Aeterna acknowledges that, no matter how well designed, ICFR and DC&P can provide only reasonable assurance
of achieving the desired control objectives and as such may not prevent or detect all misstatements. Further, the effectiveness of ICFR
is subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with policies
or procedures may change. There have been no significant changes to our disclosure controls nor to our internal controls over financial
reporting for the three-month period ended June 30, 2021 that have materially affected, or are reasonably likely to materially
affect, the reliability of financial reporting.
