F-10

As filed with the Securities and Exchange Commission on December 20, 2019

Registration No. 333-     ​

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM F-10

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

BELLUS HEALTH INC.

(Exact Name of Registrant as Specified In Its Charter)

Not applicable

(Translation of Registrant’s Name Into English (if Applicable))

Canada
(Province or Other Jurisdiction of
Incorporation or Organization) 2834
(Primary Standard Industrial
Classification Code Number
(if Applicable)) Not applicable
(I.R.S. Employer Identification
Number (if Applicable))

275 Armand-Frappier Blvd.
Laval, Quebec H7V 4A7, Canada
Telephone: (450) 680-4525
(Address and Telephone Number of Registrant’s Principal Executive Offices)

C T Corporation System
1015 15th Street, NW, Suite 1000
Washington, District of Columbia 20005
Telephone: (202) 572-3111
(Name, Address (Including Zip Code) and Telephone Number (Including Area Code) of Agent For Service in the United States)

Copies to:

Sebastien Roy
Davies Ward Phillips & Vineberg LLP
1501 McGill College Ave
Montréal, Québec H3A 3N9
Canada
Telephone: (514) 841-6493 Roberto Bellini
BELLUS Health Inc
275 Armand-Frappier Blvd.
Laval, Québec H7V 4A7
Canada
Telephone: (450) 680-4551 Thomas M. Rose
Troutman Sanders LLP
401 9th Street, NW, Suite 1000
Washington, DC 20004
United States
Telephone: (757) 687-7715

Approximate date of commencement of proposed sale of the securities to the public:
From time to time after the effective date of this Registration Statement.

Province of Québec, Canada
(Principal Jurisdiction Regulating This Offering)

It is proposed that this filing shall become effective (check appropriate box):

A.   ☐

upon filing with the Commission, pursuant to Rule 467(a) (if in connection with an offering being made contemporaneously in the United States and Canada).

B.   ☒

at some future date (check appropriate box below)

1.    ☐

pursuant to Rule 467(b) on (date) at (time) (designate a time not sooner than 7 calendar days after filing).

2.    ☐

pursuant to Rule 467(b) on (date) at (time) (designate a time 7 calendar days or sooner after filing) because the securities regulatory authority in the review jurisdiction has issued a receipt or notification of clearance on (date).

3.    ☐

pursuant to Rule 467(b) as soon as practicable after notification of the Commission by the Registrant or the Canadian securities regulatory authority of the review jurisdiction that a receipt or notification of clearance has been issued with respect hereto.

4.    ☒

after the filing of the next amendment to this Form (if preliminary material is being filed).

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to the home jurisdiction’s shelf prospectus offering procedures, check the following box. ☒

CALCULATION OF REGISTRATION FEE

Title of Each Class of Securities to be Registered	Amount to be Registered(1)(2)			Proposed Maximum Offering Price Per Unit		Proposed Maximum Aggregate Offering Price(3)			Amount of Registration Fee
Common Shares (no par value)	​	​	—	​	—	​	​	—	​	​	—
Total	​	$	200,000,000	​	​	​	$	200,000,000	​	$	25,960

(1)

There are being registered under this Registration Statement such indeterminate number of common shares of the Registrant (the “Securities”) as shall have an aggregate initial offering price of up to $200,000,000. The proposed maximum offering price per Security will be determined, from time to time, by the Registrant in connection with the sale of the Securities under this Registration Statement. Prices, when determined, may be in U.S. dollars or the equivalent thereof in Canadian dollars.

(2)

If, as a result of stock splits, stock dividends or similar transactions, the number of securities purported to be registered on this Registration Statement changes, the provisions of Rule 416 shall apply to this Registration Statement.

(3)

Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(o) under the United States Securities Act of 1933, as amended.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registration Statement shall become effective as provided in Rule 467 under the Securities Act of 1933 or on such date as the Commission, acting pursuant to Section 8(a) of the Act, may determine.

PART I

INFORMATION REQUIRED TO BE DELIVERED TO OFFEREES OR PURCHASERS

A copy of this preliminary short form base shelf prospectus has been filed with the securities regulatory authorities in each of the provinces of Canada but has not yet become final for the purpose of the sale of securities. Information contained in this preliminary short form base shelf prospectus may not be complete and may have to be amended. The securities may not be sold until a receipt for the short form base shelf prospectus is obtained from the securities regulatory authorities.

This short form base shelf prospectus has been filed under legislation in each of the provinces of Canada that permits certain information about these securities to be determined after this short form base shelf prospectus has become final and that permits the omission from this short form base shelf prospectus of that information. The legislation requires the delivery to purchasers of a prospectus supplement containing the omitted information within a specified period of time after agreeing to purchase any of these securities, except in cases where an exemption from such delivery requirements has been obtained.

Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the United States Securities and Exchange Commission but is not yet effective. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of securities in any state in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state.

No securities regulatory authority has expressed an opinion about these securities and it is an offence to claim otherwise. This short form base shelf prospectus constitutes a public offering of these securities only in those jurisdictions where they may be lawfully offered for sale therein and only by persons permitted to sell such securities.

Information has been incorporated by reference in this short form base shelf prospectus from documents filed with securities commissions or similar authorities in Canada and with the United States Securities and Exchange Commission.Copies of the documents incorporated herein by reference may be obtained on request without charge from the Vice President, Finance of BELLUS Health Inc. at 275 Armand-Frappier Boulevard, Laval, Quebec H7V 4A7, Tel: 450-680-4500 and are also available electronically at www.sedar.com. See “Documents Incorporated by Reference”.

PRELIMINARY SHORT FORM BASE SHELF PROSPECTUS

New Issue December 20, 2019

BELLUS HEALTH INC.

US$200,000,000
Common Shares

This short form base shelf prospectus relates to the offering for sale from time to time, during the 25-month period that this prospectus, including any amendments hereto, remains valid, of common shares of BELLUS Health Inc. (the “Company”), with a total offering price of such securities of up to US$200,000,000 (or its equivalent in any other currency used to denominate the securities at the time of offering). The securities offered hereby may be offered separately or together, in separate series, in amounts, at prices and on terms to be set forth in one or more prospectus supplements.

All shelf information permitted under applicable securities legislation to be omitted from this prospectus, including, without limitation, the information disclosed in the specific terms of any offering of securities, as discussed above, will be contained in one or more prospectus supplements that will be delivered to purchasers together with this prospectus, except where an exemption from such delivery requirements has been obtained. Each prospectus supplement will be incorporated by reference into this prospectus for the purposes of securities legislation as of the date of such prospectus supplement and only for the purposes of the distribution of the securities to which that prospectus supplement pertains.

We are a Canadian company incorporated under the Canada Business Corporations Act.

The Company is permitted, under the multi-jurisdictional disclosure system, or “MJDS”, adopted by the securities regulatory authorities in Canada and the United States, to prepare this prospectus and any prospectus supplement in accordance with Canadian disclosure requirements, which are different from those of the United States. Financial statements included or incorporated by reference herein have been prepared in accordance with International Financial Reporting Standards, or “IFRS”, as issued by the International Accounting Standards Board, or “IASB”, and may not be comparable to financial statements of United States companies. The Corporation’s financial statements are subject to audit in accordance with Canadian generally accepted auditing standards and/or the standards of the Public Company Accounting Oversight Board (United States), or “PCAOB”, and our auditor is subject to both Canadian auditor independence standards and the auditor independence standards of the PCAOB and the United States Securities and Exchange Commission, or the “SEC”.

The enforcement by investors of civil liabilities under United States federal securities laws may be affected adversely by the fact that we are incorporated under the federal laws of Canada, that most of our officers and directors are residents of Canada, that many of the experts named in this prospectus may be residents of Canada, and that most or all of our assets and the assets of said persons are located outside of the United States. See “Enforcement of Judgments Against Foreign Persons or Companies”.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES COMMISSION OF ANY STATE OF THE UNITED STATES OR ANY CANADIAN SECURITIES REGULATOR APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

The specific terms of any offering of common shares will be set forth in the applicable prospectus supplement and may include, without limitation: the number of common shares being offered, the currency (which may be United States dollars, Canadian dollars or any other currency), the offering price (in the event the offering is a fixed price distribution) or the manner of determining the offering price(s) (in the event the offering is not a fixed price distribution) and any other specific terms. A prospectus supplement relating to a particular offering of securities may include terms pertaining to the securities being offered thereunder that are not within the terms and parameters described in this prospectus. Where required by statute, regulation or policy, and where the securities are offered in currencies other than Canadian dollars, appropriate disclosure of foreign exchange rates applicable to the securities will be included in the prospectus supplement describing the securities.

We may sell the securities to or through one or more underwriters or dealers purchasing as principals and may also sell the securities to one or more purchasers directly, through applicable statutory exemptions, or through one or more agents designated by us from time to time. The securities may be sold from time to time in one or more transactions at fixed prices or not at fixed prices, such as market prices prevailing at the time of sale, prices related to such prevailing market prices or prices to be negotiated with purchasers, which prices may vary as between purchasers and during the period of distribution of the securities. The prospectus supplement relating to a particular offering of securities will identify each underwriter, dealer or agent engaged in connection with the offering and sale of such securities, as well as the method of distribution and the terms of the offering of such securities, including the initial offering price (in the event the offering is a fixed price distribution), the manner of determining the offering price(s) (in the event the offering is not a fixed price distribution), the net proceeds to us and, to the extent applicable, any fees, discounts or any other compensation payable to underwriters, dealers or agents and any other material terms. See “Plan of Distribution”.

In connection with any offering of the securities other than an “at-the-market distribution” (as defined under applicable Canadian legislation), unless otherwise specified in the relevant prospectus supplement, the underwriters or agents may over-allot or effect transactions that stabilize or maintain the market price of the offered securities at a level above that which might otherwise prevail on the open market. Such transactions, if commenced, may be interrupted or discontinued at any time. See “Plan of Distribution”. No underwriter or dealer involved in an “at-the-market distribution” under this prospectus, no affiliate of such an underwriter or dealer and no person or company acting jointly or in concert with such underwriter or dealer will over-allot securities in connection with such distribution or effect any other transactions that are intended to stabilize or maintain the market price of the securities.

Our outstanding common shares are listed on the Toronto Stock Exchange, or the “TSX”, and on NASDAQ Global Market, or “NASDAQ”, under the symbol “BLU”. On December 19, 2019, the last trading day prior to the date of this prospectus, the closing price of our common shares on the TSX and NASDAQ was Cdn$8.99 and US$6.80, respectively.

Our head office is located at 275 Armand-Frappier Boulevard, Laval, Quebec H7V 4A7, Canada.

Investors should be aware that the acquisition, holding or disposition of the securities described herein may have tax consequences both in the United States and in Canada. Such consequences for investors who are resident in, or citizens of, the United States and Canada may not be described fully herein. You should read the tax discussion contained in this prospectus and the applicable prospectus supplement with respect to a particular offering of the securities and consult your own tax advisor with respect to your own particular circumstances. No underwriter, agent or dealer has been involved in the preparation of this prospectus or performed any review of the contents of this prospectus.

Any investment in securities involves significant risks that should be carefully considered by prospective investors before purchasing securities. The risks outlined in this prospectus and in the documents incorporated by reference herein, including the applicable prospectus supplement, should be carefully reviewed and considered by prospective investors in connection with any investment in securities. See “Risk Factors”.

TABLE OF CONTENTS

ABOUT THIS PROSPECTUS	1
FINANCIAL INFORMATION	2
ADDITIONAL INFORMATION	2
DOCUMENTS INCORPORATED BY REFERENCE	2
DOCUMENTS FILED AS PART OF THE U.S. REGISTRATION STATEMENT	4
FORWARD-LOOKING STATEMENTS	4
THE COMPANY	7
RECENT DEVELOPMENTS	7
BUSINESS OF THE COMPANY	7
REGULATORY MATTERS	21
CONSOLIDATED CAPITALIZATION	31
USE OF PROCEEDS	31
PLAN OF DISTRIBUTION	31
CERTAIN CANADIAN AND UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS	32
MATERIAL CANADIAN FEDERAL INCOME TAX CONSIDERATIONS	32

MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS FOR U.S. HOLDERS	34
DESCRIPTION OF SHARE CAPITAL	39
BOOK-BASED SYSTEM	40
TRADING PRICE AND VOLUME OF COMMON SHARES	41
PRIOR SALES	41
RISK FACTORS	41
EXEMPTION FROM NATIONAL INSTRUMENT 44-102	60
LEGAL MATTERS	60
AUDITORS, TRANSFER AGENT AND REGISTRAR	61
ENFORCEMENT OF JUDGMENTS AGAINST FOREIGN PERSONS OR COMPANIES	61
RIGHTS OF WITHDRAWAL AND RESCISSION	61

ABOUT THIS PROSPECTUS

We have not authorized anyone to provide any information other than that contained or incorporated by reference in this prospectus or any amendment or supplement to this prospectus. We do not take any responsibility for, or provide any assurance as to the reliability of, any other information that others may provide you. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus, regardless of the time of delivery of this prospectus or any sale of our common shares, and that information appearing in any document incorporated by reference is accurate only as of the date of such document. Our business, financial condition, results of operations or prospects may have changed since those dates. This prospectus is not an offer to sell or the solicitation of an offer to buy our common shares in any circumstances under which such offer or solicitation is unlawful.

In this prospectus, unless the context otherwise permits, the terms “BELLUS Health”, the “Company”, “we”, “us”, and “our” refer to BELLUS Health Inc. and its subsidiaries, BELLUS Health Cough Inc. and BELLUS Health Corp. References to “Cdn$” and “$” are to Canadian dollars and “US$” are to U.S dollars.

All information permitted under applicable laws to be omitted from this prospectus will be contained in one or more prospectus supplements that will be delivered to purchasers together with this prospectus, unless an exemption from the prospectus delivery requirements has been granted or is otherwise available to us. Each prospectus supplement will be incorporated by reference in this prospectus for the purposes of securities legislation as of the date of the prospectus supplement and only for the purposes of the distribution of those securities to which the prospectus supplement pertains.

This prospectus includes market share information, epidemiology and industry data, pricing and commercial forecasts obtained from independent industry publications and surveys. References in such documents to research reports, surveys or articles should not be construed as depicting the complete

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findings of the entire referenced report, survey or article. The information in any such report, survey or article is not incorporated by reference in this prospectus. Although we believe these sources are reliable, we have not independently verified any of the data in such reports, surveys or articles. Some data is also based on our estimates, which are derived from our review of our internal surveys, as well as independent sources. We cannot and do not provide any assurance as to the accuracy or completeness of such information. Market forecasts, in particular, are likely to be inaccurate, especially over long periods of time.

FINANCIAL INFORMATION

Financial statements included or incorporated by reference herein have been prepared in accordance with IFRS as issued by the IASB and may not be comparable to financial statements of United States companies. Our financial statements are subject to audit in accordance with Canadian generally accepted auditing standards and/or the standards of the PCAOB and our auditor is subject to both Canadian auditor independence standards and the auditor independence standards of the PCAOB and the SEC.

ADDITIONAL INFORMATION

This prospectus is part of a registration statement on Form F-10 (the “U.S. Registration Statement”) that the Company has or will file with the SEC under the United States Securities Act of 1933, as amended (the “U.S. Securities Act”) relating to the common shares. Under the U.S. Registration Statement, the Company may, from time to time, sell common shares described in this prospectus in one or more offerings up to an aggregate offering amount of US$200,000,000. This prospectus, which forms a part of the U.S. Registration Statement, provides you with a general description of the common shares that the Company may offer and does not contain all of the information contained in the U.S. Registration Statement, certain items of which are contained in the exhibits to the U.S. Registration Statement, as permitted by the rules and regulations of the SEC. See “Documents Filed as Part of the U.S. Registration Statement”. Statements included or incorporated by reference in this prospectus about the contents of any contract, agreement or other documents referred to are not necessarily complete, and in each instance, you should refer to the exhibits for a complete description of the matter involved. Each such statement is qualified in its entirety by such reference. Each time we sell securities under U.S. Registration Statement, we will provide a prospectus supplement that will contain specific information about the terms of that offering. The prospectus supplement may also add, update or change information contained in this prospectus. Before you invest, you should read both this prospectus and any applicable prospectus supplement together with additional information described under the heading “Documents Incorporated by Reference”. This prospectus does not contain all of the information set forth in the U.S. Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the SEC, or the schedules or exhibits that are part of the U.S. Registration Statement. Investors in the United States should refer to the U.S. Registration Statement and the exhibits thereto for further information with respect to the Company and the common shares.

Our common shares are registered under Section 12(b) of the United States Securities Exchange Act of 1934, as amended (the “U.S. Exchange Act”), and accordingly, we are subject to the informational requirements of the U.S. Exchange Act and applicable Canadian requirements. In accordance with such requirements, we file reports and other information with the SEC and with securities regulatory authorities in Canada. Under the MJDS adopted by the United States and Canada, documents and other information that we file with the SEC may be prepared in accordance with the disclosure requirements of Canada, which are different from those of the United States. As a foreign private issuer, we are exempt from the rules the U.S. Exchange Act prescribing the furnishing and content of proxy statements, and our officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the U.S. Exchange Act. Reports and other information filed by us with, or furnished to, the SEC may be accessed on the SEC’s website at www.sec.gov. You may read and download any public document that we have filed with securities commission or similar regulatory authorities in Canada, on SEDAR at www.sedar.com.

DOCUMENTS INCORPORATED BY REFERENCE

Information has been incorporated by reference in this prospectus from documents filed with securities commissions or similar regulatory authorities in Canada. Copies of the documents incorporated by reference in this prospectus may be obtained upon request without charge from our Vice President, Finance

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at 275 Armand-Frappier Boulevard, Laval, Quebec H7V 4A7, Canada, telephone: (450) 680-4500, or by accessing our disclosure documents available through the Internet on SEDAR, which can be accessed at www.sedar.com. Some of the documents that we file with or furnish to the SEC are electronically available from the SEC’s Electronic Document Gathering and Retreival System, commonly known as “EDGAR”, and may be accessed at www.sec.gov. Our filings through SEDAR and EDGAR are not incorporated by reference in this prospectus except as specifically set forth herein.

Except to the extent that their contents are modified or superseded by a statement contained in this prospectus or in any other document that is also incorporated by reference in this prospectus, the following documents filed us with securities commissions or similar regulatory authorities in Canada are specifically incorporated by reference into, and form an integral part of, this prospectus:

(i)

our annual information form dated March 13, 2019 for the fiscal year ended December 31, 2018;

(ii)

our audited annual consolidated financial statements as at and for the years ended December 31, 2018 and 2017 together with the independent auditors’ report thereon and our management’s discussion and analysis dated February 20, 2019 in respect of those statements;

(iii)

our management information circular dated March 13, 2019 in connection with our annual and special meeting of shareholders held on May 8, 2019;

(iv)

our material change report dated August 20, 2019 regarding the consolidation of our common shares effected on August 15, 2019;

(v)

our material change report dated August 27, 2019 regarding the appointment of Dr. Catherine Bonuccelli;

(vi)

our material change report dated September 13, 2019 announcing the closing of our US$70 million public offering of common shares in Canada and the United States; and

(vii)

our unaudited interim condensed consolidated financial statements for the three and nine-month periods ended September 30, 2019 (with the exception of the following notice included as the last sentence of the first paragraph of note 2(a) to these unaudited interim condensed financial statements: “These condensed consolidated interim financial statements have not been reviewed by the Company’s auditors.”) and our management’s discussion and analysis dated November 13, 2019 in respect of those statements.

Any documents of the type described in Item 11.1 of Form 44-101F1 — Short Form Prospectus Distributions filed by us with the securities commissions or similar authorities in the provinces of Canada subsequent to the date of this prospectus and during the 25-month period that this prospectus, including any amendments hereto, remains valid shall be deemed to be incorporated by reference in this prospectus. Documents referenced in any of the documents incorporated by reference in this prospectus but not expressly incorporated by reference therein or herein and not otherwise required to be incorporated by reference therein or herein are not incorporated by reference in this prospectus.

Notwithstanding anything herein to the contrary, any statement contained in a document incorporated or deemed to be incorporated by reference herein will be deemed to be modified or superseded for the purposes of this prospectus, to the extent that a statement contained herein or in any other subsequently filed document that also is or is deemed to be incorporated by reference in this prospectus modifies or supersedes such statement. Any statement so modified or superseded shall not constitute a part of this prospectus, except as so modified or superseded. The modifying or superseding statement need not state that it has modified or superseded a prior statement or include any other information set forth in the document that it modifies or supersedes. Making such a modifying or superseding statement shall not be deemed an admission for any purposes that the modified or superseded statement, when made, constituted a misrepresentation, an untrue statement of a material fact or an omission to state a material fact that is required to be stated or that is necessary to make a statement not misleading in light of the circumstances in which it was made. Without limiting the generality of the foregoing, the description of our business appearing in this prospectus under the heading “Business of the Company” modifies and supersedes, to the extent inconsistent therewith, the description of our business contained under the heading “Business” in our annual information form dated March 13, 2019; the regulatory disclosure appearing in this prospectus

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under the heading “Regulatory Matters” modifies and supersedes, to the extent inconsistent therewith, the regulatory disclosure contained under the heading “Business” in our annual information form dated March 13, 2019; the risk factors appearing in this prospectus under the heading “Risk Factors” modifies and supersedes, to the extent inconsistent therewith, the risk factors contained under the heading “Risk Factors” in our annual information form dated March 13, 2019.

Upon a new annual information form and annual consolidated financial statements being filed by us with the applicable Canadian securities commissions or similar regulatory authorities in Canada during the period that this prospectus is effective, the previous annual information form, the previous annual consolidated financial statements and all interim consolidated financial statements and in each case the accompanying management’s discussion and analysis, and material change reports, filed prior to the commencement of the financial year of the Company in which the new annual information form is filed shall be deemed to no longer be incorporated into this prospectus for purpose of future offers and sales of securities under this prospectus. Upon interim consolidated financial statements and the accompanying management’s discussion and analysis being filed by us with the applicable Canadian securities commissions or similar regulatory authorities during the period that this prospectus is effective, all interim consolidated financial statements and the accompanying management’s discussion and analysis filed prior to such new interim consolidated financial statements and management’s discussion and analysis shall be deemed to no longer be incorporated into this prospectus for purposes of future offers and sales of Securities under this prospectus. In addition, upon a new management information circular for an annual meeting of shareholders being filed by us with the applicable Canadian securities commissions or similar regulatory authorities during the period that this prospectus is effective, the previous management information circular filed in respect of the prior annual meeting of shareholders shall no longer be deemed to be incorporated into this prospectus for purposes of future offers and sales of securities under this prospectus.

To the extent that any document or information incorporated by reference into this prospectus is included in any report on Form 6-K, Form 40-F or Form 20-F (or any respective successor form) that is filed with or furnished to the SEC after the date of this prospectus, such document or information shall be deemed to be incorporated by reference as an exhibit to the U.S. Registration Statement of which this prospectus forms a part. In addition, we may incorporate by reference into this prospectus, or the U.S. Registration Statement of which it forms a part, other information from documents that we will file with or furnish to the SEC pursuant to Section 13(a) or 15(d) of the U.S. Exchange Act, if and to the extent expressly provided therein.

A prospectus supplement containing the specific variable terms in respect of an offering of the common shares will be delivered to purchasers of such common shares together with this prospectus, unless an exemption from the prospectus delivery requirements has been granted or is otherwise available, and will be deemed to be incorporated by reference into this prospectus as of the date of such prospectus supplement only for the purposes of the offering of the securities covered by such prospectus supplement.

DOCUMENTS FILED AS PART OF THE U.S. REGISTRATION STATEMENT

The following documents have been, or will be, filed with the SEC as part of the U.S. Registration Statement of which this prospectus is a part insofar as required by the SEC’s Form F-10:

•

the documents listed under “Documents Incorporated by Reference” in this prospectus;

•

the consent of KPMG LLP, the Company’s independent auditor;

•

the consent of Davies Ward Phillips & Vineberg LLP, the Company’s Canadian counsel; and

•

powers of attorney of the Company’s directors and officers, as applicable.

FORWARD-LOOKING STATEMENTS

Certain statements contained in this prospectus, any prospectus supplement and the documents incorporated by reference herein and therein may constitute “forward-looking information” within the meaning of applicable securities laws in Canada and “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995, as amended (collectively,

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“forward-looking statements”), which involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements include information about possible or assumed future results of our business, financial condition, results of operations, liquidity, objectives and strategies to achieve those objectives, as well as statements with respect to our beliefs, targets, expectations, anticipations, estimates or intentions. In some cases, you can identify forward-looking statements by terminology such as “believe”, “may”, “estimate”, “continue”, “anticipate”, “intend”, “should”, “plan”, “expect”, “predict”, “potential”, “could”, “assume”, “project”, “guidance” or the negative of these terms or other similar expressions, although not all forward-looking statements include such words. The statements we make regarding the following matters are forward-looking by their nature and are based on certain of the assumptions noted below:

•

our aim to develop and commercialize BLU-5937 for the treatment of hypersensitization disorders, including chronic cough and chronic pruritus;

•

our aim to complete additional preclinical studies on BLU-5937;

•

our aim to pursue the Phase 2 clinical trial on BLU-5937 for the treatment of patients with refractory chronic cough in 2019 with topline data in mid-2020, and initiate later stage clinical studies thereafter;

•

our aim to initiate a Phase 2 clinical trial on BLU-5937 for the treatment of patients with chronic pruritus associated with atopic dermatitis, in Q2 2020, with topline data expected in mid-2021;

•

our aim to further explore the potential of BLU-5937 for the treatment of other afferent hypersensitization-related conditions;

•

our expectations relating to the timing and cost of significant preclinical study and clinical trial milestones;

•

our expectations with respect to the timing and cost of the research and development activities of BLU-5937;

•

the function, potential benefits, effectiveness and safety of our product candidates, including BLU-5937;

•

our expectations with respect to pre-commercialization activities related to the commercial launch of BLU-5937;

•

our estimates and assessment of the potential markets for our product candidates;

•

our expectations regarding pricing and acceptance of our product candidates by the market;

•

the benefits and risks of our product candidates as compared to others;

•

our aim to obtain regulatory approvals to market our product candidates;

•

our expectations with respect to the cost of preclinical studies and clinical trials and commercialization of our product candidates, including BLU-5937;

•

our current and future capital requirements and anticipated sources of financing or revenue;

•

our expectations regarding the protection of our intellectual property;

•

our business strategy;

•

potential milestone payments and royalties pursuant to license agreements and other partnerships; and

•

our development and partnership plans and objectives.

The preceding list is not intended to be an exhaustive list of all of our forward-looking statements.

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Conclusions, forecasts and projections set out in forward-looking information are based on our current objectives and strategies and on expectations and estimates and other factors and assumptions that we believe to be reasonable at the time applied but may prove to be incorrect. These include, but are not limited to:

•

the function, potential benefits, effectiveness and safety of BLU-5937;

•

the benefits and risks of our product candidates as compared to others;

•

progress, timing and costs related to the development, completion and potential commercialization of our product candidate;

•

estimates and projections regarding our industry;

•

market acceptance of our product candidate;

•

future success of current research and development activities;

•

achievement of development and commercial milestones, including forecasted preclinical study and clinical trial milestones;

•

our reliance on third parties to conduct preclinical studies and clinical trials for BLU-5937;

•

that the timeline and costs for our preclinical and clinical programs are not incorrectly estimated or affected by unforeseen circumstances;

•

absence of material deterioration in general business and economic conditions;

•

the receipt of regulatory and governmental approvals for research and development projects and timing thereof;

•

the availability of tax credits and financing for research and development projects, and the availability of financing on favorable terms;

•

the accuracy of our estimates regarding future financing and capital requirements and expenditures;

•

the achievement of our forecasted cash burn rate;

•

the sufficiency and validity of our intellectual property rights;

•

our ability to secure, maintain and protect our intellectual property rights, and to operate without infringing on the proprietary rights of others or having third parties circumvent the rights owned or licensed by us;

•

our ability to source and maintain licenses from third-party owners on acceptable terms and conditions;

•

absence of significant changes in Canadian dollar-U.S. dollar and other foreign exchange rates or significant variability in interest rates;

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the absence of material changes in market competition;

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our ability to attract and retain skilled staff;

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our ability to maintain ongoing relations with employees and business partners, suppliers and other third parties;

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the accuracy of the market research, third-party industry data and forecasts relied upon by us; and

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the absence of adverse changes in relevant laws or regulations.

There are important factors that could cause our actual results, levels of activity, performance or achievements to differ materially from the results, levels of activity, performance or achievements expressed or implied by the forward-looking statements. See “Risk Factors” in this prospectus. Should one or more of the risks, uncertainties or other factors outlined in this prospectus materialize, our objectives, strategies or

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intentions change, or any of the factors or assumptions underlying the forward-looking information prove incorrect, our actual results and our plans and targets could vary significantly from what we currently foresee. Accordingly, we warn investors to exercise caution when considering statements containing forward-looking information and that it would be unreasonable to rely on such statements as creating legal rights regarding our future results or plans or targets. All of the forward-looking information in this prospectus is qualified by the cautionary statements herein.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this prospectus, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

Before making any investment decision in respect of the securities and for a detailed discussion of the risks and uncertainties associated with our business, its operations and its financial targets, performance and condition and the material factors and assumptions underlying the forward-looking information herein and therein, fully review the disclosure incorporated by reference in and included in this prospectus and any prospectus supplement, including the risks described in the “Risk Factors” section of this prospectus.

You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that future results, levels of activity, performance and events and circumstances reflected in the forward-looking statements will be achieved or will occur. Forward-looking statements made in a document incorporated by reference in this prospectus are made as at the date of the original document and have not been updated by us except as expressly provided for in this prospectus. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this prospectus, to conform these statements to actual results or to changes in our expectations.

THE COMPANY

The company was incorporated on April 12, 2012 under the Canada Business Corporations Act and is the successor of BELLUS Health Inc., a company incorporated on June 17, 1993 (known as Neurochem Inc. prior to April 15, 2008). We have two wholly-owned subsidiaries, BELLUS Health Cough Inc., also incorporated under the Canada Business Corporations Act, and BELLUS Health Corp., incorporated under the laws of the state of Delaware. Our head office is located at 275 Armand-Frappier Boulevard, Laval, Quebec H7V 4A7, Canada.

Our outstanding common shares are listed on the TSX and NASDAQ under the symbol “BLU”.

Our website address is www.bellushealth.com. Information contained on, or that can be accessed through, our website does not constitute a part of this prospectus and is not incorporated by reference herein. We have included our website address in this prospectus solely for informational purposes. Our agent for service of process in the United States is CT Corporation System and its telephone number is (202) 572-3111.

RECENT DEVELOPMENTS

There have been no material developments in the business of the Company, since the date of our most recent interim financial statements, which have not been disclosed in this prospectus.

BUSINESS OF THE COMPANY

Overview

We are a clinical stage biopharmaceutical company focused on the development of novel therapeutics for the treatment of chronic cough and other hypersensitization disorders. Our product candidate, BLU-5937, is a twice daily oral small molecule specifically designed to be a highly selective inhibitor of the P2X3 receptor, a clinically validated target linked to hypersensitivity. We are developing BLU-5937 for the

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treatment of chronic cough and chronic pruritus, or chronic itch. These hypersensitization-related disorders, which share a common pathophysiology that is mediated through the P2X3 receptor, represent areas of significant unmet medical need and potentially large market opportunities. In July 2019, we enrolled our first patient in our ongoing Phase 2 clinical trial for BLU-5937 for the treatment of refractory chronic cough, with topline data expected in mid-2020. We also expect to initiate a Phase 2 clinical trial of BLU-5937 for the treatment of chronic pruritus associated with atopic dermatitis, also known as eczema, in Q2 2020, with topline data expected in mid-2021. We have exclusive worldwide development and commercialization rights to BLU-5937 in all indications.

We believe that BLU-5937 has best-in-class selectivity for the homotrimeric P2X3 receptor, or “P2X3”. Given this selectivity, we believe that BLU-5937 has the potential to significantly alleviate refractory chronic cough and chronic pruritus symptoms while limiting or potentially eliminating the taste loss and taste alteration observed with the most advanced P2X3 receptor inhibitor in development, Merck & Co.’s gefapixant, which has low selectivity for P2X3. While we are initially focused on development in chronic cough and chronic pruritus, we are also evaluating the potential role of P2X3 inhibition in the treatment of other afferent hypersensitization-related disorders.

Chronic cough, our lead indication for BLU-5937, is a cough lasting more than eight weeks, and may have a significant adverse impact on patients’ quality of life. It is estimated that more than 26 million adults in the United States suffer from chronic cough, with more than 2.6 million of those people having refractory chronic cough lasting more than one year. Many patients report that their condition has a marked effect on their quality of life including sleep disruption, tiredness, incontinence, and disrupting social interactions. Currently, there is no therapy approved specifically for the treatment of refractory chronic cough. Available treatment options are limited and may have inadequate benefit and/or significant safety and tolerability issues, including significant taste alteration or loss. We believe that BLU-5937, if approved, may be adopted by physicians as an oral cough therapy either as an adjunct to treatments targeting the underlying cause of the chronic cough or as a monotherapy in patients for whom cough is the primary etiology.

In November 2018, we reported positive results from our Phase 1 clinical trial in 90 healthy volunteers, in which we observed that BLU-5937 had a favorable tolerability and safety profile at all doses tested. At doses of 50 mg to 100 mg, there was only one subject out of 24 (<5%) who reported taste alteration, which was transient, sporadic and only occurred on the first day of dosing. None of the 24 subjects (0%) reported any taste loss. We believe that doses of 50 mg to 100 mg administered twice-daily (BID) would result in the desired level of therapeutic activity. In contrast, gefapixant was reported to cause taste alteration and/or taste loss in up to 80% of patients at the therapeutically relevant dose of 50 mg BID in a Phase 2 clinical trial. We are currently conducting a Phase 2 clinical trial of BLU-5937 in patients with refractory chronic cough. This randomized, double-blind, placebo-controlled, dose-escalation, two-period crossover trial is designed to assess the efficacy, safety, and tolerability of BLU-5937 at four doses; 25, 50, 100 and 200 mg, administered orally, BID. Doses are escalated at four-day intervals. We expect that approximately 65 patients with refractory chronic cough will be enrolled at approximately fifteen clinical sites in the United Kingdom and the United States. We enrolled our first patient in July 2019, are actively recruiting patients and expect to report topline data in mid-2020.

Chronic pruritus, commonly known as chronic itch, our second indication for BLU-5937, is characterized as an ongoing, uncomfortable, irritating sensation that makes a person want to scratch, persists for more than six weeks and may have a significant adverse impact on patients’ quality of life. Atopic dermatitis, also known as eczema, is a non-contagious itchy skin disorder characterized by the presence of dry and scaly patches on the skin of the scalp, forehead, arms, torso and face, particularly the cheeks. The itch associated with atopic dermatitis can be so intense that repeated scratching can lead to skin lesions, bleeding and infection. It is estimated that 16.9 million adults in the United States are affected by atopic dermatitis, with pruritus being the primary complaint among such patients. Of the total population of adults affected by atopic dermatitis in the United States, it is estimated that three million of those are diagnosed with the disease, and of those diagnosed, it is estimated that 2.25 million patients are actively

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being treated by a physician. Accordingly, we believe that there is a significant market opportunity for a therapy for chronic pruritus associated with atopic dermatitis. Despite currently available treatments, an estimated 40-50% of atopic dermatitis patients report having inadequate relief of their pruritus and are in need of new, efficacious pruritus therapies.

We plan to initiate a randomized, double-blind, placebo-controlled, parallel group design Phase 2 clinical trial to assess the efficacy, safety, and tolerability of BLU-5937 in approximately 100 patients suffering from moderate to severe chronic pruritus associated with mild to moderate atopic dermatitis. The trial is expected to be a two-arm study comparing BLU-5937 to placebo, each administered orally, twice-daily (BID), for four weeks. We expect to initiate the trial in Q2 2020 and report topline data in mid-2021.

We have exclusive worldwide development and commercialization rights to BLU-5937 in all indications. Our BLU-5937 program is protected by a comprehensive patent estate comprised of issued and pending patents. We have secured composition of matter patent coverage for BLU-5937 in all major pharmaceutical markets: the United States of America, Europe, Japan and China until 2034. Under certain circumstances, such patent term may be extended for up to five years in certain jurisdictions such as the United States, Europe and Japan. In addition, we have secured methods of use patent coverage in the United States for avoiding loss of taste response while treating a chronic cough patient, through treatment with BLU-5937, expiring in 2038.

We are led by a team of executives with extensive experience in drug development, having held leadership roles at numerous biopharmaceutical companies, including Astra Zeneca, Biochem Pharma and GlaxoSmithKline. Our chronic cough clinical advisory board comprises experts who have acted as lead investigators in numerous chronic cough clinical trials, including those conducted with gefapixant. Since 2017, we have completed several financings with specialized U.S.-based healthcare investing firms.

In August 2019, we appointed Dr. Catherine Bonuccelli, MD to the role of Chief Medical Officer. Dr. Bonuccelli is a pediatric pulmonologist who brings over 20 years of pharmaceutical experience and significant expertise in clinical development and commercialization of respiratory and non-respiratory products. Prior to joining BELLUS Health, Dr. Bonuccelli held a number of leadership positions focusing on late-stage clinical development of large and small molecule programs in respiratory and inflammation therapeutic areas.

Our Pipeline

The following table sets forth the status and initial focus of BLU-5937.

Our Strategy

We are focused on the development and commercialization of BLU-5937 as a potential differentiated treatment option for chronic cough patients, as well as for the treatment of chronic pruritus associated with atopic dermatitis and other hypersensitization-related disorders. The key elements of our strategy are:

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Advance the development of BLU-5937 in the treatment of chronic cough, our lead indication.   We are focused on efficiently developing BLU-5937 to treat patients with chronic cough. We are actively recruiting patients in a Phase 2 clinical trial to evaluate the efficacy, safety, and tolerability

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of BLU-5937 in refractory chronic cough patients at four doses: 25 mg, 50 mg, 100 mg and 200 mg BID. We expect topline data in mid-2020. If our Phase 2 clinical trial is successful, we expect to initiate either a Phase 2b or a Phase 2/3 trial to further pursue the development of BLU-5937 for the treatment of chronic cough.

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Advance the development of BLU-5937 in the treatment of chronic pruritus.   We expect to initiate a Phase 2 clinical trial in Q2 2020 to evaluate the efficacy, safety and tolerability of BLU-5937 in chronic pruritus associated with atopic dermatitis, a hypersensitization-related disorder, with topline data expected in mid-2021.

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Maximize the value of BLU-5937 by maintaining flexibility to develop and commercialize our product independently or through collaborations.   We have exclusive worldwide development and commercialization rights for BLU-5937 in all indications. We may choose to pursue the development and commercialization of BLU-5937 independently or through collaborations with third parties.

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Leverage our proprietary P2X3 antagonist technology platform to pursue other hypersensitization-related conditions.   We are evaluating the potential role of P2X3 inhibition in the treatment of other afferent hypersensitization-related disorders.

Chronic Cough

A Highly Prevalent Condition

Coughing is a reflex mechanism and the body’s way of clearing irritants or mucus from the airways and can be either acute or chronic in nature. Chronic cough is classified as a cough lasting for more than eight weeks, and is usually associated with an underlying respiratory condition, such as asthma or chronic obstructive pulmonary disease (“COPD”), but can also be caused by other common non-respiratory conditions (e.g. allergic rhinitis or gastroesophageal reflux) or certain medications (e.g. ACE inhibitors). Notably, many cases of refractory chronic cough have no identifiable cause, a condition often referred to as unexplained chronic cough.

Chronic cough occurs when the nerves involved in the cough response become hypersensitive. For example, the coughing that occurs from a bad cold can sensitize the nerves involved in the cough response. The cough reflex can then become extremely sensitive to the point where coughing itself triggers more coughing. This can continue for an extended period, even after the trigger, such as the cold, has resolved.

Chronic cough can have a significant impact on quality of life, including debilitating physical and psychosocial burden. Fatigue, sleep disturbance, vomiting, chest pains, and incontinence can occur, and patients with chronic cough often experience social embarrassment. A study found that more than half of all chronic cough patients suffer from clinical depression.

In the United States, it is estimated that more than 26 million adults, representing approximately 10% of the adult population, suffer from chronic cough, of which more than 2.6 million have refractory chronic cough lasting for more than one year.

Limitations of Current Refractory Chronic Cough Therapies

Current treatment options for refractory chronic cough have demonstrated limited efficacy and/or have safety/tolerability issues. Drug-development within this field has seen minimal advances over the past 60 years, underscoring a substantial unmet medical need. Commonly used cough drugs, such as those incorporating dextromethorphan as their primary active ingredient, offer limited benefit, if any, to chronic cough patients. Benzonatate anesthetizes the stretch receptors in the lungs, but offers only temporary relief and may cause serious side effects if the capsule is crushed. Off-label treatment options, such as gabapentin and pregabalin, have shown variable efficacy and significant central nervous system side effects. The use of opioids, such as low-dose morphine and codeine, have shown some efficacy, but their use is controversial due to the potential for addiction and other serious side effects such as drowsiness, nausea, constipation,

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respiratory depression and potential for addiction. Speech therapy has shown some efficacy, especially in combination with pharmacotherapy. Nevertheless, such therapy generally requires patient referral to specialized cough clinics with highly-trained medical personnel and a significant effort and time commitment by the patient.

Selective P2X3 Receptor Inhibition: A Promising and Clinically Validated Therapeutic Approach in Chronic Cough

The only clinically validated treatments in development for refractory chronic cough are molecules that inhibit the P2X3 receptor. P2X3 receptors are ATP-gated ion channels that belong to a family of purinergic receptors. Members of this family assemble as homotrimeric (three subunits of P2X3) or heterotrimeric (two subunits of P2X3 and one subunit of P2X2 (i.e., P2X2/3)) ion channels and are widely expressed in non-excitatory and excitatory cells, such as afferent neurons. Afferent sensory neurons are the primary conduit for sensory information and the primary site that may undergo modulation leading to persistently altered sensation, including hypersensitivity. ATP, acting via P2X3 receptors, is believed to be a key mediator of these changes. The ability to inhibit the binding of ATP to the P2X3 receptor has been shown to be a promising path in the search for therapeutics to treat disorders driven by neuronal hypersensitivity. ATP signaling via these P2X receptors is also necessary for successful transmission of information from taste cells to the sensory neurons that innervate the taste buds. In preclinical studies of double-knock out mice lacking both P2X2 and P2X3 purinoceptors, abolition of taste sensation was observed, whereas single knock-out of either the P2X2 or P2X3 receptor causes only moderate taste disturbance. We, therefore, believe that selective P2X3 inhibitors, such as BLU-5937, have the potential to mediate aberrant ATP signaling in conditions like chronic cough, chronic pruritus and other hypersensitization disorders, while limiting or potentially eliminating taste loss and taste alteration observed with gefapixant, a less selective P2X3 inhibitor that also inhibits the P2X2/3 receptor.

Gefapixant is the most advanced P2X3 receptor inhibitor in clinical development and is currently undergoing clinical evaluation in two Phase 3 studies. Gefapixant is a non-narcotic, low selectivity P2X3 inhibitor which has been shown to alleviate refractory chronic cough symptoms and improve patients’ quality of life in Phase 2 clinical studies.

Results from an initial Phase 2, double-blind clinical trial in patients with refractory chronic cough showed that treatment with a high dose of gefapixant (600 mg BID) led to a significant reduction in mean daytime cough frequency compared with placebo. A subsequent dose-escalation trial confirmed the clinical activity of gefapixant in refractory chronic cough patients even when testing a much lower dose (50 mg BID). Results of a randomized, double-blind, 12-week, placebo-controlled trial also showed significant and clinically meaningful reductions in awake cough frequency and 24-hour cough frequency after treatment with gefapixant. Across all Phase 2 trials, dose-dependent taste alteration and taste loss was the most

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commonly reported adverse event. In a Phase 2b trial in which 50 mg gefapixant was given twice daily, 81% of patients reported taste side effects, 48% of patients reported taste alteration, 24% had partial loss of taste and 21% had complete taste loss. Of those patients who reported taste disturbances, approximately 40% rated them as “very” or “extremely bothersome”. Ten percent of participants discontinued participation in the trial prematurely due to the taste disturbance and/or taste loss. These side effects were reported to persist for the duration of the trial but were reported to subside once treatment ceased.

BLU-5937, Our Highly Selective P2X3 Inhibitor Product Candidate

We are developing BLU-5937, a potent, highly selective, orally bioavailable small molecule inhibitor of the P2X3 receptor, as an oral therapy to reduce cough frequency in chronic cough patients. Advances in the understanding of possible mechanisms underlying chronic cough have paved the way for product candidates targeting the P2X3 receptors, such as BLU-5937. To date, several clinical studies have validated the potential of targeting this receptor and ongoing clinical studies seek to further evaluate the efficacy and safety of P2X3-targeting agents in refractory chronic cough. We believe BLU-5937’s characteristics shown in preclinical studies and a Phase 1 trial position it as a differentiated treatment option in the P2X3 inhibitors class. These include:

BLU-5937 is a potent inhibitor of P2X3 that has the potential to significantly alleviate refractory chronic cough symptoms

The high potency and selectivity of BLU-5937 for P2X3 receptors was shown in vitro by inhibiting ATP-evoked P2X3 receptor activity in cloned human P2X3 channels expressed in mammalian cells. The concentration of BLU-5937 needed to inhibit 50% of the P2X3 activity (IC50) in this assay was established at 25 nM, which was approximately three times more potent than gefapixant.

In vitro, BLU-5937 was observed to block ATP-induced sensitization and firing activity of primary nociceptors in rat dorsal root ganglions through P2X3 receptor inhibition.

In the guinea pig cough model, we observed that BLU-5937 significantly reduced, in a dose-dependent fashion, the histamine or ATP-induced enhancement in number of citric acid-induced coughs. In these validated models of cough, the antitussive effect of BLU-5937 was observed to be comparable to that of gefapixant.

BLU-5937 is highly selective for P2X3 that has the potential to significantly reduce or eliminate taste side effects

We believe that BLU-5937, which has been specifically designed to be a highly selective inhibitor of the P2X3 receptor, has the potential to significantly alleviate refractory chronic cough while maintaining taste function. The high selectivity of BLU-5937 for P2X3 receptors was observed in vitro by inhibiting receptor activity in cloned human P2X3 and P2X2/3 channels expressed in mammalian cells. The BLU-5937 selectivity ratio was observed to be, on average, greater than 1,500 times in favor of P2X3 as compared to P2X2/3, whereas the selectivity ratio for gefapixant was observed to be approximately three to seven fold higher for P2X3 as compared to P2X2/3.

In a rat behavioral taste model, we observed that BLU-5937 did not alter taste perception compared to control animals, whereas gefapixant had a significant inhibitory effect on taste (>80% of mice experienced taste alteration or loss). We believe that the lack of effect of BLU-5937 on taste perception, even at high doses, is due to its higher selectivity for the P2X3 versus P2X2/3 receptors on the taste buds.

In a Phase 1 trial with healthy volunteers given BLU-5937, at the anticipated therapeutic doses of 50 mg to 100 mg, no subjects reported loss of taste perception and only one subject out of 24 (<5%) reported a transient and sporadic taste alteration, which occurred only on the first day of dosing.

BLU-5937 is orally bioavailable and has a half-life that supports dosing as a tablet twice daily

The safety, tolerability and pharmacokinetic profile of BLU-5937 was assessed in preclinical studies in which we observed that BLU-5937 exhibited good oral bioavailability, low predicted clearance in humans, no blood-brain barrier permeability and a favorable tolerability profile.

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The Phase 1 data demonstrated a favorable pharmacokinetic profile for BLU-5937: rapid absorption with maximum plasma concentration achieved within one to two hours post-dose, dose-proportionally plasma concentration increases and a plasma half-life of four to nine hours that supports a twice a day dosing schedule.

The pharmacokinetic profile from the Phase 1 trial also supported that the drug can be taken without regard to meals, which is convenient for patients and supports compliance. In addition, there was no evidence of significant drug accumulation upon repeated dose administration. Based on achieving targeted receptor inhibition and activity in preclinical studies and on achieving comparative drug blood levels of a clinically validated comparator, after correcting for pharmacokinetic and potency differences, we anticipate that drug levels required for optimal inhibition of cough will be achieved at 50 mg to 100 mg BID.

We believe that BLU-5937, if approved, may be adopted by physicians as an oral cough therapy either as an adjunct to treatments targeting the underlying cause of the chronic cough or as a monotherapy in patients for whom the cough is the primary etiology.

BLU-5937 Ongoing Phase 2 Clinical Trial in Refractory Chronic Cough

We are currently conducting a Phase 2 clinical trial of BLU-5937 patients with refractory chronic cough, which we refer to as the RELIEF (A Randomized, Double-blind, Placebo-Controlled, Crossover, Dose Escalation Study of BLU-5937 in Subjects with Refractory Chronic Cough) trial. The trial was initiated in July 2019 and we expect to report topline data in mid-2020.

The RELIEF trial is a randomized, double-bind, placebo-controlled, dose escalation and two-period crossover design trial to assess the efficacy, safety and tolerability of BLU-5937 at four doses: 25, 50, 100 and 200 mg BID. Doses are escalated at four-day intervals. In the Phase 1 trial, 2.5% of subjects tested at these doses reported a taste alteration event. Approximately 65 patients with refractory chronic cough are expected to be enrolled at approximately 15 clinical sites located in the United Kingdom and United States. We enrolled the first patient in the RELIEF trial at the end of July 2019 and are actively recruiting patients.

The four doses selected for the RELIEF trial were based on pharmacokinetic/pharmacodynamic modeling using data gathered from preclinical cough studies, data from a Phase 2 clinical trial with a class competitor and the BLU-5937 Phase 1 trial. Based on that modeling, it is anticipated that the optimal therapeutic doses will be 50 mg to 100 mg BID, however, to allow a better characterization of the dose response range and proper dose selection for future clinical studies, the 25 mg BID and 200 mg BID doses are also being evaluated.

The primary efficacy endpoint of the RELIEF trial is the change from baseline in awake cough frequency as measured by a cough recorder at the end of each dose level. Secondary efficacy endpoints include the change in 24-hour cough frequency and the change in the Leicester Cough Questionnaire, Cough Severity Visual Analogue Scale (VAS) and the Global Rating of Change Scale.

The key inclusion criteria in the RELIEF trial are that patients must have refractory chronic cough for at least one year, an awake cough count of  ≥ 10 per hour (Awake Cough Count at Screening) and a score of  ≥ 40mm on the Cough Severity VAS at Screening. Current or past smoking (within the past six months) and a diagnosis of chronic obstructive pulmonary disease, bronchiectasis, or idiopathic pulmonary fibrosis are key exclusion criteria.

We will also collect taste adverse event data as part of the RELIEF trial. Phase 1 results showed that at the anticipated therapeutic doses of 50 mg to 100 mg BID, no subjects administered BLU-5937 reported any loss of taste perception and only one subject out of 24 (<5%) reported transient and sporadic taste

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alteration only on the first day of dosing. No subject reported total loss of taste at any dose. To fully characterize any potential taste disturbance effects seen in the RELIEF trial, a questionnaire will be provided to patients who report taste side effects in the trial.

The RELIEF trial is being conducted with Illingworth Research Group, a clinical research organization which has conducted multiple clinical trials in chronic cough. Each of the trial sites are experienced in conducting chronic cough trials. Many of the sites are Centers of Excellence for the treatment of chronic cough and have access to a significant pool of patients.

BLU-5937 Phase 1 Trial

Trial Data

In November 2018, we completed a Phase 1 trial for BLU-5937 in 90 healthy adult volunteers, in which we observed that BLU-5937 is well tolerated, with a favorable pharmacokinetic profile. BLU-5937 was observed to be rapidly absorbed, achieving maximum plasma concentration within one to two hours. Plasma half-life was established at four to nine hours, supporting BID dosing. Based on preclinical efficacy studies and comparison with drug levels achieved with a clinically validated comparator, after correcting for pharmacokinetic and potency differences, we anticipate that drug levels required for optimal inhibition of cough will be achieved at 50 mg to 100 mg BID. As shown in the graphs below, we observed that BLU-5937 plasma concentration (Cmax and AUC) increased dose-proportionally and was not affected by food, supporting BLU-5937 administration without regard to meals.

Phase I Pharmacokinetic Profile and Dosing

The overall incidence of adverse events was comparable between placebo (50%) and BLU-5937 (44%). At the anticipated therapeutic doses of 50 mg to 100 mg, no subjects administered BLU-5937 reported any loss of taste perception and only one subject out of 24 (<5%) reported transient and sporadic taste alteration. No subject reported total loss of taste at any dose levels. This taste effect was reported only on the first day out of seven days of dosing by a subject receiving 100 mg BID. No subject out of 16 reported any taste loss or taste alteration at 200 mg.

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Incidence of Most Frequent Adverse Events (>5% Incidence) in All Cohorts (SAD + MAD)

At supra-therapeutic doses (200 mg to 1200 mg), two subjects out of 48 (4%) reported transient and sporadic partial loss of taste, and 13 subjects out of 48 (27%) reported transient and sporadic taste alteration. All taste-related events were transitory and sporadic in nature; one was rated moderate and all others were rated mild. The other most frequent adverse events reported in the Phase 1 trial (>5%) were: headache (11%), hypoaesthesia (11%), nausea (8%), dizziness (6%) and dyspepsia (6%).

Incidence of Taste AEs (All SAD and MAD Cohorts)

There were no serious adverse events and no healthy volunteers withdrew prematurely due to an adverse event during the trial. No significant trends of mean changes in vital signs, electrocardiogram (ECG) and clinical laboratory values have been observed in the Phase 1 trial of BLU-5937. One subject had a mild elevation of liver enzymes at 400 mg BID that normalized at follow up visit. This increase in liver enzyme levels was not associated with any signs of liver toxicity (e.g., no increase in bilirubin and no clinical symptoms of liver toxicity). There was also a slight increase in bilirubin in some subjects dosed at 400 mg BID. This elevation in bilirubin was not associated with any concomitant increases in liver enzyme levels and returned to baseline value two days after drug discontinuation, which suggests that it is most likely benign and due to an interaction between BLU-5937 and bilirubin hepatic disposition.

Trial Design

The clinical Phase 1 trial was a randomized, double-blind, placebo-controlled trial of orally administered BLU-5937 in 90 healthy adult subjects. The primary objectives of this trial were to assess the safety, tolerability (including taste perception) and pharmacokinetic profile of BLU-5937 in healthy subjects. The trial was divided in two parts:

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Part 1.   A single ascending dose (SAD) trial was conducted in 60 healthy subjects. Subjects were randomized into six cohorts of 10 subjects (8 BLU-5937: 2 placebo). The trial evaluated single oral doses of BLU-5937 from 50 to 1200 mg.

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Part 2.   A multiple ascending dose (MAD) trial was conducted in 30 healthy subjects. Subjects were randomized into three cohorts of 10 subjects (8 BLU-5937: 2 placebo). The trial evaluated multiple oral doses of BLU-5937 of 100, 200 and 400 mg administered twice-a-day (BID) for seven consecutive days.

BLU-5937 Regulatory Pathway in Chronic Cough

If the results of the RELIEF trial are positive, we expect to meet with the FDA and European regulatory authorities to discuss the registration pathway for BLU-5937 in chronic cough patients and the design of the next trial, including the target population, dose, duration and primary efficacy endpoint. We expect to initiate either a Phase 2b or a Phase 2/3 trial to further pursue the development of BLU-5937 for the treatment of chronic cough. We will then need to conduct an additional Phase 3 clinical trial to support the submission of a new drug application (“NDA”) to the FDA and a marketing authorization application (“MAA”) to the European Medicines Agency (“EMA”) for BLU-5937 in chronic cough. If the results of these studies are positive, we would plan to seek approval for BLU-5937 for refractory chronic cough which, if successful, would lead to the marketing and sale of BLU-5937. See “Risk Factors”.

BLU-5937 Preclinical Studies

BLU-5937’s Reduction in Cough Frequency Comparable to the Leading P2X3 Inhibitor, Gefapixant

The antitussive effect of BLU-5937 was compared to that of gefapixant in a guinea pig cough model. Treatments (control, BLU-5937 (0.3, 3 and 30 mg/kg) or gefapixant (0.3, 3 or 30 mg/kg)) were administered orally in seven groups of six animals two hours prior to tussive agent exposure (citric acid and histamine) and the number of coughs were counted for a period of 15 minutes. Both treatments showed comparable dose-dependent reduction in cough frequency as compared to the control. The reduction in cough was statistically significant at 3 mg/kg (39% vs. control) and 30 mg/kg (52% vs. control) with BLU-5937, and at 30 mg/kg (45% vs. control) with gefapixant.

Guinea Pig Cough Inhibition Study

BLU-5937’s Duration of Effect also Comparable to Gefapixant

Using the same guinea pig cough model, a time course study was conducted to assess the duration of the antitussive effect of BLU-5937 and gefapixant following the administration of a single oral 30 mg/kg dose. In this study, animals in groups of six were exposed to tussive agents (citric acid and histamine) at various times after the administration of the study drugs (two, four, six, eight and twelve hours post-dose for BLU-5937 and two and eight hours post-dose for gefapixant) and the number of coughs were measured

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for 15 minutes. The reduction in cough frequency compared to control was observed to be statistically significant at two, four and six hours post-dose with BLU-5937, and at two hours post-dose with gefapixant. The antitussive effect was no longer significant at eight hours post-dose for both agents.

BLU-5937 Was not Associated with Taste Loss, Whereas Gefapixant Showed Significant Taste Loss in a Rat Taste Model

A rat taste model was used to compare BLU-5937’s effect on taste perception with that of gefapixant. Animals were water-fasted overnight and presented with one bottle of water and one bottle of (bitter-tasting) quinine at the time corresponding to the maximum plasma concentration of study drugs. The volume of liquid consumed from each bottle was measured for 15 minutes. Treatments (control, BLU-5937 (10 or 20 mg/kg) or gefapixant (10 or 20 mg/kg)) were administered intraperitoneally in two groups of 10 rats. Animals treated with BLU-5937 did not drink more quinine than the control animals, while those treated with gefapixant drank significantly (approximately four to five times) more quinine than the control at the two doses tested. These results indicate that BLU-5937 was not associated with taste loss whereas gefapixant led to significant taste loss.

Chronic Pruritus

A Burdensome Condition Effecting Quality of Life

Chronic pruritus, defined as itching lasting longer than six weeks, can be as burdensome as chronic pain in negatively impacting a patient’s quality of life. The urge to scratch can be unbearable, and the act of scratching can remove layers of skin and break the skin barrier leading to bleeding, scarring and greatly increasing the risk of infection. Similar to chronic pain, severe chronic pruritus causes a number of physical and psychological issues that substantially impact patients’ day-to-day wellbeing. Chronic pruritus can lead to trouble sleeping, resulting in loss of work productivity and increased anxiety and depression.

Chronic pruritus is a hallmark of many conditions, including atopic dermatitis. It is estimated that there are 16.9 million adults in the United States who have atopic dermatitis, a chronic, inflammatory skin disease that is most commonly first diagnosed in childhood. Atopic dermatitis is characterized by skin barrier disruption and immune dysregulation. Patients with atopic dermatitis may have chronically inflamed skin lesions and often have persistent pruritus. Physicians and patients report pruritus as the primary patient complaint associated with this disease. Of the total population of adults affected by atopic dermatitis in the United States, it is estimated that three million of those are actually diagnosed with the disease, and of those diagnosed, it is estimated that 2.25 million of these patients are actively being treated by a physician.

For people suffering with atopic dermatitis, the quality of life impact of the disease is multifaceted and can be constant. Much of this impact is related to its major symptom, itch, its effect on sleep, its outward visibility and the expense and time-consuming nature of prescription and topical treatments. Atopic dermatitis affects social, sexual, academic and occupational functioning and is also associated with increased rates of depression and anxiety.

Creams and ointments and topical corticosteroids or other topical or systemic anti-inflammatory agents are routinely used to manage skin health and to reduce skin inflammation in patients with atopic dermatitis. However, despite currently available treatments, an estimated 40-50% of atopic dermatitis patients report having inadequate relief of their pruritus and are in need of new, efficacious pruritus therapies.

BLU-5937: A Promising Potential Therapy for Chronic Pruritus

Based on similarities between the manifestation of the symptoms between cough and itch, we believe that BLU-5937 may be a promising, novel therapeutic modality for chronic pruritus associated with atopic dermatitis. Neuronal terminals in the skin are known to express P2X3 receptors and the hypersensitization of afferent neurons expressing P2X3 receptors may also be involved in chronic pruritus. We believe that increased release of ATP in atopic dermatitis leads to hyperexcitability of afferent pruriceptive neurons mediated by P2X3 receptors leading to pruritus. We believe BLU-5937, a potent and selective P2X3 inhibitor, therefore has the potential to address chronic pruritus associated with atopic dermatitis.

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Mechanistic Similarities Between Cough and Itch

Preclinical studies conducted by us provided evidence that the ATP-induced hypersensitization mediated by P2X3 receptors in cutaneous C-fibers plays a key role in pruritus. In multiple animal models of pruritus, we observed that treatment with BLU-5937 resulted in significant anti-pruritic effect. As shown in the figure below, BLU-5937 was evaluated in the calcipotriol-induced murine model of atopic dermatitis where it was observed to result in potent, statistically-significant and dose-dependent reductions of spontaneous scratching compared to placebo. These studies formed the basis for our clinical development plan in chronic pruritus.

Atopic Dermatitis Mouse Model

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Clinical Development Plan

We plan to initiate a Phase 2 clinical trial of BLU-5937 in chronic pruritus in Q2 2020, with topline data expected in mid-2021. This Phase 2 clinical trial is expected to be a randomized, double-blind, placebo- controlled and parallel group design trial enrolling approximately 100 patients suffering from moderate to severe chronic pruritus associated with mild to moderate atopic dermatitis. The trial is expected to be a two-arm study comparing BLU-5937 to placebo, each administered orally, BID for four weeks. The primary efficacy endpoint will be the change from baseline to week four in the Worst Itch Numeric Rating Scale, or “WI-NRS”.

BLU-5937 in Other P2X3 Hypersensitization-Related Disorders

We believe BLU-5937, a potent and highly selective P2X3 inhibitor, has the potential to be an important treatment option for chronic cough, chronic pruritus and other P2X3 hypersensitization-related disorders. To further elucidate the therapeutic potential of BLU-5937 beyond chronic cough, we have initiated a review of pathologies involving aberrant ATP-P2X3 signaling resulting in hypersensitization. Further to our review and preclinical in vitro and in vivo studies, we are pursuing BLU-5937 as a treatment of chronic pruritus, or chronic itch, associated with atopic dermatitis. In addition to chronic couch and chronic pruritus, BLU-5937 may also have broad applicability across other afferent hypersensitization-related disorders, potentially enabling us to build a pipeline of therapies using our P2X3 platform. We are evaluating the potential role of P2X3 inhibition in the treatment of these other afferent hypersensitization-related disorders, including those associated with irritation and pain.

P2X3 Sensitization Contributes to Irritation and Pain

Intellectual Property

Our commercial success depends in part on our ability to obtain and maintain proprietary protection for BLU-5937 and its therapeutic applications, in order to operate without infringing the proprietary rights of others and to prevent others from infringing our proprietary rights. Our policy is to seek to protect our proprietary position by, among other methods, filing U.S. and foreign patent applications related to our proprietary technology, inventions and improvements that are important to the development and implementation of our business. We also rely on trade secrets, know-how and continuing technological innovation to further develop and maintain our proprietary position.

Composition of matter patent coverage for BLU-5937 has been secured in all major pharmaceutical markets: the United States of America, Europe, Japan and China. Patents issued have claims covering the

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composition of matter of BLU-5937 and related imidazopyridine compounds and uses thereof. The patents have an expiration date of 2034, excluding any potential patent term extension. Patent applications with similarly broad claims are currently pending in other industrialized nations.

In addition, the USPTO has issued patent No. 10,111,883 granting claims for the use of BLU-5937 for the treatment of chronic cough without affecting taste response. More generally, this patent claims the use of imidazopyridine compounds, including BLU-5937, that are selective for the P2X3 receptor as a means of minimizing taste perturbation in patients treated for chronic cough. Patent No. 10,111,883 has an expiration date of 2038, excluding any potential patent term extension. This new U.S. patent extends the patent protection of BLU-5937 by an additional four years, to 2038.

In addition to patent protection granting claims to composition of matter, our patent estate also includes patents and patent applications associated with the use of BLU-5937 and related compounds as a treatment for various hypersensitization disorders, including chronic cough and chronic pruritus.

The terms of individual patents depend upon the legal term for patents in the countries in which they are granted. In most countries, including the United States, the patent term is generally 20 years from the earliest claimed filing date of a nonprovisional patent application in the applicable country. In the United States, a patent’s term may, in certain cases, be lengthened by patent term adjustment, which compensates a patentee for administrative delays by the USPTO in examining and granting a patent, or may be shortened if a patent is terminally disclaimed over a commonly owned patent or a patent naming a common inventor and having an earlier expiration date. The Drug Price Competition and Patent Term Restoration Act of 1984, or the “Hatch-Waxman Act”, permits a patent term extension of up to five years beyond the expiration date of a U.S. patent as partial compensation for the length of time the drug is under regulatory review while the patent is in force. A patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval, only one patent applicable to each regulatory review period may be extended and only those claims covering the approved drug, a method for using it or a method for manufacturing it may be extended. We cannot provide any assurance that any patent term extension with respect to any U.S. patent will be obtained and, if obtained, the duration of such extension.

Similar provisions are available in the European Union and certain other non-U.S. jurisdictions to extend the term of a patent that covers an approved drug. In the future, if BLU-5937 receives approval from the FDA or non-U.S. regulatory authorities, we expect to apply for patent term extensions on issued patents covering BLU-5937, depending upon the length of the clinical trials for BLU-5937 and other factors. The expiration dates referred to above are without regard to potential patent term extension or other market exclusivity that may be available to us. However, we cannot provide any assurances that any such patent term extension of a non-U.S. patent will be obtained and, if obtained, the duration of such extension.

We also protect our proprietary technology and processes, in part, by confidentiality and invention assignment agreements with our employees, consultants, scientific advisors and other contractors. These agreements may be breached, and we may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become known or be independently discovered by competitors. To the extent that our employees, consultants, scientific advisors or other contractors use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions.

Our commercial success will also depend in part on not infringing the proprietary rights of third parties. It is uncertain whether the issuance of any third-party patent would require us to alter our development or commercial strategies, alter our processes, obtain licenses or cease certain activities. Our breach of any license agreements or failure to obtain a license to proprietary rights that we may require to develop or commercialize BLU-5937 or any future product candidate may have a material adverse impact on us. If third parties prepare and file patent applications that also claim technology to which we have rights, we may have to participate in interference or derivation proceedings to determine priority of invention. See “Risk Factors”.

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REGULATORY MATTERS

Government Regulation and Product Approvals

The FDA and comparable regulatory authorities in state and local jurisdictions and in other countries impose substantial and burdensome requirements upon companies involved in the clinical development, manufacture, marketing and distribution of drugs, such as BLU-5937. These agencies and other federal, state and local entities regulate, among other things, the research and development, testing, manufacture, quality control, safety, effectiveness, labeling, storage, record keeping, approval, advertising and promotion, distribution, post-approval monitoring and reporting, sampling and export and import of our product candidate.

U.S. Government Regulation of Drug Products

In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act, or “FDCA”, and its implementing regulations. The process of obtaining regulatory approvals and the subsequent compliance with applicable federal, state, local and foreign statutes and regulations requires the expenditure of substantial time and financial resources. Failure to comply with the applicable U.S. requirements at any time during the product development process, approval process or after approval, may subject an applicant to a variety of administrative or judicial sanctions, such as the FDA’s refusal to approve pending NDAs, withdrawal of an approval, imposition of a clinical hold, issuance of warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement or civil or criminal penalties.

The process required by the FDA before a drug may be marketed in the United States generally involves the following:

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completion of non-clinical laboratory tests, animal studies and formulation studies in compliance with the FDA’s good laboratory practice, or “GLP”, regulations;

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submission to the FDA of an investigational new drug application, or “IND”, which must become effective before human clinical trials may begin in the United States;

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approval by an independent institutional review board, or “IRB”, at each clinical site before each trial may be initiated;

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performance of adequate and well controlled human clinical trials in accordance with good clinical practice, or “GCP”, requirements to establish the safety and efficacy of the proposed drug product for each indication;

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submission to the FDA of an NDA;

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satisfactory completion of an FDA advisory committee meeting, if applicable;

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satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the product is produced to assess compliance with cGMP requirements and to assure that the facilities, methods and controls are adequate to preserve the drug’s identity, strength, quality and purity;

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satisfactory completion of FDA audits of clinical trial sites and the sponsor’s clinical trial records to assure compliance with GCP requirements and the integrity of the clinical data;

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payment of user fees and securing FDA approval of the NDA; and

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compliance with any post approval requirements, including the potential requirement to implement a Risk Evaluation and Mitigation Strategy, or “REMS”, and the potential requirement to conduct post approval studies.

Non-clinical Studies

Non-clinical studies include laboratory evaluation of product chemistry and formulation, as well as animal studies to assess safety, toxicity and efficacy. The conduct of the non-clinical tests must comply with federal regulations and requirements, including GLPs. An IND sponsor must submit the results of the

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non-clinical tests, together with manufacturing information, analytical data and any available clinical data or literature, among other things, to the FDA as part of an IND. Some non-clinical testing may continue even after the IND is submitted. An IND automatically becomes effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions related to one or more proposed clinical trials and places the clinical trial on a clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. As a result, submission of an IND may not result in the FDA allowing clinical trials to commence.

Clinical Trials

Clinical trials involve the administration of the investigational new drug to human patients under the supervision of qualified investigators in accordance with GCP requirements, which include the requirement that all research patients provide their informed consent in writing for their participation in any clinical trial. Clinical trials are conducted under protocols detailing, among other things, the objectives of the trial, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated. A protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND. In addition, an IRB at each institution participating in the clinical trial must review and approve the protocol for any clinical trial including informed consent information before the trial commences at that institution. Information about most clinical trials must be submitted within specific timeframes for publication on the www.clinicaltrials.gov website. Information related to the product, patient population, phase of investigation, trial sites and investigators, and other aspects of the clinical trial is made public as part of the registration of the clinical trial. Sponsors are also obligated to discuss the results of their clinical trials after completion. Disclosure of the results of these trials can be delayed in some cases for up to two years after the date of completion of the trial. Competitors may use this publicly available information to gain knowledge regarding the progress of development programs.

Human clinical trials are typically conducted in three sequential phases, which may overlap or be combined:

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Phase 1:   The drug is initially introduced into healthy human patients or patients with the target disease or condition and tested for safety, dosage tolerance, pharmacokinetics, absorption, metabolism, distribution, excretion, side effects and, if possible, to gain an early indication of its effectiveness.

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Phase 2:   The drug is administered to a limited patient population to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance and optimal dosage. In most cases, FDA requires two adequate and well controlled Phase 3 clinical trials to demonstrate efficacy of the drug.

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Phase 3:   The drug is administered to an expanded patient population, generally at geographically dispersed clinical trial sites, in well controlled clinical trials to generate enough data to statistically evaluate the efficacy and safety of the product for approval, to establish the overall risk benefit profile of the product, and to provide adequate information for the labeling of the product.

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Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA and more frequently if serious adverse events occur. The FDA or the sponsor may suspend or terminate a clinical trial at any time or the FDA may impose other sanctions on various grounds, including a finding that the research patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious harm to patients.

Marketing Approval

Assuming successful completion of the required clinical testing, the results of the non-clinical and clinical studies, together with detailed information relating to the product’s chemistry, manufacture, controls and proposed labeling, among other things, are submitted to the FDA as part of an NDA requesting approval to market the product for one or more indications. In most cases, the submission of an NDA is

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subject to a substantial application user fee. Under the Prescription Drug User Fee Act, or “PDUFA”, guidelines that are currently in effect, the FDA has 60 days from its receipt of an NDA to determine whether the application will be accepted for filing based on the agency’s threshold determination that the NDA is sufficiently complete to permit substantive review. The FDA may request additional information rather than accept an NDA for filing. In this event, the application must be resubmitted with the additional information. The resubmitted application is also subject to review before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins an in-depth substantive review. The FDA has agreed to certain performance goals in the review of NDAs. Most applications for standard review drug products are reviewed within ten to twelve months; most NDAs for priority review drugs are reviewed in six to eight months. The review process for both standard and priority review may be extended by FDA for three additional months to consider certain late-submitted information, or information intended to clarify information already provided in the submission. The FDA reviews an NDA to determine, among other things, whether the drug is safe and effective and whether the facility in which it is manufactured, processed, packaged or held meets standards designed to assure the product’s continued safety, quality and purity.

In accordance with the Pediatric Research and Equity Act, certain NDAs or supplements to an NDA must contain data that are adequate to assess the safety and effectiveness of the drug for the claimed indications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission of some or all pediatric data until after approval of the product for use in adults, or full or partial waivers from the pediatric data requirements.

The FDA also may require submission of a REMS plan if it determines that a REMS is necessary to ensure that the benefits of the drug outweigh its risks. The REMS plan could include medication guides, physician communication plans, assessment plans and/or elements to assure safe use, such as restricted distribution methods, patient registries or other risk minimization tools.

The FDA may refer an application for a novel drug, or a drug that presents difficult questions of safety or efficacy, to an advisory committee. An advisory committee is a panel of independent experts, including clinicians and other scientific experts, that reviews, evaluates and provides a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.

Before approving an NDA, the FDA typically will inspect the facility or facilities where the product is manufactured. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving an NDA, the FDA may inspect one or more clinical trial sites and the sponsor to assure compliance with GCP requirements and the integrity of the clinical data submitted in an NDA.

After evaluating the NDA and all related information, including the advisory committee recommendation, if any, and inspection reports regarding the manufacturing facilities and clinical trial sites, the FDA will issue an approval letter or a complete response letter. A complete response letter generally outlines the deficiencies in the submission and contains a statement of specific conditions that must be met in order to secure final approval of the NDA and may require additional clinical or non-clinical testing in a resubmission to the NDA in order for the FDA to reconsider the application. FDA has committed to reviewing such submissions in two or six months depending on the type of information included in the resubmission. Even with submission of this additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval. If and when those conditions have been met to the FDA’s satisfaction, the FDA will typically issue an approval letter. An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications.

Even if the FDA approves a product, it may limit the approved indications for use of the product, require that contraindications, warnings or precautions be included in the product labeling, require that post-approval studies, including Phase 4 clinical trials, be conducted to further assess a drug’s safety after approval, require testing and surveillance programs to monitor the product after commercialization, or impose other conditions, including distribution and use restrictions or other risk management mechanisms

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under a REMS, which can materially affect the potential market and profitability of the product. The FDA may prevent or limit further marketing of a product based on the results of post-marketing studies or surveillance programs. After approval, some types of changes to the approved product, such as adding new indications, manufacturing changes and additional labeling claims, are subject to further testing requirements and FDA review and approval.

Post-Approval Requirements

Drugs manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion and reporting of adverse experiences with the product. After approval, most changes to the approved product, such as adding new indications or other labeling claims are subject to prior FDA review and approval. There also are continuing, substantial annual user fee requirements for any marketed products and the establishments at which such products are manufactured, as well as new application fees for supplemental applications with clinical data. These fees are typically increased annually.

The FDA may impose a number of post-approval requirements as a condition of approval of an NDA. For example, the FDA may require post-marketing testing, including Phase 4 clinical trials, and surveillance to further assess and monitor the product’s safety and effectiveness after commercialization.

In addition, drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and state agencies, and are subject to periodic unannounced inspections by the FDA and state agencies for compliance with cGMP requirements. Changes to the manufacturing process are strictly regulated and often require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP requirements and impose reporting and documentation requirements upon the sponsor and any third-party manufacturers that the sponsor may decide to use. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain cGMP compliance.

Once an approval or clearance of a drug is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in mandatory revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical trials to assess new safety risks; or imposition of distribution or other restrictions under a REMS program. Other potential consequences include, among other things:

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restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls;

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fines, warning letters or clinical holds on post approval clinical trials;

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refusal of the FDA to approve pending NDAs or supplements to approved NDAs, or suspension or revocation of product approvals;

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product seizure or detention, or refusal to permit the import or export of products; or

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injunctions or the imposition of civil or criminal penalties.

The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. Drugs may be promoted only for the approved indications and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability.

The Hatch-Waxman Act

Section 505 of the FDCA describes three types of applications that may be submitted to request marketing authorization for a new drug. A 505(b)(1) NDA is an application that contains full reports of

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investigations of safety and effectiveness. The Hatch-Waxman Act created two additional marketing pathways under Sections 505(j) and 505(b)(2) of the FDCA. Section 505(j) establishes an abbreviated approval process for generic versions of approved drug products through the submission of an abbreviated new drug application, or “ANDA”. An ANDA provides for marketing of a drug product that has the same active ingredients in the same strengths and dosage form as the branded reference drug and has been observed to be bioequivalent to the branded reference drug. ANDA applicants are required to conduct bioequivalence testing to confirm chemical and therapeutic equivalence to the branded reference drug. Generic versions of drugs can often be substituted by pharmacists under prescriptions written for the branded reference drug.

A 505(b)(2) NDA is an application that contains full reports of investigations of safety and effectiveness but where at least some of the information required for approval comes from studies not conducted by or for the applicant. This alternate regulatory pathway enables the applicant to rely, in part, on the FDA’s findings of safety and efficacy for an existing product, or published literature, in support of its application. The FDA may then approve the new product candidate for all or some of the labeled indications for which the branded reference drug has been approved, as well as for any new indication sought by the 505(b)(2) applicant.

The Hatch-Waxman Act establishes periods of regulatory exclusivity for certain approved drug products. The holder of an NDA may obtain five years of exclusivity upon approval of a new drug containing a new chemical entity, or “NCE”, that has not been previously approved by the FDA. During the five year exclusivity period, the FDA cannot accept for filing or approve any ANDA seeking approval of a generic version of that drug or any 505(b)(2) NDA for the same active moiety and that relies on the FDA’s findings regarding that drug, except that FDA may accept an application for filing (but still may not approve it) after four years if the follow-on applicant makes a paragraph IV certification, as described below. The Hatch-Waxman Act also provides three years of marketing exclusivity to the holder of an NDA for a particular condition of approval, or change to a marketed product, such as a new formulation or new indication for a previously approved product, if one or more new clinical studies (other than bioavailability or bioequivalence studies) was essential to the approval of the application and was conducted/sponsored by the applicant. This three-year exclusivity period protects against FDA approval of ANDAs and 505(b)(2) NDA for drugs that include the innovation that required the new clinical data.

Upon submission of an ANDA or a 505(b)(2) NDA, an applicant must certify to the FDA, in the opinion of the applicant and to the best of its knowledge (1) that relevant patent information on the referenced drug product has not been submitted to the FDA; (2) that the relevant patent has expired; (3) the date on which the relevant patent expires; or (4) that such patent is invalid, unenforceable or will not be infringed upon by the manufacture, use or sale of the drug product for which the application is submitted. This last certification is known as a paragraph IV certification. If the NDA holder or patent owner(s) files a patent infringement action against the ANDA or 505(b)(2) applicant within 45 days of receipt of the paragraph IV certification, the FDA may not approve the ANDA or 505(b)(2) application until the earlier of   (i) 30 months from the receipt of the notice of the paragraph IV certification (generally referred to as the 30 month stay), (ii) the expiration date of the patent(s) listed in the Orange Book for the reference drug product, (iii) the date the court enters a final order or judgment that the patent(s) are invalid, unenforceable and/or not infringed or (iv) such shorter or longer period as may be ordered by a court. Where the ANDA or 505(b)(2) applicant files an application with a paragraph IV certification within the fifth year of the five-year NCE exclusivity period enjoyed by the NDA holder for the reference branded product, and where patent litigation is brought within 45 days of receipt of notice of the paragraph IV certification, the 30-month stay will be extended by the amount of time such that 7.5 years will elapse from the date of approval of the original NDA to the expiration of the stay. Thus, approval of an ANDA or 505(b)(2) NDA could be delayed for a significant period of time depending on the patent certification the applicant makes, whether the reference product enjoys NCE exclusivity, and the reference drug sponsor’s decision to initiate patent litigation. However, an ANDA applicant may be able to submit a section viii statement certifying that its proposed ANDA label does not contain (or carves out) any language regarding the patented method-of-use rather than certify to a listed method-of-use patent.

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Regulation Outside the United States

In the European Economic Area, or “EEA”, which is composed of the 28 Member States of the European Union plus Norway, Iceland and Liechtenstein, medicinal products can only be commercialized after obtaining a Marketing Authorization, or “MA”.

There are two types of MAs:

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The Community MA, which is issued by the European Commission through the Centralized Procedure, based on the opinion of the Committee for Medicinal Products for Human Use, or “CHMP”, of the European Medicines Agency, or “EMA”, and which is valid throughout the entire territory of the EEA. The Centralized Procedure is mandatory for certain types of products, such as biotechnology medicinal products, orphan medicinal products and medicinal products that contain a new active substance indicated for the treatment of AIDS, cancer, neurodegenerative disorders, diabetes, auto immune and viral diseases. The Centralized Procedure is optional for products containing a new active substance not yet authorized in the EEA, or for products that constitute a significant therapeutic, scientific or technical innovation or which are in the interest of public health in the EU. Under the Centralized Procedure the maximum timeframe for the evaluation of a marketing authorization application is 210 days (excluding clock stops, when additional written or oral information is to be provided by the applicant in response to questions asked by the CHMP). Accelerated evaluation might be granted by the CHMP in exceptional cases, when the authorization of a medicinal product is of major interest from the point of view of public health and in particular from the viewpoint of therapeutic innovation. Under the accelerated procedure the standard 210 days review period is reduced to 150 days.

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National MAs, which are issued by the competent authorities of the Member States of the EEA and only cover their respective territory, are available for products not falling within the mandatory scope of the Centralized Procedure. Where a product has already been authorized for marketing in a Member State of the EEA, this National MA can be recognized in another Member State through the Mutual Recognition Procedure. If the product has not received a National MA in any Member State at the time of application, it can be approved simultaneously in various Member States through the Decentralized Procedure.

Prior to obtaining an MA in the EEA, applicants have to demonstrate compliance with all measures included in a Paediatric Investigation Plan, or “PIP”, approved by the EEA regulatory agency, covering all subsets of the pediatric population, unless the EEA regulatory agency has granted (1) a product-specific waiver, (2) a class waiver or (3) a deferral for one or more of the measures included in the PIP.

In the EEA, upon receiving an MA, new chemical entities generally receive eight years of data exclusivity and an additional two years of market exclusivity. If granted, data exclusivity prevents regulatory authorities in the EEA from referencing the innovator’s data to assess a generic application. During the additional two-year period of market exclusivity, a generic marketing authorization can be submitted, and the innovator’s data may be referenced, but no generic product can be marketed until the expiration of the market exclusivity. However, there is no guarantee that a product will be considered by the EEA regulatory agencies to be a new chemical entity, and products may not qualify for data exclusivity.

Other Healthcare Laws

In addition to FDA restrictions on the marketing of pharmaceutical products, other foreign, federal and state healthcare regulatory laws restrict business practices in the pharmaceutical industry. These laws include, but are not limited to, federal and state anti-kickback, false claims, data privacy and security, and physician payment and drug pricing transparency laws.

The U.S. federal Anti-Kickback Statute prohibits, among other things, any person or entity from knowingly and willfully offering, paying, soliciting, receiving or providing any remuneration, directly or indirectly, overtly or covertly, to induce or in return for purchasing, leasing, ordering, or arranging for or recommending the purchase, lease, or order of any good, facility, item or service reimbursable, in whole or in part, under Medicare, Medicaid or other federal healthcare programs. The term “remuneration” has been broadly interpreted to include anything of value. The Anti-Kickback Statute has been interpreted to apply

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to arrangements between pharmaceutical and medical device manufacturers on the one hand and prescribers, purchasers, formulary managers and beneficiaries on the other hand. Although there are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution, the exceptions and safe harbors are drawn narrowly. Practices that involve remuneration that may be alleged to be intended to induce prescribing, purchases, or recommendations may be subject to scrutiny if they do not meet the requirements of a statutory or regulatory exception or safe harbor. Failure to meet all of the requirements of a particular applicable statutory exception or regulatory safe harbor does not make the conduct per se illegal under the U.S. federal Anti-Kickback Statute. Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a cumulative review of all its facts and circumstances. Several courts have interpreted the statute’s intent requirement to mean that if any one purpose of an arrangement involving remuneration is to induce referrals of federal healthcare covered business, the statute has been violated. In addition, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. Moreover, a claim including items or services resulting from a violation of the U.S. federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act. The majority of states also have anti-kickback laws, which establish similar prohibitions and in some cases may apply to items or services reimbursed by any third-party payor, including commercial insurers.

The federal false claims and civil monetary penalties laws, including the civil False Claims Act, prohibit, among other things, any person or entity from knowingly presenting, or causing to be presented, a false, fictitious or fraudulent claim for payment to, or approval by, the federal government, knowingly making, using, or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government, or knowingly making a false statement to avoid, decrease or conceal an obligation to pay money to the U.S. federal government. A claim includes “any request or demand” for money or property presented to the U.S. government. Actions under the civil False Claims Act may be brought by the Attorney General or as a qui tam action by a private individual in the name of the government. Violations of the civil False Claims Act can result in very significant monetary penalties and treble damages. Several pharmaceutical, medical device and other healthcare companies have been prosecuted under these laws for, among other things, allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product. Other companies have been prosecuted for causing false claims to be submitted because of the companies’ marketing of products for unapproved (e.g., or off-label) uses. In addition, the civil monetary penalties statute imposes penalties against any person who is determined to have presented or caused to be presented a claim to a federal health program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent. Many states also have similar fraud and abuse statutes or regulations that apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor.

Violations of fraud and abuse laws, including federal and state anti-kickback and false claims laws, may be punishable by criminal and civil sanctions, including significant fines and civil monetary penalties, the possibility of exclusion from federal healthcare programs (including Medicare and Medicaid), disgorgement and the implementation of corporate integrity agreements, which impose, among other things, rigorous operational and monitoring requirements on companies. Similar sanctions and penalties, as well as imprisonment and exclusion from federal healthcare programs, also can be imposed upon executive officers and employees of such companies. It is expected that the government authorities will continue to devote substantial resources to investigating healthcare providers’ and manufacturers’ compliance with applicable fraud and abuse laws.

The federal Health Insurance Portability and Accountability Act of 1996, or “HIPAA”, created additional federal criminal statutes that prohibit, among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. Similar to the U.S. federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.

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In addition, there has been a recent trend of increased federal and state regulation of payments made to physicians and certain other healthcare providers. The Affordable Care Act imposed, among other things, new annual reporting requirements through the Physician Payments Sunshine Act for covered manufacturers for certain payments and “transfers of value” provided to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members. Failure to submit timely, accurately and completely the required information for all payments, transfers of value and ownership or investment interests may result in civil monetary penalties. Covered manufacturers must submit reports by the 90th day of each subsequent calendar year and the reported information is publicly made available on a searchable website. In addition, certain states require implementation of compliance programs and compliance with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, impose restrictions on marketing practices and/or require the tracking and reporting of marketing expenditures and pricing information as well as gifts, compensation and other remuneration or items of value provided to physicians and other healthcare professionals and entities.

We may also be subject to data privacy and security regulation by both the federal government and the states in which we conduct our business. HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or “HITECH”, and their respective implementing regulations, including the Final HIPAA Omnibus Rule published on January 25, 2013, impose specified requirements relating to the privacy, security and transmission of individually identifiable health information held by covered entities and their business associates. Among other things, HITECH made HIPAA’s security standards directly applicable to “business associates,” defined as independent contractors or agents of covered entities that create, receive, maintain or transmit protected health information in connection with providing a service for or on behalf of a covered entity. HITECH also increased the civil and criminal penalties that may be imposed against covered entities, business associates and possibly other persons, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorney’s fees and costs associated with pursuing federal civil actions. In addition, state laws govern the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same requirements, thus complicating compliance efforts.

If our operations are found to be in violation of any of the federal and state laws described above or any other governmental regulations that apply to us, we may be subject to significant civil, criminal, and administrative penalties, including, without limitation, damages, fines, imprisonment, exclusion from participation in government healthcare programs, additional reporting obligations and oversight if we become subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with these laws.

Similar state and foreign laws and regulations, which may include, for instance, applicable post-marketing requirements, anti-fraud and abuse laws, and implementation of corporate compliance programs and reporting of payments or other transfers of value to healthcare professionals, may apply to us to the extent that any of our product candidates, once approved, are sold in a country other than the United States.

Pharmaceutical Coverage, Pricing and Reimbursement

Significant uncertainty exists as to the coverage and reimbursement status of any pharmaceutical product for which we obtain regulatory approval. In the United States and markets in other countries, patients who are prescribed drugs generally rely on third-party payors to reimburse all or part of the associated healthcare costs. Providers and patients are unlikely to use our products unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our products. If approved, sales of BLU-5937 will depend, in part, on the availability of coverage and adequate reimbursement from third-party payors. Third-party payors include government authorities, managed care plans, private health insurers and other organizations.

In the United States, the process for determining whether a third-party payor will provide coverage for a pharmaceutical product typically is separate from the process for setting the price of such product or for establishing the reimbursement rate that the payor will pay for the product once coverage is approved. With

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respect to drugs, third-party payors may limit coverage to specific products on an approved list, also known as a formulary, which might not include all of the FDA-approved products for a particular indication, or place products at certain formulary levels that result in lower reimbursement levels and higher cost-sharing obligation imposed on patients. A decision by a third-party payor not to cover a product could reduce physician utilization of a product. Moreover, a third-party payor’s decision to provide coverage for a pharmaceutical product does not imply that an adequate reimbursement rate will be approved. Adequate third-party reimbursement may not be available to enable a manufacturer to maintain price levels sufficient to realize an appropriate return on its investment in product development. Additionally, coverage and reimbursement for products can differ significantly from payor to payor. One third-party payor’s decision to cover a particular medical product does not ensure that other payors will also provide coverage for the medical product, or will provide coverage at an adequate reimbursement rate. As a result, the coverage determination process usually requires manufacturers to provide scientific and clinical support for the use of their products to each payor separately and is a time-consuming process.

In the European Union, governments influence the price of products through their pricing and reimbursement rules and control of national health care systems that fund a large part of the cost of those products to consumers. Some jurisdictions operate positive and negative list systems under which products may only be marketed once a reimbursement price has been agreed to by the government. To obtain reimbursement or pricing approval, some of these countries may require the completion of clinical trials that compare the cost effectiveness of a particular product to currently available therapies. Other member states allow companies to fix their own prices for medicines, but monitor and control company profits. The downward pressure on health care costs in general, particularly prescription products, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products. In addition, in some countries, cross border imports from low-priced markets exert a commercial pressure on pricing within a country.

The containment of healthcare costs has become a priority of federal, state and foreign governments, and the prices of pharmaceutical products have been a focus in this effort. Third-party payors are increasingly challenging the prices charged for medical products and services, examining the medical necessity and reviewing the cost-effectiveness of pharmaceutical products, in addition to questioning safety and efficacy. If third-party payors do not consider a product to be cost-effective compared to other available therapies, they may not cover that product after FDA approval or, if they do, the level of payment may not be sufficient to allow a manufacturer to sell its product at a profit.

Healthcare Reform and Other Potential Changes to Healthcare Laws

The FDA’s and other regulatory authorities’ policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. For example, in December 2016, the 21st Century Cures Act, or “Cures Act”, was signed into law. The Cures Act, among other things, is intended to modernize the regulation of drugs and devices and to spur innovation, but its ultimate implementation is unclear. In addition, in August 2017, the FDA Reauthorization Act was signed into law, which reauthorized the FDA’s user fee programs and included additional drug and device provisions that build on the Cures Act. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability, which would adversely affect our business, prospects, financial condition and results of operations.

A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and other third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medical products and services, implementing reductions in Medicare and other healthcare funding, and applying new payment methodologies. For example, in March 2010, the Affordable Care Act was enacted, which, among other things, increased the minimum Medicaid rebates owed by most manufacturers under the Medicaid Drug Rebate Program; introduced a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected; extended the Medicaid Drug Rebate Program to utilization of prescriptions of individuals enrolled in Medicaid managed care plans;

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imposed mandatory discounts for certain Medicare Part D beneficiaries as a condition for manufacturers’ outpatient drugs coverage under Medicare Part D; subjected drug manufacturers to new annual fees based on pharmaceutical companies’ share of sales to federal healthcare programs; imposed a new federal excise tax on the sale of certain medical devices; created a new Patient Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research; and established a Center for Medicare Innovation at the Center for Medicare & Medicaid Services, or “CMS” to test innovative payment and service delivery models to lower Medicare and Medicaid spending.

Since its enactment, there have been judicial and Congressional challenges to certain aspects of the Affordable Care Act, and we expect there will be additional challenges and amendments to the Affordable Care Act in the future. On December 14, 2018, a Texas U.S. District Court Judge ruled that the Affordable Care Act is unconstitutional in its entirety because the “individual mandate” was repealed by Congress as part of the Tax Cuts and Jobs Act of 2017. While the Texas U.S. District Court Judge, as well as the current administration and CMS, have stated that the ruling will have no immediate effect pending appeal of the decision, it is unclear how this decision, subsequent appeals, and other efforts to repeal and replace the Affordable Care Act will impact the Affordable Care Act and our business.

In addition, we cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative or executive action, either in the United States or abroad. For example, in the United States, certain policies of the current administration may impact our business and industry. Namely, the current administration has taken several executive actions, including the issuance of a number of Executive Orders, that could impose significant burdens on, or otherwise materially delay, the FDA’s ability to engage in routine regulatory and oversight activities such as implementing statutes through rulemaking, issuance of guidance and review and approval of marketing applications. If these executive actions impose constraints on the FDA’s ability to engage in oversight and implementation activities in the normal course, our business may be negatively impacted.

In addition, other legislative changes have been proposed and adopted in the United States since the Affordable Care Act to reduce healthcare expenditures. These changes include the Budget Control Act of 2011, which led to aggregate reductions of Medicare payments to providers of 2% per fiscal year and that will remain in effect through 2027 unless additional action is taken by Congress; the American Taxpayer Relief Act of 2012, which, among other things, further reduced Medicare payments to several types of providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years; and the Medicare Access and CHIP Reauthorization Act of 2015, which ended the use of the statutory formula for Medicare payment adjustments to physicians, and provided for a 0.25% annual increase in payment rates under the Medicare Physician Fee Schedule through 2019, but no annual update from 2020 through 2025. More recently, there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries and legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for pharmaceutical products. In addition, the current administration’s budget proposals for fiscal years 2019 and 2020 contain further drug price control measures that could be enacted during the budget process or in other future legislation, including, for example, measures to permit Medicare Part D plans to negotiate the price of certain drugs under Medicare Part B, to allow some states to negotiate drug prices under Medicaid, and to eliminate cost sharing for generic drugs for low-income patients. Further, the current administration released a “Blueprint” to lower drug prices and reduce out of pocket costs of drugs that contains additional proposals to increase drug manufacturer competition, increase the negotiating power of certain federal healthcare programs, incentivize manufacturers to lower the list price of their products, and reduce the out of pocket costs of drug products paid by consumers.

Individual states in the United States have also become increasingly aggressive in passing legislation and implementing regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.

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CONSOLIDATED CAPITALIZATION

Except as otherwise disclosed in this prospectus, there have been no material changes in our consolidated share and loan capital, on a consolidated basis, from September 30, 2019 to the date of this prospectus, other than for 512,222 stock options granted under the stock option plan on November 13, 2019.

Our authorized capital consists of an unlimited number of common shares and an unlimited number of preferred shares, issuable in series. As at December 19, 2019, we had 55,378,660 common shares issued and outstanding, all of which are fully paid and non-assessable, and 60,277,193 common shares on a fully diluted basis, including 4,726,943 stock options granted under the stock option plan and 171,590 broker warrants.

USE OF PROCEEDS

The use of proceeds for any particular offering of common shares under this prospectus will be described in the applicable prospectus supplement. Unless otherwise specified therein, we intend to use the net proceeds of any offering under this prospectus to fund research and development activities, working capital, acquisitions, debt repayment or other general corporate purposes. The aggregate proceeds from the issuance and sale of securities under this prospectus shall not exceed US$200,000,000.

Negative Cash Flow

The Company has incurred significant operating losses and negative cash flows from operations since its inception and has an accumulated deficit of Cdn$509.4 million as at September 30, 2019. Our ability to continue as a going concern is dependent upon raising additional financing through equity and non-dilutive funding and partnerships. There can be no assurance that we will have sufficient capital to fund our ongoing operations or to develop or commercialize any products without future financings. If we are unable to obtain additional financing when required, we may need to substantially reduce or eliminate planned expenditures or be unable to continue operations. Our ability to continue as a going concern is dependent upon our ability to fund research and development programs and defend our patent rights. We anticipate that we will continue to have negative cash flow for the foreseeable future and expect that any proceeds from the sale of securities under this prospectus will be used to fund anticipated negative cash flow from operating activities, as described above.

September 2019 Offering

In September 2019, concurrently with the listing of our common shares on NASDAQ, we completed an equity offering of 11,179,451 of our common shares in Canada and the United States (the “September 2019 Offering”), for total gross proceeds of approximately Cdn$104.6 million (US$79.4 million).

We intend to use the net proceeds from the September 2019 Offering, together with our cash, cash equivalents and short-term investments on hand, primarily to fund research and development activities, general and administrative expenses, working capital needs and other general corporate purposes, as indicated in our prospectus supplement dated September 4, 2019.

PLAN OF DISTRIBUTION

We may from time to time during the 25-month period that this prospectus, including any amendments hereto, remains valid, offer for sale and issue up to an aggregate of US$200,000,000 common shares. The Company may offer and sell the common shares to or through underwriters, agents, or dealers purchasing as principals, and may also sell directly to one or more purchasers or through agents or pursuant to applicable statutory exemptions.

The prospectus supplement relating to any particular offering of common shares under this prospectus will identify each underwriter, dealer or agent, as the case may be, engaged by us in connection with such offering. The prospectus supplement will also set forth the terms of the offering, including, where applicable, any fees, commissions, discounts or any other compensation payable to underwriters, dealers or agents in connection with the offering, the method of distribution of securities, the initial issue price, the proceeds that we expect to receive and any other material terms of the plan of distribution. Any initial offering price and discounts, concessions or commissions allowed or re-allowed or paid to dealers may be changed from time to time.

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The securities may be sold from time to time in one or more transactions at a fixed price or prices or at prices which may be changed or at market prices prevailing at the time of sale, at prices related to such prevailing prices or at negotiated prices, including sales in transactions that are deemed to be “at-the-market distributions” as defined in National Instrument 44-102 — Shelf Distributions, including sales made directly on the TSX, NASDAQ or other existing trading markets for the common shares. Any such transactions that are deemed “at-the-market-distributions” will be subject to regulatory approval. No underwriter, dealer or agent, no affiliate of such an underwriter, dealer or agent and no person acting jointly or in concert with such an underwriter, dealer or agent involved in an “at-the-market distribution” will over-allot common shares in connection with such distribution or effect any other transactions that are intended to stabilize or maintain the market price of the securities.

The price at which our common shares will be offered and sold may vary from purchaser to purchaser and during the period of distribution.

In connection with the sale of the securities, underwriters, dealers or agents may receive compensation, including in the form of underwriters’, dealers’ or agents’ fees, commissions or concessions. Underwriters, dealers and agents that participate in the distribution of the securities may be deemed to be underwriters for the purposes of applicable Canadian securities legislation and any compensation received by them from the Company and any profit on the resale of the securities by them may be deemed to be underwriting commissions. In connection with any offering of common shares, except as otherwise set out in a prospectus supplement relating to a particular offering of common shares hereunder and other than in relation to an “at-the-market” distribution, the underwriters, dealers or agents, as the case may be, may over-allot or effect transactions intended to fix, stabilize, maintain or otherwise affect the market price of the common shares at a level other than those which otherwise might prevail on the open market. Such transactions may be commenced, interrupted or discontinued at any time.

Underwriters, dealers or agents who participate in the distribution of the common shares may be entitled, under agreements to be entered into with us, to indemnification the Company against certain liabilities, including liabilities under Canadian securities legislation and the U.S. Securities Act, or to contribution with respect to payments which such underwriters, dealers or agents may be required to make in respect thereof. Such underwriters, dealers and agents may be customers of, engage in transactions with, or perform services for, the Company in the ordinary course of business.

CERTAIN CANADIAN AND UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

In addition to those Canadian federal income tax considerations described below under “Material Canadian Federal Income Tax Considerations”, a prospectus supplement relating to a particular offering of our common shares may also describe certain Canadian federal income tax consequences for an investor acquiring the common shares offered thereunder, including, for investors who are non-residents of Canada, whether the payments of principal, interest or distributions, if any, on the securities will be subject to Canadian non-resident withholding tax.

Moreover, in addition to those U.S. federal income tax considerations described below under “Material United States Federal Income Tax Considerations for U.S. Holders” , the applicable prospectus supplement may also describe certain U.S. federal income tax consequences of the acquisition, ownership and disposition of any common shares offered thereunder by an initial investor who is a U.S. person (within the meaning of the U.S. Internal Revenue Code of 1986, as amended).

Prospective investors should consult their own tax advisers prior to deciding to purchase any of our common shares.

MATERIAL CANADIAN FEDERAL INCOME TAX CONSIDERATIONS

The following is, as of the date hereof, a summary of the principal Canadian federal income tax considerations generally applicable under the Income Tax Act (Canada) and the regulations promulgated thereunder, or the “Tax Act”, to a holder who acquires, as beneficial owner, common shares in any offering under this prospectus, and who, for purposes of the Tax Act and at all relevant times: (i) holds the common shares as capital property; (ii) deals at arm’s length with, and is not affiliated with, us or the underwriters; (iii) is not, and is not deemed to be resident in Canada; and (iv) does not use or hold and will not be deemed

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to use or hold, our common shares in a business carried on in Canada, or a Non-Resident Holder. Generally, our common shares will be considered to be capital property to a Non-Resident Holder provided the Non-Resident Holder does not hold our common shares in the course of carrying on a business of trading or dealing in securities and has not acquired them in one or more transactions considered to be an adventure or concern in the nature of trade. Special rules, which are not discussed in this summary, may apply to a Non-Resident Holder that is an insurer that carries on an insurance business in Canada and elsewhere. Such Non-Resident Holders should seek advice from their own tax advisors.

This summary is based upon the provisions of the Tax Act in force as of the date hereof, all specific proposals, or the “Proposed Amendments”, to amend the Tax Act that have been publicly and officially announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof and Counsels’ understanding of the current administrative policies and practices of the Canada Revenue Agency, or the “CRA”, published in writing by it prior to the date hereof. This summary assumes the Proposed Amendments will be enacted in the form proposed. However, no assurance can be given that the Proposed Amendments will be enacted in their current form, or at all. This summary is not exhaustive of all possible Canadian federal income tax considerations and, except for the Proposed Amendments, does not take into account or anticipate any changes in the law or any changes in the CRA’s administrative policies or practices, whether by legislative, governmental or judicial action or decision, nor does it take into account or anticipate any other federal or any provincial, territorial or foreign tax considerations, which may differ significantly from those discussed herein.

Non-Resident Holders should consult their own tax advisors with respect to an investment in our common shares. This summary is of a general nature only and is not intended to be, nor should it be construed to be, legal or tax advice to any prospective purchaser or holder of our common shares, and no representations with respect to the income tax consequences to any prospective purchaser or holder are made. Consequently, prospective purchasers or holders of our common shares should consult their own tax advisors with respect to their particular circumstances.

Currency Conversion

Generally, for purposes of the “Tax Act”, all amounts relating to the acquisition, holding or disposition of our common shares must be converted into Canadian dollars based on the exchange rates as determined in accordance with the Tax Act. The amounts subject to withholding tax and any capital gains or capital losses realized by a Non-Resident Holder may be affected by fluctuations in the Canadian-U.S. dollar exchange rate.

Disposition of Common Shares

A Non-Resident Holder will not generally be subject to tax under the Tax Act on a disposition of a common share, unless the common share constitutes “taxable Canadian property” (as defined in the Tax Act) of the Non-Resident Holder at the time of disposition and the Non-Resident Holder is not entitled to relief under an applicable income tax treaty or convention.

Provided the common shares are listed on a “designated stock exchange”, as defined in the Tax Act (which currently includes the TSX and NASDAQ) at the time of disposition, the common shares will generally not constitute taxable Canadian property of a Non-Resident Holder at that time, unless at any time during the 60-month period immediately preceding the disposition the following two conditions are satisfied concurrently: (i) (a) the Non-Resident Holder; (b) persons with whom the Non-Resident Holder did not deal at arm’s length; (c) partnerships in which the Non-Resident Holder or a person described in (b) holds a membership interest directly or indirectly through one or more partnerships; or (d) any combination of the persons and partnerships described in (a) through (c), owned 25% or more of the issued shares of any class or series of our shares; and (ii) more than 50% of the fair market value of our shares was derived directly or indirectly from one or any combination of: real or immovable property situated in Canada, “Canadian resource properties”, “timber resource properties” (each as defined in the Tax Act), and options in respect of, or interests in or for civil law rights in, such properties. Notwithstanding the foregoing, in certain circumstances set out in the Tax Act, the common shares could be deemed to be taxable Canadian property. Even if the common shares are taxable Canadian property to a Non-Resident

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Holder, such Non-Resident Holder may be exempt from tax under the Tax Act on the disposition of such common shares by virtue of an applicable income tax treaty or convention. A Non-Resident Holder contemplating a disposition of common shares that may constitute taxable Canadian property should consult a tax advisor prior to such disposition.

Receipt of Dividends

Dividends received or deemed to be received by a Non-Resident Holder on our common shares will be subject to Canadian withholding tax under the Tax Act. The general rate of withholding tax is 25%, although such rate may be reduced under the provisions of an applicable income tax convention between Canada and the Non-Resident Holder’s country of residence. For example, under the Canada-United States Income Tax Convention (1980) as amended, or the Treaty, the rate is generally reduced to 15% where the Non-Resident Holder is a resident of the United States for the purposes of, and is entitled to the benefits of, the Treaty.

MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS FOR U.S. HOLDERS

Subject to the limitations and qualifications stated herein, this discussion sets forth material U.S. federal income tax considerations relating to the acquisition, ownership and disposition by U.S. Holders (as hereinafter defined) of the common shares. The discussion is based on the Code, its legislative history, existing and proposed regulations thereunder, published rulings and court decisions, and the Canada-United States Income Tax Convention (1980) as amended, or the Treaty, all as currently in effect and all subject to change at any time, possibly with retroactive effect. This summary applies only to U.S. Holders. This discussion of a U.S. Holder’s tax consequences addresses only those persons that acquire common shares pursuant to this prospectus and that hold those common shares as capital assets (generally, property held for investment). In addition, it does not describe all of the tax consequences that may be relevant in light of a U.S. Holder’s particular circumstances, including state and local tax consequences, estate and gift tax consequences, alternative minimum tax consequences, and tax consequences applicable to U.S. Holders subject to special rules, such as:

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banks, insurance companies, and certain other financial institutions;

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U.S. expatriates and certain former citizens or long-term residents of the United States;

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dealers or traders in securities who use a mark-to-market method of tax accounting;

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persons holding common shares as part of a hedging transaction, “straddle,” wash sale, conversion transaction or integrated transaction or persons entering into a constructive sale with respect to common shares;

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persons whose “functional currency” for U.S. federal income tax purposes is not the U.S. dollar;

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brokers, dealers or traders in securities, commodities or currencies;

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tax-exempt entities or government organizations;

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S corporations, partnerships, or other entities or arrangements classified as partnerships for U.S. federal income tax purposes;

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regulated investment companies or real estate investment trusts;

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persons who acquired our common shares pursuant to the exercise of any employee stock option or otherwise as compensation;

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persons required to accelerate the recognition of any item of gross income with respect to our common shares as a result of such income being recognized on an applicable financial statement;

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persons holding our common shares in connection with a trade or business, permanent establishment, or fixed base outside the United States; and

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persons who own (directly or through attribution) 10% or more (by vote or value) of our outstanding common shares.

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If an entity that is classified as a partnership for U.S. federal income tax purposes holds common shares, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. Partnerships holding common shares and partners in such partnerships are encouraged to consult their tax advisers as to the particular U.S. federal income tax consequences of holding and disposing of common shares.

A “U.S. Holder” is a holder who, for U.S. federal income tax purposes, is a beneficial owner of common shares and is:

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An individual who is a citizen or resident of the United States;

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a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state therein or the District of Columbia;

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an estate the income of which is subject to U.S. federal income taxation regardless of its source; or

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a trust if  (1) a U.S. court is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have authority to control all substantial decisions of the trust or (2) the trust has a valid election in effect to be treated as a U.S. person under applicable U.S. Treasury Regulations.

PERSONS CONSIDERING AN INVESTMENT IN COMMON SHARES SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO THEM RELATING TO THE ACQUISITION, OWNERSHIP AND DISPOSITION OF THE COMMON SHARES, INCLUDING THE APPLICABILITY OF U.S. FEDERAL, STATE AND LOCAL TAX LAWS.

Passive Foreign Investment Company Rules

If we are classified as a PFIC in any taxable year, a U.S. Holder will be subject to special rules generally intended to reduce or eliminate any benefits from the deferral of U.S. federal income tax that a U.S. Holder could derive from investing in a non-U.S. company that does not distribute all of its earnings on a current basis.

A non-U.S. corporation will be classified as a PFIC for any taxable year in which, after applying certain look-through rules, either:

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at least 75% of its gross income is passive income (such as interest income); or

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at least 50% of its gross assets (determined on the basis of a quarterly average) is attributable to assets that produce passive income or are held for the production of passive income.

We will be treated as owning our proportionate share of the assets and earning our proportionate share of the income of any other corporation, the equity of which we own, directly or indirectly, 25% or more (by value).

Based on our interpretation of the law, our recent financial statements, and taking into account expectations about our income, assets and activities, we believe that we were a PFIC for the taxable year ended December 31, 2018 and expect that we will be a PFIC for the current taxable year. A separate determination must be made after the close of each taxable year as to whether we are a PFIC for that year, and as a result, our PFIC status may change from year to year. The total value of our assets for purposes of the asset test generally will be calculated using the market price of the common shares, which may fluctuate considerably. Fluctuations in the market price of the common shares may result in our being a PFIC for any taxable year. Because of the uncertainties involved in establishing our PFIC status, there can be no assurance regarding if we currently are treated as a PFIC, or may be treated as a PFIC in the future.

If we are classified as a PFIC in any year with respect to which a U.S. Holder owns the common shares, we will continue to be treated as a PFIC with respect to such U.S. Holder in all succeeding years during which the U.S. Holder owns the common shares, regardless of whether we continue to meet the tests described above unless (i) we cease to be a PFIC and the U.S. Holder has made a “deemed sale” election under the PFIC rules, or (ii) the U.S. Holder makes a Qualified Electing Fund Election, or QEF Election, with respect to all taxable years during such U.S. Holders holding period in which we are a PFIC. If the

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“deemed sale” election is made, a U.S. Holder will be deemed to have sold the common shares the U.S. Holder holds at their fair market value and any gain from such deemed sale would be subject to the rules described below. After the deemed sale election, so long as we do not become a PFIC in a subsequent taxable year, the U.S. Holder’s common shares with respect to which such election was made will not be treated as shares in a PFIC and the U.S. Holder will not be subject to the rules described below with respect to any “excess distribution” the U.S. Holder receives from us or any gain from an actual sale or other disposition of the common shares. U.S. Holders should consult their tax advisors as to the possibility and consequences of making a deemed sale election if we cease to be a PFIC and such election becomes available.

For each taxable year we are treated as a PFIC with respect to U.S. Holders, U.S. Holders will be subject to special tax rules with respect to any “excess distribution” such U.S. Holder receives and any gain such U.S. Holder recognizes from a sale or other disposition (including, under certain circumstances, a pledge) of common shares, unless (i) such U.S. Holder makes a QEF Election or (ii) our common shares constitute “marketable” securities, and such U.S. Holder makes a mark-to-market election as discussed below. Absent the making of a QEF Election or a mark-to-market election, distributions a U.S. Holder receives in a taxable year that are greater than 125% of the average annual distributions a U.S. Holder received during the shorter of the three preceding taxable years or the U.S. Holder’s holding period for the common shares will be treated as an excess distribution. Under these special tax rules:

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the excess distribution or gain will be allocated ratably over a U.S. Holder’s holding period for the common shares;

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the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we became a PFIC, will be treated as ordinary income; and

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the amount allocated to each other year will be subject to the highest tax rate in effect for that year and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year.

The tax liability for amounts allocated to years prior to the year of disposition or “excess distribution” cannot be offset by any net operating losses for such years, and gains (but not losses) realized on the sale of the common shares cannot be treated as capital, even if a U.S. Holder holds the common shares as capital assets.

In addition, if we are a PFIC, a U.S. Holder will generally be subject to similar rules with respect to distributions we receive from, and our dispositions of the stock of, any of our direct or indirect subsidiaries that also are PFICs, as if such distributions were indirectly received by, and/or dispositions were indirectly carried out by, such U.S. Holder. U.S. Holders should consult their tax advisors regarding the application of the PFIC rules to our subsidiaries.

If a U.S. Holder makes an effective QEF Election, the U.S. Holder will be required to include in gross income each year, whether or not we make distributions, as capital gains, such U.S. Holder’s pro rata share of our net capital gains and, as ordinary income, such U.S. Holder’s pro rata share of our earnings in excess of our net capital gains. If we determine that we are a PFIC for this year or any future taxable year, we currently expect that we would provide the information necessary for U.S. Holders to make a QEF Election.

U.S. Holders also can avoid the interest charge on excess distributions or gain relating to the common shares by making a mark-to-market election with respect to the common shares, provided that the common shares are “marketable.” Common shares will be marketable if they are “regularly traded” on certain U.S. stock exchanges or on a foreign stock exchange that meets certain conditions. For these purposes, the common shares will be considered regularly traded during any calendar year during which they are traded, other than in de minimis quantities, on at least 15 days during each calendar quarter. Any trades that have as their principal purpose meeting this requirement will be disregarded. Our common shares are listed on NASDAQ, which is a qualified exchange for these purposes. Consequently, if our common shares remain listed on NASDAQ and are regularly traded, and you are a holder of common shares, we expect the mark-to-market election would be available to U.S. Holders if we are a PFIC. Each U.S. Holder should consult its own tax advisor as to the whether a mark-to-market election is available or advisable with respect to the common shares.

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A U.S. Holder that makes a mark-to-market election must include in ordinary income for each year an amount equal to the excess, if any, of the fair market value of the common shares at the close of the taxable year over the U.S. Holder’s adjusted tax basis in the common shares. An electing holder may also claim an ordinary loss deduction for the excess, if any, of the U.S. Holder’s adjusted basis in the common shares over the fair market value of the common shares at the close of the taxable year, but this deduction is allowable only to the extent of any net mark-to-market gains for prior years. Gains from an actual sale or other disposition of the common shares will be treated as ordinary income, and any losses incurred on a sale or other disposition of the shares will be treated as an ordinary loss to the extent of any net mark-to-market gains for prior years. Once made, the election cannot be revoked without the consent of the Internal Revenue Service (“IRS”), unless the common shares cease to be marketable.

However, a mark-to-market election generally cannot be made for equity interests in any lower-tier PFICs that we own, unless shares of such lower-tier PFIC are themselves “marketable.” As a result, even if a U.S. Holder validly makes a mark-to-market election with respect to our common shares, the U.S. Holder may continue to be subject to the PFIC rules (described above) with respect to its indirect interest in any of our investments that are treated as an equity interest in a PFIC for U.S. federal income tax purposes. U.S. Holders should consult their tax advisors to determine whether any of these elections would be available and if so, what the consequences of the alternative treatments would be in their particular circumstances.

Unless otherwise provided by the United States Treasury Department, or the “U.S. Treasury”, each U.S. shareholder of a PFIC is required to file an annual report containing such information as the U.S. Treasury may require. A U.S. Holder’s failure to file the annual report will cause the statute of limitations for such U.S. Holder’s U.S. federal income tax return to remain open with regard to the items required to be included in such report until three years after the U.S. Holder files the annual report, and, unless such failure is due to reasonable cause and not willful neglect, the statute of limitations for the U.S. Holder’s entire U.S. federal income tax return will remain open during such period. U.S. Holders should consult their tax advisors regarding the requirements of filing such information returns under these rules.

WE STRONGLY URGE YOU TO CONSULT YOUR TAX ADVISOR REGARDING THE IMPACT OF OUR PFIC STATUS ON YOUR INVESTMENT IN THE COMMON SHARES AS WELL AS THE APPLICATION OF THE PFIC RULES TO YOUR INVESTMENT IN THE COMMON SHARES.

Cash Dividends and Other Distributions

Subject to the discussion under “Passive Foreign Investment Company Rules” above, to the extent there are any distributions made with respect to the common shares, a U.S. Holder generally will be required to include in its gross income distributions received with respect to its common shares (including the amount of Canadian taxes withheld, if any) as dividend income, but only to the extent that the distribution is paid out of our current or accumulated earnings and profits (computed using U.S. federal income tax principles), with the excess treated first as a non-taxable return of capital to the extent of the holder’s adjusted tax basis in its common shares and, thereafter, as capital gain recognized on a sale or exchange on the day actually or constructively received by the holder (as described below under “Sale or Disposition of Common Shares”). There can be no assurance that we will maintain calculations of our earnings and profits in accordance with U.S. federal income tax accounting principles. U.S. Holders should therefore assume that any distribution with respect to the common shares will constitute ordinary dividend income. Dividends paid on the common shares will not be eligible for the dividends received deduction allowed to U.S. corporations.

Dividends paid to a non-corporate U.S. Holder by a “qualified foreign corporation” may be subject to reduced rates of taxation if certain holding period and other requirements are met. A qualified foreign corporation generally includes a foreign corporation if  (i) its common shares are readily tradable on an established securities market in the United States or it is eligible for benefits under a comprehensive U.S. income tax treaty that includes an exchange of information program and which the U.S. Treasury has determined is satisfactory for these purposes and (ii) if such foreign corporation is not a PFIC (as discussed above) for either the taxable year in which the dividend is paid or the preceding taxable year. The common shares are readily tradable on an established securities market, the NASDAQ. We may also be eligible for the benefits of the Treaty. Accordingly, subject to the PFIC rules discussed above, we expect that a

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non-corporate U.S. Holder should qualify for the reduced rate on dividends so long as the applicable holding period requirements are met. U.S. Holders should consult their own tax advisors regarding the availability of the reduced tax rate on dividends in light of their particular circumstances.

Distributions paid in a currency other than U.S. dollars will be included in a U.S. Holder’s gross income in a U.S. dollar amount based on the spot exchange rate in effect on the date of actual or constructive receipt, whether or not the payment is converted into U.S. dollars at that time. The U.S. Holder will have a tax basis in such currency equal to such U.S. dollar amount, and any gain or loss recognized upon a subsequent sale or conversion of the foreign currency for a different U.S. dollar amount will generally be U.S. source ordinary income or loss.

If the dividend is converted into U.S. dollars on the date of receipt, a U.S. Holder generally should generally not be required to recognize foreign currency gain or loss in respect of the dividend income.

If a U.S. Holder is subject to Canadian withholding taxes (at the rate applicable to such U.S. Holder) with respect to dividends paid on the common shares, such U.S. Holder may be entitled to receive either a deduction or a foreign tax credit for such Canadian taxes paid. Complex limitations apply to the foreign tax credit. Dividends paid by us generally will constitute “foreign source” income and generally will be categorized as “passive category income.” Because the foreign tax credit rules are complex, each U.S. Holder should consult its own tax advisor regarding the foreign tax credit rules.

Sale or Disposition of Common Shares

A U.S. Holder generally will recognize gain or loss on the taxable sale or exchange of the common shares in an amount equal to the difference between the U.S. dollar amount realized on such sale or exchange (determined in the case of the common shares sold or exchanged for currencies other than U.S. dollars by reference to the spot exchange rate in effect on the date of the sale or exchange or, if the common shares sold or exchanged are traded on an established securities market and the U.S. Holder is a cash basis taxpayer or an electing accrual basis taxpayer, which election must be applied consistently from year to year and cannot be changed without the consent of the IRS, the spot exchange rate in effect on the settlement date) and the U.S. Holder’s adjusted tax basis in the common shares determined in U.S. dollars. The initial tax basis of the common shares to a U.S. Holder will be the U.S. Holder’s U.S. dollar purchase price for the common shares (determined by reference to the spot exchange rate in effect on the date of the purchase, or if the common shares purchased are traded on an established securities market and the U.S. Holder is a cash basis taxpayer or an electing accrual basis taxpayer, which election must be applied consistently from year to year and cannot be changed without the consent of the IRS, the spot exchange rate in effect on the settlement date). An accrual basis U.S. Holder that does not make the special election will recognize exchange gain or loss to the extent attributable to the difference between the exchange rates on the sale date and the settlement date, and such exchange gain or loss generally will constitute ordinary income or loss.

Subject to the discussion under “Passive Foreign Investment Company Rules” above, such gain or loss will be capital gain or loss and will be long-term gain or loss if the common shares have been held for more than one year, subject to the PFIC rules discussed below. Under current law, long-term capital gains of non-corporate U.S. Holders generally are eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitations. Capital gain or loss, if any, recognized by a U.S. Holder generally will be treated as U.S. source income or loss for U.S. foreign tax credit purposes. U.S. Holders are encouraged to consult their own tax advisors regarding the availability of the U.S. foreign tax credit in their particular circumstances.

Medicare Contribution Tax

Certain U.S. Holders that are individuals, estates or certain trusts must pay a 3.8% tax, or “Medicare contribution tax”, on their “net investment income.” Net investment income generally includes, among other things, dividend income and net gains from the disposition of stock. A U.S. Holder that is an individual, estate or trust should consult its own tax advisor regarding the applicability of the Medicare contribution tax to its income and gains in respect of its investment in our common shares.

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Information Reporting and Backup Withholding

Payments of dividends and sales proceeds that are made within the United States or through certain U.S.-related financial intermediaries generally are subject to information reporting, and may be subject to backup withholding, unless (i) the U.S. Holder is a corporation or other exempt recipient or (ii) in the case of backup withholding, the U.S. Holder provides a correct taxpayer identification number and certifies that it is not subject to backup withholding on a duly executed IRS Form W-9 or otherwise establishes an exemption.

Backup withholding is not an additional tax. The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a credit against the U.S. Holder’s U.S. federal income tax liability and may entitle the U.S. Holder to a refund, provided that the required information is timely furnished to the IRS.

Certain Reporting Requirements

U.S. Holders paying more than $100,000 for our common shares generally may be required to file IRS Form 926 reporting the payment of the offer price for our common shares to us. Substantial penalties may be imposed upon a U.S. Holder that fails to comply. Each U.S. Holder should consult its own tax advisor as to the possible obligation to file IRS Form 926.

Information with Respect to Foreign Financial Assets

Certain U.S. Holders who are individuals (and, under regulations, certain entities) may be required to report information relating to the common shares, subject to certain exceptions (including an exception for common shares held in accounts maintained by certain U.S. financial institutions), by filing IRS Form 8938 (Statement of Specified Foreign Financial Assets) with their federal income tax return. Such U.S. Holders who fail to timely furnish the required information may be subject to a penalty. Additionally, if a U.S. Holder does not file the required information, the statute of limitations with respect to tax returns of the U.S. Holder to which the information relates may not close until three years after such information is filed. U.S. Holders should consult their tax advisers regarding their reporting obligations with respect to their ownership and disposition of the common shares.

DESCRIPTION OF SHARE CAPITAL

The following description of our share capital summarizes certain provisions of our articles of incorporation. These summaries do not purport to be complete and are subject to, and qualified in their entirety by reference to, all of the provisions of our articles of incorporation. Moreover, a prospectus supplement relating to a particular offering of our common shares may include terms pertaining to the common shares being offered thereunder that are not within the terms and parameters described in this prospectus.

Our authorized capital consists of an unlimited number of common shares and an unlimited number of preferred shares, issuable in series. As at December 19, 2019, we had 55,378,660 common shares issued and outstanding, all of which are fully paid and non-assessable, and 60,277,193 common shares on a fully diluted basis, including 4,726,943 stock options granted under the stock option plan and 171,590 broker warrants.

Common Shares

Voting Rights.   Each of our common shares entitles its holder to notice of, and to one vote at, all meetings of our shareholders. Holders of our common shares are not entitled to cumulative voting.

Dividend Rights.   Each of our common shares carries an entitlement to receive dividends if, as and when declared by our board of directors, or the “Board”. In the event of the liquidation, dissolution or winding-up of BELLUS Health, our net assets available for distribution to our shareholders will be distributed ratably among the holders of our common shares.

Applicable Limitations on Nonresident or Foreign Owners.   There are no applicable limitations on the right of nonresident or foreign owners to hold or vote our common shares imposed by foreign law or by our charter or other constituent documents.

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Share Consolidation.   On August 15, 2019, we filed articles of amendment for the purpose of effecting a consolidation of our common shares on the basis that each 3.6 outstanding common shares became one post-consolidated common share. No fractional common shares were issued in connection with such consolidation and, in the event that a shareholder would otherwise have been entitled to a fractional common share upon such consolidation, such fractional share was cancelled. Except where otherwise noted, all information in this prospectus and the documents incorporated by reference dated on or after the date of the share consolidation gives effect to such share consolidation.

Preferred Shares

No preferred shares are currently issued; however, they may be issued from time to time in one or more series, the terms of each series, including the number of shares, the designation, rights, preferences, privileges, priorities, restrictions, conditions and limitations, to be determined at the time of creation of each such series by the Board without shareholder approval, provided that all preferred shares will rank, with respect to dividends and return of capital in the event of liquidation, dissolution, winding-up or other distribution of our assets for the purpose of winding-up its affairs, pari passu among themselves and in priority to all common shares or shares of any class ranking junior to the preferred shares. Except as provided for in our articles of incorporation (as amended), the holders of preferred shares shall not be entitled to receive notice of meetings of our shareholders nor to attend thereat and shall not be entitled to vote at any such meeting.

Major Shareholders

As at December 19, 2019, OrbiMed Advisors LLC (“OrbiMed”), Power Sustainable Capital Investments Inc. (“PSCI”), a subsidiary of Power Corporation of Canada, and Rocabe Investments Inc., a company in which Mr. Roberto Bellini has a 50% equity interest (“Rocabe” and, collectively with OrbiMed and PSCI, the “Major Shareholders”), together own, directly or indirectly, an aggregate of approximately 29.8% of our outstanding common shares.

BOOK-BASED SYSTEM

Except as otherwise provided in the applicable prospectus supplement, securities will be issued by way of instant deposit under the book-based system administered by CDS Clearing and Depository Services Inc. or a successor (collectively, “CDS”), registered in the name of CDS or its nominee. No purchaser of securities will receive a certificate or other instrument from us or CDS evidencing that purchaser’s ownership thereof, and no purchaser will be shown on the records maintained by CDS except through a book-entry account of a participant (“Participant”) in the depository service of CDS acting on behalf of such purchaser. Each purchaser of securities will receive a customer confirmation of purchase from the registered dealer from which the securities are purchased in accordance with the practices and procedures of that registered dealer. The practices of registered dealers may vary, but generally customer confirmations are issued promptly after execution of a customer order. CDS will be responsible for establishing and maintaining book-entry accounts for its Participants having interests in the securities.

Transfer, Conversion, Exchange or Redemption of Securities

Transfer of ownership, conversion, exchange or redemptions of securities will be effected through records maintained by CDS or its nominee for such securities with respect to interests of Participants, and on the records of Participants with respect to interests of persons other than Participants. An owner of a beneficial interest in a security in “book-entry” form who desires to sell or otherwise transfer that interest may do so only through Participants. The ability of that owner to pledge its interest in the security or otherwise take action with respect to its interest in the security may be limited due to the lack of a physical certificate.

Special Situations When Global Security Will be Terminated

If we determine, or CDS notifies us in writing, that CDS is no longer willing or able to discharge properly its responsibilities as depository with respect to the securities and we are unable to locate a qualified successor, or if we at our option elect, or are required by law, to terminate the book-entry system, then the securities will be issued in fully registered form to beneficial owners or their nominees.

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TRADING PRICE AND VOLUME OF COMMON SHARES

Information regarding trading price and volume of our issued and outstanding common shares listed on any securities exchange, as applicable, will be provided in each applicable prospectus supplement to this prospectus.

PRIOR SALES

Information regarding prior sales of our common shares will be provided as required in the applicable prospectus supplement.

RISK FACTORS

Investing in our common shares involves a significant amount of risk. You should carefully consider the risks described below, in the applicable prospectus supplement and in the documents incorporated by reference herein and therein before making an investment decision. If any of these risks actually occurs, our business, financial condition, results of operations or prospects could be materially adversely affected. These are not the only risks and uncertainties that we face. Additional risks and uncertainties not presently known to us, or that we currently consider immaterial, may also materially and adversely affect us. In such an event, the trading price of our common shares could decline and you may lose part or all of your investment in our securities. Any reference in this section to the Company’s “products” or “product candidates” includes a reference to BELLUS Health’s product candidate and future products or product candidates that may be developed.

This prospectus also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks faced by us described below and elsewhere in this prospectus. See “Forward-Looking Statements” for information relating to these forward-looking statements.

Risks related to our business

We may not be able to maintain our operations and research and development without additional funding, and we may not have access to sufficient capital.

To date, we have financed our operations primarily through public offerings of common shares, private placements, the issuance of convertible notes and research tax credits. We have incurred significant operating losses and negative cash flows from operations since inception. As at September 30, 2019, we had available cash, cash equivalents and short-term investments totaling Cdn$132.2 million. Based on management’s estimate and current level of operations, we believe that our current liquidity position is sufficient to finance our operations into the foreseeable future. We will need to raise additional capital to fund our operations and to develop BLU-5937. Our future capital requirements will be substantial and may increase beyond current expectations depending on many factors, such as the duration, scope, rate of progress, results and costs of any preclinical studies and clinical trials for our current or any future product candidates; unexpected delays or developments in seeking regulatory approvals and the outcome thereof; the time and cost in preparing, filing, prosecuting, maintaining, and enforcing patent claims; other unexpected developments encountered in implementing our business development and commercialization strategies; the outcome of any litigation; and arrangements with collaborators. Further, changing circumstances may cause us to consume capital significantly faster than we currently anticipate. We have based the foregoing estimates on assumptions that may prove to be wrong, and we could utilize our available financial resources sooner than we currently expect.

We may seek to raise additional funds through public or private equity or debt financing, collaborations agreements with other companies and/or from other sources. We have no committed source of additional capital and additional funding may not be available on terms that are acceptable to us, or at all. If adequate funding is not available on reasonable terms, we may need to obtain funds on terms less favorable than we would otherwise accept. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of those securities could result in dilution to our shareholders. Moreover, the incurrence of debt financing could result in a substantial portion of our future operating cash flow, if any, being dedicated to the payment of principal and interest on such indebtedness

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and could impose restrictions on operations. This could render us more vulnerable to competitive pressures and economic downturns. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the development or commercialization of BLU-5937 or other future product candidates or other research and development initiatives. We could be required to seek collaborators for our product candidates at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available or relinquish or license on unfavorable terms our rights to our product candidates in markets where we otherwise would seek to pursue development or commercialization ourselves.

No assurance can be given that any such additional funding will be available or that, if available, it can be obtained on terms favorable to us. The failure to obtain additional financing on favorable terms, or at all, could have a material adverse effect on our business, financial condition, results of operations and prospects.

We have a history of losses and have not generated any product sales revenue to date. We may never achieve or maintain profitability.

Our product candidate, BLU-5937, is still only in development, and as a result, we have not generated any revenues from product sales to date. We have incurred substantial expenses in our efforts to develop BLU-5937, and consequently, have generated operating losses each year since our inception. For the years ended December 31, 2017 and 2018 and the 9 month period ended September 30, 2019, we incurred net losses of   Cdn$1.9 million, Cdn$9.1 million and Cdn$21.3 million, respectively. As of September 30, 2019, we had an accumulated deficit of Cdn$509.4 million. Our losses have adversely affected, and will continue to adversely impact, working capital, total assets, and shareholders’ equity. We do not expect to generate any revenues from product sales in the immediate future. We may never successfully commercialize any products. Even if we succeed in developing commercial products, we expect to incur additional operating losses for at least the next several years. If we do not ultimately commercialize products and achieve or maintain profitability, an investment in our shares could result in a significant or total loss.

Our prospects currently depend heavily on the success and market acceptance of BLU-5937, which is still in clinical development.

We currently have no products for sale and may never be able to successfully develop products for sale. We currently believe that our growth and future prospects are mainly dependent on the successful development, regulatory approval and commercialization of our product candidate BLU-5937, which may never occur. We are focusing our efforts and resources into the development of BLU-5937. Our business thus depends on the successful preclinical and clinical development, regulatory approval and commercialization of BLU-5937, for which we must conduct additional preclinical studies and clinical trials, undergo further development activities and seek and receive regulatory approval prior to commercial launch. Further development of BLU-5937 will require substantial investment, access to sufficient commercial manufacturing capacity and significant marketing efforts before we can generate any revenue from product sales, if approved.

We anticipate that our ability to generate revenues will depend on the commercial success of BLU-5937, which will depend upon its market acceptance by purchasers in the pharmaceutical market and the future market demand and medical need for products and research utilizing BLU-5937. Most prescription drug candidates never reach the clinical development stage and even those that do reach clinical development have only a small chance of successfully completing clinical development and gaining regulatory approval. If we are unable to successfully commercialize BLU-5937, we may never generate revenues. There is also the risk that the actual market size or opportunity for BLU-5937 is not certain. If BLU-5937 reaches commercialization and there is low market demand for BLU-5937 or the market for BLU-5937 develops less rapidly than we anticipate, we may not have the ability to shift our resources to the development of alternative products. Failure to gain market acceptance of BLU-5937 or an incorrect estimate in the nature and size of our market could have a material adverse effect on us.

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We rely on third parties to conduct preclinical studies and clinical trials for BLU-5937, and if they do not properly and successfully perform their obligations to us, we may not be able to obtain regulatory approvals for BLU-5937.

We have designed the clinical trials for BLU-5937. However, we rely on contract research organizations and other third parties to assist in managing, monitoring and otherwise carrying out these trials. We compete with many other companies for the resources of these third parties. The third parties on whom we rely generally may terminate their engagements at any time, and having to enter into alternative arrangements would delay development and commercialization of our product candidate. The U.S. Food and Drug Administration, or the “FDA”, and comparable foreign regulatory authorities require compliance with regulations and standards for designing, conducting, monitoring, recording, analyzing, and reporting the results of clinical trials to assure that the data and results are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected. Although we rely on third parties to conduct our clinical trials, they are not our employees, and we are responsible for ensuring that each of these clinical trials is conducted in accordance with our general investigational plan, protocol and other requirements. Our reliance on these third parties for research and development activities will reduce our control over these activities but will not relieve us of our responsibilities.

If these third parties do not successfully carry out their duties under their agreements, if the quality or accuracy of the data they obtain is compromised due to their failure to adhere to clinical trial protocols or to regulatory requirements, or if they otherwise fail to comply with clinical trial protocols or meet expected deadlines, the clinical trials of BLU-5937 may not meet regulatory requirements. If clinical trials do not meet regulatory requirements or if these third parties need to be replaced, preclinical development activities or clinical trials may be extended, delayed, suspended or terminated. If any of these events occur, we may not be able to obtain regulatory approval of BLU-5937 on a timely basis or at all.

We rely completely on one third-party contract manufacturer to manufacture the active pharmaceutical ingredient, or “API”, for BLU-5937 and another third-party contract manufacturer to manufacture the final drug product, and we intend to rely on third parties to produce non-clinical, clinical and commercial supplies of BLU-5937 and any other future product candidates.

We do not currently have, nor do we plan to acquire, the infrastructure or capability to internally manufacture our clinical drug supply of BLU-5937, or any other product candidates we may develop in the future, for use in the conduct of our research and development activities, preclinical studies and clinical trials, and we lack the internal resources and the capability to manufacture any product candidates on a clinical or commercial scale. We currently have the API for BLU-5937 manufactured by one third-party contract manufacturer and final drug product supplied by another contract manufacturer, and do not currently have backup manufacturing capacity.

We plan to continue to rely on contract manufacturers for the foreseeable future to produce quantities of products and substances necessary for research and development, preclinical studies, human clinical trials and product commercialization, and to perform their obligations in a timely manner and in accordance with applicable government regulations. While we intend to contract for the commercial manufacture of our product candidates, we may not be able to identify and qualify contractors or obtain favorable contracting terms.

If our current or future third-party manufacturers do not perform as agreed, or breach or terminate their agreements with us, significant additional time and costs would be required to effect a transition to a new contract manufacturer. If we are unable to retain our current contractors, or are unable to secure arrangements with new contractors to provide manufacturing services in a timely manner and on acceptable terms as needed, it will delay or prevent the development, promotion, marketing, or sale of BLU-5937, if approved, or any other future product candidates we may develop, and have a negative effect on our operations and financial condition. Moreover, if a replacement to our current or future contract manufacturers is required, the ability to establish second-sourcing or find a replacement manufacturer may be difficult due to the lead times generally required to manufacture drug products and the need for regulatory compliance inspections and approvals of any replacement manufacturer, all of which factors could result in production delays and additional costs.

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Manufacturing of API and final drug products is complex and requires significant expertise. Difficulties could be encountered in production, particularly in scaling up and validating production. There can be no assurance that contract manufacturers will be successful at scaling up and producing BLU-5937 with the required quality and in the quantities and timelines that will be needed for clinical and/or commercial purposes. So far, we have only produced small quantities of BLU-5937 at kilogram scale for use in preclinical studies and clinical trials.

Our reliance on these contract manufacturers also exposes us to the possibility that they, or third parties with access to their facilities, will have access to and may appropriate our trade secrets or other proprietary information.

We rely on third-party contract manufacturers that are located outside of Canada. As a result, our operations are subject to customary risks related to the import of goods, including fluctuations in the value of currencies, changes in import duties, exchange controls, trade restrictions, work stoppages and general political and economic conditions in foreign countries. The countries from which we import pharmaceutical ingredients may, from time to time, impose new duties, tariff’s or other restrictions or adjust presently prevailing duties or tariffs, which could adversely impact our ability to purchase such pharmaceutical ingredients or significantly increase the cost of doing so. The occurrence of any of these risks could delay or prevent the development, promotion, marketing, or sale of BLU-5937, if approved, or of any other future product candidates we may develop, and have a negative effect on our operations and financial condition.

The clinical effectiveness of BLU-5937 is not yet supported by clinical data.

The preclinical toxicology studies and the Phase 1 topline data announced in November 2018 showed that BLU- 5937 has a favorable safety and tolerability profile. However, the clinical safety of BLU-5937 has to be demonstrated through further clinical studies. The clinical effectiveness of BLU-5937 is not yet supported by clinical data and the medical community has not yet developed a large body of peer reviewed literature that supports the safety and efficacy of BLU-5937. If future studies call into question the safety or efficacy of BLU-5937 or any other product candidates we may develop in the future, our business, financial condition, results of operations or prospects could be adversely affected.

Even if BLU-5937 or any other product candidates we may develop in the future successfully complete the clinical trials and receive the regulatory approval necessary to market the product candidates to the public, there is also the risk of unknown side effects, which may not appear until the product candidates are on the market and may result in delay or denial of regulatory approval or withdrawal of previous approvals, product recalls or other adverse events, which could materially adversely affect us.

Our clinical trials may not yield results that will enable us to obtain regulatory approval for our current or future product candidates.

We will only receive regulatory approval for a product candidate if we can demonstrate in carefully designed and conducted clinical trials that the product candidate is safe and effective. We do not know whether our current or any future clinical trials will demonstrate sufficient safety and efficacy to obtain the requisite regulatory approvals or if they will result in marketable products.

Clinical trials are lengthy, complex, costly, and uncertain processes. It takes several years to complete testing, and failure can occur at any stage of testing. The early stage of our product candidate involves risks related to safety, efficacy, drug metabolism, pharmacokinetic profile, tolerability, manufacturing, formulation and distribution, among others. Results attained in preclinical testing and early clinical studies or trials may not be indicative of results that are obtained in later studies. We have suffered, and may suffer further, significant setbacks in advanced clinical trials, even after promising results in earlier studies. For instance, in June 2016, we announced that KIACTA (eprodisate) did not meet the primary efficacy endpoint in a Phase 3 clinical trial. Based on results at any stage of clinical trials, we may decide to repeat or redesign a trial or discontinue the development of a product candidate. Furthermore, actual results may vary once the final and quality-controlled verification of data and analyses has been completed. If we fail to adequately demonstrate the safety and efficacy of BLU-5937, we will not be able to obtain the required regulatory approvals to commercialize that product candidate.

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Clinical trials are subject to continuing oversight by governmental regulatory authorities and institutional review boards, and must meet the requirements of these authorities; must meet requirements for informed consent; and must meet requirements for good clinical practices.

We may not be able to comply with these requirements. We rely on third parties, including contract research organizations and outside consultants, to assist in managing and monitoring clinical trials. Our reliance on these third parties may result in delays in completing, or in failing to complete, these trials if one or more third parties fail to perform with the speed and level of competence expected. If clinical trials for a product candidate are unsuccessful, we will be unable to commercialize such product candidate. If one or more of the clinical trials is delayed, we will be unable to meet our anticipated development or commercialization timelines. Either circumstance could have a material adverse effect on our business, financial condition, results of operations and prospects.

If we encounter difficulties enrolling patients in clinical trials, the trials could be delayed or otherwise adversely affected.

Clinical trials for product candidates require us or third parties we contract with to identify and enroll a large number of patients with the disorder under investigation. We or the third parties we contract with may not be able to enroll a sufficient number of patients to complete clinical trials in a timely manner. Patient enrollment is a function of many factors, including the following: design of the protocol, size of the patient population, eligibility criteria for the trial in question, perceived risks and benefits of the drug under study, availability of competing therapies, efforts to facilitate timely enrollment in clinical trials, patient referral practices of physicians, and availability of clinical trial sites. If we or the third parties we contract with have difficulty enrolling a sufficient number of patients to conduct our clinical trials as planned, we may need to delay or terminate ongoing clinical trials.

The outcome of preclinical studies and earlier-stage clinical trials may not be predictive of the success of later-stage clinical trials.

The outcome of preclinical testing and earlier-stage clinical trials may not be predictive of the success of later-stage clinical trials. BLU-5937 and any other product candidates we may develop may fail to show the desired safety and efficacy in clinical development despite positive results in preclinical studies or having successfully advanced through initial clinical trials. Numerous companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in later-stage clinical trials even after achieving promising results in preclinical testing and earlier-stage clinical trials, and we cannot be certain that we will not face similar setbacks. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their products. Furthermore, the failure of any product candidate to demonstrate safety and efficacy in any clinical trial could negatively impact the perception of any other product candidates then under development and/or cause applicable regulatory authorities to require additional testing before approving any other product candidates.

Interim topline and preliminary results from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures, which could result in material changes in the final data.

From time to time, we may publish interim topline or preliminary results from our clinical trials. Interim results from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. Preliminary or topline results also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, interim and preliminary data should be viewed with caution until the final data are available. Differences between preliminary or interim data and final data could significantly harm our business prospects and may cause the trading price of our common shares to fluctuate significantly.

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Even if we or any future partners obtain regulatory approvals for our product candidates, we will be subject to ongoing government regulation.

Even if regulatory authorities approve BLU-5937 or any future product candidate we may develop, the manufacturing, marketing, and sale of such products will be subject to strict and ongoing regulation. Compliance with such regulation may be costly and consume substantial financial and management resources. For example, an approval for a product may be conditioned on conducting costly post-marketing follow-up studies. In addition, if, based on these studies, a regulatory authority does not believe that the drug demonstrates a benefit to patients, such authority could limit the indications for which the product may be sold or revoke the product’s regulatory approval.

We and our contract manufacturers are required to comply with applicable current Good Manufacturing Practice regulations for the manufacture of product candidates. These regulations include requirements relating to quality assurance, as well as the corresponding maintenance of records and documentation. Manufacturing facilities must be approved before they can be used in the commercial manufacturing of products and are subject to subsequent periodic inspection by regulatory authorities. In addition, material changes in the methods of manufacturing or changes in the suppliers of raw materials are subject to further regulatory review and approval.

If we or any future marketing collaborators or contract manufacturers fail to comply with applicable regulatory requirements, we may be subject to sanctions, including fines, drug recalls or seizures, injunctions, total or partial suspension of production, civil penalties, withdrawals of previously granted regulatory approvals, and criminal prosecution. Any of these penalties could delay or prevent the promotion, marketing, or sale of our products.

In addition, we are currently or will in the future be subject to healthcare regulation and enforcement by the federal government and the states in which we will conduct our business once our product candidates are approved by the FDA and commercialized in the United States. In addition to the FDA’s restrictions on marketing of pharmaceutical products, the healthcare laws and regulations that may affect our ability to operate include: the federal fraud and abuse laws, including the federal anti-kickback and false claims laws; federal data privacy and security laws; and federal transparency laws related to payments and/or other transfers of value made to physicians and other healthcare professionals and teaching hospitals. Many states have similar laws and regulations that may differ from each other and federal law in significant ways, thus complicating compliance efforts. These laws may adversely affect our sales, marketing and other activities with respect to any product candidate for which we receive approval to market in the United States by imposing administrative and compliance burdens on us.

Because of the breadth of these laws and the narrowness of available statutory exceptions and regulatory safe harbors, it is possible that some of our business activities, particularly any sales and marketing activities after a product candidate has been approved for marketing in the United States, could be subject to legal challenge and enforcement actions. If our operations are found to be in violation of any of the federal and state laws described above or any other governmental regulations that apply to us, we may be subject to significant civil, criminal, and administrative penalties, including, without limitation, damages, fines, imprisonment, exclusion from participation in government healthcare programs, additional reporting obligations and oversight if we become subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with these laws, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations.

We may not achieve our projected development goals in the announced and expected time frames.

From time to time, we set goals for and make public statements regarding the expectations for and timing of the accomplishment of objectives material to our success, such as the commencement and completion of clinical trials, expected results, anticipated regulatory submission and approval dates, and timing of product launch. The actual timing of these events can vary dramatically due to factors such as delays or failures in clinical trials, the uncertainties inherent in the regulatory approval process, and delays in achieving manufacturing or marketing arrangements sufficient to commercialize products. There can be no assurance that our clinical trials will be completed, that we will make regulatory submissions or receive

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regulatory approvals as planned, or that we will be able to adhere to our current schedule for the launch of BLU-5937 or any other future product candidates we may develop. If we fail to achieve one or more of these milestones as planned, the price of our common shares would likely be adversely affected.

If we or our partners fail to obtain acceptable prices, coverage or adequate reimbursement for our products, our ability to generate revenues will be diminished.

Patients in the United States and elsewhere generally rely on third-party payors to reimburse part or all of the costs associated with their prescription drugs. Accordingly, our ability to successfully commercialize our products would depend significantly on the ability to obtain acceptable prices and the availability of coverage and adequate reimbursement from third-party payors, such as government and private insurance plans. Coverage and reimbursement policies for drug products can differ significantly among payors as there is no uniform policy of coverage and reimbursement for drug products among U.S. third-party payors. There may be significant delays in obtaining coverage and reimbursement as the process of determining coverage and reimbursement is often time-consuming and costly which will require us to provide scientific and clinical support for the use of our products to each payor separately, with no assurance that coverage or adequate reimbursement will be obtained. While we have not commenced discussions with any such parties, these third-party payors frequently require companies to provide predetermined discounts from list prices, and they are increasingly challenging the prices charged for pharmaceuticals and other medical products. Our products may not be considered cost-effective, and reimbursement to the patient may not be available or sufficient to allow us to sell our products on a competitive basis. Even if we obtain coverage for a given product candidate, the associated reimbursement rate may not be adequate to cover our costs, including research, development, intellectual property, manufacture, sale and distribution expenses, or may require co-payments that patients find unacceptably high.

In addition, the continuing efforts of third-party payors to contain or reduce the costs of healthcare through various means may limit our commercial opportunity and reduce any associated revenue and profits. We expect proposals to implement similar government controls to continue. In addition, increasing emphasis on managed care will continue to put pressure on the pricing of pharmaceutical and biopharmaceutical products. Cost-control initiatives could decrease the price that we or any current or potential collaborators could receive for any of the products and could adversely affect profitability. In addition, in Canada and in many other countries, where significant healthcare reforms are currently under discussion, pricing and/or profitability of some or all prescription pharmaceuticals and biopharmaceuticals are subject to government control. In the United States, there have been and continue to be a number of healthcare-related legislative initiatives that have significantly affected the pharmaceutical industry. For example, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively, the Affordable Care Act, was passed in March 2010, and substantially changed the way healthcare is financed by both governmental and private insurers, and continues to significantly impact the pharmaceutical industry. There also has been heightened governmental scrutiny in the United States of pharmaceutical pricing practices in light of the rising cost of prescription drugs and biologics. Such scrutiny has resulted in several recent congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for products. If we fail to obtain acceptable prices, coverages or an adequate level of reimbursement for our products, the sales of the products would be adversely affected or there may be no commercially viable market for our products.

Competition in the biopharmaceutical industry is intense, and development by other companies could render our product candidate or any future product candidates or technologies non-competitive.

The biopharmaceutical industry is intensely competitive and is subject to rapid and significant change. We face potential competition from many sources, including major pharmaceutical, specialty pharmaceutical and biotechnology companies. We consider our primary competitors to be those companies that are developing products specifically to treat chronic cough and those companies that develop products that, when approved, could be used off-label to treat cough. We are aware of other companies targeting chronic cough as the primary outcome measure in clinical studies of products. There are multiple

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companies developing products at varying stages of development specifically intended to treat chronic cough including Merck & Co., Bayer AG, Shionogi Inc. and NeRRe Therapeutics Ltd, some of which have substantially greater product development capabilities and financial, scientific, marketing, and human resources than us. Of these companies, Merck, Bayer and Shionogi are developing P2X3 antagonists for chronic cough that could compete directly with BLU-5937. Moreover, there are multiple companies developing therapeutic treatments for atopic dermatitis specifically, or various other forms of pruritus which could also have a therapeutic effect on atopic dermatitis itch including Sanofi S.A., Bayer AG, Pfizer Inc., Novartis International AG, LEO Pharma Inc., Menlo Therapeutics Inc., Vanda Pharmaceuticals Inc., Trevi Therapeutics Inc., Galderma S.A., Sienna Biopharmaceuticals, Inc., Tioga Pharmaceuticals, Inc. and Cara Therapeutics Inc.

We are heavily dependent on licensed intellectual property. If we were to lose our rights to licensed intellectual property, we would not be able to continue developing or commercializing BLU-5937. If we breach any of the agreements under which we license the use, development and commercialization rights to BLU-5937 or any other future product candidate or technology from third parties or if certain insolvency events were to occur, we could lose license rights that are critical to our business.

We have an exclusive worldwide license to develop and commercialize BLU-5937 pursuant to a license agreement with the NEOMED Institute, now adMare Bionnovations (“NEOMED”), that is critical to our business, which is subject to termination for breach of our terms and, therefore, our rights may only be available to us for as long as our development and commercialization activities are sufficient to meet the terms of the license. In addition, we may need to enter into additional license agreements in the future. Our existing license agreements impose, and any future license agreements may impose on us, various developments, regulatory and/or commercial diligence obligations, payment of milestones and/or royalties and other obligations. If we fail to comply with our obligations under these agreements, or we are subject to a bankruptcy, the licensor may have the right to terminate the license, in which event we would not be able to market products covered by the license, which would have a material adverse effect on our business, financial condition, results of operations and prospects. Moreover, our current or future licenses may provide for a reversion to the licensor of our rights in regulatory filings or other intellectual property or data that we regard as our own in the event the license terminates under certain circumstances, such as due to breach.

Licensing of intellectual property is of critical importance to our business and involves complex legal, business and scientific issues. Disputes may arise between us and our licensors regarding intellectual property subject to a license agreement, including with respect to:

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the scope of rights granted under the license agreement and other interpretation-related issues;

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the rights of our licensors under the license agreements; and

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our diligence obligations with respect to the use of the licensed technology in relation to our development and commercialization of BLU-5937 and any future product candidates, and what activities satisfy those diligence obligations.

Any disputes with our licensors over intellectual property that we have licensed from them may prevent or impair our ability to maintain our current licensing arrangements on acceptable terms. Termination or expiry of our license agreements could result in the loss of significant rights and could materially harm our ability to further develop and commercialize BLU-5937 or other future product candidates.

We depend on our licensors to protect a significant portion of our proprietary rights that derive from license agreements, including our exclusive worldwide license with NEOMED to develop and commercialize BLU-5937. BLU-5937 is covered by a patent that is not owned by us but is instead licensed to us by NEOMED. Moreover, our licensors under current licenses retain and our licensors under future licenses may retain certain rights and obligations.

Our business could suffer, for example, if the licensed patents or other rights are found to be invalid or unenforceable, or if we are unable to enter into necessary licenses on acceptable terms.

In addition, the agreements under which we currently license intellectual property or technology from third parties are complex, and certain provisions in such agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow

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what we believe to be the scope of our rights to the relevant intellectual property or technology, or increase what we believe to be our financial or other obligations under the relevant agreement, either of which could have a material adverse effect on our business, financial condition, results of operations, and prospects. Moreover, if disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements on commercially acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates, which could have a material adverse effect on our business, financial conditions, results of operations, and prospects.

We may not obtain adequate protection for our products through our intellectual property.

Our success depends, in large part, on our ability to protect our competitive position through patents, trade secrets, trademarks, and other intellectual property rights. Our success, competitive position and future revenues with respect to these product candidates will depend, in part, on our ability to protect our intellectual property. We will be able to protect our proprietary rights from unauthorized use by third parties only to the extent that our proprietary rights are covered by valid and enforceable patents or are effectively maintained as trade secrets. We attempt to protect our proprietary position by maintaining trade secrets and by filing U.S. and foreign patent applications related to our in-licensed technology, inventions and improvements that are important to the development of our business. Our failure to do so may adversely affect our business and competitive position.

The patent positions of pharmaceutical and biopharmaceutical firms, including ours, are uncertain and involve complex questions of law and fact for which important legal issues remain unresolved. The patents issued or to be issued to us may not provide us with any competitive advantage. We may not be able to protect our intellectual property rights throughout the world. Our patents may be challenged by third parties in patent litigation. In addition, it is possible that third parties with drugs that are very similar to ours will circumvent our patents by means of alternate designs or processes. We may have to rely on method of use protection for our compounds in development and any resulting drugs, which may not confer the same level of protection as protection of our compounds per se. We may be required to disclaim part of the term of certain patents. There may be prior art of which we are not aware that may affect the validity or enforceability of a patent claim. There also may be prior art of which we are aware, but which we do not believe affects the validity or enforceability of a claim, which may, nonetheless ultimately be found to affect the validity or enforceability of a claim. No assurance can be given that our patents would, if challenged, be held by a court to be valid or enforceable or that a competitor’s technology or drug would be found by a court to infringe our patents.

Patent terms may be inadequate to protect our competitive position on our product candidates for an adequate amount of time. Patents have a limited lifespan. In the United States, if all maintenance fees are timely paid, the natural expiration of a patent is generally 20 years from its earliest U.S. non-provisional filing date. Various extensions may be available, but the life of a patent, and the protection it affords, is limited. Even if patents covering our product candidates are obtained, once the patent life has expired, we may be open to competition from competitive products, including generics or biosimilars. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.

Patent applications relating to or affecting our business may have been filed by a number of pharmaceutical and biopharmaceutical companies and academic institutions. A number of the technologies in these applications or patents may conflict with our technologies, patents, or patent applications, and such conflict could reduce the scope of patent protection that we could otherwise obtain. We could become involved in interference proceedings in the United States in connection with one or more of our patents or patent applications to determine priority of invention. Our granted patents could also be challenged and revoked in opposition proceedings in certain countries outside of the United States. In addition to patents, we rely on trade secrets and proprietary know-how to protect our intellectual property. We generally require employees, consultants, outside scientific collaborators, and sponsored researchers and other advisors to enter into confidentiality agreements. These agreements provide that all confidential information developed or made known to the individual during the course of the individual’s relationship with us is to be kept

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confidential and not disclosed to third parties except in specific circumstances. In the case of employees, the agreements provide that all of the technology that is conceived by the individual during the course of employment is our exclusive property. These agreements may not provide meaningful protection or adequate remedies in the event of unauthorized use or disclosure of proprietary information. In addition, it is possible that third parties could independently develop proprietary information and techniques substantially similar to ours or otherwise gain access to our trade secrets.

We may obtain the right to use certain technology under license agreements with third parties. Our failure to comply with the requirements of material license agreements could result in the termination of such agreements, which could cause us to terminate the related development program and cause a complete loss of investment in that program. As a result of the foregoing factors, we may not be able to rely on our intellectual property to protect our products in the marketplace.

If we are unable to protect the confidentiality of our trade secrets, the value of our technology could be materially adversely affected and our business would be harmed.

We seek to protect our confidential proprietary information, in part, by confidentiality agreements and invention assignment agreements with our employees, consultants, scientific advisors, contractors and collaborators. These agreements are designed to protect our proprietary information. However, we cannot be certain that such agreements have been entered into with all relevant parties, and we cannot be certain that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. For example, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. We also seek to preserve the integrity and confidentiality of our confidential proprietary information by maintaining physical security of our premises and physical and electronic security of our information technology systems, but it is possible that these security measures could be breached. If any of our confidential proprietary information were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent such competitor from using that technology or information to compete with us, which could harm our competitive position.

We may infringe the intellectual property rights of others.

Our commercial success depends significantly on our ability to operate without infringing on the patents and other intellectual property rights of third parties. There could be issued patents of which we are not aware that our products infringe or patents that we believe we do not infringe, but that we may ultimately be found to infringe. Moreover, patent applications are, in some cases, maintained in secrecy until patents are issued. The publication of discoveries in the scientific or patent literature frequently occurs substantially later than the date on which the underlying discoveries were made and patent applications were filed. Because patents can take many years to issue, there may be currently pending applications of which we are unaware that may later result in issued patents that our products infringe. For example, pending applications may exist that provide support or can be amended to provide support for a claim that results in an issued patent that our drug infringes.

The biopharmaceutical industry has produced a proliferation of patents, and it is not always clear to industry participants which patents cover various types of products. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform. We believe that BLU-5937 does not infringe any valid claim of these patents, although there can be no assurances of this. In the event of an infringement or violation of another party’s patent, we may not be able to enter into licensing arrangements or make other arrangements at a reasonable cost. Any inability to secure licenses or alternative technology could result in delays in the introduction of drugs or lead to prohibition of the manufacture or sale of drugs by us.

Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain and could harm our business.

Third parties may assert patent or other intellectual property infringement claims against us or our other licensors arising from the manufacture, use, or sale of our current or future product candidates. An unfavorable outcome could result in loss of patent rights and require us to cease using the related

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technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms. Our defense of litigation proceedings may fail and, even if successful, may result in substantial costs and distract our management and other employees. In the event of a successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, pay royalties, redesign our infringing products or obtain one or more licenses from third parties, which may be impossible or require substantial time and monetary expenditure.

We may become involved in lawsuits or other proceedings to protect or enforce our patents or other intellectual property, which could be expensive, time consuming and unsuccessful.

Competitors may infringe our patents or other intellectual property. If we were to initiate legal proceedings against a third party to enforce a patent covering our product candidates, the defendant could counterclaim that the patent covering our product candidate is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness, written description or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the United States Patent and Trademark Office, or “USPTO”, or made a misleading statement, during prosecution. The outcome following legal assertions of invalidity and unenforceability is unpredictable. The validity of our current or future patents or patent applications or those of our licensors may also be challenged in interference or derivation proceedings, opposition, post grant review, inter partes review, or other similar enforcement and revocation proceedings, provoked by third parties or brought by us. Our patents could be found invalid, unenforceable, or their scope significantly reduced.

Interference or derivation proceedings provoked by third parties or brought by us or declared by the USPTO may be necessary to determine the priority of inventions with respect to our patents or patent applications. An unfavorable outcome could require us to cease using the related technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms or at all, or if a non-exclusive license is offered and our competitors gain access to the same technology. Our defense of litigation or other proceedings may fail and, even if successful, may result in substantial costs and distract our management and other employees. In addition, the uncertainties associated with litigation could have a material adverse effect on our ability to raise the funds necessary to continue our clinical trials, continue our research programs, license necessary technology from third parties, or enter into development partnerships that would help us bring our product candidates to market.

Patent litigation is costly and time consuming and may subject us to liabilities.

Our involvement in any patent litigation, interference, post-grant proceedings such as inter partes review or opposition, or other administrative proceedings will likely cause us to incur substantial expenses, and the efforts of technical and management personnel will be significantly diverted. In addition, an adverse determination in litigation could subject us to significant liabilities. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions, or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of our common shares.

We may be subject to claims challenging the inventorship of our patents and other intellectual property.

We or our licensors may be subject to claims that former employees, collaborators or other third parties have an interest in our owned or in-licensed patents, trade secrets, or other intellectual property as an inventor or co-inventor. For example, we or our licensors may have inventorship disputes arise from conflicting obligations of employees, consultants or others who are involved in developing our product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship

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or our or our licensors’ ownership of our owned or in-licensed patents, trade secrets or other intellectual property. If we or our licensors fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, intellectual property that is important to our product candidates. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations and prospects.

We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties or that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.

As is common in the biotechnology and pharmaceutical industry, we employ individuals who were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our employees, consultants and independent contractors do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed intellectual property, including trade secrets or other proprietary information, of any of our employees’ former employers or other third parties. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel, which could adversely impact our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.

Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.

Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or applications will be due to be paid to the USPTO and various governmental patent agencies outside of the United States in several stages over the lifetime of the patents and/or applications. We have systems in place to remind us to pay these fees, and we employ an outside firm and rely on our outside counsel to pay these fees due to non-U.S. patent agencies. The USPTO and various non-U.S. governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. We employ reputable law firms and other professionals to help us comply, and in many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. However, there are situations in which non-compliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, our competitors might be able to enter the market and this circumstance would have a material adverse effect on our business.

The market price of our common shares experiences a high level of volatility due to factors such as the volatility in the market for biotechnology stocks generally and the short-term effect of a number of possible events.

We are a public growth company in the biotechnology sector. As frequently occurs among these companies, the market price for our common shares may experience a high level of volatility. During the 12-month period ended on the date of this prospectus, giving effect to the one-for-3.6 consolidation of our common shares effected on August 15, 2019, our common shares traded between Cdn$3.49 and Cdn$12.42 per share on the TSX. Since their initial NASDAQ listing on September 9, 2019, our common shares traded between US$5.55 and US$7.88 per share on NASDAQ.

Numerous factors, including many over which we have no control, may have a significant impact on the market price of our common shares, including, among other things, the following: (1) clinical and regulatory developments regarding our product candidate and those of our competitors; (2) arrangements or strategic partnerships by our competitors; (3) other announcements by us or our competitors regarding technological, drug development, sales, or other matters; (4) patent or other intellectual property achievements or adverse developments; (5) arrivals or departures of key personnel; (6) changes in financial

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estimates and recommendations by securities analysts; (7) government regulatory action affecting our product candidate and our competitors’ products in the United States, Canada, and foreign countries; (8) actual or anticipated fluctuations in revenues or expenses; (9) general market conditions and fluctuations for the emerging growth and biopharmaceutical market sectors; (10) failure to enter into favorable third-party manufacturing agreements; (11) events related to threatened, new, or existing litigation; (12) economic conditions in the United States, Canada, or abroad; (13) purchases or sales of blocks of our securities; and (14) difficulties in our ability to obtain additional financing.

The recent listing of our common shares on NASDAQ may increase share price volatility due to various factors, including that the stock market in recent years has experienced extreme price and trading volume fluctuations that often have been unrelated or disproportionate to the operating performance of individual companies. These broad market fluctuations may adversely affect the price of our common shares, regardless of our operating performance. In addition, sales of substantial amounts of our common shares in the public market after any offering, or the perception that those sales may occur, could cause the market price of our common shares to be adversely affected.

As at December 19, 2019, our Major Shareholders together own, directly or indirectly, an aggregate of approximately 29.8% of our outstanding common shares. A decision by one or more of our Major Shareholders or any other significant shareholder to sell a substantial amount of our common shares could cause the trading price of our common shares to be adversely affected. Furthermore, shareholders may initiate securities class action lawsuits if the market price of our common shares drops significantly, which may cause us to incur substantial costs and could divert the time and attention of our management.

These factors, among others, could depress the trading price of our securities. Because we may experience high volatility in our common shares, individuals or entities should not invest in our common shares unless prepared to absorb a significant loss of capital. At any given time, investors may not be able to sell their shares at a price that is acceptable or at all. The market liquidity for our stock is low. While a more active trading market may develop in the future, the limited market liquidity for our common shares may affect an investor’s ability to sell at a price that is satisfactory to them or at all.

We do not expect to pay any cash dividends for the foreseeable future.

Investors should not rely on an investment in our common shares to provide dividend income. We do not anticipate that we will pay any cash dividends to holders of our common shares in the foreseeable future. Instead, we plan to retain any earnings to maintain and expand our operations. In addition, any future debt financing arrangement may contain terms prohibiting or limiting the amount of dividends that may be declared or paid on our common shares. Accordingly, investors must rely on sales of their common shares after price appreciation, which may never occur, as the only way to realize any return on their investment. As a result, investors seeking cash dividends should not purchase our common shares.

If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research about our business, our share price and trading volume could decline.

The trading market for our common shares will depend, in part, on the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who cover our company downgrade our common shares or publish inaccurate or unfavorable research about our business, our share price would likely decline. In addition, if our operating results fail to meet the forecast of analysts, our share price would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our common shares could decrease, which might cause our share price and trading volume to decline.

We would not be able to successfully commercialize product candidates if we are unable to create sales, marketing, and distribution capabilities or make adequate arrangements with third parties, including entering into collaborations with partners, for such purposes.

In order to commercialize our product candidates successfully, we could, on a product-by-product basis, either develop internal sales, marketing, and distribution capabilities or make arrangements with third parties, including entering into collaborations with partners, to perform some or all of these services. We

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currently have no marketing capabilities and sales force. To the extent that we internally develop a sales force, the cost of establishing and maintaining a sales force would be substantial and may exceed our cost effectiveness. In addition, in marketing our drugs, we would likely compete with many companies that currently have extensive and well-funded marketing and sales operations. Despite marketing and sales efforts, we may be unable to compete successfully against these companies. We may not be able to do so on favorable terms. We could rely on third parties to market and sell our products in certain territories, rather than establishing an internal sales force. When we contract with third parties, including entering into collaborations with partners, for the sale and marketing of our products, revenues depend upon the efforts of these third parties, which may not be successful. If we fail to establish successful marketing and sales capabilities or to make arrangements with third parties for such purposes, our business, financial condition, results of operations and prospects will be materially adversely affected.

We are subject to intense competition for skilled personnel. The loss of key personnel or the inability to attract additional personnel could impair our ability to conduct operations.

We are highly dependent on our management and staff; the loss of whose services might adversely impact our ability to achieve our objectives. Recruiting and retaining qualified management and other personnel is critical to our success. Competition for skilled personnel is intense, and the ability to attract and retain qualified personnel may be affected by such competition. We do not maintain “key person” insurance for any of our key personnel.

We are subject to the risk of product liability claims, for which we may not have, or may not be able to obtain, adequate insurance coverage.

Human therapeutic products involve the risk of product liability claims and associated adverse publicity. Currently, our principal risks relate to participants in the clinical trials who may suffer unintended consequences. Claims might be made directly by consumers, patients, healthcare providers, or pharmaceutical companies or others selling or consuming any of our products, if approved. We may not have or be able to obtain or maintain sufficient and affordable insurance coverage, including coverage for potentially very significant legal expenses. Without sufficient coverage, any claim brought against us could have a materially adverse effect on our business, financial condition, results of operations or prospects.

Legislative actions, potential new accounting pronouncements, and higher insurance costs are likely to impact our future financial position or results of operations.

Future changes in financial accounting standards may cause adverse, unexpected revenue or expense fluctuations and affect our financial position or results of operations. New pronouncements and varying interpretations of pronouncements have occurred with greater frequency and are expected to occur in the future, and we may make, or may be required to make, changes in our accounting policies in the future. Compliance with changing regulations of corporate governance and public disclosure, notably with respect to internal controls over financial reporting, may result in additional expenses. Changing laws, regulations, and standards relating to corporate governance and public disclosure are creating uncertainty for companies like us, and insurance costs are increasing as a result of this uncertainty.

We may incur losses associated with foreign currency fluctuations.

Our functional and reporting currency is the Canadian dollar. Our operations are, in some instances, conducted in currencies other than the Canadian dollar (principally in U.S. dollars) and a portion of our net monetary assets is denominated in other currencies (principally in U.S. dollars). Fluctuations in the value of foreign currencies relative to the Canadian dollar could cause us to incur currency exchange losses.

We may incur losses due to adverse decisions by tax authorities.

Our income tax reporting is subject to audit by tax authorities. The effective tax rate may change from year to year based on the mix of income; non-deductible expenses; changes in tax law; and changes in the estimated values of future income tax assets and liabilities.

We may enter into transactions and arrangements in the ordinary course of business in which the tax treatment is not entirely certain. We must therefore make estimates and judgments in determining our consolidated tax provision. In addition, we apply for numerous tax credits that play an important role in

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our financial planning and we are not certain that the tax authorities will grant them. The final outcome of any audits by taxation authorities may differ from estimates and assumptions used in determining the consolidated tax provisions and accruals. This could result in a material effect on our consolidated research tax credits, income tax provision, financial position and the net income/loss for the period in which such determinations are made.

We are subject to taxation in Canada and were subject to taxation in certain foreign jurisdictions prior to the corporate reorganization. Our effective tax rate and tax liability are determined by a number of factors, including the amount of taxable income in particular jurisdictions, the tax rates in these jurisdictions, tax treaties between jurisdictions, the extent to which we transfer funds to and repatriate funds from our subsidiaries and future changes in laws. An adverse interpretation or ruling by one of the taxing authorities in a jurisdiction in which we operate or a change in law could increase our tax liability or result in the imposition of penalty payments, which could adversely impact our operating results.

Our Major Shareholders have influence over our business and corporate matters, including those requiring shareholder approval. This could delay or prevent a change in control. Sales of common shares by our largest shareholders could have an impact on the market price of our common shares.

Our Major Shareholders together own, directly or indirectly, an aggregate of approximately 29.8% of our outstanding common shares as at December 19, 2019. Pursuant to a board representation agreement dated December 18, 2018 between us and Orbimed, Orbimed is entitled to cause one nominee to be included in the list of management nominees to be proposed for election to our Board at each shareholders’ meeting occurring following that date. Orbimed’s nomination right terminates on the date Orbimed ceases to beneficially hold at least 10% of our issued and outstanding common shares. OrbiMed’s nominated candidate is Mr. Khuong. In addition, pursuant to board representation agreements dated April 16, 2009, between us and each of PSCI and a predecessor to Rocabe (the “2009 Board Representation Agreements”), each of PSCI and Rocabe is entitled to cause two nominees to be included in the list of management nominees to be proposed for election to the Board at each shareholders meeting occurring following that date. Despite their rights, each of PSCI and Rocabe has only nominated one candidate. PSCI’s and Rocabe’s right to two nominees each shall terminate on the date each of PSCI, on the one hand, and Rocabe, the FMRC Family Trust (“FMRC”) and 1324286 Alberta Limited, a wholly-owned subsidiary of FMRC, collectively, on the other hand, ceases to beneficially hold at least 7.5% of our issued and outstanding common shares. Therefore, OrbiMed, PSCI, FMRC, Rocabe and certain persons related to such entities have the ability to exercise a significant degree of influence over our business and the outcome of various corporate matters, including those requiring shareholder approval. In particular, this concentration of ownership may have the effect of delaying or deferring a change in control of the Company and may adversely affect the price of our common shares.

We may be required to make a payment under an indemnity agreement.

In March 2017, we entered into a share purchase agreement with Taro for the sale of our wholly-owned subsidiary Thallion Pharmaceuticals Inc., including all the rights to the product candidate ShigamabTM. We agreed to indemnify Taro, subject to certain conditions and limitations, for losses which it may suffer or incur, arising out of any debts, liabilities, commitments or obligations of any nature resulting from any matters, actions, events, facts or circumstances related to the activities or affairs of Thallion, which occurred prior to the effective time of the share purchase agreement. We have no indemnity provision recorded as at September 30, 2019.

If we are a passive foreign investment company, or PFIC, for U.S. federal income tax purposes, the consequences to U.S. holders of our common shares may be adverse.

Under the U.S. Internal Revenue Code of 1986, as amended, or the “Code”, we will be classified as a PFIC in respect of any taxable year in which either (i) 75% or more of our gross income consists of certain types of   “passive income” or (ii) 50% or more of the average quarterly value of our assets is attributable to “passive assets” (assets that produce or are held for the production of passive income). For purposes of these tests, passive income includes dividends, interest, gains from the sale or exchange of investment property and certain rents and royalties. In addition, for purposes of the above calculations, if we directly or

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indirectly own at least 25% by value of the shares of another corporation, we will be treated as if it held our proportionate share of the assets and received directly our proportionate share of the income of such other corporation. PFIC status is a factual determination that needs to be made annually after the close of each taxable year, on the basis of the composition of our income, the relative value of our active and passive assets, and our market capitalization. For this purpose, our PFIC status depends in part on the application of complex rules, which may be subject to differing interpretations, relating to the classification of our income and assets. Based on our interpretation of the law, our recent financial statements, and taking into account expectations about our income, assets and activities, we believe that we were a PFIC for the taxable year ended December 31, 2018 and expect that we will be a PFIC for the current taxable year.

If we are a PFIC for any taxable year during which a U.S. Holder (as defined below under “Material United States Federal Income Tax Considerations for U.S. Holders”) holds our common shares, we will continue to be treated as a PFIC with respect to such U.S. Holder in all succeeding years during which the U.S. Holder owns the common shares, regardless of whether we continue to meet the PFIC test described above, unless the U.S. Holder makes a specified election once we cease to be a PFIC. If we are classified as a PFIC for any taxable year during which a U.S. Holder holds our common shares, the U.S. Holder may be subject to adverse tax consequences regardless of whether we continue to qualify as a PFIC, including ineligibility for any preferred tax rates on capital gains or on actual or deemed dividends, interest charges on certain taxes treated as deferred, and additional reporting requirements. In certain circumstances, a U.S. Holder may alleviate some of the adverse tax consequences attributable to PFIC status by making either a “qualified electing fund,” or “QEF”, election or a mark-to-market election (if our common shares constitute “marketable” securities under the Code.

For further discussion of the PFIC rules and the adverse U.S. federal income tax consequences in the event we are classified as a PFIC, see the section of this prospectus entitled “Material United States Federal Income Tax Considerations for U.S. Holders.”

We are an emerging growth company and intend to take advantage of reduced disclosure requirements applicable to emerging growth companies, which could make our common shares less attractive to investors.

We are an “emerging growth company” as defined in the JOBS Act. We will remain an emerging growth company until the earliest to occur of    (i) the last day of the fiscal year in which we have total annual gross revenue of    US$1.07 billion or more; (ii) December 31, 2024 (the last day of the fiscal year ending after the fifth anniversary of the date of the completion of the first sales of its common equity pursuant to an effective registration statement under the U.S. Securities Act; (iii) the date on which we have issued more than US$1 billion in non-convertible debt securities during the prior three-year period; or (iv) the date we qualify as a “large accelerated filer” under the rules of the SEC, which means the market value of our common shares held by non-affiliates exceeds US$700 million as of the last business day of its most recently completed second fiscal quarter after we have been a reporting company in the United States for at least 12 months. For so long as we remain an emerging growth company, we are permitted to and intend to rely upon exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include not being required to comply with the auditor attestation requirements of Section 404 (“Section 404”) of the Sarbanes-Oxley Act Sarbanes-Oxley Act (2002), as amended (the “Sarbanes-Oxley Act”).

We may take advantage of some, but not all, of the available exemptions available to emerging growth companies. We cannot predict whether investors will find our common shares less attractive if we rely on these exemptions. If some investors find our common shares less attractive as a result, there may be a less active trading market for our common shares and our share price may be more volatile.

Brexit may create volatility in markets and uncertainty regarding future laws and regulations in the United Kingdom and the rest of Europe.

Our Phase 2 clinical trial is being conducted at 12 clinical sites located in the United Kingdom and United States. In June 2016, a majority of voters in the United Kingdom elected to withdraw from the European Union in a national referendum. While the terms of any withdrawal are subject to an ongoing negotiation period, the referendum has led to volatility in the financial markets of the United Kingdom and more broadly across Europe and may lead to a weakening in consumer, corporate and financial confidence

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in such markets. The referendum has also created significant uncertainty about the future relationship between the United Kingdom and the European Union, including with respect to the laws and regulations that will apply as the United Kingdom determines which European Union laws to replace or replicate in the event of a withdrawal, and has also given rise to calls for the governments of other European Union member states to consider withdrawal. The risks of changing laws and regulations in the United Kingdom are creating uncertainty for companies like us. Compliance with any such changing laws and regulations may be costly and consume substantial financial and management resources, as well as delay or prevent the development, promotion, marketing, or sale of our product candidates. The extent and process by which the United Kingdom may exit the European Union, and the longer term economic, legal, political and social framework to be put in place between the United Kingdom and the European Union are likely to lead to ongoing political and economic uncertainty and periods of exacerbated volatility in both the United Kingdom and in wider European markets for some time. This mid-to-long-term uncertainty may have an adverse effect on global economic conditions and on our ability to carry out our plans with respect to the development of BLU-5937, which in turn could have a material adverse effect on our business and financial condition.

Our internal computer systems, or those used by our contractors or consultants, may fail or suffer security breaches.

Despite the implementation of security measures, our internal computer systems, and those of our third parties on which we rely, are vulnerable to damage from computer viruses and unauthorized access, malware, natural disasters, fire, terrorism, war and telecommunication, electrical failures, cyber-attacks or cyber-intrusions over the Internet, attachments to emails, persons inside our organization, or persons with access to systems inside our organization. The risk of a security breach or disruption, particularly through cyber-attacks or cyber intrusion, including by computer hackers, foreign governments, and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. While we have not experienced any such material system failure or security breach to our knowledge to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our development programs and our business operations. For example, the loss of clinical trial data from completed, ongoing or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Likewise, we rely on third parties for the manufacture of our product candidates and to conduct clinical trials, and similar events relating to their computer systems could also have a material adverse effect on our business. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development and commercialization of our future product candidates could be delayed.

The biopharmaceutical industry is subject to rapid technological change, which could affect the commercial viability of our products.

The biopharmaceutical industry is subject to rapid and significant technological change. Research, discoveries or inventions by others may result in medical insights or breakthroughs which render our products less competitive or even obsolete. Furthermore, there may be breakthroughs of new biopharmaceutical technologies which may become superior to ours that may result in the loss of our commercial advantage. Our future success will, in part, depend on our ability to, among others:

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develop or license new technologies that address the changing needs of the medical community; and

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respond to technological advances and changing industry standards and practices in a cost-effective and timely manner.

Developing technology entails significant technical and business risks and substantial costs. We cannot assure you that we will be able to utilize new technologies effectively or that we will be able to adapt our existing technologies to changing industry standards in a timely or cost-effective manner, or at all. If we are unable to keep up with advancements in technology, our business, financial conditions and results of operations could be materially adversely affected.

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Risks Related to Future Sales or Issuances of Securities Under this Prospectus

An investor may be unable to bring actions or enforce judgments against us and certain of our directors and officers.

We are incorporated under the laws of Canada, and our principal executive offices are located in Canada. Most of our directors and officers and many of the experts named in this prospectus reside outside of the United States and all or a substantial portion of our assets and the assets of such persons are located outside the United States. Consequently, it may not be possible for an investor to effect service of process within the United States on us or those persons. Furthermore, it may not be possible for an investor to enforce judgments obtained in United States courts based upon the civil liability provisions of United States federal securities laws or other laws of the United States against those persons or us. See “Enforcement of Judgments Against Foreign Persons or Companies”.

There is doubt as to the enforceability, in original actions in Canadian courts, of liabilities based upon United States federal securities laws and as to the enforceability in Canadian courts of judgments of United States courts obtained in actions based upon the civil liability provisions of the United States federal securities laws. Therefore, it may not be possible for U.S. holders of common shares to enforce those actions against us, certain of our directors and officers or the experts named in this prospectus. Additionally, some of our directors and officers reside outside of Canada. Some or all of the assets of such persons may be located outside of Canada. Therefore, it may not be possible for U.S. holders of common shares to collect or to enforce judgments obtained in Canadian courts predicated upon the civil liability provisions of applicable Canadian securities laws against such persons.

The market price for our common shares may be volatile and subject to wide fluctuations in response to numerous factors, many of which are beyond our control.

The factors which may contribute to market price fluctuations of our common shares include, but are not limited to, the following:

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actual or anticipated fluctuations in our quarterly results of operations;

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recommendations by securities research analysts;

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changes in the economic performance or market valuations of companies in the industry in which we operate;

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addition or departure of our executive officers and other key personnel;

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release or expiration of transfer restrictions on outstanding common shares;

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sales or perceived sales of additional common shares;

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operating and financial performance that vary from the expectations of management, securities analysts and investors;

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regulatory changes affecting our industry generally and its business and operations;

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announcements of developments and other material events by us or our competitors;

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fluctuations to the costs of vital production materials and services;

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changes in global financial markets and global economies and general market conditions, such as interest rates and pharmaceutical product price volatility;

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significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving us or our competitors;

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operating and share price performance of other companies that investors deem comparable to us or from a lack of market comparable companies; and

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news reports relating to trends, concerns, technological or competitive developments, regulatory changes and other related issues in our industry or target markets.

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We may sell additional common shares or other securities that are convertible or exchangeable into common shares in subsequent offerings or may issue additional common shares or other securities to finance future operations or acquisitions.

We cannot predict the size or nature of future sales or issuances of securities or the effect, if any, that such future sales and issuances will have on the market price of our common shares. Sales or issuances of substantial numbers of common shares or other securities that are convertible or exchangeable into common shares, or the perception that such sales or issuances could occur, may adversely affect prevailing market prices of our common shares. With any additional sale or issuance of common shares or other securities that are convertible or exchangeable into common shares, investors will suffer dilution to their voting power and economic interest in us. Furthermore, to the extent holders of our stock options or other convertible securities convert or exercise their securities and sell the common shares they receive, the trading price of the common shares may decrease due to the additional amount of common shares available in the market.

Our management will have broad discretion with respect to the application of net proceeds received from any offering of our common shares under this prospectus.

Our management will have broad discretion in the application of the net proceeds from any offering of our common shares under this prospectus and you will not have the opportunity as part of your investment to assess whether the net proceeds are being used appropriately. Because of the number and variability of factors that will determine our use of the net proceeds of an offering, their ultimate use may vary substantially from their currently intended use. Our management may spend net proceeds received by us from a sale of our common shares in ways that do not improve our results of operations or enhance the value of our common shares or its other securities issued and outstanding from time to time. Any failure by management to apply these funds effectively could result in financial losses that could have a material adverse effect on our business or cause the price of our securities issued and outstanding from time to time to decline.

We will incur increased costs as a result of operating as a public company in the United States and our management will be required to devote substantial time to new compliance initiatives.

As a public company, particularly after we are no longer an “emerging growth company” as defined under the JOBS Act, we will incur significant legal, accounting and other expenses that we did not incur prior to being listed in the United States. In addition, the Sarbanes-Oxley Act, and rules implemented by the SEC, and NASDAQ, impose various other requirements on public companies, and we will need to spend time and resources to ensure compliance with our reporting obligations under Canadian securities laws, as well as our obligations in the United States.

Pursuant to Section 404, we will be required to furnish a report by our management on our internal control over financial reporting (“ICFR”), which, after we are no longer an emerging growth company, must be accompanied by an attestation report on ICFR issued by our independent registered public accounting firm. To achieve compliance with Section 404 within the prescribed period, we will document and evaluate our ICFR, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of our ICFR, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for ICFR. Despite our efforts, there is a risk that neither us nor our independent registered public accounting firm will be able to conclude within the prescribed timeframe that our ICFR is effective as required by Section 404. This could result in a determination that there are one or more material weaknesses in our ICFR, which could cause an adverse reaction in the financial markets due to a loss of confidence in the reliability of our consolidated financial statements.

In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities required for public company more time consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity and, as a result, their application in practice may evolve over time as regulatory and governing bodies provide new guidance. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to

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comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and divert management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies, regulatory authorities may initiate legal proceedings against us and our business may be harmed.

Being a public company in the United States and complying with applicable rules and regulations will make it more expensive for us to obtain director and officer liability insurance. These factors could also make it more difficult for us to attract and retain qualified executive officers and members of our Board.

As a foreign private issuer, we are subject to different U.S. securities laws and rules than a domestic U.S. issuer, which may limit the information publicly available to our U.S. shareholders.

As a foreign private issuer under applicable U.S. federal securities laws, we are not required to comply with all of the periodic disclosure and current reporting requirements of the U.S. Exchange Act and related rules and regulations. As a result, we do not file the same reports that a U.S. domestic issuer would file with the SEC, although we will be required to file with or furnish to the SEC the continuous disclosure documents that we are required to file in Canada under Canadian securities laws. In addition, our officers, directors and principal shareholders are exempt from the reporting and “short swing” profit recovery provisions of Section 16 of the U.S. Exchange Act. Therefore, our shareholders may not know on as timely a basis when our officers, directors and principal shareholders purchase or sell securities of the Company as the reporting periods under the corresponding Canadian insider reporting requirements are longer. In addition, as a foreign private issuer, we are exempt from the proxy rules under the U.S. Exchange Act.

The Company may lose its foreign private issuer status in the future, which could result in significant additional costs and expenses to the Company.

In order to maintain our current status as a foreign private issuer, a majority of our common shares must be either directly or indirectly owned of record by non-residents of the United States unless we also satisfy one of the additional requirements necessary to preserve this status. We may in the future lose our foreign private issuer status if a majority of the common shares are owned of record in the United States and we fail to meet the additional requirements necessary to avoid loss of foreign private issuer status. The regulatory and compliance costs to us under U.S. federal securities laws as a U.S. domestic issuer may be significantly more than the costs we incur as a Canadian foreign private issuer eligible to use MJDS. If we are not a foreign private issuer, we would not be eligible to use the MJDS or other foreign issuer forms and would be required to file periodic and current reports and registration statements on U.S. domestic issuer forms with the SEC, which are more detailed and extensive than the forms available to a foreign private issuer. In addition, we may lose the ability to rely upon exemptions from NASDAQ corporate governance requirements that are available to foreign private issuers.

EXEMPTION FROM NATIONAL INSTRUMENT 44-102

We may seek a permanent exemption from the Autorité des marches financiers in respect of any prospectus supplement to be filed in relation to a potential “at-the-market distribution” under this prospectus.

LEGAL MATTERS

Unless specified in the applicable prospectus supplement, certain legal matters relating to securities offered by this prospectus will be passed upon on our behalf by Davies Ward Phillips & Vineberg LLP with respect to Canadian legal matters and by Troutman Sanders LLP with respect to United States legal matters. In addition, certain legal matters in connection with an offering and sale of securities will be passed upon for any underwriters, dealers or agents by counsel to be designated at the time of such offering and sale by such underwriters, dealers or agents with respect to matters of Canadian and, if applicable, United States or other foreign law.

As of the date of this prospectus, the partners and associates of Davies Ward Phillips & Vineberg LLP, as a group, own beneficially, directly or indirectly, less than 1% of our outstanding securities of any class and less than 1% of the outstanding securities of any class of our associates or affiliates.

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AUDITORS, TRANSFER AGENT AND REGISTRAR

Our auditors are KPMG LLP, Chartered Professional Accountants (“KPMG”), 1500 – 600, De Maisonneuve Boulevard West, Montreal, Québec, Canada, H3A 0A3.

The transfer agent and registrar for our common shares in the United States is Computershare Inc. at its principal offices located in Canton, Massachusetts. The transfer agent and registrar for our common shares in Canada is Computershare Investor Services Inc. at its offices located in Montreal, Québec.

ENFORCEMENT OF JUDGMENTS AGAINST FOREIGN PERSONS OR COMPANIES

The enforcement by investors of civil liabilities under United States federal securities laws may be affected adversely by the fact that we are incorporated under the federal laws of Canada, that most of our officers and directors are residents of Canada, that many of the experts named in this prospectus may be residents of Canada, and that most or all of our assets and the assets of said persons are located outside of the United States.

We have appointed an agent for service of process in the United States (as set forth below), but it may be difficult for holders of our common shares who reside in the United States to effect service within the United States upon those directors, officers and experts who are not residents of the United States. It may also be difficult for holders of our common shares who reside in the United States to realize in the United States upon judgments of courts of the United States predicated upon our civil liability and the civil liability of our directors, officers and experts under the U.S. federal securities laws.

Our two directors who reside outside of Canada have appointed BELLUS Health as agent for service of process in Canada at the following address: 275 Armand-Frappier Boulevard, Laval, Quebec H7V 4A7, Canada. Purchasers are advised that it may not be possible for investors to enforce judgments obtained in Canada against any person or company that is incorporated, continued or otherwise organized under the laws of a foreign jurisdiction or that resides outside of Canada, even if such person has appointed an agent for service of process.

We filed with the SEC, concurrently with the U.S. Registration Statement of which this prospectus is a part, an appointment of agent for service of process on Form F-X. Under the Form F-X, we appointed CT Corporation System as our agent for service of process in the United States in connection with any investigation or administrative proceeding conducted by the SEC, and any civil suit or action brought against or involving us in a United States court arising out of or related to or concerning the offering of our common shares under this prospectus.

RIGHTS OF WITHDRAWAL AND RESCISSION

Unless otherwise provided in the applicable prospectus supplement, the following is a description of a purchaser’s statutory rights. Securities legislation in certain of the provinces of Canada provides purchasers with the right to withdraw from an agreement to purchase securities. This right may be exercised within two business days after receipt or deemed receipt of a prospectus and accompanying prospectus supplement relating to the securities purchased by a purchaser and any amendment thereto. In several of the provinces, the securities legislation further provides a purchaser with remedies for rescission or, in some jurisdictions, revisions of the price or damages if the prospectus and accompanying prospectus supplement relating to the securities purchased by a purchaser and any amendment thereto contains a misrepresentation or is not delivered to the purchaser, provided that the remedies for rescission, revisions of the price or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province for the particulars of these rights or consult with a legal advisor.

61

PART II

INFORMATION NOT REQUIRED TO BE DELIVERED TO OFFEREES OR PURCHASERS

Indemnification of Directors and Officers

Under the Canada Business Corporations Act (the “CBCA”), the Registrant may indemnify a present or former director or officer of the Registrant or another individual who acts or acted at the Registrant’s request as a director or officer, or an individual acting in a similar capacity, of another entity, against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, reasonably incurred by the individual in respect of any civil, criminal, administrative, investigative or other proceeding in which the individual is involved because of that association with the Registrant or other entity. The Registrant may not indemnify such an individual unless the individual acted honestly and in good faith with a view to the best interests of the Registrant, or, as the case may be, to the best interests of the other entity for which the individual acted as a director or officer or in a similar capacity at the Registrant’s request and in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, the individual had reasonable grounds for believing that the individual’s conduct was lawful. With approval of a court and subject to the sentence above, the Registrant may indemnify such individuals in respect of an action by or on behalf of the Registrant or other entity to procure a judgment in its favor, to which the individual is made a party because of the individual’s association with the Registrant or other entity as described above. The Registrant may advance moneys to an individual described above for the costs, charges and expenses of a proceeding described above; however, the individual shall repay the moneys if the individual does not fulfill the conditions set out above in the second sentence under this heading. The aforementioned individuals are entitled to indemnification from the Registrant in respect of all costs, charges and expenses reasonably incurred by the individual in connection with the defense of any civil, criminal, administrative, investigative or other proceeding to which the individual’s association with the Registrant or other entity as described above if the individual was not judged by the court or other competent authority to have committed any fault or omitted to do anything that the individual described above ought to have done provided the individual fulfills the conditions set out above in the second sentence under this heading.

The by-laws of the Registrant provide that, the Registrant shall, unless the board of directors of the Registrant shall otherwise determine in any particular case, indemnify a director or officer of the Registrant, a former director or officer of the Registrant, or another individual who acts or acted at the Registrant’s request as a director or officer or an individual acting in a similar capacity, of another entity to the maximum extent not prohibited by the CBCA. The by-laws of the Registrant provide that the Registrant may purchase and maintain such insurance for the benefit of an individual referred to in this paragraph against any liability incurred by the individual, in the individual’s capacity set forth in this paragraph.

Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to directors, officers or persons controlling the Registrant pursuant to the foregoing provisions, the Registrant has been informed that in the opinion of the Securities and Exchange Commission (the “SEC”) such indemnification is against public policy as expressed in the Securities Act of 1933, as amended, and is therefore unenforceable.

II-1

EXHIBITS

Exhibit Number	Description
4.1*	Annual information form of the Registrant dated March 13, 2019 for the year ended December 31, 2018
4.2*	Audited annual consolidated financial statements of the Registrant as at and for the years ended December 31, 2018 and 2017 together with the auditors’ report thereon and the notes thereto
4.3*	Management’s discussion and analysis of the Registrant dated February 20, 2019 for the years ended December 31, 2018 and 2017
4.4*	Management information circular of the Registrant dated March 13, 2019 for the annual and special meeting of shareholders of the Registrant held on May 8, 2019
4.5	Unaudited condensed consolidated interim financial statements of the Registrant and the notes thereto for the nine months ended September 30, 2019 and 2018 (incorporated by reference to Exhibit 99.1 to the Registrant’s report on Form 6-K with the SEC on November 14, 2019)
4.6	Management’s discussion and analysis of the Registrant dated November 13, 2019 for the nine-month periods ended September 30, 2019 and 2018 (incorporated by reference to Exhibit 99.2 to the Registrant’s report on Form 6-K with the SEC on November 14, 2019)
4.7*	Material change report of the Registrant dated August 20, 2019 regarding the announcement of a 3.6:1 consolidation of Registrant’s common shares
4.8*	Material change report of the Registrant dated August 27, 2019 regarding the announcement of the appointment of Dr. Catherine Bonuccelli, MD as Chief Medical Officer
4.9	Material change report of the Registrant dated September 13, 2019 regarding the announcement of the closing of the public offering of US$70 million of common shares in Canada and the United States (incorporated by reference to Exhibit 99.1 to the Registrant’s report on Form 6-K with the SEC on September 17, 2019)
5.1*	Consent of KPMG LLP
5.2*	Consent of Davies Ward Phillips & Vineberg LLP
6.1*	Powers of Attorney (included on the signature page of this Registration Statement)

*

Filed herewith.

II-2

PART III

UNDERTAKING AND CONSENT TO SERVICE OF PROCESS

Item 1.   Undertaking

The Registrant undertakes to make available, in person or by telephone, representatives to respond to inquiries made by the SEC staff, and to furnish promptly, when requested to do so by the SEC staff, information relating to the securities registered pursuant to Form F-10 or to transactions in said securities.

Item 2.   Consent to Service of Process

(a)

Concurrent with the filing of the Registration Statement on Form F-10, the Registrant is filing with the SEC a written irrevocable consent and power of attorney on Form F-X.

(b)

Any change to the name or address of the agent for service of the Registrant shall be communicated promptly to the SEC by amendment to Form F-X referencing the file number of this Registration Statement.

III-1

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form F-10 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Laval, Province of Quebec, Canada, on the 20th day of December, 2019.

BELLUS HEALTH INC.

By:

/s/ Roberto Bellini

Name: Roberto Bellini
Title:    President and Chief Executive Officer

POWER OF ATTORNEY

Each person whose signature appears below constitutes and appoints Roberto Bellini and Francois Desjardins, or either of them, his true and lawful attorneys-in-fact and agents, each of whom may act alone, with full powers of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments to this Registration Statement, including post-effective amendments to this Registration Statement, and any related registration statements necessary to register additional securities, and to file the same, with all exhibits thereto, and other documents and in connection therewith, with the SEC, granting unto said attorneys-in-fact and agents, and each of them full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, and hereby ratifies and confirms all his said attorneys-in-fact and agents or any of them or his substitute or substitutes may lawfully do or cause to be done by virtue hereof.

This Power of Attorney may be executed in multiple counterparts, each of which shall be deemed an original, but which taken together shall constitute one instrument.

Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities indicated on December 20th, 2019.

Signature	Title
/s/ Roberto Bellini Roberto Bellini	President, Chief Executive Officer and Director (principal executive officer)
/s/ Francois Desjardins Francois Desjardins	Vice President, Finance (principal financial and accounting officer)
/s/ Francesco Bellini Francesco Bellini	Chair
/s/ Youssef L. Bennani Youssef L. Bennani	Director
/s/ Franklin M. Berger Franklin M. Berger	Director
/s/ Clarissa Desjardins Clarissa Desjardins	Director

III-2

Signature	Title
Chau Q. Khuong	Director
/s/ Pierre Larochelle Pierre Larochelle	Director
/s/ Joseph Rus Joseph Rus	Director

III-3

AUTHORIZED REPRESENTATIVE

Pursuant to the requirements of Section 6(a) of the Securities Act of 1933, as amended, the undersigned has signed this Registration Statement, solely in the capacity of the duly authorized representative of BELLUS Health Inc. in the United States, on the 20th day of December, 2019.

PUGLISI & ASSOCIATES

By:

/s/ Donald J. Puglisi

Name: Donald J. Puglisi
Title:    Managing Director

III-4

EX-4.1

Exhibit 4.1

 

BELLUS HEALTH INC.

ANNUAL INFORMATION FORM

Fiscal year ended December 31, 2018

March 13, 2019

TABLE OF CONTENTS

CORPORATE STRUCTURE	1
Name, Address and Incorporation	1
Intercorporate Relationships	1
BUSINESS	2
Business Overview	2
2018 Highlights	2
2018 Equity Offering	2
About BLU-5937	3
BLU-5937 For Chronic Cough	3
Other Programs	5
2017 Equity Offering	6
2017 Sale of Thallion	6
2017 Sale of Equity Interest in FB Health	6
Contingent Value Rights - Acquisition of Thallion Pharmaceuticals Inc. in 2013	6
Intellectual Property	7
Human Resources	8
Facilities	8
RISK FACTORS	8
dividends	22
description of capital structure	22
MARKET FOR SECURITIES	23
PRIOR SALES	23
DIRECTORS AND OFFICERS	24
LEGAL PROCEEDINGS AND REGULATORY ACTIONS	26
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS	26
AUDIT COMMITTEE AND PRINCIPAL ACCOUNTANTS FEES AND SERVICES	26
TRANSFER AGENT AND REGISTRAR	27
INTEREST OF EXPERTS	27
ADDITIONAL INFORMATION	28
Schedule A – AUDIT COMMITTEE CHARTER	29

As used in this annual information form, unless the context otherwise requires, the terms “we”, “us”, “our”, “BELLUS Health” or the “Company” mean or refer to BELLUS Health Inc. and its subsidiaries and its Affiliates (as such term is defined in this annual information form). All currency figures reported in this document are in CDN dollars, unless otherwise specified.

Certain statements contained in this annual information form, other than statements of fact that are independently verifiable at the date hereof, may constitute “forward-looking statements” within the meaning of applicable securities legislation and regulations. This forward-looking information may include among other things, information with respect to the Company’s objectives and the strategies to achieve these objectives, as well as information with respect to the Company’s beliefs, plans, expectations, anticipations, estimates, and intentions. Forward-looking statements generally can be identified by the use of conditional or forward-looking terminology such as “may”, “will”, “expect”, “intend”, “estimate”, “anticipate”, “plan”, “foresee”, “believe” or “continue” or the negatives of these terms or variations of them or similar terminology. Such statements, based as they are on the current expectations of management, inherently involve numerous important risks, uncertainties and assumptions, known and unknown, many of which are beyond the Company’s control. Such risks factors include but are not limited to: the ability to expand and develop its project pipeline, the ability to obtain financing, the impact of general economic conditions, general conditions in the pharmaceutical industry, changes in the regulatory environment in the jurisdictions in which the Company does business, stock market volatility, fluctuations in costs, changes to the competitive environment due to consolidation, achievement of forecasted burn rate, potential payments/outcomes in relation to indemnity agreements and contingent value rights, achievement of forecasted pre-clinical and clinical trial milestones and that actual results may vary once the final and quality-controlled verification of data and analyses has been completed. In addition, the length of the Company’s drug candidates’ development process, their market size and commercial value, as well as the sharing of proceeds between the Company and its potential partners from potential future revenues, if any, are dependent upon a number of factors. Consequently, actual future results and events may differ materially from the anticipated results and events expressed in the forward-looking statements. The Company believes that expectations represented by forward-looking statements are reasonable, yet there can be no assurance that such expectations will prove to be correct. The reader should not place undue reliance, if any, on any forward-looking statements included in this annual information form. These forward-looking statements speak only as of the date made and the Company is under no obligation and disavows any intention to update publicly or revise such statements as a result of any new information, future events, circumstances or otherwise, unless required by applicable legislation or regulation. The forward-looking statements contained in this annual information form are expressly qualified by this cautionary statement.

Unless otherwise noted, all information in this annual information form is presented as at December 31, 2018.

CORPORATE STRUCTURE

Name, Address and Incorporation

BELLUS Health was incorporated on April 12, 2012 under the Canada Business Corporations Act (the “CBCA”) and is the successor of BELLUS Health Inc., a company incorporated on June 17, 1993.

The Company's shares trade on the Toronto Stock Exchange (“TSX”) under the symbol BLU.

The Company’s head office is located at 275 Armand-Frappier Boulevard, Laval, Quebec H7V 4A7, Canada.

Intercorporate Relationships

As at March 13, 2019, BELLUS Health Inc. has one wholly-owned subsidiary, BELLUS Health Cough Inc., a CBCA company incorporated on March 16, 2017.

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BUSINESS

Business Overview

BELLUS Health is a clinical-stage biopharmaceutical company developing novel therapeutics for the treatment of chronic cough and other hypersensitization-related disorders.

BLU-5937 is the Company’s lead product candidate for the treatment of chronic cough. In addition to chronic cough, BLU-5937 may potentially have clinical benefit in other afferent hypersensitization-related disorders, such as visceral pain, hypertension and migraine, among others.

In November 2018, the Company announced positive top-line results from the clinical Phase 1 study for BLU-5937, in which BLU-5937 was shown to be safe and well tolerated. BLU-5937 did not cause any taste loss at the anticipated therapeutic doses, confirming the Company’s expectation that at these doses there is no or very limited effect on taste perception. The benign side effect profile, in combination with the anti-tussive effect demonstrated in several preclinical studies, further reinforces the Company’s position that BLU-5937 has the potential to be a best-in-class therapeutic for chronic cough patients.

Based on the positive data from the Phase 1 study, BELLUS Health expects to initiate a clinical Phase 2 study for BLU-5937 in chronic cough patients in mid-2019, with top-line results anticipated in mid-2020.

In December 2018, the Company completed a $35 million equity financing, with the vast majority of the offering subscribed by U.S. institutional healthcare investors. The Company concluded 2018 with a cash, cash equivalents and short-term investments position of $48.9 million. As at March 13, 2019, the Company has 157,956,173 Common Shares outstanding and 174,844,685 Common Shares on a fully diluted basis, including 15,238,000 stock options granted under the stock option plan and 1,650,512 broker warrants.

2018 Highlights

· Announced positive top-line results from the clinical Phase 1 study for BLU-5937, the Company’s lead drug candidate for chronic cough. BLU-5937 was shown to be safe and well tolerated with no taste loss at the anticipated therapeutic doses;

· Based on the positive top-line data from the Phase 1 study, expects to initiate a clinical Phase 2 study for BLU-5937 in chronic cough patients in mid-2019, with top-line results anticipated in mid-2020;

· Closed a $35 million equity offering, with the vast majority of the offering subscribed by U.S. institutional healthcare investors led by OrbiMed;

· Secured patent protection for BLU-5937 in all major pharmaceutical markets; patents were granted by the European Patent Office and the Japan Patent Office in 2018 in addition to patents granted in the United States and China in 2017, with claims covering the composition of matter of BLU-5937 until 2034;

· Was granted a new U.S. patent claiming P2X3 selectivity as a means of minimizing taste effects for BLU-5937. This patent extends BLU-5937’s patent protection to 2038;

· Appointed an international clinical advisory board to provide strategic guidance and support to the BLU-5937 development program.

2018 Equity Offering

On December 18, 2018, the Company closed an equity offering, issuing a total of 36,842,105 Common Shares from treasury at a price of $0.95 per share for aggregate gross proceeds of $35 million (the “2018 Offering”). The 2018 Offering was subscribed in vast majority by U.S. institutional healthcare investors led by OrbiMed and also included New Leaf Venture Partners, First Manhattan Co., Samsara BioCapital, Fonds de solidarité FTQ, AppleTree Partners and Amzak Health.

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In addition, 1,450,264 broker warrants exercisable for Common Shares were issued to the agents of the 2018 Offering. Each broker warrant entitles the agents to buy one Common Share at a price of $0.95 per share for a period of 18 months from the closing of the 2018 Offering.

Net proceeds from the 2018 Offering is to be used to fund the Company’s research and development activities, including but not limited to, activities related to BLU-5937’s clinical development, general and administrative expenses, working capital needs and other general corporate purposes.

About BLU-5937

BLU-5937 is a highly-selective P2X3 antagonist which has the potential to be a best-in-class therapeutic for refractory chronic cough patients. The P2X3 receptor in the cough reflex pathway is a rational target for treating refractory chronic cough, and it has been validated in animal and human studies. P2X3 is an ATP gated ion channel in the peripheral nervous system, and a key sensory receptor in feeling upper airway irritation and triggering cough reflex.

BLU-5937 is the Company’s lead product candidate for the treatment of chronic cough. BELLUS Health is exploring how P2X3 activation can contribute to irritation and pain, and that inhibition of P2X3 receptors may be able to help treat afferent hypersensitization-related disorders, such as chronic cough, visceral pain, hypertension and migraine, among others. The Company is currently conducting pre-clinical studies in several additional, as yet undisclosed, indications.

BLU-5937 For Chronic Cough

The Company’s lead drug candidate, BLU-5937, is a potent, highly selective, orally bioavailable small molecule antagonist of the P2X3 receptor, a clinically validated target for chronic cough.

On November 19, 2018, the Company announced positive top-line results from the clinical Phase 1 study for BLU-5937. The Phase 1 top-line data demonstrated that BLU-5937 has a good safety and tolerability profile, as well as a pharmacokinetic profile supporting twice-a-day (BID) dosing. At the anticipated therapeutic doses of 50 to 100 mg, BLU-5937 did not cause any loss of taste perception; only 1 out of 24 subjects reported transient taste alteration. No subject reported total loss of taste at any dose levels. Based on these data, the Company is preparing for the clinical Phase 2 study of BLU-5937 in chronic cough patients, expected to begin in mid-2019.

BLU-5937 has been shown to be highly selective (>1500 fold) for human P2X3 receptors versus P2X2/3 receptors. With a modestly-selective P2X3 antagonist therapy for chronic cough, an adverse effect on taste perception is a well-known and widely-documented tolerability issue. This significant issue is likely caused by inhibition of P2X2/3 receptors located in the taste buds. Merck & Co reported that gefapixant, currently in Phase 3 development for the treatment of chronic cough, showed that 80% of patients studied experienced taste alteration or taste loss.

The Company believes that a highly selective P2X3 antagonist can reduce coughing in patients with refractory chronic cough, while maintaining taste function by not inhibiting P2X2/3 receptors. BLU-5937’s high selectivity for P2X3 has the potential to deliver comparable anti-tussive efficacy as Merck & Co’s gefapixant, with little to no effect on taste. In preclinical studies, BLU-5937 exhibited a potent anti-tussive effect without affecting taste perception and an excellent safety profile.

BLU-5937 has the potential to be a best-in-class therapeutic for chronic cough patients who do not respond to current therapies.

BLU-5937 Clinical Phase 1 Study Data

The Phase 1 data demonstrated that BLU-5937 is safe and well tolerated, with an excellent pharmacokinetic profile. Plasma half-life was established at 4 to 9 hours, supporting BID dosing. Based on pre-clinical efficacy studies and comparison with drug levels achieved with a clinically validated comparator, the Company anticipates that drug levels required for optimal inhibition of cough will be achieved at 50 mg or 100 mg BID.

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BLU-5937 plasma concentration increased dose-proportionally and was not affected by food, supporting BLU-5937 administration without regard to meals.

The overall incidence of adverse events was comparable between placebo (50%) and BLU-5937 (44%).

At the anticipated therapeutic doses of 50 mg or 100 mg, BLU-5937 did not cause any loss of taste perception and only one subject out of 24 (4%) reported transient taste alteration. No subject reported total loss of taste at any dose levels. This taste effect was reported only on the first day out of seven days of dosing, by a subject receiving 100 mg BID.

At supra-therapeutic doses (200 mg – 1200 mg), two subjects out of 48 (4%) reported transient and sporadic partial loss of taste, and 13 subjects out of 48 (27%) reported transient and sporadic taste alteration. No subject out of 16 reported any taste loss or taste alteration at 200 mg. All taste-related events were transitory and sporadic in nature; one was rated moderate and all others were rated mild. The other most frequent adverse events reported in the Phase 1 study (>5%) were: headache (11%), numbness (11%), nausea (8%), dizziness (6%), and heartburn (6%).

There were no serious adverse events and no subjects withdrew prematurely due to an adverse event during the study. No significant trends of mean changes in vital signs, electrocardiogram (ECG) and clinical laboratory values have been observed in the Phase 1 study for BLU-5937. One subject had a mild elevation of liver enzymes at 400 mg BID that normalized at follow up visit. This increase in liver enzyme levels was not associated with any signs of liver toxicity (e.g. no increase in bilirubin and no clinical symptoms of liver toxicity). There was also a slight increase in bilirubin in some subjects dosed at 400 mg BID. This elevation in bilirubin was not associated with any concomitant increases in liver enzyme levels and returned to baseline value two days after drug discontinuation, which suggests that it is most likely benign and due to an interaction between BLU-5937 and bilirubin hepatic disposition.

Additional data are expected to be presented at medical conferences in 2019.

BLU-5937 Clinical Phase 1 Study

The clinical Phase 1 study was a randomized, double-blind, placebo-controlled study of orally administered BLU-5937 in 90 healthy adult subjects. The primary objectives of this study were to assess the safety, tolerability (including taste perception) and pharmacokinetic profile of BLU-5937 in healthy subjects.

The study was divided in two parts:

Part 1: A single ascending dose (SAD) study was conducted in 60 healthy subjects. Subjects were randomized into 6 cohorts of 10 subjects (8 BLU-5937: 2 placebo). The study evaluated single oral doses of BLU-5937 from 50 to 1200 mg.

Part 2: A multiple ascending dose (MAD) study was conducted in 30 healthy subjects. Subjects were randomized into 3 cohorts of 10 subjects (8 BLU-5937: 2 placebo). The study evaluated multiple oral doses of BLU-5937 of 100, 200 and 400 mg administered twice-a-day (BID) for 7 consecutive days.

BLU-5937 Clinical Phase 2 Study Design

Based on the positive data from the Phase 1 study, BELLUS Health expects to initiate a clinical Phase 2 study for BLU-5937 in chronic cough patients in mid-2019, with top-line results anticipated in mid-2020. This will be a dose escalation crossover design study to assess the efficacy, safety and tolerability of BLU-5937 in chronic cough patients, in addition to helping confirm the optimal dose regimen (study to be done at four doses: 25, 50, 100 and 200 mg BID). A total of 50 patients with refractory unexplained chronic cough are expected to be enrolled at approximately 10 clinical sites located in the United Kingdom and United States.

In addition, for 2019, the Company expects to pursue BLU-5937 enabling activities to prepare the program for later stage clinical development and to develop the BLU-5937 program for potential expansion in other P2X3-related indications.

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Other

Preclinical studies demonstrated that BLU-5937 is a highly selective P2X3 antagonist exhibiting a potent anti-tussive effect without affecting taste perception and an excellent safety profile. In a guinea pig cough model, BLU-5937 showed comparable anti-tussive efficacy to the current leading P2X3 antagonist in development, Merck & Co’s gefapixant. In a rat taste model, BLU-5937 was not associated with taste loss whereas, consistent with clinical trial data previously presented by Merck & Co, gefapixant led to significant taste loss.

On July 19, 2018, the Company announced that patent protection for BLU-5937 had been secured in all major pharmaceutical markets following the Japan Patent Office’s issuance of a decision to grant Japanese Patent No. 2015-555508, which grants claims covering the composition of matter of BLU-5937 and related imidazopyridine compounds, in addition to pharmaceutical compositions comprising BLU-5937 and uses thereof, until 2034. Equivalent patents with similar broad claims were granted by the European Patent Office (patent No. 2951177) in April 2018 and by the U.S. Patent and Trademark Office and the Chinese Patent Office in 2017. The patents have an expiration date of 2034, excluding any potential patent term extension. Patent applications with similarly broad claims are currently pending in other industrialized nations.

On October 31, 2018, BELLUS Health announced that the U.S. Patent and Trademark Office had issued U.S Patent No. 10,111,883, granting claims for the use of BELLUS Health's lead drug candidate BLU-5937 for the treatment of chronic cough without affecting taste response. More generally, the patent entitled “Selective P2X3 Modulators” claims the use of imidazopyridine compounds that are selective for the P2X3 receptor as a means of minimizing taste perturbation in patients treated for chronic cough. In addition to BLU-5937, the patent claims the use of related selective imidazopyridine compounds and pharmaceutical compositions comprising BLU-5937. Patent No. 10,111,883 has an expiration date of 2038, excluding any potential patent term extension. This new U.S. patent extends the patent protection of BLU-5937 by an additional 4 years.

On September 25, 2018, the Company announced the appointment of an international clinical advisory board (the “CAB”) which provides strategic guidance and support to the BLU-5937 development program. The CAB is comprised of highly-respected clinical leaders whose work has influenced the treatment and management of chronic cough. The Chair of the CAB is Dr. Jaclyn Smith, MB, ChB, FRCP, PhD, Professor of Respiratory Medicine at the University of Manchester in the United Kingdom and an Honorary Consultant at the University Hospital of South Manchester NHS Foundation Trust.

About Chronic Cough

Chronic cough is classified as a cough lasting more than eight weeks. The condition is associated with significant adverse physical, social and psychosocial effects on health and quality of life. In October 2018, the Company commissioned Bluestar BioAdvisors LLC (formerly known as Torreya Insights LLC) to conduct a market assessment through an evaluation of chronic cough epidemiology and pricing estimates. Based on primary and secondary research, the report concludes that, in the United States alone, more than 26 million adults suffer from chronic cough. Of these patients, more than 2.6 million have unexplained or refractory chronic cough lasting for more than a year.

Refractory chronic cough is a significant unmet medical need with no currently approved treatments.

A P2X3 antagonist in development (Merck & Co’s gefapixant) is currently in Phase 3 clinical studies. The compound has previously shown clinically and statistically significant anti-tussive efficacy in multiple Phase 2 studies. However, gefapixant’s cough frequency reduction is coupled with significant tolerability issues, with 80% of patients at the therapeutic dose experiencing taste alteration and/or taste loss.

Other Programs

BELLUS Health has economic interests in other partnered development stage programs, including KIACTA^TM for the treatment of sarcoidosis (partnered with Auven Therapeutics), AMO-01 for the treatment of Phelan McDermid syndrome (partnered with AMO Pharma Limited) and ALZ-801 for the treatment of Alzheimer’s disease (partnered with Alzheon Inc.). The Company has no operational involvement in these programs and is not responsible for any

5

expenses associated with these programs. These programs are not anticipated to generate any short or medium term revenue for the Company.

2017 Equity Offering

On December 12, 2017, the Company closed an equity offering, issuing a total of 52,631,580 Common Shares at a price of $0.38 per share for aggregate gross proceeds of $20 million (the “2017 Offering”). The 2017 Offering was subscribed in majority by institutional healthcare investors and also included the participation by members of the senior management team and Board of Directors of the Company.

In addition, 1,806,735 broker warrants exercisable for Common Shares were issued to the agents of the 2017 Offering. Each broker warrant entitles the agents to buy one Common Share at a price of $0.38 per share for a period of 18 months from the closing of the 2017 Offering.

2017 Sale of Thallion

On March 16, 2017, BELLUS Health entered into a share purchase agreement (the “Share Purchase Agreement”) with Taro Pharmaceuticals Inc. (“Taro”) for the sale of the Company’s wholly-owned subsidiary Thallion Pharmaceuticals Inc. (“Thallion”), including all the rights to the drug candidate Shigamab™. Taro acquired all issued and outstanding shares of Thallion for a total consideration of $2.7 million, consisting of a cash payment of $2.3 million on closing and a deferred payment of $0.4 million, which was received in January 2018. In addition, the Company is entitled to receive a portion of certain potential future post-approval revenues related to the Shigamab™ program.

Refer to section Contingent Value Rights - Acquisition of Thallion Pharmaceuticals Inc. in 2013 for details on payments made to the CVR holders in accordance with the terms of the agreements of the 2013 Thallion acquisition by BELLUS Health.

2017 Sale of Equity Interest in FB Health

On June 30, 2017, the Company sold its equity interest in FB Health S.p.A (“FB Health”) for a potential total consideration of $2,536,000, consisting of an upfront cash payment of $1,769,000 and a contingent revenue-based milestone payment of up to $767,000 (€518,000) to be determined based on FB Health’s revenues for the twelve-month period ended June 30, 2018. The Company received an amount of $465,000 in November 2018 as payment of the contingent consideration receivable.

FB Health is an Italy-based specialty pharma focused on neurology and psychiatry. BELLUS Health’s equity interest in FB Health was acquired at the time the Company entered into a worldwide license agreement with FB Health for BLU8499 (ALZ-801). In turn, FB Health sublicensed all its rights to Alzheon as part of an exclusive worldwide license, excluding Italy.

Contingent Value Rights - Acquisition of Thallion Pharmaceuticals Inc. in 2013

On August 15, 2013, the Company acquired all of the issued and outstanding Common Shares of Thallion in exchange for cash on closing of transaction and the issuance of one contingent value right (“CVR”) per Common Share to Thallion’s shareholders, with an expiration date of August 14, 2028, to be paid upon the settlement of the amounts described below.

The CVRs issued to Thallion’s shareholders entitle the holder thereof to: (i) its pro rata share of 100% of any additional purchase price consideration to be received in relation to a 2009 sale transaction by Thallion, (ii) its pro rata share of 5% of the Shigamab™ revenue generated or received by BELLUS Health, capped at $6,500,000, and (iii) its pro rata share of 100% of any net proceeds generated from the licensing, selling or otherwise commercializing of (a) diagnostic products or services using certain Caprion Proteomics Inc. products, and (b) all issued patents or pending patents pertaining to such Caprion Proteomics Inc. products, in respect of which Thallion has an ownership interest or monetary entitlement.

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The amount to which the holders of CVRs may be entitled can be reduced for potential contingent liabilities owing by Thallion (including, but not limited to, in respect of the indemnity agreement entered into in relation to the 2009 sale transaction by Thallion, accounts payable or litigation).

In relation to (i) above, the Company announced on February 17, 2017 that it had received $572,586 as settlement for the additional purchase price consideration (the “Additional Consideration Payment”) in relation to the 2009 Thallion Transaction. A net amount of $577,152 ($0.01609 per CVR) was paid to CVR holders on March 10, 2017, which consists of the Additional Consideration Payment, in addition to $50,000 in relation to the replacement cost of Shigamab^TM antibodies less $28,458 of CVR agent costs, $13,404 of undisclosed liability not included in the 2013 Thallion Statement of Net cash and $3,572 of expenses in relation to the unsuccessful listing of the CVR on the Toronto Stock Exchange, all in accordance with the terms of the agreements of the 2013 Thallion acquisition by BELLUS Health.

On March 16, 2017, the Company entered into a Share Purchase Agreement with Taro for the sale of the Company’s wholly-owned subsidiary Thallion, including all the rights to the drug candidate Shigamab^TM. Taro acquired all issued and outstanding shares of Thallion for a total consideration of $2.7 million, consisting of a cash payment of $2.3 million on closing and a deferred payment of $0.4 million upon the completion of a pre-established milestone, which payment was received in January 2018. In relation to (ii) above, in accordance with the terms of the agreements of the 2013 Thallion acquisition, 5% of the proceeds received by BELLUS Health from the sale of Thallion, including the Shigamab^TM technology (the “Shigamab^TM Consideration”), was paid to CVR holders. Accordingly, on April 7, 2017, a net amount of $94,550 ($0.00263 per CVR), which consists of the Shigamab™ Consideration of $115,000 less $20,450 for CVR agent costs, was paid to CVR holders. In addition, on January 26, 2018, a net amount of $14,721 ($0.00041 per CVR) was paid to CVR holders as final payment of the contingent consideration payable in relation to CVRs on Shigamab™ future revenues, which consists of the Shigamab™ Consideration of $20,000 less $5,279 for CVR agent costs.

The CVRs also entitled the holder thereof to receive Thallion’s income tax credits deducted in the 2013 Thallion Statement of Net Cash in the event that they were not claimed by tax authorities after their audit, or their assessment period expired (the “Income Tax Credits”). As they were not claimed nor assessed, BELLUS Health paid on January 25, 2019 a net amount of $134,149 ($0.00374 per CVR) to the CVR holders, which consists of the Income Tax Credits of $159,603 less $25,454 for CVR agent costs.

All payments made to CVR holders were in accordance with the terms of the agreements of the 2013 Thallion acquisition by BELLUS Health.

In accordance with the terms of the plan of arrangement, BELLUS Health applied to list the CVRs on the TSX, which request was rejected. Therefore, the CVRs are not listed on a stock exchange.

The Company expects that there will be no additional payment to CVR holders.

Intellectual Property

BELLUS Health’s approach regarding its intellectual property portfolio is to file and/or license patents and patent applications as appropriate and to obtain patent protection in at least the major pharmaceutical markets, including the US, major European countries, Japan, and Canada. BELLUS Health also relies on trade secrets, proprietary unpatented information, trademarks and contractual arrangements to protect the Company’s technology and enhance its competitive position.

BELLUS Health currently has a patent estate comprised of exclusively owned and in-licensed patents and patent applications. The patent portfolio includes patents and patent applications claiming compounds, pharmaceutical compositions, nutraceuticals, processes, and methods for treating diseases, disorders, or conditions.

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BLU-5937

BELLUS Health’s BLU-5937 program is covered by a comprehensive patent estate comprised of issued and allowed patents, as well as pending patent applications. The main patent family, incorporating composition of matter and methods of use claims for a broad array of potent and selective P2X3 antagonist compounds, has been granted in all major pharmaceutical markets; patents were granted by the European Patent Office and the Japan Patent Office in 2018 in addition to patents granted in the United States and China in 2017, with claims covering the composition of matter of BLU-5937 until 2034.

In addition, a new U.S. patent claiming P2X3 selectivity as a means of minimizing taste effects for BLU-5937 was granted in October 2018, which extends BLU-5937’s patent protection to 2038.

Refer to the Business Overview section for additional details.

Partnered Projects

BELLUS Health also owns other patents, including patents relating to BLU8499 (ALZ-801) and TLN-4601 (AMO-01), that have been licenced to third parties.

Human Resources

As at March 13, 2019, BELLUS Health employed 10 people.

Facilities

BELLUS Health leases office space in facilities located in the Parc Scientifique de la Haute Technologie in Laval, Quebec, Canada, pursuant to a lease originally entered into in March 2011. In March 2018, the lease was extended to January 31, 2020.

RISK FACTORS

Investing in BELLUS Health’s securities involves a significant amount of risk. You should carefully consider the risks described below, together with all of the other information in publicly filed documents, before making an investment decision. If any of the following risks actually occurs, the Company’s business, financial condition or results of operations could be adversely affected. In such an event, the trading price of the Company’s Common Shares could decline and you may lose part or all of your investment in our securities. Any reference in this section to the Company’s “products” includes a reference to BELLUS Health’s product or product candidates and future products that may be develop.

BELLUS Health may not be able to maintain its operations and research and development without additional funding, and the Company may not have access to sufficient capital.

To date, the Company has financed its operations primarily through public offerings of Common Shares, private placements, the issuance of convertible notes and research tax credits. The Company has incurred significant operating losses and negative cash flows from operations since inception. As at December 31, 2018, the Company had available cash, cash equivalents and short-term investments totalling $48,906,000. The Company will need to raise additional capital to fund its operations and to develop its drug candidates. The Company’s future capital requirements will be substantial and may increase beyond current expectations depending on many factors, such as the duration, scope, rate of progress, results and costs of any clinical and preclinical trials for drug candidates; unexpected delays or developments in seeking regulatory approvals and the outcome thereof; the time and cost in preparing, filing, prosecuting, maintaining, and enforcing patent claims; other unexpected developments encountered in implementing the Company’s business development and commercialization strategies; the outcome of any litigation; and arrangements with collaborators. Further, changing circumstances may cause the Company to consume capital significantly faster than it currently anticipates. The Company has based the foregoing estimates on assumptions that

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may prove to be wrong, and the Company could utilize its available financial resources sooner than it currently expects.

BELLUS Health may seek to raise additional funds through public or private equity or debt financing, collaborations agreements with other companies and/or from other sources. The Company has no committed source of additional capital and additional funding may not be available on terms that are acceptable to the Company, or at all. If adequate funding is not available on reasonable terms, BELLUS Health may need to obtain funds on terms less favorable than it would otherwise accept. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of those securities could result in dilution to the Company’s shareholders. Moreover, the incurrence of debt financing could result in a substantial portion of BELLUS Health’s future operating cash flow, if any, being dedicated to the payment of principal and interest on such indebtedness and could impose restrictions on operations. This could render the Company more vulnerable to competitive pressures and economic downturns. If BELLUS Health is unable to raise additional capital in sufficient amounts or on terms acceptable to the Company, it may have to significantly delay, scale back or discontinue the development or commercialization of BLU-5937 or other drug candidates or other research and development initiatives. The Company could be required to seek collaborators for its product candidates at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available or relinquish or license on unfavorable terms its rights to its product candidates in markets where the Company otherwise would seek to pursue development or commercialization itself.

No assurance can be given that any such additional funding will be available or that, if available, it can be obtained on terms favourable to the Company. The failure to obtain additional financing on favorable terms, or at all, could have a material adverse effect on the Company’s business, financial condition and results of operations.

BELLUS Health has a history of losses and has not generated any significant product sales revenue to date. The Company may never achieve or maintain profitability.

BELLUS Health’s potential drug candidates are still only in development, and as a result, the Company has not generated significant revenues from drug sales to date. BELLUS Health has incurred substantial expenses in its efforts to develop drugs, and consequently, has generated operating losses each year since its inception. As of December 31, 2018, the Company had an accumulated deficit of $479,223,000. BELLUS Health’s losses have adversely affected, and will continue to adversely impact, working capital, total assets, and shareholders’ equity. The Company does not expect to generate any significant revenues from drug sales in the immediate future. The Company may never successfully commercialize any drugs. Even if BELLUS Health succeeds in developing commercial drugs, it expects to incur additional operating losses for at least the next several years. If the Company does not ultimately commercialize drugs and achieve or maintain profitability, an investment in its shares could result in a significant or total loss.

BELLUS Health’s prospects currently depend heavily on the success and market acceptance of BLU-5937, which is still in clinical development.

BELLUS Health currently has no drug products for sale and may never be able to successfully develop drug products. The Company currently believes that its growth and future prospects are mainly dependent on the successful development, regulatory approval and commercialization of its lead product candidate BLU-5937, which may never occur. The Company is investing the vast majority of its efforts and resources into the development of BLU-5937. BELLUS Health’s business thus depends heavily on the successful preclinical and clinical development, regulatory approval and commercialization of BLU-5937, for which the Company must conduct additional preclinical and clinical trials, undergo further development activities and seek and receive regulatory approval prior to commercial launch. Further development of BLU-5937 will require substantial investment, access to sufficient commercial manufacturing capacity and significant marketing efforts before the Company can generate any revenue from product sales, if approved.

The Company anticipates that its ability to generate revenues will depend mainly on the commercial success of BLU-5937, which will depend upon its market acceptance by purchasers in the pharmaceutical market and the future market demand and medical need for products and research utilizing BLU-5937. Most prescription drug candidates never reach the clinical development stage and even those that do reach clinical development have only a small chance of

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successfully completing clinical development and gaining regulatory approval. If the Company is unable to successfully commercialize BLU-5937, it may never generate meaningful revenues. There is also the risk that the actual market size or opportunity for BLU-5937 is not certain. If BLU-5937 reaches commercialization and there is low market demand for BLU-5937 or the market for BLU-5937 develops less rapidly than the Company anticipates, the Company may not have the ability to shift its resources to the development of alternative products. Failure to gain market acceptance of BLU-5937 or an incorrect estimate in the nature and size of its market could have a material adverse effect on the Company.

BELLUS Health relies on third parties to conduct preclinical studies and clinical trials for BLU-5937, and if they do not properly and successfully perform their obligations to the Company, the Company may not be able to obtain regulatory approvals for BLU-5937.

BELLUS Health has designed the clinical trials for BLU-5937. However, the Company relies on contract research organizations and other third parties to assist in managing, monitoring and otherwise carrying out these trials. The Company competes with many other companies for the resources of these third parties. The third parties on whom the Company relies generally may terminate their engagements at any time, and having to enter into alternative arrangements would delay development and commercialization of its drug candidate. The FDA and comparable foreign regulatory authorities require compliance with regulations and standards for designing, conducting, monitoring, recording, analyzing, and reporting the results of clinical trials to assure that the data and results are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected. Although the Company relies on third parties to conduct its clinical trials, they are not the Company’s employees, and the Company is responsible for ensuring that each of these clinical trials is conducted in accordance with its general investigational plan, protocol and other requirements. The Company’s reliance on these third parties for research and development activities will reduce its control over these activities but will not relieve the Company of its responsibilities.

If these third parties do not successfully carry out their duties under their agreements, if the quality or accuracy of the data they obtain is compromised due to their failure to adhere to clinical trial protocols or to regulatory requirements, or if they otherwise fail to comply with clinical trial protocols or meet expected deadlines, the clinical trials of the Company’s drug candidate may not meet regulatory requirements. If clinical trials do not meet regulatory requirements or if these third parties need to be replaced, preclinical development activities or clinical trials may be extended, delayed, suspended or terminated. If any of these events occur, the Company may not be able to obtain regulatory approval of its drug candidate on a timely basis or at all.

BELLUS Health relies completely on one third-party contract manufacturer to manufacture the active pharmaceutical ingredient (“API”) for BLU-5937 and another third party contract manufacturer to manufacture final drug product, and BELLUS Health intends to rely on third parties to produce non-clinical, clinical and commercial supplies of its product candidates, including BLU-5937.

BELLUS Health does not currently have, nor does it plan to acquire, the infrastructure or capability to internally manufacture its clinical drug supply of BLU-5937, or any other product candidates, for use in the conduct of its research and development activities, preclinical studies and clinical trials, and BELLUS Health lacks the internal resources and the capability to manufacture any product candidates on a clinical or commercial scale. BELLUS Health currently has the API for BLU-5937 manufactured by one contract manufacturer and final drug product supplied by another contract manufacturer, and does not currently have backup manufacturing capacity.

BELLUS Health plans to continue to rely on contract manufacturers for the foreseeable future to produce quantities of products and substances necessary for research and development, preclinical trials, human clinical trials and product commercialization, and to perform their obligations in a timely manner and in accordance with applicable government regulations. While BELLUS Health intends to contract for the commercial manufacture of its product candidates, BELLUS Health may not be able to identify and qualify contractors or obtain favorable contracting terms.

If BELLUS Health’s current or future third party manufacturers do not perform as agreed, breach or terminate their agreements with the Company, significant additional time and costs would be required to effect a transition to a new contract manufacturer. If BELLUS Health is unable to retain its current contractors, or is unable to secure arrangements with new contractors to provide manufacturing services in a timely manner and on acceptable terms as

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needed, it will delay or prevent the development, promotion, marketing, or sale of its product candidates, including BLU-5937 and have a negative effect on its operations and financial condition. Moreover, if a replacement to BELLUS Health’s current or future contract manufacturers was required, the ability to establish second-sourcing or find a replacement manufacturer may be difficult due to the lead times generally required to manufacture drugs and the need for regulatory compliance inspections and approvals of any replacement manufacturer, all of which factors could result in production delays and additional costs.

Manufacturing of API and final drug products is complex and requires significant expertise. Difficulties could be encountered in production, particularly in scaling up and validating production. There can be no assurance that contract manufacturers will be successful at scaling up and producing BLU-5937 with the required quality and in the quantities and timelines that will be needed for clinical and/or commercial purposes. So far we have produced small quantities of BLU-5937 at kilogram scale for use in preclinical and clinical studies.

BELLUS Health’s reliance on these contract manufacturers also exposes the Company to the possibility that they, or third parties with access to their facilities, will have access to and may appropriate the Company’s trade secrets or other proprietary information.

The clinical effectiveness of BLU-5937 and of the Company’s other drug candidates is not yet supported by clinical data.

The preclinical toxicology studies and the Phase 1 top-line data announced in November 2018 demonstrated that BLU-5937 has a good safety and tolerability profile. However, the clinical safety of BLU-5937 has to be demonstrated through further clinical studies. The clinical effectiveness of BLU-5937 and of the Company’s other drug candidates is not yet supported by clinical data and the medical community has not yet developed a large body of peer reviewed literature that supports the safety and efficacy of the Company’s products, including BLU-5937. If future studies call into question the safety or efficacy of BLU-5937 or any of the Company’s other products, the Company’s business, financial condition, and results of operations could be adversely affected.

Even if BLU-5937 or any of the Company’s other products successfully complete the clinical trials and receive the regulatory approval necessary to market the drug candidates to the public, there is also the risk of unknown side effects, which may not appear until the drug candidates are on the market and may result in delay or denial of regulatory approval or withdrawal of previous approvals, product recalls or other adverse events, which could materially adversely affect the Company.

BELLUS Health’s clinical trials may not yield results that will enable the Company to obtain regulatory approval for its or its partnered drug candidates.

The Company will only receive regulatory approval for a drug candidate if it can demonstrate in carefully designed and conducted clinical trials that the drug candidate is safe and effective. BELLUS Health does not know whether its current or any future clinical trials will demonstrate sufficient safety and efficacy to obtain the requisite regulatory approvals or if they will result in marketable drugs.

Clinical trials are lengthy, complex, costly, and uncertain processes. It takes several years to complete testing, and failure can occur at any stage of testing. The early stage of the Company’s drug candidates involves risks related to safety, efficacy, drug metabolism, pharmacokinetic profile, tolerability, manufacturing, formulation and distribution, among others. Results attained in preclinical testing and early clinical studies or trials may not be indicative of results that are obtained in later studies. The Company has suffered, and may suffer further, significant setbacks in advanced clinical trials, even after promising results in earlier studies. Based on results at any stage of clinical trials, BELLUS Health may decide to repeat or redesign a trial or discontinue the development of a drug candidate. Furthermore, actual results may vary once the final and quality-controlled verification of data and analyses has been completed. If the Company fails to adequately demonstrate the safety and efficacy of a drug under development, BELLUS Health will not be able to obtain the required regulatory approvals to commercialize that drug candidate.

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Clinical trials are subject to continuing oversight by governmental regulatory authorities and institutional review boards, and must meet the requirements of these authorities; must meet requirements for informed consent; and must meet requirements for good clinical practices.

BELLUS Health may not be able to comply with these requirements. The Company relies on third parties, including contract research organizations and outside consultants, to assist in managing and monitoring clinical trials. BELLUS Health’s reliance on these third parties may result in delays in completing, or in failing to complete, these trials if one or more third parties fail to perform with the speed and level of competence expected. If clinical trials for a drug candidate are unsuccessful, BELLUS Health will be unable to commercialize such drug candidate. If one or more of the clinical trials is delayed, the Company will be unable to meet its anticipated development or commercialization timelines. Either circumstance could cause the price of the Company’s Common Shares to decline.

If BELLUS Health encounters difficulties enrolling patients in clinical trials, the trials could be delayed or otherwise adversely affected.

Clinical trials for drug candidates require to identify and enroll a large number of patients with the disorder under investigation. The Company or its partner may not be able to enroll a sufficient number of patients to complete clinical trials in a timely manner. Patient enrollment is a function of many factors, including the following: design of the protocol, size of the patient population, eligibility criteria for the study in question, perceived risks and benefits of the drug under study, availability of competing therapies, efforts to facilitate timely enrollment in clinical trials, patient referral practices of physicians, and availability of clinical trial sites. If BELLUS Health or its partner has difficulty enrolling a sufficient number of patients to conduct its clinical trials as planned, it may need to delay or terminate ongoing clinical trials.

Setbacks in any of the clinical trials would likely cause a drop in the price of the Company’s Common Shares.

Setbacks in any phase of the clinical development of a product candidate would have an adverse financial impact and could jeopardize U.S. Food and Drug Administration (FDA), European Medicines Agency (EMA) or Japanese Pharmaceuticals and Medical Devices Agency (PMDA) approval, and would likely cause a further drop in the price of the Company’s Common Shares.

BELLUS Health does not have the required approvals to market any of its drug candidates, and the Company does not know if it will ever receive such approvals.

To date, none of the Company’s drug candidates has received regulatory approval for commercial sale. BELLUS Health cannot market a drug in any jurisdiction until it has completed rigorous clinical trials as well as such jurisdiction’s extensive regulatory approval process. In general, significant research and development and clinical studies are required to demonstrate the safety and efficacy of BELLUS Health’s drug candidates before the Company can submit regulatory applications. Preparing, submitting, and advancing applications for regulatory approval is sometimes complex, costly, and time consuming and entails significant uncertainty.

Even if BELLUS Health or its partners obtain regulatory approvals for its drug candidates, the Company will be subject to ongoing government regulation.

Even if regulatory authorities approve any of the Company’s drug candidates, the manufacturing, marketing, and sale of such drugs will be subject to strict and ongoing regulation. Compliance with such regulation may be costly and consume substantial financial and management resources. For example, an approval for a drug may be conditioned on conducting costly post-marketing follow-up studies. In addition, if, based on these studies, a regulatory authority does not believe that the drug demonstrates a benefit to patients, such authority could limit the indications for which the drug may be sold or revoke the drug’s regulatory approval.

BELLUS Health and its contract manufacturers are required to comply with applicable current Good Manufacturing Practice (“cGMP”) regulations for the manufacture of drugs. These regulations include requirements relating to quality assurance, as well as the corresponding maintenance of records and documentation. Manufacturing facilities must be approved before they can be used in the commercial manufacturing of products and are subject to subsequent

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periodic inspection by regulatory authorities. In addition, material changes in the methods of manufacturing or changes in the suppliers of raw materials are subject to further regulatory review and approval.

If the Company or any future marketing collaborators or contract manufacturers fail to comply with applicable regulatory requirements, BELLUS Health may be subject to sanctions, including fines, drug recalls or seizures, injunctions, total or partial suspension of production, civil penalties, withdrawals of previously granted regulatory approvals, and criminal prosecution. Any of these penalties could delay or prevent the promotion, marketing, or sale of the Company’s drugs.

If BELLUS Health’s drugs do not gain market acceptance, the Company may be unable to generate significant revenues.

Even if the Company’s drugs are approved for sale, they may not be successful in the marketplace. Market acceptance of any of BELLUS Health’s drugs will depend on a number of factors including demonstration of clinical effectiveness and safety, the advantages and disadvantages of the Company’s drugs relative to alternative treatments, the availability of acceptable pricing and adequate third-party reimbursement, and the effectiveness of marketing and distribution methods for the drugs. If BELLUS Health’s drugs do not gain market acceptance among consumers, physicians, patients, and others in the medical community, the ability to generate significant revenues from its drugs would be limited.

BELLUS Health may not achieve its projected development goals in the announced and expected time frames.

The Company sets goals for and makes public statements regarding timing of the accomplishment of objectives material to its success, such as the commencement and completion of clinical trials, anticipated regulatory submission and approval dates, and time of drug launch. The actual timing of these events can vary dramatically due to factors such as delays or failures in clinical trials, the uncertainties inherent in the regulatory approval process, and delays in achieving manufacturing or marketing arrangements sufficient to commercialize drugs. There can be no assurance that BELLUS Health’s clinical trials will be completed, that it will make regulatory submissions or receive regulatory approvals as planned, or that the Company will be able to adhere to its current schedule for the launch of any of its drugs. If BELLUS Health fails to achieve one or more of these milestones as planned, the price of its Common Shares would likely decline.

If BELLUS Health or its partners fail to obtain acceptable prices or adequate reimbursement for its drugs, the Company’s ability to generate revenues will be diminished.

BELLUS Health’s ability to successfully commercialize drugs would depend significantly on the ability to obtain acceptable prices and the availability of reimbursement to the patient from third-party payers, such as government and private insurance plans. While the Company has not commenced discussions with any such parties, these third-party payers frequently require companies to provide predetermined discounts from list prices, and they are increasingly challenging the prices charged for pharmaceuticals and other medical products. BELLUS Health’s drugs may not be considered cost-effective, and reimbursement to the patient may not be available or sufficient to allow the Company to sell its drugs on a competitive basis. BELLUS Health may not be able to negotiate favorable reimbursement rates for its drugs.

In addition, the continuing efforts of third-party payers to contain or reduce the costs of healthcare through various means may limit the Company’s commercial opportunity and reduce any associated revenue and profits. BELLUS Health expects proposals to implement similar government controls to continue. In addition, increasing emphasis on managed care will continue to put pressure on the pricing of pharmaceutical and biopharmaceutical products. Cost-control initiatives could decrease the price that the Company or any current or potential collaborators could receive for any of the drugs and could adversely affect profitability. In addition, in Canada and in many other countries, including in the US, where significant healthcare reforms are currently under discussion, pricing and/or profitability of some or all prescription pharmaceuticals and biopharmaceuticals are subject to government control. If BELLUS Health fails to obtain acceptable prices or an adequate level of reimbursement for its drugs, the sales of the drugs would be adversely affected or there may be no commercially viable market for the Company’s drugs.

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Competition in the biopharmaceutical industry is intense, and development by other companies could render BELLUS Health’s drugs or technologies non-competitive.

The biopharmaceutical industry is highly competitive. New drugs developed by other companies could render the Company’s drugs or technologies non-competitive. Competitors are developing and testing drugs and technologies that would compete with the drugs that BELLUS Health is developing. Some of these drugs may be more effective or have an entirely different approach or means of accomplishing the desired effect than the Company’s drugs. BELLUS Health expects competition from biopharmaceutical and pharmaceutical companies and academic research institutions to increase over time. Many of BELLUS Health’s competitors and potential competitors have substantially greater drug development capabilities and financial, scientific, marketing, and human resources. The Company’s competitors may succeed in developing drugs earlier and in obtaining regulatory approvals and patent protection for such drugs more rapidly than BELLUS Health can or at a lower price.

BELLUS Health is heavily dependent on licensed intellectual property. If the Company was to lose its rights to licensed intellectual property, it would not be able to continue developing or commercializing BLU-5937. If the Company breaches any of the agreements under which it licenses the use, development and commercialization rights to BLU-5937 or any other product candidate or technology from third parties or if certain insolvency events were to occur, it could lose license rights that are critical to its business.

The Company has an exclusive worldwide license to develop and commercialize BLU-5937 pursuant to a license agreement with NEOMED that is critical to its business, which is subject to termination for breach of its terms, and therefore its rights may only be available to it for as long as the Company’s development and commercialization activities are sufficient to meet the terms of the license. In addition, the Company may need to enter into additional license agreements in the future. BELLUS Health’s existing license agreements impose, and any future license agreements may impose on the Company, various development, regulatory and/or commercial diligence obligations, payment of milestones and/or royalties and other obligations. If the Company fails to comply with its obligations under these agreements, or it is subject to a bankruptcy, the licensor may have the right to terminate the license, in which event the Company would not be able to market products covered by the license, which would have a material adverse effect on its business and financial condition. Moreover, the Company’s current or future licenses may provide for a reversion to the licensor of its rights in regulatory filings or other intellectual property or data that it regards as its own in the event the license terminates under certain circumstances, such as due to breach.

Licensing of intellectual property is of critical importance to BELLUS Health’s business and involves complex legal, business and scientific issues. Disputes may arise between the Company and its licensors regarding intellectual property subject to a license agreement, including with respect to:

• the scope of rights granted under the license agreement and other interpretation-related issues;

• the rights of the Company’s licensors under the license agreements;

• the Company’s diligence obligations with respect to the use of the licensed technology in relation to its development and commercialization of its product candidates, and what activities satisfy those diligence obligations; and

Any disputes with the Company’s licensors over intellectual property that it has licensed from them may prevent or impair its ability to maintain its current licensing arrangements on acceptable terms. Termination or expiry of the Company’s license agreements could result in the loss of significant rights and could materially harm its ability to further develop and commercialize BLU-5937 or other product candidates.

The Company depends on its licensors to protect a significant portion of its proprietary rights that derive from license agreements, including its exclusive worldwide license with NEOMED to develop and commercialize BLU-5937. BLU-5937 is covered by a patent that is not owned by the Company but is instead licensed to the Company by NEOMED. Moreover, BELLUS Health’s licensors under current licenses retain and its licensors under future licenses may retain certain rights and obligations.

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BELLUS Health’s business could suffer, for example, if the licensed patents or other rights are found to be invalid or unenforceable, or if the Company is unable to enter into necessary licenses on acceptable terms.

BELLUS Health may not obtain adequate protection for its drugs through its intellectual property.

BELLUS Health’s success depends, in large part, on its ability to protect the Company’s competitive position through patents, trade secrets, trademarks, and other intellectual property rights. The patent positions of pharmaceutical and biopharmaceutical firms, including BELLUS Health’s, are uncertain and involve complex questions of law and fact for which important legal issues remain unresolved. The patents issued or to be issued to BELLUS Health may not provide it with any competitive advantage. The Company’s patents may be challenged by third parties in patent litigation, which is becoming widespread in the biopharmaceutical industry. In addition, it is possible that third parties with drugs that are very similar to BELLUS Health will circumvent patents by means of alternate designs or processes. The Company may have to rely on method of use protection for its compounds in development and any resulting drugs, which may not confer the same protection as protection of its compounds per se. BELLUS Health may be required to disclaim part of the term of certain patents. There may be prior art of which the Company is not aware that may affect the validity or enforceability of a patent claim. There also may be prior art of which BELLUS Health is aware, but which it does not believe affects the validity or enforceability of a claim, which may, nonetheless ultimately be found to affect the validity or enforceability of a claim. No assurance can be given that the Company’s patents would, if challenged, be held by a court to be valid or enforceable or that a competitor’s technology or drug would be found by a court to infringe BELLUS Health’s patents. Applications for patents and trademarks in Canada, the US, and in foreign markets have been filed and are being actively pursued. Pending patent applications may not result in the issuance of patents, and the Company may not develop additional proprietary drugs that are patentable.

Patent applications relating to or affecting the Company’s business may have been filed by a number of pharmaceutical and biopharmaceutical companies and academic institutions. A number of the technologies in these applications or patents may conflict with BELLUS Health’s technologies, patents, or patent applications, and such conflict could reduce the scope of patent protection that the Company could otherwise obtain. BELLUS Health could become involved in interference proceedings in the US in connection with one or more of its patents or patent applications to determine priority of invention. The Company’s granted patents could also be challenged and revoked in opposition proceedings in certain countries outside of the US. In addition to patents, the Company relies on trade secrets and proprietary know-how to protect its intellectual property. BELLUS Health generally requires employees, consultants, outside scientific collaborators, and sponsored researchers and other advisors to enter into confidentiality agreements. These agreements provide that all confidential information developed or made known to the individual during the course of the individual’s relationship with the Company is to be kept confidential and not disclosed to third parties except in specific circumstances. In the case of employees, the agreements provide that all of the technology that is conceived by the individual during the course of employment is the exclusive property of BELLUS Health. These agreements may not provide meaningful protection or adequate remedies in the event of unauthorized use or disclosure of proprietary information. In addition, it is possible that third parties could independently develop proprietary information and techniques substantially similar to the Company’s or otherwise gain access to BELLUS Health’s trade secrets.

BELLUS Health may obtain the right to use certain technology under license agreements with third parties. The Company’s failure to comply with the requirements of material license agreements could result in the termination of such agreements, which could cause BELLUS Health to terminate the related development program and cause a complete loss of investment in that program. As a result of the foregoing factors, the Company may not be able to rely on its intellectual property to protect its products in the marketplace.

BELLUS Health may infringe the intellectual property rights of others.

The Company’s commercial success depends significantly on its ability to operate without infringing on the patents and other intellectual property rights of third parties. There could be issued patents of which BELLUS Health is not aware that its products infringe or patents that the Company believes it does not infringe, but that it may ultimately be found to infringe. Moreover, patent applications are, in some cases, maintained in secrecy until patents are issued. The publication of discoveries in the scientific or patent literature frequently occurs substantially later than the date on which the underlying discoveries were made and patent applications were filed. Because patents can take many years to issue, there may be currently pending applications of which BELLUS Health is unaware that may later result in

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issued patents that its products infringe. For example, pending applications may exist that provide support or can be amended to provide support for a claim that results in an issued patent that the Company’s drug infringes.

The biopharmaceutical industry has produced a proliferation of patents, and it is not always clear to industry participants which patents cover various types of products. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform. BELLUS Health is aware of, and has reviewed, third-party patents relating to the treatment of amyloid-related diseases, and the Company believes that its drug candidates do not infringe any valid claim of these patents, although there can be no assurances of this. In the event of an infringement or violation of another party’s patent, BELLUS Health may not be able to enter into licensing arrangements or make other arrangements at a reasonable cost. Any inability to secure licenses or alternative technology could result in delays in the introduction of drugs or lead to prohibition of the manufacture or sale of drugs by the Company.

Patent litigation is costly and time consuming and may subject BELLUS Health to liabilities.

The Company’s involvement in any patent litigation, interference, opposition, or other administrative proceedings will likely cause BELLUS Health to incur substantial expenses, and the efforts of technical and management personnel will be significantly diverted. In addition, an adverse determination in litigation could subject the Company to significant liabilities.

BELLUS Health may not obtain trademark registrations.

The Company has filed applications for trademark registrations in connection with its drug candidates in various jurisdictions, including in the US. BELLUS Health does not believe that any of these current trademarks is critical to the success of the drug candidate to which it relates. No assurance can be given that any of BELLUS Health’s trademarks will be registered in the US or elsewhere, or that the use of any trademark will confer a competitive advantage in the marketplace. Furthermore, even if the Company is successful in these trademark registrations, the FDA has its own process for drug nomenclature and its own views concerning appropriate proprietary names. It also has the power, even after granting market approval, to request that a corporation reconsider the name for a drug because of evidence of confusion in the market place. No assurance can be given that the FDA or any other regulatory authority will approve any of the Company’s trademarks or will not request reconsideration of one of these trademarks at some time in the future.

Unstable market conditions may have serious adverse consequences on BELLUS Health’s business.

BELLUS Health’s business may be adversely affected by unpredictable and unstable market conditions. If the current equity and credit markets deteriorate it may make any necessary equity or debt financing more difficult, more costly, and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on the Company’s growth strategy, financial performance and stock price and could require the Company to delay or abandon clinical development plans. Global economic volatility and uncertainty may also have an adverse effect on the Company’s the ability to obtain strategic partner support or commercialization opportunities and alliances for the Company’s drug candidates, and to obtain continued services and supplies. There is a risk that one or more of the Company’s current or future strategic partners may encounter difficulties during challenging economic times, which would directly affect its ability to attain its operating goals on schedule and on budget.

Brexit may create volatility in markets and uncertainty regarding future laws and regulations in the United Kingdom and the rest of Europe.

In June 2016, a majority of voters in the United Kingdom elected to withdraw from the European Union in a national referendum. While the terms of any withdrawal are subject to an ongoing negotiation period, the referendum has led to volatility in the financial markets of the United Kingdom and more broadly across Europe and may lead to a weakening in consumer, corporate and financial confidence in such markets. The referendum has also created significant uncertainty about the future relationship between the United Kingdom and the European Union, including with respect to the laws and regulations that will apply as the United Kingdom determines which European Union laws to replace or replicate in the event of a withdrawal, and has also given rise to calls for the governments of other

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European Union member states to consider withdrawal. The risks of changing laws and regulations in the United Kingdom are creating uncertainty for companies such as BELLUS Health. Compliance with any such changing laws and regulations may be costly and consume substantial financial and management resources, as well as delay or prevent the development, promotion, marketing, or sale of the Company’s product candidates. The extent and process by which the United Kingdom may exit the European Union, and the longer term economic, legal, political and social framework to be put in place between the United Kingdom and the European Union are likely to lead to ongoing political and economic uncertainty and periods of exacerbated volatility in both the United Kingdom and in wider European markets for some time. This mid-to-long-term uncertainty may have an adverse effect on global economic conditions and on the ability of BELLUS Health to carry out its plans with respect to the development of BLU-5937, which in turn could have a material adverse effect on our business and financial condition.

The market price of the Company’s Common Shares experiences a high level of volatility due to factors such as the volatility in the market for biotechnology stocks generally and the short-term effect of a number of possible events.

BELLUS Health is a public growth company in the biotechnology sector. As frequently occurs among these companies, the market price for the Company’s Common Shares may experience a high level of volatility. During the year ended December 31, 2018, BELLUS Health’s Common Shares traded between $0.33 and $1.30 per share on the TSX. Numerous factors, including many over which the Company has no control, may have a significant impact on the market price of its Common Shares, including, among other things, the following: (1) clinical and regulatory developments regarding the Company’s drugs and drug candidates and those of its competitors; (2) arrangements or strategic partnerships by BELLUS Health or its competitors; (3) other announcements by the Company or its competitors regarding technological, drug development, sales, or other matters; (4) patent or other intellectual property achievements or adverse developments; (5) arrivals or departures of key personnel; (6) changes in financial estimates and recommendations by securities analysts; (7) government regulatory action affecting BELLUS Health’s drug candidates and its competitors’ drugs in the US, Canada, and foreign countries; (8) actual or anticipated fluctuations in revenues or expenses; (9) general market conditions and fluctuations for the emerging growth and biopharmaceutical market sectors; (10) failure to enter into favorable third-party manufacturing agreements; (11) events related to threatened, new, or existing litigation; (12) economic conditions in the US, Canada, or abroad; (13) purchases or sales of blocks of BELLUS Health’s securities; and (14) difficulties in the Company’s ability to obtain additional financing.

Listing on the TSX may increase share price volatility due to various factors, including that the stock market in recent years has experienced extreme price and trading volume fluctuations that often have been unrelated or disproportionate to the operating performance of individual companies. These broad market fluctuations may adversely affect the price of the Company’s Common Shares, regardless of its operating performance. In addition, sales of substantial amounts of its Common Shares in the public market after any offering, or the perception that those sales may occur, could cause the market price of the Company’s Common Shares to decline.

As at March 13, 2019, OrbiMed Advisors LLC (“OrbiMed”), Victoria Square Ventures Inc. (“VSVI”), a subsidiary of Power Corporation of Canada, and Rocabe Investments Inc. (“Rocabe”), a company in which Mr. Roberto Bellini has a 50% equity interest, (the “Major Shareholders”) own, directly or indirectly, respectively 13.5%, 11.3% and 10.4% of the Company’s outstanding Common Shares. A decision by one or more of the foregoing persons, or any other significant shareholder, to sell a substantial amount of the Company’s Common Shares could cause the trading price of such Common Shares to decline substantially. Furthermore, shareholders may initiate securities class action lawsuits if the market price of BELLUS Health’s stock drops significantly, which may cause the Company to incur substantial costs and could divert the time and attention of its management.

These factors, among others, could depress the trading price of the Company’s securities. Because BELLUS Health may experience high volatility in its Common Shares, individuals or entities should not invest in the stock unless prepared to absorb a significant loss of capital. At any given time, investors may not be able to sell their shares at a price that is acceptable. The market liquidity for BELLUS Health’s stock is low. While a more active trading market may develop in the future, the limited market liquidity for the Company’s stock may affect investor’s ability to sell at a price that is satisfactory to them.

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BELLUS Health does not expect to pay any cash dividends for the foreseeable future.

Investors should not rely on an investment in BELLUS Health’s Common Shares to provide dividend income. The Company does not anticipate that it will pay any cash dividends to holders of its Common Shares in the foreseeable future. Instead, the Company plans to retain any earnings to maintain and expand its operations. In addition, any future debt financing arrangement may contain terms prohibiting or limiting the amount of dividends that may be declared or paid on its common shares. Accordingly, investors must rely on sales of their Common Shares after price appreciation, which may never occur, as the only way to realize any return on their investment. As a result, investors seeking cash dividends should not purchase the Company’s Common Shares.

If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research about BELLUS Health’s business, its share price and trading volume could decline.

The trading market for BELLUS Health’s Common Shares will depend, in part, on the research and reports that securities or industry analysts publish about the Company or its business. If one or more of the analysts who cover the Company downgrade its stock or publish inaccurate or unfavorable research about the Company’s business, its stock price would likely decline. In addition, if the Company’s operating results fail to meet the forecast of analysts, its stock price would likely decline. If one or more of these analysts cease coverage of the Company or fail to publish reports on the Company regularly, demand for the Company’s Common Shares could decrease, which might cause its share price and trading volume to decline.

BELLUS Health’s revenues and expenses may fluctuate significantly and any failure to meet financial expectations may disappoint securities analysts or investors and result in a decline in the price of its Common Shares.

The Company’s revenues and expenses have fluctuated in the past and are likely to do so in the future. These fluctuations could cause BELLUS Health’s share price to decline. Some of the factors that could cause revenues and expenses to fluctuate include the following: the inability to complete drug development in a timely manner that results in a failure or delay in receiving the required regulatory approvals or allowances to commercialize drug candidates; the timing of regulatory submissions and approvals; the timing and willingness of any current or future collaborators to invest the resources necessary to commercialize the drug candidates; the outcome of any litigation; changes in foreign currency fluctuations; the conversion of any convertible; the timing of achievement and the receipt of milestone payments from current or future collaborators; failure to enter into new or the expiration or termination of current agreements with collaborators; failure to introduce the drug candidates to the market in a manner that generates anticipated revenues; the potential payments in relation to indemnity agreements and accounting policies adopted by the Company, including the fair value determination of financial instruments based on the Company’s share price.

Due to fluctuations in the Company’s revenues and expenses, BELLUS Health believes that period-to-period comparisons of its results of operation are not indicative of future performance. It is possible that in some future quarter or quarters, revenues and expenses will be below the expectations of securities analysts or investors. In this case, the price of the Company’s Common Shares could fluctuate significantly or decline.

BELLUS Health would not be able to successfully commercialize drug candidates if the Company is unable to create sales, marketing, and distribution capabilities or make adequate arrangements with third parties, including entering into collaborations with partners, for such purposes.

In order to commercialize the Company’s drug candidates successfully, BELLUS Health could, on a product-by-product basis, either develop internal sales, marketing, and distribution capabilities or make arrangements with third parties, including entering into collaborations with partners, to perform some or all of these services. The Company currently has no marketing capabilities and sales force. To the extent that BELLUS Health internally develops a sales force, the cost of establishing and maintaining a sales force would be substantial and may exceed its cost effectiveness. In addition, in marketing the Company’s drugs, BELLUS Health would likely compete with many companies that currently have extensive and well-funded marketing and sales operations. Despite marketing and sales efforts, BELLUS Health may be unable to compete successfully against these companies. The Company may not be able to do so on favorable terms. The Company could rely on third parties to market and sell its drugs in certain territories,

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rather than establishing an internal sales force. When BELLUS Health contracts with third parties, including entering into collaborations with partners, for the sale and marketing of its drugs, revenues depend upon the efforts of these third parties, which may not be successful. If the Company fails to establish successful marketing and sales capabilities or to make arrangements with third parties for such purposes, BELLUS Health’s business, financial condition, and results of operations will be materially adversely affected.

BELLUS Health is subject to intense competition for skilled personnel. The loss of key personnel or the inability to attract additional personnel could impair the Company’s ability to conduct operations.

BELLUS Health is highly dependent on its management and staff; the loss of whose services might adversely impact the Company’s ability to achieve its objectives. Recruiting and retaining qualified management and other personnel is critical to BELLUS Health’s success. Competition for skilled personnel is intense, and the ability to attract and retain qualified personnel may be affected by such competition.

BELLUS Health is subject to the risk of drug liability claims, for which the Company may not have, or may not be able to obtain, adequate insurance coverage.

Human therapeutic products involve the risk of drug liability claims and associated adverse publicity. Currently, BELLUS Health’s principal risks relate to participants in the clinical trials who may suffer unintended consequences. Claims might be made directly by consumers, patients, healthcare providers, or pharmaceutical companies or others selling or consuming BELLUS Health’s drugs. The Company may not have or be able to obtain or maintain sufficient and affordable insurance coverage, including coverage for potentially very significant legal expenses. Without sufficient coverage, any claim brought against BELLUS Health could have a materially adverse effect on its business, financial condition, or results of operations.

Legislative actions, potential new accounting pronouncements, and higher insurance costs are likely to impact the Company’s future financial position or results of operations.

Future changes in financial accounting standards may cause adverse, unexpected revenue or expense fluctuations and affect BELLUS Health’s financial position or results of operations. New pronouncements and varying interpretations of pronouncements have occurred with greater frequency and are expected to occur in the future, and the Company may make, or may be required to make, changes in its accounting policies in the future. Compliance with changing regulations of corporate governance and public disclosure, notably with respect to internal controls over financial reporting, may result in additional expenses. Changing laws, regulations, and standards relating to corporate governance and public disclosure are creating uncertainty for companies such as BELLUS Health, and insurance costs are increasing as a result of this uncertainty.

BELLUS Health may incur losses associated with foreign currency fluctuations.

The Company’s functional and reporting currency is the Canadian dollar. BELLUS Health’s operations are, in some instances, conducted in currencies other than the Canadian dollar (principally in US dollars) and a portion of the Company’s net monetary assets is denominated in other currencies (principally in US dollars). Fluctuations in the value of foreign currencies relative to the Canadian dollar could cause BELLUS Health to incur currency exchange losses.

BELLUS Health may incur losses due to adverse decisions by tax authorities

The Company’s income tax reporting is subject to audit by tax authorities. The effective tax rate may change from year to year based on the mix of income; non-deductible expenses; changes in tax law; and changes in the estimated values of future income tax assets and liabilities.

BELLUS Health may enter into transactions and arrangements in the ordinary course of business in which the tax treatment is not entirely certain. The Company must therefore make estimates and judgments in determining its consolidated tax provision. In addition, BELLUS Health applies for numerous tax credits that play an important role in its financial planning and it is not certain that the tax authorities will grant them. The final outcome of any audits

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by taxation authorities may differ from estimates and assumptions used in determining the consolidated tax provisions and accruals. This could result in a material effect on the Company’s consolidated research tax credits, income tax provision, financial position and the net income/loss for the period in which such determinations are made.

The Company is subject to taxation in Canada and was subject to taxation in certain foreign jurisdictions prior to the corporate reorganization. The Company’s effective tax rate and tax liability are determined by a number of factors, including the amount of taxable income in particular jurisdictions, the tax rates in these jurisdictions, tax treaties between jurisdictions, the extent to which it transfers funds to and repatriates funds from its subsidiaries and future changes in laws. An adverse interpretation or ruling by one of the taxing authorities in a jurisdiction in which the Company operates or a change in law could increase its tax liability or result in the imposition of penalty payments, which could adversely impact its operating results.

The Major Shareholders have influence over BELLUS Health’s business and corporate matters, including those requiring shareholder approval. This could delay or prevent a change in control. Sales of Common Shares by BELLUS Health’s largest shareholders could have an impact on the market price of the Company’s Common Shares.

The Major Shareholders own, directly or indirectly, an aggregate of approximately 35.2% of BELLUS Health’s outstanding Common Shares as at March 13, 2019. Pursuant to Board representation agreement dated December 18, 2018, between the Company and OrbiMed (the “2018 Board Representation Agreement”), OrbiMed is entitled to cause one nominee to be included in the list of management nominees to be proposed for election to the Board at each shareholders meeting occurring following that date. OrbiMed’s right to one nominee shall terminate on the date OrbiMed ceases to beneficially hold at least 10% of the issued and outstanding Common Shares. OrbiMed’s nominated candidate is Mr. Khuong. In addition, pursuant to board representation agreements dated April 16, 2009, between the Company and each of VSVI and a predecessor to Rocabe (the “2009 Board Representation Agreements”), each of VSVI and Rocabe is entitled to cause two nominees to be included in the list of management nominees to be proposed for election to the Board at each shareholders meeting occurring following that date. Despite their rights, each of VSVI and Rocabe has only nominated one candidate. VSVI’s and Rocabe’ right to two nominees each shall terminate on the date each of VSVI, on the one hand, and Rocabe, FMRC and 1324286 Alberta Limited, a wholly-owned subsidiary of the FMRC, collectively, on the other hand, ceases to beneficially hold at least 7.5% of the issued and outstanding Common Shares. Therefore, OrbiMed, VSVI, FMRC, Rocabe and certain persons related to such entities have the ability to exercise some degree of influence over BELLUS Health’s business and the outcome of various corporate matters, including those requiring shareholder approval. In particular, this concentration of ownership may have the effect of delaying or deferring a change in control of the Company and may adversely affect the price of its Common Shares.

The Company may be required to make a payment under an indemnity agreement.

In March 2017, the Company entered into a Share Purchase Agreement with Taro for the sale of the Company’s wholly-owned subsidiary Thallion, including all the rights to the drug candidate Shigamab^TM. The Company agreed to indemnify Taro, subject to certain conditions and limitations, for losses which it may suffer or incur, arising out of any debts, liabilities, commitments or obligations of any nature resulting from any matters, actions, events, facts or circumstances related to the activities or affairs of Thallion, which occurred prior to the effective time of the Share Purchase Agreement. No indemnity provision has been recorded by the Company as at December 31, 2018.

A share consolidation involves certain risks.

The Company’s total market capitalization immediately after a share consolidation may be lower than immediately before the share consolidation. There are numerous factors and contingencies that could affect the Common Share price prior to or following a share consolidation, including the status of the market for the Common Shares at the time, the status of the Company’s reported financial results in future periods, and general economic, geopolitical, stock market and industry conditions. Accordingly, the market price of the Common Shares may not be sustainable at the direct arithmetic result of a share consolidation and may be lower. If the market price of the Common Shares is lower than it was before a share consolidation on an arithmetic equivalent basis, the Company’s total market capitalization

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(the aggregate value of all Common Shares at the then market price) after the share consolidation may be lower than before the Share Consolidation.

A decline in the market price of the Common Shares after a share consolidation may result in a greater percentage decline than would occur in the absence of the share consolidation, and the liquidity of the Common Shares could be adversely affected following the share consolidation – if a share consolidation is implemented and the market price of the Common Shares declines, the percentage decline may be greater than it would occur in the absence of the share consolidation. The market price of the Common Shares will, however, also be based on the Company’s performance and other factors, which are unrelated to the number of the Common Shares outstanding.

The liquidity of the Common Shares could be adversely affected by the reduced number of Common Shares that would be outstanding after a share consolidation.

A share consolidation may result in some shareholders owning “odd lots” of less than 100 Common Shares on a post-consolidation basis, which may be more difficult to sell, or require greater transaction costs per Common Share to sell. A share consolidation may result in some shareholders owning “odd lots” of less than 100 Common Shares on a post-consolidation basis. “Odd lots” may be more difficult to sell, or require greater transaction costs per Common Share to sell, than Common Shares held in “board lots” of even multiples of 100 Common Shares.

There is no assurance whatsoever that the Common Shares of the Company will be listed on a major exchange in the United States in the occurrence of a share consolidation.

An investor may be unable to bring actions or enforce judgments against us and certain of our directors and officers.

BELLUS Health is incorporated under the laws of Canada, and its principal executive offices are located in Canada. Most of the Company’s directors and officers reside outside of the United States and all or a substantial portion of its assets and the assets of these persons are located outside the United States. Consequently, it may not be possible for an investor to effect service of process within the United States on the Company or those persons. Furthermore, it may not be possible for an investor to enforce judgments obtained in United States courts based upon the civil liability provisions of United States federal securities laws or other laws of the United States against those persons or the Company.

If BELLUS Health is, or becomes, a “passive foreign investment company,” adverse U.S. federal income tax consequences may result for U.S. shareholders of BELLUS Health.

U.S. holders of Common Shares should be aware that BELLUS Health, based on current business plans and financial expectations, expects that it may be a passive foreign investment company (“PFIC”) for the current tax year and may be a PFIC for future tax years. PFIC classification is fundamentally factual in nature, generally cannot be determined until the close of the tax year in question, and is determined annually. Consequently, there can be no assurance that BELLUS Health is not and will not become a PFIC for any tax year during which U.S. holders own Common Shares. If BELLUS Health is a PFIC for any year during a U.S. holder’s holding period, then such U.S. holder generally will be required to treat any gain realized upon a disposition of Common Shares, or any “excess distribution” received on its Common Shares, as ordinary income, and to pay an interest charge on a portion of such gain or distribution, unless the U.S. holder makes a timely and effective “qualified electing fund” election (“QEF Election”) or a “mark-to-market” election with respect to its Common Shares. A U.S. holder who makes a QEF Election generally must report on a current basis its share of BELLUS Health’s net capital gain and ordinary earnings for any year in which BELLUS Health is a PFIC, whether or not BELLUS Health distributes any amounts to its shareholders. However, U.S. holders should be aware that there can be no assurance that BELLUS Health will satisfy the record keeping requirements that apply to a QEF, or that BELLUS Health will supply U.S. holders with information that such U.S. holders require to report under the QEF Election rules, in the event that BELLUS Health is a PFIC and a U.S. holder wishes to make a QEF Election. Thus, U.S. holders may not be able to make a QEF Election with respect to their Common Shares. A U.S. holder who makes a mark-to-market election generally must include as ordinary income each year the excess of the fair market value of the Common Shares over the taxpayer’s basis therein. Each U.S. holder should consult its

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own tax advisors regarding the PFIC rules and the U.S. federal income tax consequences of the acquisition, ownership, and disposition of Common Shares.

dividends

BELLUS Health has not declared any dividends on Common Shares since its incorporation. Any future determination to pay dividends on Common Shares will remain at the discretion of BELLUS Health’s Board of Directors and will depend on the Company’s financial condition, results of operations, capital requirements and such other factors as the Board of Directors deems relevant.

description of capital structure

BELLUS Health’s authorized share capital consists of an unlimited number of voting Common Shares and an unlimited number of non-voting preferred shares (“Preferred Shares”), all without nominal or par value.

As at March 13, 2019, the Company had 157,956,173 Common Shares outstanding and 174,844,685 Common Shares on a fully diluted basis, including 15,238,000 stock options granted under the stock option plan and 1,650,512 warrants issued in relation to the 2018 Offering and 2017 Offering.

Equity

Common Shares. Each Common Share entitles the holder thereof to one vote at any meeting of the shareholders of the Company, except meetings at which only holders of a specified class of shares are entitled to vote. Subject to the rights of holders of the Preferred Shares, the Common Shares are entitled to receive, as and when declared by the Board of Directors, dividends in such amounts as shall be determined by the Board of Directors. The holders of Common Shares have the right, subject to the rights of the holders of Preferred Shares, to receive the remaining property of the Company in the event of liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary.

Preferred Shares. No Preferred Shares are currently issued however they may be issued from time to time in one or more series, the terms of each series, including the number of shares, the designation, rights, preferences, privileges, priorities, restrictions, conditions and limitations, to be determined at the time of creation of each such series by the Board of Directors without shareholder approval, provided that all Preferred Shares will rank, with respect to dividends and return of capital in the event of liquidation, dissolution, winding-up or other distribution of the Company’s assets for the purpose of winding-up its affairs, pari passu among themselves and in priority to all Common Shares or shares of any class ranking junior to the Preferred Shares. Except as provided for in the Company’s articles of incorporation (as amended), the holders of Preferred Shares shall not be entitled to receive notice of meetings of the Company’s shareholders nor to attend thereat and shall not be entitled to vote at any such meeting.

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MARKET FOR SECURITIES

BELLUS Health’s Common Shares are listed and posted for trading on the TSX (BLU). The following table sets forth, for the periods indicated, the reported high and low sales prices and the aggregate volume of trading of the Company’s Common Shares on the TSX.

	TSX
Period	High	Low	Volume
January 2018	0.42	0.36	1,509,203
February 2018	0.41	0.33	2,415,656
March 2018	0.50	0.39	11,934,854
April 2018	0.60	0.46	1,116,752
May 2018	0.62	0.49	3,186,760
June 2018	0.60	0.50	1,159,689
July 2018	0.59	0.51	1,900,418
August 2018	1.20	0.55	10,242,008
September 2018	1.10	0.87	13,601,956
October 2018	1.15	0.67	3,298,545
November 2018	1.04	0.66	4,113,051
December 2018	1.30	0.97	7,383,170

PRIOR SALES

No securities of the Company that are outstanding but not listed or quoted on a marketplace were issued during the financial year ended December 31, 2018.

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DIRECTORS AND OFFICERS

As of March 13, 2019, the directors and executive officers, as a group, beneficially owned or exercised control or direction over an aggregate of 60,541,926 of the Common Shares representing 38.3% of the issued and outstanding Common Shares as at such date.

The following table states the names of all BELLUS Health’s directors and executive officers as at March 13, 2019, their municipality, province or state and country of residence, their age, their principal occupation during the past five years, their position and office held with the Company and the period during which each director has served as a director of the Company. All members of the Board of Directors will hold their positions until the next annual meeting of shareholders of the Company.

Name and Municipality of Residence	Age (at March 13,  2019)	Principal Occupation During Past Five Years	Office	Period during which served as a Director
Dr. Francesco Bellini, O.C. (1) Calgary, Alberta, Canada	71	Chairman of the Board of Picchio International Inc (a management and holding company)	Chairman of the Board	2002-2019
Mr. Roberto Bellini (1) Montreal, Quebec, Canada	39	President and Chief Executive Officer of the Company	Director	2009-2019
Dr. Youssef L. Bennani (2) Lorraine, Quebec, Canada	58	Chairman of the Board of Domain Therapeutics (3)	Director	2017-2019
Mr. Franklin M. Berger, CFA (4) New York, New York, United States	69	Consultant	Director	2010-2019
Dr. Clarissa Desjardins Montreal, Quebec, Canada	52	Chief Executive Officer of Clementia Pharmaceuticals Inc.	Director	2017-2019
Mr. Chau Q. Khuong (5) New York, New York, United States	43	Private Equity Partner of OrbiMed Advisors LLC	Director	2018-2019
Mr. Pierre Larochelle (1), (2), (4) Montreal, Quebec, Canada	47	Vice President, Investments of Power Corporation of Canada (a diversified management and holding company)	Director	2009-2019
Mr. Joseph Rus (2), (4) Toronto, Ontario, Canada	73	Consultant	Director	2009-2019
Mr. François Desjardins, CPA, CA Montreal, Quebec, Canada	56	Vice President, Finance of the Company	Vice President, Finance	—
Dr. Denis Garceau Montreal, Quebec, Canada	62	Senior Vice President, Drug Development of the Company	Senior Vice President, Drug Development	—
Mr. Tony Matzouranis Montreal, Quebec, Canada	46	Vice President, Business Development of the Company	Vice President, Business Development	—
Mr. Sébastien Roy Montreal, Quebec, Canada	43	Partner, Davies Ward Phillips & Vineberg LLP (a law firm)	Corporate Secretary	—

NOTES:

(1) Pursuant to board representation agreements dated April 16, 2009 between the Company and each of VSVI and a predecessor to Rocabe (the “2009 Board Representation Agreements”), each of VSVI and Rocabe is entitled to cause two nominees to be included in the list of management nominees to be proposed for election to the Board at each shareholders meeting occurring following that date. VSVI’s and Rocabe’ right to two nominees each shall terminate on the date each of VSVI, on the one hand, and Rocabe, FMRC Family Trust (“FMRC”),

24

a trust of which Dr. Francesco Bellini, Chairman of the Board of the Company, and Mr. Roberto Bellini, President and Chief Executive Officer of the Company, are beneficiaries and 1324286 Alberta Limited (“AlbertaCo”), a wholly-owned subsidiary of the FMRC, collectively, on the other hand, ceases to beneficially hold at least 7.5% of the issued and outstanding Common Shares. Despite their rights, VSVI has only nominated one candidate, being Mr. Larochelle, and Rocabe has only nominated one candidate, being Dr. Bellini.

(2) Member of the Human Resources and Governance Committee.

(3) From 2013 to 2017, Dr. Bennani was Site Head and Vice-President of R&D at Vertex Pharmaceuticals Canada Inc., a research and development company.

(4) Member of the Audit Committee.

(5) Pursuant to Board representation agreement dated December 18, 2018 between the Company and OrbiMed (the “2018 Board Representation Agreement”), OrbiMed is entitled to cause one nominee to be included in the list of management nominees to be proposed for election to the Board at each shareholders meeting occurring following that date. OrbiMed’s right to one nominee shall terminate on the date OrbiMed ceases to beneficially hold at least 10% of the issued and outstanding Common Shares. OrbiMed’s nominated candidate is Mr. Khuong.

Committees of the Board

The following is a description of the current committees of the Board:

Audit Committee

The mandate of the Audit Committee includes assisting the Board in its oversight of (i) the integrity of the Company’s financial statements, accounting and financial reporting processes, system of internal controls over financial reporting and audit process, (ii) the Company’s compliance with, and process for monitoring compliance with, legal and regulatory requirements so far as they may relate to matters of financial reporting, (iii) the independent auditors’ qualifications, independence and performance, and (iv) the performance of the Company’s internal audit function (if any). The current members of the Audit Committee are Mr. Pierre Larochelle (Chair), Mr. Franklin M. Berger and Mr. Joseph Rus.

Human Resources and Governance Committee

Compensation Matters: The mandate of the Human Resources and Governance Committee includes reviewing the compensation arrangements for the Company’s employees, including executive officers and directors, and making recommendations to the Board with respect to such compensation arrangements, as well as making recommendations to the Board with respect to the Company’s incentive compensation plans and equity-based plans and overseeing succession planning.

Governance Matters: The mandate of the Human Resources and Governance Committee is also to develop and recommend to the Board a set of corporate governance principles and to prepare and review the disclosure with respect to, and the operation of, the Company’s system of corporate governance, before such disclosure is submitted to the Board for its approval. The Human Resources and Governance Committee is responsible for the review and periodic update of the Company’s corporate governance mandates, charters, policies and procedures, including its Code of Ethics which governs the conduct of the Company’s directors, officers and other employees. Moreover, the Human Resources and Governance Committee is mandated to examine, on an annual basis, the size and composition of the Board and, if appropriate, recommend to the Board a program to establish a Board comprised of members who facilitate effective decision-making.

Human Resources Matters: Finally, the Human Resources and Governance Committee shall also identify individuals qualified to become members of the Board, recommend to the Board nominees to be put before shareholders at each annual meeting and recommend to the Board a process for board, committee and director assessment. In fulfilling its responsibilities to identify nominees to the Board, the Human Resources and Governance Committee comes up with the names of individuals it believes represent potentially suitable candidates and also solicits names of other potentially suitable candidates from the other members of the Board of Directors and also from management of the Company. It then looks at the qualifications and qualities of each in light of the needs of the Board of Directors and the Company and bases its recommendation to the Board on this basis.

The current members of the Human Resources and Governance Committee are Mr. Joseph Rus (Chair), Mr. Pierre Larochelle and Dr. Youssef L. Bennani.

25

LEGAL PROCEEDINGS AND REGULATORY ACTIONS

From time to time during the normal course of business, BELLUS Health becomes party to legal proceedings. At the date hereof, the Company is not a party to proceedings that alone or in aggregate represent claims that could, in the judgment of management, be material to us on a consolidated basis. In addition, during the year ended December 31, 2018, BELLUS Health was not subject to: any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority; any penalties or sanctions imposed by a court or regulatory body that would be considered important by a reasonable investor; or any settlement agreements relating to securities legislation or with a securities regulatory authority.

INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS

Consulting and Service Agreement

The Company has entered into a Consulting and Service Agreement with effect from January 1, 2010 with Picchio International providing for strategic advice on matters pertaining to the development and commercialization of pharmaceutical products to provide health solutions to address critical unmet needs. Under the terms of that agreement, Picchio International has assigned primary responsibility for providing such services to Dr. Francesco Bellini. For the services, a monthly retainer of $20,833 is paid and Picchio International is reimbursed for its reasonable expenses incurred in the proper conduct of the services. During the fiscal period ended December 31, 2018, Picchio International received $381,000 under the Consulting and Service Agreement.

AUDIT COMMITTEE AND PRINCIPAL ACCOUNTANTS FEES AND SERVICES

Charter of the Audit Committee

The Charter of the Audit Committee is attached hereto as Schedule A.

Composition of the Audit Committee

Until the next annual meeting of shareholders of the Company, the Audit Committee is composed of Mr. Pierre Larochelle (Chair), Mr. Franklin M. Berger and Mr. Joseph Rus. Each of the members of the Audit Committee is financially literate and independent.

Relevant Education and Experience

Mr. Pierre Larochelle has an MBA from INSEAD and has experience in finance and finance-related matters through his work in banking and in a venture capital company specializing in biopharmaceutical and healthcare investments and his roles as President and Chief Executive Officer of Adaltis Inc., a publicly listed biotechnology company and as Vice President, Investments at Power Corporation of Canada, a diversified management and holding company. Mr. Franklin M. Berger, CFA, is a biotechnology industry analyst with over 25 years of experience in capital markets and financial analysis. He holds an M.B.A. from the Harvard Graduate School of Business Administration and an M.A. in International Economics and a B.A. in International Relations both from Johns Hopkins University. Mr. Joseph Rus has broad experience in the pharmaceutical industry as he held senior management positions in global pharmaceutical companies. He is a graduate of the Executive Marketing Program at the University of Western Ontario (Canada), as well as the International Program at the Institute of Management and Development of the University of Lausanne, Switzerland.

As such, all members of the Company’s Audit Committee understand the accounting principles the Company uses to prepare its financial statements and have the ability to assess the general application of such accounting principles in connection with the accounting for estimates, accruals and reserves.

Messrs. Larochelle, Berger and Rus have an understanding of internal controls and procedures for financial reporting.

26

External Auditor Services Fees

The Company has paid KPMG LLP (“KPMG”), its external auditors, the following fees in each of the last two fiscal periods.

Annual Audit Fees

The following sets forth the aggregate fees for each of the last two fiscal periods for professional fees to KPMG for the audit of the annual financial statements or for services normally provided by KPMG in connection with statutory and regulatory filings or engagements for those fiscal periods:

Fiscal year ended December 31, 2018	$154,500
Fiscal year ended December 31, 2017	$164,000

Audit-Related Fees

The following sets forth additional aggregate fees to those reported under “Audit Fees” in each of the last two fiscal periods for assurance and related services by KPMG that are reasonably related to the performance of the audit of the financial statements:

Fiscal year ended December 31, 2018	Nil
Fiscal year ended December 31, 2017	Nil

Tax Fees

The following sets forth the aggregate fees in each of last two fiscal periods for professional services rendered by KPMG for tax compliance, tax advice and tax planning:

Fiscal year ended December 31, 2018	$8,500
Fiscal year ended December 31, 2017	$66,400

All Other Fees

The following sets forth the aggregate fees in each of the last two fiscal periods for products and services provided by the principal accountant not described above:

Fiscal year ended December 31, 2018	Nil
Fiscal year ended December 31, 2017	Nil

The Company’s Audit Committee pre-approves every significant engagement by KPMG to render audit or non-audit services. All of the services described above were approved by the Audit Committee.

TRANSFER AGENT AND REGISTRAR

In connection with BELLUS Health’s Common Shares, Computershare Investor Services Inc. is the Canadian transfer agent and registrar and Computershare Trust Corporation, Inc. is the US transfer agent and registrar.

INTEREST OF EXPERTS

KPMG has audited the Company’s consolidated statements of financial position as at December 31, 2018 and 2017, and the consolidated statements of loss, other comprehensive income, changes in shareholders’ equity and cash flows for the years ended December 31, 2018 and 2017. KPMG are independent in accordance with the Code of Ethics of l’Ordre des comptables professionnels agréés du Québec.

27

ADDITIONAL INFORMATION

Additional information regarding BELLUS Health may be found on SEDAR at www.sedar.com.

Additional information, including directors’ and officers’ remuneration and indebtedness, principal holders of BELLUS Health’s securities, options to purchase securities and interests of informed persons in material transactions, if applicable, is contained in the Company’s management information circular for the most recent meeting of shareholders that involved the election of directors. Additional financial information is provided in the Company’s consolidated financial statements for the most recently completed financial year.

28

Schedule A

BELLUS HEALTH INC.

AUDIT COMMITTEE CHARTER

ESTABLISHMENT OF COMMITTEE

The establishment of the Audit Committee of the Board of Directors of BELLUS Health Inc. (the “Company”) is hereby confirmed with the purpose, constitution and responsibilities described below.

The Purpose of THE Audit Committee

The purpose of the Audit Committee is to assist the Board of Directors in its oversight of, and recommend appropriate actions with respect to (i) the integrity of the Company’s financial statements, accounting and financial reporting processes, system of internal controls over financial reporting and audit process, (ii) the Company’s compliance with, and process for monitoring compliance with, legal and regulatory requirements so far as they relate to matters of financial reporting, (iii) the independent auditor’s qualifications, independence and performance and (iv) the performance of the Company’s internal audit function. Management is responsible for (a) the preparation, presentation and integrity of the Company’s financial statements, (b) accounting and financial reporting principles and (c) the Company’s internal controls and procedures designed to promote compliance with accounting standards and applicable laws and regulations. The Company’s independent auditing firm is responsible for performing an independent audit of the consolidated financial statements in accordance with generally accepted auditing standards.

The Audit Committee members are not necessarily professional accountants or auditors and their functions are not intended to duplicate or to certify the activities of management and the independent auditor. The Audit Committee is not expected to certify that the independent auditor is “independent” under applicable rules. The Audit Committee serves a Board level oversight role where it oversees the relationship with the independent auditor, as set forth in this charter, and provides advice, counsel and general direction, as it deems appropriate, to management and the independent auditor on the basis of the information it receives, discussions with the auditor and the experience of the Audit Committee’s members in business, financial and accounting matters.

Membership

The Committee shall consist of no fewer than three members of the Board of Directors, all of whom shall be appointed by the Board. Except as otherwise permitted by applicable law and the rules of the relevant regulatory authorities and stock exchanges, the members of the Committee shall meet the independence and financial literacy requirements of The Toronto Stock Exchange (“TSX”) and applicable law and no Committee member may have participated in the preparation of the financial statements of the Company or any of its subsidiaries at any time in the previous three years. Appointment to the Committee, and the designation of any Committee members as “audit committee financial experts”, shall be made on an annual basis by the full Board upon recommendation of the Human Resources and Governance Committee.

Compensation of Committee Members

No member of the Committee may receive any compensation from the Company other than (i) director’s fees, which may be received in cash, common stock, equity-based awards or other in-kind consideration ordinarily available to directors, (ii) a pension or other deferred compensation for prior service that is not contingent on future service, and (iii) any other regular benefits that directors of peer companies may receive, all as determined from time to time by the Human Resources and Governance Committee and the Board of Directors.

29

Committee Structure and CONDUCT

The Board shall designate one member of the Committee as its chairperson. The Committee shall meet at least once during each fiscal quarter, with further meetings to occur, or actions to be taken by unanimous written consent, when deemed necessary or desirable by the Committee or its chairperson.

The Audit Committee shall meet at such times and places as it shall determine. The Committee may invite such members of management, the independent auditor and other persons to its meetings as it may deem desirable or appropriate. Periodically, the Audit Committee shall meet in executive session amongst themselves, with the independent auditor, the internal audit function, if any, and management. The Chairman of the Audit Committee shall report on Audit Committee activities to the full Board of Directors.

Responsibilities

With respect to the independent auditor, the Audit Committee:

1. is directly responsible for the appointment (and recommends to the Company’s Board of Directors and shareholders the appointment/ratification of the appointment of) and replacement, compensation and oversight of the work of the Company’s independent auditor, including the resolution of any disagreement between management and the independent auditor; the independent auditor shall report directly to the Audit Committee.

2. reviews and discusses the written statement from the independent auditor concerning any relationship between the independent auditor and the Company or any other relationships that may adversely affect the independence of the auditor, and, based on such review, assesses the independence of the auditor.

3. reviews and evaluates the qualifications, performance and independence of the independent auditor, and makes recommendation to the Board of Directors whether to retain their services.

4. establishes policies and procedures for the review and pre-approval by the Committee of all auditing services and permissible non-audit services (including the fees and terms thereof) to be performed by the independent auditor, with exceptions provided for de minimis amounts under certain circumstances as described by law.

5. reviews and discusses with the independent auditor: (a) its audit plans and audit procedures, including the scope, fees and timing of the audit, and (b) the results of the annual audit examination and accompanying management letters.

6. discusses and reviews with the independent auditor the year-end audited financial statements, the Management’s Discussion and Analysis (“MD&A”) of operations and financial performance and the related press release.

7. reviews and discusses with the independent auditor on (a) critical accounting policies used by the Company, (b) alternative accounting treatments in accordance with International Financial Reporting Standards (“IFRS”) related to material items that have been discussed with management, including the ramifications of the use of the alternative treatments and the treatment preferred by the independent auditor and (c) other material written communications between the independent auditor and management.

8. reviews with the independent auditor its judgment as to the quality, not just the acceptability, of the Company’s accounting principles and such matters required to be discussed with the Committee under generally accepted auditing standards.

30

With respect to other matters, the Audit Committee:

9. reviews annually its Charter, prepares and approves a conforming annual work plan to ensure all tasks are duly executed.

10. discusses and reviews with management quarterly financial statements, the year-end audited financial statements, the MD&A and related press release before the Company publicly discloses this information; and recommends to the Board of Directors that these documents be approved.

11. reviews and discusses with management the Company’s major risks, including those affecting its financial reporting, information management and information technology as well as the steps management has taken to monitor and control such risks.

12. reviews and has prior-approval authority for related-party transactions (as defined in the relevant TSX requirements).

13. reviews and discusses with Management, the Chief Financial Officer (or that person fulfilling the functions of the Chief Financial Officer) and the internal audit function, if any: (a) the adequacy and effectiveness of selected internal controls (including any significant deficiencies and significant changes in internal controls reported to the Committee by the independent auditor or management), (b) the Company’s internal audit procedures, where applicable, and (c) the adequacy and effectiveness of selected disclosure controls and procedures, and management reports thereon.

14. requires Management to prepare accurate financial reports, maintain appropriate internal controls, perform appropriate risk management, develop and apply proper practices and financial policies;

15. reviews and approves the Company’s financial policies.

16. reviews and concurs in the appointment, replacement, reassignment or dismissal of the internal audit function, if any.

17. reviews and approves the internal audit function’s annual audit planning report, reviews its progress reports on a quarterly basis and evaluates its performance annually.

18. establishes procedures for the receipt, retention and treatment by the Company of complaints regarding accounting, internal accounting controls, or auditing matters, and the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters.

19. establishes policies for the hiring of employees/partners and former employees/partners of the present and former independent auditor.

20. when appropriate, designates one or more of its members to perform certain of its duties on its behalf, subject to such reporting to or ratification by the Committee as the Committee shall direct.

21. ensures that adequate procedures are in place for the review of the Company’s public disclosure of financial information extracted or derived from the Company’s financial statements, other than the information described in paragraph 10 above, and must periodically assess the adequacy of those procedures.

22. performs financial analysis as required from time to time by the Board of Directors and provide advice.

31

PERFORMANCE EVALUATION

The Audit Committee will engage in periodic self-assessments with the goal of continuing improvement, and will report to the Board of Directors annually on the performance of the Audit Committee against its mandate; will annually review and reassess the adequacy of its charter, and recommend any changes to the Board of Directors, where appropriate.

RESOURCES AVAILABLE TO THE COMMITTEE

The Audit Committee shall have the authority to engage independent legal, accounting and other advisers, as it determines necessary to carry out its duties. The Audit Committee shall have sole authority to approve related fees and retention terms.

DIRECT COMMUNICATION WITH THE COMMITTEE

The Chairman of the Audit Committee is to be contacted directly by the Chief Financial Officer (or that person fulfilling the functions of the Chief Financial Officer), the internal audit function or the independent auditor: (1) to review items of a sensitive nature that can impact the accuracy of financial reporting, or (2) to discuss significant issues relative to the overall Board of Directors’ responsibility that have been communicated to management but, in their judgment, may warrant follow-up by the Audit Committee.

32

EX-4.2

Exhibit 4.2

Consolidated Financial Statements of

BELLUS HEALTH INC.

Years ended December 31, 2018 and 2017

 

KPMG LLP	Telephone	(514) 840-2100
600 de Maisonneuve Blvd., West	Fax	(514) 840-2187
Suite 1500	Internet	www.kpmg.ca
Tour KPMG
Montréal (Québec) H3A 0A3

Independent auditors’ Report

To the Shareholders of BELLUS Health Inc.

Opinion

We have audited the consolidated financial statements of BELLUS Health Inc. (the Entity), which comprise:

· the consolidated statements of financial position as at December 31, 2018 and December 31, 2017;

· the consolidated statements of loss and other comprehensive loss for the years then ended;

· the consolidated statements of changes in shareholders’ equity for the years then ended;

· the consolidated statements of cash flows for the years then ended;

· and notes to the consolidated financial statements, including a summary of significant accounting policies.

(Hereinafter referred to as the “financial statements”).

In our opinion, the accompanying financial statements present fairly, in all material respects, the consolidated financial position of the Entity as at December 31, 2018 and December 31, 2017, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards (IFRS).

Basis for Opinion

We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the “Auditors’ Responsibilities for the Audit of the Financial Statements” section of our auditors’ report.

We are independent of the Entity in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada and we have fulfilled our other responsibilities in accordance with these requirements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Other Information

Management is responsible for the other information. Other information comprises:

· the information included in Management’s Discussion and Analysis filed with the relevant Canadian Securities Commissions;

· the information, other than the financial statements and the auditors’ report thereon, included in a document likely to be entitled “2018 Annual Report”.

Our opinion on the financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon.

KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. KPMG Canada provides services to KPMG LLP.

 

In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit and remain alert for indications that the other information appears to be materially misstated.

We obtained the information included in Management’s Discussion and Analysis filed with the relevant Canadian Securities Commissions as at the date of this auditors’ report. If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact in the auditors’ report.

We have nothing to report in this regard.

The information, other than the financial statements and the auditors’ report thereon, included in a document likely to be entitled “2018 Annual Report” is expected to be made available to us after the date of this auditors’ report. If, based on the work we will perform on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact to those charged with governance.

Responsibilities of Management and Those Charged with Governance for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with International Financial Reporting Standards (IFRS), and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Entity’s ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Entity or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Entity’s financial reporting process.

Auditors’ Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists.

Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.

As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit.

We also:

· identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion;

· the risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control;

· obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Entity's internal control;

· evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management;

· conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Entity's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Entity to cease to continue as a going concern;

· evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation;

· communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit;

· provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards;

· obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group Entity to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

The engagement partner on the audit resulting in this auditors’ report is Marc Tétreault.

Montreal, Canada

February 20, 2019

Bellus health INC.

Consolidated Financial Statements

Years ended December 31, 2018 and 2017

Consolidated Financial Statements
Consolidated Statements of Financial Position	1
Consolidated Statements of Loss	2
Consolidated Statements of Other Comprehensive Loss	3
Consolidated Statements of Changes in Shareholders’ Equity	4
Consolidated Statements of Cash Flows	5
Notes to Consolidated Financial Statements	6

bellus health INC.

Consolidated Statements of Financial Position

December 31, 2018 and 2017

(in thousands of Canadian dollars)

			December 31,			December 31,
			2018			2017
Assets
Current assets:
	Cash and cash equivalents (note 5)	$	14,933		$	7,749
	Short-term investments (note 5)		33,973			16,139
	Trade and other receivables (note 6)		809			1,714
	Contingent consideration receivable (note 7)		—			384
	Prepaid expenses and other assets		1,149			84
	Total current assets		50,864			26,070
Non-current assets:
	Other assets		77			69
	In-process research and development assets (note 8)		2,359			2,359
	Total non-current assets		2,436			2,428
Total Assets		$	53,300		$	28,498
Liabilities and Shareholders' Equity
Current liabilities:
	Trade and other payables (note 10)	$	2,716		$	2,190
	Financial liabilities – CVRs (note 11)		—			20
	Total current liabilities		2,716			2,210
Total Liabilities			2,716			2,210
Shareholders' equity:
	Share capital (note 12 (a))		502,706			467,253
	Other equity (notes 12 (b) (i) and (ii))		27,101			26,202
	Deficit		(479,223	)		(467,167	)
Total Shareholders’ Equity			50,584			26,288
Commitments and contingencies (note 17)
Total Liabilities and Shareholders’ Equity		$	53,300		$	28,498

See accompanying notes to consolidated financial statements.

On behalf of the Board of Directors by:

(Signed) Pierre Larochelle	(Signed) Franklin M. Berger
Director	Director

1

bellus health INC.

Consolidated Statements of Loss

Years ended December 31, 2018 and 2017

(in thousands of Canadian dollars, except per share data)

		Year ended				Year ended
		December 31,				December 31,
		2018				2017
Revenues (note 9)		$	35		$	165
Expenses:
	Research and development		7,185			3,610
	Research tax credits		(653	)		(289	)
			6,532			3,321
	General and administrative		3,409			2,529
	Total operating expenses		9,941			5,850
Loss from operating activities			(9,906	)		(5,685	)
Finance income			746			80
Finance costs			(5	)		(61	)
Net finance income (note 14)			741			19
Change in fair value of contingent consideration receivable (note 7)			81			—
Realized gain on sale of investment in FB Health (note 7)			—			1,909
Gain on sale of subsidiary (note 9)			—			1,944
Loss before income taxes			(9,084	)		(1,813	)
Deferred tax expense (note 15)			—			61
Net loss for the year		$	(9,084	)	$	(1,874	)
Loss per share (note 16)
	Basic and diluted	$	(0.08	)	$	(0.03	)

See accompanying notes to consolidated financial statements.

2

bellus health INC.

Consolidated Statements of Other Comprehensive Loss

Years ended December 31, 2018 and 2017

(in thousands of Canadian dollars)

	Year ended			Year ended
	December 31,			December 31,
	2018			2017
Net loss for the year	$	(9,084	)	$	(1,874	)
Other comprehensive loss (that may be reclassified subsequently to net loss):
Unrealized gain on investment in FB Health (note 7)		—			1,514
Related income taxes expense		—			(204	)
Realized gain on investment in FB Health reclassified to net loss (note 7)		—			(1,909	)
Related income taxes expense		—			265
Other comprehensive loss for the year		—			(334	)
Comprehensive loss for the year	$	(9,084	)	$	(2,208	)

See accompanying notes to consolidated financial statements.

3

bellus health INC.

Consolidated Statements of Changes in Shareholders’ Equity

Years ended December 31, 2018 and 2017

(in thousands of Canadian dollars)

	Share capital		Other equity			Accumulated other comprehensive income		Deficit			Total
	(note 12(a))
Balance, December 31, 2017	$	467,253	$	26,202		$	—	$	(467,167	)	$	26,288
Total comprehensive loss for the year:
Net loss and comprehensive loss		—		—			—		(9,084	)		(9,084	)
Total comprehensive loss for the year		—		—			—		(9,084	)		(9,084	)
Transactions with shareholders, recorded directly in shareholders’ equity:
Issued in connection with the 2018 Offering (note 12 (a) (i))		35,000		387			—		(2,972	)		32,415
Issued upon broker warrants exercise (note 12 (b) (ii))		453		(187	)		—		—			266
Stock-based compensation (note 12 (b) (i))		—		699			—		—			699
Balance, December 31, 2018	$	502,706	$	27,101		$	—	$	(479,223	)	$	50,584

	Share capital		Other equity		Accumulated other comprehensive income			Deficit			Total
	(note 12(a))
Balance, December 31, 2016	$	445,753	$	25,527	$	334		$	(463,351	)	$	8,263
Total comprehensive loss for the year:
Net loss		—		—		—			(1,874	)		(1,874	)
Other comprehensive loss		—		—		(334	)		—			(334	)
Total comprehensive loss for the year		—		—		(334	)		(1,874	)		(2,208	)
Transactions with shareholders, recorded directly in shareholders’ equity:
Issued in connection with the 2017 Offering (note 12 (a) (ii))		20,000		483		—			(1,942	)		18,541
Issued as part of upfront payment for license acquisition (note 12 (a) (iii))		1,500		—		—			—			1,500
Stock-based compensation (note 12 (b) (i))		—		192		—			—			192
Balance, December 31, 2017	$	467,253	$	26,202	$	—		$	(467,167	)	$	26,288

See accompanying notes to consolidated financial statements.

4

bellus health INC.

Consolidated Statements of Cash Flows

Years ended December 31, 2018 and 2017

(in thousands of Canadian dollars)

				Year ended			Year ended
				December 31,			December 31,
				2018			2017
Cash flows from (used in) operating activities:
	Net loss for the year		$	(9,084	)	$	(1,874	)
	Adjustments for:
		Stock-based compensation		699			192
		Net finance income		(741	)		(19	)
		Change in fair value of contingent consideration		(81	)		—
		Realized gain on sale of investment in FB Health		—			(1,909	)
		Gain on sale of subsidiary		—			(1,944	)
		Deferred tax expense		—			61
		Other items		42			(13	)
	Changes in operating assets and liabilities
		Trade and other receivables		30			(29	)
		Prepaid expenses and other assets		(999	)		33
		Trade and other payables		(20	)		1,256
	Financial liabilities – CVRs			(20	)		(115	)
				(10,174	)		(4,361	)
Cash flows from (used in) financing activities:
	Issuance of common shares through equity offerings, net of share issue costs			32,888			18,831
	Issuance of common shares upon broker warrant exercise			266			—
	Interest and bank charges paid			(5	)		(11	)
				33,149			18,820
Cash flows from (used in) investing activities:
	Net purchases of short-term investments			(17,651	)		(11,880	)
	Proceeds on sale of investment in FB Health (note 7)			465			1,769
	Acquisition of in-process research and development asset, net of costs and deferred development support payments (note 8)			475			(1,334)
	Proceeds from sale of subsidiary, net of costs (note 9)			400			2,117
	Interest received			340			80
				(15,971	)		(9,248	)
Net increase in cash and cash equivalents				7,004			5,211
Cash and cash equivalents, beginning of year				7,749			2,575
Effect of foreign exchange on cash and cash equivalents				180			(37	)
Cash and cash equivalents, end of year			$	14,933		$	7,749
Supplemental cash flow disclosure:
Non-cash transactions:
	Contingent consideration receivable in connection with sale of investment in FB Health (note 7)		$	—		$	384
	Issuance of common shares in connection with acquisition of in-process research and development asset (note 8)			—			1,500
	Development support payment receivable in connection with acquisition of in-process research and development asset in Trade and other receivables (note 8)			—			475
	Deferred payment on sale of subsidiary in Trade and other receivables (note 9)			—			400
	Share issue costs - 2018 Offering, in Trade and other payables (note 12(a)(i))			473			—
	Issuance of broker warrants in connection with 2018 Offering (note 12 (b) (ii))			387			—
	Share issue costs - 2017 Offering, in Trade and other payables (note 12(a)(ii))			—			290
	Issuance of broker warrants in connection with 2017 Offering (note 12 (b) (ii))			—			483
	Ascribed value related to issuance of common shares upon broker warrants exercise (note 12 (b) (ii))			187			—
	Value of DSUs in Prepaid expenses and other assets (note 12 (b) (iii))			73			—

See accompanying notes to consolidated financial statements.

5

bellus health INC.

Notes to Consolidated Financial Statements

Years ended December 31, 2018 and 2017

(in thousands of Canadian dollars, except per share data, unless otherwise noted)

1. Reporting entity:

BELLUS Health Inc. (“BELLUS Health” or the “Company”) is a clinical-stage biopharmaceutical company developing novel therapeutics for conditions with high unmet medical need. The Company’s lead drug candidate is BLU-5937 being developed for the treatment of chronic cough. The Company is domiciled in Canada. The address of the Company’s registered office is 275 Armand-Frappier Blvd., Laval, Quebec, H7V 4A7. The Company's shares trade on the Toronto Stock Exchange (“TSX”) under the symbol BLU.

The Company is subject to a number of risks associated with the conduct of its drug development programs and their results, the establishment of strategic alliances and the successful development of new drug products and their marketing. The Company has incurred significant operating losses and negative cash flows from operations since inception. To date, the Company has financed its operations primarily through public offerings of common shares, private placements, the issuance of convertible notes, asset sales and the proceeds from research tax credits. The ability of the Company to ultimately achieve future profitable operations is dependent upon the successful expansion and development of its pipeline of projects, obtaining regulatory approval in various jurisdictions and successful sale or commercialization of the Company’s products and technologies, which is dependent on a number of factors outside of the Company’s control.

2. Basis of preparation:

(a) Statement of compliance:

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

These consolidated financial statements for the year ended December 31, 2018, were approved by the Board of Directors on February 20, 2019.

(b) Basis of measurement:

The consolidated financial statements have been prepared on the historical cost basis except for the following items in the consolidated statement of financial position:

(i) contingent consideration receivable in connection with the sale of the investment in FB Health, which is measured at fair value; and

(ii) liabilities for cash-settled share-based payment arrangements which are measured at fair value, and equity-classified share-based payment arrangements which are measured at fair value at grant date pursuant to IFRS 2, Share-based payment.

6

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2018 and 2017

(in thousands of Canadian dollars, except per share data, unless otherwise noted)

2. Basis of preparation (continued):

(b) Basis of measurement (continued):

Certain of the Company’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. In establishing fair value, the Corporation uses a fair value hierarchy based on levels as defined below:

· Level 1: defined as observable inputs such as quoted prices in active markets.

· Level 2: defined as inputs other than quoted prices in active markets that are either directly or indirectly observable.

· Level 3: defined as inputs that are based on little or no little observable market data, therefore requiring entities to develop their own assumptions.

(c) Functional and presentation currency:

Items included in the consolidated financial statements of the Company are measured using the currency of the primary economic environment in which the Company operates (the functional currency). These consolidated financial statements are presented in Canadian dollars, which is the Company’s functional and presentation currency.

(d) Use of estimates and judgments:

The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. The reported amounts and note disclosures reflect management’s best estimate of the most probable set of economic conditions and planned course of actions. Actual results may differ from these estimates.

A critical judgment in applying accounting policies that has the most significant effect on the amounts recognized in the consolidated financial statements relates to the use of the going concern basis of preparation of the financial statements. At the end of each reporting period, management assesses the basis of preparation of the financial statements. These financial statements have been prepared on a going concern basis in accordance with IFRS. The going concern basis of presentation assumes that the Company will continue its operations for the foreseeable future and be able to realize its assets and discharge its liabilities and commitments in the normal course of business.

7

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2018 and 2017

(in thousands of Canadian dollars, except per share data, unless otherwise noted)

2. Basis of preparation (continued):

(d) Use of estimates and judgments (continued):

Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment is included within the following notes and is described below:

(i) Estimation of accrued expenses:

As part of the process of preparing its financial statements, the Company is required to estimate its accrued expenses. This process involves reviewing open contracts and purchase orders, communicating with personnel to identify services that have been performed on the Company’s behalf and estimating the level of service performed and the associated cost incurred for the service when the Company has not yet been invoiced or otherwise notified of the actual cost.

For research and development activities, the majority of service providers invoice the Company in arrears for services performed, on a pre-determined schedule or when contractual milestones are met; however, some require advanced payments. There may be instances in which payments to the service providers will exceed the level of services provided and result in a prepayment of the expense. The majority of prepaid expenses in the Company’s statement of financial position relate to these instances.

The Company estimates its accrued expenses as of each statement of financial position date in its financial statements based on facts and circumstances known at that time.

(ii) Estimating the recoverable amount of the in-process research and development asset related to BLU-5937 for the purpose of the annual impairment test (note 8).

Other areas requiring the use of management estimates and judgements include assessing the recoverability of research tax credits as well as estimating the initial fair value of equity-classified stock-based compensation. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which they are made and in future periods affected.

3. Significant accounting policies:

The accounting policies set out below have been applied consistently to all years presented in these consolidated financial statements.

(a) Basis of consolidation:

These consolidated financial statements include the accounts of BELLUS Health Inc. and its subsidiaries.

8

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2018 and 2017

(in thousands of Canadian dollars, except per share data, unless otherwise noted)

3. Significant accounting policies (continued):

(a) Basis of consolidation (continued):

Subsidiaries are entities controlled by BELLUS Health Inc. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Intercompany balances and transactions have been eliminated on consolidation.

On March 16, 2017, BELLUS Health entered into a share purchase agreement (“Share Purchase Agreement”) with Taro Pharmaceuticals Inc. (“Taro”) for the sale of the Company’s wholly-owned subsidiary Thallion Pharmaceuticals Inc. (“Thallion”), including all the rights to the drug candidate Shigamab^TM (refer to note 9). Prior to the effective date of the Share Purchase Agreement, BELLUS Health proceeded with an internal reorganization under which BHI Limited Partnership (“BHI LP”), a partnership operated by BELLUS Health where BELLUS Health’s main business and operations were carried, was dissolved, and transferred its assets and liabilities to BELLUS Health.

On March 16, 2017, the Company incorporated a new wholly-owned subsidiary, BELLUS Health Cough Inc.

(b) Cash, cash equivalents and short-term investments:

The Company considers all investments with maturities of three months or less at inception, that are highly liquid and readily convertible into cash, to be cash equivalents. Investments with maturities greater than three months and less than one year are presented as short-term investments in the consolidated statement of financial position.

(c) Revenue recognition:

Revenue from contracts with customers is measured based on the consideration specified in a contract with a customer and excludes amounts collected on behalf of third parties. A company recognizes revenue when it transfers control of a product or service to a customer. The Company does not have any revenue from contracts with customers.

Revenue from other contracts may be derived from development and other services provided by the Company. Revenue from contracted services is recognized over time as the contracted services are performed.

Consideration received from other contracts may also include amounts received as licensing fees, costs reimbursements, sales-based royalty payments, upfront payments and regulatory and sales-based milestone payments for specific achievements. Revenue is recognized in income only when conditions and events under the contract have been met or occurred and it is probable that the Company will collect the consideration to which it is entitled.

9

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2018 and 2017

(in thousands of Canadian dollars, except per share data, unless otherwise noted)

3. Significant accounting policies (continued):

(d) Research and development:

Research and development costs consist of direct and indirect expenditures, including a reasonable allocation of overhead expenses, associated with the Company's various research and development programs. Overhead expenses comprise general and administrative support provided to the research and development programs and involve costs associated with support activities.

Research expenditures undertaken with the prospect of gaining new scientific or technical knowledge are expensed as incurred. Development expenditures are deferred when they meet the criteria for capitalization in accordance with IFRS, and the future benefits could be regarded as being reasonably certain. The criteria to be fulfilled in order to capitalize development costs are if such costs can be measured reliably, if the product or process is technically and commercially feasible, if future economic benefits are probable and if the Company intends to and has sufficient resources to complete the development and to use or sell the asset. As at December 31, 2018 and 2017, no development costs were deferred.

(e) In-process research and development asset:

The in-process research and development (“IPR&D”) asset acquired by the Company is accounted for as an indefinite-lived intangible asset until the project is completed or abandoned, at which point it will be amortized or impaired, respectively. Subsequent research and development costs associated with the IPR&D asset are accounted for consistent with the research and development policy in note 3 (d).

The Company assesses at each reporting date whether there is an indication that the asset may be impaired. Irrespective of whether there is any indication of impairment, the IPR&D asset is tested for impairment annually by comparing its carrying amount with its recoverable amount.

The asset’s recoverable amount is the greater of its fair value less costs to sell and its value in use. If the carrying amount of the asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount immediately. Impairment losses are recognized in income. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognized. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, had no impairment loss been recognized for the asset in prior years.

10

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2018 and 2017

(in thousands of Canadian dollars, except per share data, unless otherwise noted)

3. Significant accounting policies (continued):

(f) Government assistance:

Government assistance, consisting of research tax credits, is recorded as a reduction of the related expense. Research tax credits are recognized when management determines that there is reasonable assurance that the tax credits will be received. Research tax credits claimed for the current and prior years are subject to government review and approval which could result in adjustments to amounts recognized by the Company. Adjustments from tax authorities, if any, would be recognized in the period of revision.

(g) Foreign exchange:

Transactions in foreign currencies are translated to the functional currency of the Company at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated to the functional currency at the exchange rate at the reporting date. Non-monetary assets and liabilities denominated in foreign currencies that are measured at historical cost are translated using the exchange rate at the date of the transaction. Income and expenses denominated in foreign currencies are translated at exchange rates in effect at the transaction date. Translation gains and losses are recognized in income.

(h) Leased assets:

All of the Company’s leases are operating leases. Lease payments related to leased assets are recognized in income on a straight-line basis over the term of the lease.

(i) Income taxes:

Deferred tax is recognized for temporary differences between the financial reporting bases and the income tax bases of the Company’s assets and liabilities and is recorded using the substantively enacted tax rates anticipated to be in effect when the tax differences are expected to reverse. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously. A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

11

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2018 and 2017

(in thousands of Canadian dollars, except per share data, unless otherwise noted)

3. Significant accounting policies (continued):

(j) Provisions:

A provision is recognized if, as a result of a past event, the Company has a present, legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognized as finance cost.

(k) Earnings per share:

Basic earnings per share are determined using the weighted average number of common shares outstanding during the period. Diluted earnings per share are computed in a manner consistent with basic earnings per share, except that the weighted average number of shares outstanding is increased to include additional shares from the assumed exercise of dilutive stock options and broker warrants. The number of additional shares is calculated by assuming that outstanding stock options and broker warrants were exercised, and that the proceeds from such exercises were used to acquire common shares at the average market price during the reporting period.

(l) Employee benefits:

(i) Short-term employee benefits:

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognized for the amount expected to be paid if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably.

(ii) Share-based payment arrangements:

The Company follows the fair value-based method to account for stock options granted to employees, whereby compensation cost is measured at fair value at the date of grant and is expensed over the award’s vesting period with a corresponding increase to equity. For the stock options with graded vesting, the fair value of each tranche is recognized over its respective vesting period. The amount recognized as an expense is adjusted to reflect the number of awards for which the related service vesting conditions are expected to be met, such that the amount ultimately recognized as an expense is based on the number of awards that meet the related service conditions at the vesting date.

When stock options are exercised, the Company issues new shares. The proceeds received, together with the related portion previously recorded in other equity, are credited to share capital.

12

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2018 and 2017

(in thousands of Canadian dollars, except per share data, unless otherwise noted)

3. Significant accounting policies (continued):

(l) Employee benefits (continued):

(ii) Share-based payment arrangements (continued):

The Company also grants Deferred Share Units (“DSU”) as compensation for directors and designated employees. Upon termination of service, DSU participants are entitled to receive for each DSU credited to their account the payment in cash on the date of settlement based on the value of a BELLUS Health common share. For DSUs, compensation cost is measured based on the market price of the Company's common shares from the date of grant through to the settlement date. Any changes in the market value of the Company's common shares through to the settlement date result in a change to the measure of compensation cost for those awards and are recorded in income.

(m) Financial instruments:

The Company measures its financial instruments as follows:

Financial assets and Financial liabilities

(i) Recognition and initial measurement:

Trade receivables are initially recognized when they are originated. All other financial assets and financial liabilities are initially recognized when the Company becomes a party to the contractual provisions of the instrument.

A financial asset (unless it is a trade receivable without a significant financing component) or financial liability is initially measured at fair value plus, for an item not at fair value through profit or loss (“FVTPL”), transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price.

(ii) Classification and subsequent measurement:

Financial assets - Classification:

On initial recognition, a financial asset is classified as measured at amortized cost, fair value through other comprehensive income (“FVOCI”) – debt investment, FVOCI – equity investment or FVTPL.

Financial assets are not reclassified subsequent to their initial recognition unless the Company changes its business model for managing financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in the business model.

13

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2018 and 2017

(in thousands of Canadian dollars, except per share data, unless otherwise noted)

3. Significant accounting policies (continued):

(m) Financial instruments (continued):

Financial assets and Financial liabilities (continued)

(ii) Classification and subsequent measurement (continued):

Financial assets - Classification (continued):

A financial asset is measured at amortized cost if it meets both the following conditions and is not designated as at FVTPL: it is held within a business model whose objective is to hold assets to collect contractual cash flows; and its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as FVTPL: it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest in the principal amount outstanding.

On initial recognition of an equity investment that is not held for trading, the Company may irrevocably elect to present subsequent changes in the investment’s fair value in other comprehensive income (“OCI”). This election is made on an investment by investment basis.

All financial assets not classified as measured at amortized cost or FVOCI as described above are measured at FVTPL. On initial recognition, the Company may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortized cost or FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.

Financial assets - Subsequent measurement and gains and losses:

Financial assets at amortized cost are subsequently measured at amortized cost using the effective interest method. The amortized cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognized in income. Any gain or loss on derecognition is recognized in income.

Debt investments at FVOCI are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses and impairment are recognized in income. Other net gains and losses are recognized in OCI. On derecognition, gains and losses accumulated in OCI are reclassified to income.

14

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2018 and 2017

(in thousands of Canadian dollars, except per share data, unless otherwise noted)

3. Significant accounting policies (continued):

(m) Financial instruments (continued):

Financial assets and Financial liabilities (continued)

(ii) Classification and subsequent measurement (continued):

Financial assets - Subsequent measurement and gains and losses (continued):

Equity investments at FVOCI are subsequently measured at fair value. Dividends are recognized as income in income unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognized in OCI and are never reclassified to income.

Financial assets at FVTPL are subsequently measured at fair value. Net gains and losses are recognized in income.

Financial liabilities - Classification:

Financial liabilities are classified as measured at amortized cost or FVTPL. A financial liability is classified as at FVTPL if it is classified as held-for-trading, it is a derivative or it is designated as such on initial recognition.

Financial liabilities - Subsequent measurement and gains and losses:

Financial liabilities at FVTPL are subsequently measured at fair value and net gains and losses, including any interest expense, are recognized in income. Other financial liabilities are subsequently measured at amortized cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognized in income. Any gain or loss on derecognition is also recognized in income.

Cash, cash equivalents and short-term investments, trade receivables, amounts receivable under license agreements and other receivables are measured at amortized cost.

The contingent consideration receivable in connection with the sale of the investment in FB Health, which was received by the Company in November 2018, was measured at FVTPL.

Trade and other payables are measured at amortized cost.

Share capital

Common shares and preferred shares that are not redeemable or are redeemable only at the Company’s option are classified as equity. Incremental costs directly attributable to the issue of equity-classified shares are recognized as a deduction from the deficit, net of any tax effects.

15

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2018 and 2017

(in thousands of Canadian dollars, except per share data, unless otherwise noted)

4. Changes in significant accounting policies

(a) Changes in significant accounting policies in 2018

On January 1, 2018, the Company adopted the following new accounting standards and interpretations issued by the IASB:

(i) Share-based payment:

Amendments to IFRS 2, Share-Based Payment clarify how to account for certain types of share-based payment transactions. The amendments provide requirements on the accounting for the effects of vesting and non-vesting conditions on the measurement of cash-settled share-based payments, share-based payment transactions with a net settlement feature for withholding tax obligations and a modification to the terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled. The adoption of amendments to IFRS 2 did not have a material impact on the consolidated financial statements.

(ii) Financial instruments:

The final 2014 version of IFRS 9, Financial Instruments addresses the classification and measurement of financial assets and liabilities, impairment and hedge accounting, replacing IAS 39, Financial Instruments: Recognition and Measurement. The adoption of IFRS 9 (2014) did not have a material impact on the consolidated financial statements. The classification of the Company’s financial instruments in accordance with IFRS 9 (2014) is presented in note 3 (m).

(iii) Revenue:

IFRS 15, Revenue from Contracts with Customers replaces IAS 18, Revenue, as well as other revenue-related standards and interpretations. The standard contains a single model that applies to contracts with customers and two approaches to recognizing revenue: at a point in time or over time. The model features a contract-based five-step analysis of transactions to determine whether, how much and when revenue is recognized. New estimates and judgmental thresholds have been introduced, which determine the amount and/or timing of revenue recognized. The new standard applies to contracts with customers. The Company adopted IFRS 15 using the modified retrospective transition method, with the cumulative effect of initially applying the standard recognized as an adjustment to opening retained earnings at date of initial adoption. Given the Company’s limited revenues, the adoption of IFRS 15 did not have a material impact on the consolidated financial statements.

16

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2018 and 2017

(in thousands of Canadian dollars, except per share data, unless otherwise noted)

4. Changes in significant accounting policies (continued)

(b) New accounting standard and interpretations not yet adopted:

Leases

In January 2016, the IASB issued IFRS 16, Leases, which will replace IAS 17, Leases and the related interpretations. This standard introduces a single lessee accounting model and requires all leases of more than 12 months to be reported on a company’s statement of financial position as assets and liabilities, unless the underlying asset is of low value. A lessee is required to recognize a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. This standard substantially carries forward the lessor accounting requirements of IAS 17, while requiring enhanced disclosures to be provided by lessors. Other areas of the lease accounting model have also been impacted, including the definition of a lease. Transitional provisions have been provided.

The new standard is effective for annual periods beginning on or after January 1, 2019. The Company will adopt IFRS 16 using the modified retrospective transition method, with the cumulative effect of initially applying the standard recognized as an adjustment to opening retained earnings at date of initial adoption. The Company does not expect that the adoption of the standard will have a material effect on the consolidated financial statements, other than that its operating leases will need to be recognized in its consolidated statement of financial position on initial adoption of IFRS 16.

The nature of expenses related to those leases will now change because the Company will recognize a depreciation charge for right-of-use assets and interest expense on lease liabilities. Previously, the Company recognized operating lease expense on a straight-line basis over the term of the lease, and recognised assets and liabilities only to the extent that there was a timing difference between actual lease payments and the expense recognized.

Based on the information currently available, the Company expects that the right-of-use asset and lease liability on January 1, 2019 will be between $100 and $164.

17

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2018 and 2017

(in thousands of Canadian dollars, except per share data, unless otherwise noted)

5. Cash, cash equivalents and short-term investments:

Cash, cash equivalents and short-term investments consist of cash balances with banks and short-term investments:

	December 31,		December 31,
	2018		2017
Cash balances with banks	$	1,464	$	2,932
Short-term investments with initial maturities of less than three months (yielding interest at 1.70% to 1.95% as at December 31, 2018) (December 31, 2017 – 0.95% to 1.20%)		13,469		4,817
Cash and cash equivalents		14,933		7,749
Short-term investments with initial maturities greater than three months and less than one year (yielding interest at 1.90% to 3.10% as at December 31, 2018) (December 31, 2017 – 1.00% to 2.20%)		33,973		16,139
Cash, cash equivalents and short-term investments	$	48,906	$	23,888

6. Trade and other receivables:

Trade and other receivables consist of:

	December 31,		December 31,
	2018		2017
Trade receivables	$	3	$	25
Development support payment receivable (note 8)		—		475
Deferred payment on sale of subsidiary (note 9)		—		400
Research tax credits receivable		655		301
Amounts receivable under license agreements		35		60
Other receivables		116		453
	$	809	$	1,714

7. Sale of investment in FB Health:

On June 30, 2017, BELLUS Health sold its equity interest in FB Health S.p.A (“FB Health”) for a potential total consideration of $2,536, consisting of an upfront cash payment of $1,769 and a contingent revenue-based milestone payment of up to $767 (€518) to be determined based on FB Health’s revenues for the twelve-month period ended June 30, 2018. The Company received an amount of $465 in November 2018 as payment of the contingent consideration receivable.

In the third quarter of 2018, prior to payment, the Company adjusted the estimated fair value of the contingent consideration receivable to $465 in the consolidated statement of financial position, based on available information representing management’s revised best estimate of the amount to be received ($384 as at December 31, 2017). The change in fair value for the year ended December 31, 2018 amounted to $81, presented in the consolidated statement of loss (2017 - nil).

18

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2018 and 2017

(in thousands of Canadian dollars, except per share data, unless otherwise noted)

7. Sale of investment in FB Health (continued):

Prior to the sale of the investment in FB Health on June 30, 2017, the Company increased the fair value of its investment from $639 to $2,153, representing the estimated fair value of the total consideration to be received. Total consideration consisted of $1,769 received in cash on closing and the estimated fair value of the contingent consideration of $384 on the transaction date, determined based on management’s best estimate of FB Health’s future revenues at that time.

A realized gain on sale of investment in FB Health in the amount of $1,909 (before related income tax expense of $265), being the difference between the fair value of the total consideration and the amount paid for the original investment, was recognized by the Company in the consolidated statement of loss for the year ended December 31, 2017, following the sale of the investment.

In connection with the fair value determination of its investment prior to its sale, the Company recorded an increase in fair value of $1,514 for the year ended December 31, 2017, recognized in other comprehensive income.

8. In-process research and development asset:

BELLUS Health acquired the IPR&D asset related to BLU-5937 in February 2017 through the obtention from the NEOMED Institute (“NEOMED”) of an exclusive worldwide license to develop and commercialize BLU-5937, a potent, highly selective, orally bioavailable small molecule antagonist of the P2X3 receptor, a clinically validated target for chronic cough. The IPR&D asset is accounted for as an indefinite-lived intangible asset until the project, currently in its clinical phase, is completed or abandoned, at which point it will be amortized or impaired, respectively. The carrying value of the IPR&D asset related to BLU-5937 amounted to $2,359 as at December 31, 2018 and 2017.

Under the terms of the agreement, BELLUS Health paid NEOMED in 2017 an upfront fee of $3,200, consisting of $1,700 in cash and $1,500 in equity with the issuance of 5,802,177 BELLUS Health common shares.

In addition, NEOMED provided development support to the BLU-5937 program and contributed $950 towards the funding of research and development activities, of which $475 was received in 2017 and the balance of $475 was received in May 2018. As at December 31, 2017, the balance of $475 was presented as current Trade and other receivable in the consolidated statement of financial position.

Upon its acquisition, BELLUS Health estimated the fair value of the IPR&D asset related to BLU-5937 at $2,359, being the fair value of the consideration of $3,200 plus fees paid in relation to acquisition of $109, net of the agreed upon development support payment of $950.

19

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2018 and 2017

(in thousands of Canadian dollars, except per share data, unless otherwise noted)

8. In-process research and development asset (continued):

As at December 31, 2017 and 2018, the carrying amount of the IPR&D asset related to BLU-5937 did not exceed its estimated recoverable amount. The recoverability of this asset is dependent on successfully developing this project and achieving the expected future revenues from commercialization.

9. Sale of subsidiary:

On March 16, 2017, BELLUS Health entered into a Share Purchase Agreement with Taro for the sale of 100% of the shares of its wholly-owned subsidiary, Thallion, including all the rights to the drug candidate Shigamab™, for a total consideration of $2,700, consisting of a cash payment of $2,300 on closing and a deferred payment of $400, which was received by the Company in January 2018. In addition, the Company is entitled to receive a portion of certain potential future post-approval revenues related to the Shigamab™ program. As at December 31, 2017, the deferred payment on the sale of Thallion of $400 was presented as current Trade and other receivable in the consolidated statement of financial position.

BELLUS Health also entered into a one-year service agreement with Taro for BELLUS Health to provide support for the preclinical development plan of Shigamab™ for service fees of $130 over the period. The Company recognized revenues of $130 under this agreement for the year ended December 31, 2017, as all obligations under the agreement had been performed and all service fees had been received at that date.

A gain on sale of subsidiary in the amount of $1,944 (net of transaction costs of $183, the increase in fair value of the contingent consideration payable of $31 and the carrying value of the asset sold of $542) was recognized in the consolidated statement of loss for the year ended December 31, 2017.

In accordance with the terms of the agreements of the 2013 Thallion acquisition, 5% of the proceeds received by BELLUS Health from the sale of Thallion, including the Shigamab^TM technology (the “Shigamab™ Consideration”), was payable to CVR holders (refer to note 11).

10. Trade and other payables:

Trade and other payables consist of:

	December 31,		December 31,
	2018		2017
Trade payables	$	555	$	479
Other accrued liabilities		1,495		1,630
Deferred share unit plans (note 12 (b) (iii))		666		81
	$	2,716	$	2,190

20

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2018 and 2017

(in thousands of Canadian dollars, except per share data, unless otherwise noted)

11. Financial liabilities – CVRs:

On August 15, 2013, BELLUS Health acquired all the issued and outstanding common shares of Thallion in exchange for cash on closing of the transaction and the issuance of one contingent value right (“CVR”) per common share to Thallion’s shareholders, with an expiration date of August 14, 2028, to be paid upon the settlement of the amounts described below.

The CVRs issued to Thallion’s shareholders entitle the holder thereof to: (i) its pro rata share of 100% of any additional purchase price consideration to be received in relation to a 2009 sale transaction by Thallion, (ii) its pro rata share of 5% of the Shigamab™ revenue generated or received by BELLUS Health, capped at $6,500, and (iii) its pro rata share of 100% of any net proceeds generated from the licensing, selling or otherwise commercializing of (a) diagnostic products or services using certain Caprion Proteomics Inc. products, and (b) all issued patents or pending patents pertaining to such Caprion Proteomics Inc. products, in respect of which Thallion has an ownership interest or monetary entitlement.

The amount to which the holders of CVRs may be entitled can be reduced for potential contingent liabilities owing by Thallion (including, but not limited to, in respect of the indemnity agreement entered to in relation to the 2009 sale transaction by Thallion, accounts payable or litigation).

In relation to (i) above, BELLUS Health announced in February 2017 that it had received $573 as settlement for the additional purchase price consideration (“Additional Consideration Payment”) in relation to the 2009 sale transaction by Thallion. Accordingly, the Company paid a net amount of $577 ($0.01609 per CVR) to the CVR holders in March 2017.

In relation to (ii) above, the Company paid in April 2017 and in January 2018 net amounts of $95 ($0.00263 per CVR) and $15 ($0.00041 per CVR), respectively, to the CVR holders, which consists of the Shigamab™ Consideration on the cash payments received on the sale of Thallion (refer to note 9), less CVR agent costs.

As at December 31, 2017, the Company estimated the fair value of the contingent consideration payable related to CVRs on Shigamab™ future revenues at $20, consisting of the Shigamab™ Consideration on the deferred payment for the sale of Thallion, which was received by the Company in January 2018. The Shigamab™ Consideration of $20 was paid to CVR holders in January 2018. The change in fair value of the contingent consideration payable for the year ended December 31, 2017 amounted to $31 and was presented against the gain on sale of subsidiary in the consolidated statement of loss.

In relation to (iii) above, no value has been attributed to contingent consideration related to CVRs on future revenues from assets developed by Caprion Proteomics Inc. as the Company does not expect to receive any revenue from these assets in the future.

21

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2018 and 2017

(in thousands of Canadian dollars, except per share data, unless otherwise noted)

11. Financial liabilities – CVRs (continued):

The CVRs also entitled the holder thereof to receive Thallion’s income tax credits deducted in the 2013 Thallion Statement of Net Cash in the event that they were not claimed by tax authorities after their audit, or their assessment period expired (the “Income Tax Credits”). As they were not claimed nor assessed, BELLUS Health paid on January 25, 2019 a net amount of $134 ($0.00374 per CVR) to the CVR holders, which consists of the Income Tax Credits of $159 less CVR agent costs. The amount of $159 was provisioned against prior to its payment and is presented as Trade and other payables in the consolidated statement of financial position at as December 31, 2018 and 2017.

All payments made to CVR holder were in accordance with the terms of the agreements of the 2013 Thallion acquisition by BELLUS Health.

The Company expects that there will be no additional payment to CVR holders.

12. Shareholders’ equity:

(a) Share capital:

The authorized share capital of the Company consists of:

· an unlimited number of voting common shares with no par value; and

· an unlimited number of non-voting preferred shares, issuable in one or more series, with no par value.

Issued and outstanding common shares are as follows:

	Number		Dollars
Balance, December 31, 2017		119,497,581	$	467,253
Issued in connection with the 2018 Offering (i)		36,842,105		35,000
Issued upon broker warrants exercise (note 12 (b) (ii))		700,000		453
Balance, December 31, 2018		157,039,686	$	502,706

22

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2018 and 2017

(in thousands of Canadian dollars, except per share data, unless otherwise noted)

12. Shareholders’ equity (continued):

(a) Share capital (continued):

	Number		Dollars
Balance, December 31, 2016	61,063,824	$	445,753
Issued in connection with the 2017 Offering (ii)	52,631,580		20,000
Issued as part of upfront fee for license acquisition (iii)	5,802,177		1,500
Balance, December 31, 2017	119,497,581	$	467,253

(i) On December 18, 2018, the Company closed an equity offering, issuing a total of 36,842,105 common shares from treasury at a price of $0.95 per share for aggregate gross proceeds of $35,000 (the “2018 Offering”). Share issue costs of $2,972, comprised of agent commission, legal, professional and filing fees of $2,585, as well as broker warrants having a fair value of $387 (refer to note 12 (b) (ii)), have been charged to the deficit.

(ii) On December 12, 2017, the Company closed an equity offering, issuing a total of 52,631,580 common shares from treasury at a price of $0.38 per share for aggregate gross proceeds of $20,000 (the “2017 Offering”). Share issue costs of $1,942, comprised of agent commission, legal, professional and filing fees of $1,459, as well as broker warrants having a fair value of $483 (refer to note 12 (b) (ii)), have been charged to the deficit.

(iii) On February 28, 2017, the Company issued 5,802,177 common shares from treasury as part of an upfront payment to obtain an exclusive worldwide license to develop and commercialize BLU-5937 (refer to note 8).

23

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2018 and 2017

(in thousands of Canadian dollars, except per share data, unless otherwise noted)

12. Shareholders’ equity (continued):

(b) Share-based payment arrangements:

(i) Stock Option Plan:

Under its stock option plan, the Company may grant options to purchase common shares to directors, officers, employees and consultants of the Company (the “Stock Option Plan”). The number of common shares subject to each stock option, the vesting period, the expiration date and other terms and conditions related to each stock option are determined and approved by the Board of Directors. In general, stock options vest over a period of up to five years and are exercisable over a period of 10 years from the grant date. The aggregate number of common shares reserved for issuance under this plan shall not exceed 12.5% of the total issued and outstanding common shares of the Company from time to time. The aggregate number of common shares reserved for issuance at any time to any optionee shall not exceed 5% of the issued and outstanding common shares of the Company. The aggregate number of common shares issuable or reserved for issuance to insiders of the Company under this plan and any other share compensation arrangement of the Company cannot at any time exceed 10% of the issued and outstanding common shares of the Company. The option price per share is equal to the weighted average trading price of common shares for the five days preceding the date of grant during which the common shares were traded on the TSX.

Changes in outstanding stock options issued under the Stock Option Plan for the years ended December 31, 2018 and 2017 were as follows:

	Number		Weighted average exercise price
Options outstanding, December 31, 2017	7,293,000	$	0.44
Granted (1), (2)	4,300,000		0.36
Options outstanding, December 31, 2018	11,593,000	$	0.41

⁽¹⁾ 4,150,000 stock options were granted on February 20, 2018, having an exercise price of $0.35; 3,800,000 granted to key management personnel and 350,000 granted to other employees.

⁽²⁾ 150,000 stock options were granted on July 10, 2018 to other employees, having an exercise price of $0.57.

24

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2018 and 2017

(in thousands of Canadian dollars, except per share data, unless otherwise noted)

12. Shareholders’ equity (continued):

(b) Share-based payment arrangements (continued):

(i) Stock Option Plan (continued):

	Number			Weighted average exercise price
Options outstanding, December 31, 2016	4,788,000		$	0.53
Granted (3), (4)	2,885,000			0.31
Forfeited	(290,000	)		0.58
Expired	(90,000	)		0.50
Options outstanding, December 31, 2017	7,293,000		$	0.44

⁽³⁾ Stock options granted on May 23, 2017, having an exercise price of $0.30; 2,400,000 stock options were granted to key management personnel and 285,000 were granted to other employees.

⁽⁴⁾ Stock options granted on November 7, 2017, having an exercise price of $0.42; 150,000 stock options were granted to key management personnel and 50,000 were granted to other employees.

The following table summarizes information about stock options outstanding and exercisable as at December 31, 2018:

	Options outstanding		Options exercisable
		Weighted
		average
		years to
Exercise price/share	Number	expiration	Number
$0.30	2,630,000	8.3	562,000
$0.35	4,150,000	9.1	—
$0.42	200,000	8.9	40,000
$0.50	4,300,000	3.6	4,300,000
$0.57	150,000	9.5	—
$1.05	60,000	3.6	60,000
$1.12	103,000	7.2	41,200
	11,593,000	6.9	5,003,200

25

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2018 and 2017

(in thousands of Canadian dollars, except per share data, unless otherwise noted)

12. Shareholders’ equity (continued):

(b) Share-based payment arrangements (continued):

(i) Stock Option Plan (continued):

Stock-based compensation:

For the year ended December 31, 2018, the Company recorded a stock-based compensation expense related to stock options granted under the stock option plan in the amount of $699 in the consolidated statement of loss; from this amount, $109 is presented in Research and development expenses and $590 is presented in General and administrative expenses (2017 – $192, $32 presented in Research and development expenses and $160 presented in General and administrative expenses).

The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes pricing model. Expected volatility is estimated by considering historic average share price volatility for a period commensurate with the expected life.

The weighted average assumptions for stock options granted during the years ended December 31, 2018 and 2017 were as follows:

		2018 (1)			2017 (2)
Weighted average fair value of stock options at grant date	$	0.29		$	0.27
Weighted average share price	$	0.36		$	0.31
Weighted average exercise price	$	0.36		$	0.31
Risk-free interest rate		2.19	%		1.19	%
Expected volatility		100	%		107	%
Expected life in years		7			7
Expected dividend yield		Nil			Nil

⁽¹⁾ Stock options were granted on February 20, 2018 and on July 10, 2018.

⁽²⁾ Stock options were granted on May 23, 2017 and on November 7, 2017.

Dividend yield was excluded from the calculation, since it is the present policy of the Company to retain all earnings to finance operations and future growth.

(ii) Broker warrants:

In connection with the 2018 Offering on December 18, 2018, the Company issued 1,450,264 broker warrants exercisable for common shares. Each broker warrant entitles the holders to buy one common share at a price of $0.95 per share for a period of 18 months from the closing of the 2018 Offering. The fair value of brokers warrants of $387 was allocated to Other Equity upon issuance.

26

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2018 and 2017

(in thousands of Canadian dollars, except per share data, unless otherwise noted)

12. Shareholders’ equity (continued):

(b) Share-based payment arrangements (continued):

(ii) Broker warrants (continued):

In connection with the 2017 Offering on December 12, 2017, the Company issued 1,806,735 broker warrants exercisable for common shares. Each broker warrant entitles the holders to buy one common share at a price of $0.38 per share for a period of 18 months from the closing of the 2017 Offering. The fair value of brokers warrants of $483 was allocated to Other Equity upon issuance.

Changes in outstanding broker warrants for the years ended December 31, 2018 and 2017 were as follows:

	Number			Dollars
Broker warrants outstanding, December 31, 2016	—		$	—
Issued in connection with the 2017 Offering	1,806,735			483
Broker warrants outstanding, December 31, 2017	1,806,735		$	483
Issued in connection with the 2018 Offering	1,450,264			387
Exercised (1)	(700,000	)		(187	)
Broker warrants outstanding, December 31, 2018	2,556,999		$	683

⁽¹⁾ On September 12, 2018, the Company issued 700,000 common shares from treasury upon the exercise of 700,000 broker warrants issued in connection with the 2017 Offering. As a result of their exercise, the carrying value of the broker warrants of $187, initially allocated to Other equity pending the issuance of common shares, was reclassified to Share capital.

The fair value of broker warrants issued was estimated on the date of issuance using the Black-Scholes pricing model. Expected volatility is estimated by considering historic average share price volatility for a period commensurate with the expected life.

27

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2018 and 2017

(in thousands of Canadian dollars, except per share data, unless otherwise noted)

12. Shareholders’ equity (continued):

(b) Share-based payment arrangements (continued):

(ii) Broker warrants (continued):

The assumptions for broker warrants issued during the years ended December 31, 2018 and 2017 were as follows:

		2018 (1)			2017 (2)
Fair value of broker warrants at grant date	$	0.27		$	0.27
Share price	$	0.95		$	0.38
Exercise price	$	0.95		$	0.38
Risk-free interest rate		1.95	%		1.50	%
Expected volatility		56	%		169	%
Expected life in years		1.5			1.5
Expected dividend yield		Nil			Nil

⁽¹⁾ Broker warrants issued on December 18, 2018 in connection with the 2018 Offering.

⁽²⁾ Broker warrants issued on December 12, 2017 in connection with the 2017 Offering.

Dividend yield was excluded from the calculation, since it is the present policy of the Company to retain all earnings to finance operations and future growth.

(iii) Deferred share unit (DSU) plans:

The Company has deferred share unit (“DSU”) plans for employees and members of the Board of Directors created to afford the Company the flexibility to offer DSUs as an alternative to cash compensation.

The price of DSUs is determined by the five-day volume weighted average trading price of the Company’s common shares at the time the DSUs are issued, as provided for under the respective plans. The DSUs are redeemable only upon the participant’s resignation, termination, retirement or death, in cash, at a value equal to the number of DSUs credited, multiplied by the 5-day market value weighted average price of common shares prior to the date on which a notice of redemption is filed.

For DSUs, compensation cost is measured based on the market price of the Company's common shares from the date of grant through to the settlement date. Any changes in the market value of the Company's common shares through to the settlement date result in a change to the measure of compensation cost for those awards and are recorded in income.

28

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2018 and 2017

(in thousands of Canadian dollars, except per share data, unless otherwise noted)

12. Shareholders’ equity (continued):

(b) Share-based payment arrangements (continued):

(iii) Deferred share unit (DSU) plans (continued):

Changes in the number of units for the years ended December 31, 2018 and 2017 were as follows:

Number of units	2018			2017
Balance, beginning of year		217,953			217,953
Units granted (1)		435,108			—
Units redeemed		(193	)		—
Balance, end of year		652,868			217,953
Balance of DSU liability, included in Trade and other payables	$	666		$	81

⁽¹⁾ All DSUs were granted to key management personnel.

During the year ended December 31, 2018, the Company granted 435,108 DSUs having a weighted average fair value per unit of $0.5510, and 193 units were redeemed at a fair value per unit of $1.0671. The stock-based compensation expense related to DSU plans recorded in the consolidated statement of loss for the year ended December 31, 2018 amounted to $512; from this amount, $1 is presented in Research and development expenses and $511 is presented in General and administrative expenses (2017 – $18, presented in General and administrative expenses). The value of DSUs granted in 2018 for which services have not been rendered as at December 31, 2018 amounts to $73 and is presented in Prepaid expenses and other assets in the consolidated statement of financial position.

13. Personnel expenses:

The aggregate compensation to personnel of the Company for the years ended December 31, 2018 and 2017 is set out below:

		2018		2017
Short-term benefits	$	2,412	$	2,037
DSUs plans expense		512		18
Stock option plan expense		699		192
	$	3,623	$	2,247

29

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2018 and 2017

(in thousands of Canadian dollars, except per share data, unless otherwise noted)

14. Net finance income:

Finance income and Finance costs for the years ended December 31, 2018 and 2017 were attributed as follows:

	2018			2017
Interest income	$	362		$	80
Foreign exchange gain		384			—
Finance income		746			80
Interest and bank charges		(5	)		(11	)
Foreign exchange loss		—			(50	)
Finance costs		(5	)		(61	)
Net finance income	$	741		$	19

15. Income taxes:

Deferred tax expense

	December 31,			December 31,
	2018			2017
Origination and reversal of temporary differences	$	(2,111	)	$	(377	)
Change in unrecognized deductible temporary differences
including effect of change in tax rate of $26
in 2018 (2017 – $39)		2,111			438
Deferred tax expense	$	—		$	61

30

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2018 and 2017

(in thousands of Canadian dollars, except per share data, unless otherwise noted)

15. Income taxes (continued):

Deferred tax expense (continued)

Reconciliation of effective tax rate:

	Year ended			Year ended
	December 31,			December 31,
	2018			2017
Loss before income taxes	$	(9,084	)	$	(1,813	)
Tax using the Company’s domestic tax rate		(2,425	)		(486	)
Change in unrecognized deductible temporary differences		2,111			1,432
Non-taxable accounting gain on sale of investment in FB Heath and sale of subsidiary		(22	)		(1,033	)
Effect of change in tax rate		26			39
Non-deductible stock option expense		186			51
Permanent differences and other items		124			58
Total deferred tax expense	$	—		$	61

The applicable statutory tax rates are 26.7% in 2018 and 26.8% in 2017. The Company’s applicable tax rate is the Canadian combined rates applicable in the jurisdiction in which the Company operates. The decrease is due to the reduction of the Quebec income tax rate in 2018 from 11.8% to 11.7%.

A deferred tax recovery of $61 related to the sale of the investment in FB Health on June 30, 2017, net of the increase in fair value of the investment prior to its sale, was recognized in other comprehensive income for the year ended December 31, 2017, and an equal and offsetting amount was recognized as a deferred tax expense in income.

Deferred tax assets and liabilities

Recognized deferred tax assets and liabilities:

As at December 31, 2018 and 2017, recognized deferred tax assets and liabilities are attributable to the following:

	Assets						Liabilities						Net
	2018			2017			2018			2017			2018			2017
Taxes losses carried forward	$	25		$	25		$	—		$	—		$	25		$	25
Equipment		—			—			(16	)		(16	)		(16	)		(16	)
Trade and other receivables		—			—			(9	)		(9	)		(9	)		(9	)
Tax assets (liabilities)		25			25			(25	)		(25	)		—			—
Set off of tax		(25	)		(25	)		25			25			—			—
Net tax assets (liabilities)	$	—		$	—		$	—		$	—		$	—		$	—

31

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2018 and 2017

(in thousands of Canadian dollars, except per share data, unless otherwise noted)

15. Income taxes (continued):

Deferred tax assets and liabilities (continued)

Unrecognized deferred tax assets and investment tax credits:

As at December 31, 2018 and 2017, the amounts and expiry dates of tax attributes and temporary differences for which no deferred tax assets was recognized were as follows:

		December 31, 2018				December 31, 2017
		Federal		Provincial		Federal		Provincial
Research and development expenses, without time limitation		$	6,300	$	6,496	$	1,122	$	778
Federal research and development investment tax credits
	2037		309		—		168		—
	2038		462		—		—		—
			771		—		168		—
Tax losses carried forward
	2032		338		211		525		525
	2033		894		894		894		894
	2034		822		822		822		822
	2035		1,116		1,051		1,116		1,051
	2036		1,143		1,143		1,143		1,143
	2037		2,311		2,476		4,103		4,507
	2038		5,131		4,947		—		—
			11,755		11,544		8,603		8,942
Capital losses			14,120		14,120		14,171		14,171
Other deductible temporary differences, without time limitation		$	3,808	$	3,808	$	101	$	101

Deferred tax assets and investments tax credits have not been recognized in respect to these items because it is not probable that future taxable profit will be available against which the Company can utilize the benefits therefrom. The generation of future taxable profit is dependent on the successful commercialization of the Company’s products and technologies.

32

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2018 and 2017

(in thousands of Canadian dollars, except per share data, unless otherwise noted)

16. Loss per share:

	Year ended			Year ended
	December 31,			December 31,
	2018			2017
Basic weighted average number of common shares outstanding		121,020,724			68,667,841
Basic and diluted loss per share	$	(0.08	)	$	(0.03	)

Excluded from the calculation of the diluted loss per share for the years ended December 31, 2018 and 2017 is the impact of all stock options granted under the Stock Option Plan and broker warrants, as they would be anti-dilutive.

Stock options granted under the Stock Option Plan and broker warrants could potentially be dilutive in the future.

17. Commitments and contingencies:

(a) Operating leases:

Minimum annual lease payments are as follows:

Less than one year	$	151
Between one and five years		13
	$	164

The property lease is a non-cancellable lease, with rent payable monthly in advance, which expires on January 31, 2020.

During the year ended December 31, 2018, an amount of $147 was recognized as an expense in the consolidated statement of loss in respect of operating leases (2017 – $143).

(b) Contracts in the normal course of business:

The Company enters into contracts in the normal course of business, including for research and development activities, consulting and other services.

As at December 31, 2018, the Company has commitments for expenditures related to contracts for research and development activities of approximately $6,785, of which $4,959 is due in 2019 and $1,826 is due in 2020.

33

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2018 and 2017

(in thousands of Canadian dollars, except per share data, unless otherwise noted)

17. Commitments and contingencies (continued):

(c) Indemnity agreement:

The Company is potentially liable in relation to the following indemnity agreement:

In March 2017, the Company entered into a Share Purchase Agreement with Taro for the sale of the Company’s wholly-owned subsidiary Thallion, including all the rights to the drug candidate Shigamab^TM (refer to note 9). The Company agreed to indemnify Taro, subject to certain conditions and limitations, for losses which it may suffer or incur, arising out of any debts, liabilities, commitments or obligations of any nature resulting from any matters, actions, events, facts or circumstances related to the activities or affairs of Thallion, which occurred prior to the effective time of the Share Purchase Agreement. No indemnity provision has been recorded by the Company as at December 31, 2018 and 2017 for this matter as the Company does not expect to make any payments under this indemnity agreement.

(d) License agreements and research collaborations:

(i) On February 28, 2017, BELLUS Health announced that it had obtained from NEOMED an exclusive worldwide license to develop and commercialize BLU-5937 (refer to note 8). Under the terms of the agreement, the Company is committed to pay NEOMED a royalty on potential net sales-based future revenues from BLU-5937, and in lieu of milestone payments, a certain portion of all other revenues received from BLU-5937 in accordance with a pre-established schedule whereby the shared revenue portion decreases as the program progresses in development. No amount is payable as at December 31, 2018 under this agreement.

(ii) On February 1, 2006, the Company entered into an assignment agreement with Parteq Research and Development Innovations (Parteq), which was amended on April 1, 2011 (the Assignment Agreement). Pursuant to the Assignment Agreement, Parteq agreed and assigned certain intellectual property to the Company for consideration, comprising an upfront payment and various deferred payment amounts. The Assignment Agreement also provides for annual technology payments, deferred milestone payments and deferred graduated payments based on gross revenues to be generated from commercialized pharmaceutical products, as well as other than pharmaceutical products, such as nutraceutical or natural health care products. Non-significant amounts are payable as at December 31, 2018 under this agreement.

(iii) Under the terms of an agreement with the federal Ministry of Industry (Technology Partnerships Canada Program), as amended in 2005, the Company is committed to pay the federal government royalties equal to 7.24% of certain milestone revenue and 0.724% of end-product sales realized from the commercialization of effective orally-administered therapeutics for the treatment of Alzheimer’s disease for a limited period after regulatory approval, subject to a maximum of $20,540. To date, no royalties have been paid under this agreement.

34

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2018 and 2017

(in thousands of Canadian dollars, except per share data, unless otherwise noted)

17. Commitments and contingencies (continued):

(e) Consulting and services agreement:

The payments under the consulting and services agreement with Picchio International Inc. (Picchio International) (refer to note 18 (b)) will amount to $250 in 2019, plus the reimbursement of applicable expenses for services rendered under the agreement.

(f) Letter of credit:

As at December 31, 2018, the Company is contingently liable for a letter of credit in the amount of $50 (2017 - $50). Cash is pledged under the letter of credit and is presented as non-current Other assets in the consolidated statement of financial position as at December 31, 2018.

18. Related party transactions:

(a) There is no single ultimate controlling party.

(b) Dr. Francesco Bellini, Chairman of the Board of Directors, provides ongoing advisory services to the Company under the terms of a consulting and services agreement between the Company and Picchio International, wholly-owned by Dr. Francesco Bellini and his spouse. The agreement has a one-year term and shall renew for successive one-year terms. The Company recorded fees and expenses of $381 for both of the years ended December 31, 2018 and 2017.

(c) Key management personnel:

The Chief Executive Officer, Vice-Presidents and Directors of BELLUS Health are considered key management personnel.

The aggregate compensation to key management personnel of the Company for the years ended December 31, 2018 and 2017 is set out below:

		2018		2017
Short-term benefits	$	1,810	$	1,676
DSU plans expense		512		18
Stock option plan expense		626		179
	$	2,948	$	1,873

19. Segment disclosures:

Business segment:

The Company operates in one business segment, which is the development of drug candidates for health solutions. As at December 31, 2018, all of the Company’s operations were conducted in Canada.

35

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2018 and 2017

(in thousands of Canadian dollars, except per share data, unless otherwise noted)

20. Capital management:

The Company’s objective in managing capital is to ensure a sufficient liquidity position to finance its research and development activities, including pipeline expansion, general and administrative expenses, working capital and overall capital expenditures.

Since inception, the Company has financed its liquidity needs primarily through public offerings of common shares, private placements, the issuance of convertible notes, asset sales and the proceeds from research tax credits. When possible, the Company tries to optimize its liquidity needs by non-dilutive sources, including research tax credits, grants, interest income, as well as with proceeds from collaboration and research agreements, asset sales or product licensing agreements.

Historically, when the Company had the option, it has settled its obligations through the issuance of common shares instead of in cash to preserve its liquidities to finance its operations and future growth.

The Company defines capital to include total shareholders’ equity.

The capital management objectives remain the same as previous fiscal year.

As at December 31, 2018, cash, cash equivalents and short-term investments amounted to $48,906. The Company’s general policy on dividends is to retain cash to keep funds available to finance the Company’s growth.

The Company is not subject to any capital requirements that are externally imposed.

21. Financial instruments:

(a) Financial instruments - carrying values and fair values:

Fair value estimates are made as of a specific point in time, using available information about the financial instrument. These estimates are subjective in nature and may not be determined with precision.

Financial assets and liabilities measured at fair value on a recurring basis as at December 31, 2017 were the contingent consideration receivable in relation to the sale of the investment in FB Health and the contingent consideration payable in relation to CVRs on Shigamab^TM future revenues. These financial instruments were measured using Level 3 inputs.

36

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2018 and 2017

(in thousands of Canadian dollars, except per share data, unless otherwise noted)

21. Financial instruments (continued):

(a) Financial instruments - carrying values and fair values (continued):

For the years ended December 31, 2018 and 2017, the reconciliation of the beginning and ending balance of assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) is as follows:

	Contingent						Contingent			Contingent
	consideration			Investment			right			consideration
	receivable			in FB Health			asset			payable
Balance as at December 31, 2016	$	—		$	639		$	573		$	(677	)
Change in fair value for the year (1)		—			1,514			—			—
Sale of shares of financial asset (1)		—			(2,153	)		—			—
Contingent consideration (1)		384			—			—			—
Change in fair value (reported as a reduction of the gain on sale of subsidiary) (2)		—			—			—			(31	)
Payment received from third party		—			—			(573	)		—
Reduction for distribution to CVR   holders		—			—			—			688
Balance as at December 31, 2017		384			—			—			(20	)
Change in fair value for the year		81			—			—			—
Payment received from third party		(465	)		—			—			—
Reduction for distribution to CVR holders		—			—			—			20
Balance as at December 31, 2018	$	—		$	—		$	—		$	—

⁽¹⁾ Change in fair value is presented in reduction of the realized gain on sale of investment in FB Health (refer to note 7).

⁽²⁾ Change in fair value is presented in reduction of the gain on sale of subsidiary (refer to note 9).

For its financial assets and liabilities measured at amortized cost as at December 31, 2018, the Company has determined that the carrying value of its short-term financial assets and liabilities approximates their fair value because of the relatively short periods to maturity of these instruments.

37

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2018 and 2017

(in thousands of Canadian dollars, except per share data, unless otherwise noted)

21. Financial instruments (continued):

(b) Credit risk management:

Credit risk results from the possibility that a loss may occur from the failure of another party to perform according to the terms of the contract.

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents, short-term investments and trade and other receivables. The Company invests cash mainly with major North American financial institutions. Cash equivalents and short-term investments are comprised of fixed income instruments with a high credit ranking (not less than A-1) as rated by Standard and Poor’s. The Company has investment policies that are designed to provide for the safety and preservation of principal, the Company's liquidity needs and yields that are appropriate.

As at December 31, 2018, the Company’s maximum credit exposure corresponded to the carrying amount of these financial assets.

(c) Liquidity risk management:

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company requires continued access to capital markets to support its operations, as well as to achieve its strategic plans. Any impediments to the Company’s ability to access capital markets, including the lack of financing capability or an adverse perception in capital markets of the Company’s financial condition or prospects, could have a materially adverse effect on the Company. In addition, the Company’s access to financing is influenced by the economic and credit market environment.

The Company manages liquidity risk through the management of its capital structure, as outlined in note 20. It also manages liquidity risk by continuously monitoring actual and projected cash flows. The Board of Directors reviews, approves and monitors the Company’s operating and capital budgets, as well as any material transactions.

The balance of accounts payable and accrued liabilities is due within one year. For information on the maturity of commitments and contingencies, see note 17.

38

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2018 and 2017

(in thousands of Canadian dollars, except per share data, unless otherwise noted)

21. Financial instruments (continued):

(d) Foreign currency risk management:

Foreign currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. Foreign currency risk is limited to the portion of the Company’s business transactions denominated in currencies other than Canadian dollars. The Company’s exposure relates primarily to changes in the Canadian dollar versus the US dollar exchange rate. For the Company’s foreign currency transactions, fluctuations in the respective exchange rates relative to the Canadian dollar will create volatility in the Company’s cash flows and the reported amounts for revenue and expenses in income. Additional variability arises from the translation of monetary assets and liabilities denominated in currencies other than the Canadian dollar at the rates of exchange at each statement of financial position date, the impact of which is reported as a foreign exchange gain or loss in income. The Company holds a portion of its cash, cash equivalents and short-term investments in US dollars to meet its liquidity needs in US dollars, but does not use derivative financial instruments to reduce its foreign exchange exposure.

The following table provides an indication of the Company’s significant foreign currency exposures as at December 31, 2018:

		December 31,
(in CDN dollars)		2018
Net assets denominated in US dollars:
Cash and cash equivalents	$	7,477
Short-term investments		14,333
Trade and other payables		(760	)
	$	21,050

Based on the Company’s net foreign currency exposure noted above, and assuming that all other variables remain constant, a hypothetical 10% depreciation or appreciation of the Canadian dollar against the US dollar would result in an increase/decrease of $2,105 on income.

The $US to $CDN exchange rate applied as at December 31, 2018 was 1.3637.

39

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2018 and 2017

(in thousands of Canadian dollars, except per share data, unless otherwise noted)

21. Financial instruments (continued):

(e) Interest rate risk:

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

The Company’s exposure to interest rate risk is as follows:

Cash and cash equivalents	Short-term fixed and variable interest rate
Short-term investments	Short-term fixed interest rate
Restricted cash	Short-term fixed interest rate

Based on the carrying amount of variable interest-bearing financial instruments as at December 31, 2018, an assumed 1% increase or 1% decrease in interest rates during such period would have had no significant effect on income.

Management believes that the risk that the Company will realize a loss as a result of the decline in the fair value of its cash equivalents and short-term investments is limited because these investments have short-term maturities and are generally held to maturity.

The capacity of the Company to reinvest the short-term amounts with equivalent returns will be impacted by variations in short-term fixed interest rates available in the market.

Interest income presented in the consolidated statement of loss represents interest income on financial assets classified as loans and receivables.

40

EX-4.3

Exhibit 4.3

MANAGEMENT’S DISCUSSION AND ANALYSIS

This Management’s Discussion and Analysis (“MD&A”) provides a review of BELLUS Health Inc.’s (“BELLUS Health” or the “Company”) operations and financial performance for the years ended December 31, 2018 and 2017. It should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2018, which have been prepared in accordance with International Financial Reporting Standards (“IFRS”). Additional information relating to the Company, including its Annual Report and Annual Information Form, as well as other public filings, is available on SEDAR at www.sedar.com. This document contains forward-looking statements, which are qualified by reference to, and should be read together with the “Forward-Looking Statements” cautionary notice, which can be found at the end of this MD&A.

The consolidated financial statements and MD&A have been reviewed by the Company’s Audit Committee and approved by the Board of Directors. This MD&A was prepared by management with information available as at February 20, 2019.

All currency figures reported in the consolidated financial statements and in this document are in Canadian dollars, unless otherwise specified.

CORPORATE PROFILE

BELLUS Health is a clinical-stage biopharmaceutical company developing novel therapeutics for conditions with high unmet medical need. The Company’s lead drug candidate is BLU-5937 being developed for the treatment of chronic cough. The Company's shares trade on the Toronto Stock Exchange (“TSX”) under the symbol BLU.

BUSINESS OVERVIEW

BELLUS Health’s lead drug candidate is BLU-5937 for the treatment of chronic cough, a high unmet medical condition affecting millions of patients.

In November 2018, the Company announced positive top-line results from the clinical Phase 1 study for BLU-5937, in which BLU-5937 was shown to be safe and well tolerated. BLU-5937 did not cause any taste loss at the anticipated therapeutic doses, confirming the Company’s expectation that at these doses there is no or very limited effect on taste perception. The benign side effect profile, in combination with the anti-tussive effect demonstrated in several preclinical studies, further reinforces the Company’s position that BLU-5937 has the potential to be a best-in-class therapeutic for chronic cough patients.

Based on the positive data from the Phase 1 study, BELLUS Health expects to initiate a clinical Phase 2 study for BLU-5937 in chronic cough patients in mid-2019, with top-line results anticipated in mid-2020.

In December 2018, the Company completed a $35 million equity financing, with the vast majority of the offering subscribed by U.S. institutional healthcare investors. The Company concluded 2018 with a cash, cash equivalents and short-term investments position (“liquidity position”) of $48.9 million. As at February 20, 2019, the Company has 157,389,686 common shares outstanding and 174,844,685 common shares on a fully diluted basis, including 15,248,000 stock options granted under the stock option plan and 2,206,999 broker warrants.

1

2018 Highlights

· Announced positive top-line results from the clinical Phase 1 study for BLU-5937, the Company’s lead drug candidate for chronic cough. BLU-5937 was shown to be safe and well tolerated with no taste loss at the anticipated therapeutic doses;

· Based on the positive top-line data from the Phase 1 study, expects to initiate a clinical Phase 2 study for BLU-5937 in chronic cough patients in mid-2019, with top-line results anticipated in mid-2020;

· Closed a $35 million equity offering, with the vast majority of the offering subscribed by U.S. institutional healthcare investors led by OrbiMed;

· Secured patent protection for BLU-5937 in all major pharmaceutical markets; patents were granted by the European Patent Office and the Japan Patent Office in 2018 in addition to patents granted in the United States and China in 2017, with claims covering the composition of matter of BLU-5937 until 2034;

· Was granted a new U.S. patent claiming P2X3 selectivity as a means of minimizing taste effects for BLU-5937. This patent extends BLU-5937’s patent protection to 2038;

· Appointed an international clinical advisory board to provide strategic guidance and support to the BLU-5937 development program;

· Concluded the year with cash, cash equivalents and short-term investments totalling $48.9 million, which should enable the Company to finance its operations for more than two years.

2018 Equity Offering

On December 18, 2018, the Company closed an equity offering, issuing a total of 36,842,105 common shares from treasury at a price of $0.95 per share for aggregate gross proceeds of $35 million (the “2018 Offering”). The 2018 Offering was subscribed in vast majority by U.S. institutional healthcare investors led by OrbiMed and also included New Leaf Venture Partners, First Manhattan Co., Samsara BioCapital, Fonds de solidarité FTQ, AppleTree Partners and Amzak Health.

In addition, 1,450,264 broker warrants exercisable for common shares were issued to the agents of the 2018 Offering. Each broker warrant entitles the agents to buy one common share at a price of $0.95 per share for a period of 18 months from the closing of the 2018 Offering.

Net proceeds from the 2018 Offering will be used to fund the Company’s research and development activities, including but not limited to, activities related to BLU-5937’s clinical development, general and administrative expenses, working capital needs and other general corporate purposes.

BLU-5937 for Chronic Cough

The Company’s lead drug candidate is BLU-5937, a potent, highly selective, orally bioavailable small molecule antagonist of the P2X3 receptor, a clinically validated target for chronic cough. In preclinical studies, BLU-5937 exhibited a potent anti-tussive effect without affecting taste perception and an excellent safety profile. BLU-5937 has the potential to be a best-in-class therapeutic for chronic cough patients who do not respond to current therapies.

2

On November 19, 2018, the Company announced positive top-line results from the clinical Phase 1 study for BLU-5937. The Phase 1 top-line data demonstrated that BLU-5937 has a good safety and tolerability profile, as well as a pharmacokinetic profile supporting twice-a-day (BID) dosing. At the anticipated therapeutic doses of 50 to 100 mg, BLU-5937 did not cause any loss of taste perception; only 1 out of 24 subjects reported transient taste alteration. Based on these data, the Company is preparing for the clinical Phase 2 study of BLU-5937 in chronic cough patients, expected to begin in mid-2019.

BLU-5937 Clinical Phase 1 Study Data

The Phase 1 data demonstrated that BLU-5937 has an excellent pharmacokinetic profile. Plasma half-life was established at 4 to 9 hours, supporting BID dosing. Based on pre-clinical efficacy studies and comparison with drug levels achieved with a clinically validated comparator, the Company anticipates that drug levels required for optimal inhibition of cough will be achieved at 50 mg or 100 mg BID.

BLU-5937 plasma concentration increased dose-proportionally and was not affected by food, supporting BLU-5937 administration without regard to meals.

The Phase 1 data also showed that BLU-5937 has a good safety and tolerability profile. The overall incidence of adverse events was comparable between placebo (50%) and BLU-5937 (44%).

There were no serious adverse events and no subjects withdrew prematurely due to an adverse event during the study. No significant trends of mean changes in vital signs, electrocardiogram (ECG) and clinical laboratory values have been observed in the Phase 1 study for BLU-5937.

No subject reported total loss of taste at any dose level. Only one subject out of 24 (4.2%) reported taste alteration at the anticipated therapeutic doses of 50-100 mg. This taste effect was reported only on the first day out of 7 days of dosing in a subject receiving 100 mg BID. There were only 2 cases of transient and sporadic partial taste loss reported: one at 400 mg BID and one at the 800 mg single dose level. At supra therapeutic doses of 200 mg to 1200 mg, 13 subjects out of 48 (27.1%) reported transient and sporadic taste alteration. No subject out of 16 reported any taste loss or taste alteration at 200 mg. All taste adverse events were transitory and sporadic in nature and almost all of them were mild. The other most frequent adverse events reported in the Phase 1 study (> 5%) for BLU-5937 were: headache (11%), numbness (11%), nausea (8%), dizziness (6%) and heartburn (6%).

BLU-5937 Clinical Phase 1 Study

The clinical Phase 1 study was a randomized, double-blind, placebo-controlled study of orally administered BLU-5937 in 90 healthy adult subjects. The primary objectives of the clinical Phase 1 study were to assess the safety, tolerability (including taste perception) and pharmacokinetic profile of BLU-5937 in healthy subjects.

The study was divided in two parts:

Part 1: A single ascending dose (SAD) study was conducted in 60 healthy subjects. Subjects were randomized into 6 cohorts of 10 subjects (8 BLU-5937: 2 placebo). The study evaluated single oral doses of BLU-5937 from 50 to 1200 mg.

Part 2: A multiple ascending dose (MAD) study was conducted in 30 healthy subjects. Subjects were randomized into 3 cohorts of 10 subjects (8 BLU-5937: 2 placebo). The study evaluated multiple oral doses of BLU-5937 of 100, 200 and 400 mg administered twice-a-day (BID) for 7 consecutive days.

3

BLU-5937 Clinical Phase 2 Study Design

Based on the positive top-line data from the Phase 1 study, BELLUS Health expects to initiate a clinical Phase 2 study for BLU-5937 in chronic cough patients in mid-2019, with top-line results anticipated in mid-2020. This will be a dose escalation crossover design study to assess the efficacy, safety and tolerability of BLU-5937 in chronic cough patients, in addition to helping confirm the optimal dose regimen. A total of 50 patients with refractory unexplained chronic cough are expected to be enrolled in approximately 10 clinical sites located in the United Kingdom and Unites States.

In addition, for 2019, the Company expects to pursue BLU-5937 enabling activities to prepare the program for later stage clinical development and to develop the BLU-5937 program for potential expansion in other P2X3 indications.

Other

Preclinical studies demonstrated that BLU-5937 is a highly selective P2X3 antagonist exhibiting a potent anti-tussive effect without affecting taste perception and an excellent safety profile. In a guinea pig cough model, BLU-5937 showed comparable anti-tussive efficacy to the current leading P2X3 antagonist in development, Merck & Co’s gefapixant (also named AF-219 or MK-7264). In a rat taste model, BLU-5937 was not associated with taste loss whereas, consistent with clinical trial data previously presented by Merck & Co, gefapixant led to significant taste loss.

On July 19, 2018, the Company announced that patent protection for BLU-5937 had been secured in all major pharmaceutical markets following the Japan Patent Office’s issuance of a decision to grant Japanese Patent No. 2015-555508, which grants claims covering the composition of matter of BLU-5937 and related imidazopyridine compounds, in addition to pharmaceutical compositions comprising BLU-5937 and uses thereof, until 2034. Equivalent patents with similar broad claims were granted by the European Patent Office (patent No. 2951177) in April 2018 and by the U.S. Patent and Trademark Office and the Chinese Patent Office in 2017. The patents have an expiration date of 2034, excluding any potential patent term extension. Patent applications with similarly broad claims are currently pending in other industrialized nations.

On October 31, 2018, BELLUS Health announced that the U.S. Patent and Trademark Office had issued U.S Patent No. 10,111,883, granting claims for the use of BELLUS Health's lead drug candidate BLU-5937 for the treatment of chronic cough without affecting taste response. More generally, the patent entitled “Selective P2X3 Modulators” claims the use of imidazopyridine compounds that are selective for the P2X3 receptor as a means of minimizing taste perturbation in patients treated for chronic cough. In addition to BLU-5937, the patent claims the use of related selective imidazopyridine compounds and pharmaceutical compositions comprising BLU-5937. Patent No. 10,111,883 has an expiration date of 2038, excluding any potential patent term extension. This new U.S. patent extends the patent protection of BLU-5937 by an additional 4 years.

On September 25, 2018, the Company announced the appointment of an international clinical advisory board (the “CAB”) which provides strategic guidance and support to the BLU-5937 development program. The CAB is comprised of highly-respected clinical leaders whose work has influenced the treatment and management of chronic cough. The Chair of the CAB is Dr. Jaclyn Smith, MB, ChB, FRCP, PhD, Professor of Respiratory Medicine at the University of Manchester in the United Kingdom and an Honorary Consultant at the University Hospital of South Manchester NHS Foundation Trust.

4

Chronic cough is a cough that lasts more than eight weeks and is associated with significant adverse social, psychosocial and physical effects on quality of life. In October 2018, the Company commissioned Bluestar BioAdvisors LLC (formerly known as Torreya Insights LLC) to conduct a market assessment through an evaluation of chronic cough epidemiology and pricing estimates. Based on primary and secondary research, the report concludes that, in the United States alone, more than 26 million adults suffer from chronic cough and more than 2.6 million of these patients have chronic cough lasting for more than a year. The number of treatment-refractory chronic cough patients expands to 11.7 million when taking into account those patients with a cough duration between eight weeks and one year.

Other Development Programs

BELLUS Health has economic interests in other partnered development stage programs, including revenue sharing and royalties on sales.

2017 Equity Offering

On December 12, 2017, the Company closed an equity offering, issuing a total of 52,631,580 common shares at a price of $0.38 per share for aggregate gross proceeds of $20 million (the “2017 Offering”). The 2017 Offering was subscribed in majority by institutional healthcare investors and also included the participation by members of the senior management team and Board of Directors of the Company.

In addition, 1,806,735 broker warrants exercisable for common shares were issued to the agents of the 2017 Offering. Each broker warrant entitles the agents to buy one common share at a price of $0.38 per share for a period of 18 months from the closing of the 2017 Offering.

2017 Sale of Thallion

On March 16, 2017, BELLUS Health entered into a share purchase agreement (the “Share Purchase Agreement”) with Taro Pharmaceuticals Inc. (“Taro”) for the sale of the Company’s wholly-owned subsidiary Thallion Pharmaceuticals Inc. (“Thallion”), including all the rights to the drug candidate Shigamab™. Taro acquired all issued and outstanding shares of Thallion for a total consideration of $2.7 million, consisting of a cash payment of $2.3 million on closing and a deferred payment of $0.4 million, which was received in January 2018. In addition, the Company is entitled to receive a portion of certain potential future post-approval revenues related to the Shigamab™ program. A gain on sale of subsidiary in the amount of $1,944,000 was recognized in the consolidated statement of loss for the year ended December 31, 2017.

Refer to section Contractual Obligations for details of payments made to the CVR holders in accordance with the terms of the agreements of the 2013 Thallion acquisition by BELLUS Health.

2017 Sale of Equity Interest in FB Health

On June 30, 2017, the Company sold its equity interest in FB Health S.p.A (“FB Health”) for a potential total consideration of $2,536,000, consisting of an upfront cash payment of $1,769,000 and a contingent revenue-based milestone payment of up to $767,000 (€518,000) to be determined based on FB Health’s revenues for the twelve-month period ended June 30, 2018. The Company received an amount of $465,000 in November 2018 as payment of the contingent consideration receivable.

5

In the third quarter of 2018, prior to payment, the Company adjusted the estimated fair value of the contingent consideration receivable to $465,000 in the consolidated statement of financial position, based on available information representing management’s revised best estimate of the amount to be received ($384,000 as at December 31, 2017). The change in fair value for the year ended December 31, 2018 amounted to $81,000, presented in the consolidated statement of loss (2017 - nil).

Prior to the sale of the investment in FB Health on June 30, 2017, the Company increased the fair value of its investment from $639,000 to $2,153,000, representing the estimated fair value of the total consideration to be received. Total consideration consisted of $1,769,000 received in cash on closing and the estimated fair value of the contingent consideration of $384,000 on the transaction date, determined based on management’s best estimate of FB Health’s future revenues at that time. A realized gain on sale of investment in FB Health in the amount of $1,909,000, being the difference between the fair value of the total consideration and the amount paid for the original investment, was recognized by the Company in the consolidated statement of loss for the year ended December 31, 2017, following the sale of the investment.

6

Selected Financial Information

(In thousands of dollars, except per share data)

	Years ended December 31
	2018			2017			2016
Revenues	$	35		$	165		$	1,893
Expenses:
Research and development		7,185			3,610			1,515
Research tax credits		(653	)		(289	)		(149	)
		6,532			3,321			1,366
General and administrative		3,409			2,529			2,624
Total operating expenses		9,941			5,850			3,990
Results from operating activities		(9,906	)		(5,685	)		(2,097	)
Finance income		746			80			806
Finance costs		(5	)		(61	)		(922	)
Net finance income (costs)		741			19			(116	)
Change in fair value of contingent consideration receivable		81			-			-
Realized gain on sale of investment in FB Health		-			1,909			-
Gain on sale of subsidiary		-			1,944			-
Loss before income taxes		(9,084	)		(1,813	)		(2,213	)
Deferred tax expense		-			61			15
Net loss for the year	$	(9,084	)	$	(1,874	)	$	(2,228	)
Net loss attributable to:
Shareholders	$	(9,084	)	$	(1,874	)	$	(2,159	)
Non-controlling interest		-			-			(69	)
Net loss for the year		(9,084	)		(1,874	)		(2,228	)
Loss per share – Basic and diluted	$	(0.08	)	$	(0.03	)	$	(0.04	)
Financial Position:

	At December 31,		At December 31,		At December 31,
	2018		2017		2016
Total assets	$	53,300	$	28,498	$	9,584
Total non-current financial liabilities	$	Nil	$	Nil	$	104

7

RESULTS OF OPERATIONS

Year Ended December 31, 2018 Compared to Year Ended December 31, 2017

For the year ended December 31, 2018, net loss amounted to $9,084,000 ($0.08 per share), compared to $1,874,000 ($0.03 per share) for the previous year. Net loss for 2017 included a gain on sale of subsidiary in the amount of $1.9 million and a realized gain on the sale of the equity interest in FB Health in the amount of $1.9 million. Excluding these gains, the increase in net loss is primarily attributable to higher research and development expenses.

Revenues amounted to $35,000 for the year ended December 31, 2018, compared to $165,000 for the previous year. Revenues in 2017 are mainly attributable to a service agreement with Taro following the sale of the Company’s wholly-owned subsidiary, Thallion, to Taro in March 2017.

Research and development expenses, net of research tax credits, amounted to $6,532,000 for the year ended December 31, 2018, compared to $3,321,000 for the previous year. The increase is primarily attributable to higher expenses incurred in relation to the development of BLU-5937, the Company’s lead drug candidate for chronic cough, including the clinical Phase 1 study completed by the Company in 2018.

General and administrative expenses amounted to $3,409,000 for the year ended December 31, 2018, compared to $2,529,000 for the previous year. The increase is mainly due to higher stock-based compensation expense in relation to the Company’s stock option plan and deferred share unit plans.

Net finance income amounted to $741,000 for the year ended December 31, 2018, compared to $19,000 for the previous year. The increase is primarily attributable to higher interest income due to the Company’s increased cash, cash equivalents and short-term investments position following the 2017 Offering as well as to the foreign exchange gain that arose from the translation of the Company’s net monetary assets denominated in US dollars.

Change in fair value of contingent consideration receivable amounted to an increase of $81,000 for the year ended December 31, 2018, compared to nil for the previous year. The contingent consideration receivable is related to the sale of the Company’s equity interest in FB Health in June 2017, as discussed previously.

Realized gain on sale of investment in FB Health amounted to $1,909,000 for the year ended December 31, 2017 and is related to the sale of the Company’s equity interest in FB Health in 2017, as discussed previously.

Gain on sale of subsidiary amounted to $1,944,000 for the year ended December 31, 2017 and is related to the sale of Thallion in March 2017, as discussed previously.

As at December 31, 2018, total assets amounted to $53,300,000, compared to $28,498,000 as at December 31, 2017. The increase is primarily due to the funds received from the 2018 Offering, offset by funds used to finance the Company’s operating activities. Total non-current financial liabilities amounted to nil as at December 31, 2018 and December 31, 2017.

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Year Ended December 31, 2017 Compared to Year Ended December 31, 2016

For the year ended December 31, 2017, net loss amounted to $1,874,000 ($0.03 per share), compared to $2,228,000 ($0.04 per share) for the previous year. The decrease in net loss is primarily attributable to the gain on sale of subsidiary in the amount of $1.9 million and the realized gain on sale of equity interest in FB Health in the amount of $1.9 million, offset by lower revenue recognized in 2017 as well as higher research and development expenses.

Revenues amounted to $165,000 for the year ended December 31, 2017, compared to $1,893,000 for the previous year. Revenues for 2016 included those in relation to agreements with a partner for the development of KIACTA^TM for AA amyloidosis, terminated since then.

Research and development expenses, net of research tax credits, amounted to $3,321,000 for the year ended December 31, 2017, compared to $1,366,000 for the previous year. The increase is attributable to expenses incurred in relation to the development of BLU-5937, for which an exclusive worldwide license to develop and commercialize was entered into in February 2017. Expenses for 2016 included those in relation to the development of Shigamab™, which was sold to Taro in March 2017 as part of the sale of the Company’s wholly-owned subsidiary Thallion.

General and administrative expenses amounted to $2,529,000 for the year ended December 31, 2017, compared to $2,624,000 for the previous year.

Net finance income amounted to $19,000 for the year ended December 31, 2017, compared to net finance costs of $116,000 for the previous year. The increase in net finance income is primarily attributable to lower foreign exchange loss in 2017 that arose from the translation of the Company’s net monetary assets denominated in US dollars, due to the appreciation of the US dollar compared with the Canadian dollar in 2017.

Realized gain on sale of investment in FB Health amounted to $1,909,000 for the year ended December 31, 2017 and is related to the sale of the Company’s equity interest in FB Health in June 2017, as discussed previously.

Gain on sale of subsidiary amounted to $1,944,000 for the year ended December 31, 2017 and is related to the sale of Thallion in March 2017, as discussed previously.

As at December 31, 2017, total assets amounted to $28,498,000, compared to $9,584,000 as at December 31, 2016. The increase is primarily due to funds received from the 2017 Offering, the sale of Thallion and the sale of the Company’s equity interest in FB Health, offset by funds used to finance the Company’s operating activities. Total non-current financial liabilities amounted to nil and $104,000 as at December 31, 2017 and December 31, 2016, respectively.

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Quarter Ended December 31, 2018 Compared to Quarter Ended December 31, 2017 (Unaudited)

For the three-month period ended December 31, 2018, net loss amounted to $2,630,000 ($0.02 per share), compared to $1,605,000 ($0.02 per share) for the corresponding period the previous year. The increase in net loss is primarily attributable to higher research and development expenses in relation to the development of BLU-5937, partially offset by a foreign exchange gain.

Research and development expenses, net of research tax credits, amounted to $2,268,000 for the three-month period ended December 31, 2018, compared to $792,000 for the corresponding period the previous year. The increase is attributable to expenses incurred in relation to the development of BLU-5937, including the clinical Phase 1 study completed by the Company in 2018.

Net finance income amounted to $500,000 for the three-month period ended December 31, 2018, compared to $16,000 for the corresponding period the previous year. The increase is mainly attributable to a foreign exchange gain that arose from the translation of the Company’s net monetary assets denominated in US dollars.

Quarterly Results (Unaudited)

(in thousands of dollars, except per share data)

						Basic and diluted
			Net (loss)			(loss) earnings
Quarter	Revenues		income			per share
Year ended December 31, 2018
Fourth	$	9	$	(2,630	)	$	(0.02	)
Third		9		(3,047	)		(0.03	)
Second		8		(1,564	)		(0.01	)
First		9		(1,843	)		(0.02	)
Year ended December 31, 2017
Fourth	$	22	$	(1,605	)	$	(0.02	)
Third		93		(1,680	)		(0.03	)
Second		41		267			Nil
First		9		1,144			0.02

The variation of the net (loss) income of a quarter compared to the corresponding quarter of the previous year are explained by the following elements.

The increase in net loss for the fourth quarter of 2018 is primarily attributable to higher research and development expenses, partially offset by a foreign exchange gain. The increase in net loss for the third quarter of 2018 is primarily attributable to higher research and development expenses and stock-based compensation expense. The increase in net loss for the second quarter of 2018 is primarily attributable to the non-recurrence of the realized gain on the sale of the equity interest in FB Health of $1.9 million recorded in the second quarter of 2017. The increase in net loss for the first quarter of 2018 is primarily attributable to higher research and development expenses in addition to the non-recurrence of the gain on the sale of Thallion of $1.9 million recorded in the first quarter of 2017.

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Related Party Transactions

Dr. Francesco Bellini is the Chairman of the Board of Directors and provides ongoing advisory services to the Company under the terms of a consulting and services agreement between the Company and Picchio International Inc. (“Picchio International”), wholly-owned by Dr. Francesco Bellini and his spouse. Picchio International receives a monthly fee of $20,833, plus the reimbursement of applicable expenses for services rendered under the agreement. The agreement has a one-year term renewable for successive one-year terms. The Company recorded fees and expenses under the consulting and services agreement of $381,000 for both of the years ended December 31, 2018 and 2017.

FINANCIAL CONDITION

Liquidity and Capital Resources

As at December 31, 2018, the Company had available cash, cash equivalents and short-term investments totaling $48,906,000, compared to $23,888,000 as at December 31, 2017. For the year ended December 31, 2018, the net increase in cash, cash equivalents and short-term investments amounted to $25,018,000, compared to $17,054,000 for the previous year. The Company’s working capital amounted to $48,148,000 as at December 31, 2018, compared to $23,860,000 as at December 31, 2017. The net increase in the cash position and working capital for the year ended December 31, 2018 is primarily attributable to funds received from the 2018 Offering, offset by funds used to finance the Company’s operating activities.

The other significant changes in the Company’s financial position as at December 31, 2018, compared to the financial position as at December 31, 2017, are as follows:

- The decrease in Trade and other receivables is mainly due to the amounts received in 2018 in relation to the in-licensing of the BLU-5937 program from NEOMED and the sale of Thallion in 2017.

- The decrease in Contingent consideration receivable is attributable to the proceeds received in 2018 in relation to the sale of the Company’s equity interest in FB Health in 2017.

- The increase in Prepaid and other assets is mainly due to payments made in relation to the BLU-5937 Phase 2 clinical study.

- The increase in Trade and other payables reflects the Company’s increased operations in 2018.

Based on management’s estimate and current level of operations, the Company believes that the current liquidity position is sufficient to finance its operations for more than two years.

The Company does not have any debt nor does it have pre-arranged credit facilities or other sources of financing cash flows.

The Company is subject to a number of risks associated with the conduct of its drug development programs and their results, the establishment of strategic alliances and the successful development of new drug products and their marketing. The Company has incurred significant operating losses and negative cash flows from operations since inception. To date, the Company has financed its operations primarily through public offerings of common shares, private placements, the issuance of convertible notes, assets sales and the proceeds from research tax credits. The ability of the Company to ultimately achieve future profitable operations is dependent upon the successful expansion and development of its project pipeline, obtaining regulatory approval in various jurisdictions and successful sale or commercialization of the Company’s products and technologies, which is dependent on a number of factors outside of the Company’s control.

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Refer to Financial Condition – Contractual Obligations and Financial Risk Management – Liquidity Risk sections for further details on liquidity and capital resources of the Company.

Financing and Investing Activities

On December 18, 2018, the Company completed the 2018 Offering by issuing 36,842,105 common shares from treasury at a price of $0.95 per share for aggregate gross proceeds of $35 million. In addition, 1,450,264 broker warrants exercisable for common shares were issued to the agents. Each warrant entitles the holders to buy one common share at a price of $0.95 per share for a period of 18 months from the closing of the 2018 Offering.

On September 12, 2018, upon the exercise of 700,000 broker warrants issued in connection with the 2017 Offering, the Company received $266,000 and issued 700,000 common shares from treasury.

During 2018, cash and cash equivalents amounting to net $17,651,000 were invested in short-term investments with initial maturities greater than three months and less than a year ($11,880,000 in 2017).

On December 12, 2017, the Company completed the 2017 Offering by issuing 52,631,580 common shares from treasury at a price of $0.38 per share for aggregate gross proceeds of $20 million. In addition, 1,806,735 broker warrants exercisable for common shares were issued to the agents. Each warrant entitles the holders to buy one common share at a price of $0.38 per share for a period of 18  months from the closing of the 2017 Offering.

On February 28, 2017, the Company paid $3.2 million in relation to the BLU-5937 license obtained from NEOMED, consisting of $1.7 million in cash and $1.5 million in equity with the issuance of 5,802,177 common shares from treasury ($0.2585 per share), as discussed in the Business Overview section.

On March 16, 2017, the Company sold its wholly-owned subsidiary, Thallion, to Taro for total consideration of $2.7 million, consisting of a cash payment of $2.3 million on closing and a deferred payment of $0.4 million, which payment was received in January 2018, as discussed in the Business Overview section.

On June 30, 2017, the Company sold its equity interest in FB Health for a potential total consideration of $2,536,000, consisting of an upfront cash payment of $1,769,000 and a contingent revenue-based milestone payment of up to $767,000 (€518,000), to be determined based on FB Health’s revenues for the twelve-month period ended June 30, 2018. The Company received an amount of $465,000 in November 2018 as payment of the contingent consideration receivable. Refer to the Business Overview section for additional details.

At December 31, 2018, the Company is contingently liable for a letter of credit in the amount of $50,000. Cash is pledged under this letter of credit and is presented as restricted cash under non-current Other assets in the consolidated statement of financial position as at December 31, 2018.

Other

As at February 20, 2019, the Company had 157,389,686 common shares outstanding and 174,844,685 common shares on a fully diluted basis, including 15,248,000 stock options granted under the stock option plan (of which 3,655,000 stock options were granted on February 20, 2019) and 2,206,999 warrants issued in relation to the 2018 and 2017 Offerings.

During the year ended December 31, 2018, 4,300,000 stock options were granted (2,885,000 in 2017), nil stock options were forfeited (290,000 in 2017) and nil stock options expired (90,000 in 2017).

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Contractual Obligations

As at December 31, 2018, BELLUS Health’s minimum future contractual obligations are principally for payments in relation to operating leases, consulting fees for Picchio International, trade and other payables and contracts for research and development activities. Future contractual obligations by year of maturity are presented below.

Contractual obligations			Less than
(in thousands of dollars)	Total		1 year		2 years
Operating leases	$	164	$	151	$	13
Consulting fees		250		250		—
Trade and other accrued liabilities		2,716		2,716		—
Contracts for research and development activities		6,785		4,959		1,826

On August 15, 2013, BELLUS Health acquired all of the issued and outstanding common shares of Thallion in exchange for cash on closing of transaction and the issuance of one contingent value right (“CVR”) per common share to Thallion’s shareholders, with an expiration date of August 14, 2028, to be paid upon the settlement of the amounts described below.

The CVRs issued to Thallion’s shareholders entitle the holder thereof to: (i) its pro rata share of 100% of any additional purchase price consideration to be received in relation to a 2009 sale transaction by Thallion, (ii) its pro rata share of 5% of the Shigamab™ revenue generated or received by BELLUS Health, capped at $6,500,000, and (iii) its pro rata share of 100% of any net proceeds generated from the licensing, selling or otherwise commercializing of (a) diagnostic products or services using certain Caprion Proteomics Inc. products, and (b) all issued patents or pending patents pertaining to such Caprion Proteomics Inc. products, in respect of which Thallion has an ownership interest or monetary entitlement.

The amount to which the holders of CVRs may be entitled can be reduced for potential contingent liabilities owing by Thallion (including, but not limited to, in respect of the indemnity agreement entered into in relation to the 2009 sale transaction by Thallion, accounts payable or litigation).

In relation to (i) above, BELLUS Health paid in March 2017 a net amount of $577,152 ($0.01609 per CVR) to the CVR holders in relation to the 2009 sale transaction by Thallion.

In relation to (ii) above, the Company paid in April 2017 and in January 2018 net amounts of $94,550 ($0.00263 per CVR) and $14,721 ($0.00041 per CVR), respectively, to the CVR holders in connection with the sale of the Company’s wholly-owned subsidiary Thallion, including all the rights to the drug candidate Shigamab^TM, to Taro in March 2017. Taro acquired all issued and outstanding shares of Thallion for a total consideration of $2.7 million, consisting of a cash payment of $2.3 million on closing and a deferred payment of $0.4 million upon the completion of a pre-established milestone, which payment was received in January 2018.

The CVRs also entitled the holder thereof to receive Thallion’s income tax credits deducted in the 2013 Thallion Statement of Net Cash in the event that they were not claimed by tax authorities after their audit, or their assessment period expired (the “Income Tax Credits”). As they were not claimed nor assessed, BELLUS Health paid on January 25, 2019 a net amount of $134,149 ($0.00374 per CVR) to the CVR holders.

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All payments made to CVR holder were in accordance with the terms of the agreements of the 2013 Thallion acquisition by BELLUS Health.

The Company expects that there will be no additional payment to CVR holders.

The Company is potentially liable in relation to the following indemnity agreement:

In March 2017, the Company entered into a Share Purchase Agreement with Taro for the sale of the Company’s wholly-owned subsidiary Thallion, including all the rights to the drug candidate Shigamab^TM. The Company agreed to indemnify Taro, subject to certain conditions and limitations, for losses which it may suffer or incur, arising out of any debts, liabilities, commitments or obligations of any nature resulting from any matters, actions, events, facts or circumstances related to the activities or affairs of Thallion, which occurred prior to the effective time of the Share Purchase Agreement. No indemnity provision has been recorded by the Company as at December 31, 2018 and 2017 for this matter as the Company does not expect to make any payments under this indemnity agreement.

The Company has a letter of credit issued in connection with a lease agreement in the amount of $50,000. Cash is pledged under the letter of credit and is presented as restricted cash under non-current Other assets in the consolidated statement of financial position as at December 31, 2018.

The Company has entered into a number of other agreements, which involve future commitments, including agreements with Parteq Research and Development Innovations, the federal Ministry of Industry (Technology Partnerships Canada Program) and NEOMED. Refer to note 17 to the consolidated financial statements for the year ended December 31, 2018 for details.

The Company has not engaged in commodity contract trading or off-balance sheet financing, other than in relation to operating leases.

FINANCIAL RISK MANAGEMENT

This section provides disclosures relating to the nature and extent of the Company’s exposure to risks arising from financial instruments, including credit risk, liquidity risk, foreign currency risk and interest rate risk, and how the Company manages those risks.

Credit Risk

Credit risk results from the possibility that a loss may occur from the failure of another party to perform according to the terms of the contract. Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents, short-term investments and trade and other receivables. The Company invests cash mainly with major North American financial institutions. Cash equivalents and short-term investments are comprised of fixed income instruments with a high credit ranking (not less than A-1) as rated by Standard and Poor’s. The Company has investment policies that are designed to provide for the safety and preservation of principal, the Company's liquidity needs and yields that are appropriate.

As at December 31, 2018, the Company’s maximum credit exposure corresponded to the carrying amount of these financial assets.

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Liquidity Risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company requires continued access to capital markets to support its operations, as well as to achieve its strategic plans. Any impediments to the Company’s ability to access capital markets, including the lack of financing capability or an adverse perception in capital markets of the Company’s financial condition or prospects, could have a materially adverse effect on the Company. In addition, the Company’s access to financing is influenced by the economic and credit market environment.

The Company manages liquidity risk through the management of its capital structure, as outlined in note 20 to the consolidated financial statements for the year ended December 31, 2018 (Capital Disclosures). In addition, the Company manages liquidity risk by continuously monitoring actual and projected cash flows. The Board of Directors reviews, approves and monitors the Company’s annual operating and capital budgets, as well as any material transactions.

Foreign Currency Risk

Foreign currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. Foreign currency risk is limited to the portion of the Company’s business transactions denominated in currencies other than Canadian dollars. The Company’s exposure relates primarily to changes in the Canadian dollar versus the US dollar exchange rate. For the Company’s foreign currency transactions, fluctuations in the respective exchange rates relative to the Canadian dollar will create volatility in the Company’s cash flows and the reported amounts for revenue and expenses in income. Additional variability arises from the translation of monetary assets and liabilities denominated in currencies other than the Canadian dollar at the rates of exchange at each reporting date, the impact of which is reported as a foreign exchange gain or loss in income.

The Company’s objective in managing its foreign currency risk is to minimize its net exposures to foreign currency cash flows, by transacting with third parties in the Company’s functional currency to the maximum extent possible and practical and holding cash, cash equivalents and short-term investments as well as incurring borrowings in its functional currency. The Company holds a portion of its cash, cash equivalents and short-term investments in US dollars to meet its liquidity needs in US dollars, but does not use derivative financial instruments to reduce its foreign exchange exposure. Note 21 (d) to the consolidated financial statements for the year ended December 31, 2018 provides indication of the Company’s significant foreign exchange currency exposures as at that date.

Interest Rate Risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market rates. The Company’s financial instruments exposed to interest rate risk are cash and cash equivalents, short-term investments and restricted cash. Management believes that the risk that the Company will realize a loss as a result of the decline in the fair value of its cash equivalents and short-term investments is limited because these investments have short-term maturities and are generally held to maturity. The capacity of the Company to reinvest the short-term amounts with equivalent returns will be impacted by variations in short-term fixed interest rates available in the market.

The Company has had no interest rate hedging activities during the current year.

15

DISCLOSURE CONTROLS AND PROCEDURES

Disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by the Company in its reports filed with securities regulatory authorities is recorded, processed, summarized and reported within prescribed time periods and is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

The Company’s Chief Executive Officer and its Chief Financial Officer are responsible for establishing and maintaining disclosure controls and procedures designed to ensure that information required to be disclosed in the reports filed or submitted under securities legislation is recorded, processed, summarized and reported within the time periods specified by applicable securities legislation. The design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of certain events. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. The Company’s Chief Executive Officer and its Chief Financial Officer are assisted in this responsibility by the Company’s disclosure committee, which is composed of members of senior management. Based on an evaluation of the Company’s disclosure controls and procedures, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2018.

INTERNAL CONTROL OVER FINANCIAL REPORTING

Management’s Annual Report on Internal Control Over Financial Reporting

Internal control over financial reporting (“ICFR”) is designed to provide reasonable assurance regarding the reliability of the Company’s financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. Management, including the Company’s Chief Executive Officer and its Chief Financial Officer, is responsible for establishing and maintaining adequate ICFR. The design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of certain events. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. Management assessed the effectiveness of the Company’s ICFR as of December 31, 2018 based on the framework established in Internal Control – Integrated Framework (2013) by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment, the Company’s Chief Executive Officer and its Chief Financial Officer concluded that the Company’s ICFR were effective as of December 31, 2018. The Company’s assessment is not subject to an attestation report of the Company’s auditors regarding ICFR.

Changes in Internal Controls Over Financial Reporting

In accordance with the Canadian Securities Administrators’ Multilateral Instrument 52-109, the Company has filed certificates signed by the Chief Executive Officer and the Chief Financial Officer, that, among other things, report on the design of disclosure controls and procedures and the design of internal control over financial reporting.

There have been no changes in the Company’s ICFR during the quarter ended December 31, 2018 that have materially affected, or are reasonably likely to materially affect its ICFR.

16

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of the consolidated financial statements in conformity with IFRS requires management to adopt accounting policies and to make certain judgments, estimates and assumptions that the Company believes are reasonable based upon the information available at the time these decisions are made. These accounting policies, judgments, estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements, and the reported amounts of revenues, expenses and cash flows during the reporting periods. By their nature, these judgments are subject to an inherent degree of uncertainty and are based upon historical experience, trends in the industry and information available from outside sources. On an ongoing basis, management reviews its estimates and actual results could differ from estimates.

The Company’s significant accounting policies are described in note 3 to the consolidated financial statements for the year ended December 31, 2018. Management considers that the following accounting policies and estimates are more important in assessing, understanding and evaluating the Company’s consolidated financial statements.

In-process research and development asset: The in-process research and development (“IPR&D”) asset is accounted for as an indefinite-lived intangible asset until the project is completed or abandoned, at which point it will be amortized or impaired, respectively. The Company accounts for subsequent research and development costs associated with the acquired IPR&D asset consistent with the research and development policy in note 3 (d) to the consolidated financial statements. The Company assesses at each reporting date whether there is an indication that the asset may be impaired. Irrespective of whether there is any indication of impairment, the IPR&D asset is tested for impairment annually by comparing its carrying amount with its recoverable amount.

Stock-based compensation: The Company follows the fair value-based method to account for options granted to employees, whereby compensation cost is measured at fair value at the date of grant and is expensed over the award’s vesting period with a corresponding increase to equity. The fair value of each option granted is estimated on the date of grant using the Black-Scholes pricing model, which requires certain assumptions, including the future stock price volatility and expected time to exercise. Expected volatility is estimated by considering historic average share price volatility. For stock options with graded vesting, the fair value of each tranche is recognized over its respective vesting period. The amount recognized as an expense is adjusted to reflect the number of awards for which the related service vesting conditions are expected to be met, such that the amount ultimately recognized as an expense is based on the number of awards that meet the related service conditions at the vesting date. When stock options are exercised, the Company issues new shares. The proceeds received, together with the related portion previously recorded in other equity, are credited to share capital. Changes to any assumptions, or the use of a different option pricing model, could produce different fair values for stock-based compensation, which could have a material impact on the Company’s income.

Note 2 (d) to the consolidated financial statements provides additional information regarding the use of estimates and judgements in the application of accounting policies.

17

CHANGES IN ACCOUNTING POLICIES

Changes in significant accounting policies in 2018

On January 1, 2018, the Company adopted the following new accounting standards and interpretations issued by the IASB, for which the application did not have a material impact on the audited consolidated financial statements for the year ended December 31, 2018:

(a) IFRS 2, Share-Based Payment;

(b) IFRS 9 (2014), Financial Instruments; and

(c) IFRS 15, Revenue from Contracts with Customers.

Further information on these accounting changes can be found in note 4 (a) to the December 31, 2018 audited consolidated financial statements.

New accounting standard and interpretations not yet adopted

Leases

In January 2016, the IASB issued IFRS 16, Leases, which will replace IAS 17, Leases and the related interpretations. This standard introduces a single lessee accounting model and requires all leases of more than 12 months to be reported on a company’s statement of financial position as assets and liabilities, unless the underlying asset is of low value. A lessee is required to recognize a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. This standard substantially carries forward the lessor accounting requirements of IAS 17, while requiring enhanced disclosures to be provided by lessors. Other areas of the lease accounting model have also been impacted, including the definition of a lease. Transitional provisions have been provided.

The new standard is effective for annual periods beginning on or after January 1, 2019. The Company will adopt IFRS 16 using the modified retrospective transition method, with the cumulative effect of initially applying the standard recognized as an adjustment to opening retained earnings at date of initial adoption. The Company does not expect that the adoption of the standard will have a material effect on the consolidated financial statements, other than that its operating leases will need to be recognized in its consolidated statement of financial position on initial adoption of IFRS 16.

The nature of expenses related to those leases will now change because the Company will recognize a depreciation charge for right-of-use assets and interest expense on lease liabilities. Previously, the Company recognized operating lease expense on a straight-line basis over the term of the lease, and recognised assets and liabilities only to the extent that there was a timing difference between actual lease payments and the expense recognized.

Based on the information currently available, the Company expects that the right-of-use asset and lease liability on January 1, 2019 will be between $100,000 and $164,000.

18

RISKS AND UNCERTAINTIES

Since its inception in 1993, BELLUS Health has incurred significant operating losses. The Company’s drug candidates are in development and none have yet been approved for commercialization by regulatory authorities in any jurisdiction. The Company’s business entails significant risks, including the ability to expand and develop its project pipeline, costs and time involved in obtaining the required regulatory approvals, the adequacy of patent protection, the uncertainties involved in clinical testing, the availability of capital to continue development and commercialization of drugs, and competition from pharmaceutical and biotechnology companies.

Significant funding is required for research and development, clinical trials, marketing, commercial manufacturing of drugs and the establishment of sales and marketing teams that may be necessary for the launch and sales of new drugs. In addition, major financial resources are necessary until such time as the drugs are commercialized and sold successfully, and sales are sufficient to generate profits. The Company may seek to raise additional funds through public or private financing, collaborations agreements with other companies, or financing from other sources. However, there can be no assurance that these financing efforts will be successful or that the Company will continue to be able to meet its ongoing cash requirements. It is possible that financing will not be available or, if available, may not be on favourable terms.

The availability of financing will be affected by the results of scientific research and clinical development, the Company’s ability to obtain regulatory approvals, the market acceptance of the Company’s drugs, the state of the capital markets generally (with particular reference to pharmaceutical, biotechnology, nutraceutical and medical companies), the status of strategic alliance agreements, and other relevant commercial considerations.

Drug research and development involves a high degree of risk, and returns to investors are dependent upon successful development and commercialization of the Company’s drug candidates. A setback in any of the Company’s clinical trials may cause a drop in the Company’s stock price. Difficulties encountered in enrolling patients in the Company’s clinical trials could delay or adversely affect the trials. There can be no assurance that development of any drug candidate will be successfully completed or that regulatory approval of any of the Company’s drug candidates under development will be obtained. Furthermore, there can be no assurance that existing drugs or new drug candidates developed by competitors will not be more effective, or more effectively marketed and sold, than any that may be developed by the Company. There can be no assurance that the Company’s future potential drugs will gain market acceptance among physicians, patients, healthcare payers, the medical community and consumers. In addition, given the very high costs of development of drug candidates, the Company anticipates having to partner with pharmaceutical companies to develop and/or bring drugs candidates to market. The terms of such partnership arrangements along with the related financial obligations cannot be determined at this time and the timing of completion of the development and/or approval of such drug candidates will likely not be within the Company’s control.

The Company is heavily dependent on licensed intellectual property. If the Company was to lose its rights to licensed intellectual property, it would not be able to continue developing or commercializing BLU-5937. If the Company breaches any of the agreements under which it licenses the use, development and commercialization rights to BLU-5937 or any other drug candidate or technology from third parties or if certain insolvency events were to occur, it could lose license rights that are critical to its business.

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Because of the length of time and expense associated with bringing new drug candidates through development, obtaining regulatory approval and bringing drugs to market, the Company places considerable importance on obtaining and maintaining patent protection and safeguarding trade secret protection for significant discoveries. There can be no assurance that any pending patent application filed by the Company will mature into an issued patent. Furthermore, there can be no assurance that existing or pending patent claims will offer protection against competition, or will not be designed around or infringed upon by others. Commercial success will also depend in part on the Company not infringing patents or proprietary rights of others. Patent litigation is costly and time consuming and may subject the Company to liabilities.

The Company is currently dependent on third parties for a variety of functions and may enter into future collaborations for the development, manufacturing and commercialization of drugs. There is no assurance that the arrangements with these third parties will provide benefits the Company expects. There can also be no assurance that the Company will be successful in manufacturing, marketing and distributing drugs, or that the Company will be able to make adequate arrangements with third parties for such purposes. There can be no assurance that the Company will generate significant revenue or achieve profitability.

The Company may be required to make payments under the indemnity agreement in relation to the sale of Thallion in 2017.

A detailed discussion on the Company’s risks and uncertainties can be found in the Company’s public filings including the Annual Information Form available on SEDAR at www.sedar.com.

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FORWARD-LOOKING STATEMENTS

Certain statements contained in this MD&A, other than statements of fact that are independently verifiable at the date of this report, may constitute “forward-looking statements” within the meaning of Canadian securities legislation and regulations. Such statements, based as they are on the current expectations of management, inherently involve numerous important risks, uncertainties and assumptions, known and unknown, many of which are beyond the Company's control. This forward-looking information may include among other things, information with respect to the Company’s objectives and the strategies to achieve these objectives, as well as information with respect to the Company’s beliefs, plans, expectations, anticipations, estimates, and intentions. Forward-looking statements generally can be identified by the use of conditional or forward-looking terminology such as “may”, “will”, “expect”, “intend”, “estimate”, “anticipate”, “plan”, “foresee”, “believe” or “continue” or the negatives of these terms or variations of them or similar terminology. Refer to the Company’s public filings with the Canadian securities regulatory authorities, including the Annual Information Form, for a discussion of the various risk factors that may affect the Company’s future results. Such risks factors include but are not limited to: the ability to expand and develop its project pipeline, the ability to obtain financing, the impact of general economic conditions, general conditions in the pharmaceutical industry, changes in the regulatory environment in the jurisdictions in which the Company does business, stock market volatility, fluctuations in costs, changes to the competitive environment due to consolidation, achievement of forecasted burn rate, potential payments/outcomes in relation to indemnity agreements and contingent value rights, achievement of forecasted pre-clinical and clinical trial milestones and that actual results may vary once the final and quality-controlled verification of data and analyses has been completed. In addition, the length of the Company’s drug candidates’ development process, their market size and commercial value, as well as the sharing of proceeds between the Company and its potential partners from potential future revenues, if any, are dependent upon a number of factors. Consequently, actual future results and events may differ materially from the anticipated results and events expressed in the forward-looking statements. The Company believes that expectations represented by forward-looking statements are reasonable, yet there can be no assurance that such expectations will prove to be correct. The reader should not place undue reliance, if any, on any forward-looking statements included in this report. These forward-looking statements speak only as of the date made, and the Company is under no obligation and disavows any intention to update publicly or revise such statements as a result of any new information, future events, circumstances or otherwise, unless required by applicable legislation or regulation. The forward-looking statements contained in this report are expressly qualified by this cautionary statement.

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EX-4.4

Exhibit 4.4

 

BELLUS HEALTH INC.

NOTICE AND

MANAGEMENT INFORMATION CIRCULAR

FOR THE

ANNUAL AND SPECIAL MEETING

OF COMMON SHAREHOLDERS

TO BE HELD ON MAY 8, 2019

March 13, 2019

BELLUS HEALTH INC.

NOTICE OF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS

NOTICE is hereby given that the annual and special meeting (the “Meeting”) of the common shareholders of BELLUS Health Inc. (the “Company”) will be held at the offices of the Company, at 275 Armand Frappier Blvd., Laval, on May 8, 2019 at 11:00 AM, Montréal time, for the following purposes:

(i) to receive and consider the annual report of the directors to the shareholders and the financial statements of the Company for the financial year ended December 31, 2018, and the report of the auditors thereon;

(ii) to elect each of the directors for the ensuing year;

(iii) to appoint KPMG LLP, Chartered Accountants, as auditors of the Company and to authorize the Audit Committee to fix the auditors’ remuneration;

(iv) to adopt a special resolution, the text of which is set out in Schedule “A” to the management information circular of the Company dated March 13, 2019 (the “Circular”) authorizing the Board of Directors of the Company to amend the articles of the Company to effect a consolidation of all of the issued and outstanding common shares of the Company (the “Common Shares”), such that the trading price of the post-consolidation Common Shares is between US$5.00 and US$7.50 per post-consolidation Common Share;

and

(v) to transact such further and other business as may properly be brought before the Meeting or any adjournment thereof.

DATED at Montréal, Québec, Canada, March 13, 2019.

BY ORDER OF THE BOARD OF DIRECTORS

(signed) Sébastien Roy

Corporate Secretary

SHAREHOLDERS MAY EXERCISE THEIR VOTING RIGHTS BY ATTENDING THE MEETING OR BY COMPLETING A FORM OF PROXY. SHAREHOLDERS WHO ARE UNABLE TO BE PRESENT IN PERSON AT THE MEETING ARE REQUESTED TO COMPLETE, DATE AND SIGN THE ENCLOSED FORM OF PROXY AND MAIL IT TO THE COMPANY, C/O COMPUTERSHARE INVESTOR SERVICES INC., IN THE ENVELOPE PROVIDED FOR THAT PURPOSE. PLEASE REFER TO THE ACCOMPANYING MANAGEMENT INFORMATION CIRCULAR FOR ADDITIONAL PARTICULARS.

Table of Contents

PART 1. VOTING INFORMATION	4
Solicitation of Proxies	4
Appointment and Revocation of Proxies	4
Registered Common Shareholders	4
Non-Registered Common Shareholders	5
Voting of Proxies	5
Voting Shares and Principal Holders thereof	6
PART 2. Business of the Meeting	6
Presentation of Financial Statements and Auditor’s Report	6
Election of Directors	6
Auditors of the Company	9
Share Consolidation	9
PART 3. statement of Executive Compensation	11
Compensation of Directors and Executives	11
Equity Compensation Plans	20
Securities Authorized for Issuance under Equity Compensation Plans	24
Indebtedness of Directors and Executive Officers	24
PART 4. REPORT ON CORPORATE GOVERNANCE AND OTHER ITEMS	24
Interest of Informed Persons In Material Transactions and Management Contracts	26
2019 Shareholder Proposals	26
Additional Information	26
Approval by Directors	26
Schedule “A” – SHARE CONSOLIDATION RESOLUTION	A-1
Schedule “B” – CORPORATE GOVERNANCE PRACTICES	B-1
Schedule “C” – BOARD OF DIRECTORS MANDATE	C-1

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MANAGEMENT INFORMATION CIRCULAR

PART 1.

VOTING INFORMATION

This management information circular (the “Circular”) is furnished in connection with the solicitation by the management of BELLUS Health Inc. (the “Company”) of proxies to be voted at the annual and special meeting of common shareholders (the “Meeting”), to be held at the offices of the Company, at 275 Armand Frappier Blvd., Laval, on May 8, 2019 at 11:00 AM, Montréal time, for the purposes set forth in the accompanying notice of the Meeting, and at any adjournment thereof. Except as otherwise stated, the information contained herein is given as at March 13, 2019, all dollar amounts and references to $ or to CDN$ are to Canadian dollars.

Solicitation of Proxies

The enclosed proxy is being solicited by the management of the Company and the expenses of solicitation of proxies will be borne by the Company. The solicitation will be made primarily by mail; however, officers and regular employees of the Company may also solicit proxies by telephone, telecopier, electronic mail or in person.

Appointment and Revocation of Proxies

The persons named in the enclosed form of proxy are directors or officers of the Company. Each shareholder is entitled to appoint any other person to represent him at the Meeting, and at any adjournment thereof.

A shareholder desiring to appoint another person (who need not be a shareholder) to represent him at the Meeting, and at any adjournment thereof, may do so either by striking out the names of the management nominees set forth in the form of proxy and by inserting such person’s name therein or by completing another proper form of proxy and, in either case, sending the completed proxy in the enclosed reply envelope for delivery before the Meeting, or any adjournment thereof, or by depositing such proxy with the Chairman on the day of the Meeting, at the Meeting or any adjournment thereof.

A shareholder giving a proxy pursuant to this solicitation may revoke any such proxy by instrument in writing executed by the shareholder or by his attorney duly authorized in writing, or if the shareholder is a corporation, executed under its corporate seal or by an officer or attorney duly authorized in writing, and deposited with the Company, c/o Computershare Investor Services Inc., Attention: Proxy Department, 100 University Avenue, 9th Floor, North Tower, Toronto, Ontario M5J 2Y1, at any time up to and including the close of business two business days preceding the day of the Meeting, or any adjournment thereof, or with the Chairman on the day of the Meeting, at the Meeting or any adjournment thereof, before any vote is cast under the proxy’s authority.

Registered Common Shareholders

Holders of common shares of the capital of the Company (the “Common Shares”) listed as shareholders at the close of business on March 29, 2019, will be entitled to vote at the Meeting, or any adjournment thereof, either in person or by proxy, in respect of all matters which may properly come before the Meeting, or any adjournment thereof, except to the extent that such shareholder has subsequently (after the Record Date) transferred any such Common Shares, and the transferee of those Common Shares establishes such transferee shareholder’s ownership of such Common Shares and requests, no later than two Business Days prior to the Meeting and requests in writing with sufficient evidence of such transfer of ownership, that such transferee shareholder’s name be included in the list of shareholders prepared by the Transfer Agent for the Meeting. In such case, only the new transferee shareholder will be entitled to vote such Common Shares on each matter to be acted upon at the Meeting.

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Non-Registered Common Shareholders

The names of the shareholders whose shares are held in the name of a broker or another intermediary will not appear on the list of shareholders of the Company. If you are not a registered shareholder of the Company, in order to vote you must a) obtain the material relating to the Meeting from your broker or other intermediary; b) complete the request for voting instructions sent to you by the broker or other intermediary; and c) follow the directions of the broker or other intermediary with respect to voting procedures.

In accordance with National Instrument 54-101 adopted by the Canadian Securities Administrators entitled “Communication with Beneficial Owners of Securities of a Reporting Issuer”, the Company is distributing copies of the material related to the Meeting to clearing agencies and intermediaries for distribution to non-registered holders. Such agencies and intermediaries must forward the material related to the Meeting to non-registered holders and often use a service company (such as Broadridge Financial Solutions in Canada) to permit you, if you are not a registered shareholder, to direct the voting of the Common Shares which you beneficially own. If you are a non-registered shareholder of the Company, you may revoke voting instructions which have been given to an intermediary at any time by written notice to the intermediary. If you are a non-registered shareholder of the Company, you should submit your voting instructions to your intermediary or broker in sufficient time to ensure that your votes are received, from your intermediary or broker, by Computershare Investor Services Inc. on behalf of the Company, as set forth under the heading “Appointment and Revocation of Proxies”.

Voting of Proxies

The persons named in the enclosed form of proxy will vote or withhold from voting the shares in respect of which they are appointed in accordance with the directions of the shareholders appointing them.

In the absence of shareholder directions, Common Shares will be voted:

a. FOR the election as directors of each of those persons hereinafter named as management’s nominees;

b. FOR the appointment of KPMG LLP, Chartered Accountants, as auditors of the Company and the authorization of the Audit Committee to fix the auditors’ remuneration; and

c. FOR the special resolution authorizing the Board of Directors of the Company to amend its articles to effect a consolidation of all of the outstanding Common Shares.

All matters to be voted upon at the Meeting will be decided by a majority of the votes cast by the shareholders entitled to vote thereon; except as regards the special resolution mentioned above which will require approval by 66 ⅔% of the votes cast by the shareholders entitled to vote thereon.

The enclosed form of proxy confers discretionary authority upon the persons named therein with respect to amendments or variations to matters identified in the accompanying notice of the Meeting or with respect to such other matters as may properly come before the Meeting, or any adjournment thereof. At the date hereof, the management of the Company knows of no such amendments, variations or other matters to be presented for action at the Meeting, or any adjournment thereof. However, if any other matters which are not now known to management should properly come before the Meeting, or any adjournment thereof, the persons named in the enclosed form of proxy will vote on such matters in accordance with their best judgment.

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Voting Shares and Principal Holders thereof

As at March 13, 2019, there were 157,956,173 Common Shares outstanding, each of which entitles its holder to one vote at the Meeting. To the knowledge of the directors and officers of the Company, based on publicly available information, as at March 13, 2019, no person beneficially owned, directly or indirectly, or exercised control or direction over, shares of the Company carrying 10% or more of the voting rights attached to all outstanding voting shares of the Company, except as follows:

Name	Number of Common Shares	Percentage of class
OrbiMed Advisors LLC (“OrbiMed”)	21,310,300	13.5%
Victoria Square Ventures Inc. (“VSVI”)	17,775,831	11.3%
Rocabe Investments Inc. (“Rocabe”)	16,433,318	10.4%

PART 2.

Business of the Meeting

Presentation of Financial Statements and Auditor’s Report

The audited consolidated financial statements of the Company, the report of the auditors thereon, and the management’s discussion and analysis thereof for the financial year ended December 31, 2018, are contained in the 2018 annual report of the Company and will be tabled at the Meeting, but the approval of the shareholders in respect thereto is not required.

Election of Directors

Eight directors are to be elected at the Meeting. The Board of Directors of the Company (the “Board”) recommends that shareholders vote for the election of each of the nominees whose names are set forth below. The persons named in the enclosed form of proxy intend to cast the votes to which the shares represented by such proxy are entitled FOR the election of each of the nominees whose names are set forth below unless otherwise directed by the shareholders appointing them.

The Board has a majority voting policy. This means that if a director receives more “withhold” votes than “for” votes at the annual meeting of shareholders, then the director will immediately tender his or her resignation to the Chairman. This would be effective if accepted by the Board. The Human Resources and Governance Committee will consider a director’s offer to resign and make a recommendation to the Board as to whether to accept it. Absent exceptional circumstances, the resignation will be accepted and will be effective when accepted by the Board. The director who tenders a resignation pursuant to this policy will not participate in any meeting of the Board or of the Human Resources and Governance Committee at which the resignation is considered. The Board will have 90 days from the annual meeting to make and disclose by news release its decision, a copy of which will be provided to the Toronto Stock Exchange (“TSX”). If the Board determines not to accept a resignation, the news release will fully state the reasons for that decision. This policy does not apply in circumstances involving contested director elections.

Management does not contemplate that any of the nominees will be unable to serve as a director, but, if that should occur for any reason at or prior to the Meeting, the persons named in the enclosed form of proxy reserve the right to vote for another nominee at their discretion, unless instructions have been received from a particular shareholder to withhold its shares from voting with respect to the election of directors. Each director elected will hold office until the next annual meeting of shareholders or until his successor is duly elected, unless his office is earlier vacated in accordance with the by-laws of the Company. All of the people named in the table below are now members of the Board and have been during the period indicated.

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The following table states the names of all the persons proposed by management to be nominated for election as directors, their municipality, province or state and country of residence, their age, their principal occupation during the past five years, their position and office held with the Company, the period during which each proposed nominee has served as a director and the number of Common Shares beneficially owned, directly or indirectly, by each of them or over which they exercise control or direction.

Name and Municipality of Residence	Age (as at March 13, 2019)	Principal Occupation During Past Five Years	Office	Period during which served as a Director	Number of Common Shares Beneficially  Owned, Controlled or Directed (1)
Dr. Francesco Bellini, O.C. (2) Calgary, Alberta, Canada	71	Chairman of the Board of Picchio International Inc. (a management and holding company)	Chairman of the Board	2002-2019	3,059,947 (3)
Roberto Bellini (2) Montreal, Québec, Canada	39	President and Chief Executive Officer of the Company	Director	2009-2019	18,548,540 (4)
Dr. Youssef L. Bennani (5) Lorraine, Québec, Canada	58	Chairman of the Board of Domain Therapeutics (6)	Director	2017-2019	394,737
Franklin M. Berger, CFA (7) New York, New York, United States	69	Consultant	Director	2010-2019	1,452,108
Dr. Clarissa Desjardins Montreal, Québec, Canada	52	Chief Executive Officer of Clementia Pharmaceuticals Inc.	Director	2017-2019	52,632
Chau Q. Khuong (8) New York, New York, United States	43	Private Equity Partner of OrbiMed Advisors LLC	Director	2018-2019	NIL
Pierre Larochelle (2), (5), (7) Montréal, Québec, Canada	47	Vice President, Investments of Power Corporation of Canada (a diversified management and holding company)	Director	2009-2019	275,650
Joseph Rus (5), (7) Toronto, Ontario, Canada	73	Consultant	Director	2009-2019	NIL

(1) The information as to the Common Shares beneficially owned, controlled or directed, not being within the knowledge of the Company, has been furnished by the respective candidates individually as at March 13, 2019.

(2) Pursuant to Board representation agreements dated April 16, 2009 between the Company and each of VSVI and a predecessor to Rocabe (the “2009 Board Representation Agreements”), each of VSVI and Rocabe is entitled to cause two nominees to be included in the list of management nominees to be proposed for election to the Board at each shareholders meeting occurring following that date. VSVI’s and Rocabe’s right to two nominees each shall terminate on the date each of VSVI, on the one hand, and Rocabe, FMRC Family Trust (“FMRC”), a trust of which Dr. Francesco Bellini, Chairman of the Board of the Company, and Mr. Roberto Bellini, President and Chief Executive Officer of the Company, are beneficiaries and 1324286 Alberta Limited (“AlbertaCo”), a wholly-owned subsidiary of the FMRC, collectively, on the other hand, ceases to beneficially hold at least 7.5% of the issued and outstanding Common Shares. Despite their rights, VSVI has only nominated one candidate, being Mr. Larochelle, and Rocabe has only nominated one candidate, being Dr. Bellini.

(3) Dr. Bellini is the registered holder of 693,889 Common Shares. FMRC and AlbertaCo own 2,366,058 Common Shares, which shares are shown in Dr. Bellini’s share ownership.

(4) Mr. Bellini is the registered holder of 2,115,222 Common Shares and has a beneficial interest in 16,433,318 Common Shares through his 50% interest in Rocabe.

(5) Member of the Human Resources and Governance Committee.

(6) From 2013 to 2017, Dr. Bennani was Site Head and Vice-President of R&D at Vertex Pharmaceuticals Canada Inc., a research and development company.

(7) Member of the Audit Committee.

(8) Pursuant to a Board representation agreement dated December 18, 2018 between the Company and OrbiMed (the “2018 Board Representation Agreement”), OrbiMed is entitled to cause one nominee to be included in the list of management nominees to be proposed for election to the Board at each shareholders meeting occurring following that date. OrbiMed’s right to one nominee shall terminate on the date OrbiMed ceases to beneficially hold at least 10% of the issued and outstanding Common Shares. OrbiMed’s nominated candidate is Mr. Khuong.

Corporate Cease Trade Orders or Bankruptcies

To the knowledge of the directors and officers of the Company, other than as set forth below, no proposed director of the Company:

(a)       is, as at the date of the Circular, or has been, within 10 years before the date of the Circular, a director, chief executive officer or chief financial officer of any company, that,

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(i) was subject to a cease trade order, an order similar to a cease trade order or an order that denied the relevant company access to any exemption under securities legislation that was issued while the proposed director was acting in the capacity as director, chief executive officer or chief financial officer that was in effect for a period of more than 30 consecutive days; or

(ii) was subject to a cease trade order, an order similar to a cease trade order or an order that denied the relevant company access to any exemption under securities legislation that was issued after the proposed director ceased to be a director, chief executive officer or chief financial officer and which resulted from an event that occurred while that person was acting in the capacity as director, chief executive officer or chief financial officer that was in effect for a period of more than 30 consecutive days; or

(b)       is, as at the date of the Circular, or has been within 10 years before the date of the Circular, a director or executive officer of any company, that, while that person was acting in that capacity, or within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets; or

(c)       has, within the 10 years before the date of the Circular, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold its assets.

Mr. Pierre Larochelle resigned as President and CEO and as a director of Adaltis on July 13, 2009. In August 2009, Adaltis filed a voluntary assignment in bankruptcy under the Bankruptcy and Insolvency Act (Canada) (the “BIA”).

Directors’ Attendance at Board and Committee Meetings

The following table set forth the number of meetings held by the Board and each of its Committees during the fiscal year ended December 31, 2018, and the attendance of each director at those meetings, or, in the case of Committees of the Board, the attendance of each member of such Committees.

Board and Board Committee Attendance Record from January 1 to December 31, 2018

Director	Board	Audit	Human Resources and Governance	Independent Directors
Dr. Francesco Bellini	7/7	-	-	-
Roberto Bellini	7/7	-	-	-
Dr. Youssef L. Bennani	7/7	-	2/2	1/1
Franklin M. Berger	7/7	4/4	-	1/1
Dr. Clarissa Desjardins	6/7	-	-	1/1
Chau Q. Khuong (1)	N/A	-	-	N/A
Pierre Larochelle	7/7	4/4	2/2	1/1
Joseph Rus	6/7	4/4	2/2	1/1

(1) Mr. Khuong was elected to the Board effective December 18, 2018. He did not attend meetings prior to that date.

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Other Board Memberships

The following table identifies, in respect of the fiscal year ended December 31, 2018, the current directors of the Company who also act as directors for other reporting issuers.

Name	Name of issuer	Name of Exchange or Market
Franklin M. Berger	Five Prime Therapeutics Inc. Immune Design Corp. ESSA Pharma Inc. Proteostasis Therapeutics Inc. Tocagen Inc. Kezar Life Sciences Inc.	National Association of Securities Dealers Automated Quotations (“NASDAQ”) NASDAQ TSX Venture Exchange (“TSXV”) and NASDAQ NASDAQ NASDAQ NASDAQ
Chau Q. Khuong	Aerpio Pharmaceuticals Inc. Synlogic Inc.	NASDAQ NASDAQ
Dr. Clarissa Desjardins	Clementia Pharmaceuticals Inc.	NASDAQ

Directors’ and Officers’ Insurance

The Company provides insurance for the benefit of its directors and officers against liability incurred by them in these capacities. The current aggregate policy limit is $20,000,000, the first $100,000 of certain claims being deductible and payable by the Company. The premium is $42,467 for a twelve-month term ending October16, 2019. This premium, which has not been specifically allocated between directors as a group and officers as a group, was paid entirely by the Company.

Auditors of the Company

KPMG LLP, Chartered Accountants, have been the auditors of the Company since September 1995. The Board recommends that shareholders vote for the appointment of KPMG LLP, Chartered Accountants, as auditors of the Company and the authorization of the Audit Committee to fix the auditors’ remuneration. The persons named in the enclosed form of proxy intend to cast the votes to which the shares represented by such proxy are entitled FOR the reappointment of KPMG LLP, Chartered Accountants, as auditors of the Company for the term expiring with the next annual meeting of shareholders, and to authorize the Audit Committee to fix their remuneration, unless otherwise directed by the shareholders appointing them.

Share Consolidation

At the Meeting, shareholders will be asked to consider a special resolution (the “Share Consolidation Resolution”) authorizing the Board to amend the articles of the Company to effect a consolidation of all of the issued and outstanding Common Shares (the “Share Consolidation”), such that the trading price of the post-consolidation Common Shares is between US$5.00 and US$7.50 per post-consolidation Common Share, as may be determined by the Board in its sole discretion (the “Consolidation Ratio”).

The Board believes that is in the best interests of the Company to have the authority to implement the Share Consolidation. The potential benefits of a higher post-consolidation share price include the ability to meet the initial listing requirements of major exchanges in the United States in the event that the Company determines to pursue such a listing.

To be effective, the Canada Business Corporations Act (the “CBCA”) requires that the Share Consolidation Resolution be approved by a special resolution of the shareholders, being a majority of not less than two-thirds (2/3) of the votes cast by shareholders present in person or by proxy at the Meeting. In addition to the approval of the shareholders, the Share Consolidation requires the approval of the TSX.

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Although shareholders’ approval for the Share Consolidation is being sought at the Meeting, the Share Consolidation would become effective at a date in the future to be determined by the Board if and when it is considered to be in the best interest of the Company to implement the Share Consolidation. The Board may, in its sole discretion, determine not to implement the Share Consolidation at any time after the Meeting without further action on the part of or notice to the shareholders.

The full text of the Share Consolidation Resolution approving the proposed Share Consolidation is attached to this Circular as Schedule “A”.

The Board believes that the proposed Share Consolidation is in the best interest of the Company and its shareholders and unanimously recommends that shareholders vote FOR the Share Consolidation Resolution.

Unless authority to vote is withheld, the persons named in the accompanying form of proxy intend to vote FOR the Share Consolidation Resolution.

Principal Effects of the Share Consolidation

If approved and implemented, the Share Consolidation will occur simultaneously for all the Common Shares and the Consolidation Ratio will be the same for all the Common Shares. Except for any variances attributable to fractional shares, the change in the number of issued and outstanding Common Shares that will result from the Share Consolidation will cause no change in the capital attributable to the Common Shares and will not materially affect any Shareholder’s percentage ownership in the Corporation, even though such ownership will be represented by smaller number of Common Shares.

In addition, the Share Consolidation will not materially affect any shareholder’s proportionate voting rights. Each Common Share outstanding after the Share Consolidation will be entitled to one vote and will be fully paid and non-assessable.

No fractional Common Shares will be issued in connection with the Share Consolidation and, in the event that a shareholder would otherwise be entitled to receive a fractional share upon such Share Consolidation, the number of Common Shares to be received by such shareholder will be rounded up or down to the nearest whole Common Share.

If the proposed Share Consolidation is approved by the shareholders and all regulatory requirements are complied with, including the approval of the TSX, and implemented by the Board, following the announcement by the Company of the effective date of the Share Consolidation, registered shareholders will be sent a letter of transmittal by the Company’s transfer agent, Computershare Investor Services Inc., containing instructions on how to exchange their share certificates representing pre-consolidation Common Shares for new share certificates representing post-consolidation Common Shares. Non-registered shareholders holding their Common Shares through a bank, broker or other nominee should note that such banks, brokers or other nominees may have different procedures for processing the Share Consolidation than those that will be put in place by the Company for the registered shareholders. If you hold your Common Shares with such a bank, broker or other nominee and if you have any question in this regard, you are encouraged to contact your nominee.

10

PART 3.

statement of Executive Compensation

Compensation of Directors and Executives

Compensation Discussion and Analysis

Objectives of the Compensation Program

The Company’s current remuneration program plays an important role in attracting and retaining key members of the senior executive team. The Company is committed to a compensation policy that is competitive and drives business performance.

What the Compensation Program is designed to reward

The Compensation Program is designed to reward the senior executive team for implementing key strategies, both in the short- and the long-term, that will allow the Company to advance its development of products that provide innovative health solutions and address critical unmet medical needs, to enhance its share value, and, thereby, create economic value. Actual rewards are directly linked to the results of the Company.

Remuneration and incentive components have been established to compete with remuneration practices of similar companies that are involved in the biopharmaceutical and pharmaceutical industries. To establish base salary and bonus compensation levels, the Human Resources and Governance Committee studies, among other things, the competitive market environment, and reviews information published in the proxy circulars of other publicly listed biopharmaceutical and pharmaceutical companies having similar revenues, size and market capitalization. The Human Resources and Governance Committee also takes into consideration the Company’s own financial targets and past performance.

Elements of Compensation Program, Determination of Amounts for each Elements, Rationale for Amounts of each Element

The major elements of the Company’s executive compensation program are base salary, annual individual performance incentives (bonuses), and long-term incentives through the granting of stock options and common shares in relation to incentive compensation agreements. The Company’s executive compensation program aims at allocating 60% to incentive-based compensation and 40% to fixed remuneration. The compensation policies and guidelines for the Named Executive Officers (as defined herein) and other senior executives, other than the President and Chief Executive Officer, are recommended by the President and Chief Executive Officer and approved by the Human Resources and Governance Committee. The compensation for the President and Chief Executive Officer is recommended by the Human Resources and Governance Committee and approved by the Board.

Base Salary

Salaries for the Named Executive Officers and other senior executives are based on the experience and expertise of each executive. In normal times, the Company’s policy is for the total cash compensation of the Named Executive Officers and other senior executives, including compensation under the bonus plan, generally to be aligned with the 50th percentile.

During the 2018 financial year, the Human Resources and Governance Committee, with the assistance of the CEO and CFO, conducted an informal compensation review of publicly available data relating to peer biotechnology companies of comparable revenues, size and market capitalization. The Human Resources and Governance Committee compared the total compensation of the Named Executive Officers, including compensation under the bonus plan, with that of the executive officers of the identified peer companies to assess

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the reasonableness. The Company’s identified peer companies consisted of the following: Acasti Pharma Inc., Aeterna Zentaris Inc., Aptose Biosciences Inc., Arbutus BioPharma Corp., Fennec Pharmaceuticals Inc., IMV Inc., ProMIS Neurosciences Inc. and Xenon Pharmaceuticals Inc. (the “Peer Group”). Based on its review, the Human Resources and Governance Committee concluded that the compensation of some of the Named Executive Officers for 2018 was lower than those of the Peer Group. As such, in February 2019, the Board approved a 2019 base salary increase for François Desjardins, Vice President, Finance (12%) and Tony Matzouranis, Vice President, Business Development (20%).

In February 2019, the Board approved a salary adjustment for all employees, including the Named Executive Officers and other senior executives, taking into consideration changes in the cost of living in the province of Québec and in Canada, as well as recent independent compensation reports.

Performance Reward Program (Bonus Plan)

The Bonus plan is designed to recognize the contribution of the Named Executive Officers and the other senior executives to the Company’s key strategies. Bonuses are granted in accordance with the individual performance and the results of the scientific projects. Each senior executive of the Company is evaluated in the context of the annual performance review process. When and if the Company generates significant revenues from the sale of its products, sales and profits will also factor into the determination of annual performance bonuses, but such is not the case presently. The target bonus payment for Named Executive Officers (other than Mr. Bellini) is set at twenty-five percent (25%) of base salary. For 2018, Mr. Bellini was eligible to receive a cash bonus equal to 50% of his annual base salary, with the actual amount of the bonus paid depending upon the achievement of personal and corporate objectives reasonably established by the Board. In February 2019, the Board approved that going forward Mr. Bellini would be eligible to receive a cash bonus of up to 70% of his annual base salary, with the actual amount of the bonus paid depending upon the achievement of personal and corporate objectives reasonably established by the Board. The corporate objectives consist of both financial and business goals which are periodically reviewed by the Board.

Key Employee Stock Options Plan

The Company believes that the grant of stock options helps align management interest with the growth in shareholder value. In the past, senior executives of the Company, including the Named Executive Officers, have been provided with incentive to (a) advance the Company’s drug development programs towards commercialization and (b) enhance the market value of the Company’s Common Shares, through the granting of stock options to purchase Common Shares.

The number of stock options granted has been determined on the basis of the position of each senior executive. The Company allocates stock options to the Named Executive Officers based on the following criteria:

· the then current market value of the underlying common shares;

· the “Black-Scholes” value of the stock options (as referred to herein);

· the number of stock options already granted to the applicable Named Executive Officer;

· the exercise price of the previously granted stock options; and

· whether and to what extent the grant will serve as a reasonable “retention incentive” to the Named Executive Officer.

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Option grants to Named Executive Officers and other senior executives are proposed by the President and Chief Executive Officer to the Human Resources and Governance Committee, which evaluates the proposal, including having regard to the number, vesting and exercise price of option grants previously awarded to each individual, before making a recommendation to the Board. The Human Resources and Governance Committee also reviews any changes proposed to the Plan under which option-based awards are granted before making a recommendation to the Board in respect of any amendments to the Plan.

Performance Graph

The outstanding Common Shares of the predecessor of the Company prior to the 2012 corporate reorganization began trading at the opening of business on June 22, 2000, on the TSX. The outstanding Common Shares began trading on a post-consolidated basis at the opening of business on May 29, 2012 on the TSX (BLU).

The following graph compares, as at the end of each year up to December 31, 2018, the cumulative total shareholder return on $100 invested in Common Shares on December 31, 2013, with the cumulative total shareholder return on the S&P/TSX Composite Index, assuming reinvestment of all dividends.

 

The trend shown by the above performance graph does not directly correlate to the compensation paid to the Named Executives Officers. The factors considered by the Company’s Human Resources and Governance Committee and Board in determining compensation matters, such as individual and company performance and demand for skilled professionals, may not be heavily influenced by the market price of the Common Shares. The shareholder return realized on the Common Shares is affected by a number of different factors, including the Company’s performance, general market conditions and economic conditions, some of which are discussed in the “Risk Factors” section of the Company’s Annual Information Form dated March 13, 2019, accessible through SEDAR at www.sedar.com. Many of these factors are beyond the control of the Company and the Named Executive Officers.

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Summary Compensation Table

The following table details the comparative compensation information for the three most recent financial years of the Company, for the Chief Executive Officer, the Vice President, Finance and the two other most highly compensated executive officers of the Company during the most recently completed fiscal year (collectively, the “Named Executive Officers”). The information includes the basic salary, the bonuses granted, the number of stock options granted, as well as all other compensation paid that is not mentioned elsewhere. This information has been provided with respect to the financial years ended December 31, 2018, December 31, 2017 and December 31, 2016.

Name and principal position	Year	Salary ($)	Share-Based Awards ($)	Option-Based Awards ($)	Non-equity Incentive Plan Compensation – Annual Incentive Plan ($)	Pension Value ($)	All Other Compensation ($)	Total Compensation ($)
Roberto Bellini President and Chief Executive Officer	2018	$364,140	NIL	$425,312 (1)	$182,070 (2)	N/A	$30,207	$1,001,729
	2017	$318,325 (3)	NIL	$219,772(4)	$214,200 (5)	N/A	$29,850	$782,147
	2016	$357,000	NIL	NIL	NIL	N/A	$29,850	$386,850
François Desjardins Vice President, Finance	2018	$187,569	NIL	$106,328 (1)	$46,892 (2)	N/A	$21,378	$362,167
	2017	$173,930 (3)	NIL	$64,639 (4)	$55,167 (5)	N/A	$21,195	$314,931
	2016	$183,891	NIL	NIL	NIL	N/A	$21,195	$205,086
Denis Garceau Senior Vice President, Drug Development	2018	$344,872	NIL	$141,771 (1)	$86,218 (2)	N/A	$29,244	$602,105
	2017	$301,481 (3)	NIL	$77,566 (4)	$101,433 (5)	N/A	$28,906	$509,386
	2016	$338,110	NIL	NIL	$22,500	N/A	$28,906	$389,516
Tony Matzouranis Vice President, Business Development	2018	$187,569	NIL	$120,505 (1)	$46,892 (2)	N/A	$21,378	$376,344
	2017	$173,930 (3)	NIL	$77,566 (4)	$55,167 (5)	N/A	$21,195	$327,858
	2016	$183,891	NIL	NIL	NIL	N/A	$21,195	$205,086

(1) Stock options were granted on February 20, 2018, having an exercise price of $0.35. In determining the fair value of the option awards, the Black-Scholes model, an established methodology, was used, with the following weighted average assumptions:

(i) Risk-free interest rate: 2.19%;

(ii) Expected volatility in the market price of the shares: 99.92%;

(iii) Expected dividend yield: 0%; and

(iv) Expected life: 7 years.

Resulting fair value per option: $0.284.

(2) This bonus was earned in 2018, but paid in cash in 2019.

(3) In 2017, the Name Executive Officers’ base salary was temporarily reduced effective May 16, 2017. The temporary reduction ceased following the closing of the Company’s equity offering in December 2017.

(4) Stock options were granted on March 23, 2017, having an exercise price of $0.30. In determining the fair value of the option awards, the Black-Scholes model, an established methodology, was used, with the following weighted average assumptions:

(i) Risk-free interest rate: 1.15%;

(ii) Expected volatility in the market price of the shares: 106.93%;

(iii) Expected dividend yield: 0%; and

(iv) Expected life: 7 years.

Resulting fair value per option: $0.259.

(5) This bonus was earned in 2017, but paid in cash in 2018.

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Incentive Plan Awards

Outstanding Share-Based Awards and Option-Based Awards

The following table indicates for each of the Named Executive Officers all awards outstanding at the end of the 2018 financial year.

		Option-based Awards				Share-based Awards
Name	Number of Securities Underlying Unexercised Stock Options or Shares (#)	Stock Option or Share Exercise Price ($)	Stock Option Expiration Date	Value of Unexercised In-The-Money Stock Options (1) (2) ($)	Number of Shares or Units of Shares That Have Not Vested (#) as at December 31, 2018 (#)	Markets or Payout Value of Shares-Based Awards That Have Not Vested ($)	Markets or Payout Value of Vested Shares- Based Awards Not Paid Out or Distributed ($) (3)
Roberto Bellini President and Chief Executive Officer	1,500,000	$0.35	February 20, 2028	$1,005,000	1,500,000	N/A	N/A
	850,000	$0.30	May 23, 2027	$612,000	680,000	N/A	N/A
	103,000	$1.12	February 24, 2026	NIL	61,800	N/A	N/A
	1,600,000	$0.50	August 24, 2022	$832,000	NIL	N/A	N/A
	89,750.3 (4)	N/A	N/A	N/A	N/A	N/A	$98,239
François Desjardins Vice President, Finance	375,000	$0.35	February 20, 2028	$251,250	375,000	N/A	N/A
	250,000	$0.30	May 23, 2027	$180,000	200,000	N/A	N/A
	400,000	$0.50	August 24, 2022	$208,000	NIL	N/A	N/A
	2,146.2 (4)	N/A	N/A	N/A	N/A	N/A	$2,349
Denis Garceau Senior Vice President, Drug Development	500,000	$0.35	February 20, 2028	$335,000	500,000	N/A	N/A
	300,000	$0.30	May 23, 2027	$216,000	240,000	N/A	N/A
	550,000	$0.50	August 24, 2022	$286,000	NIL	N/A	N/A
	1,648.2 (4)	N/A	N/A	N/A	N/A	N/A	$1,804
Tony Matzouranis Vice President, Business Development	425,000	$0.35	February 20, 2028	$284,750	425,000	N/A	N/A
	300,000	$0.30	May 23, 2027	$216,000	240,000	N/A	N/A
	400,000	$0.50	August 24, 2022	$208,000	NIL	N/A	N/A

(1) As at December 31, 2018, BELLUS Health Inc.’s closing stock price on the TSX was $1.02.

(2) The value of the unexercised “in-the-money” stock options is calculated using the closing stock price on the TSX as at December 31, 2018, less the respective exercise price of the stock options. This value has not been, and may never be, realized. The actual gain, if any, will depend on the stock price on the dates, if any, on which the stock options are exercised.

(3) Cash Value of DSUs as at December 31, 2018 is $1.0946 per unit.

(4) DSUs vest immediately on the grant date. DSUs are redeemable only upon participant’s departure, until December 15 of the year following such departure.

Value Vested or Earned on Incentive Plan Awards During the Most Recently Completed Fiscal Year

The following table indicates for each of the Named Executive Officers the value on vesting of all awards and the bonus payout during the 2018 financial year.

Name	Option Awards - Value Vested During the Year on Vesting ($)	Share Awards - Value Vested During the Year on Vesting ($)	Non-Equity Incentive Plan Compensation – Value Earned During the Year ($) (1)
Roberto Bellini President and Chief Executive Officer	$51,000	N/A	$182,070
François Desjardins Vice President, Finance	$15,000	N/A	$46,892
Denis Garceau Senior Vice President, Drug Development	$18,000	N/A	$86,218
Tony Matzouranis Vice President, Business Development	$18,000	N/A	$46,892

(1) Corresponds to the same amounts as disclosed in the “Summary Compensation Table” above.

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Termination and Change of Control Benefits

In case of termination in 2018, for reason other than for just cause or for good reason, and other than termination following a change of control of the Company, Mr. Roberto Bellini, Mr. Francois Desjardins, Dr. Denis Garceau and Mr. Tony Matzouranis are entitled, under their employment agreements, to lump sum payments of $394,347, $208,947, $374,116 and $208,947, respectively. Assuming termination on December 31, 2018, lump sum payments of $394,347, $208,947, $374,116 and $208,947 would have been made to each of Mr. Roberto Bellini, Mr. Francois Desjardins, Dr. Denis Garceau and Mr. Tony Matzouranis, respectively. Mr. Roberto Bellini, Mr. Francois Desjardins, Dr. Denis Garceau and Mr. Tony Matzouranis would have realized $954,400, $244,000, $329,200 and $251,200, respectively, on the exercise of vested stock options on December 31, 2018.

In case of termination in 2018 of the employment within 6 months following a change of control of the Company, each of Mr. Roberto Bellini, Mr. Francois Desjardins, Dr. Denis Garceau and Mr. Tony Matzouranis are entitled, under their employment agreements, to lump sum payments of $394,347, $208,947, $374,116 and $208,947, respectively. Assuming termination on December 31, 2018, following a change in control of the Company, lump sum payments of $394,347, $208,947, $374,116 and $208,947, would have been made to each of Mr. Roberto Bellini, Mr. Francois Desjardins, Dr. Denis Garceau and Mr. Tony Matzouranis, respectively. A change of control of the Company triggers the full vesting of all unvested stock options of the Company on an accelerated basis. Accordingly, Mr. Roberto Bellini, Mr. Francois Desjardins, Dr. Denis Garceau and Mr. Tony Matzouranis would have realized $2,449,000, $639,250, $837,000 and $708,750, respectively, on the exercise of stock options on December 31, 2018.

Compensation of Directors

The members of the Board of Directors are remunerated for services in their capacity as directors with cash compensation and stock options to acquire Common Shares.

Compensation of the members of the Board for the period from January 1 to February 20, 2018: The Chairman of the Board during this period received an attendance fee of $1,500 per meeting of the Board. Additionally, directors who served on committees of the Board were entitled to an attendance fee of $1,000 for every meeting of a Board committee.

Compensation of the members of the Board for the period from February 20, 2018 to December 31, 2018: Non-executive members of the Board during this period received an annual retainer fee of $45,000, with an additional retainer fee of $25,000 paid to the lead director. Additionally, directors who served on committees of the Board were entitled to additional fees, as follows: an annual retainer of $12,500 for the Chair of the Human Resources and Governance Committee, an annual retainer of $20,000 for the Chair of the Audit Committee and an annual retainer of $7,500 for each other committee member. During the 2018 financial year, the Human Resources and Governance Committee, with the assistance of the CEO and CFO, conducted a compensation review of publicly available data relating to peer biotechnology companies of comparable revenues, size and market capitalization. The Human Resources and Governance Committee compared the total compensation of the members of the Board of the Company with that of the members of the Board of the identified peer companies to assess the reasonableness. The Company’s identified peer companies consisted of the following: Acasti Pharma Inc., Aeterna Zentaris Inc., Aptose Biosciences Inc., Arbutus BioPharma Corp., Fennec Pharmaceuticals Inc., IMV Inc., ProMIS Neurosciences Inc. and Xenon Pharmaceuticals Inc. (the “Peer Group”). Based on its review, the Human Resources and Governance Committee concluded that the compensation of the members of the Board was reasonable for 2018.

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Summary Compensation Table for the financial year ended December 31, 2018: The following table provides details of the compensation of the non-executive members of the Board during the financial year ended December 31, 2018.

Name	Attendance Fees ($) (1)	Annual Fees ($) (2), (3)	Share-Based Awards ($)	Option-Based Awards ($)	Non-Equity Incentive Plan Compensation ($)	Pension Value ($)	All Other Compensation ($)	Total ($)
Dr. Francesco Bellini	$1,500	NIL	NIL	$70,885 (4)	N/A	N/A	$250,000 (5)	$322,385
Dr. Youssef L. Bennani	$1,000	$52,500	NIL	$42,531 (4)	N/A	N/A	N/A	$96,031
Franklin M. Berger	NIL	$52,500	NIL	$42,531 (4)	N/A	N/A	N/A	$95,031
Dr. Clarissa Desjardins	NIL	$45,000	NIL	$42,531 (4)	N/A	N/A	N/A	$87,531
Chau Q. Khuong (6)	NIL	$17,724	NIL	NIL	N/A	N/A	N/A	$17,724
Pierre Larochelle	$1,000	$97,500	NIL	$42,531 (4)	N/A	N/A	N/A	$141,031
Joseph Rus	$1,000	$65,000	NIL	$42,531 (4)	N/A	N/A	N/A	$108,531

(1) Attendance fees were paid under the compensation effective from January 1 to February 20, 2018.

(2) The 2018 annual fees were paid in cash or in the form of DSUs, at the director’s discretion. For directors who opted to receive DSUs, such DSUs were granted as follows:

Name	Date of payment	DSU unit price	Nb. of units allocated
Franklin M. Berger	May 31,2018	$0.5725	91,704
Dr. Clarissa Desjardins	May 31,2018	$0.5725	78,603
Chau Q. Khuong	January 11, 2019	$1.0457	16,950
Pierre Larochelle	May 31,2018	$0.5725	170,306

(3) The fourth installment of the 2017 annual fees, included in the 2017 compensation, was paid in cash or in the form of DSUs, at the director’s discretion, on March 15, 2018. For directors who opted to receive DSUs, such DSUs were granted at a unit price of $0.4630 as follows:

Name	Nb. of units allocated
Dr. Clarissa Desjardins	24,299
Pierre Larochelle	52,647
Joseph Rus	17,549

(4) Stock options were granted on February 20, 2018, having an exercise price of $0.35. In determining the fair value of the option awards, the Black-Scholes model, an established methodology, was used, with the following weighted average assumptions:

(i) Risk-free interest rate: 2.19%;

(ii) Expected volatility in the market price of the shares: 99.92%;

(iii) Expected dividend yield: 0%; and

(iv) Expected life: 7 years.

Resulting fair value per stock option: $0.284.

(5) The Company has entered into a Consulting and Service Agreement with effect from January 1, 2010, with Picchio International providing for strategic advice on matters pertaining to the development and commercialization of pharmaceutical products to provide health solutions to address critical unmet needs. See “Interest of Informed Persons in Material Transactions and Management Contracts – Consulting and Service Agreement” in this Circular. This amount excludes reimbursement of reasonable expenses incurred in the proper conduct of the services as per the agreement.

(6) Mr. Khuong was elected to the Board effective December 18, 2018.

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Outstanding Share-Based Awards and Option-Based Awards: The following table indicates all awards outstanding at the end of the 2018 financial year for each of the non-executive directors of the Company.

		Option-based Awards				Shares-based Awards
Name	Number of Securities Underlying Unexercised Stock Options or Shares (#)	Stock Option or Share Exercise Price ($)	Stock Option Expiration Date	Value of Unexercised In-The-Money Stock Options ($) (1) (2)	Number of Shares or Units of Shares That Have Not Vested as at December 31, 2018 (#)	Markets or Payout Value of Shares-Based Awards That Have Not Vested ($)	Markets or Payout Value of Vested Shares-Based Awards Not Paid Out or Distributed ($) (3)
Dr. Francesco Bellini	250,000	$0.35	February 20, 2028	$167,500	250,000	N/A	N/A
	150,000	$0.30	May 23, 2027	$108,000	120,000	N/A	N/A
	270,000	$0.50	August 24, 2022	$140,400	NIL	N/A	N/A
	102,131.1 (4)	N/A	N/A	N/A	N/A	N/A	$111,791
Dr. Youssef L. Bennani	150,000	$0.35	February 20, 2028	$100,500	150,000	N/A	N/A
	150,000	$0.30	May 23, 2027	$108,000	120,000	N/A	N/A
Franklin M. Berger	150,000	$0.35	February 20, 2028	$100,500	150,000	N/A	N/A
	100,000	$0.30	May 23, 2027	$72,000	80,000	N/A	N/A
	150,000	$0.50	August 24, 2022	$78,000	NIL	N/A	N/A
	91,704 (4)	N/A	N/A	N/A	N/A	N/A	$100,377
Dr. Clarissa Desjardins	150,000	$0.35	February 20, 2028	$100,500	150,000	N/A	N/A
	150,000	$0.42	November 7, 2027	$90,000	120,000	N/A	N/A
	102,902 (4)	N/A	N/A	N/A	N/A	N/A	$112,634
Pierre Larochelle	150,000	$0.35	February 20, 2028	$100,500	150,000	N/A	N/A
	100,000	$0.30	May 23, 2027	$72,000	80,000	N/A	N/A
	150,000	$0.50	August 24, 2022	$78,000	NIL	N/A	N/A
	245,037.2 (4)	N/A	N/A	N/A	N/A	N/A	$268,213
Joseph Rus	150,000	$0.35	February 20, 2028	$100,500	150,000	N/A	N/A
	100,000	$0.30	May 23, 2027	$72,000	80,000	N/A	N/A
	150,000	$0.50	August 24, 2022	$78,000	NIL	N/A	N/A
	17,549 (4)	N/A	N/A	N/A	N/A	N/A	$19,209

(1) As at December 31, 2018, BELLUS Health Inc.’s closing stock price on the TSX was $1.02.

(2) The value of the unexercised “in-the-money” stock options is calculated using the closing stock price on the TSX as at December 31, 2018, less the respective exercise price of the stock options. This value has not been, and may never be, realized. The actual gain, if any, will depend on the stock price on the dates, if any, on which the stock options are exercised.

(3) Cash Value of DSUs as at December 31, 2018 is $1.0946 per unit.

(4) DSUs vest immediately on the grant date. DSUs are redeemable only upon participant’s departure, until December 15 of the year following such departure.

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Value vested or earned on incentive plan awards during the most recently completed fiscal year:

The following table indicates for each of the non-executive directors of the Company, the value on vesting of all awards during the 2018 financial year.

Name	Option Awards - Value Vested During the Year on Vesting ($)	Share Awards - Value Vested During the Year on Vesting ($)	Non-Equity Incentive Plan Compensation - Value Earned During the Year ($)
Dr. Francesco Bellini	$9,000	N/A	N/A
Dr. Youssef L. Bennani	$9,000	N/A	N/A
Franklin M. Berger	$6,000	N/A	N/A
Dr. Clarissa Desjardins	$17,400	N/A	N/A
Chau Q. Khuong	N/A	N/A	N/A
Pierre Larochelle	$6,000	N/A	N/A
Joseph Rus	$6,000	N/A	N/A

Compensation Governance

Among other things, the Human Resources and Governance Committee is responsible for assisting the Board in discharging its oversight responsibilities relating to human resources and executive compensation, including by assisting the Board in determining appropriate compensation for the Company’s directors and executive officers.

The mandate of the Human Resources and Governance Committee includes reviewing the compensation arrangements for the Company’s employees, including executive officers and directors, and making recommendations to the Board with respect to such compensation arrangements, as well as making recommendations to the Board with respect to the Company’s incentive compensation plans and equity-based plans and overseeing succession planning. Moreover, the Human Resources and Governance Committee is responsible for reviewing and recommending to the Board the levels of compensation of the CEO and the officers reporting to the CEO, as well as reviewing the objectives of the CEO and assessing his performance in respect of such assessment. The Human Resources and Governance Committee is also responsible for reviewing the adequacy and forms of compensation, director compensation and the review of the executive compensation disclosure of the issuer.

The current members of the Human Resources and Governance Committee are Mr. Joseph Rus (Chair), Mr. Pierre Larochelle and Dr. Youssef L. Bennani. Mr. Joseph Rus, Mr. Pierre Larochelle and Dr. Youssef L. Bennani are all independent directors. The members of the Human Resources and Governance Committee were selected according to their experience and their knowledge of matters to be dealt with by the Human Resources and Governance Committee.

Each member of the Human Resources and Governance Committee has direct experience that is relevant to his responsibilities in executive compensation, as well as the skills and experience necessary to enable him to make decisions as to the suitability of the Company’s policies and practices. More specifically, each committee member has held a number of executive management roles, in most cases as president of companies, where the human resources department was reporting to them. In addition, each committee member has financial skills relating to management compensation. In connection with their various responsibilities, all of these directors have also implemented and managed compensation policies and practices, including with respect to wage policies, components of management compensation, succession plans and share-based incentive programs.

The Board has adopted a charter of the Human Resources and Governance Committee which clearly establishes the Human Resources and Governance Committee’s purpose, responsibilities, member qualifications,

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member appointment and removal, structure, operations and manner of reporting to the Board. The charter also provides authority to the Human Resources and Governance Committee to engage an outside advisor, if necessary.

No compensation consultant or advisor was retained by the Company to assist the Human Resources and Governance Committee on any matters during the financial year ended December 31, 2018.

The Human Resources and Governance Committee reviews compensation policies and practices of the Company taking into account risks associated with these policies and practices. The Human Resources and Governance Committee has not identified risks associated with the Company’s compensation policies which could have material adverse consequences on the Company. The risks and uncertainties which may have material adverse consequences on the Company are disclosed in the Company’s public filings, including the Company’s Annual Information Form. None of these risks relates to compensation policies and practices of the Company.

Although the Company has not adopted a policy forbidding Named Executive Officers and directors from purchasing financial instruments relating to the Company’s shares, the Company is not aware of any insider having entered into this type of transaction.

Equity Compensation Plans

Stock Option Plan

The Company may grant, under the Plan, together with any Common Shares reserved for issuance under any other security-based compensation arrangement, up to 12.5% of the issued and outstanding Common Shares. As at March 13, 2019, the total number of Common Shares issued under the Plan and issuable under outstanding stock options granted under the Plan and the percentage of the Company’s issued and outstanding Common Shares represented by such shares, was as follows:

Common Shares issued under the Plan	Common Shares issuable under outstanding stock options
NIL (0%)	15,238,000 (9.6%)

As at March 13, 2019, 4,506,522 stock options were available for grants under the Plan, representing approximately 2.9% of issued and outstanding Common Shares as at such date.

The following table outlines the burn rate for the Plan for the past three years as of December 31, 2018:

Description	2018	2017	2016
The burn rate is calculated by dividing the number of stock options granted under the Plan during a fiscal year, by the weighted average number of shares outstanding for the fiscal year	3.6%	4.2%	0.2%

Pursuant to the Plan, stock options may be granted to directors, officers, employees, consultants and members of the Scientific Advisory Board (if any) of the Company or any affiliate thereof, and the number of Common Shares subject to each stock option, the expiration date of each stock option, the extent to which each stock option is exercisable from time to time during its term and other terms and conditions relating to each such stock option shall be determined by the Human Resources and Governance Committee and be subject to approval by the Board, provided, however, that if no specific determination is made by the Human Resources and Governance Committee with respect to any of the foregoing matters, each stock option shall, subject to any other specific provisions of the Plan, contain the following terms and conditions:

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(a) the period during which a stock option shall be exercisable shall be 10 years from the date of the grant; and

(b) the optionee may take up and pay for not more than 20% of the Common Shares covered by the stock option after the expiration of each one-year period in arrears from the date of the grant; provided, however, that if the number of Common Shares taken up under the stock option after the expiration of each one-year period is less than 20% of the Common Shares covered by the stock option, the optionee shall have the right, on a cumulative basis, at any time or from time to time during the remainder of the term of the stock option, to purchase such number of Common Shares subject to the stock options that were purchasable, but not purchased by such optionee, after the expiration of each such one-year period.

The purchase price for Common Shares granted under stock options is determined by the Human Resources and Governance Committee but shall not be less than the volume weighted average trading price for such Common Shares for the five days preceding the effective date of grant during which the Common Shares were traded on the TSX. In no event may the term of any stock option exceed 10 years from the date of the grant of the stock option. A stock option is personal to the optionee and is non-assignable.

The Plan provides for the following limitations on the number of Common Shares issuable thereunder:

(a) the aggregate number of Common Shares reserved for issuance at any time to any one optionee shall not exceed 5% of the number of Common Shares of the Company outstanding on a non-diluted basis at such time, less the total of all shares reserved for issuance to such optionee pursuant to any other share compensation arrangement of the Company and its affiliates;

(b) the aggregate number of Common Shares issuable (or, reserved for issuance) to insiders of the Company and its affiliates under the Plan and any other share compensation arrangement of the Company and its affiliates, cannot at any time exceed 10% of the issued and outstanding Common Shares; and

(c) the aggregate number of Common Shares issued to insiders under the Plan and any other share compensation arrangement of the Company and its affiliates, within a one-year period, cannot exceed 10% of the issued and outstanding Common Shares.

Subject to any express resolution passed by the Board or the Human Resources and Governance Committee with respect to a stock option, a stock option, and all rights to purchase Common Shares pursuant thereto, shall expire and terminate immediately upon an optionee ceasing to be a director, full-time employee, consultant or member of the Scientific Advisory Board of the Company and its affiliates. For greater certainty, the optionee shall not lose any rights to any stock options granted pursuant to the Plan if he/she changes positions within the Company and its affiliates so long as he/she remains eligible. If, before the expiry of a stock option, in accordance with the terms thereof, the employment of the optionee by the Company and its affiliates terminates for any reason whatsoever other than termination by the Company and its affiliates for cause, but including termination by reason of the death of the optionee, such stock option may, subject to the terms thereof and any other terms of the Plan, be exercised, if the optionee is deceased, by the legal personal representative(s) of the estate of the optionee during the first three months following the death of the optionee, or if he/she is alive, by the optionee, at any time within three months of the date of termination of the employment of the optionee (but in either case prior to the expiry of the option in accordance with the terms thereof), but only to the extent that the optionee was entitled to exercise such stock option at the date of the termination of his employment.

Notwithstanding any vesting period determined by the Board in respect of any stock option granted to an optionee at any time, the Board may, upon written notice to all the optionees, provide that all or a portion of the then vested or unvested stock options held by such optionees will become exercisable in full as of a specified time prior to the consummation of an Acquisition Event (as defined below) and that all or a portion of the stock options (whether or not vested) will terminate immediately prior to the consummation of such Acquisition Event,

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except to the extent exercised by the optionees before the consummation of such Acquisition Event; provided, however, that in the event of an Acquisition Event under the terms of which holders of Common Shares will receive upon consummation thereof a cash payment for each Common Share surrendered pursuant to such Acquisition Event (the “Acquisition Price”), then the Board may instead provide in such notice that all or a portion of the outstanding vested or unvested (or both) stock options shall terminate upon consummation of such Acquisition Event and that each optionee shall receive, in exchange therefore, a cash payment equal to the amount (if any) by which (A) the Acquisition Price multiplied by the number of Common Shares subject to such outstanding stock options (whether or not then vested), exceeds (B) the aggregate exercise price of such stock options. For the purposes thereof, “Acquisition Event” shall mean any transaction or series of transactions after which a Person (or a related group of Persons) owns at least 50.1% of the Common Shares; and “Person” shall mean any individual, corporation or company, partnership, joint venture, syndicate, sole proprietorship, trust, trustee, executor, administrator or other legal representative or an unincorporated organization, government or governmental authority or entity.

Notwithstanding anything contained to the contrary in the Plan, or in any resolution of the Board in the implementation thereof, the Board may, by resolution, and with the approval of the TSX, approve, at the election of optionees who cease to be directors of the Company upon application of the mandatory retirement policy adopted by the Board from time to time, either:

(a) the acceleration of the date upon which any unvested stock option may vest, and therefore be exercisable by such optionees, subject always to the three-month period for exercise set forth in the Plan; or

(b) notwithstanding the three-month period for exercise set forth in the Plan, the extension of the period for the exercise by such optionees of such stock options as are vested, and therefore are exercisable by such optionees, on the date at which such optionee has ceased to be a director of the Company from the three-month period for exercise set forth in the Plan to twelve months from the date at which any such optionee has ceased to be a director of the Company.

The election referred to above shall be made in writing to the Company no later than the date upon which such optionees cease to be directors of the Company upon application of the mandatory retirement policy. The Board shall not, in the event of any such election, be under any obligation to accelerate the date, or extend the exercise period, in accordance with which any stock option may be exercised by any other optionee.

The Plan provides that the Board may amend or discontinue the Plan at any time without notice or approval from the shareholders of the Company or any optionee, for any purpose whatsoever, including, without limitation for the purpose of:

(a) amendments of a “housekeeping” nature, which include, without limitation, amendments to ensure continued compliance with applicable laws, regulations, rules or policies of any regulatory authority and amendments to remove any ambiguity or to correct or supplement any provision contained in the Plan which may be incorrect or incompatible with any other provision of the Plan;

(b) a change to the vesting provisions of a stock option of the Plan;

(c) a change to the termination provisions of a stock option or the Plan which does not entail an extension beyond the original expiration date; and

(d) the addition of a cashless exercise feature payable in cash or securities which provides for a full deduction of the number of underlying Common Shares from the number of Common Shares reserved for issuance under the Plan;

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provided, however, that no such amendment may increase the maximum number of Common Shares issuable pursuant to the Plan, change the manner of determining the minimum Option Price (as defined in the Plan), alter the stock option exercise period following the expiration of the Blackout Period (as defined in the Plan) or, without the consent of the optionee, adversely alter or impair any stock option previously granted to an optionee under the Plan.

The Plan also provides that (i) a reduction in the Option Price, (ii) an extension of the expiration date of an outstanding stock option, (iii) any amendment to the definition of “Eligible Person” under the Plan, or (iv) any amendment which would permit stock options to be transferable or assignable other than for normal estate settlement purposes, may not be made without the approval of the shareholders of the Company (excluding the votes of securities held directly or indirectly by insiders benefiting from the amendment), provided that: (x) an adjustment to the Option Price pursuant to Article 9 of the Plan and (y) an extension of the expiry date pursuant to Section 5.6 of the Plan, in each case subject to any applicable regulatory requirements, shall not require approval of the shareholders of the Company.

The Plan provides that if the term of a stock option of any eligible person under the Plan expires during or within 10 business days of the expiration of a Blackout Period (as defined in the Plan), then the term of the stock option or the unexercised portion thereof, shall be extended by 10 business days after the expiration of the Blackout Period.

The Plan also provides that the Company may, from time to time, implement such procedures and conditions as it determines appropriate with respect to the withholding and remittance of taxes imposed under applicable law, or the funding of related amounts for which liability may arise under such applicable law. Without limiting the generality of the foregoing, following a stock option exercise, if the underlying Common Shares issuable are not to be sold on the optionee’s behalf by the Company, the optionee must, in addition to following the procedures set out elsewhere in the Plan, and as a condition of exercise: (i) deliver a certified cheque, wire transfer or bank draft payable to the Company for the amount determined by the Company to be the appropriate amount on account of such taxes or related amounts; or (ii) otherwise ensure, in a manner acceptable to the Company (if at all) in its sole and unfettered discretion, that the amount will be securely funded; and must in all other respects follow any related procedures and conditions imposed by the Company. In the event of an exercise pursuant to which Common Shares issuable to the optionee are to be sold on the optionee’s behalf, the Company shall deduct from any proceeds payable to the optionee any and all amounts necessary to satisfy the Company’s withholding and/or remittance obligations under applicable law.

The anti-dilution provisions of the Plan adjust the exercise price and, in some cases, the amount of underlying shares that may be subscribed, in the event of five (5) scenarios: (1) a reorganization of the share-capital; (2) an issuance of rights, stock options or warrants to all or substantially all of the shareholders to subscribe for or purchase shares at a price per share that is less than 95% of the market price per share; (3) a payment or issuance of a special dividend in cash or in kind; (4) an issuer bid where the consideration per share exceeds the market price per share; and (5) other events affecting the shareholders where an optionee has exercised his/her stock options after the effective date of such event.

Deferred Share Unit Plans

Effective January 1, 2007, the Company adopted a deferred share unit plan for directors and a deferred share unit plan for designated employees (the “DSU Plans”) pursuant to which members of the Board may, on an annual basis, elect to receive 100% of their Board retainer in the form of DSUs and designated employees may elect to receive all or any part of their annual bonus in the form of DSUs. The DSUs are redeemable once a Board member is no longer a member of the Board or a designated employee no longer employed by the Company, and vest immediately upon being granted to such persons. Upon redemption, the value of the DSUs credited to a Board member or designated employee will be based on the value of the Common Shares as at that

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date, as adjusted pursuant to the terms of the DSU Plans, and will be payable to such Board member or designated employee in a lump sum cash payment, subject to applicable withholding taxes.

On December 31, 2018, each DSU had a cash value of $1.0946.

Securities Authorized for Issuance under Equity Compensation Plans

The following table indicates the number of Common Shares to be issued upon the exercise of stock options outstanding as at March 13, 2019, the weighted average exercise price of such outstanding stock options and the number of Common Shares remaining for future issuance under the Plan.

Plan Category	Number of Common Shares to be issued upon exercise of outstanding stock options	Weighted-average exercise price of outstanding stock options ($)	Number of Common Shares remaining available for future issuance under equity compensation plans (excluding securities reflected in the first column)
Equity compensation plans approved by security holders	15,238,000	$0.60	4,506,522
Equity compensation plans not approved by security holders	N/A	N/A	N/A
Total	15,238,000	$0.60	4,506,522

Indebtedness of Directors and Executive Officers

No officers, directors, employees or former officers, directors and employees of the Company were indebted to the Company as at March 13, 2019.

PART 4.

REPORT ON CORPORATE GOVERNANCE AND OTHER ITEMS

“Corporate governance” is the process and structure used to direct and manage the business and affairs of the Company to achieve the shareholders’ objectives. The CSA has adopted National Policy 58-201 – Corporate Governance Guidelines (the “Guidelines”) to provide guidance to Canadian reporting issuers regarding corporate governance. The Guidelines relate to a number of significant governance issues, including the proper role of the board of directors, its structure and composition and its relationship with shareholders and management. The CSA has also adopted National Instrument 58-101 – Disclosure of Corporate Governance Practices requiring that disclosure be made by a listed corporation of its corporate governance practices. A complete description of the Company’s corporate governance practices, with specific references to each of the Guidelines, is attached hereto as Schedule “B”. The Human Resources and Governance Committee, currently composed of Mr. Joseph Rus (Chair), Mr. Pierre Larochelle and Dr. Youssef L. Bennani, has reviewed the disclosure set out in Schedule “B”.

The Human Resources and Governance Committee continues to periodically review corporate governance proposals made by the CSA. As new standards become effective, the Human Resources and Governance Committee will review and amend, where necessary and appropriate, its corporate governance practices and the eligibility of the members of the Board on each committee and shall, if necessary, make appropriate changes.

The following is a description of the current committees of the Board:

Committees of the Board

Audit Committee

The mandate of the Audit Committee includes assisting the Board in its oversight of (i) the integrity of the Company’s financial statements, accounting and financial reporting processes, system of internal controls over

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financial reporting and audit process, (ii) the Company’s compliance with, and process for monitoring compliance with, legal and regulatory requirements so far as they may relate to matters of financial reporting, (iii) the independent auditors’ qualifications, independence and performance, and (iv) the performance of the Company’s internal audit function (if any). The current members of the Audit Committee are Mr. Pierre Larochelle (Chair), Mr. Franklin M. Berger and Mr. Joseph Rus.

Additional information regarding the Audit Committee can be found under the heading “Audit Committee” in the Company’s Annual Information Form for the year ended December 31, 2018 (the “Annual Information Form”).

Human Resources and Governance Committee

Compensation Matters: The mandate of the Human Resources and Governance Committee includes reviewing the compensation arrangements for the Company’s employees, including executive officers and directors, and making recommendations to the Board with respect to such compensation arrangements, as well as making recommendations to the Board with respect to the Company’s incentive compensation plans and equity-based plans and overseeing succession planning.

Governance Matters: The mandate of the Human Resources and Governance Committee is also to develop and recommend to the Board a set of corporate governance principles and to prepare and review the disclosure with respect to, and the operation of, the Company’s system of corporate governance, before such disclosure is submitted to the Board for its approval. The Human Resources and Governance Committee is responsible for the review and periodic update of the Company’s corporate governance mandates, charters, policies and procedures, including its Code of Ethics which governs the conduct of the Company’s directors, officers and other employees. Moreover, the Human Resources and Governance Committee is mandated to examine, on an annual basis, the size and composition of the Board and, if appropriate, recommend to the Board a program to establish a Board comprised of members who facilitate effective decision-making.

Human Resources Matters: Finally, the Human Resources and Governance Committee shall also identify individuals qualified to become members of the Board, recommend to the Board nominees to be put before shareholders at each annual meeting and recommend to the Board a process for board, committee and director assessment. In fulfilling its responsibilities to identify nominees to the Board, the Human Resources and Governance Committee comes up with the names of individuals it believes represent potentially suitable candidates and also solicits names of other potentially suitable candidates from the other members of the Board of Directors and also from management of the Company. It then looks at the qualifications and qualities of each in light of the needs of the Board of Directors and the Company and bases its recommendation to the Board on this basis.

The current members of the Human Resources and Governance Committee are Mr. Joseph Rus (Chair), Mr. Pierre Larochelle and Dr. Youssef L. Bennani.

Communications, Insider Trading, Confidential Information and Disclosure Policies

The Board is committed to an effective communications policy with all stakeholders including shareholders, suppliers, advertisers, employees, agents and members of the investment community. The Company is committed to complying with all laws, regulations and policies which are applicable to it, as well as to best practices in the field. This commitment is evidenced, notably, by the adoption by the Company of a Disclosure and Trading Policy.

The Audit Committee or the Board reviews in advance all press releases which disclose financial results. Other continuous disclosure documents, including, without limitation, the annual report, proxy materials and Annual Information Form are reviewed by members of the Company’s Disclosure Committee and, where appropriate, the Board and, where required, these documents are also approved by the Board.

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Interest of Informed Persons In Material Transactions and Management Contracts

Consulting and Service Agreement

The Company has entered into a Consulting and Service Agreement with effect from January 1, 2010, with Picchio International providing for strategic advice on matters pertaining to the development and commercialization of pharmaceutical products to provide health solutions to address critical unmet needs. Under the terms of that agreement Picchio International has assigned primary responsibility for providing such services to Dr. Francesco Bellini. For the services, monthly fees of $20,833, plus applicable taxes, are paid, and Picchio International is reimbursed for its reasonable expenses incurred in the proper conduct of the services. The Consulting and Services Agreement automatically renews for successive one-year terms, unless one party advises the other party of its intention not to renew by October 1 of the current year. During the fiscal period ended December 31, 2018, Picchio International received an aggregate amount of $381,000 under the Consulting and Services Agreement.

The Consulting and Services Agreement was automatically renewed for a one-year period, commencing on January 1, 2019.

2019 Shareholder Proposals

Shareholder proposals must be submitted no later than December 14, 2019, to be considered for inclusion in the Management Information Circular for the purposes of the Company’s 2020 annual meeting of shareholders.

Additional Information

Financial information is provided in the Company’s audited financial statements and management's discussion and analysis for its most recently completed financial year. Copies of these documents and additional information relating to the Company are available on SEDAR at www.sedar.com.

Approval by Directors

The contents of the Circular and the sending thereof have been approved by resolution of the Board.

DATED at Montréal, Québec, Canada, March 13, 2019.

(signed) Sébastien Roy

Corporate Secretary

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SCHEDULE “A”

SHARE CONSOLIDATION RESOLUTION

be and it is hereby resolved, as a special resolution that:

1. pursuant to the Canada Business Corporations Act (the “CBCA”), the articles of BELLUS Health Inc. (the “Company”) be amended to consolidate all of the issued and outstanding common shares (the “Common Shares”), such that the trading price of the post-consolidation Common Shares is between US$5.00 and US$7.50 per post-consolidation Common Share calculated based on the five-day volume weighted average trading price of the Common Shares, effective as at the discretion of the board of directors of the Company (the “Board”);

2. the Board be and is hereby authorized to revoke, without further approval of the shareholders, this special resolution at any time prior to the completion thereof, notwithstanding the approval by the shareholders of same, if determined, in the Board’s sole discretion to be in the best interest of the Company; and

3. any director or officer of the Company is hereby authorized to execute or cause to be executed and to deliver or cause to be delivered, all such certificates, instruments, agreements, notices and other documents and to do or cause to be done all such other acts and things as such director or officer may determine to be necessary or desirable in order to carry out the intent of this resolution, including but not limited to, the filing of articles of amendment under the CBCA, such determination to be conclusively evidenced by the execution and delivery of such documents and other instruments or the doing of any such act or thing.

A-1

SCHEDULE “B”

CORPORATE GOVERNANCE PRACTICES

This Schedule provides a detailed comparison of the Company’s governance practices with the Guidelines. All capitalized terms used but not defined in this Schedule shall have the meanings ascribed thereto in the Circular.

Governance Disclosure Guideline under NI 58-101	The Company’s Governance Procedures
A.     Directors
1. The board should have a majority of independent directors.	The Board currently consists of a majority of independent directors as, of the eight directors currently serving on the Board, six are considered independent, namely Dr. Youssef L. Bennani, Mr. Franklin M. Berger, CFA, Dr. Clarissa Desjardins, Mr. Chau Q. Khuong, Mr. Pierre Larochelle and Mr. Joseph Rus. Dr. Francesco Bellini, O.C. and Mr. Roberto Bellini are not independent directors.
	Pursuant to the 2009 Board Representation Agreements, each of VSVI and Rocabe is entitled to cause up to two nominees to be included in the list of management nominees to be proposed for election to the Board at each shareholders’ meeting occurring following the date thereof. Mr. Larochelle is the nominee of VSVI and Dr. F. Bellini is the nominee of Rocabe. See “Election of Directors” on pages 6 and 7 of the Circular. Pursuant to the 2018 Board Representation Agreement, OrbiMed is entitled to cause one nominee to be included in the list of management nominees to be proposed for election to the Board at each shareholders’ meeting occurring following the date thereof. Mr. Chau Q. Khuong is the nominee of OrbiMed. See “Election of Directors” on pages 6 and 7 of the Circular. During the year ended December 31, 2018, Dr. Francesco Bellini, O.C., Chairman of the Board was not an independent director because of his relationship with Mr. Roberto Bellini, the current Chief Executive Officer (the “CEO”). Mr. Roberto Bellini was not independent because, as CEO, he is a member of the management of the Company. Regarding the persons proposed by management to be nominated for election as directors at the Meeting, a majority are considered independent. The nominees considered independent are: Dr. Youssef L. Bennani, Mr. Franklin M. Berger, CFA, Dr. Clarissa Desjardins, Mr. Chau Q. Khuong, Mr. Pierre

B-1

Governance Disclosure Guideline under NI 58-101	The Company’s Governance Procedures
	Larochelle and Mr. Joseph Rus. Dr. Francesco Bellini, O.C., the Chair of the Board of Directors, is not an independent director because of his relationship with Mr. Roberto Bellini, the current CEO. Mr. Roberto Bellini, the current CEO, is not an independent director as he is a member of the management of the Company.
2. If a director is presently a director of any other reporting issuer, identify both the director and the other issuer.	A table identifying which directors are also directors of other reporting issuers is included on page 9 of the Circular.
3. The Chair of the board should be an independent director.	The Chair of the Board, Dr. Francesco Bellini, O.C., is not an independent director. Given its current stage of development and the controls in place, the Board is of the opinion that it is in the best interests of the Company and its shareholders to have Dr. Francesco Bellini, O.C., continue to act as Chair of the Board. Mr. Pierre Larochelle acts as lead director. The lead director is the representative of the independent directors to the Board. He provides leadership to ensure that the Board’s agenda will enable it to successfully carry out its duties and leads meetings of the independent directors, as described below.
4. The independent directors should hold regularly scheduled meetings at which non-independent directors and members of management are not in attendance.	The independent directors hold regular meetings at which non-independent directors and members of management are not in attendance, usually after regularly scheduled meetings of the Board. A record of attendance of each independent director at such meetings held in the fiscal year ended December 31, 2018, is included on page 8 of the Circular.
5. The attendance record of each director for all board meetings held since the beginning of the issuer’s most recently completed financial year should be disclosed.	A record of attendance of each director at Board and Board Committee meetings held since the beginning of the Company’s most recently completed financial year is included on page 8 of the Circular.
B.     Mandate of the Board of Directors
6. The board should adopt a written mandate in which it explicitly acknowledges responsibility for the stewardship of the issuer.	The Board has explicitly assumed responsibility for the stewardship of the Company in a formal Mandate of the Board of Directors, which was revised and reconfirmed in February 2010. This Mandate is regularly reviewed and is attached herewith as Schedule “C”.
C.      Position Descriptions
7. The board should develop clear position descriptions for the Chair of the board and the Chair of each board committee. In addition, the board should develop a clear position	The Board of Directors has adopted Terms of Reference for its Chair, for its lead director, for the Chair of the Audit Committee, for the Chair of the Human Resources and Governance Committee as

B-2

Governance Disclosure Guideline under NI 58-101	The Company’s Governance Procedures
description for the president and CEO. The board should also develop or approve the goals and objectives that the president and CEO must meet.	well as for the CEO. The Mandate of the Board of Directors, along with the charters of the committees, set forth the roles and responsibilities of the Board of Directors and its committees and guide the Chair of the Board and the Chairs of each committee in discharging their own responsibilities. The Board of Directors also periodically discusses with the CEO his role and responsibilities, as well as his goals and objectives.
D.     Orientation and Continuing Education
8. The board should ensure that all new directors receive a comprehensive orientation. All new directors should understand the nature and operation of the issuer’s business. The board should provide continuing education opportunities for all directors.	The Human Resources and Governance Committee has the mandate, explicitly documented in its Charter, to consider the appropriateness of implementing, from time to time and as appropriate, orientation and continuing education for directors. Directors receive comprehensive packages prior to each Board and committee meeting, and are regularly briefed by management on the business and activities of the Company. Further, the directors also receive a comprehensive binder setting out all of the Company’s corporate governance mandates, charters, policies, practices and procedures, together with copies of relevant legislation and regulations, and informational updates and analyses provided to the public by external legal advisors relating to corporate governance matters. This binder is updated periodically, as necessary. The directors have discussed with management the development of a program of continuing education on the Company’s ongoing development programs aimed at helping each director participate actively in decisions relating to the Company’s ongoing and future development programs. In light thereof, the Company’s management provides regular briefings to the Board regarding the Company’s ongoing development programs.
E.     Ethical Business Conduct
9. The board should adopt a written code of business conduct and ethics. The code should be applicable to directors, officers and employees of the issuer.	The Company has adopted a written code of ethics. This code is available through SEDAR at www.sedar.com. All directors, officers and employees of the Company are provided with a copy of the code of ethics.
10. The board should be responsible for monitoring compliance with the code. Any waivers from the code that are granted for the benefit of the issuer’s directors or executive officers should be granted by the board (or a	The Human Resources and Governance Committee is responsible for monitoring compliance with the Company's code of ethics. The Board has not granted any waiver from the code of ethics in favour of any director or executive officer of the Company in the

B-3

Governance Disclosure Guideline under NI 58-101	The Company’s Governance Procedures
board committee) only.	fiscal year ended December 31, 2018.
11. The board must ensure that directors exercise independent judgment in considering transactions and agreements in which a director or executive officer has a material interest.	The code of ethics of the Company provides that each director, officer or employee, including in particular senior financial officers, (collectively the “Designated Individuals”) of the Company and its subsidiary must avoid any conflict, or perception of conflict, between his or her personal interests and the interests of the Company in transacting the Company’s business. All actions and decisions by Designated Individuals in the performance of work must be based on impartial and objective assessments of the Company’s interests in the situation, totally without regard to any gifts, favours, or similar benefits from outside parties that could affect (or be seen by others to possibly affect) their judgment. Any gift, loan to or guarantee of obligation of, or benefit of any kind that has a value in excess of $400 must be approved by the Vice President, Finance or, in his absence, the President and Chief Executive Officer the Company. The code of ethics also provides that no Designated Individual shall have any financial interest or position with any entity that transacts business with or competes with the Company other than the ownership of a minor percentage of shares in a public company without immediately disclosing these interests and obtaining the approval of the Vice President, Finance or, in the case of directors or officers, the Board.
12. The board must take steps to encourage and promote a culture of ethical business conduct.	The Board is committed to encouraging and promoting a culture of ethical business conduct and integrity throughout the Company. In order to achieve this objective, and in addition to the implementation, monitoring and enforcement of the Company’s code of ethics, the Board has adopted an anonymous complaints procedure for accounting, auditing and scientific matters to ensure that there will be no retaliation against Designated Individuals who have complaints in these respects.
F.      Nomination of Directors
13. The board should appoint a nominating committee composed entirely of independent directors.	The Human Resources and Governance Committee is responsible for identifying nominees to the Board for election as directors. The Human Resources and Governance Committee is composed entirely of independent directors. In fulfilling its responsibilities to identify nominees to the Board, the Human Resources and Governance Committee comes up with the names of individuals it believes represent potentially suitable candidates and also solicits names of other potentially suitable candidates from the other

B-4

Governance Disclosure Guideline under NI 58-101	The Company’s Governance Procedures
	members of the Board of Directors and also from management of the Company. It then looks at the qualifications and qualities of each in light of the needs of the Board of Directors and the Company and bases its recommendation to the Board on this basis.
14. The nominating committee should have a written charter that clearly establishes the committee’s purpose, responsibilities, member qualifications, member appointment and removal, structure, operations and manner of reporting to the board. In addition, the nominating committee should be given authority to engage and compensate any outside advisor that it determines to be necessary to permit it to carry out its duties.	The Board has adopted a charter of the Human Resources and Governance Committee which clearly establishes the Human Resources and Governance Committee’s purpose, responsibilities, member qualifications, member appointment and removal, structure, operations and manner of reporting to the Board. The charter also provides authority to the Human Resources and Governance Committee to engage outside advisors, if necessary.
15. Prior to nominating or appointing individuals as directors, the board should adopt a process involving the following steps: consider what competencies and skills the board, as a whole, should possess and assess what competencies and skills each existing director possesses.	The Board is composed of directors with a variety of backgrounds, skills and experience. The Human Resources and Governance Committee is responsible for identifying and recommending to the Board individuals qualified to become board members. From time to time and as appropriate, the Human Resources and Governance Committee reviews the credentials of nominees to the Board, and assesses the existing strengths of the Board as well as the changing needs of the Company, to determine whether changes may be required to the composition of the Board to add value to the Company. The former Nominating and Corporate Governance Committee, which merged into the Human Resources and Governance Committee in 2017, undertook the most recent evaluation of the performance and effectiveness of the Board through an evaluation and discussions in March 2015.
16. The board should consider the appropriate size of the board, with a view to facilitating effective decision-making by the board.	The Board presently consists of eight directors with a variety of backgrounds. Its size and composition are subject to periodic review of the Human Resources and Governance Committee.
17. The nominating committee should be responsible for identifying individuals qualified to become new board members and recommending to the board the new director nominees for the next annual meeting of shareholders.	The Human Resources and Governance Committee is responsible for identifying and recommending to the Board new candidates for election and for filling director vacancies.
18. In making its recommendations, the nominating committee should consider the competencies and skills that the board considers to be necessary for the board, as a whole, to possess and those that the board	As described above, the Human Resources and Governance Committee ensures that the composition of the Board is such that the required competencies and skills are represented on the Board and that the nominees make up a competent team which can carry

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Governance Disclosure Guideline under NI 58-101	The Company’s Governance Procedures
considers each existing director and new nominee to possess.	out the Mandate of the Board and add value to the Company.
19. The board should consider the representation of women on the board and in executive positions.	The Board is mindful of diversity within its ranks and in executive positions. While the Board has not, at this stage, considering its size and stage of development, adopted a written diversity policy or set a target number of women directors or executive officers, the Board and the Company do seek to include gender diversity within their ranks and consider the representation of women in the identification and selection of directors and executive officers; experience and expertise, at this stage of development of the Company, are the key elements, however, in the identification and the selection of directors and executive officers. One of the eight (13%) proposed nominees to the Board is a woman. The Company has four full-time executive officers, none of which is a woman; however, the Company has historically had a number of women executives in its ranks.
G. Compensation
20. The board should appoint a compensation committee composed entirely of independent directors.	The Human Resources and Governance Committee is responsible for assisting the Board in discharging its oversight responsibilities relating to, among other things, executive compensation. The Human Resources and Governance Committee is composed entirely of independent directors.
21. The compensation committee should have a written charter that establishes the committee’s purpose, responsibilities, member qualifications, member appointment and removal, structure, operations and the manner of reporting to the board. In addition, the compensation committee should be given authority to engage and compensate any outside advisor that it determines to be necessary to permit it to carry out its duties.	The Board has adopted a charter of the Human Resources and Governance Committee which clearly establishes its purpose, responsibilities, member qualifications, member appointment and removal, structure, operations and manner of reporting to the Board. The charter also provides authority to the Human Resources and Governance Committee to engage outside advisors, if necessary.
22. The compensation committee should be responsible for: reviewing and approving corporate goals and objectives relevant to CEO compensation, evaluating the CEO’s performance in light of those corporate goals and objectives, and determining (or making recommendations to the board with respect to) the CEO’s compensation level based on this evaluation; making recommendations to the board with respect to non-CEO officer and director compensation, incentive-compensation plans and equity-based plans	The Human Resources and Governance Committee is responsible for reviewing and recommending to the Board the levels of compensation of the CEO and the officers reporting to the CEO, as well as reviewing the objectives of the CEO and assessing his performance in respect of such assessment. The Human Resources and Governance Committee is also responsible for reviewing the adequacy and forms of compensation, director compensation and the review of the executive compensation disclosure of the issuer.

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Governance Disclosure Guideline under NI 58-101	The Company’s Governance Procedures
and reviewing executive compensation disclosure before the issuer publicly discloses this information.
23. If a compensation consultant or advisor has, at any time since the beginning of the issuer’s most recently completed financial year, been retained to assist in determining compensation for any of the issuer’s directors and officers, disclose the identity of the consultant or advisor and briefly summarize the mandate for which they have been retained. If the consultant or advisor has been retained to perform any other work for the issuer, state that fact and briefly describe the nature of the work.	No compensation consultant or advisor was retained by the Company to assist the Human Resources and Governance Committee or the former Compensation Committee on any matters during the financial year ended December 31, 2018.
H.    Other Board Committees
24. Identify the standing committees of the board other than the audit, nominating and compensation committees, and describe their function.	The Board has no standing committees other than the Audit Committee and the Human Resources and Governance Committee described in detail on pages 24 and 25 of the Circular.
I.    Assessments
25. The board, its committees and each individual director should be regularly assessed regarding his, her or its effectiveness and contribution.	The Human Resources and Governance Committee has the mandate, explicitly documented in its charter, to implement a process for assessing the effectiveness of the Board, its committees and individual directors. Directors aim to conduct an annual evaluation of the performance and effectiveness of the Board as a whole, in light of its Mandate. This evaluation is performed through peer review, evaluation and discussions amongst the directors. The most recent evaluation was conducted by the former Nominating and Corporate Governance Committee in March 2015.
J.     Term Limits
26. Disclose whether term limits for directors or other mechanisms of board renewal has been adopted.	The Board has not adopted formal term limits, as it is of the view that, at this stage of development, it is critical for the Board to ensure that the required competencies and skills continue to be represented within its ranks. The Human Resources and Governance Committee considers renewal of Board membership on a yearly basis.

B-7

SCHEDULE “C”

BELLUS HEALTH INC.

BOARD OF DIRECTORS MANDATE

1. MANDATE

1.1 In adopting this mandate,

1.1.1 the board acknowledges that the mandate prescribed for it by the Canada Business Corporations Act (the “CBCA”) is to manage, or supervise the management of, the business and affairs of BELLUS Health Inc. (the “Company”) and that this mandate includes responsibility for stewardship of the Company; and

1.1.2 the board explicitly assumes responsibility for the stewardship of the Company, as contemplated by the corporate governance guidelines adopted by the Canadian securities regulatory authorities (the “Canadian Guidelines”).

2. Board MEMBERSHIP

2.1                    Number of Members – The board shall consist of such number of directors as the board may determine from time to time, provided that such number shall be within the minimum and maximum number of directors set out in the Company’s articles.

2.2 Independence of Members –

2.2.1 At least three of the directors shall not be officers or employees of the Company or any of its affiliates.

2.2.2 At least one-quarter of the directors shall be resident Canadians.

2.2.3 As a goal, a majority of the directors should be independent as defined under the Canadian Guidelines.

2.3                    Election and Appointment of Directors – Directors shall be elected by the shareholders at each annual meeting of shareholders, provided that if directors are not elected at any annual meeting, the incumbent directors continue in office until their successors are elected.

2.4                    Vacancy – The board may appoint a member to fill a vacancy, which occurs in the board between annual elections of directors to the extent permitted by the CBCA.

2.5                    Removal of Members – Any director may be removed from office by an ordinary resolution of the shareholders at a special meeting of shareholders.

2.6                    Additional Directors – In addition to filling vacancies on the board, the directors may at any time, without exceeding the number of directors provided by the articles of the Company, appoint one or more additional directors who shall hold office for a term expiring not later than the close of the next annual meeting of shareholders, provided that the total number of directors so

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appointed may not exceed one-third (1/3) of the number of directors elected at the previous annual meetings of shareholders.

3. Board CHAIR

3.1                    Chairperson of the Board – The chairperson of the board shall, to the extent practicable, be independent within the meaning of the Canadian Guidelines.

3.2                    Chairperson of Meetings – The chairperson of any meeting of the board shall be the first mentioned of such of the following officers as have been appointed and who is a director and is present at the meeting: chairperson of the board, the deputy chairperson, or chairperson of the executive committee of the board (if such a committee is constituted). If no such officer is present, the directors present shall choose one of their number to be chairperson.

4. Meetings of the Board

4.1                    Quorum – Unless otherwise fixed by resolution of the directors, a quorum of the board shall be a majority of its members.

4.2                    Secretary – The secretary of the board shall be designated from time to time in accordance with the by-laws of the Company.

4.3                    Time and Place of Meetings – Meetings of the board shall be held from time to time and at such place as the board, the deputy chairperson, the chairperson of the board, the chairperson of the executive committee of the board (if such a committee is constituted) or any two directors may determine.

4.4                    Right to Vote – Each member of the board shall have the right to vote on matters that come before the board unless precluded by the CBCA.

4.5                    Invitees – The board may invite officers and employees of the Company or any other person to attend meetings of the board to assist in the discussion and examination of the matters under consideration by the board.

4.6                    Meeting of Independent Directors – The independent directors must hold regularly scheduled meetings at which only independent directors are present.

4.7                    Attendance and Preparedness – Directors are expected to attend regularly scheduled meetings of the board and of the shareholders and to have prepared for the meetings by, at a minimum, reviewing in advance of the meeting the materials delivered in connection with the meeting. The attendance record of individual directors at meetings of the board will be disclosed in the Company’s proxy circular as required by applicable law.

5. OUTSIDE ADVISORS

5.1                    Retaining and Compensating Advisors – Each director shall have the authority to retain outside counsel and any other external advisors as appropriate with the approval of the Human Resources and Governance Committee.

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6. Remuneration of Board Members

6.1                   Members of the board shall receive such remuneration for their service on the board and its committees as the board may determine from time to time.

7. duties and responsibilities of the board

7.1                   Specific Aspects of Stewardship Function – In adopting this mandate, the board hereby explicitly assumes responsibility for the matters set out below:

7.1.1 to the extent feasible, satisfying itself as to the integrity of the CEO and other executive officers and that the CEO and other executive officers create a culture of integrity throughout the organization;

7.1.2 adopting of a strategic planning process and approving, on at least an annual basis, a strategic plan which takes into account, among other things, the opportunities and risks of the Company’s business;

7.1.3 the identification of the principal risks of the Company’s business and ensuring the implementation of appropriate systems to manage these risks;

7.1.4 succession planning, including appointing, training and monitoring senior management;

7.1.5 adopting a communication policy for the Company; and

7.1.6 the Company’s internal control and management information systems.

7.2                   Corporate Governance Matters – The board shall adopt and maintain corporate governance principles and guidelines recommended to it by the Human Resources and Governance Committee and which comply with all applicable legal and stock exchange listing requirements and with such recommendations of relevant securities regulatory authorities and stock exchanges as the board may consider appropriate.

7.3                   Nomination and Appointment of Directors –

7.3.1 The board shall nominate individuals for election as directors by the shareholders and shall require the Human Resources and Governance Committee to make recommendations to it with respect to such nominations.

7.3.2 The board may fill such vacancies on the board as it is permitted by law to fill and shall require the Human Resources and Governance Committee to make recommendations to it with respect to such vacancies.

7.3.3 The board shall consider recommendations made to it by the Human Resources and Governance Committee with respect to the size and composition of the board.

7.3.4 In selecting candidates for appointment or nomination as directors, the board shall:

(i) consider what competencies and skills the board, as a whole, should possess; and

(ii) assess what competencies and skills each existing director possesses.

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7.4                    Significant Decisions – The board shall require management to obtain its approval for all significant decisions, including major financings, acquisitions, dispositions, budgets and capital expenditures.

7.5                    Information Flow from Management – The board shall require management to keep it aware of the Company’s performance and events affecting the Company’s business, including opportunities in the marketplace and adverse or positive developments.

7.6                    Position Descriptions – The board shall develop clear position descriptions for the chairperson of the board, the deputy chairperson and the chair of each board committee. In addition, the board, together with the CEO, shall develop a clear position description for the CEO.

7.7                    Corporate Objectives – The board shall approve specific financial and business goals and objectives, which will be used as a basis for measuring the performance of the CEO.

7.8                    Delegation to Committees –

7.8.1 The board shall establish and maintain the following committees of the board, each having charters that incorporate all applicable legal and stock exchange listing requirements and with such recommendations of relevant securities regulatory authorities and stock exchanges as the board may consider appropriate:

(i) Audit Committee; and

(ii) Human Resources and Governance Committee.

7.8.2 Subject to the Company’s articles and by-laws, the board may appoint any other committee of directors and delegate to such committee any of the powers of the board, except to the extent that such delegation is prohibited under the CBCA.

7.8.3 The board will appoint and maintain in office, members of each of its committees such that the composition of each such committee is in compliance with all applicable legal and stock exchange listing requirements and with such recommendations of relevant securities regulatory authorities and stock exchanges as the board may consider appropriate and shall require the Human Resources and Governance Committee to make recommendations to it with respect to such matters.

7.8.4 The board will review the charters and the composition of each of its committees on a regular basis and will revise those charters or amend the composition of its committees as it considers appropriate and shall require the Human Resources and Governance Committee to make recommendations to it with respect to such matters.

7.9                    Delegation to Management – Subject to the Company’s articles and by-laws, the board may designate the offices of the Company, appoint officers, specify their duties and delegate to them powers to manage the business and affairs of the Company, except to the extent that such delegation is prohibited under the CBCA.

7.10                   Residual Authority – The board retains responsibility for any matter that has not been delegated to management or to a committee of the directors.

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7.11                  Financial Statements – The board shall review and, if appropriate, approve the Company’s annual financial statements after the Audit Committee has reviewed and made a recommendation on those statements to the board.

7.12                  Compensation Matters –

7.12.1 Executive Compensation Policy – The board shall review the executive compensation policy submitted to it by the Human Resources and Governance Committee.

7.12.2 Compensation and Benefits – The board shall review and approve, as appropriate:

(i) the overall structure of the Company’s total compensation strategy, including the elements of the Company’s annual and long-term incentive plans, including plan design, performance targets, administration and total funds/shares reserved for payments;

(ii) the CEO’s total compensation in light of the performance assessment by the Human Resources and Governance Committee;

(iii) the individual elements of total compensation for the executives named in the annual proxy statement and the total compensation of such other members of senior management not named in the annual proxy statement;

(iv) the total compensation for the members of the board, in light of director compensation guidelines and principles established by the Human Resources and Governance Committee;

(v) and shall require the Human Resources and Governance Committee to make recommendations to it with respect to such matters.

7.12.3 Organizational Responsibilities – The board shall review and approve as appropriate:

(i) appointments for all mission critical positions (as such positions are defined by the Human Resources and Governance Committee from time to time) and compensation packages for such appointments;

(ii) executive compensation disclosure that is required to be publicly disclosed by the Company;

(iii) and shall require the Human Resources and Governance Committee to make recommendations to it with respect to such matters.

7.12.4 Pension Plan Matters – The board shall receive and review reports from management and from the Human Resources and Governance Committee covering administration, investment performance, funding, financial impact, actuarial reports and other pension plan related matters.

7.13                  Code of Ethics –

7.13.1 The board shall adopt a written code of business conduct and ethics (the “Code”) recommended to it by the Human Resources and Governance Committee and which complies with all applicable legal and stock exchange listing requirements and with such recommendations of relevant securities regulatory authorities and stock exchanges as the board may consider appropriate.

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7.13.2 The board shall be responsible for monitoring compliance with the Code. Any waivers from the Code that are granted for the benefit of directors or executive officers of the Company shall be granted by the board (or a committee of the board) only.

7.14                  Communication Policy – The Board shall periodically review the Company’s overall communications policy, including measures for receiving feedback from stakeholders.

8. REGULAR BOARD ASSESSMENTS

8.1                    Establish Process – The board shall establish a process to be carried out by the Human Resources and Governance Committee for regularly assessing the effectiveness and contribution of the board, its committees and each individual director.

8.2                    Amendments to Mandate – The board will review and reassess the adequacy of its mandate on a regular basis.

9. ORIENTATION AND CONTINUING EDUCATION

9.1                    The board shall ensure that all new directors receive a comprehensive orientation.

9.2                    The board shall provide continuing education opportunities for all directors, so that individuals may maintain or enhance their skills and abilities as directors, as well as to ensure their knowledge and understanding of the Company’s business remains current.

10. Interpretation

10.1                  The provisions of this mandate shall at all times be subject to the provisions of the CBCA, the articles and the by-laws of the Company.

* * *

This mandate is intended as a component of the flexible governance framework within which the board, assisted by its committees, directs the affairs of the Company. While it should be interpreted in the context of all applicable laws, regulations and listing requirements, as well as in the context of the Company's articles and by-laws, it is not intended to establish any legally binding obligations. The Directors have the right to derogate from the provisions of this mandate where the circumstances warrant it, to the extent permitted by applicable laws, regulations and listing requirements and the Company's articles and by-laws.

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EX-4.7

Exhibit 4.7

FORM 51-102F3

MATERIAL CHANGE REPORT

Item 1 Name and Address of Company

BELLUS Health Inc. (the “Company” or “BELLUS Health”)

275 Armand-Frappier Blvd.

Laval, Québec

H7V 4A7

Item 2 Date of Material Change

August 15, 2019

Item 3 News Release

A press release was issued on August 15, 2019, from Laval, Québec, and disseminated by Globe Newswire.

Item 4 Summary of Material Change

The Company announced a 3.6:1 consolidation of its common shares.

Item 5 Full Description of Material Change

5.1 Full Description of Material Change

On August 15, 2019, the Company announced a 3.6:1 consolidation of its common shares (the “Consolidation”). Notice was provided to the Toronto Stock Exchange (the “TSX”) and BELLUS Health’s common shares began trading on the TSX, on a consolidated basis, on August 19, 2019.

Following the Consolidation, the number of outstanding common shares of the Company was reduced from approximately 159.1 million outstanding common shares to approximately 44.2 million outstanding common shares, assuming no other changes to the issued capital of the Company. BELLUS Health’s common shares continue to trade on the TSX under the existing ticker symbol BLU and was assigned the new CUSIP number 07987C204.

No fractional common shares were issued in connection with the Consolidation and, in the event that a shareholder would otherwise be entitled to receive a fractional share upon such Consolidation, the number of common shares to be received by such shareholder was rounded up or down to the nearest whole common share.

BELLUS Health’s transfer agent, Computershare Investor Services (“Computershare”), acts as the exchange agent for the Consolidation. Computershare has sent instructions (i.e. a Letter of Transmittal) to shareholders who hold the Company’s stock certificates regarding the exchange of old certificates for new certificates, should they wish to do so. Until surrendered, each stock certificate representing pre-Consolidation common shares will be deemed for all purposes to represent the number of whole post-Consolidation common shares to which the shareholder is entitled as a result of the Consolidation. Shareholders who hold their common shares in brokerage accounts or “street name” are not required to take any action to effect the exchange of their common shares.

5.2 Disclosure for Restructuring Transactions

N/A

Item 6 Reliance on subsection 7.1(2) of National Instrument 51-102

This report is not being filed on a confidential basis.

Item 7 Omitted Information

N/A

Item 8 Executive Officer

François Desjardins

Vice-President, Finance

(450) 680-4525

Item 9 Date of Report

August 20, 2019

EX-4.8

Exhibit 4.8

FORM 51-102F3
MATERIAL CHANGE REPORT

Item 1 Name and Address of Company

BELLUS Health Inc. (the “Company” or “BELLUS Health”)

275 Armand-Frappier Blvd.

Laval, Québec

H7V 4A7

Item 2 Date of Material Change

August 26, 2019

Item 3 News Release

A press release was issued on August 26, 2019, from Laval, Québec, and disseminated by Globe Newswire.

Item 4 Summary of Material Change

The Company announced the appointment of Dr. Catherine Bonuccelli, MD as Chief Medical Officer.

Item 5 Full Description of Material Change

5.1           Full Description of Material Change

On August 26, 2019, the Company announced the appointment of Dr. Catherine Bonuccelli, MD to the role of Chief Medical Officer.

5.2           Disclosure for Restructuring Transactions

N/A

Item 6 Reliance on subsection 7.1(2) of National Instrument 51-102

This report is not being filed on a confidential basis.

Item 7 Omitted Information

N/A

Item 8 Executive Officer

François Desjardins

Vice-President, Finance

(450) 680-4525

Item 9 Date of Report

August 27, 2019

EX-5.1

Exhibit 5.1

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We, KPMG LLP, consent to the use of our report dated February 20, 2019, on the consolidated financial statements of BELLUS Health Inc., which comprise the consolidated statements of financial position as at December 31, 2018 and December 31, 2017, the consolidated statements of loss and other comprehensive loss, changes in shareholders' equity and cash flows for the years then ended, and the related notes, which is incorporated by reference herein.

 

December 20, 2019

Montréal, Canada

KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity.
KPMG Canada provides services to KPMG LLP.

EX-5.2

Exhibit 5.2

1501 McGill College Avenue, 26th Floor
Montréal, QC H3A 3N9 Canada

dwpv.com

BELLUS Health Inc.

275 Armand-Frappier Blvd.

Laval, Quebec H7V 4A7

Canada

Re: BELLUS Health Inc.

We hereby consent to the use of our name in the Registration Statement on Form F-10 filed by BELLUS Health Inc. on December 20, 2019, as such may thereafter be amended or supplemented, and in the short-form base shelf prospectus dated December 20, 2019 included therein, on the cover pages and under the heading “Legal Matters”.

In giving this consent, we do not acknowledge that we come within the category of persons whose consent is required by Section 7 of the United States Securities Act of 1933, as amended, or the rules and regulations thereunder.

/s/ Davies Ward Phillips & Vineberg LLP

Davies Ward Phillips & Vineberg LLP

Montreal, Québec

December 20, 2019