Report of Foreign Issuer (6-k)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________________________

FORM 6-K

_______________________________

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13A-16 OR 15D-16 UNDER THE

SECURITIES EXCHANGE ACT OF 1934

For the month of March 2015

Commission file number 0-30752

_______________________________

AETERNA ZENTARIS INC.

_______________________________

1405 du Parc-Technologique Boulevard

Quebec City, Québec

Canada, G1P 4P5

(Address of principal executive offices)

_______________________________

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

Form 20-F ý Form 40-F ¨

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

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

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934. Yes ¨ No ý

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- .

DOCUMENTS INDEX


Documents	Description


99.1	Aeterna Zentaris Reports Fourth Quarter and Full-Year 2014 Financial and Operating Results


99.2	Aeterna Zentaris' Management's Discussion and Analysis of Financial Condition and Results of Operations for the financial year ended December 31, 2014


99.3	Aeterna Zentaris' Consolidated Financial Statements as at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012.

SIGNATURE

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




	AETERNA ZENTARIS INC.

Date: March 17, 2015	By:	/s/ Dennis Turpin
		Dennis Turpin
		Senior Vice President and Chief Financial Officer

Exhibit 99.1

Aeterna Zentaris

Aeterna Zentaris Inc. 1405 du Parc-Technologique Blvd.

Québec (Québec) Canada G1P 4P5 T 418-652-8525

www.aezsinc.com

Press Release

For immediate release

Aeterna Zentaris Reports Fourth Quarter and Full-Year 2014 Financial and Operating Results

All amounts are in US dollars

Quebec City, Canada, March 17, 2015 – Aeterna Zentaris Inc. (NASDAQ: AEZS) (TSX: AEZ) (the "Company"), a specialty biopharmaceutical company engaged in developing and commercializing novel treatments in oncology, endocrinology and women's health, today reported financial and operating results as at and for the fourth quarter and the year ended December 31, 2014.

Research and development ("R&D") costs, net of refundable tax credits and grants, were $6.3 million and $23.7 million for the three-month period and the year ended December 31, 2014, respectively, as compared to $5.3 million and $21.3 million for the same periods in 2013. The increase for the year ended December 31, 2014, as compared to the same period in 2013, is attributable to higher comparative employee compensation and benefits costs, which in turn are mainly due to the recording of R&D restructuring costs of approximately $2.5 million related to R&D staff redundancies resulting from the Company's global resource optimization program (the "Resource Optimization Program"), partly offset by lower comparative salaries, short-term employee benefits and share-based compensation costs.

Selling, general and administrative ("SG&A") expenses were $4.7 million and $13.7 million for the three-month period and the year ended December 31, 2014, respectively, compared to $2.6 million and $12.3 million for the same periods in 2013. For the three-month period ended December 31, 2014, the increase in SG&A expenses, as compared to the same period in 2013, is mainly related to the deployment of the Company's contracted sales force, which is currently detailing EstroGel^®, and higher comparative operating foreign exchange losses. For the year ended December 31, 2014, the increase in SG&A expenses, as compared to the same period in 2013, is mainly related to higher comparative operating foreign exchange losses, the ramping up of the Company's pre-commercialization activities, the deployment of its contracted sales force related to its co-promotion activities and to the recording of restructuring costs related to administrative staff redundancies resulting from the Resource Optimization Program.

Net income (loss) for the three-month period and the year ended December 31, 2014 was $4.2 million and $(16.6) million, or $0.06 and $(0.28) per basic and diluted share, respectively, as compared to $(8.2) million and $6.8 million, or $(0.22) and $0.24 per basic and diluted share, for the same periods in 2013. The increase in net income for the three-month period ended December 31, 2014, as compared to the same period in 2013, is due largely to higher comparative net finance income, offset partially by higher comparative operating expenses and by lower net income from discontinued operations. The decrease in net income for the year ended December 31, 2014, as compared to the same period in 2013, is due largely to the higher loss from operations and to lower net income from discontinued operations, partially offset by higher comparative net finance income.

Cash and cash equivalents totaled $34.9 million as at December 31, 2014, as compared to $43.2 million as at December 31, 2013.

Aeterna Zentaris

David Dodd, Aeterna Zentaris Chairman and CEO, commented, "During 2014, we achieved significant progress in the implementation of our strategy of transitioning into a commercially operating specialty biopharmaceutical company, as we put our commercial structure in place, built a full-time contract sales force of 19 representatives, signed a co-promotion agreement with ASCEND and started selling its product EstroGel^® in our specific territories in the US. We are continuing to evaluate potential in-licensing and/or acquisition opportunities, as well as additional co-promotional arrangements related to marketed products, in order to grow our commercial activities. We are also proud of our collaboration agreement for our lead oncology compound, zoptarelin doxorubicin, with Sinopharm A-Think for China, one of the largest markets in the world. With regards to our ZoptEC Phase 3 study in endometrial cancer with zoptarelin doxorubicin, we are very pleased with the progress of patient recruitment as we now have over 400 patients enrolled in the trial out of an expected total of 500, which is in line with our projections. Therefore, we expect that at this rate, a first interim analysis of the trial should be secured in the first half of the current year, and patient recruitment should be completed by year-end. As for Macrilen™, following the FDA's Complete Response Letter, we intend to make a decision in the near term on our different options for this product in the evaluation of AGHD. For 2015, we remain fully focused on becoming a growth-oriented, commercially operating specialty biopharmaceutical organization, while continuing to develop key late-stage product candidates in our existing pipeline, such as our novel targeted anti‑cancer agent, zoptarelin doxorubicin."

Dennis Turpin, Chief Financial Officer of the Company added, "With our cash and cash equivalents position of $34.9 million as at December 31, 2014, our controlled burn rate and the completion of our recent public offering, which resulted in net proceeds of approximately $34.5 million, the Company has a solid financial position upon which it can advance its strategic initiatives."

2014 Highlights

Commercial Developments

•

During the fourth quarter, pursuant to the co-promotion services agreement signed with ASCEND Therapeutics US LLC ("ASCEND") in August 2014, the Company's own full-time contract sales force of 19 sales representatives started the field selling of EstroGel^®, ASCEND's leading non-patch transdermal hormone replacement therapy product, in specific agreed upon US territories, in exchange for a sales commission.

Product Candidate Developments

Zoptarelin Doxorubicin


•	During the year, site initiation was completed, with over 120 sites currently in operation in North America, Europe and Israel for the ZoptEC (Zoptarelin doxorubicin in Endometrial Cancer) Phase 3 trial in women with locally advanced, recurrent or metastatic endometrial cancer. To date, over 400 of the expected 500 patients have been entered into the trial.

•

On December 1, 2014, the Company entered into a master collaboration agreement with Sinopharm A-Think Pharmaceuticals Co., Ltd. ("Sinopharm"), for the development, manufacture and commercialization of zoptarelin doxorubicin in the People's Republic of China, including Hong Kong and Macau. Aeterna Zentaris received a one‑time, non-refundable payment of $1.1 million transfer fee from Sinopharm, and will be entitled to receive additional consideration upon achieving certain pre-established milestones, including certain regulatory and commercial events, as well as royalties on future net sales of zoptarelin doxorubicin in China.

Macrilen™

•

On November 6, 2014, the FDA issued a Complete Response Letter ("CRL") for the Company's New Drug Application ("NDA") for Macrilen™ in the evaluation of adult growth hormone deficiency ("AGHD"). Based on its review, the FDA determined that the NDA could not be approved in its form, as submitted. To demonstrate the efficacy of macimorelin as a diagnostic test for growth hormone deficiency, the CRL states that a new, confirmatory clinical study will be necessary. The CRL also stated that a serious event of electrocardiogram QT interval prolongation

Aeterna Zentaris

occurred for which attribution to drug could not be excluded. Therefore a dedicated thorough QT study to evaluate the effect of macimorelin on the QT interval would be necessary.


•	The Company intends to make a decision regarding the future development of Macrilen™in the near term, taking into account various considerations, including prior and upcoming discussions with the FDA.

Corporate Developments

Establishment of Global Commercial Operations and Resource Optimization


•	On May 5, 2014, the Company announced it had selected Charleston, South Carolina, as the new location for its North American business and global commercial operations.

•

On August 7, 2014, the Company's Nominating, Governance and Compensation Committee approved its Resource Optimization Program, as part of its strategy to transition into a commercially operating specialty biopharmaceutical organization. The Resource Optimization Program, the goal of which is to streamline R&D activities and increase commercial operations and flexibility, is expected to result in the termination of 30 employees, with employee departures continuing through August 31, 2015. The Company expects that overall annualized savings upon completion of the Resource Optimization Program will amount to approximately $2.3 million. Total restructuring costs associated with the Resource Optimization Program recorded during 2014 were approximately $2.5 million.

Public Offerings


•	On January 14, 2014, the Company completed a public offering of 11.0 million units, generating net proceeds of approximately $12.2 million, with each unit consisting of one common share and 0.80 of a warrant to purchase one common share, at a purchase price of $1.20 per unit.

•

Subsequent to year-end, on March 11, 2015, the Company completed a public offering of 59,677,420 units, generating net proceeds of approximately $34.5 million, from which the Company paid approximately $5.7 million to the holders of approximately 21.1 million outstanding warrants issued by the Company in previous public offerings as consideration for their agreement to immediately terminate the warrants. Each unit of this March 11, 2015 public offering consists of either one common share or one warrant to purchase one common share ("Series C Warrant"), 0.75 of a warrant to purchase one common share ("Series A Warrant") and 0.50 of a warrant to purchase one common share ("Series B Warrant"), at a purchase price of $0.62 per unit. The Series A Warrants are exercisable for a period of five years at an exercise price of $0.81 per share. The Series B warrants are exercisable for a period of 18 months at an exercise price of $0.81 per share. Total gross proceeds payable to the Company in connection with the exercise of the Series C Warrants have been pre-paid by investors and therefore are included in the aforementioned proceeds.

"At-the-Market" Issuance Program

•

Between July 1, 2014 and December 31, 2014, the Company issued a total of approximately nine million common shares under its At-the-Market ("ATM") sales agreement entered into May 2014 with MLV & Co. LLC (the "May 2014 ATM Program"), at an average price of $1.36 for aggregate gross proceeds of approximately $12.2 million, less cash and non-cash transaction costs of approximately $0.4 million. The May 2014 ATM Program provides that the Company may, at its discretion, from time to time during the term of the sales agreement, sell up to a maximum of 14.0 million of its common shares through ATM issuances on the NASDAQ, up to an aggregate amount of $15 million.

NASDAQ Minimum Bid Price Compliance


•	On December 18, 2014, the Company received a notice from the NASDAQ regarding its failure to comply with the NASDAQ's $1.00 minimum bid price requirement. The Company has 180 calendar days, or until June 16, 2015, to regain compliance with the minimum bid price requirement.

Aeterna Zentaris

CONFERENCE CALL

Management will be hosting a conference call for the investment community beginning at 8:30 a.m. (Eastern Time) tomorrow, Wednesday, March 18, 2015, to discuss the 2014 fourth quarter and full year results. Individuals interested in participating in the live conference call by telephone may dial, in Canada, 514-807-9895 or 647-427-7450, outside Canada, 888-231-8191. They may also listen through the Internet at www.aezsinc.com in the "Newsroom" section. A replay will be available on the Company's website for 30 days following the live event.

For reference, the Management's Discussion and Analysis of Financial Condition and Results of Operations for the fiscal year 2014, as well as the Company's consolidated financial statements, can be found at www.aezsinc.com in the "Investors" section.

About Aeterna Zentaris Inc.

Aeterna Zentaris is a specialty biopharmaceutical company engaged in developing and commercializing novel treatments in oncology, endocrinology and women's health. For more information, visit www.aezsinc.com.

Forward-Looking Statements

This press release contains forward-looking statements made pursuant to the safe harbor provisions of the US Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties that could cause the Company's actual results to differ materially from those in the forward-looking statements. Such risks and uncertainties include, among others, the availability of funds and resources to pursue R&D projects, the successful and timely completion of clinical studies, the risk that safety and efficacy data from any of our Phase 3 trials may not coincide with the data analyses from previously reported Phase 1 and/or Phase 2 clinical trials, the ability of the Company to efficiently commercialize one or more of its products or product candidates, the ability of the Company to take advantage of business opportunities in the pharmaceutical industry, uncertainties related to the regulatory process, the ability to protect our intellectual property, the potential of liability arising from shareholder lawsuits and general changes in economic conditions. Investors should consult the Company's quarterly and annual filings with the Canadian and US securities commissions for additional information on risks and uncertainties relating to forward-looking statements. Investors are cautioned not to place undue reliance on these forward-looking statements. The Company does not undertake to update these forward-looking statements. We disclaim any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements contained herein to reflect future results, events or developments, unless required to do so by a governmental authority or by applicable law.

Contact

Paul Burroughs

Director of Communications

(418) 652-8525 ext. 406

pburroughs@aezsinc.com

-30-

Attachment: Financial summary

Aeterna Zentaris

Consolidated Statements of Comprehensive Income (Loss) Information



	Three-month periods ended December 31,				Years ended December 31,
(in thousands, except share and per share data)	2014		2013		2014		2013		2012
	$		$		$		$		$
Revenues
Sales	—		—		—		96		834
License fees	11		—		11		6,079		1,219
	11		—		11		6,175		2,053
Operating expenses
Cost of sales	—		—		—		51		591
Research and development costs, net of refundable tax credits and grants	6,282		5,345		23,716		21,284		20,592
Selling, general and administrative expenses	4,676		2,627		13,690		12,316		10,606
	10,958		7,972		37,406		33,651		31,789
Loss from operations	(10,947	)	(7,972	)	(37,395	)	(27,476	)	(29,736	)
Finance income	15,053		65		20,319		1,748		6,974
Finance costs	—		(2,689	)	—		(1,512	)	(382	)
Net finance income (costs)	15,053		(2,624	)	20,319		236		6,592
Income (loss) before income taxes	4,106		(10,596	)	(17,076	)	(27,240	)	(23,144	)
Income tax expense	(111	)	—		(111	)	—		—
Net income (loss) from continuing operations	3,995		(10,596	)	(17,187	)	(27,240	)	(23,144	)
Net income from discontinued operations	158		2,353		623		34,055		2,732
Net income (loss)	4,153		(8,243	)	(16,564	)	6,815		(20,412	)
Other comprehensive income (loss):
Items that may be reclassified subsequently to profit or loss:
Foreign currency translation adjustments	(677	)	424		(1,158	)	1,073		(504	)
Items that will not be reclassified to profit or loss:
Actuarial gain (loss) on defined benefit plans	1,336		2,346		(1,833	)	2,346		(3,705	)
Comprehensive income (loss)	4,812		(5,473	)	(19,555	)	10,234		(24,621	)
Net income (loss) per share (basic and diluted) from continuing operations	0.06		(0.28	)	(0.29	)	(0.92	)	(1.17	)
Net income (basic and diluted) from discontinued operations	—		0.06		0.01		1.16		0.14
Net income (loss) (basic and diluted) per share	0.06		(0.22	)	(0.28	)	0.24		(1.03	)
Weighted average number of shares outstanding:
Basic	65,383,290		37,274,129		59,024,730		29,476,455		19,775,073
Diluted	65,383,290		37,274,129		59,024,730		29,476,455		19,806,687

Aeterna Zentaris

Consolidated Statement of Financial Position Information



	As at December 31,
(in thousands)	2014	2013
	$	$
Cash and cash equivalents¹	34,931	43,202
Trade and other receivables and other current assets	1,286	2,453
Restricted cash equivalents	760	865
Property, plant and equipment	797	1,351
Other non-current assets	9,661	11,325
Total assets	47,435	59,196
Payables and other current liabilities²	7,304	7,242
Current portion of deferred revenues	270	—
Warrant liability	8,225	18,010
Non-financial non-current liabilities³	17,152	16,880
Total liabilities	32,951	42,132
Shareholders' equity	14,484	17,064
Total liabilities and shareholders' equity	47,435	59,196

_________________________

¹ Of which approximately $3.6 million was denominated in EUR as at December 31, 2014.

² Of which approximately $1.5 million is related to a provision for restructuring costs.

³ Comprised mainly of employee future benefits, provisions for onerous contracts and non-current portion of deferred revenues.

Exhibit 99.2

Aeterna Zentaris

Management's Discussion and Analysis

of Financial Condition and Results of Operations

Company Overview

Aeterna Zentaris Inc. is a specialty biopharmaceutical company engaged in developing and commercializing novel treatments in oncology, endocrinology and women's health.

Our drug development efforts are focused currently on two compounds, zoptarelin doxorubicin and Macrilen™, which are in clinical development, and on two oncology compounds (our Erk inhibitors and LHRH-disorazol Z product candidates), which are in pre-clinical development. We also are working concurrently to pursue strategic initiatives in connection with our goal to become a commercially operating specialty biopharmaceutical organization.

The Company's common shares are listed on both the NASDAQ Capital Market ("NASDAQ"), under the symbol "AEZS", and on the Toronto Stock Exchange ("TSX"), under the symbol "AEZ".

Introduction

This Management's Discussion and Analysis ("MD&A") provides a review of the results of operations, financial condition and cash flows of Aeterna Zentaris Inc. for the year ended December 31, 2014. In this MD&A, "Aeterna Zentaris", the "Company", "we", "us", "our" and the "Group" mean Aeterna Zentaris Inc. and its subsidiaries. This discussion should be read in conjunction with the information contained in the Company's consolidated financial statements and the accompanying notes thereto as at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012. Our consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB").

All amounts in this MD&A are presented in United States ("US") dollars, except for share, option and warrant data, per share and per warrant data and as otherwise noted.

All shares, options and share purchase warrants as well as per share, option and share purchase warrant information presented in this MD&A have been adjusted, including proportionate adjustments being made to each stock option and share purchase warrant exercise price, to reflect and give effect to a consolidation, on October 2, 2012, of our issued and outstanding common shares on a six-to-one basis. The share consolidation affected all shareholders, optionholders and warrantholders uniformly and thus did not materially affect any securityholder's percentage of ownership interest.

About Forward-Looking Statements

This document contains forward-looking statements, which reflect our current expectations regarding future events. Forward-looking statements may include words such as "anticipate", "assume", "believe", "could", "expect", "foresee", "goal", "guidance", "intend", "may", "objective", "outlook", "plan", "seek", "should", "strive", "target" and "will".

Forward-looking statements involve risks and uncertainties, many of which are discussed in this MD&A and others of which are discussed under the caption "Key Information – Risk Factors" in our most recent Annual Report on Form 20-F filed with the relevant Canadian securities regulatory authorities in lieu of an annual information form and with the US Securities and Exchange Commission ("SEC"). Such statements include, but are not limited to, statements about the progress of our research, development and clinical trials and the timing of, and prospects for, regulatory approval and commercialization of our product candidates, the timing of expected results of our studies, anticipated results of these studies, statements about the status of our efforts to establish a commercial operation and to obtain the right to promote or sell products that we did not develop and estimates regarding our capital requirements and our needs for, and our ability to obtain, additional financing. Known and unknown risks and uncertainties could cause our actual results to differ materially from those in the forward-looking statements. Such risks and uncertainties include, among others, the availability of funds and resources to pursue our research and development ("R&D") projects, the successful and timely completion of clinical studies, the degree of market acceptance once our products are approved for commercialization, our ability to take advantage of business opportunities in the

(1)

Aeterna Zentaris

2014 Annual MD&A

pharmaceutical industry, our ability to protect our intellectual property, uncertainties related to the regulatory process and general changes in economic conditions. See also the section entitled "Risk Factors and Uncertainties", in this MD&A.

Given these uncertainties and risk factors, readers are cautioned not to place undue reliance on any forward-looking statements. We disclaim any obligation to update any such factors or to publicly announce any revisions to any of the forward-looking statements contained herein to reflect future results, events or developments, unless required to do so by a governmental authority or by applicable law.

About Material Information

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

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

Key Developments

Commercial Developments

•

During the fourth quarter, our full-time contract sales force of 19 sales representatives started the field selling in the US of EstroGel^®, pursuant to the co-promotion services agreement (the "Co-promotion Agreement") entered into with ASCEND Therapeutics US LLC ("ASCEND") in August 2014. The Co-promotion Agreement provides that we or one of our subsidiaries detail and market ASCEND's leading non-patch transdermal hormone replacement therapy product, available under the name EstroGel^®, in specific agreed-upon US territories, in exchange for a sales commission, which will be payable to us based upon incremental EstroGel^® sales volumes that are generated over certain pre-established thresholds.

Product Candidate Developments

Zoptarelin Doxorubicin

•

During the year, we completed site initiation, with over 120 sites currently in operation, for our ZoptEC (Zoptarelin doxorubicin in Endometrial Cancer) Phase 3 trial in women with locally advanced, recurrent or metastatic endometrial cancer. To date, over 400 of the expected 500 patients have been entered into the trial. The ZoptEC Phase 3 trial is an open-label, randomized, multicenter trial conducted in North America, Europe and Israel under a Special Protocol Assessment ("SPA") with the FDA; it compares zoptarelin doxorubicin with doxorubicin as second line therapy. The primary efficacy endpoint is improvement in median Overall Survival.

•

On December 1, 2014, we entered into a master collaboration agreement, a Technology Transfer and Technical Assistance Agreement ("TTA") and a License Agreement ("LA") with Sinopharm A-Think Pharmaceuticals Co., Ltd. ("Sinopharm") for the development, manufacture and commercialization of zoptarelin doxorubicin ("the Product") in all human uses, in the People's Republic of China, including Hong Kong and Macau (collectively, "the Territory"). Under the terms of the TTA, Sinopharm made a one-time, non-refundable payment of $1.1 million ("Transfer Fee") to us for the transfer of technical documentation and materials, know-how and technical assistance services. Additionally, per the LA, we will be entitled to receive additional consideration upon achieving certain pre-established milestones, including the occurrence of certain regulatory and commercial events in the Territory. Furthermore, we will be entitled to receive royalties on future net sales of the Product in the Territory.

(2)

Aeterna Zentaris

2014 Annual MD&A

Macrilen™

•

On November 6, 2014, the FDA issued a Complete Response Letter ("CRL") for our New Drug Application ("NDA") for Macrilen™ in the evaluation of adult growth hormone deficiency ("AGHD"). Based on its review, the FDA determined that our NDA could not be approved in its form as submitted. The CRL stated that the planned analysis of our pivotal trial did not meet its stated primary efficacy objective as agreed to in the SPA agreement between the Company and the FDA, and that we will need to demonstrate the efficacy of macimorelin as a diagnostic test for growth hormone deficiency in a new, confirmatory clinical study. The CRL also stated that a serious event of electrocardiogram QT interval prolongation occurred for which attribution to drug could not be excluded. Therefore, a dedicated thorough QT study to evaluate the effect of macimorelin on the QT interval would be necessary. We intend to make a decision regarding the future development of Macrilen™ in the near term, taking into account various considerations, including our prior and upcoming discussions with the FDA.

Erk Inhibitors

•

On April 9, 2014, we announced that we had presented, at the American Association for Cancer Research Annual Meeting in San Diego, a poster, entitled Erk Inhibition as a Therapeutic Option for the Treatment of Raf- and Mek- Inhibitor Resistant Tumors, on AEZS-134, a highly potent and selective adenosine triphosphate competitive Erk inhibitor. The poster provided a rationale for new therapeutic opportunities in oncology with this compound, given that preclinical data suggest that Erk inhibitors such as AEZS-134 may provide a treatment option for patients suffering from tumors that are resistant to currently established therapies such as B-Raf and Mek inhibitors.

Corporate Developments

Establishment of Global Commercial Operations and Resource Optimization

•

On May 5, 2014, we announced that we had selected Charleston, South Carolina, as the new location for our North American business and global commercial operations. In conjunction with our plans and commitment to our Charleston office, we expect to be eligible to receive job development investment tax credits pursuant to approval received from the Coordinating Council for Economic Development of South Carolina.

•

On August 7, 2014, our Nominating, Governance and Compensation Committee approved our global resources optimization program (the "Resource Optimization Program"), which has been rolled out as part of our strategy to transition into a commercially operating specialty biopharmaceutical organization. The Resource Optimization Program, the goal of which is to streamline R&D activities and to increase commercial operations and flexibility, is expected to result in the termination of 30 employees. Employee departures under this program, which commenced during the first quarter of 2015, will continue through August 31, 2015. We expect that overall annualized savings upon completion of the Resource Optimization Program will amount to approximately $2.3 million. Total restructuring costs associated with the Resource Optimization Program recorded during 2014 were approximately $2.5 million, representing our estimated severance payments, onerous lease provision and other directly related costs. Our estimates of restructuring costs and annualized savings may be revised in future periods as new information becomes available.

Public Offerings


•	On January 14, 2014, we completed a public offering of 11.0 million units, generating net proceeds of approximately $12.2 million, with each unit consisting of one common share and 0.80 of a warrant to purchase one common share, at a purchase price of $1.20 per unit (the "January 2014 Offering").

•

On March 11, 2015, we completed a public offering of 59,677,420 units (the "Units"), generating net proceeds of approximately $34.5 million, with each Unit consisting of either one common share or one warrant to purchase one common share ("Series C Warrant"), 0.75 of a warrant to purchase one common share ("Series A Warrant") and 0.50 of a warrant to purchase one common share ("Series B Warrant"), at a purchase price of $0.62 per Unit (the "March 2015 Offering"). The Series A Warrants are exercisable for a period of five years at an exercise price of $0.81 per share, and the Series B Warrants are exercisable for a period of 18 months at an exercise price of $0.81 per share. Both the Series A and Series B warrants are subject to certain anti-dilution provisions. The Series C Warrants are exercisable for a period of five years at an exercise price of $0.62 per share. Total gross proceeds payable to us in connection with the exercise of the Series C Warrants have been pre-paid by investors and therefore are included in the aforementioned proceeds.

(3)

Aeterna Zentaris

2014 Annual MD&A

•

In connection with the March 2015 Offering, the holders of 21,123,332 of the 21,900,000 outstanding warrants issued by us in connection with a previous public offering of units in November 2013 and with the January 2014 Offering, as defined above, entered into an amendment agreement that caused such previously issued warrants to expire and terminate in exchange of a cash payment made by us in the aggregate amount of approximately $5.7 million.

"At-the-Market" Issuance Program

•

Between July 1, 2014 and December 31, 2014, we issued a total of approximately nine million common shares under our At-the-Market ("ATM") sales agreement entered into May 2014 with MLV & Co. LLC (the "May 2014 ATM Program"), at an average price of $1.36 for aggregate gross proceeds of approximately $12.2 million, less cash and non-cash transaction costs of approximately $0.4 million. The May 2014 ATM Program provides that we may, at our discretion, from time to time during the term of the sales agreement, sell up to a maximum of 14.0 million of our common shares through ATM issuances on the NASDAQ, up to an aggregate amount of $15 million.

NASDAQ Minimum Bid Price Compliance


•	On December 18, 2014, we received a notice from the NASDAQ regarding our failure to comply with the NASDAQ's $1.00 minimum bid price requirement. The Company has 180 calendar days, or until June 16, 2015, to regain compliance with the minimum bid price requirement.

Status of Our Drug Pipeline

_________________________

⁽¹⁾Phase 2 trial in ovarian cancer completed.

⁽²⁾Investigator-driven and sponsored.

⁽³⁾Currently evaluating options and future plans after issuance of CRL from the FDA.

⁽⁴⁾ Potential oral prostate cancer vaccine available for out-licensing.

⁽⁵⁾Sponsored entirely by licensees.

We are focused on advancing our ZoptEC Phase 3 program with zoptarelin doxorubicin in endometrial cancer, as discussed further below, and on evaluating our options for Macrilen™ for the evaluation of AGHD.

As for our compounds in earlier stages of development, as part of the Resource Optimization Program, we have decided to streamline our drug discovery activities and focus on specific projects related to our Erk inhibitors and our LHRH-disorazol Z product candidates. Regarding our Erk inhibitors program, we are looking to select an optimized molecule for development in the first half of 2015.

Our investment in the development of Erk inhibitors and our LHRH-disorazol Z product candidate will depend on the level of liquidity available to fund our R&D activities.

(4)

Aeterna Zentaris

2014 Annual MD&A

Consolidated Statements of Comprehensive Income (Loss) Information



	Three-month periods ended December 31,				Years ended December 31,
(in thousands, except share and per share data)	2014		2013		2014		2013		2012
	$		$		$		$		$
Revenues
Sales	—		—		—		96		834
License fees	11		—		11		6,079		1,219
	11		—		11		6,175		2,053
Operating expenses
Cost of sales	—		—		—		51		591
Research and development costs, net of refundable tax credits and grants	6,282		5,345		23,716		21,284		20,592
Selling, general and administrative expenses	4,676		2,627		13,690		12,316		10,606
	10,958		7,972		37,406		33,651		31,789
Loss from operations	(10,947	)	(7,972	)	(37,395	)	(27,476	)	(29,736	)
Finance income	15,053		65		20,319		1,748		6,974
Finance costs	—		(2,689	)	—		(1,512	)	(382	)
Net finance income (costs)	15,053		(2,624	)	20,319		236		6,592
Income (loss) before income taxes	4,106		(10,596	)	(17,076	)	(27,240	)	(23,144	)
Income tax expense	(111	)	—		(111	)	—		—
Net income (loss) from continuing operations	3,995		(10,596	)	(17,187	)	(27,240	)	(23,144	)
Net income from discontinued operations	158		2,353		623		34,055		2,732
Net income (loss)	4,153		(8,243	)	(16,564	)	6,815		(20,412	)
Other comprehensive income (loss):
Items that may be reclassified subsequently to profit or loss:
Foreign currency translation adjustments	(677	)	424		(1,158	)	1,073		(504	)
Items that will not be reclassified to profit or loss:
Actuarial gain (loss) on defined benefit plans	1,336		2,346		(1,833	)	2,346		(3,705	)
Comprehensive income (loss)	4,812		(5,473	)	(19,555	)	10,234		(24,621	)
Net income (loss) per share (basic and diluted) from continuing operations	0.06		(0.28	)	(0.29	)	(0.92	)	(1.17	)
Net income (basic and diluted) from discontinued operations	—		0.06		0.01		1.16		0.14
Net income (loss) (basic and diluted) per share	0.06		(0.22	)	(0.28	)	0.24		(1.03	)
Weighted average number of shares outstanding:
Basic	65,383,290		37,274,129		59,024,730		29,476,455		19,775,073
Diluted	65,383,290		37,274,129		59,024,730		29,476,455		19,806,687

(5)

Aeterna Zentaris

2014 Annual MD&A

2014 compared to 2013

Revenues

Revenues are derived predominantly from license fees, which include the amortization of upfront payments received from our licensees and R&D contract service fees.

Sales revenues are derived from the sale of active pharmaceutical ingredients, or raw materials, to licensees. Periodic variations of sales, and, consequently, of cost of sales, are attributable to the R&D needs of the requesting licensee.

Revenues recorded during the year ended December 31, 2013 resulted predominantly from the non-recurring, accelerated recognition of remaining unamortized deferred revenue associated with an upfront payment received from a licensee following the termination of related R&D activities.

We expect revenues during the year ended December 31, 2015 to be higher than those recorded during the year ended December 31, 2014 due to the initial recognition of the Transfer Fee and due to sales commission revenue that we expect to begin generating in connection with our sales efforts related to EstroGel^®, provided that we are able to begin to exceed the pre-established baselines outlined in the Co-promotion Agreement.

Operating Expenses

R&D costs, net of refundable tax credits and grants, were $6.3 million and $23.7 million for the three-month period and the year ended December 31, 2014, respectively, compared to $5.3 million and $21.3 million for the same periods in 2013.

The increase for the year ended December 31, 2014, as compared to the same period in 2013, is attributable to higher comparative employee compensation and benefits costs, which in turn are mainly due to the recording of R&D restructuring costs. Following the approval of the Resource Optimization Program, discussed above, we recorded a provision for restructuring costs, amounting to approximately $2.5 million, for severance payments, onerous lease provision and other directly related costs associated with the Resource Optimization Program. This increase is partly offset by lower comparative salaries and short-term employee benefits and share-based compensation costs.

The following table summarizes our net R&D costs by nature of expense:



	Three-month periods ended December 31,			Years ended December 31,
(in thousands)	2014	2013		2014		2013		2012
	$	$		$		$		$
Third-party costs	3,967	2,828		11,356		10,049		8,679
Employee compensation and benefits	1,231	1,629		8,430		7,864		8,590
Facilities rent and maintenance	887	466		2,160		1,758		1,661
Other costs*	197	540		1,901		2,130		2,530
R&D tax credits and grants	—	(118	)	(131	)	(517	)	(868	)
	6,282	5,345		23,716		21,284		20,592

_________________________

* Includes depreciation, amortization, impairment charges and onerous lease provision recognized.

(6)

Aeterna Zentaris

2014 Annual MD&A

The following table summarizes primary third-party R&D costs, by product candidate, incurred by the Company during the three-month periods ended December 31, 2014 and 2013.



(in thousands, except percentages)	Three-month periods ended December 31,
Product Candidate	2014		2013
	$	%	$	%
Zoptarelin doxorubicin	3,609	91.0	1,667	58.9
Macrilen™, macimorelin	192	4.8	284	10.0
Erk inhibitors	112	2.8	312	11.0
LHRH - Disorazol Z	54	1.4	139	4.9
Other	—	—	426	15.2
	3,967	100.0	2,828	100.0

The following table summarizes primary third-party R&D costs, by product candidate, incurred by the Company during the years ended December 31, 2014, 2013 and 2012.



(in thousands, except percentages)	Years ended December 31,
Product Candidate	2014		2013		2012
	$	%	$	%	$	%
Zoptarelin doxorubicin	9,668	85.1	4,934	49.1	2,133	24.6
Erk inhibitors	488	4.3	1,128	11.2	1,727	19.9
Macrilen™, macimorelin	404	3.6	1,238	12.3	112	1.3
LHRH - Disorazol Z	257	2.3	659	6.6	331	3.8
Perifosine	196	1.7	1,134	11.3	3,801	43.8
Other	343	3.0	956	9.5	575	6.6
	11,356	100.0	10,049	100.0	8,679	100.0

As shown above, a substantial portion of the increase in 2013-to-2014 quarter-to-date and year-to-date third-party R&D costs relates to development initiatives associated with zoptarelin doxorubicin, and in particular with our Phase 3 ZoptEC trial initiated in 2013 with Ergomed Clinical Research Ltd. ("Ergomed"), the contract clinical development organization with which, in April 2013, we entered into a co-development and profit sharing agreement. This increase is partially offset by the lower comparative development costs associated with most of our other product candidates.

During the year ended December 31, 2014, ongoing services provided by Ergomed included the conducting of initiation and monitoring visits at various clinical sites, screening and enrolment initiatives, investigation-related management and analysis and regulatory support. ZoptEC-related efforts are progressing in accordance with pre-established timelines. As we continue to closely monitor all initiatives supported by Ergomed, we may decide to revise some of the trial's parameters or expand the scope of work performed by Ergomed, and consequently, total estimated costs in connection with the co-development and revenue sharing agreement may be adjusted. To date, our arrangement with Ergomed has been revised following our decision to open additional clinical sites and to perform additional sub-studies, resulting in estimated cost increases of approximately $1.8 million, as compared to our original estimate.

Excluding the impact of foreign exchange rate fluctuations, we expect net R&D costs for 2015 to slightly decrease, as compared to 2014, due to the realization of cost savings in connection with the Resource Optimization Program, offset partially by slightly higher third-party R&D costs in connection with our Phase 3 ZoptEC trial. Based on currently available information and forecasts, we expect that we will incur net R&D costs of between $21 million and $23 million for the year ended December 31, 2015.

(7)

Aeterna Zentaris

2014 Annual MD&A

For the three-month period ended December 31, 2014, the increase in SG&A expenses, as compared to the same period in 2013, is mainly related to the deployment of our contracted sales force, which is currently detailing EstroGel^®, and higher comparative operating foreign exchange losses.

For the year ended December 31, 2014, the increase in SG&A expenses, as compared to the same period in 2013, is mainly related to higher comparative operating foreign exchange losses, the ramping up of our pre-commercialization activities, the deployment of our contracted sales force related to our co-promotion activities and the recording of restructuring costs related to administrative staff redundancies resulting from the Resource Optimization Program.

During 2015, excluding the impact of foreign exchange rate fluctuations and the recording of transaction costs related to potential financing activities (not currently known or estimable), we expect SG&A expenses to remain broadly in line with expenditures incurred during the year ended December 31, 2014, despite the fact that our contracted sales force is expected to detail EstroGel^® during the full year 2015, as compared to less than two months in 2014. This year-over-year increase, associated with our co-promotion activities, is expected to be offset by lower marketing and other pre-commercialization expenses related to Macrilen™ and by lower termination benefit expenses.

Net finance income (costs) are comprised predominantly of the change in fair value of warrant liability and of gains and losses recorded due to changes in foreign currency exchange rates, as presented below.



	Three-month periods ended December 31,			Years ended December 31,
	2014	2013		2014	2013		2012
	$	$		$	$		$
Finance income
Change in fair value of warrant liability	14,079	—		18,272	1,563		6,746
Gains due to changes in foreign currency exchange rates	924	—		1,879	—		—
Interest income	50	65		168	185		228
	15,053	65		20,319	1,748		6,974
Finance costs
Change in fair value of warrant liability	—	(1,884	)	—	—		—
Losses due to changes in foreign currency exchange rates	—	(805	)	—	(1,512	)	(382	)
	—	(2,689	)	—	(1,512	)	(382	)
	15,053	(2,624	)	20,319	236		6,592

The change in fair value of our warrant liability results from the periodic "mark-to-market" revaluation, via the application of the Black-Scholes option pricing model, of currently outstanding share purchase warrants. The Black-Scholes "mark-to-market" warrant valuation most notably has been impacted by the issuance of 8.8 million additional share purchase warrants and by the closing price of our common shares, which, on the NASDAQ, has fluctuated from $0.52 to $1.50 during the year ended December 31, 2014 and from $1.03 to $3.23 for the same period in 2013.

With specific reference to 2014, we recorded substantial fair value gains on our warrant liability, resulting from the significant reduction in our share price following our announcement, in November, that the FDA had issued a CRL in connection with our NDA for Macrilen™. The lower closing price of our shares following our announcement of the CRL has resulted in a lower Black-Scholes valuation of our outstanding share purchase warrants during the fourth quarter of 2014.

(8)

Aeterna Zentaris

2014 Annual MD&A

Gains or losses due to changes in foreign currency exchange rates are mainly related to the US dollar, which strengthened against the euro ("EUR") by approximately 4.2% and 12.2%, during the three-month and twelve-month periods ended December 31, 2014, respectively. During the three-month and twelve-month periods ended December 31, 2013, however, the US dollar weakened against the EUR by approximately 2.0% and 4.5%, respectively.

Net income (loss) from continuing operations for the three-month period and the year ended December 31, 2014 was $4.0 million and $(17.2) million, or $0.06 and $(0.29) per basic and diluted share, respectively, compared to $(10.6) million and $(27.2) million, or $(0.28) and $(0.92) per basic and diluted share for the same periods in 2013.

The increase in net income from continuing operations for the three-month period ended December 31, 2014, as compared to the same period in 2013, is due to the higher comparative net finance income, partly offset by higher comparative R&D and SG&A expenses, as presented above.

The decrease in net loss from continuing operations for the year ended December 31, 2014, as compared to the same period in 2013, is due largely to higher comparative net finance income, partly offset by lower comparative license fee revenues and by higher comparative net R&D costs and SG&A expenses, as presented above.

Discontinued Operations

Following a strategic review of our risk and prospects with respect to the manufacturing of Cetrotide^® and related activities (collectively, the "Cetrotide^® Business"), and, in particular, having taken into account, as discussed below, the previous monetization of the corresponding royalty stream, we decided to transfer all manufacturing rights of Cetrotide^®and to discontinue our involvement with the Cetrotide^® Business. On April 3, 2013 (the "Effective Date"), we entered into a transfer and service agreement ("TSA") and concurrent agreements with various partners and licensees with respect to our manufacturing rights for Cetrotide^®, marketed for therapeutic use as part of in vitro fertilization programs. The principal effect of these agreements was to transfer, effective October 1, 2013 (the "Closing Date"), our manufacturing rights for Cetrotide^® to Merck Serono in all territories. Also per the TSA, we agreed to provide certain transition services to Merck Serono over a period of 36 months from the Effective Date in order to assist Merck Serono in managing overall responsibility for the Cetrotide^® Business.

Under the TSA, during the period commencing on the Effective Date and ending on the Closing Date (the "Interim Period"), we were obligated to continue to conduct the Cetrotide^® Business in the ordinary course in a manner consistent with past practices, subject to certain conditions. Per the TSA, we received a non-refundable, one-time payment of €2.5 million (approximately $3.3 million) in consideration for the transfer of our manufacturing rights referred to above, as well as other payments in exchange for the transfer, also on the Closing Date, of certain assets, such as inventory and equipment used solely for the manufacture of Cetrotide^®. We recognized the non-refundable, one-time payment on the Closing Date, as we no longer had managerial involvement or effective control over the manufacturing of goods sold through the Cetrotide^® Business. We provide the aforementioned transition services to Merck Serono in exchange for a monthly service fee.

As a result of the transfer of substantially all of the risks and rewards associated with the Cetrotide^® Business on the Closing Date, the Cetrotide^® Business has been classified as a discontinued operation in the consolidated financial statements. As such, relevant amounts in our consolidated statements of comprehensive (loss) income have been retroactively reclassified to reflect the Cetrotide^® Business as a discontinued operation.

(9)

Aeterna Zentaris

2014 Annual MD&A



	Three-month periods ended December 31,			Years ended December 31,
(in thousands)	2014		2013	2014	2013	2012
	$		$	$	$	$
Revenues
Sales and royalties	—		3,057	—	63,755	30,704
License fees and other*	118		3,717	1,037	4,589	908
	118		6,774	1,037	68,344	31,612
Operating expenses
Cost of sales	—		3,071	—	30,002	26,229
Research and development costs, net of tax credits and grants	8		—	25	8	12
Selling, general and administrative expenses	(48	)	1,350	389	4,279	2,639
	(40	)	4,421	414	34,289	28,880
Net income from discontinued operations	158		2,353	623	34,055	2,732

_________________________


*	Includes the non-refundable, one-time payment made by Merck Serono in exchange for the manufacturing rights for Cetrotide^®and revenues from certain transition services provided pursuant to the aforementioned agreement.

The decrease in sales and royalties from discontinued operations, in cost of sales from discontinued operations and in SG&A expenses from discontinued operations during the three-month period and the year ended December 31, 2014, as compared to the same periods in 2013, reflects the fact that we recorded no sales of Cetrotide^® and royalties during the three-month period and the year ended December 31, 2014, as compared to the corresponding period of 2013, given that the transfer of the Cetrotide^®Business was effective on October 1, 2013.

Net income (loss)

The increase in net income for the three-month period ended December 31, 2014, as compared to the same period in 2013, is due largely to higher comparative net finance income, offset partially by higher comparative operating expenses and by lower net income from discontinued operations.

The decrease in net income for the year ended December 31, 2014, as compared to the same period in 2013, is due largely to higher loss from operations and to lower net income from discontinued operations, partially offset by higher comparative net finance income.

2013 compared to 2012

Revenues

License fees and other revenues were $6.1 million for the year ended December 31, 2013, as compared to $1.2 million for the same period in 2012.

In March 2011, we entered into an agreement with Yakult for the development, manufacture and commercialization of perifosine in all human uses, excluding leishmaniasis, in Japan. Under the terms of this agreement, Yakult had made an initial, non-refundable gross upfront payment to the Company of approximately $8.4 million. We recorded this upfront payment as deferred revenues and commenced amortizing the underlying proceeds on a straight-line basis over the estimated life cycle of perifosine in colorectal cancer ("CRC") and multiple myeloma ("MM").

(10)

Aeterna Zentaris

2014 Annual MD&A

On April 1, 2012, following negative results of a Phase 3 study of perifosine in CRC, we discontinued the perifosine program in that indication. Furthermore, in March 2013, following an analysis of interim results of the Phase 3 study of perifosine in MM, we also discontinued the development of perifosine in the MM indication. Given these results and the termination of these studies, we determined that we no longer had significant obligations under the agreement with Yakult to continue with the development of perifosine, and we recognized, in March 2013, the remaining unamortized amount of deferred revenue of $5.9 million related to the above licensing agreement.

On a year-over-year basis, the increase in license fees and other revenues is therefore attributable to the earlier-than-expected recognition of the previously deferred upfront license payment received from Yakult, following the discontinuance of our development of perifosine and given that the earnings process associated with this compound as pertaining to the upfront proceeds received was deemed to be complete.

Operating Expenses

R&D costs, net of refundable tax credits and grants, were $21.3 million for the year ended December 31, 2013, compared to $20.6 million for the same period in 2012.

Third-party R&D costs were $10.0 million for the year ended December 31, 2013, as compared to $8.7 million for the same period in 2012. This increase mainly results from the higher development costs associated with zoptarelin doxorubicin, and in particular with our Phase 3 ZoptEC trial initiated in 2013 with Ergomed, as discussed above. Additionally, we incurred higher development costs in 2013 related to Macrilen™ and macimorelin, primarily consisting of the purchase of active pharmaceutical ingredients. These increases were partly offset by the lower comparative development costs associated with perifosine, given that we have decided not to make any further investment in this product candidate, as discussed above, and by the lower preclinical study-related costs associated with our Erk/PI3K inhibitors program.

Third-party R&D costs also increased during the year ended December 31, 2013 due to higher expenditures associated with our disorazol Z product candidates, pursuant to a variety of collaboration agreements with various universities and institutes, and to the purchase of active pharmaceutical ingredients.

Selling, general and administrative ("SG&A") expenses were $12.3 million for the year ended December 31, 2013, compared to $10.6 million for the same period in 2012. This increase is mainly related to the recognition in the second quarter of 2013 of non-recurring termination benefits (approximately $1.4 million) paid to our former Chief Executive Officer and to the recording of related non-cash share-based compensation costs, amounting to approximately $0.7 million.

Net finance income totaled $0.2 million for the year ended December 31, 2013, as compared to $6.6 million for the same period in 2012. This decrease is mainly due to the decrease in net gain related to the change in fair value of our warrant liability and the increase in losses due to changes in foreign currency exchange rates.

The change in fair value of our warrant liability results from the "mark-to-market" revaluation, via the application of the Black-Scholes option pricing model, of currently outstanding share purchase warrants. The Black-Scholes "mark-to-market" warrant valuation most notably has been impacted by the closing price of our common shares, which, on the NASDAQ, fluctuated between $1.03 and $3.23 during the year ended December 31, 2013.

Gains or losses due to changes in foreign currency exchange rates are mainly related to the US dollar, which weakened against the EUR by approximately 3.3% from 2012 to 2013.

Net loss from continuing operations for the year ended December 31, 2013 was $27.2 million, or $0.92 per basic and diluted share, compared to $23.1 million or $1.17 per basic and diluted share for the same period in 2012.

The increase in net loss from continuing operations for the year ended December 31, 2013, as compared to 2012, is due largely to the recording of non-recurring termination benefits and related non-cash share-based compensation costs, lower comparative net finance income and higher comparative net R&D costs, partially offset by higher comparative license fee revenues, largely associated with the accelerated recognition of remaining net unamortized amount of deferred revenues related to the licensing agreement entered into with Yakult, as discussed above.

(11)

Aeterna Zentaris

2014 Annual MD&A

Discontinued Operations

Sales and royalties related to discontinued operations were comprised of both net sales of Cetrotide^®and royalties, which represented the amortization, under the units-of-revenue method, of the proceeds received pursuant to a transaction with Healthcare Royalty Partners L.P. (formerly Cowen Healthcare Royalty Partners L.P.) ("HRP"), in which we monetized our royalty stream related to Cetrotide^®. In this transaction, we had received a payment of $52.5 million, less certain transaction costs, from HRP in exchange for our rights to royalties on future net sales of Cetrotide^® generated by Merck Serono.

We had initially recorded the proceeds received from HRP as deferred revenue due to our then significant continuing involvement with the Cetrotide^® Business. However, as of the Closing Date, there was no basis to continue amortizing the deferred revenue associated with HRP, primarily due to the fact that we no longer had significant continuing involvement in the Cetrotide^® Business. As such, commencing on the Effective Date, we accelerated the amortization of the remaining deferred revenues of approximately $31.9 million over the Interim Period, by continuing to apply the units-of-revenue method, which is consistent with past practice. The remaining deferred revenues were fully amortized through the end of September 2013.

Sales and royalties from discontinued operations were $63.8 million for the year ended December 31, 2013, as compared to $30.7 million for the same period in 2012. This increase is primarily due to the accelerated amortization of deferred revenues mentioned above.

The substantial license fees and other revenues from discontinued operations recorded during the year ended December 31, 2013, and as compared to the years ended December 31, 2012 and 2014, are primarily attributable to the recognition, on the Closing Date, of the non-refundable, one-time payment made by Merck Serono, as discussed above.

Cost of sales from discontinued operations were $30.0 million for the year ended December 31, 2013, as compared to $26.2 million for the same period in 2012. Cost of sales from discontinued operations increased in 2013, as compared to 2012, as a result of the higher comparative volume of Cetrotide^® product sales, including the sale of inventory assets to Merck Serono, as mentioned above.

For the year ended December 31, 2013, cost of sales as a percentage of sales and royalties decreased to approximately 47.1%, as compared to 85.4% for the same period in 2012, predominantly due to the accelerated recognition of royalties as mentioned above.

SG&A expenses from discontinued operations amounted to $4.3 million for the year ended December 31, 2013, as compared to $2.6 million for the same period in 2012. The year-over-year increase is largely attributable to the recording of a provision for certain non-cancellable contracts related to the Cetrotide^® Business that were deemed onerous due to the fact that management expected no economic benefits to flow to the Company following the transfer of the Cetrotide^® Business on the Closing Date. The provisions for onerous contracts recognized total $1.3 million and represent the present value of estimated unavoidable future royalty and patent costs associated with the intellectual property underlying Cetrotide^®.

Net income from discontinued operations was $34.1 million for the year ended December 31, 2013, as compared to $2.7 million for the same period in 2012. The comparative increase reflects the net impact of items discussed above, and in particular, are influenced in large part by the inclusion of the accelerated recognition of previously deferred remaining HRP-related revenues as discontinued operations.

Net income (loss) for the year ended December 31, 2013 was $6.8 million, or $0.24 per basic and diluted share, compared to $(20.4) million, or $(1.03) per basic and diluted share for the same period in 2012.

The comparative year-over-year decrease in net loss is mainly due to higher net income from discontinued operations and higher revenues, partially compensated by higher operating costs and lower finance income.

(12)

Aeterna Zentaris

2014 Annual MD&A

Quarterly Consolidated Results of Operations Information



(in thousands, except for per share data)	Three-month periods ended
	December 31, 2014		September 30, 2014		June 30, 2014		March 31, 2014
	$		$		$		$
Revenues	11		—		—		—
Loss from operations	(10,947	)	(9,843	)	(8,410	)	(8,195	)
Net income (loss) from continuing operations	3,995		(11,629	)	(5,249	)	(4,304	)
Net income (loss)	4,153		(11,337	)	(5,024	)	(4,356	)
Net income (loss) per share from continuing operations (basic and diluted)*	0.06		(0.20	)	(0.09	)	(0.08	)
Net income (loss) per share (basic and diluted)*	0.06		(0.20	)	(0.09	)	(0.08	)



(in thousands, except for per share data)	Three-month periods ended
	December 31, 2013		September 30, 2013		June 30, 2013		March 31, 2013
	$		$		$		$
Revenues	—		17		96		6,062
Loss from operations	(7,972	)	(8,648	)	(9,693	)	(1,163	)
Net (loss) income from continuing operations	(10,596	)	(7,799	)	(9,848	)	1,003
Net (loss) income	(8,243	)	3,842		9,330		1,886
Net (loss) income per share from continuing operations (basic and diluted)*	(0.28	)	(0.26	)	(0.39	)	0.04
Net (loss) income per share (basic and diluted)*	(0.22	)	0.13		0.37		0.07

_________________________


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

Historical quarterly results of operations and net income (loss) from continuing operations cannot be taken as reflective of recurring revenue or expenditure patterns or of predictable trends, largely given the non-recurring nature of certain components of our historical revenues due most notably to the accelerated recognition of upfront payments and to unpredictable quarterly variations attributable to our net finance income (costs), which in turn are comprised of the impact of the periodic "mark-to-market" revaluation of our warrant liability and of foreign exchange gains and losses. Additionally, our net R&D costs historically have varied on a quarter-over-quarter basis due to the ramping up or winding down of potential product candidate activities, which in turn are dependent upon a number of factors that often do not occur on a linear or predictable basis.

More recently, our SG&A expenses have increased on a quarter-over-quarter basis due to the ramping up of pre-commercialization activities associated with Macrilen™ (prior to the receipt of the CRL from the FDA) and to the deployment of our contracted sales force related to our co-promotion activities associated with EstroGel^®.

In addition to the items referred to above, our net income (loss) also has been impacted by net variations attributable to the Cetrotide^® Business, which, as discussed above, has been presented on a retrospective basis within discontinued operations.

(13)

Aeterna Zentaris

2014 Annual MD&A

Consolidated Statement of Financial Position Information



	As at December 31,
(in thousands)	2014	2013
	$	$
Cash and cash equivalents¹	34,931	43,202
Trade and other receivables and other current assets	1,286	2,453
Restricted cash equivalents	760	865
Property, plant and equipment	797	1,351
Other non-current assets	9,661	11,325
Total assets	47,435	59,196
Payables and other current liabilities²	7,304	7,242
Current portion of deferred revenues	270	—
Warrant liability	8,225	18,010
Non-financial non-current liabilities³	17,152	16,880
Total liabilities	32,951	42,132
Shareholders' equity	14,484	17,064
Total liabilities and shareholders' equity	47,435	59,196

_________________________

¹ Of which approximately $3.6 million was denominated in EUR as at December 31, 2014.

² Of which approximately $1.5 million is related to a provision for restructuring costs.

³ Comprised mainly of employee future benefits, provisions for onerous contracts and non-current portion of deferred revenues.

The decrease in cash and cash equivalents as at December 31, 2014, as compared to December 31, 2013, is due to variations in components of our working capital and to recurring disbursements, as well as to the effect of exchange rate fluctuations, partially offset by the receipt of net proceeds of $12.2 million in connection with the January 2014 Offering, of $11.9 million pursuant to drawdowns made under the May 2014 ATM Program and of $0.3 million pursuant to drawdowns made under a previous ATM sales agreement program, entered into in May 2013 and discontinued in connection with the implementation of the May 2014 ATM Program.

The decrease in trade and other receivables and other current assets as at December 31, 2014, as compared to December 31, 2013, is mainly due to lower trade accounts receivable related to discontinued operations.

The decrease in other non-current assets as at December 31, 2014, as compared to December 31, 2013, is primarily due to the lower comparative exchange rate of the EUR against the US dollar, which weakened from December 31, 2013 to December 31, 2014. The decrease is also due to the net reduction in the carrying value of our identifiable intangible assets, for which we recognized an impairment loss of approximately $0.2 million, pursuant to the implementation of the Resource Optimization Program, discussed above.

The increase in payables and other current liabilities as at December 31, 2014, as compared to December 31, 2013, is due to the recording of a provision for restructuring costs related to the Resource Optimization Program, discussed above, to the higher comparative trade accounts payable balances due to the increased number of patients that have been entered into our ZoptEC Phase 3 program and to costs incurred in connection with the deployment of our contracted sales force, partially offset by lower comparative trade accounts payable balances related to the Cetrotide^® Business as well as by the lower comparative exchange rate of the EUR against the US dollar.

(14)

Aeterna Zentaris

2014 Annual MD&A

Our warrant liability decreased from December 31, 2013 to December 31, 2014. The decrease is due to net fair value revaluation gains of $18.3 million, which were recorded pursuant to our periodic "mark-to-market" revaluation of the underlying outstanding share purchase warrants, as discussed above and was partly offset by the issuance of 8.8 million additional share purchase warrants in connection with the January 2014 Offering, which initially had increased our warrant liability by $8.5 million.

The decrease in shareholders' equity as at December 31, 2014, as compared to December 31, 2013, is mainly attributable to the increase in our deficit due to the recording of net loss and actuarial loss on pension-related employee benefit obligation and to the increase in our accumulated other comprehensive loss due to foreign currency translation adjustments, partly offset by the increase in our share capital following the issuance of common shares discussed above.

Financial Liabilities, Obligations and Commitments

We have certain contractual lease obligation commitments as well as other long-term obligations related to unfunded benefit pension plans and unfunded post-employment benefit plans. The following tables summarize future cash requirements with respect to these obligations.

Expected future minimum lease payments and future minimum sublease receipts under non-cancellable operating leases (subleases) as well as future payments in connection with utility service agreements are as follows:



	As at December 31, 2014
(in thousands)	Minimum lease payments	Sublease income
	$	$
Less than 1 year	1,678	(392	)
1 – 3 years	1,352	(493	)
4 – 5 years	325	(19	)
Total	3,355	(904	)

With regard to our lease arrangement in Germany for laboratory, office and storage space, we do not expect to renew the agreement beyond the end of its original term (expiry of March 2016), and we are examining options for alternative space to accommodate remaining German-based staff. As such, the minimum lease payments presented above exclude any lease payments for our German subsidiary beyond March 2016.

In accordance with the assumptions used in our employee future benefits obligation calculation as at December 31, 2014, undiscounted benefits expected to be paid are as follows:



(in thousands)		$
Less than 1 year		495
1 – 3 years		1,014
4 – 5 years		1,084
More than 5 years		19,867
Total		22,460

Outstanding Share Data

As at March 16, 2015, we had 90,557,142 common shares issued and outstanding, as well as 3,885,200 stock options outstanding. Warrants outstanding as at March 16, 2015 represented a total of 116,887,987 equivalent common shares.

(15)

Aeterna Zentaris

2014 Annual MD&A

Capital Disclosures

Our objective in managing capital, consisting of shareholders' equity, with cash and cash equivalents and restricted cash equivalents being its primary components, is to ensure sufficient liquidity to fund R&D activities, selling, general and administrative expenses, working capital and capital expenditures.

Over the past several years, we have increasingly raised capital via public equity offerings and drawdowns under various ATM sales programs as our primary source of liquidity.

Our capital management objective remains the same as that in previous periods. The policy on dividends is to retain cash to keep funds available to finance the activities required to advance our product development portfolio and to pursue appropriate commercial opportunities as they may arise.

We are not subject to any capital requirements imposed by any regulators or by any other external source.

Liquidity, Cash Flows and Capital Resources

Our operations and capital expenditures have been financed through certain transactions impacting our cash flows from operating activities, public equity offerings, as well as from the drawdowns under various ATM programs.

Based on our assessment, which took into account current cash levels, as well as our strategic plan and corresponding budgets and forecasts, we believe that we have sufficient liquidity and financial resources to fund planned expenditures and other working capital needs for at least, but not limited to, the 12-month period following the statement of financial position date of December 31, 2014.

We may endeavour to secure additional financing, as required, through strategic alliance arrangements or through other activities, as well as via the issuance of new share capital or other securities.

(16)

Aeterna Zentaris

2014 Annual MD&A

The variations in our cash and cash equivalents by activity are explained below.



(in thousands)	Three-month periods ended December 31,				Years ended December 31,
	2014		2013		2014		2013		2012
	$		$		$		$		$
Cash and cash equivalents - Beginning of period	41,952		24,829		43,202		39,521		46,881
Cash flows from operating activities:
Cash used in operating activities from continuing operations	(8,676	)	(6,184	)	(30,787	)	(30,131	)	(25,681	)
Cash provided by (used in) operating activities from discontinued operations	93		9,622		(295	)	10,147		(5,134	)
	(8,583	)	3,438		(31,082	)	(19,984	)	(30,815	)
Cash flows from financing activities:
Net proceeds from issuance of common shares and warrants	2,075		14,795		24,358		23,708		23,619
Net proceeds from the exercise of share purchase warrants and other	—		—		—		—		589
	2,075		14,795		24,358		23,708		24,208

Cash flows from investing activities:
Net cash used in provided by investing activities from continuing operations	(4	)	(21	)	(61	)	(85	)	(272	)
Net cash provided by investing activities from discontinued operations	—		113		—		113		—
	(4	)	92		(61	)	28		(272	)

Effect of exchange rate changes on cash and cash equivalents	(509	)	48		(1,486	)	(71	)	(481	)
Cash and cash equivalents - End of period	34,931		43,202		34,931		43,202		39,521

Operating Activities

2014 compared to 2013

Cash flows (used in) provided by operating activities were $(8.6) million and $(31.1) million for the three-month period and the year ended December 31, 2014, respectively, compared to $3.4 million and $(20.0) million for the same periods in 2013. The significant increase in cash flows used in operating activities for the three-month period ended December 31, 2014 as compared to the same period in 2013 is due to severance payments made in connection with the Resource Optimization Program, the comparative increase in R&D expenditures, mainly related to our ZoptEC trial and in SG&A expenditures, mainly related to the deployment of our contract sales force and other commercial activities. Additionally, the overall increase in cash used in operating activities was due to variations associated with our discontinued operations, following the transfer of the Cetrotide^® Business in the fourth quarter of 2013, as discussed above. This increase is partly offset by the receipt of the Transfer Fee in connection with the agreements entered into with Sinopharm, as discussed above.

The significant increase in cash used in operating activities for the year ended December 31, 2014 as compared to the same period in 2013 is mainly due to the variations associated with our discontinued operations, following the transfer of the Cetrotide^® Business in the fourth quarter of 2013, as discussed above.

(17)

Aeterna Zentaris

2014 Annual MD&A

We expect net cash used in operating activities to range from $33 million to $35 million for the year ended December 31, 2015, mainly as we continue to invest in our ZoptEC Phase 3 program and related substudies, as we carry out initiatives related to the co-promotion of EstroGel^® and as we continue making severance payments in connection with the Resource Optimization Program. This guidance may vary significantly in future periods, most notably in light of ongoing business development initiatives, as discussed further below.

2013 compared to 2012

Cash flows used in operating activities were $20.0 million and $30.8 million for the years ended December 31, 2013 and 2012, respectively. The significant decrease in cash flows used in operating activities is mainly due to the cash provided by operating activities from discontinued operations as a result of the change in operating assets and liabilities and to the receipt in 2013, of the non-refundable, one-time payment from Merck Serono pursuant to the transfer of the Cetrotide^® Business, as discussed above. This decrease is partly offset by the increase in cash used in operating activities from continuing operations, which is explained by the comparable increase in R&D and SG&A expenditures, mainly related to the zoptarelin doxorubicin and Macrilen™ projects, as well as by lower cash flows provided by license fee revenues.

Financing Activities

2014 compared to 2013

Cash flows provided by financing activities were $2.1 million and $24.4 million for the three-month period and the year ended December 31, 2014, respectively, compared to $14.8 million and $23.7 million for the same periods in 2013. The decrease for the three-month period ended December 31, 2014, as compared to the same period in 2013 is due to lower net proceeds received from the issuance of common shares and warrants.

Critical Accounting Policies, Estimates and Judgments

Our consolidated financial statements as at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012 have been prepared in accordance with IFRS as issued by the IASB.

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

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

A summary of those critical accounting estimates and assumptions, as well as critical judgments used in applying accounting policies in the preparation of our consolidated financial statements, can be found in note 3 to our consolidated financial statements as at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012.

Recent Accounting Pronouncements

Adopted in 2014

The following new standards and amendments to standards are effective for the first time for interim periods beginning on or after January 1, 2014 and have been applied in preparing our consolidated financial statements. The accounting policies have been applied consistently by all subsidiaries of the Company.

In May 2013, the IASB made amendments to the disclosure requirements of IAS 36, Impairment of Assets, requiring disclosure, in certain instances, of the recoverable amount of an asset or cash-generating unit, and the basis for the determination of fair value less costs of disposal, when an impairment loss is recognized or when an impairment loss is subsequently reversed.

(18)

Aeterna Zentaris

2014 Annual MD&A

In May 2013, the IFRS Interpretations Committee ("IFRIC") issued International Financial Reporting Standard Interpretation 21, Levies ("IFRIC 21"), an interpretation on the accounting for levies imposed by governments. IFRIC 21 is an interpretation of IAS 37, Provisions, Contingent Liabilities and Contingent Assets ("IAS 37"). IAS 37 sets out criteria for the recognition of a liability, one of which is the requirement for the entity to have a present obligation as a result of a past event (known as an obligating event). IFRIC 21 clarifies that the obligating event that gives rise to a liability to pay a levy is the activity described in the relevant legislation that triggers the payment of the levy.

The adoption of these standards and amendments did not have a significant impact on our consolidated financial statements.

Not yet adopted

The final version of IFRS 9, Financial instruments ("IFRS 9"), was issued by the IASB in July 2014 and will replace IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 introduces a model for classification and measurement, a single, forward-looking expected loss impairment model and a substantially reformed approach to hedge accounting. The new single, principle-based approach for determining the classification of financial assets is driven by cash flow characteristics and the business model in which an asset is held. The new model also results in a single impairment model being applied to all financial instruments, which will require more timely recognition of expected credit losses. It also includes changes in respect of an entity's own credit risk in measuring liabilities elected to be measured at fair value, so that gains caused by the deterioration of an entity's own credit risk on such liabilities are no longer recognized in profit or loss. IFRS 9, which is to be applied retrospectively, is effective for annual periods beginning on or after January 1, 2018 and is available for early adoption. In addition, an entity's own credit risk changes can be applied early in isolation without otherwise changing the accounting for financial instruments. We are currently assessing the impact, if any, that this new standard will have on our consolidated financial statements.

In May 2014, the IASB issued IFRS 15, Revenue from Contracts with Customers. The objective of this new standard is to provide a single, comprehensive revenue recognition framework for all contracts with customers to improve comparability of financial statements of companies globally. This new standard contains principles that an entity will apply to determine the measurement of revenue and timing of when it is recognized. The underlying principle is that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to receive in exchange for those goods or services. This new standard is effective for annual periods beginning on or after January 1, 2017. We are currently assessing the impact that this new standard may have on our consolidated financial statements.

Outlook for 2015

Commercial Development

With our focus to become a growth-oriented, commercially operating specialty biopharmaceutical organization, and in addition to our commitment to developing key product candidates in our existing pipeline, we expect to continue to evaluate potential in-licensing and/or acquisition opportunities, as well as additional co-promotional arrangements related to targeted commercial products.

Zoptarelin doxorubicin

With regard to our ZoptEC Phase 3 study in collaboration with Ergomed, we will continue to monitor patient enrollment in North America, Europe and Israel, such that we are able to secure a first interim analysis during the first half of 2015. We also expect to complete patient recruitment for this trial before year-end 2015.

Macrilen™

We intend to make a decision regarding the future development of Macrilen™ in the near term, taking into account various considerations, including our prior and upcoming discussions with the FDA.

Erk Inhibitors Development Program

For this program, we expect to select an optimized molecule for development in the first half of 2015.

(19)

Aeterna Zentaris

2014 Annual MD&A

Summary of key expectations for revenues, operating expenditures and cash flows

Having entered into the Co-promotion Agreement with ASCEND, we expect to generate sales commission revenue in 2015 pursuant to the initiation of sales coverage in the agreed-upon territories and as we begin to exceed certain minimum agreed-upon thresholds. Further, having entered into the master collaboration agreement, TTA and LA with Sinopharm, we will commence recognition of the amortization of deferred revenues related to the Transfer Fee.

For the year ended December 31, 2015, we expect that R&D costs will range between $21 million and $23 million. Our R&D costs are expected to decrease in 2015, as compared to 2014, mainly as a result of the implementation of our Resource Optimization Program, as discussed above.

Our main focus for R&D efforts will continue to be on our later-stage compound, zoptarelin doxorubicin and its Phase 3 ZoptEC study, as discussed above, where we anticipate substantial investment to fund ongoing development initiatives.

Excluding the impact of foreign exchange rate fluctuations, our SG&A expenses are expected to remain consistent in 2015, as compared to 2014.

Excluding any foreign exchange impacts, as well as income from new business development initiatives, we expect that our overall operating burn in 2015 will range from $33 million to $35 million as we continue to fund operating activities and working capital requirements.

Financial Risk Factors and Other Instruments

Fair value risk

As noted above, the change in our warrant liability, which is measured at fair value through profit or loss, results from the periodic "mark-to-market" revaluation, via the application of the Black-Scholes option pricing model, of currently outstanding share purchase warrants. The Black-Scholes valuation is impacted, among other inputs, by the market price of our common shares. As a result, the change in fair value of the warrant liability, which is reported as finance income (cost) in our consolidated statements of comprehensive income (loss), has been and may continue in future periods to be materially affected by changes in our common share closing price, which has ranged from $0.52 to $1.50 on the NASDAQ during the year ended December 31, 2014.

If variations in the market price of our common shares of -10% and +10% were to occur, the impact on our net loss for the warrant liability held at December 31, 2014 would be as follows:



(in thousands)	Carrying amount	-10%	+10%
	$	$	$
Warrant liability	8,225	1,117	(1,147	)
Total impact on net loss – decrease / (increase)		1,117	(1,147	)

Foreign currency risk

Since we operate internationally, we are exposed to currency risks as a result of potential exchange rate fluctuations related to non-intragroup transactions. In particular, fluctuations in the US dollar exchange rates against the EUR could have a significant impact on our results of operations.

(20)

Aeterna Zentaris

2014 Annual MD&A

If foreign exchange rate variations of -5% (depreciation of the EUR) and +5% (appreciation of the EUR) against the US$, from period-end rates of EUR1 = US$1.2101 were to occur, the impact on our net loss for each category of financial instruments held at December 31, 2014 would be as follows:



		Balances denominated in US$
(in thousands)	Carrying amount	-5%		+5%
	$	$		$
Cash and cash equivalents	25,184	1,259		(1,259	)
Warrant liability	8,225	(411	)	411
Total impact on net loss – decrease / (increase)		848		(848	)

Liquidity risk

Liquidity risk is the risk that we will not be able to meet our financial obligations as they become due. We manage this risk through the management of our capital structure and by continuously monitoring actual and projected cash flows. Our Board of Directors reviews and approves our operating and capital budgets, as well as any material transactions out of the ordinary course of business. We have adopted an investment policy in respect of the safety and preservation of our capital to ensure our liquidity needs are met. The instruments are selected with regard to the expected timing of expenditures and prevailing interest rates.

We believe that we have sufficient funds to pay our ongoing general and administrative expenses, to pursue our R&D activities and to meet our obligations and existing commitments as they fall due at least through December 31, 2015. In making this assessment, we took into account all available information about the future, which is at least, but not limited to, twelve months from the end of the most recent reporting period. We expect to continue to incur operating losses and may require significant capital to fulfill our future obligations. Our ability to continue future operations beyond December 31, 2015 and to fund our activities is dependent on our ability to secure additional funding, which may be completed in a number of ways, including but not limited to licensing arrangements, partnerships, share and other security issuances and other financing activities. We will pursue such additional sources of financing when required, and while we have been successful in securing financing in the past, there can be no assurance we will be able to do so in the future or that these sources of funding or initiatives will be available for the Company or that they will be available on terms which are acceptable to us.

Credit risk

Credit risk is the risk of an unexpected loss if a customer or counterparty to a financial instrument fails to meet its contractual obligations. We regularly monitor credit risk exposure and take steps to mitigate the likelihood of this exposure resulting in losses. Our exposure to credit risk currently relates to cash and cash equivalents, to trade and other receivables and to restricted cash equivalents. We invest our available cash in amounts that are readily convertible to known amounts of cash and deposit our cash balances with financial institutions that are rated the equivalent of "Baa1" and above. This information is supplied by independent rating agencies where available and, if not available, we use publicly available financial information to ensure that we invest our cash in creditworthy and reputable financial institutions.

As at December 31, 2014, trade accounts receivable for an amount of approximately $0.3 million were with three counterparties.

As at December 31, 2014, no trade accounts receivable were past due or impaired.

Generally, we do not require collateral or other security from customers for trade accounts receivable; however, credit is extended following an evaluation of creditworthiness. In addition, we perform ongoing credit reviews of all our customers and establish an allowance for doubtful accounts when accounts are determined to be uncollectible.

The maximum exposure to credit risk approximates the amount recognized on our condensed interim consolidated statement of financial position.

(21)

Aeterna Zentaris

2014 Annual MD&A

Related Party Transactions and Off-Balance Sheet Arrangements

In addition to recurring payments made to members of our key management team, during the years ended December 31, 2014 and 2013, we incurred $38,000 and $76,800, respectively, in professional fees for services rendered by one of the members of the Company's Board of Directors in connection with special tasks mandated by our Nominating, Corporate Governance and Compensation Committee.

As at December 31, 2014, we did not have any interests in special purpose entities or any other off-balance sheet arrangements.

Risk Factors and Uncertainties

Risks Associated with Operations


•	Our product candidates are currently at the development stage. It is impossible to ensure that the R&D activities related to these product candidates will result in the creation of profitable operations.

•

We are currently developing our product candidates based on R&D activities, preclinical testing and clinical trials conducted to date, and we may not be successful in developing or introducing to the market these or any other new products or technology. If we fail to develop and deploy new products successfully and on a timely basis, we may become non-competitive and unable to recover the R&D and other expenses we incur to develop and test new products. Additionally, if we are unable to successfully complete our clinical trial programs, or if such clinical trials take longer to complete than we project, our ability to execute our current business strategy will be adversely affected.

•

Even if our products are approved for commercialization, they may not be successful in the marketplace. Market acceptance of any of our products will depend on a number of factors including, but not limited to: demonstration of clinical efficacy and safety; the prevalence and severity of any adverse side effects; limitations or warnings contained in the product's approved labeling; availability of alternative treatments for the indications we target; the advantages and disadvantages of our products relative to current or alternative treatments; the availability of acceptable pricing and adequate third-party reimbursement; and the effectiveness of marketing and distribution methods for the products. If our products do not gain market acceptance among physicians, patients, healthcare payers and others in the medical community, who may not accept or utilize our products, our ability to generate significant revenues from our products would be limited and our financial condition could be materially adversely affected. In addition, if we fail to penetrate our core markets and existing geographic markets or successfully expand our business into new markets, the growth in sales of our products, along with our operating results, could be negatively impacted.

•

We rely heavily on our proprietary information in developing and manufacturing our product candidates, and our success will depend, in large part, on our ability to protect our competitive position through patents, trade secrets, trademarks and other intellectual property rights. We may not obtain adequate protection for our products through our intellectual property, despite efforts to protect our proprietary rights from unauthorized use or disclosure. If we are unable to protect the confidentiality of our proprietary information and know-how, the value of our technology and products could be adversely affected. In addition to patent protection, we may rely on other protections provided in the United States or elsewhere, such as new chemical entity or new formulation exclusivity, to provide market exclusivity for a product candidate. We cannot provide any assurance that zoptarelin doxorubicin or any of our drug candidates will obtain any market exclusivity, and, as a result, the absence of market exclusivity may have an adverse impact on our operating results, financial position and cash flows.

•

We are currently dependent on certain strategic relationships with third parties and may enter into future collaborations for the research and development of our product candidates. Our arrangements with these third parties may not provide us with the benefits we expect and may expose us to a number of risks. We are dependent on, and rely upon, third parties to perform various functions related to our business, including, but not limited to, the research and development of some of our product candidates. Our reliance on these relationships poses a number of risks. We may not realize the contemplated benefits of such agreements nor can we be certain that any of these parties will fulfill their obligations in a manner which maximizes our revenue. These arrangements may also require us to transfer certain material rights or issue our equity, voting or other securities to collaborators, licensees and others. Any license or sublicense of our commercial rights may reduce our product revenue.

(22)

Aeterna Zentaris

2014 Annual MD&A

•

We expect to rely on third parties to manufacture and supply marketed products. We also have or may have certain supply obligations vis-à-vis our existing and potential licensees, who are or will be responsible for the marketing of the products. To be successful, our products have to be manufactured in commercial quantities in compliance with quality controls and regulatory requirements. Even though it is our objective to minimize such risk by introducing alternative suppliers to ensure a constant supply at all times, we cannot guarantee that we will not experience supply shortfalls and, in such event, we may not be able to perform our obligations under contracts with our licensees.

•

We have incurred, and expect to continue to incur, substantial expenses in our efforts to develop and market products. Consequently, we have incurred operating losses historically and in each of the last several years, and our operating losses have adversely impacted, and will continue to adversely impact, our working capital, total assets, operating cash flows and shareholders' equity. We do not expect to reach operating profitability in the immediate future, and our operating expenses are likely to continue to represent a significant component of our overall cost profile as we continue our R&D and clinical study programs, seek regulatory approval for our product candidates and carry out commercial activities. Even if we succeed in developing, acquiring or in-licensing new commercial products, we could incur additional operating losses for at least the next several years. If we do not ultimately generate sufficient revenue from commercialized products and achieve or maintain operating profitability, an investment in our company could result in a significant or total loss.

•

In connection with our strategy to further transform the Company into a commercially operating specialty biopharmaceutical organization, we may enter into commercial arrangements with third parties, including but not limited to co-promotion, acquisition or in-licensing agreements, in efforts to establish and expand our commercial revenue base. We can provide no assurance that we will be able to identify potential product candidates or strategic commercial partners or, if we identify such product candidates or partners, that any related commercial arrangements will be consummated on terms that are favorable to us. To the extent that we are successful in entering into any strategic commercial arrangements or acquisition or in-licensing agreements with third parties, we cannot provide any assurance that any resulting initiatives or activities will be successful. To the extent that any related investments in such arrangements do not yield the expected benefits, our business, financial condition and results of operations may be materially adversely affected.


•	Future acquisitions or in-licensed products may not be successfully integrated. The failure to successfully integrate the personnel and operations of businesses that we may acquire or of products that we may in-license in the future with our existing operations, business and products could have a material adverse effect on our operations and results.

Risks Related to Our Financial Condition, Capital Requirements and Going Concern

•

We will require significant additional financing, and we may not have access to sufficient capital. We may require additional capital to pursue planned clinical trials, regulatory approvals, as well as further R&D and marketing efforts for our product candidates and potential products. We may attempt to raise additional funds through public or private financings, collaborations with other pharmaceutical companies or from other sources. Additional funding may not be available on terms which are acceptable to us. If adequate funding is not available to us on reasonable terms, we may need to delay, reduce or eliminate one or more of our product development programs or obtain funds on terms less favorable than we would otherwise accept. To the extent that additional capital is raised through the sale of equity securities or securities convertible into or exchangeable or exercisable for equity securities, the issuance of those securities could result in dilution to our shareholders. Moreover, the incurrence of debt financing or the issuance of dividend-paying preferred shares could result in a substantial portion of our future cash flows, if any, being dedicated to the payment of principal and interest on such indebtedness or the payment of dividends on such preferred shares and could impose restrictions on our operations and on our ability to make certain expenditures and/or incur additional indebtedness. This could render us more vulnerable to competitive pressures and economic downturns.

Risks Associated with Regulatory Matters

•

We will only receive regulatory approval for a product candidate if we can demonstrate in carefully designed and conducted clinical trials that the product candidate is both safe and effective. None of our current product candidates have to date received regulatory approval for their intended commercial sale. In general, significant R&D and clinical studies are required to demonstrate the safety and efficacy of our product candidates before we can submit regulatory applications. Though we may engage a contract research organization with experience in conducting regulatory trials, errors in the conduct, monitoring and/or auditing could invalidate the results from a regulatory perspective. Even if a product candidate is approved by the FDA, Health Canada's Therapeutic Products Directorate or any other regulatory authority, we may not

(23)

Aeterna Zentaris

2014 Annual MD&A

obtain approval for an indication whose market is large enough to recover our investment in that product candidate. In addition, there can be no assurance that we will ever obtain all or any required regulatory approvals for any of our product candidates. Further, even if we receive marketing approval for our product candidates, such product approvals could be subject to restrictions or withdrawals. Regulatory requirements are subject to change.

•

We have limited experience in filing an NDA, or similar application for approval in the US or in any country for our current product candidates, which may result in a delay in, or the rejection of, our filing of an NDA or similar application. During the drug development process, regulatory agencies will typically ask questions of drug sponsors. While we endeavor to answer all such questions in a timely fashion, some questions may not be answered in time to prevent the delay of acceptance of an NDA or the rejection of the NDA.

Risks Related to Our Organizational Structure and Key Personnel

•

Aeterna Zentaris Inc. is a holding company, and a substantial portion of our non-cash assets is the share capital of our subsidiaries. Because Aeterna Zentaris Inc. is a holding company, our obligations to our creditors are structurally subordinated to all existing and future liabilities of our subsidiaries. Our rights and the rights of our creditors to participate in any distribution of the assets of any subsidiary in the event that such a subsidiary were to be liquidated or reorganized or in the event of any bankruptcy or insolvency proceeding relating to or involving such a subsidiary, and therefore the rights of the holders of our shares to participate in those assets, are subject to the prior claims of such subsidiary's creditors. To the extent that we may be a creditor with recognized claims against any such subsidiary, our claims would still be subject to the prior claims of our subsidiary's creditors to the extent that they are secured or senior to those held by us. Accordingly, in the event of any foreclosure, dissolution, winding-up, liquidation or reorganization, or a bankruptcy or insolvency proceeding relating to us or our property, or any subsidiary, there can be no assurance as to the value, if any, that would be available to holders of our shares.

•

We are subject to intense competition for our skilled personnel, and the loss of key personnel or the inability to attract additional personnel could impair our ability to conduct our operations. We are highly dependent on our management and our clinical, regulatory and scientific staff, the loss of whose services might adversely impact our ability to achieve our objectives. Recruiting and retaining qualified management and clinical, scientific and regulatory personnel is critical to our success. Reductions in our staffing levels have eliminated redundancies in key capabilities and skill sets among our full-time staff and required us to rely more heavily on outside consultants and third parties. The competition for qualified personnel in the biopharmaceutical field is intense, and if we are not able to continue to attract and retain qualified personnel and/or maintain positive relationships with our outside consultants, we may not be able to achieve our strategic and operational objectives.

Risks Related to Our Listing on the NASDAQ and the TSX

•

There can be no assurance that our common shares will remain listed on the NASDAQ. If we fail to meet any of the NASDAQ's continued listing requirements, our common shares may be delisted. As noted above, on December 19, 2014, we received a notice from the NASDAQ regarding our failure to comply with the NASDAQ's $1.00 minimum bid price requirement. We have until June 16, 2015 to regain compliance with the minimum bid price requirement. There can be no assurance that we will be able to maintain our listing on the NASDAQ. Any delisting of our common shares may adversely affect a shareholder's ability to dispose, or obtain quotations as to the market value, of such shares.

•

The market price of our common shares is subject to potentially significant fluctuations due to numerous developments directly affecting our business and by developments out of our control or unrelated to us. The stock market generally, and the biopharmaceutical sector in particular, are vulnerable to abrupt changes in investor sentiment. Prices of shares and trading volume of companies in the biopharmaceutical industry can swing dramatically in ways unrelated to, or that bear a disproportionate relationship to, operating performance. Our share price and trading volume may fluctuate based on a number of factors including, but not limited to: clinical and regulatory developments regarding our product candidates; delays in our anticipated development or commercialization timelines; developments regarding current or future third-party collaborators; other announcements by us regarding technological, product development or other matters; arrivals or departures of key personnel; governmental or regulatory action affecting our product candidates and our competitors' products in the US, Canada and other countries; developments or disputes concerning patent or proprietary rights; actual or anticipated fluctuations in our revenues or expenses; general market conditions and fluctuations for the emerging growth and biopharmaceutical market sectors; and economic conditions in the US, Canada or abroad.

(24)

Aeterna Zentaris

2014 Annual MD&A

•

Our listing on both the NASDAQ and the TSX may increase price volatility due to various factors, including different ability to buy or sell our common shares, different market conditions in different capital markets and different trading volumes. In addition, low trading volume may increase the price volatility of our common shares. A thin trading market could cause the price of our common shares to fluctuate significantly more than the stock market as a whole.

Risk Associated with Class Action Lawsuit


•	The Company and certain of its current and former officers are defendants in a purported class-action lawsuit pending in the United States District Court for the District of New Jersey, brought on behalf of stockholders of the Company.

•

The lawsuit, which was filed on November 11, 2014, alleges violations of the Securities Exchange Act of 1934 in connection with allegedly false and misleading statements made by the defendants between April 2, 2012 and November 6, 2014, or the Class Period, regarding the safety and efficacy of Macrilen™, a product that the we developed for use in the diagnosis of adult growth hormone deficiency, and the prospects for the approval of our new drug application for the product by the FDA. The plaintiffs seek to represent a class comprised of purchasers of our common shares during the Class Period and seek damages, costs and expenses and such other relief as determined by the court.

•

Our directors' and officers' insurance policies ("D&O Insurance") provide for reimbursement of costs and expenses incurred in connection with this lawsuit, including legal and professional fees, as well as potential damages awarded, if any, subject to certain policy restrictions, limits and deductibles. We believes that the D&O Insurance covers the lawsuit; however, the insurers have reserved their rights to raise all of the rights, entitlements and defenses available to them under the D&O Insurance. If the D&O Insurance does cover the lawsuit, we will be required to pay legal and professional fees, as well as potential damages awarded in an amount equal to a substantial self-insured retention. Legal and professional fees are expensed as incurred and no reserve is established for them.


•	While we believe that we have meritorious defenses and intend to defend this lawsuit vigorously, we cannot predict the outcome. Accordingly, we have not recorded any liability related to the lawsuit. No assurance can be given with respect to the ultimate outcome of such proceedings, and the amount of any damages awarded in such lawsuit could be substantial.

A more comprehensive list of the risks and uncertainties affecting us can be found in our most recent Annual Report on Form 20-F filed with the relevant Canadian securities regulatory authorities in lieu of an annual information form at www.sedar.com and with the SEC at www.sec.gov, and investors are urged to consult such risk factors.

Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as at December 31, 2014. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures were effective as at December 31, 2014.

Management's Annual Report on Internal Control over Financial Reporting

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

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

(25)

Aeterna Zentaris

2014 Annual MD&A

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

Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria established in Internal Control – Integrated Framework: 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Based on this evaluation, management has concluded that our internal control over financial reporting was effective as at December 31, 2014.

Changes in Internal Controls over Financial Reporting

There have been no changes in our internal control over financial reporting during the year ended December 31, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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

On behalf of management,

/s/ Dennis Turpin

Dennis Turpin, CPA, CA

Senior Vice President and Chief Financial Officer

March 17, 2015

(26)

Exhibit 99.3

Aeterna Zentaris Inc.

Consolidated Financial Statements

As at December 31, 2014 and December 31, 2013 and for the years ended

December 31, 2014, 2013 and 2012

(presented in thousands of US dollars)



Aeterna Zentaris Inc.
Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012



Consolidated Statements of Financial Position	5
Consolidated Statements of Changes in Shareholders' Equity (Deficiency)	6
Consolidated Statements of Comprehensive (Loss) Income	8
Consolidated Statements of Cash Flows	9
Notes to Consolidated Financial Statements	10

(2)

Independent Auditor's Report

To the Shareholders of

Aeterna Zentaris Inc.

We have completed integrated audits of Aeterna Zentaris Inc. and its subsidiaries' 2014, 2013 and 2012 consolidated financial statements and their internal control over financial reporting as at December 31, 2014. Our opinions, based on our audits, are presented below.

Report on the consolidated financial statements

We have audited the accompanying consolidated financial statements of Aeterna Zentaris Inc. and its subsidiaries, which comprise the consolidated statements of financial position as at December 31, 2014 and December 31, 2013 and the consolidated statements of changes in shareholders' equity (deficiency), comprehensive (loss) income and cash flows for each of the three years in the period ended December 31, 2014, and the related notes, which comprise a summary of significant accounting policies and other explanatory information.

Management's responsibility for the consolidated financial statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor's responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. Canadian generally accepted auditing standards also require that we comply with ethical requirements.

An audit involves performing procedures to obtain audit evidence, on a test basis, about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting principles and policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion on the consolidated financial statements.

............................................................................................................................................................................................................

PricewaterhouseCoopers LLP

1250 René-Lévesque Boulevard West, Suite 2800, Montréal, Quebec, Canada H3B 2G4

T: +1 514 205-5000, F: +1 514 876-1502

"PwC" refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.

(3)

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Aeterna Zentaris Inc. and its subsidiaries as at December 31, 2014 and December 31, 2013 and their financial performance and their cash flows for each of the three years in the period ended December 31, 2014 in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Report on internal control over financial reporting

We have also audited Aeterna Zentaris Inc. and its subsidiaries' internal control over financial reporting as at December 31, 2014, based on criteria established in Internal Control - Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Management's responsibility for internal control over financial reporting

Management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the section entitled "Management's Annual Report on Internal Control over Financial Reporting" appearing on page 96 of the Annual Report on Form 20-F.

Auditor's responsibility

Our responsibility is to express an opinion on the company's internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control, based on the assessed risk, and performing such other procedures as we consider necessary in the circumstances.

We believe that our audit provides a reasonable basis for our audit opinion on the company's internal control over financial reporting.

Definition of internal control over financial reporting

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Inherent limitations

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

Opinion

In our opinion, Aeterna Zentaris Inc. and its subsidiaries maintained, in all material respects, effective internal control over financial reporting as at December 31, 2014, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.

Montréal, Quebec, Canada

March 17, 2015

¹ CPA auditor, CA, public accountancy permit No. A123498

(4)



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



	December 31, 2014		December 31, 2013
	$		$
ASSETS
Current assets
Cash and cash equivalents (note 7)	34,931		43,202
Trade and other receivables (note 8)	867		1,953
Prepaid expenses and other current assets	419		500
	36,217		45,655
Restricted cash equivalents (note 9)	760		865
Property, plant and equipment (note 10)	797		1,351
Other non-current assets	622		725
Identifiable intangible assets (note 11)	352		708
Goodwill (note 12)	8,687		9,892
	47,435		59,196
LIABILITIES
Current liabilities
Payables and accrued liabilities (note 13)	5,799		7,242
Provision for restructuring costs (note 14)	1,505		—
Deferred revenues (note 5)	270		—
	7,574		7,242
Deferred revenues (note 5)	809		—
Warrant liability (note 15)	8,225		18,010
Employee future benefits (note 19)	15,053		15,407
Provisions and other non-current liabilities (note 16)	1,290		1,473
	32,951		42,132
SHAREHOLDERS' EQUITY
Share capital (note 17)	150,544		134,101
Other capital	86,639		86,107
Deficit	(222,322	)	(203,925	)
Accumulated other comprehensive (loss) income	(377	)	781
	14,484		17,064
	47,435		59,196

Commitments and contingencies (note 25)

Subsequent events (note 28)

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

Approved by the Board of Directors




David A. Dodd Chairman of the Board		Gérard Limoges Director

(5)



Aeterna Zentaris Inc.
Consolidated Statements of Changes in Shareholders' Equity (Deficiency)
For the years ended December 31, 2014, 2013 and 2012
(in thousands of US dollars, except share data)



	Common shares (number of)^{1, 2}	Share capital	Other capital	Deficit		Accumulated other comprehensive income (loss)		Total
		$	$	$		$		$
Balance - January 1, 2014	45,312,009	134,101	86,107	(203,925	)	781		17,064
Net loss		—	—	(16,564	)	—		(16,564	)
Other comprehensive income:
Foreign currency translation adjustments		—	—	—		(1,158	)	(1,158	)
Actuarial loss on defined benefit plans (note 19)		—	—	(1,833	)	—		(1,833	)
Comprehensive loss		—	—	(18,397	)	(1,158	)	(19,555	)
Share issuance in connection with a public offering (note 17)	11,000,000	4,340	—	—		—		4,340
Share issuances in connection with "At-the-Market" drawdowns (note 17)	9,197,068	12,103	—	—		—		12,103
Share-based compensation costs		—	532	—		—		532
Balance - December 31, 2014	65,509,077	150,544	86,639	(222,322	)	(377	)	14,484



	Common shares (number of)^{1, 2}	Share capital	Other capital	Deficit		Accumulated other comprehensive (loss) income		Total
		$	$	$		$		$
Balance - January 1, 2013	25,329,288	122,791	83,892	(213,086	)	(292	)	(6,695	)
Net income		—	—	6,815		—		6,815
Other comprehensive income:
Foreign currency translation adjustments		—	—	—		1,073		1,073
Actuarial gain on defined benefit plans (note 19)		—	—	2,346		—		2,346
Comprehensive income		—	—	9,161		1,073		10,234
Share issuance in connection with registered direct and public offerings (note 17)	18,300,000	8,573	—	—		—		8,573
Share issuances in connection with "At-the-Market" drawdowns (note 17)	1,682,721	2,737	—	—		—		2,737
Share-based compensation costs		—	2,215	—		—		2,215
Balance - December 31, 2013	45,312,009	134,101	86,107	(203,925	)	781		17,064

_________________________

¹ Issued and paid in full.


²	Adjusted to reflect the October 2, 2012 six-to-one share consolidation (see note 1 – Summary of business, liquidity risk, reporting entity, share consolidation and basis of preparation and note 17 – Share capital).

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

(6)



Aeterna Zentaris Inc.
Consolidated Statements of Changes in Shareholders' Equity (Deficiency)
For the years ended December 31, 2014, 2013 and 2012
(in thousands of US dollars, except share data)



	Common shares (number of)^{1, 2}	Share capital	Other capital		Deficit		Accumulated other comprehensive income (loss)		Total
		$	$		$		$		$
Balance - January 1, 2012	17,460,349	101,884	82,327		(188,969	)	212		(4,546	)
Net loss		—	—		(20,412	)	—		(20,412	)
Other comprehensive loss:
Foreign currency translation adjustments		—	—		—		(504	)	(504	)
Actuarial loss on defined benefit plans (note 19)		—	—		(3,705	)	—		(3,705	)
Comprehensive loss		—	—		(24,117	)	(504	)	(24,621	)
Share issuance in connection with a public offering	6,600,000	11,265	—		—		—		11,265
Share issuances in connection with "At-the-Market" drawdowns, net of transaction costs	1,190,973	8,382	—		—		—		8,382
Share issuances pursuant to the exercise of warrants (note 15)	52,383	819	—		—		—		819
Share issuances pursuant to the exercise of stock options (note 17)	25,583	441	(232	)	—		—		209
Share-based compensation costs		—	1,797		—		—		1,797
Balance - December 31, 2012	25,329,288	122,791	83,892		(213,086	)	(292	)	(6,695	)

_________________________


¹	Issued and paid in full.


²	Adjusted to reflect the October 2, 2012 six-to-one share consolidation (see note 1 – Summary of business, liquidity risk, reporting entity, share consolidation and basis of preparation and note 17 – Share capital).

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

(7)



Aeterna Zentaris Inc.
Consolidated Statements of Comprehensive (Loss) Income
For the years ended December 31, 2014, 2013 and 2012
(in thousands of US dollars, except share and per share data)



	Years ended December 31,
	2014		2013		2012
	$		$		$
Revenues
Sales	—		96		834
License fees (note 5)	11		6,079		1,219
	11		6,175		2,053
Operating expenses (note 18)
Cost of sales	—		51		591
Research and development costs, net of refundable tax credits and grants (notes 11 and 14)	23,716		21,284		20,592
Selling, general and administrative expenses (notes 10 and 14)	13,690		12,316		10,606
	37,406		33,651		31,789
Loss from operations	(37,395	)	(27,476	)	(29,736	)
Finance income (note 20)	20,319		1,748		6,974
Finance costs (note 20)	—		(1,512	)	(382	)
Net finance income (costs)	20,319		236		6,592
Loss before income taxes	(17,076	)	(27,240	)	(23,144	)
Income tax expense (notes 5 and 22)	(111	)	—		—
Net loss from continuing operations	(17,187	)	(27,240	)	(23,144	)
Net income from discontinued operations (note 6)	623		34,055		2,732
Net (loss) income	(16,564	)	6,815		(20,412	)
Other comprehensive (loss) income:
Items that may be reclassified subsequently to profit or loss:
Foreign currency translation adjustments	(1,158	)	1,073		(504	)
Items that will not be reclassified to profit or loss:
Actuarial (loss) gain on defined benefit plans	(1,833	)	2,346		(3,705	)
Comprehensive (loss) income	(19,555	)	10,234		(24,621	)
Net loss per share (basic and diluted) from continuing operations (note 26)	(0.29	)	(0.92	)	(1.17	)
Net income (basic and diluted) from discontinued operations (notes 6 and 26)	0.01		1.16		0.14
Net (loss) income (basic and diluted) per share	(0.28	)	0.24		(1.03	)
Weighted average number of shares outstanding (notes 17 and 26):
Basic	59,024,730		29,476,455		19,775,073
Diluted	59,024,730		29,476,455		19,806,687

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

(8)



Aeterna Zentaris Inc.
Consolidated Statements of Cash Flows
For the years ended December 31, 2014, 2013 and 2012
(in thousands of US dollars)



	Years ended December 31,
	2014		2013		2012
	$		$		$
Cash flows from operating activities
Net loss from continuing operations	(17,187	)	(27,240	)	(23,144	)
Items not affecting cash and cash equivalents:
Change in fair value of warrant liability (note 15)	(18,272	)	(1,563	)	(6,746	)
Provision for restructuring costs (note 14)	2,489		—		—
Depreciation, amortization and impairment (notes 10 and 11)	878		949		1,234
Share-based compensation costs (note 17)	497		2,215		1,797
Employee future benefits (note 19)	605		470		889
Amortization of deferred revenues (note 5)	—		(6,046	)	(1,077	)
Foreign exchange (gain) loss on items denominated in foreign currencies	(1,164	)	1,078		614
Gain on disposal of property, plant and equipment	(66	)	—		—
Amortization of prepaid expenses and other non-cash items	2,640		6,831		4,756
Transaction cost allocated to warrants issued (note 17)	666		1,165		370
Changes in operating assets and liabilities (note 21)	(1,873	)	(7,990	)	(4,374	)
Net cash (used in) provided by operating activities of discontinued operations (note 6)	(295	)	10,147		(5,134	)
Net cash used in operating activities	(31,082	)	(19,984	)	(30,815	)
Cash flows from financing activities
Proceeds from issuances of common shares and warrants, net of cash transaction costs of $1,348 in 2014, $2,119 in 2013 and $1,665 in 2012 (note 17)	24,358		23,708		23,619
Proceeds from the exercise of share purchase warrants (note 15)	—		—		437
Proceeds from the exercise of stock options (note 17)	—		—		209
Repayment of long-term payable	—		—		(57	)
Net cash provided by financing activities	24,358		23,708		24,208
Cash flows from investing activities
Purchase of property, plant and equipment (note 10)	(127	)	(85	)	(272	)
Disposals of property, plant and equipment (note 10)	66		—		—
Net cash provided by investing activities of discontinued operations	—		113		—
Net cash (used in) provided by investing activities	(61	)	28		(272	)
Effect of exchange rate changes on cash and cash equivalents	(1,486	)	(71	)	(481	)
Net change in cash and cash equivalents	(8,271	)	3,681		(7,360	)
Cash and cash equivalents – Beginning of the year (note 7)	43,202		39,521		46,881
Cash and cash equivalents – End of the year (note 7)	34,931		43,202		39,521

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

(9)



Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)


1	Summary of business, liquidity risk, reporting entity, share consolidation and basis of preparation

Summary of business

Aeterna Zentaris Inc. (the "Company") is a specialty biopharmaceutical company engaged in developing and commercializing novel treatments in oncology, endocrinology and women's health.

Liquidity risk

The Company has a history of operating losses, due largely to significant research and development ("R&D") investment, as well as to the incurrence of substantial selling, general and administrative ("SG&A") expenses. The Company has financed its operations through different sources, including the issuance of common shares and the conclusion of strategic alliances with licensee partners and other collaborators. The Company expects to continue to incur operating expenses and may require significant capital to fulfill its future obligations in absence of sufficient corresponding revenues. See note 23 – Capital disclosures and note 24(b) – Financial instruments and financial risk management – Liquidity risk.

Reporting entity

The accompanying consolidated financial statements include the accounts of Aeterna Zentaris Inc., an entity incorporated under the Canada Business Corporations Act, and its wholly owned subsidiaries (collectively referred to as the "Group"). Aeterna Zentaris Inc. is the ultimate parent company of the Group.

The Company currently has three wholly owned direct and indirect subsidiaries, Aeterna Zentaris GmbH ("AEZS Germany"), based in Frankfurt, Germany, Zentaris IVF GmbH, a wholly owned subsidiary of AEZS Germany, based in Frankfurt, Germany, and Aeterna Zentaris, Inc., an entity incorporated in the state of Delaware and with offices in Summerville, South Carolina, in the United States.

The address of the Company is 1405 du Parc-Technologique Blvd., Quebec City, Canada, G1P 4P5.

The Company's common shares are listed both on the Toronto Stock Exchange and on the NASDAQ Capital Market (the "NASDAQ").

Share consolidation (reverse stock split)

On October 2, 2012, the Company effected a consolidation of its issued and outstanding common shares on a six-to-one basis (the "Share Consolidation"). The Share Consolidation affected all shareholders, optionholders and warrantholders uniformly and thus did not materially affect any securityholder's percentage of ownership interest. All references in these consolidated financial statements to common shares, options and share purchase warrants have been retroactively adjusted to reflect the Share Consolidation.

Basis of preparation


(a)	Statement of compliance

The consolidated financial statements as at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012 have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB").

These consolidated financial statements were approved by the Company's Board of Directors on March 17, 2015.

The accompanying consolidated financial statements were prepared on a going concern basis, under the historical cost convention, except for the warrant liability, which is measured at fair value through profit or loss ("FVTPL").

The preparation of financial statements in accordance with IFRS requires the use of certain critical accounting estimates and the exercise of management's judgment in applying the Company's accounting policies. Areas

(10)



Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)

involving a high degree of judgment or complexity and areas where assumptions and estimates are significant to the Company's consolidated financial statements are discussed in note 3 – Critical accounting estimates and judgments.


(b)	Principles of consolidation

These consolidated financial statements include any entity in which the Company directly or indirectly holds more than 50% of the voting rights or over which the Company exercises control. The Company controls an entity when the Company is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. An entity is included in the consolidation from the date that control is transferred to the Company, while any entities that are sold are excluded from the consolidation from the date that control ceases. All intercompany balances and transactions are eliminated on consolidation.


(c)	Foreign currency

The accompanying consolidated financial statements are presented in thousands of US dollars, which is the Company's presentation currency.

Assets and liabilities of Group entities are translated from euro ("EUR") balances at the period-end exchange rates, and the results of operations are translated from EUR amounts at average rates of exchange for the period. The resulting translation adjustments are included in accumulated other comprehensive (loss) income within shareholders' equity.

Items included in the financial statements of the Group's entities are measured using the currency of the primary economic environment in which the entities operate (the "functional currency"), which, for all Group entities, was the EUR through December 31, 2014. Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the underlying transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities not denominated in EUR are recognized in the consolidated statement of comprehensive (loss) income.

Foreign exchange gains and losses that relate to cash and cash equivalents and the warrant liability are presented within finance income or finance costs in the consolidated statement of comprehensive (loss) income. All other foreign exchange gains and losses are presented in the consolidated statement of comprehensive (loss) income within operating expenses.


2	Summary of significant accounting policies

The accounting policies set out below have been applied consistently to all years presented in these consolidated financial statements, and have been applied consistently by all Group entities.

Cash and cash equivalents

Cash and cash equivalents consist of unrestricted cash on hand and balances with banks, as well as short-term interest-bearing deposits, such as money market accounts, that are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value, with a maturity of three months or less from the date of acquisition.

Restricted cash equivalents

Restricted cash equivalents are comprised of a bank deposit, related to a guarantee for a long-term operating lease obligation, that cannot be used for current purposes.

(11)



Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)

Property, plant and equipment and depreciation

Items of property, plant and equipment are recorded at cost, net of related government grants and accumulated depreciation and impairment charges. Depreciation is calculated using the following methods, annual rates and period:



	Methods	Annual rates and period
Equipment	Declining balance and straight-line	20%
Furniture and fixtures	Declining balance and straight-line	10% and 20%
Computer equipment	Straight-line	25% and 33¹/3%
Leasehold improvements	Straight-line	Remaining lease term

Depreciation expense, which is recorded in the consolidated statement of comprehensive (loss) income, is allocated to the appropriate functional expense categories to which the underlying items of property, plant and equipment relate.

Identifiable intangible assets

Identifiable intangible assets with finite useful lives consist of in-process R&D acquired in business combinations, patents and trademarks, technology and other assets. In-process R&D acquired in business combinations is recognized at fair value at the acquisition date. Patents and trademarks are comprised of costs, including professional fees incurred in connection with the filing of patents and the registration of trademarks for product marketing and manufacturing purposes, net of related government grants, impairment losses, where applicable, and accumulated amortization. Identifiable intangible assets with finite useful lives are amortized, from the time at which the assets are available for use, on a straight-line basis over their estimated useful lives of eight to fifteen years for in-process R&D and patents and ten years for trademarks. Amortization expense, which is recorded in the consolidated statement of comprehensive (loss) income, is allocated to the appropriate functional expense categories to which the underlying identifiable intangible assets relate.

Goodwill

Goodwill represents the excess of the purchase price over the fair values of the net assets of entities acquired at their respective dates of acquisition. Goodwill is carried at cost less accumulated impairment losses. Goodwill is allocated to each cash-generating unit ("CGU") or group of CGUs that are expected to benefit from the related business combination.

Impairment of assets

Items of property, plant and equipment and identifiable intangible assets with finite lives subject to depreciation or amortization, respectively, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be recoverable. Management is required to assess at each reporting date whether there is any indication that an asset may be impaired. Where such an indication exists, the asset's recoverable amount is compared to its carrying value, and an impairment loss is recognized for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows, or CGU. In determining value in use of a given asset or CGU, estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses are allocated to the appropriate functional expense categories to which the underlying identifiable intangible assets relate, and are recorded in the consolidated statement of comprehensive (loss) income.

Items of property, plant and equipment and amortizable identifiable intangible assets with finite lives that suffered impairment are reviewed for possible reversal of the impairment if there has been a change, since the date of the most recent impairment test, in the estimates used to determine the impaired asset's recoverable amount. However, an asset's carrying amount, increased due to the reversal of a prior impairment loss, must not exceed the carrying amount that would have been determined, net of depreciation or amortization, had the original impairment not occurred.

(12)



Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)

Goodwill is not subject to amortization and instead is tested for impairment annually or more often if there is an indication that the CGU to which the goodwill has been allocated may be impaired. Impairment is determined for goodwill by assessing whether the carrying value of a CGU, including the allocated goodwill, exceeds its recoverable amount, which is the higher of fair value less costs to sell and value in use. In the event that the carrying amount of goodwill exceeds its recoverable amount, an impairment loss is recognized in an amount equal to the excess. Impairment losses related to goodwill are not subsequently reversed.

Share purchase warrants

Share purchase warrants are classified as liabilities, since the Company does not have the unconditional right to avoid delivering cash to the holders in the future. Each of the Company's share purchase warrants contains a written put option, arising upon the occurrence of a Fundamental Transaction, as that term is defined in the share purchase warrant agreement, and also upon a change of control. As a result of the existence of these put options, and despite the fact that the repurchase feature is conditional on a defined contingency, the share purchase warrants are required to be classified as a financial liability, since such contingency could ultimately result in the transfer of assets by the Company.

The warrant liability is initially measured at fair value, and any subsequent changes in fair value are recognized as gains or losses through profit or loss. Any transaction costs related to the share purchase warrants are expensed as incurred.

The warrant liability is classified as non-current, unless the underlying share purchase warrants are expected to expire or be settled within 12 months from the end of a given reporting period.

Employee benefits

Salaries and other short-term benefits

Salaries and other short-term benefit obligations are measured on an undiscounted basis and are recognized in the consolidated statement of comprehensive (loss) income over the related service period or when the Company has a present legal or constructive obligation to make payments as a result of past events and when the amount payable can be estimated reliably.

Post-employment benefits

The Company's subsidiary in Germany maintains defined contribution and unfunded defined benefit plans, as well as other benefit plans for its employees. For defined benefit pension plans and other post-employment benefits, net periodic pension expense is actuarially determined on a quarterly basis using the projected unit credit method. The cost of pension and other benefits earned by employees is determined by applying certain assumptions, including discount rates, the projected age of employees upon retirement, the expected rate of future compensation and employee turnover.

The employee future benefits liability is recognized at its present value, which is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating the terms of the related future benefit liability. Actuarial gains and losses that arise in calculating the present value of the defined benefit obligation are recognized in other comprehensive (loss) income, net of tax, and simultaneously reclassified in the deficit in the consolidated statement of financial position in the year in which the actuarial gains and losses arise and without recycling to the consolidated statement of comprehensive (loss) income in subsequent periods.

For defined contribution plans, expenses are recorded in the consolidated statement of comprehensive (loss) income as incurred–namely, over the period that the related employee service is rendered.

Termination benefits

Termination benefits are recognized in the consolidated statement of comprehensive (loss) income when the Company is demonstrably committed, without the realistic possibility of withdrawal, to a formal detailed plan to terminate employment earlier than originally expected. Termination benefit liabilities expected to be settled after 12 months from the end of a given reporting period are discounted to their present value, where material.

(13)



Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)

Financial instruments

The Company classifies its financial instruments in the following categories: "Financial assets at FVTPL"; "Loans and receivables"; "Financial liabilities at FVTPL"; and "Other financial liabilities".

Financial assets and liabilities are offset, and the net amount is reported in the consolidated statement of financial position, when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis or realize the asset and settle the liability simultaneously.


(a)	Classification

Financial assets at fair value through profit or loss

Financial assets at FVTPL are financial assets held for trading. Fair value is defined as the amount at which the financial assets could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. A financial asset is classified as at FVTPL if the instrument is acquired or received as consideration principally for the purpose of selling in the short-term. Financial assets at FVTPL are classified as current assets if expected to be settled within 12 months from the end of a given reporting period; otherwise, the assets are classified as non-current.

As at December 31, 2014 and 2013, the Company held no assets classified as financial assets at FVTPL.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables are included in current assets, except for instruments with maturities greater than 12 months after the end of a given reporting period or where restrictions apply that limit the Company from using the instrument for current purposes, which are classified as non-current assets.

The Company's loans and receivables are comprised of cash and cash equivalents, trade and other receivables and restricted cash equivalents.

Financial liabilities at fair value through profit or loss

Financial liabilities at FVTPL are financial liabilities held for trading. A financial liability is classified as at FVTPL if the instrument is acquired or incurred principally for the purpose of selling or repurchasing in the short-term or where the Company does not have the unconditional right to avoid delivering cash or another financial asset to the holders in certain circumstances. Financial liabilities at FVTPL are classified as current liabilities if expected or potentially required to be settled within 12 months from the end of a given reporting period; otherwise, the liabilities are classified as non-current.

Financial liabilities at FVTPL are currently comprised of the Company's warrant liability.

Other financial liabilities

Other financial liabilities include trade accounts payable and accrued liabilities, provision for restructuring costs and other non-current liabilities.


(b)	Recognition and measurement

Financial assets at fair value through profit or loss

Financial assets at FVTPL are recognized on the settlement date, which is the date on which the asset is delivered to the Company. Financial assets at FVTPL are initially recognized at fair value, and transaction costs are expensed immediately in the consolidated statement of comprehensive (loss) income. Financial assets at FVTPL are derecognized when the right to receive cash flows from the underlying investment have expired or have been transferred and when the Group has transferred substantially all risks and rewards of ownership. Gains and losses

(14)



Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)

arising from changes in the fair value of financial assets at FVTPL are presented in the consolidated statement of comprehensive (loss) income within finance income or finance costs in the period in which they arise.

Loans and receivables

Loans and receivables are recognized on the settlement date and are measured initially at fair value and subsequently at amortized cost using the effective interest rate method.

Financial liabilities at fair value through profit or loss

Financial liabilities at FVTPL are recognized on the settlement date. Financial liabilities at FVTPL are initially recognized at fair value, and transaction costs are expensed immediately in the consolidated statement of comprehensive (loss) income. Gains and losses arising from changes in the fair value of financial liabilities at FVTPL are presented in the consolidated statement of comprehensive (loss) income within finance income or finance costs in the period in which they arise.

Other financial liabilities

Financial instruments classified as "Other financial liabilities" are measured initially at fair value and subsequently at amortized cost using the effective interest rate method.


(c)	Impairment

Financial assets measured at amortized cost are reviewed for impairment at each reporting date. Where there is objective evidence that impairment exists for a financial asset measured at amortized cost, an impairment charge equivalent to the difference between the asset's carrying amount and the present value of estimated future cash flows is recorded in the consolidated statement of comprehensive (loss) income. The expected cash flows exclude future credit losses that have not been incurred and are discounted at the financial asset's original effective interest rate.

Impairment charges related to financial assets carried at amortized cost are reversed if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized. However, the reversal cannot result in a carrying amount of the financial asset that exceeds what the amortized cost would have been had the impairment not been recognized at the date the impairment is reversed.

Share capital

Common shares are classified as equity. Incremental costs that are directly attributable to the issue of common shares and stock options are recognized as a deduction from equity, net of any tax effects.

Where offerings result in the issuance of units (where each unit is comprised of a common share of the Company and a share purchase warrant, exercisable in order to purchase a common share or fraction thereof), proceeds received in connection with those offerings are allocated between Share capital and Share purchase warrants based on the residual method. Proceeds are allocated to warrant liability based on the share purchase warrants fair value, and the residual amount of proceeds is allocated to Share capital. Transaction costs in connection with such offerings are allocated to the liability and equity units components in proportion to the allocation of proceeds.

Provisions

Provisions represent liabilities to the Company for which the amount or timing is uncertain. Provisions are recognized when the Company has a present legal or constructive obligation as a result of past events, such as organizational restructuring, when it is probable that an outflow of resources will be required to settle the obligation and where the amount can be reliably estimated. Provisions are not recognized for future operating losses.

(15)



Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)

Provisions are made for any contracts which are deemed onerous. A contract is onerous if the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it. Provisions for onerous contracts are measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Present value is determined based on expected future cash flows that are discounted 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 in finance costs.

Revenue recognition

Sales of products

Revenues from the sale of goods are recognized when the Company has transferred to the buyer the significant risks and rewards of ownership of the goods (which is at the time the goods are shipped), when the Company retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold, when the amount of revenues can be measured reliably, when it is probable that the economic benefits associated with the transaction will flow to the Company and when the costs incurred or to be incurred in respect of the transaction can be measured reliably.

Royalty revenues

The Company had deferred recognition of proceeds received in December 2008 from Healthcare Royalty Partners L.P. (formerly Cowen Healthcare Royalty Partners L.P. ) ("HRP") relating to the Company's rights to royalties on future sales of Cetrotide^® covered by a license agreement with ARES Trading S.A. ("Merck Serono") in which the latter had been granted worldwide marketing, distribution and selling rights, except in Japan, for Cetrotide^®, a compound used for in vitro fertilization.

The Company recognized the proceeds received from HRP as royalty revenues over the life of the underlying royalty sale arrangement, pursuant to the "units-of-revenue" method. Under that method, periodic royalty revenues are calculated as the ratio of the remaining deferred revenue amount to the total estimated remaining royalties that Merck Serono expected to pay to HRP over the term of the underlying arrangement multiplied by the royalty payments due to HRP for the period.

As mentioned in note 6 – Discontinued operations, from April 3, 2013 to October 1, 2013, the Company accelerated the amortization of the remaining deferred revenues.

Licensing revenues and multiple element arrangements

The Company is currently in a phase in which certain potential products are being further developed or marketed jointly with partners and licensees. Existing licensing agreements usually foresee one-time payments (upfront payments), payments for R&D services in the form of cost reimbursements, milestone payments and royalty receipts for licensing and marketing product candidates. Revenues associated with those multiple-element arrangements are allocated to the various elements based on their relative fair value.

Agreements containing multiple elements are divided into separate units of accounting if certain criteria are met, including whether the delivered element has stand-alone value to the customer and whether there is objective and reliable evidence of the fair value of the undelivered obligation(s). The consideration received is allocated among the separate units based on each unit's fair value, and the applicable revenue recognition criteria are applied to each of the separate units.

License fees representing non-refundable payments received at the time of signature of license agreements are recognized as revenue upon signature of the license agreements when the Company has no significant future performance obligations and collectibility of the fees is probable. Upfront payments received at the beginning of licensing agreements are deferred and recognized as revenue on a systematic basis over the period during which the related services are rendered and all obligations are performed.

(16)



Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)

Milestone payments

Milestone payments, which are generally based on developmental or regulatory events, are recognized as revenue when the milestones are achieved, collectibility is assured, and when the Company has no significant future performance obligations in connection with the milestones.

Share-based compensation costs

The Company operates an equity-settled share-based compensation plan under which the Company receives services from directors, senior executives, employees and other collaborators as consideration for equity instruments of the Company.

The Company accounts for all forms of share-based compensation using the fair value-based method. Fair value of stock options is determined at the date of grant using the Black-Scholes option pricing model, which includes estimates of the number of awards that are expected to vest over the vesting period. Where granted share options vest in installments over the vesting period (defined as graded vesting), the Company treats each installment as a separate share option grant. Share-based compensation expense is recognized over the vesting period, or as specified vesting conditions are satisfied, and credited to Other Capital.

Any consideration received by the Company in connection with the exercise of stock options is credited to Share Capital. Any Other Capital component of the share-based compensation is transferred to Share Capital upon the issuance of shares.

Current and deferred income tax

Income tax on profit or loss comprises current and deferred tax. Tax is recognized in profit or loss, except that a change attributable to an item of income or expense recognized as other comprehensive (loss) income or directly in equity (deficit) is also recognized directly in other comprehensive (loss) income or directly in equity (deficit). Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation and establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

The current income tax charge is calculated in accordance with tax rates and laws that have been enacted or substantively enacted by the reporting date in the countries where the Company's subsidiaries operate and generate taxable income.

Deferred income tax is recognized on temporary differences (other than, where applicable, temporary differences associated with unremitted earnings from foreign subsidiaries and associates to the extent that the investment is essentially permanent in duration, and temporary differences associated with the initial recognition of goodwill) arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements and on unused tax losses or R&D non-refundable tax credits in the Group. Deferred income tax is determined using tax rates and laws that have been enacted or substantively enacted by the reporting date.

Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized.

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

Research and development costs

Research costs are expensed as incurred. Development costs are expensed as incurred, except for those that meet generally accepted criteria for deferral, in which case, the costs are capitalized and amortized to operations over the estimated period of benefit. No development costs have been capitalized during any of the periods presented.

(17)



Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)

Research and development refundable tax credits and grants

The Company's German subsidiary is entitled to receive research grants from the German Federal Ministry of Education and Research. Funding is earned on qualified projects, and corresponding expenses are reimbursed at a certain rate of eligible base amounts.

Refundable R&D tax credits and grants are accounted for using the cost reduction method. Accordingly, refundable R&D tax credits and grants are recorded as a reduction of the related expenses or capital expenditures in the period the expenses are incurred, provided that the Company has reasonable assurance the refundable R&D tax credits or grants will be realized.

Discontinued operations

A discontinued operation is a component of the Company that has been disposed of, or is classified as held for sale, and represents a separate major line of business or geographical area of operations and/or is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations. Classification as a discontinued operation occurs upon the earlier of the disposal of the operation (or disposal group) or the date at which the operation meets the criteria for classification as held for sale. When an operation is classified as discontinued, comparative statements of comprehensive (loss) income and cash flows are presented as if the operations had been discontinued at the beginning of the earliest comparative period presented.

Net (loss) income per share

Basic net (loss) income per share is calculated using the weighted average number of common shares outstanding during the year.

Diluted net (loss) income per share is calculated based on the weighted average number of common shares outstanding during the year, plus the effects of dilutive common share equivalents, such as stock options and share purchase warrants. This method requires that diluted net (loss) income per share be calculated using the treasury stock method, as if all common share equivalents had been exercised at the beginning of the reporting period, or period of issuance, as the case may be, and that the funds obtained thereby were used to purchase common shares of the Company at the average trading price of the common shares during the period.


3	Critical accounting estimates and judgments

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


(a)	Critical accounting estimates and assumptions

Critical accounting estimates and assumptions are those that have a significant risk of causing material adjustment and are often applied to matters or outcomes that are inherently uncertain and subject to change. As such, management cautions that future events often vary from forecasts and expectations and that estimates routinely require adjustment.

The following discusses the most significant accounting estimates and assumptions that the Company has made in the preparation of the consolidated financial statements.

(18)



Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)

Fair value of the warrant liability and stock options

Determining the fair value of the warrant liability and stock options requires judgment related to the choice of a pricing model, the estimation of stock price volatility and the expected term of the underlying instruments. Any changes in the estimates or inputs utilized to determine fair value could result in a significant impact on the Company's future operating results, liabilities or other components of shareholders' equity (deficiency). Fair value assumptions used are described in notes 15 – Warrant liability and 17 – Share capital.

Goodwill impairment

The annual impairment assessment related to goodwill is based on estimates that are derived from current market capitalization and on other factors, including assumptions related to relevant industry-specific market analyses. Future events, including a significant reduction in the Company's share price, could cause the assumptions utilized in the impairment tests to change, resulting in a potentially adverse effect on the Company's future results due to increased impairment charges.

Employee future benefits

The determination of expenses and obligations associated with employee future benefits requires the use of assumptions, such as the discount rate to measure obligations, the projected age of employees upon retirement, the expected rate of future compensation and estimated employee turnover. Because the determination of the cost and obligations associated with employee future benefits requires the use of various assumptions, there is measurement uncertainty inherent in the actuarial valuation process. Actual results will differ from results that are estimated based on the aforementioned assumptions. Additional information is included in note 19 – Employee future benefits.

Income taxes

The estimation of income taxes includes evaluating the recoverability of deferred tax assets based on an assessment of Group entities' ability to utilize the underlying future tax deductions against future taxable income prior to expiry of those deductions. Management assesses whether it is probable that some or all of the deferred income tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income, which in turn is dependent upon the successful commercialization of the Company's products. To the extent that management's assessment of any Group entity's ability to utilize future tax deductions changes, the Company would be required to recognize more or fewer deferred tax assets, and future income tax provisions or recoveries could be affected. Additional information is included in note 22 – Income taxes.


(b)	Critical judgments in applying the Company's accounting policies

Revenue recognition

Management's assessments related to the recognition of revenues related to arrangements containing multiple elements are based on judgment. Judgment is necessary to identify separate units of accounting and to allocate related consideration to each separate unit of accounting. Where deferral of upfront payments or license fees is deemed appropriate, subsequent revenue recognition is often determined based upon the assessment of the Company's continuing involvement in the arrangement, the benefits expected to be derived by the customer and, where applicable, expected patent lives. Additional information is included in note 5 – Development, commercialization and licensing arrangements.


4	Recent accounting pronouncements

Adopted in 2014

The following new standards and amendments to standards are effective for the first time for interim periods beginning on or after January 1, 2014 and have been applied in preparing these consolidated financial statements. The accounting policies have been applied consistently by all subsidiaries of the Company.

(19)



Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)

In May 2013, the IASB made amendments to the disclosure requirements of IAS 36, Impairment of Assets, requiring disclosure, in certain instances, of the recoverable amount of an asset or CGU, and the basis for the determination of fair value less costs of disposal, when an impairment loss is recognized or when an impairment loss is subsequently reversed.

The adoption of these standards and amendments did not have a significant impact on the Company's consolidated financial statements.

Not yet adopted

The final version of IFRS 9, Financial Instruments ("IFRS 9"), was issued by the IASB in July 2014 and will replace IAS 39, Financial Instruments: Recognition and Measurement. IFRS 9 introduces a model for classification and measurement, a single, forward-looking expected loss impairment model and a substantially reformed approach to hedge accounting. The new single, principle-based approach for determining the classification of financial assets is driven by cash flow characteristics and the business model in which an asset is held. The new model also results in a single impairment model being applied to all financial instruments, which will require more timely recognition of expected credit losses. It also includes changes in respect of an entity's own credit risk in measuring liabilities elected to be measured at fair value, so that gains caused by the deterioration of an entity's own credit risk on such liabilities are no longer recognized in profit or loss. IFRS 9, which is to be applied retrospectively, is effective for annual periods beginning on or after January 1, 2018 and is available for early adoption. In addition, an entity's own credit risk changes can be applied early in isolation without otherwise changing the accounting for financial instruments. The Company is currently assessing the impact, if any, that this new standard will have on the Company's consolidated financial statements.

In May 2014, the IASB issued IFRS 15, Revenue from Contracts with Customers. The objective of this new standard is to provide a single, comprehensive revenue recognition framework for all contracts with customers to improve comparability of financial statements of companies globally. This new standard contains principles that an entity will apply to determine the measurement of revenue and timing of when it is recognized. The underlying principle is that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to receive in exchange for those goods or services. This new standard is effective for annual periods beginning on or after January 1, 2017. The Company is currently assessing the impact that this new standard may have on the Company's consolidated financial statements.


5	Development, commercialization and licensing arrangements

Sinopharm arrangement

On December 1, 2014, the Company entered into a master collaboration agreement, a Technology Transfer and Technical Assistance Agreement ("TTA") and a License Agreement ("LA") with Sinopharm A-Think Pharmaceuticals Co., Ltd. ("Sinopharm") for the development, manufacture and commercialization of zoptarelin doxorubicin ("the Product") in all human uses, in the People's Republic of China, including Hong Kong and Macau (collectively, "the Territory"). Under the terms of the TTA, Sinopharm made a one-time, non-refundable payment of $1,101,000 ("Transfer Fee") to the Company for the transfer of technical documentation and materials, know-how and technical assistance services. Additionally, per the LA, the Company will be entitled to receive additional consideration upon achieving certain milestones, including the occurrence of certain regulatory and commercial events in the Territory. Furthermore, the Company will be entitled to royalties on future net sales of the Product in the Territory.

(20)



Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)

The Company has substantial continuing involvement in the aforementioned arrangements, including the transfer of documentation, know-how and materials, as well as the provision of technical assistance, such as quality systems implementation, analytical and stability testing, territory-specific development initiatives, and other services.

The Company has applied the provisions of IAS 18, Revenue, and has determined that all deliverables and performance obligations contemplated by the agreements with Sinopharm should be accounted for as a single unit of accounting, limited to amounts that are not contingent upon the delivery of additional items or the meeting of other specified performance conditions which are not known, probable or estimable at the time at which the agreements with Sinopharm were entered into.

The Company has deferred the non-refundable Transfer Fee and is amortizing the related payment as revenue on a straight-line basis over the period during which the aforementioned services are rendered and obligations are performed.

In determining the period over which Transfer Fee revenues are to be recognized, the Company concluded that its significant continuing involvement in the aforementioned agreements will span approximately four years, commencing in late December 2014. However, the Company may adjust the amortization period based on appropriate facts and circumstances not yet known, that would significantly change the duration of the Company's continuing involvement and performance obligations or benefits expected to be derived by Sinopharm.

Future milestones will be recognized as revenue individually and in full upon the actual achievement of the related milestone, given the substantive nature of each milestone. Lastly, upon initial commercialization and sale of the developed product, the Company will recognize royalty revenues as earned, based on the contractual percentage applied to the actual net sales achieved by Sinopharm, as per the LA.

Pursuant to the aforementioned agreements, the Company was required to remit to the Chinese tax authorities $101,000 of the gross proceeds received from Sinopharm. This amount, which was withheld at the source, was recognized as income tax expense in the consolidated statement of comprehensive (loss) income in accordance with the provision of IAS 12, Income Taxes.

Ergomed agreement

On April 10, 2013, the Company entered into a co-development and revenue-sharing agreement ("CDRSA") with Ergomed Clinical Research Limited ("Ergomed"), pursuant to which Ergomed has agreed to assist the Company in the clinical development program for zoptarelin doxorubicin (the "Product") for the purpose of maximizing the commercialization potential of the Product with the ultimate aim of selling or licensing the Product. Concurrently with the execution of the CDRSA, the Company entered into a master services agreement ("MSA") with Ergomed for a clinical Phase 3 trial of the Product in endometrial cancer, pursuant to which Ergomed will provide clinical development services with respect to the co-development initiative referred to above.

Under the CDRSA, Ergomed will not charge the Company for 30% of the total costs up to a maximum of $10,000,000. While Ergomed will not directly contribute any cash proceeds towards the completion of the activities contemplated by the CDRSA, Ergomed, as primary supplier of a substantial portion of the Product-related clinical and regulatory activities, will contribute to the overall funding of the initiative via the application of a 30% discount from the costs set forth in the MSA until the cumulative total of such reductions reaches a maximum of $10,000,000. Ergomed will be entitled to receive an agreed upon single-digit percentage of any future net income (as defined in the CDRSA) or other proceeds related to the licensing of received zoptarelin doxorubicin in endometrial cancer indication, up to a specified maximum amount.

The Company recognizes R&D costs associated with the CDRSA and MSA net of the 30% discount, as services are rendered by Ergomed in the consolidated statement of comprehensive (loss) income. During the years ended December 31, 2013 and 2014, the Company expensed a total of $3,560,000 and $7,195,000, respectively, pursuant to the CDRSA and MSA.

(21)



Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)

Yakult agreement

On March 8, 2011, the Company had entered into an agreement with Yakult Honsha Co., Ltd. ("Yakult") for the development, manufacture and commercialization of perifosine in all human uses, excluding leishmaniasis, in Japan. Under the terms of this agreement, Yakult had made an initial, non-refundable gross upfront payment to the Company of €6,000,000 (approximately $8,412,000). The Company applied the provisions of IAS 18, Revenue ("IAS 18"), and recognized deferred revenue, which was being amortized on a straight-line basis through the estimated end of the estimated life cycle of perifosine in colorectal cancer ("CRC") and multiple myeloma ("MM"), which was assumed to be the estimated expiry date of the applicable valid patent considering a five-year extension, or until July 2018.

On April 1, 2012, following disclosure of the results of the Phase 3 study of perifosine in CRC, the Company discontinued the perifosine program in that indication. Furthermore, in March 2013, following an analysis of interim results of the Phase 3 study of perifosine in MM, the Company also discontinued the development of perifosine in the MM indication.

Based on these events, the Company determined that it no longer had significant obligations under the agreement with Yakult to continue with the development of perifosine. Accordingly, the Company recognized, in March 2013, the remaining amount of deferred revenue of $5,860,000 related to the above licensing agreement within License fees in the consolidated statement of comprehensive (loss) income.


6	Discontinued operations

On April 3, 2013 (the "Effective Date"), the Company entered into a transfer and service agreement ("TSA") and concurrent agreements with various partners and licensees with respect to the manufacturing rights for Cetrotide^®, marketed for therapeutic use as part of in vitro fertilization programs. The principal effect of these agreements was to transfer, effective October 1, 2013 (the "Closing Date"), the manufacturing rights for Cetrotide^® and to grant a license to Merck Serono for the manufacture, testing, assembling, packaging, storage and release of Cetrotide^® in all territories. Also per the TSA, the Company has agreed to provide certain transition services to Merck Serono over a period of 36 months from the Effective Date in order to assist Merck Serono in managing overall responsibility for the manufacturing of Cetrotide^® and related activities (collectively, the "Cetrotide^® Business").

Under the TSA, during the period commencing on the Effective Date and ending on the Closing Date (the "Interim Period"), the Company was obligated to continue to conduct the Cetrotide^® Business in the ordinary course in a manner consistent with past practices, subject to certain conditions.

Per the TSA, the Company received a non-refundable, one-time payment of €2,500,000 (approximately $3,300,000) in consideration for the transfer of the manufacturing rights referred to above, as well as other payments in exchange for the transfer, also on the Closing Date, of certain assets and equipment (see note 10 – Property, plant and equipment) used solely for the manufacture of Cetrotide^®.

The Company has agreed to provide the aforementioned transition services in exchange for a monthly service fee, which is payable by Merck Serono. The related transition services revenues are recognized as License fees and other within net income from discontinued operations in the Company's consolidated statement of comprehensive (loss) income as the transition services are provided over the corresponding term of the transition services contract.

Impact of the TSA on previously deferred revenues

In 2008, the Company had monetized its royalty stream related to Cetrotide^® via a transaction with HRP, which resulted, among other elements, in the payment by HRP to the Company of $52,500,000, less certain transaction costs, in exchange for the Company's rights to royalties on future net sales of Cetrotide^® generated by Merck Serono. The Company had initially recorded the proceeds received from HRP as deferred revenue due to the Company's significant continuing involvement with the Cetrotide^® Business. Since then, the Company has amortized the deferred revenue into income (as Sales and royalties within net income from discontinued operations in the Company's consolidated statement of comprehensive (loss) income) over the life of the underlying license agreement, based on the "units-of-revenue" method. Under that method, periodic royalty revenues were calculated by multiplying the ratio of the unamortized

(22)



Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)

deferred revenue amount to the total estimated remaining royalties that Merck Serono expected to pay to HRP over the term of the underlying arrangement by the royalty payments due to HRP for the period.

Management has determined that, as of the Closing Date, there is no basis to continue amortizing the deferred revenue associated with HRP, primarily due to the fact that the Company no longer has significant continuing involvement in the Cetrotide^® Business, as discussed above. As such, commencing on the Effective Date, the Company accelerated the amortization of the remaining deferred revenues of approximately $31,875,000 over the Interim Period, by continuing to apply the units-of-revenue method, which is consistent with past practice. The remaining deferred revenues were fully amortized through the end of the Interim Period and were recorded as Sales and royalties within net income from discontinued operations in the Company's consolidated statement of comprehensive (loss) income.

Presentation of Cetrotide^® Business subsequent to the Closing Date

In accordance with the provisions of IFRS 5, Non-current Assets Held for Sale and Discontinued Operations, upon the transfer of substantially all of the risks and rewards associated with the Cetrotide^® Business on the Closing Date, the Cetrotide^® Business was classified as a discontinued operation. As such, relevant amounts in the consolidated statements of comprehensive (loss) income and cash flows have been retroactively reclassified to reflect the Cetrotide^® Business as a discontinued operation.

Components of the Company's net income from discontinued operations are summarized below.



	Years ended December 31,
	2014	2013	2012
	$	$	$
Revenues*
Sales and royalties	—	63,755	30,704
License fees and other	1,037	4,589	908
	1,037	68,344	31,612
Operating expenses
Cost of sales	—	30,002	26,229
Research and development costs, net of tax credits and grants	25	8	12
Selling, general and administrative expenses	389	4,279	2,639
	414	34,289	28,880
Net income from discontinued operations	623	34,055	2,732
Components of operating expenses presented as discontinued include the following:
Subcontractor fees	—	24,930	25,515
Raw material purchases	—	579	1,189
Change in inventory	—	4,173	(560	)
Impairment of equipment	—	268	—
Depreciation of equipment	—	52	85
Cost of sales	—	30,002	26,229
Goods and services**	191	2,987	2,651
Royalty and patent expenses related to onerous contracts	223	1,300	—
	414	34,289	28,880

_________________________


*	In addition to recurring sales of Cetrotide^®, the revenues presented above include the aforementioned non-refundable, one-time payment of €2,500,000 (approximately $3,300,000), as well as royalty revenues of $33,631,000 in 2013 ($4,175,000 in 2012), which represent the amortization of proceeds received in connection with the Company's transaction with HRP.


**	Goods and services include professional fees, marketing services, insurance, travel and representation costs.

(23)



Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)

The SG&A expenses presented above for the year ended December 31, 2013 also include $1,300,000 associated with the initial recognition of a provision for certain non-cancellable contracts related to the Cetrotide^® Business that were deemed onerous due to the fact that management expects no economic benefits to flow to the Company following the transfer of the Cetrotide^® Business on the Closing Date. The provisions for onerous contracts represent the present value of estimated unavoidable future royalty and patent costs associated with the intellectual property underlying Cetrotide^®. The estimate may vary as a result of changes in estimated future royalty and patent costs. The unexpired term of these contracts is eight years as at December 31, 2014. See also note 16 – Provisions and other non-current liabilities.

Components of the Company's net cash (used in) provided by operating activities of discontinued operations are summarized below.



	Years ended December 31,
	2014		2013		2012
	$		$		$
Cash flows from operating activities
Net income from discontinued operations	623		34,055		2,732
Items not affecting cash and cash equivalents:
Provision for onerous contracts	223		1,300		—
Depreciation, amortization and impairment	—		320		85
Amortization of deferred revenues	—		(33,631	)	(4,175	)
Other non-cash items	96		—		—
Changes in operating assets and liabilities:
Trade and other receivables	1,460		6,212		(2,397	)
Inventory	—		4,061		(1,230	)
Prepaid expenses and other current assets	—		882		(760	)
Payables and accrued liabilities	(2,300	)	(2,996	)	611
Provisions and other non-current liabilities	(397	)	(56	)	—
Net cash (used in) provided by operating activities of discontinued operations	(295	)	10,147		(5,134	)


7	Cash and cash equivalents



	As at December 31,
	2014	2013
	$	$
Cash on hand and balances with banks	10,803	27,877
Interest-bearing deposits with maturities of three months or less	24,128	15,325
	34,931	43,202


8	Trade and other receivables



	As at December 31,
	2014	2013
	$	$
Trade accounts receivable	583	1,709
Value added tax	47	2
Other	237	242
	867	1,953

(24)



Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)


9	Restricted cash equivalents

In support of the Company's long-term operating lease obligation in Germany and in replacement of a related bank guarantee, the Company transferred approximately $760,000 ($865,000 in 2013) to a restricted cash account. The fixed amount, including any interest earned thereon, is restricted for as long as the underlying lease arrangement (note 25 – Commitments and contingencies) has not expired and therefore cannot be utilized for current purposes as at December 31, 2014.


10	Property, plant and equipment

Components of the Company's property, plant and equipment are summarized below.



	Cost
	Equipment		Furniture and fixtures		Computer equipment		Leasehold improvements		Total
	$		$		$		$		$
At January 1, 2013	9,444		1,615		1,754		1,144		13,957
Additions	44		15		26		—		85
Disposals / Retirements	(853	)	(452	)	(8	)	—		(1,313	)
Impact of foreign exchange rate changes	419		59		80		52		610
At December 31, 2013	9,054		1,237		1,852		1,196		13,339
Additions	16		20		86		5		127
Disposals / Retirements	(1,212	)	—		(182	)	—		(1,394	)
Impact of foreign exchange rate changes	(1,046	)	(151	)	(222	)	(146	)	(1,565	)
At December 31, 2014	6,812		1,106		1,534		1,055		10,507



	Accumulated depreciation
	Equipment		Furniture and fixtures		Computer equipment		Leasehold improvements		Total
	$		$		$		$		$
At January 1, 2013	7,739		1,511		1,721		839		11,810
Disposals / Retirements	(822	)	(352	)	(8	)	—		(1,182	)
Impairment loss*	268		—		—		—		268
Recurring depreciation expense	461		6		30		50		547
Impact of foreign exchange rate changes	370		57		78		40		545
At December 31, 2013	8,016		1,222		1,821		929		11,988
Disposals / Retirements	(1,212	)	—		(182	)	—		(1,394	)
Impairment loss**	206		—		—		—		206
Recurring depreciation expense	282		17		21		51		371
Impact of foreign exchange rate changes	(979	)	(152	)	(212	)	(118	)	(1,461	)
At December 31, 2014	6,313		1,087		1,448		862		9,710

_________________________


*	Related to equipment transferred to Merck Serono pursuant to the TSA (note 6 – Discontinued operations).


**	Related to R&D equipment impaired as a result of a restructuring (note 14 – Restructuring).

(25)



Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)



	Carrying amount
	Equipment	Furniture and fixtures	Computer equipment	Leasehold improvements	Total
	$	$	$	$	$
At December 31, 2013	1,038	15	31	267	1,351
At December 31, 2014	499	19	86	193	797

Depreciation of $577,000 ($495,000 in 2013) is presented in the consolidated statement of comprehensive (loss) income as follows: $530,000 ($480,000 in 2013) in net R&D costs and $47,000 ($15,000 in 2013) in SG&A expenses. See also note 6 – Discontinued operations for depreciation expense related to discontinued operations.


11	Identifiable intangible assets

Identifiable intangible assets with finite useful lives consist entirely of in-process R&D costs, patents and trademarks. Changes in the carrying value of the Company's identifiable intangible assets with finite useful lives are summarized below.



	Year ended December 31, 2014						Year ended December 31, 2013
	Cost		Accumulated amortization		Carrying value		Cost	Accumulated amortization		Carrying value
	$		$		$		$	$		$
Balances – Beginning of the year	39,890		(39,182	)	708		38,172	(37,044	)	1,128
Impairment loss*	—		(184	)	(184	)	—	—		—
Recurring amortization expense*	—		(117	)	(117	)	—	(454	)	(454	)
Impact of foreign exchange rate changes	(4,858	)	4,803		(55	)	1,718	(1,684	)	34
Balances – End of the year	35,032		(34,680	)	352		39,890	(39,182	)	708

_________________________

* Recorded as R&D costs in the consolidated statements of comprehensive (loss) income.


12	Goodwill

Goodwill has not been allocated to any specific CGU of the Group.

The change in carrying value is as follows:



	Cost		Accumulated impairment loss	Carrying amount
	$		$	$
Balance as at January 1, 2013	9,466		—	9,466
Impact of foreign exchange rate changes	426		—	426
Balance as at December 31, 2013	9,892		—	9,892
Impact of foreign exchange rate changes	(1,205	)	—	(1,205	)
Balance as at December 31, 2014	8,687		—	8,687

(26)



Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)

13 Payables and accrued liabilities



	As at December 31,
	2014	2013
	$	$
Trade accounts payable	3,153	4,802
Accrued research and development costs	1,073	666
Salaries, employment taxes and benefits	560	402
Current portion of onerous contract provisions (note 16)	322	441
Other accrued liabilities	691	931
	5,799	7,242


14	Restructuring

On August 7, 2014, the Company's Nominating, Governance and Compensation Committee approved the Company's global resources optimization program (the "Resource Optimization Program"), which has been rolled out as part of a strategy to transition Aeterna Zentaris into a commercially operating specialty biopharmaceutical organization. The Resource Optimization Program, the goal of which is to streamline R&D activities and increase commercial operations and flexibility, is expected to result in the ultimate termination of 30 employees at the Company. As at December 31, 2014, management estimates that remaining staff departures will occur through August 31, 2015.

Restructuring costs are recognized in the consolidated statement of comprehensive (loss) income when the Company has a detailed formal plan for the restructuring and has raised a valid expectation in those affected that it will carry out the restructuring by starting to implement that plan or announcing the plan's main features to those affected by it.

Upon approval of the Resource Optimization Program, a provision for restructuring costs was recorded. Total restructuring costs associated with the Resource Optimization Program include severance payments, onerous lease provision and other directly related costs, and have been recorded as follows in the accompanying consolidated statement of comprehensive (loss) income: $2,201,000 in R&D costs, and $288,000 in SG&A expenses. This estimate may vary as a result of changes in the underlying assumptions applied thereto, including, but not limited to, the number of employees that will ultimately depart from the Company.

The change in the Company's provision for restructuring costs can be summarized as follows:



	Year ended December 31,
	2014
	$
Balance – Beginning of the year	—
Provision recognized	2,489
Utilization of provision	(687	)
Impact of foreign exchange rate changes	(151	)
Balance – End of the year	1,651
Less: non-current portion	(146	)
	1,505

(27)



Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)


15	Warrant liability

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



	Years ended December 31,
	2014		2013		2012
	$		$		$
Balance – Beginning of the year	18,010		6,176		9,204
Share purchase warrants issued during the year (note 17)	8,487		13,397		4,100
Share purchase warrants exercised during the year	—		—		(382	)
Change in fair value of share purchase warrants	(18,272	)	(1,563	)	(6,746	)
	8,225		18,010		6,176

A summary of the activity related to the Company's share purchase warrants is provided below.



	Years ended December 31,
	2014				2013		2012
	Number		Weighted average exercise price (US$)		Number	Weighted average exercise price (US$)	Number		Weighted average exercise price (US$)
Balance – Beginning of the year	20,107,410		2.34		4,407,410	5.14	1,511,179		8.62
Issued	8,800,000		1.25	*	15,700,000	1.55	2,970,000		3.45
Exercised	—		—		—	—	(52,383	)	8.24
Expired	(122,221	)	7.50		—	—	(21,386	)	9.00
Balance – End of the year	28,785,189		1.87		20,107,410	2.34	4,407,410		5.14

_________________________


*	As adjusted (note 17 – Share capital)

The following table summarizes the share purchase warrants outstanding and exercisable as at December 31, 2014:



	Warrants outstanding and exercisable
Exercise price	Number	Weighted average remaining contractual life (years)
1.20	1,605,000	3.90
1.25	20,295,000	3.96
1.85	2,600,000	3.58
3.45	2,970,000	2.80
8.24	530,424	0.47
9.00	740,737	0.80
10.29	44,028	0.46
	28,785,189	3.65

(28)



Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)

The table presented below shows the inputs and assumptions applied to the Black-Scholes option pricing model in order to determine the fair value of warrants outstanding as at December 31, 2014.



	Number of equivalent shares	Market-value per share price ($)	Weighted average exercise price ($)		Risk-free annual interest rate (a)	Expected volatility (b)	Expected life (years) (c)	Expected dividend yield (d)
April 2010 Investor Warrants	740,737	0.60	9.00		0.25%	98.72%	0.80	0.00%
June 2010 Investor Warrants	530,424	0.60	8.24		0.25%	125.73%	0.47	0.00%
June 2010 Compensation Warrants	44,028	0.60	10.29		0.25%	127.70%	0.46	0.00%
October 2012 Investor Warrants	2,970,000	0.60	3.45		1.01%	106.74%	2.80	0.00%
July 2013 Warrants	2,600,000	0.60	1.85		1.26%	98.57%	3.58	0.00%
November 2013 Warrants	13,100,000	0.60	1.24	*	1.34%	95.78%	3.90	0.00%
January 2014 Investor Warrants	8,800,000	0.60	1.25	*	1.38%	94.51%	4.03	0.00%

_________________________


(a)	Based on United States Treasury Government Bond interest rates with a term that is consistent with the expected life of the warrants.


(b)	Based on the historical volatility of the Company's stock price over the most recent period consistent with the expected life of the warrants, as well as on future expectations.


(c)	Based upon time to expiry from the reporting period date.


(d)	The Company has not paid dividends nor intends to pay dividends in the foreseeable future.

* Subject to adjustment (see note 17 – Share capital and note 28 – Subsequent events).

The Black-Scholes valuation methodology uses "Level 2" inputs in calculating fair value, as defined in IFRS 7, Financial Instruments: Disclosures and as discussed in note 24 – Financial instruments and financial risk management.


16	Provisions and other non-current liabilities



	As at December 31,
	2014	2013
	$	$
Onerous contract provisions (detailed below)	1,014	1,291
Non-current portion of provision for restructuring costs (note 14)	146	—
Other	130	182
	1,290	1,473

(29)



Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)

Onerous contract provisions



	Cetrotide^® onerous contracts*		Onerous lease**		Total
	$		$		$
Balance at January 1, 2014	1,296		436		1,732
Additional provision recognized	223		—		223
Utilization of provision	(397	)	(102	)	(499	)
Unwinding of discount and effect of change in the discount rate	(124	)	4		(120	)
Balance at December 31, 2014	998		338		1,336
Less: current portion	(218	)	(104	)	(322	)
	780		234		1,014

_________________________


*	Recorded following the transfer of the Cetrotide^® Business, as discussed in note 6 – Discontinued operations.


**	Represents the present value of the future lease payments that the Company is obligated to make pursuant to a non-cancellable operating lease in the United States, net of estimated future sublease income. The estimate may vary as a result of changes in the utilization of the leased premises and of the sublease arrangement. The remaining term of the lease is three years as at December 31, 2014.


17	Share capital

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

Share consolidation

The 112,375,726 common shares issued and outstanding immediately prior to the Share Consolidation were consolidated into 18,729,288 common shares. The Company's outstanding stock options and share purchase warrants were adjusted on the same basis with proportionate adjustments being made to each stock option and share purchase warrant exercise price.

All share, option and share purchase warrant and per share, option and share purchase warrant data have been retroactively adjusted to reflect and give effect to the Share Consolidation as if it occurred at the beginning of the earliest period presented.

Common shares issued in connection with "At-the-Market" ("ATM") drawdowns

May 2013 ATM Program

On May 22, 2013, the Company entered into an ATM sales agreement (the "May 2013 ATM Program"), under which the Company was able, at its discretion and from time to time, to sell up to 2,500,000 of its common shares through ATM issuances on the NASDAQ for aggregate gross proceeds not to exceed $4,600,000. The May 2013 ATM Program provided that common shares were to be sold at market prices prevailing at the time of sale and, as a result, prices may have varied.

Between January 1, 2014 and March 31, 2014, the Company issued a total of 201,960 common shares under the May 2013 ATM Program at an average price of approximately $1.43 per share, resulting in aggregate gross proceeds of $288,114, less cash transaction costs of $8,600 and previously deferred transaction costs of $17,000. The May 2013 ATM Program was subsequently discontinued in connection with the implementation of the May 2014 ATM Program described below.

(30)



Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)

May 2014 ATM Program

On May 9, 2014, the Company entered into an ATM sales agreement (the "May 2014 ATM Program"), under which the Company is able, at its discretion and from time to time, to sell up to 14,018,692 of its common shares through ATM issuances on the NASDAQ for aggregate gross proceeds not to exceed $15,000,000. The May 2014 ATM Program provides that common shares are to be sold at market prices prevailing at the time of sale and, as a result, prices may vary.

Between July 1, 2014 and December 31, 2014, the Company issued a total of 8,995,108 common shares under the May 2014 ATM Program at an average price of approximately $1.36 per share for aggregate gross proceeds of $12,218,000 less cash transaction costs of $305,430 and previously deferred transaction costs of $71,575.

Public offering

On January 14, 2014, the Company completed a public offering (the "January 2014 Offering") of 11,000,000 units, at a purchase price of $1.20 per unit, with each unit consisting of one common share and 0.8 of a warrant to purchase a common share. The related warrants (the "January 2014 Warrants") represent the right to acquire an aggregate of 8,800,000 common shares, as discussed below.

Total cash proceeds raised through the January 2014 Offering amounted to $13,200,000, less cash transaction costs of approximately $1,034,000 and previously deferred transaction costs of $5,000.

The Company issued the January 2014 Warrants to the investors who participated in the January 2014 Offering at an exercise price of $1.25 per share, with the January 2014 Warrants containing certain anti-dilution provisions. These warrants are exercisable at any time during their five-year term and, upon complete exercise, would result in the issuance of an aggregate of 8,800,000 common shares that would generate additional proceeds for an amount that would be determined based on the then adjusted exercise price.

The Company estimated the fair value attributable to the January 2014 Warrants as of the date of grant by applying the Black-Scholes pricing model, to which the following additional assumptions were applied: a risk-free annual interest rate of 1.64%, an expected volatility of 102.31%, an expected life of 5 years and a dividend yield of 0.0%. As a result, the fair value of the share purchase warrants was estimated at $8,487,000.

Total gross proceeds of the January 2014 Offering were allocated as follows: $8,487,000 was allocated to Warrant liability, and the balance of $4,713,000 was allocated to Share capital. Transaction costs were allocated to the liability and equity components in proportion to the allocation of proceeds. As such, an amount of $666,000 was allocated to the share purchase warrants and immediately recognized in general and administrative expenses in the consolidated statement of comprehensive (loss) income, and an amount of $373,000 was allocated to Share capital.

In connection with the January 2014 Offering, the holders of the November 2013 Warrants (see note 8 – Warrant liability) who participated in the January 2014 Offering agreed to waive certain anti-dilution provisions of such warrants solely in connection with the January 2014 Offering, and agreed to an adjustment of exercise price of such warrants following the closing of the January 2014 Offering from their original exercise price of $1.60 per share to an exercise price equal to $1.25 per share. For holders of the warrants issued in the November 2013 Offering who did not participate in the January 2014 Offering, the exercise price of the corresponding November 2013 Warrants held by the sole non-participating holder was further reduced by $0.05 per share. See also note 28 – Subsequent events.

Shareholder rights plan

The Company has a shareholder rights plan (the "Rights Plan") that provides the Board of Directors and the Company's shareholders with additional time to assess any unsolicited take-over bid for the Company and, where appropriate, to pursue other alternatives for maximizing shareholder value. Under the Rights Plan, one right has been issued for each currently issued common share, and one right will be issued with each additional common share to be issued. The Rights Plan was most recently re-confirmed and approved by the Company's shareholders at its annual meeting of shareholders held on May 8, 2013.

(31)



Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)

Stock options

In December 1995, the Company's Board of Directors adopted a stock option plan (the "Stock Option Plan") for its directors, senior executives, employees and other collaborators who provide services to the Company. The total number of common shares that may be issued under the Stock Option Plan cannot exceed 11.4% of the total number of issued and outstanding common shares at any given time. The Company's Board of Directors amended the Stock Option Plan on March 20, 2014 and the Company's shareholders ratified the amendment on May 9, 2014.

Options granted under the Stock Option Plan prior to the 2014 amendment expire after a maximum period of ten years following the date of grant. Options granted after the 2014 amendment expire after a maximum period of seven years following the date of grant.

The following tables summarize the activity under the Stock Option Plan.



	Years ended December 31,
	2014			2013				2012
US dollar-denominated options	Number		Weighted average exercise price (US$)	Number			Weighted average exercise price (US$)	Number			Weighted average exercise price (US$)
Balance – Beginning of the year	1,759,794		3.40	1,328,492			4.27	287,950			11.59
Granted	1,951,500		0.93	630,000			1.56	1,060,445		*	2.40
Forfeited	(314,263	)	4.55	(198,698	)	*	3.37	(19,903	)		10.44
Balance – End of the year	3,397,031		1.88	1,759,794			3.40	1,328,492			4.27

_________________________

In addition to the stock options granted to employees, the Company granted during the year 2012, 125,000 stock options to a financial advisor and 66,666 stock options to an investor relations advisor. The 125,000 stock options were to vest upon the achievement of a certain strategic alliance transaction, which did not occur. Of the 66,666 stock options, 33,333 vested upon signature of the service agreement, and the remainder vested 90 days later. Both grants described herein were forfeited during the year 2013 upon termination of the service agreements.



	Years ended December 31,
	2014			2013			2012
Canadian dollar-denominated options	Number		Weighted average exercise price (CAN$)	Number		Weighted average exercise price (CAN$)	Number		Weighted average exercise price (CAN$)
Balance – Beginning of the year	652,779		12.91	727,875		12.71	1,031,328		14.99
Exercised*	—		—	—		—	(25,582	)	8.51
Forfeited	(81,679	)	7.50	(9,932	)	12.61	(57,437	)	15.07
Expired	(76,994	)	36.62	(65,164	)	10.77	(220,434	)	23.22
Balance – End of the year	494,106		10.11	652,779		12.91	727,875		12.71

_________________________


*	The weighted average share price at time of exercise was CAN$11.25 for the year ended December 31, 2012.



	US$ options outstanding as at December 31, 2014
Exercise price (US$)	Number	Weighted average remaining contractual life (years)	Weighted average exercise price (US$)
0.76	1,136,500	6.93	0.76
1.07 to 1.11	450,000	6.35	1.07
1.12 to 2.15	995,000	8.25	1.46
2.16 to 2.92	520,520	7.93	2.17
2.93 to 10.17	119,166	4.74	3.47
10.18 to 21.78	175,845	6.43	11.56
	3,397,031	7.29	1.88

(32)



Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)



	US$ options exercisable as at December 31, 2014
Exercise price (US$)	Number	Weighted average remaining contractual life (years)	Weighted average exercise price (US$)
1.12 to 2.15	210,006	8.58	1.56
2.16 to 2.92	520,520	7.93	2.17
2.93 to 10.17	102,501	4.32	3.46
10.18 to 21.78	175,845	6.43	11.56
	1,008,872	7.44	3.81



	CAN$ options outstanding and exercisable as at December 31, 2014
Exercise price (CAN$)	Number	Weighted average remaining contractual life (years)	Weighted average exercise price (CAN$)
3.30 to 4.80	89,223	3.89	3.64
4.81 to 7.02	127,705	4.94	5.70
7.03 to 9.78	134,164	4.90	8.96
9.79 to 21.21	99,992	2.11	15.72
21.22 to 30.54	43,022	1.65	27.14
	494,106	3.88	10.11

As at December 31, 2014, the total compensation cost related to unvested US Dollar stock options not yet recognized amounted to $1,126,261 ($533,206 in 2013). This amount is expected to be recognized over a weighted average period of 1.70 years (1.15 years in 2013).

The Company settles stock options exercised through the issuance of common shares from treasury.

Fair value input assumptions for US dollar-denominated options granted

The table below shows the assumptions, or weighted average parameters, applied to the Black-Scholes option pricing model in order to determine share-based compensation costs over the life of the awards.



		Years ended December 31,
		2014	2013
Expected dividend yield	(a)	0.0%	0.0%
Expected volatility	(b)	101.6%	98.1%
Risk-free annual interest rate	(c)	1.87%	1.46%
Expected life (years)	(d)	6.16	6.63
Weighted average share price		US$0.93	US$1.56
Weighted average exercise price		US$0.93	US$1.56
Weighted average grant date fair value		US$0.75	US$1.26

_________________________


(a)	The Company has not paid dividends nor intends to pay dividends in the foreseeable future.


(b)	Based on the historical volatility of the Company's stock price over the most recent period consistent with the expected life of the stock options, as well as on future expectations.


(c)	Based on United States Treasury Government Bond interest rates with a term that is consistent with the expected life of the stock options.


(d)	Based upon historical data related to the exercise of stock options, on post-vesting employment terminations and on future expectations related to exercise behaviour.

The Black-Scholes pricing models referred above use "Level 2" inputs in calculating fair value, as defined by IFRS 7, and as discussed in note 24 – Financial instruments and financial risk management.

(33)



Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)


18	Operating expenses

Components of the Company's operating expenses from continuing operations include the following:



	Years ended December 31,
	2014		2013		2012
	$		$		$
Subcontractor fees	—		51		—
Raw material purchases	—		—		591
Cost of sales	—		51		591
Key management personnel compensation⁽¹⁾
Salaries and short-term employee benefits	2,405		2,280		2,354
Termination benefits	439		1,438		—
Post-employment benefits	77		58		957
Share-based compensation costs	392		1,795		941
	3,313		5,571		4,252
Other employees compensation:
Salaries and short-term employee benefits	7,663		7,955		8,473
Termination benefits (note 14)	1,984		7		189
Post-employment benefits	832		626		75
Share-based compensation costs	105		572		514
	10,584		9,160		9,251
Goods and services⁽²⁾	19,016		15,954		14,663
Leasing costs, net of sublease receipts of $344,000 in 2014, $226,000 in 2013 and $226,000 in 2012⁽³⁾	1,802		1,879		1,751
Refundable tax credits and grants	(131	)	(517	)	(868	)
Onerous contract expenses resulting from the Resource Optimization Program (note 14)	563		—		—
Share-based compensation costs related to collaborators	—		(148	)	342
Transaction costs related to share purchase warrants	666		1,165		370
Depreciation and amortization	488		949		1,050
Impairment losses	390		—		184
Operating foreign exchange losses (gains)	715		(413	)	203
	23,509		18,869		17,695
	37,406		33,651		31,789

_________________________


⁽¹⁾	Key management includes the Company's directors and members of the executive management team.


⁽²⁾	Goods and services include third-party R&D costs, laboratory supplies, professional fees, contracted sales force costs, marketing services, insurance and travel expenses.


⁽³⁾	Leasing costs also include changes in the onerous lease provision (note 16 – Provisions and other non-current liabilities), other than attributable to the unwinding of the discount.

(34)



Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)

On April 15, 2013, the Company appointed a new President and Chief Executive Officer ("CEO"), who also was appointed to the Company's Board of Directors. In accordance with his employment agreement, the Company's new President and CEO was granted, as a retention bonus, 375,000 share appreciation rights ("SARs"), pursuant to which he will be entitled to receive a future cash payment if he remains employed through a certain date. The retention bonus will be based on the increase, if any, in the company's share price from $1.98 over a specified period of time. 175,000 SARs vested (and expired) on December 31, 2014, and the remaining 200,000 SARs will vest on December 31, 2015.

The Company's former President and CEO received, upon termination of his employment, benefits of approximately $1,438,000. Additionally, the Company's former President and CEO was permitted to retain all of his stock options, which, pursuant to IFRS 2, Share-based Payment, constitutes a modification to the terms of the existing stock options granted in a share-based payment transaction, by allowing such stock options to expire at the original expiry date, based on the original date of grant, despite the termination of employment. As a result of this modification, an amount of $682,000, which corresponds to the compensation cost related to unvested stock options not yet recognized immediately before the modification and to the incremental fair value of the stock options, measured by comparing the stock options immediately before and immediately after the modification date, was recognized during the year ended December 31, 2013 within SG&A expenses in the consolidated statement of comprehensive (loss) income.

Most of the employment agreements entered into between the Company and its executive officers include termination provisions, whereby the executive officers would be entitled to receive benefits that would be payable if the Company were to terminate the executive officers' employment without cause or if their employment is terminated following a change of control. Separation benefits generally are calculated based on an agreed-upon multiple of applicable base salary and incentive compensation and, in certain cases, other benefit amounts.

In addition to payments made to members of our key management team, during the years ended December 31, 2013 and 2014, the Company paid $76,800 and $38,000, respectively, in professional fees to one of the members of the Company's Board of Directors for special tasks mandated by the Company's Nominating, Corporate Governance and Compensation Committee.


19	Employee future benefits

The Company's subsidiary in Germany provides unfunded defined benefit pension plans and unfunded post-employment benefit plans for certain groups of employees. Provisions for pension obligations are established for benefits payable in the form of retirement, disability and surviving dependent pensions.

The unfunded defined benefit pension plans are final salary pension plans, which provide benefits to members (or to their surviving dependents) in the form of a guaranteed level of pension payable for life. The level of benefits provided depends on the members' length of service and on their base salary in the final years leading up to retirement. Current pensions vary in accordance to applicable statutory requirements, which foresee an adjustment, every three years on an individual basis, that is based on inflationary increases or in relation to salaries of comparable groups of active employees in the Company. An adjustment may be denied by the Company if the Company's financial situation does not allow for an increase in pensions. These plans are unfunded, and the Company meets benefit payment obligations as they fall due.

(35)



Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)

The following table presents the changes in the aforementioned plans' accrued benefit obligations:



	Pension benefit plans Years ended December 31,						Other benefit plans Years ended December 31,
	2014		2013		2012		2014		2013		2012
	$		$		$		$		$		$
Balance – Beginning of year	14,646		16,062		11,769		762		1,169		1,111
Current service cost	176		219		139		24		57		134
Interest cost	476		421		491		25		31		46
Actuarial loss (gain) arising from changes in financial assumptions	1,833		(2,346	)	3,705		(96	)	(258	)	79
Benefits paid	(411	)	(357	)	(337	)	(210	)	(274	)	(219	)
Impact of foreign exchange rate changes	(2,101	)	647		295		(72	)	36		18
Balance – End of year	14,619		14,646		16,062		433		761		1,169
Amounts recognized:
In comprehensive (loss) income	(652	)	(640	)	(630	)	47		170		(259	)
In other comprehensive income(loss)	268		1,699		(4,000	)	72		(36	)	(18	)

The cumulative amount of actuarial losses recognized in other comprehensive (loss) income as at December 31, 2014 is approximately $4,336,000 (approximately $2,503,000 as at December 31, 2013 and approximately $4,849,000 as at December 31, 2012).

The significant actuarial assumptions applied to determine the Company's accrued benefit obligations are as follows:



	Pension benefit plans			Other benefit plans
	Years ended December 31,			Years ended December 31,
Actuarial assumptions	2014	2013	2012	2014	2013	2012
	%	%	%	%	%	%
Discount rate	2.00	3.37	2.60	2.00	3.37	2.60
Pension benefits increase	1.80	2.00	2.00	1.80	2.00	2.00
Rate of compensation increase	2.00	2.75 to 3.75	2.75 to 3.75	2.00	2.75	2.75

Assumptions regarding future mortality are set based on actuarial advice in accordance with published statistics and experience in Germany. These assumptions translate into an average remaining life expectancy in years for a pensioner retiring at age 65:



	2014	2013	2012
Retiring at the end of the reporting period:
Male	19	19	19
Female	23	23	23
Retiring 20 years after the end of the reporting period:
Male	22	22	22
Female	26	26	26

(36)



Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)

The most recent actuarial reports give effect to the pension and post-employment benefit obligations as at December 31, 2014. The next actuarial reports are planned for December 31, 2015.

The calculation of the pension benefit obligation is sensitive to the discount rate assumption set out above. From December 31, 2012 to December 31, 2014, management determined that the discount rate assumption should be adjusted as a result of relevant changes in the European economic environment.

Additionally, given recent developments in the European economic environment, an increase of 0.25% in the discount rate shown above is considered reasonably possible over the next financial year. Were such a fluctuation to occur, the effect of this change on the pension benefit obligation presented as at December 31, 2014 would be a decrease of approximately $600,000.

In accordance with the assumptions used as at December 31, 2014, undiscounted defined pension benefits expected to be paid are as follows:



		$
2015		495
2016		502
2017		512
2018		531
2019		553
Thereafter		19,867
		22,460

The weighted average duration of the defined benefit obligation is 17.3 years.

Total expenses for the Company's defined contribution plan in its German subsidiary amounted to approximately $232,954 for the year ended December 31, 2014 ($228,771 for 2013 and $331,287 for 2012).


20	Finance income and finance costs

Components of the Company's finance income and finance costs can be summarized as follows:



	Years ended December 31,
	2014	2013		2012
	$	$		$
Finance income
Change in fair value of warrant liability	18,272	1,563		6,746
Gains due to changes in foreign currency exchange rates	1,879	—		—
Interest income	168	185		228
	20,319	1,748		6,974
Finance costs
Losses due to changes in foreign currency exchange rates	—	(1,512	)	(382	)
	20,319	236		6,592

(37)



Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)


21	Supplemental disclosure of cash flow information



	Years ended December 31,
	2014		2013		2012
	$		$		$
Changes in operating assets and liabilities:
Trade and other receivables	(578	)	(3	)	2,526
Inventory	—		112		670
Prepaid expenses and other current assets	(2,453	)	(6,454	)	(4,154	)
Payables and accrued liabilities	1,732		(900	)	(2,447	)
Other non-current assets	(204	)	(124	)	(364	)
Deferred revenues	1,101		—		—
Provision for restructuring costs (note 14)	(687	)	—		—
Employee future benefits (note 19)	(621	)	(631	)	(556	)
Provisions and other non-current liabilities	(163	)	10		(49	)
	(1,873	)	(7,990	)	(4,374	)

During the year ended December 31, 2012, the Company paid approximately $259,000 in income taxes in the form of foreign jurisdiction withholding tax on payments received pursuant to the licensing agreement entered into with Yakult, as discussed in note 5 – Development, commercialization and license arrangements.

During the year ended December 31, 2014, the Company paid approximately $101,000 in income taxes in the form of foreign jurisdiction withholding tax on payments received pursuant to the agreements entered into with Sinopharm, as discussed in note 5 – Development, commercialization and license arrangements.


22	Income taxes

Significant components of current and deferred income tax expense:



	Years ended December 31,
	2014		2013		2012
	$		$		$
Current tax expense	111		—		—
Deferred tax:
Origination and reversal of temporary differences	10,246		(4,253	)	7,282
Adjustments in respect of prior years	5		418		44
Change in unrecognized tax assets	(10,251	)	3,835		(7,326	)
Income tax expense	111		—		—

(38)



Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)

The reconciliation of the combined Canadian federal and provincial income tax rate to the income tax expense is provided below:



	Years ended December 31,
	2014		2013		2012
Combined Canadian federal and provincial statutory income tax rate	26.9	%	26.9	%	26.9	%



	Years ended December 31,
	2014		2013		2012
	$		$		$
Income tax (expense) recovery based on combined statutory income tax rate	4,426		(1,833	)	5,494
Change in unrecognized tax assets	(10,251	)	3,835		(7,326	)
Permanent difference attributable to the use of local currency for tax reporting	145		(892	)	14
Permanent difference attributable to net change in fair value of warrant liability	4,408		(217	)	1,182
Share-based compensation costs	(133	)	(596	)	(421	)
Difference in statutory income tax rate of foreign subsidiaries	1,398		(809	)	997
Permanent difference attributable to unrealized foreign exchange gain/loss	18		131		(22	)
Foreign witholding tax	(111	)	—		—
Adjustments in respect of prior years	5		418		44
Other	(16	)	(37	)	38
	(111	)	—		—

Income tax expense of $111,000 for the year ended December 31, 2014 represents current taxation in the form of foreign jurisdiction tax withholdings on payments pursuant to the licensing agreement entered into with Sinopharm (note 5 – Development, commercialization and licensing arrangements).

Deferred income tax assets are recognized to the extent that the realization of the related tax benefit through reversal of temporary differences and future taxable profits is probable.

Income (loss) before income taxes

Income (loss) before income taxes is attributable to the Company's tax jurisdictions as follows:



	Years ended December 31,
	2014		2013		2012
	$		$		$
Germany	(29,672	)	(19,784	)	(23,690	)
Canada	12,867		(7,639	)	322
United States	(271	)	183		224
	(17,076	)	(27,240	)	(23,144	)

(39)



Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)

Significant components of deferred tax assets and liabilities:



	As at December 31,
	2014	2013
	$	$
Deferred tax assets
Non-current:
Operating losses carried forward	2,139	2,465
Intangible assets	7,918	10,080
	10,057	12,545
Deferred tax liabilities
Current:
Deferred revenues	941	1,262
	941	1,262
Non-current:
Property, plant and equipment	17	50
Deferred revenues	7,979	10,157
Warrant liability	1,116	1,076
Other	4	—
	9,116	11,283
	10,057	12,545
Deferred tax assets (liabilities), net	—	—

Significant components of unrecognized deferred tax assets are as follows:



	As at December 31,
	2014	2013
	$	$
Deferred tax assets
Current:
Onerous contract and other provisions	102	87
	102	87
Non-current:
Operating losses carried forward	62,094	59,813
Research and development costs	10,987	11,988
Unused tax credits	9,517	10,386
Employee future benefits	2,455	2,135
Property, plant and equipment	1,175	1,260
Share issue expenses	817	712
Onerous contract provisions	198	435
Intangible assets	227	248
Other	296	—
	87,766	86,977
Unrecognized deferred tax assets	87,868	87,064

(40)



Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)

As at December 31, 2014, amounts and expiry dates of tax attributes to be deferred for which no deferred tax asset was recognized were as follows:



	Canada
	Federal	Provincial
	$	$
2028	9,582	3,790
2029	5,716	5,694
2030	4,897	4,879
2031	2,091	2,073
2032	5,071	5,071
2033	4,439	4,439
2034	5,074	5,074
	36,870	31,020

The Company has estimated non-refundable R&D tax credits of approximately $9,517,000 which can be carried forward to reduce Canadian federal income taxes payable and which expire at dates ranging from 2018 to 2033. Furthermore, the Company has unrecognized tax assets in respect of operating losses to be carried forward in Germany and in the United States. The losses amount to approximately $167,837,000 in Germany, for which there is no expiry date and to $698,000 in the United States, which expire as follows:



		United States
		$
2028		369
2029		178
2034		151
		698

The operating loss carryforwards and the tax credits claimed are subject to review, and potential adjustment, by tax authorities.

Other deductible temporary differences for which tax assets have not been booked are not subject to a time limit, except for share issue expenses which are amortizable over five years.


23	Capital disclosures

The Company's objective in managing capital, consisting of shareholders' equity, with cash and cash equivalents and restricted cash equivalents being its primary components, is to ensure sufficient liquidity to fund R&D activities, SG&A expenses, working capital and capital expenditures.

Over the past several years, the Company has increasingly raised capital via public equity offerings and drawdowns under various ATM sales programs as our primary source of liquidity, as discussed in note 17 – Share capital.

The capital management objective of the Company remains the same as that in previous periods. The policy on dividends is to retain cash to keep funds available to finance the activities required to advance the Company's product development portfolio and to pursue appropriate commercial opportunities as they may arise.

The Company is not subject to any capital requirements imposed by any regulators or by any other external source.

(41)



Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)


24	Financial instruments and financial risk management

Financial assets (liabilities) as at December 31, 2014 and December 31, 2013 are presented below.



December 31, 2014	Loans and receivables	Financial liabilities at FVTPL		Other financial liabilities		Total
	$	$		$		$
Cash and cash equivalents (note 7)	34,931	—		—		34,931
Trade and other receivables (note 8)	796	—		—		796
Restricted cash equivalents (note 9)	760	—		—		760
Payables and accrued liabilities (note 13)	—	—		(5,256	)	(5,256	)
Provision for restructuring costs (note 14)	—	—		(1,105	)	(1,105	)
Warrant liability (note 15)	—	(8,225	)	—		(8,225	)
Other non-current liabilities (note 16)	—	—		(130	)	(130	)
	36,487	(8,225	)	(6,491	)	21,771



December 31, 2013	Loans and receivables	Financial liabilities at FVTPL		Other financial liabilities		Total
	$	$		$		$
Cash and cash equivalents (note 7)	43,202	—		—		43,202
Trade and other receivables (note 8)	1,899	—		—		1,899
Restricted cash equivalents (note 9)	865	—		—		865
Payables and accrued liabilities (note 13)	—	—		(6,687	)	(6,687	)
Warrant liability (note 15)	—	(18,010	)	—		(18,010	)
Other non-current liabilities (note 16)	—	—		(140	)	(140	)
	45,966	(18,010	)	(6,827	)	21,129

Fair value

The Black-Scholes valuation methodology uses "Level 2" inputs in calculating fair value, as defined in IFRS 7, which establishes a hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The input levels discussed in IFRS 7 are:


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


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


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

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

(42)



Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)

Financial risk factors

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


(a)	Credit risk

Credit risk is the risk of an unexpected loss if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Company regularly monitors credit risk exposure and takes steps to mitigate the likelihood of this exposure resulting in losses. The Company's exposure to credit risk currently relates to cash and cash equivalents, trade and other receivables and restricted cash equivalents. The Company holds its available cash in amounts that are readily convertible to known amounts of cash and deposits its cash balances with financial institutions that are rated the equivalent of "Baa1" and above. This information is supplied by independent rating agencies where available and, if not available, the Company uses publicly available financial information to ensure that it invests its cash in creditworthy and reputable financial institutions.

As at December 31, 2014, trade accounts receivable for an amount of approximately $289,000 were with three counterparties.

As at December 31, 2014, no trade accounts receivable were past due or impaired.

Generally, the Company does not require collateral or other security from customers for trade accounts receivable; however, credit is extended following an evaluation of creditworthiness. In addition, the Company performs ongoing credit reviews of all of its customers and establishes an allowance for doubtful accounts when accounts are determined to be uncollectible.

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


(b)	Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. As indicated in note 23 – Capital disclosures, the Company manages this risk through the management of its capital structure. It also manages liquidity risk by continuously monitoring actual and projected cash flows. The Board of Directors reviews and approves the Company's operating and capital budgets, as well as any material transactions occurring outside of the ordinary course of business. The Company has adopted an investment policy in respect of the safety and preservation of its capital to ensure the Company's liquidity needs are met. The instruments are selected with regard to the expected timing of expenditures and prevailing interest rates.

The Company expects to continue to incur operating expenses and may require significant capital to fulfill its future obligations in absence of sufficient corresponding revenues. The Company's ability to continue future operations beyond December 31, 2015 and to fund its activities is dependent on its ability to secure additional financings, which may be completed in a number of ways, including but not limited to licensing arrangements, partnerships, promotional arrangements, the issuance of securities and other financing activities. Management will pursue such additional sources of financing when required, and while the Company has been successful in securing financing in the past, there can be no assurance it will be able to do so in the future or that these sources of funding or initiatives will be available or on terms acceptable to the Company.


(c)	Market risk

Share price risk

The change in fair value of the Company's warrant liability, which is measured at FVTPL, results from the periodic "mark-to-market" revaluation, via the application of the Black-Scholes option pricing model, of currently outstanding share purchase warrants. The Black-Scholes valuation is impacted, among other inputs, by the market

(43)



Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)

price of the Company's common shares. As a result, the change in fair value of the warrant liability, which is reported as finance income (costs) in the accompanying consolidated statements of comprehensive (loss) income, has been and may continue in future periods to be materially affected most notably by changes in the Company's common share closing price, which on the NASDAQ, has ranged from $0.52 to $1.50 during the year ended December 31, 2014.

If variations in the market price of our common shares of -10% and +10% were to occur, the impact on the Company's net (loss) income related to the warrant liability held at December 31, 2014 would be as follows:



	Carrying amount	-10%	+10%
	$	$	$
Warrant liability	8,225	1,117	(1,147	)
Total impact on net loss – decrease / (increase)		1,117	(1,147	)

Foreign currency risk

Since the Company operates internationally, it is exposed to currency risks as a result of potential exchange rate fluctuations related to non-intragroup transactions. In particular, fluctuations in the US dollar exchange rates against the EUR could have a potentially significant impact on the Company's results of operations.

If foreign exchange rate variations of -5% (depreciation of the EUR) and +5% (appreciation of the EUR) against the US$, from period-end rates of EUR1 = US$1.2101 were to occur, the impact on the Company's net (loss) income for each significant category of financial instruments held at December 31, 2014 would be as follows:



		Balances denominated in US$
	Carrying amount	-5%		+5%
	$	$		$
Cash and cash equivalents	25,184	1,259		(1,259	)
Warrant liability	8,225	(411	)	411
Total impact on net loss – decrease / (increase)		848		(848	)


25	Commitments and contingencies

The Company is committed to various operating leases for its premises. Expected future minimum lease payments and future minimum sublease receipts under non-cancellable operating leases (subleases), as well as future payments in connection with utility service agreements, as at December 31, 2014 are as follows:



	Minimum lease payments	Minimum sublease receipts
	$	$
Less than 1 year	1,678	(392	)
1 - 3 years	1,352	(493	)
4 - 5 years	325	(19	)
Total	3,355	(904	)

The Company is party to a lease arrangement in Germany for laboratory, office and storage space. The original term of the lease is ten years, expiring in March 2016, and the lease has an automatic renewal provision if not terminated by the Company at least 12 months prior to expiry. Over the lease term, minimum lease payments may be increased or decreased based on fluctuations in the German consumer price index. The Company does not expect to allow the lease

(44)



Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)

arrangement to automatically renew and is examining options for alternative space to accommodate remaining German-based staff. As such, the minimum lease payments presented above exclude any lease payments for the Company's German subsidiary beyond March 2016.

As discussed in note 9 – Restricted cash equivalents, the Company transferred approximately $760,000 to a restricted cash account in support of the aforementioned lease arrangement. Upon expiry of the underlying arrangement, the restricted funds will be released and made available for current operating purposes.

In October 2007, the Company entered into a $100,000 letter of credit agreement in favour of a landlord in the United States with respect to the Company's long-term lease obligation. In August 2009 and November 2011, the amount of the letter of credit was reduced to $75,000 and $50,000, respectively, as per the original landlord-tenant agreement, and is payable to the landlord in the event that the Company fails to perform any of its obligations under the related lease agreement.

Contingencies

In the normal course of operations, the Company may become involved in various claims and legal proceedings related to, for example, contract terminations and employee-related and other matters. No contingent liabilities have been accrued as at December 31, 2014 or 2013.

Class Action Lawsuit

The Company and certain of its current and former officers are defendants in a purported class-action lawsuit pending in the United States District Court for the District of New Jersey, brought on behalf of stockholders of the Company. The lawsuit, which was filed on November 11, 2014, alleges violations of the Securities Exchange Act of 1934 in connection with allegedly false and misleading statements made by the defendants between April 2, 2012 and November 6, 2014, or the Class Period, regarding the safety and efficacy of Macrilen™, a product that the Company developed for use in the diagnosis of adult growth hormone deficiency, and the prospects for the approval of the Company's new drug application for the product by the U.S. Food and Drug Administration. The plaintiffs seek to represent a class comprised of purchasers of the Company's common shares during the Class Period and seek damages, costs and expenses and such other relief as determined by the court.

The Company's directors' and officers' insurance policies ("D&O Insurance") provide for reimbursement of costs and expenses incurred in connection with this lawsuit, including legal and professional fees, as well as potential damages awarded, if any, subject to certain policy restrictions, limits and deductibles. The Company believes that the D&O Insurance covers the lawsuit; however, the insurers have reserved their rights to raise all of the rights, entitlements and defences available to them under the D&O Insurance. If the D&O Insurance does cover the lawsuit, the Company will be required to pay legal and professional fees, as well as potential damages awarded in an amount equal to a substantial self-insured retention. Legal and professional fees are expensed as incurred and no reserve is established for them.

While the Company believes that it has meritorious defenses and intends to defend this lawsuit vigorously, it cannot predict the outcome. Accordingly, the Company has not recorded any liability related to the lawsuit. No assurance can be given with respect to the ultimate outcome of such proceedings, and the amount of any damages awarded in such lawsuit could be substantial.

(45)



Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)


26	Net (loss) income per share

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



	Years ended December 31,
	2014		2013		2012
	$		$		$
Net loss from continuing operations	(17,187	)	(27,240	)	(23,144	)
Net income from discontinued operations	623		34,055		2,732
Net (loss) income	(16,564	)	6,815		(20,412	)
Basic weighted average number of shares outstanding	59,024,730		29,476,455		19,775,073
Dilutive effect of stock options	—		—		31,614
Diluted weighted average number of shares outstanding	59,024,730		29,476,455		19,806,687
Items excluded from the calculation of diluted net (loss) income per share because the exercise price was greater than the average market price of the common shares or due to their anti-dilutive effect
Stock options	2,324,175		2,115,453		1,183,388
Warrants (number of equivalent shares)	28,785,189		7,141,879		1,803,730

For the year ended December 31, 2012, the diluted net loss per share was the same as the basic net loss per share, since the effect of the assumed exercise of stock options and warrants to purchase common shares is anti-dilutive. Accordingly, the diluted net loss per share for this period was calculated using the basic weighted average number of shares outstanding.

The weighted average number of shares is influenced most notably by share issuances made in connection with financing activities, such as registered direct and public offerings and ATM drawdowns, which resulted in the issuance of a total of 20,197,068 (see note 17 – Share capital), 19,982,721 and 7,790,973 common shares during the years ended December 31, 2014, 2013 and 2012, respectively. See also note 28 – Subsequent events.


27	Segment information

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

Geographical information

The Company is domiciled in Canada and, for the three years ended December 31, 2014, has derived all of its revenues from its operating subsidiaries domiciled in Germany.

(46)



Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)

Revenues by geographical area are detailed as follows:



	Years ended December 31,
	2014	2013	2012
	$	$	$
United States	6	33,640	5,158
Switzerland	956	34,081	24,406
Japan	61	6,586	4,062
Other	25	212	39
	1,048	74,519	33,665
Amounts presented:
Within discontinued operations	1,037	68,344	31,612
Within continuing operations	11	6,175	2,053
	1,048	74,519	33,665

Revenues have been allocated to geographic regions based on the country of residence of the Company's external customers or partners.

Non-current assets* by geographical area are detailed as follows:



	As at December 31,
	2014	2013
	$	$
Germany	9,778	11,928
United States	—	16
Canada	58	7
	9,836	11,951

_________________________

* Non-current assets include property, plant and equipment, identifiable intangible assets and goodwill.

Major customers representing 10% or more of the Company's revenues in each of the last three years are as follows:



	Years ended December 31,
	2014	2013	2012
	$	$	$
Company 1*	956	34,081	24,406
Company 2*	—	33,640	4,175
Company 3	—	5,952	1,040

_________________________

* Related to the Cetrotide^® Business (see note 6 – Discontinued operations).

(47)



Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)


28	Subsequent events

On March 11, 2015, the Company completed a public offering of 59,677,420 units (the "Units"), generating net proceeds of approximately $34.5 million, with each Unit consisting of either one common share or one warrant to purchase one common share ("Series C Warrant"), 0.75 of a warrant to purchase one common share ("Series A Warrant") and 0.50 of a warrant to purchase one common share ("Series B Warrant"), at a purchase price of $0.62 per Unit (the "March 2015 Offering"). The Series A Warrants are exercisable for a period of five years at an exercise price of $0.81 per share, and the Series B Warrants are exercisable for a period of 18 months at an exercise price of $0.81 per share. Both the Series A and Series B warrants are subject to certain anti-dilution provisions. The Series C Warrants are exercisable for a period of five years at an exercise price of $0.62 per share. Total gross proceeds payable to the Company in connection with the exercise of the Series C Warrants have been pre-paid by investors and therefore are included in the aforementioned proceeds.

In connection with the March 2015 Offering, the holders of 21,123,332 of the 21,900,000 outstanding warrants issued by the Company in connection with the November 2013 Offering and the January 2014 Offering entered into an amendment agreement that caused such previously issued warrants to expire and terminate in exchange of a cash payment made by the Company in the aggregate amount of approximately $5.7 million.

(48)

Aeterna Zentaris (NASDAQ:AEZS)
Historical Stock Chart
From Mar 2024 to Apr 2024

Click Here for more Aeterna Zentaris Charts.

Aeterna Zentaris (NASDAQ:AEZS)
Historical Stock Chart
From Apr 2023 to Apr 2024

Market Data

News

Trading Tools

Markets

Discover

Hot Features

Follow Feed

Options Flow

Monitor

AEZS Aeterna Zentaris Inc

Latest AEZS Messages

Loading Messages....

Aeterna Zentaris Inc. News

Loading Messages....

Your Recent History

Company

Business

Popular

Get The App

Trending Now

Toplists

Market Data

News

Trading Tools

Markets

Discover

Hot Features

Follow Feed

Options Flow

Monitor

AEZS Aeterna Zentaris Inc

Latest AEZS Messages

Loading Messages....

Aeterna Zentaris Inc. News

Loading Messages....

Your Recent History

Company

Business

Popular

Get The App