Filed
pursuant to Rule 424(b)(3)
Registration
No. 333-239019
PROSPECTUS
SUPPLEMENT NO. 1
6,177,174
Common Shares
Aeterna
Zentaris Inc.
This
Prospectus Supplement No. 1 (this “Prospectus Supplement”) amends and supplements our Prospectus dated June 16, 2020
(the “Prospectus”), which forms a part of our Registration Statement (our “Registration Statement”) on
Form F-1 (Registration No. 333-239019). This Prospectus Supplement is being filed to amend and supplement the information included
or incorporated by reference in the Prospectus with the information contained in this Prospectus Supplement. The Prospectus and
this Prospectus Supplement relate to the resale of up to 6,177,174 of our common shares issuable upon exercise of certain outstanding
warrants.
This
Prospectus Supplement includes information from our Reports on Form 6-K, which were furnished with the Securities and Exchange
Commission on August 6, 2020 and October 7, 2020.
This
Prospectus Supplement should be read in conjunction with the Prospectus that was previously delivered, except to the extent that
the information in this Prospectus Supplement updates and supersedes the information contained in the Prospectus.
Neither
the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or
passed upon the adequacy or accuracy of this Prospectus Supplement or the Prospectus. Any representation to the contrary is a
criminal offense.
The
date of this Prospectus Supplement is October [21], 2020.
Exhibit
99.1
Condensed
Interim Consolidated Financial Statements
As
at JUNE 30, 2020 and for the three-month AND SIX-MONTH periodS ended JUNE 30, 2020 and 2019
(In
thousands of US dollars)
(Unaudited)
Condensed
Interim Consolidated Financial Statements
As
at JUNE 30, 2020 and for the three-month AND SIX-MONTH periodS ended JUNE 30, 2020 and 2019
(Unaudited)
Condensed
Interim Consolidated Statements of Financial Position
(In
thousands of US dollars)
(Unaudited)
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
|
|
|
$
|
|
|
|
$
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
6,743
|
|
|
|
7,838
|
|
Trade and other receivables (note 5)
|
|
|
814
|
|
|
|
658
|
|
Inventory
|
|
|
375
|
|
|
|
1,203
|
|
Prepaid expenses and other current assets (note 21)
|
|
|
1,123
|
|
|
|
1,211
|
|
Total current assets
|
|
|
9,055
|
|
|
|
10,910
|
|
Restricted cash equivalents
|
|
|
313
|
|
|
|
364
|
|
Right of use assets (note 6)
|
|
|
190
|
|
|
|
582
|
|
Property, plant and equipment
|
|
|
25
|
|
|
|
35
|
|
Identifiable intangible assets
|
|
|
32
|
|
|
|
40
|
|
Goodwill (note 7)
|
|
|
8,054
|
|
|
|
8,050
|
|
Total assets
|
|
|
17,669
|
|
|
|
19,981
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Payables and accrued liabilities (note 8)
|
|
|
1,697
|
|
|
|
2,148
|
|
Provision for restructuring and other costs (note 9)
|
|
|
107
|
|
|
|
418
|
|
Income taxes payable
|
|
|
—
|
|
|
|
1,448
|
|
Current portion of deferred revenues
|
|
|
596
|
|
|
|
991
|
|
Current portion of lease liabilities (note 10)
|
|
|
119
|
|
|
|
648
|
|
Current portion of warrant liability (note 11)
|
|
|
12
|
|
|
|
6
|
|
Total current liabilities
|
|
|
2,531
|
|
|
|
5,659
|
|
Deferred revenues
|
|
|
148
|
|
|
|
185
|
|
Lease liabilities (note 10)
|
|
|
103
|
|
|
|
255
|
|
Warrant liability (note 11)
|
|
|
—
|
|
|
|
2,249
|
|
Employee future benefits (note 12)
|
|
|
13,678
|
|
|
|
13,788
|
|
Non-current provision for restructuring and other costs (note 9)
|
|
|
278
|
|
|
|
308
|
|
Total liabilities
|
|
|
16,738
|
|
|
|
22,444
|
|
SHAREHOLDERS’ EQUITY (DEFICIENCY)
|
|
|
|
|
|
|
|
|
Share capital
|
|
|
226,724
|
|
|
|
224,528
|
|
Warrants (note 13)
|
|
|
4,237
|
|
|
|
—
|
|
Other capital
|
|
|
89,467
|
|
|
|
89,806
|
|
Deficit
|
|
|
(319,592
|
)
|
|
|
(316,891
|
)
|
Accumulated other comprehensive income (“AOCI”)
|
|
|
95
|
|
|
|
94
|
|
Total shareholders’ equity (deficiency)
|
|
|
931
|
|
|
|
(2,463
|
)
|
Total liabilities and shareholders’ equity (deficiency)
|
|
|
17,669
|
|
|
|
19,981
|
|
Commitments
and contingencies (note 20)
Subsequent
events (note 21)
The
accompanying notes are an integral part of these condensed interim consolidated financial statements.
Approved
by the Board of Directors
/s/
Carolyn Egbert
|
|
/s/
Pierre-Yves Desbiens
|
Carolyn
Egbert
Chair
of the Board
|
|
Pierre-Yves
Desbiens
Director
|
Condensed
Interim Consolidated Statements of Changes in Shareholders’ Equity (Deficiency)
For
the three MONTHS ended june 30, 2020 and 2019
(In
thousands of US dollars, unaudited)
|
|
Common shares (number of)
|
|
|
Share capital
|
|
|
Warrants
|
|
|
Other capital
|
|
|
Deficit
|
|
|
AOCI
|
|
|
Total
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
Balance - April 1, 2020
|
|
|
23,472,771
|
|
|
|
226,413
|
|
|
|
—
|
|
|
|
89,694
|
|
|
|
(314,724
|
)
|
|
|
304
|
|
|
|
1,687
|
|
Net (loss)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,450
|
)
|
|
|
—
|
|
|
|
(3,450
|
)
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(209
|
)
|
|
|
(209
|
)
|
Actuarial (loss) on defined benefit plan (note 12)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,418
|
)
|
|
|
—
|
|
|
|
(1,418
|
)
|
Comprehensive (loss)
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(4,868
|
)
|
|
|
(209
|
)
|
|
|
(5,077
|
)
|
Reclassification of warrant liability to equity (note 11(b))
|
|
|
—
|
|
|
|
—
|
|
|
|
4,237
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,237
|
|
Issuance of common shares, net (note 13)
|
|
|
111,300
|
|
|
|
311
|
|
|
|
—
|
|
|
|
(362
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(51
|
)
|
Share-based compensation costs (note 14)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
135
|
|
|
|
—
|
|
|
|
—
|
|
|
|
135
|
|
Balance – June 30, 2020
|
|
|
23,584,071
|
|
|
|
226,724
|
|
|
|
4,237
|
|
|
|
89,467
|
|
|
|
(319,592
|
)
|
|
|
95
|
|
|
|
931
|
|
|
|
Common shares (number of)
|
|
|
Share capital
|
|
|
Warrants
|
|
|
Other capital
|
|
|
Deficit
|
|
|
AOCI
|
|
|
Total
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
Balance - April 1, 2019
|
|
|
16,440,760
|
|
|
|
222,335
|
|
|
|
—
|
|
|
|
89,437
|
|
|
|
(315,427
|
)
|
|
|
95
|
|
|
|
(3,560
|
)
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
206
|
|
|
|
—
|
|
|
|
206
|
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(110
|
)
|
|
|
(110
|
)
|
Actuarial (loss) on defined benefit plan (note 12)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(756
|
)
|
|
|
—
|
|
|
|
(756
|
)
|
Comprehensive (loss)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(550
|
)
|
|
|
(110
|
)
|
|
|
(660
|
)
|
Issuance of common shares
|
|
|
191,650
|
|
|
|
805
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
805
|
|
Share-based compensation costs
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
387
|
|
|
|
—
|
|
|
|
—
|
|
|
|
387
|
|
Balance – June 30, 2019
|
|
|
16,632,410
|
|
|
|
223,140
|
|
|
|
—
|
|
|
|
89,824
|
|
|
|
(315,977
|
)
|
|
|
(15
|
)
|
|
|
(3,028
|
)
|
Condensed
Interim Consolidated Statements of Changes in Shareholders’ Equity (Deficiency)
For
the six months ended june 30, 2020 and 2019
(In
thousands of US dollars, unaudited)
|
|
Common shares (number of)
|
|
|
Share capital
|
|
|
Warrants
|
|
|
Other capital
|
|
|
Deficit
|
|
|
AOCI
|
|
|
Total
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
Balance - January 1, 2020
|
|
|
19,994,510
|
|
|
|
224,528
|
|
|
|
—
|
|
|
|
89,806
|
|
|
|
(316,891
|
)
|
|
|
94
|
|
|
|
(2,463
|
)
|
Net (loss)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,671
|
)
|
|
|
—
|
|
|
|
(2,671
|
)
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
1
|
|
|
|
1
|
|
Actuarial (loss) on defined benefit plan (note 12)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
(30
|
)
|
|
|
—
|
|
|
|
(30
|
)
|
Comprehensive (loss)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,701
|
)
|
|
|
1
|
|
|
|
(2,700
|
)
|
Reclassification of warrants upon registration (note 11(b))
|
|
|
—
|
|
|
|
—
|
|
|
|
4,237
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,237
|
|
Issuance of common shares and warrants, net (note 13 and note 11(a), respectively)
|
|
|
3,589,561
|
|
|
|
2,196
|
|
|
|
—
|
|
|
|
(362
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
1,834
|
|
Share-based compensation costs (note 14)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
23
|
|
|
|
—
|
|
|
|
—
|
|
|
|
23
|
|
Balance – June 30, 2020
|
|
|
23,584,071
|
|
|
|
226,724
|
|
|
|
4,237
|
|
|
|
89,467
|
|
|
|
(319,592
|
)
|
|
|
95
|
|
|
|
931
|
|
|
|
Common shares (number of)
|
|
|
Share capital
|
|
|
Warrants
|
|
|
Other capital
|
|
|
Deficit
|
|
|
AOCI
|
|
|
Total
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
Balance - January 1, 2019
|
|
|
16,440,760
|
|
|
|
222,335
|
|
|
|
—
|
|
|
|
89,342
|
|
|
|
(309,781
|
)
|
|
|
11
|
|
|
|
1,907
|
|
Net (loss)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(4,705
|
)
|
|
|
—
|
|
|
|
(4,705
|
)
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(26
|
)
|
|
|
(26
|
)
|
Actuarial (loss) on defined benefit plan (note 12)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,491
|
)
|
|
|
—
|
|
|
|
(1,491
|
)
|
Comprehensive (loss)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(6,196
|
)
|
|
|
(26
|
)
|
|
|
(6,222
|
)
|
Issuance of common shares
|
|
|
191,650
|
|
|
|
805
|
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
805
|
|
Share-based compensation costs
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
482
|
|
|
|
—
|
|
|
|
—
|
|
|
|
482
|
|
Balance – June 30, 2019
|
|
|
16,632,410
|
|
|
|
223,140
|
|
|
|
—
|
|
|
|
89,824
|
|
|
|
(315,977
|
)
|
|
|
(15
|
)
|
|
|
(3,028
|
)
|
The
accompanying notes are an integral part of these condensed interim consolidated financial statements.
Condensed
Interim Consolidated Statements of Comprehensive Loss
For
the three AND SIX months ended JUNE 30, 2020 and 2019
(In
thousands of US dollars, except share and per share data)
(Unaudited)
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
June 30
|
|
|
June 30
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
Revenues (note 4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty income
|
|
|
10
|
|
|
|
8
|
|
|
|
24
|
|
|
|
21
|
|
Product sales
|
|
|
—
|
|
|
|
129
|
|
|
|
1,016
|
|
|
|
129
|
|
Supply chain
|
|
|
40
|
|
|
|
39
|
|
|
|
81
|
|
|
|
45
|
|
Licensing revenue
|
|
|
18
|
|
|
|
18
|
|
|
|
37
|
|
|
|
36
|
|
Total revenues
|
|
|
68
|
|
|
|
194
|
|
|
|
1,158
|
|
|
|
231
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
12
|
|
|
|
101
|
|
|
|
874
|
|
|
|
101
|
|
Research and development costs
|
|
|
189
|
|
|
|
571
|
|
|
|
508
|
|
|
|
1,099
|
|
General and administrative expenses
|
|
|
1,141
|
|
|
|
1,923
|
|
|
|
2,265
|
|
|
|
3,560
|
|
Selling expenses
|
|
|
199
|
|
|
|
495
|
|
|
|
447
|
|
|
|
799
|
|
Restructuring costs (note 9)
|
|
|
—
|
|
|
|
773
|
|
|
|
—
|
|
|
|
773
|
|
Impairment of right of use asset
|
|
|
—
|
|
|
|
64
|
|
|
|
—
|
|
|
|
401
|
|
Gain on modification of building lease (notes 6 and 10)
|
|
|
(34
|
)
|
|
|
—
|
|
|
|
(219
|
)
|
|
|
—
|
|
Impairment of prepaid asset
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
169
|
|
Total operating expenses (note 14)
|
|
|
1,507
|
|
|
|
3,927
|
|
|
|
3,875
|
|
|
|
6,902
|
|
Loss from operations
|
|
|
(1,439
|
)
|
|
|
(3,733
|
)
|
|
|
(2,717
|
)
|
|
|
(6,671
|
)
|
Gain (loss) due to changes in foreign currency exchange rates
|
|
|
130
|
|
|
|
(6
|
)
|
|
|
26
|
|
|
|
58
|
|
(Loss) gain on change in fair value of warrant liability (note 11)
|
|
|
(2,139
|
)
|
|
|
3,926
|
|
|
|
331
|
|
|
|
1,865
|
|
Other finance (costs) income
|
|
|
(2
|
)
|
|
|
19
|
|
|
|
(311
|
)
|
|
|
43
|
|
Net finance (costs) income
|
|
|
(2,011
|
)
|
|
|
3,939
|
|
|
|
46
|
|
|
|
1,966
|
|
Net (loss) income
|
|
|
(3,450
|
)
|
|
|
206
|
|
|
|
(2,671
|
)
|
|
|
(4,705
|
)
|
Other comprehensive (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items that may be reclassified subsequently to profit or loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
(209
|
)
|
|
|
(110
|
)
|
|
|
1
|
|
|
|
(26
|
)
|
Items that will not be reclassified to profit or loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial (loss) on defined benefit plans (note 12)
|
|
|
(1,418
|
)
|
|
|
(756
|
)
|
|
|
(30
|
)
|
|
|
(1,491
|
)
|
Comprehensive (loss)
|
|
|
(5,077
|
)
|
|
|
(660
|
)
|
|
|
(2,700
|
)
|
|
|
(6,222
|
)
|
Net (loss) income per share [basic and diluted]
|
|
|
(0.15
|
)
|
|
|
0.01
|
|
|
|
(0.12
|
)
|
|
|
(0.28
|
)
|
Weighted average number of shares outstanding (note 19):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
23,515,579
|
|
|
|
16,622,415
|
|
|
|
22,519,497
|
|
|
|
16,532,090
|
|
Diluted
|
|
|
23,515,579
|
|
|
|
17,260,016
|
|
|
|
22,519,497
|
|
|
|
16,532,090
|
|
The
accompanying notes are an integral part of these condensed interim consolidated financial statements.
Condensed
Interim Consolidated Statements of Cash Flows
For
the three AND SIX months ended june 30, 2020 and 2019
(In
thousands of US dollars, except share and per share data)
(Unaudited)
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income for the period
|
|
|
(3,450
|
)
|
|
|
206
|
|
|
|
(2,671
|
)
|
|
|
(4,705
|
)
|
Items not affecting cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss (gain) on change in fair value of warrant liability (note 11)
|
|
|
2,139
|
|
|
|
(3,926
|
)
|
|
|
(331
|
)
|
|
|
(1,865
|
)
|
Transaction costs of warrants issued and expensed as finance cost
|
|
|
—
|
|
|
|
—
|
|
|
|
310
|
|
|
|
—
|
|
Provision for restructuring costs utilized (note 9)
|
|
|
(21
|
)
|
|
|
790
|
|
|
|
(348
|
)
|
|
|
773
|
|
Depreciation and amortization
|
|
|
39
|
|
|
|
70
|
|
|
|
146
|
|
|
|
136
|
|
Impairment of right of use asset
|
|
|
—
|
|
|
|
64
|
|
|
|
—
|
|
|
|
401
|
|
Impairment of prepaid asset
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
169
|
|
Gain on modification of building lease (notes 6 and 10)
|
|
|
(34
|
)
|
|
|
—
|
|
|
|
(219
|
)
|
|
|
—
|
|
Share-based compensation costs
|
|
|
89
|
|
|
|
595
|
|
|
|
(23
|
)
|
|
|
690
|
|
Employee future benefits (note 12)
|
|
|
50
|
|
|
|
2
|
|
|
|
99
|
|
|
|
136
|
|
Amortization of deferred revenues
|
|
|
(23
|
)
|
|
|
(18
|
)
|
|
|
(37
|
)
|
|
|
(36
|
)
|
Foreign exchange (loss) on items denominated in foreign currencies
|
|
|
(84
|
)
|
|
|
(4
|
)
|
|
|
(32
|
)
|
|
|
(49
|
)
|
Gain on disposal of property, plant and equipment
|
|
|
(2
|
)
|
|
|
—
|
|
|
|
(2
|
)
|
|
|
(3
|
)
|
Other non-cash items
|
|
|
22
|
|
|
|
—
|
|
|
|
7
|
|
|
|
—
|
|
Interest accretion on lease liabilities (note 10)
|
|
|
(4
|
)
|
|
|
(18
|
)
|
|
|
(15
|
)
|
|
|
(38
|
)
|
Payment of income taxes
|
|
|
(637
|
)
|
|
|
—
|
|
|
|
(1,448
|
)
|
|
|
—
|
|
Changes in operating assets and liabilities (note 15)
|
|
|
(494
|
)
|
|
|
69
|
|
|
|
(290
|
)
|
|
|
(785
|
)
|
Net cash used in operating activities
|
|
|
(2,410
|
)
|
|
|
(2,170
|
)
|
|
|
(4,854
|
)
|
|
|
(5,176
|
)
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common shares and warrants (notes 13 and 11, respectively)
|
|
|
—
|
|
|
|
314
|
|
|
|
4,500
|
|
|
|
314
|
|
Transaction costs (note 13)
|
|
|
(11
|
)
|
|
|
—
|
|
|
|
(611
|
)
|
|
|
—
|
|
Payments on lease liabilities (note 10)
|
|
|
(41
|
)
|
|
|
(159
|
)
|
|
|
(199
|
)
|
|
|
(310
|
)
|
Net cash provided by (used in) financing activities
|
|
|
(52
|
)
|
|
|
155
|
|
|
|
3,690
|
|
|
|
4
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from disposal of property, plant and equipment
|
|
|
6
|
|
|
|
—
|
|
|
|
6
|
|
|
|
—
|
|
Change in restricted cash equivalents
|
|
|
50
|
|
|
|
—
|
|
|
|
50
|
|
|
|
50
|
|
Net cash provided by investing activities
|
|
|
56
|
|
|
|
—
|
|
|
|
56
|
|
|
|
50
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(33
|
)
|
|
|
341
|
|
|
|
13
|
|
|
|
293
|
|
Net change in cash and cash equivalents
|
|
|
(2,439
|
)
|
|
|
(1,674
|
)
|
|
|
(1,095
|
)
|
|
|
(4,829
|
)
|
Cash and cash equivalents – Beginning of period
|
|
|
9,182
|
|
|
|
11,357
|
|
|
|
7,838
|
|
|
|
14,512
|
|
Cash and cash equivalents – End of period
|
|
|
6,743
|
|
|
|
9,683
|
|
|
|
6,743
|
|
|
|
9,683
|
|
The
accompanying notes are an integral part of these condensed interim consolidated financial statements.
Notes
to Condensed Interim Consolidated Financial Statements
As
at JUNE 30, 2020 and for the three AND SIX months ended JUNE 30, 2020 and 2019
(amounts
in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted) (Unaudited)
1.
|
Summary
of business and liquidity and basis of preparation
|
Summary
of business and liquidity
Aeterna
Zentaris Inc. (“Aeterna Zentaris” or the “Company”) is a specialty biopharmaceutical company commercializing
and developing therapeutics and diagnostic tests. The Company’s lead product, Macrilen™ (macimorelin), is the first
and only United States Food and Drug Administration (“FDA”) and European Commission approved oral test indicated for
the diagnosis of patients with adult growth hormone deficiency (“AGHD”). Macrilen™ (macimorelin) is currently
marketed in the U.S. through a license and assignment agreement (the “License Agreement”) with Novo Nordisk A/S (“Novo”).
Aeterna Zentaris is also pursuing the development of macimorelin for the diagnosis of child-onset growth hormone deficiency (“CGHD”),
an area of significant unmet need. In addition, we are actively pursuing business development opportunities for the commercialization
of macimorelin in Europe and the rest of the world in addition to other non-strategic assets to monetize their value.
The
Company’s principal focus is on the commercialization of Macrilen™ (macimorelin) and it currently does not have any
other approved products. Under the terms of License Agreement, Novo is funding 70% of the pediatric clinical trial submitted to
the European Medicines Agency (“EMA”) and FDA, the Company’s sole development activity. In November 2019, Novo
contracted the Company’s wholly owned German subsidiary (“AEZS Germany”) to provide supply chain services for
the manufacture of Macrilen™ (macimorelin). In April 2020, we announced the results from AEZS-130-P01 (“Study P01”)
to establish a dose that can both be safely administered to pediatric patients and cause a clear rise in growth hormone concentration
in subjects ultimately diagnosed as not having growth hormone deficiency. The Company plans to proceed with the pivotal second
study, AEZS-130-P02 (“Study P02”), with an expected start date in the first quarter of 2021 and an expected completion
date in July 2022, according to the pediatric investigation plan (“PIP”) agreement with the EMA. Study P02 is designed
to investigate the diagnostic efficacy and safety of macimorelin acetate in pediatric patients from 2 years of age to 18 years
of age with suspected growth hormone deficiency.
Liquidity
As
at June 30, 2020, a substantial portion of the Company’s cash is held in AEZS Germany, the Company’s principle operating
subsidiary. AEZS Germany is the counter-party to the License Agreement described above with Novo, and as such, for generating
future revenue earned under the License Agreement. Management considers the cash resources available to AEZS Germany in executing
its obligations under the License Agreement. In the event the current and medium term liabilities of AEZS Germany exceed the fair
values ascribed to its assets, under German solvency laws, it may no longer be possible for AEZS Germany’s operations to
continue or for AEZS Germany to transfer cash to Aeterna Zentaris or its U.S. subsidiary, if needed.
COVID-19
impact
In
2020, the COVID-19 pandemic began causing significant financial market declines and social dislocation. The situation is dynamic
with various cities and countries around the world responding in different ways to address the outbreak. The spread of COVID-19
may impact the Company’s operations, including the potential interruption of our clinical trial activities and the Company’s
supply chain, or that of the Company’s licensee. For example, the COVID-19 outbreak may delay enrollment in the Company’s
clinical trials due to prioritization of hospital resources toward the outbreak, and some patients may be unwilling to be enrolled
in the Company’s trials or be unable to comply with clinical trial protocols if quarantines impede patient movement or interrupt
healthcare services, which would delay the Company’s ability to conduct clinical trials or release clinical trial results
and could delay the Company’s ability to obtain regulatory approval and commercialize the Company’s product candidates.
The pandemic may also impact the ability of the Company’s suppliers to deliver components or raw materials on a timely basis
or at all. In addition, hospitals may reduce staffing and reduce or postpone certain treatments in response to the spread of an
infectious disease. The Company’s licensee may be impacted due to significant delays of diagnostic activities in the U.S.
To date, the Company has not experienced significant business disruption from COVID-19.
Basis
of presentation
These
unaudited condensed interim consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards as issued by the International Accounting Standards Board (“IFRS”) applicable to the preparation of interim
financial statements, including IAS 34, Interim Financial Reporting. These unaudited condensed interim consolidated financial
statements should be read in conjunction with the Company’s annual consolidated financial statements as at and for the year
ended December 31, 2019.
These
unaudited condensed interim consolidated financial statements were approved by the Board of Directors (the “Board”)
on August 5, 2020.
The
accounting policies in these condensed interim consolidated financial statements are consistent with those presented in the Company’s
annual consolidated financial statements except as noted below:
Share
purchase warrants
The
Company accounts for share purchase warrants that meet the fixed-for-fixed criteria as equity-settled.
Deferred
share units
Deferred
share units (“DSUs) are classified as other capital. The Company grants DSUs to members of its Board of Directors who are
not employees or officers of the Company. DSUs cannot be redeemed until the holder is no longer a director of the Company and
are considered equity-settled instruments. Under the terms of the DSU agreement, the DSUs vest immediately upon grant. The value
attributable to the DSUs is based on the market value of the share price at the time of grant and share based compensation expense
is recognized in general and administrative expenses on the consolidated statements of loss and comprehensive (loss) income. At
the time of redemption, each DSU may be exchanged for one common share of the Company.
Any
consideration received by the Company in connection with the exercise of DSUs is credited to share capital. Any other capital
component of the share-based compensation is transferred to share capital upon the issuance of shares.
2.
|
Critical
accounting estimates and judgements
|
The
preparation of condensed interim consolidated financial statements in accordance with IFRS requires management to make judgments,
estimates and assumptions that affect the reported amounts of the Company’s assets, liabilities, revenues, expenses and
related disclosures. Judgments, estimates and assumptions are based on historical experience, expectations, current trends and
other factors that management believes to be relevant at the time at which the Company’s condensed interim consolidated
financial statements are prepared.
Management
reviews, on a regular basis, the Company’s accounting policies, assumptions, estimates and judgments in order to ensure
that the condensed interim consolidated financial statements are presented fairly and in accordance with IFRS. Revisions to accounting
estimates are recognized in the period in which the estimates are revised and in any future periods affected.
Measurement
uncertainty:
The
significant spread of COVID-19 within the U.S., Canada, Germany and elsewhere has resulted in a widespread health crisis and has
had adverse effects on local, national and global economies generally, the markets the Company serves, its operations and the
market price of its common shares.
Uncertain
factors, including the duration of the outbreak, the severity of the disease and the actions to contain or treat its impact, could
cause interruptions in the Company’s operations and supply chain, which could impact the Company’s ability to accurately
measure the net realizable value of inventory and fair value of trade and other receivables.
Critical
accounting estimates and assumptions, as well as critical judgments used in applying accounting policies in the preparation of
the Company’s condensed interim consolidated financial statements, were the same as those applied to the Company’s
annual consolidated financial statements as of December 31, 2019 and 2018 and for the years ended December 31, 2019 and 2018.
3.
|
Impact
of adoption of new IFRS standards in 2020
|
|
(a)
|
IAS
1 Presentation of financial statements and IAS 8 Accounting policies, changes in accounting estimates and errors (amendment)
|
The
amendments to IAS 1 and IAS 8 clarify the definition of material and seek to align the definition used in the Conceptual Framework
with that in the standards themselves as well as ensuring the definition of material is consistent across all IFRS. The Company
adopted these amendments effective January 1, 2020. The adoption of these amendments did not have a significant impact on the
Company’s condensed interim consolidated financial statements.
|
(b)
|
Conceptual
framework for financial reporting
|
Together
with the revised Conceptual Framework published in March 2018, the IASB also issued Amendments to References to the Conceptual
Framework in IFRS Standards. The Company adopted the Revised Conceptual Framework effective January 1, 2020. The adoption of these
amendments did not have a significant impact on the Company’s condensed interim consolidated financial statements.
IFRS
Pronouncements issued but not yet effective
|
(c)
|
IAS
1 – Presentation of financial statements
|
The
amendment to IAS 1 clarifies how to classify debt and other liabilities as either current or non-current. The amendment will be
effective for annual periods beginning on or after January 1, 2022. The Company is currently evaluating the new guidance and impacts
on its consolidated financial statements.
|
(d)
|
Annual
improvements to IFRS standards 2018-2020
|
The
annual improvements process addresses issues in the 2018-2020 reporting cycles including changes to IFRS 9, Financial Instruments,
IFRS 1, First Time adoption of IFRS, IFRS 16, Leases, and IAS 41, Biological Assets.
i)
The amendment to IFRS 9 addresses which fees should be included in the 10% test for derecognition of financial liabilities.
ii)
The amendment to IFRS 1 allows a subsidiary adopting IFRS at a later date than its parent to also measure cumulative translation
differences using the amounts reported by the parent based on the parent’s date of transition to IFRS.
iii)
The amendment to IFRS 16’s illustrative example 13 removes the illustration of payments from the lessor related to leasehold
improvements.
These
amendments will be effective for annual periods beginning on or after January 1, 2022. The Company is currently evaluating the
new guidance and impacts on its consolidated financial statements.
|
(e)
|
IAS
37 - Onerous contracts - Cost of fulfilling a contract
|
The
amendment to IAS 37 clarifies the meaning of costs to fulfil a contract and that before a separate provision for an onerous contract
is established, an entity recognizes any impairment loss that has occurred on assets used in fulfilling the contract, rather than
on assets dedicated to the contract. This amendment will be effective for annual periods beginning on or after January 1, 2022.
The Company is currently evaluating the new guidance and impacts on its consolidated financial statements.
|
(f)
|
IAS
16 - Proceeds before intended use
|
The
amendment to IAS 16 prohibits an entity from deducting from the cost of an item of Property, plant and equipment any proceeds
received from selling items produced while the entity is preparing the assets for its intended use (for example, the proceeds
from selling samples produced when testing a machine to see if it is functioning properly). It also clarifies that an entity is
testing whether the asset is functioning properly when it assesses the technical and physical performance of the asset. The amendment
also requires certain related disclosures. This amendment will be effective for annual periods beginning on or after January 1,
2022. The Company is currently evaluating the new guidance and impacts on its consolidated financial statements.
4.
|
Licensing
arrangement and supply chain agreement
|
On
January 16, 2018, the Company entered into the License Agreement which provides (i) for the “right to use” license
relating to the Adult Indication, (ii) for the right to acquire a license for the Pediatric Indication if and when the FDA approves
a pediatric indication, (iii) that the licensee is to fund 70% of the costs of a pediatric clinical trial submitted for approval
to the EMA under the agreed Pediatric Investigation Plan (“PIP”) studies to be run by the Company with customary oversight
from a joint steering committee (the “JSC”) and (iv) an interim supply arrangement (“Supply Arrangement”).
Strongbridge Ireland Limited (“Strongbridge”), effective December 19, 2018, sold the U.S. and Canadian rights to Macrilen™
(macimorelin) to Novo for a payment plus tiered royalties on net sales. The service agreement under which Novo agreed to fund
Strongbridge’s Macrilen™ (macimorelin) field organization as a contract field force to promote the product in the
U.S. was terminated as of December 1, 2019.
Following
Novo’s acquisition of the U.S. and Canadian rights to Macrilen™ (macimorelin), the JSC has met regularly to discuss
Novo’s commercialization plan for the U.S. and Canada, their supply chain needs and the enrollment of patients and protocols
of the two PIP studies. The Company expects that quarterly meetings will continue as forecasts for sales, inventory build and
needs for the PIP study progresses.
Royalty
income earned under the License Agreement for the six-month period ending June 30, 2020 was $24 (2019 - $21) and, during the six-month
period ended June 30, 2020, the Company invoiced Novo $310 for its share of PIP study costs (2019 - $621) that are recorded within
research and development costs on the condensed interim consolidated statements of comprehensive loss.
The
Company agreed, in the Supply Arrangement to the License Agreement, to supply ingredients for the manufacture of Macrilen™
(macimorelin) during an interim period at a price that is set ‘at cost’ without any profit margin. In November 2019,
Novo contracted AEZS Germany, to provide supply chain services including API batch production and delivery of certain API and
semi-finished goods, as well as the provision of ongoing support activities. During the six-month period ended June 30, 2020,
the Company invoiced Novo $85 for supply chain activities and recognized as revenue $81 (2019 – $33 invoiced and recognized
as revenue $45) and invoiced and recognized as revenue $1,016 in product sales (2019 - $806).
5.
|
Trade
and other receivables
|
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
|
|
|
$
|
|
|
|
$
|
|
Trade accounts receivable (net of expected credit losses of $60 (December 31, 2019 - $55))
|
|
|
121
|
|
|
|
210
|
|
Value added tax and income tax receivable
|
|
|
519
|
|
|
|
254
|
|
Other
|
|
|
174
|
|
|
|
194
|
|
|
|
|
814
|
|
|
|
658
|
|
|
|
Building
|
|
|
Vehicles and equipment
|
|
|
Total
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
At January 1, 2020
|
|
|
757
|
|
|
|
106
|
|
|
|
863
|
|
Modification of building lease
|
|
|
(259
|
)
|
|
|
—
|
|
|
|
(259
|
)
|
Disposals
|
|
|
—
|
|
|
|
(21
|
)
|
|
|
(21
|
)
|
Impact of foreign exchange rate changes
|
|
|
1
|
|
|
|
—
|
|
|
|
1
|
|
At June 30, 2020
|
|
|
499
|
|
|
|
85
|
|
|
|
584
|
|
|
|
Building
|
|
|
Vehicles and equipment
|
|
|
Total
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Accumulated Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
At January 1, 2020
|
|
|
242
|
|
|
|
39
|
|
|
|
281
|
|
Disposals
|
|
|
—
|
|
|
|
(20
|
)
|
|
|
(20
|
)
|
Depreciation
|
|
|
116
|
|
|
|
16
|
|
|
|
132
|
|
Impact of foreign exchange rate changes
|
|
|
1
|
|
|
|
—
|
|
|
|
1
|
|
At June 30, 2020
|
|
|
359
|
|
|
|
35
|
|
|
|
394
|
|
|
|
Building
|
|
|
Vehicles and equipment
|
|
|
Total
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Carrying amount
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2020
|
|
|
140
|
|
|
|
50
|
|
|
|
190
|
|
As at December 31, 2019
|
|
|
515
|
|
|
|
67
|
|
|
|
582
|
|
Upon
the renegotiation of the building lease agreement completed effective April 30, 2020 (note 10), a modification was recorded to
the building right of use asset in the amount of $259, representing the reduction in the square footage leased from the landlord.
The
change in carrying value is as follows:
|
|
Carrying amount
|
|
|
|
$
|
|
At January 1, 2019
|
|
|
8,210
|
|
Impact of foreign exchange rate changes
|
|
|
(160
|
)
|
At December 31, 2019
|
|
|
8,050
|
|
Impact of foreign exchange rate changes
|
|
|
4
|
|
At June 30, 2020
|
|
|
8,054
|
|
Management
evaluated goodwill for impairment based on the Company’s share price, which declined during the first quarter of 2020 and
remained low during the second quarter of 2020, and the Company’s declining cash balance from continuing losses to June
30, 2020. This assessment is based on fair value less costs of disposal based on the Company’s market capitalization at
June 30, 2020, its issued and outstanding common shares less estimated cost of disposal of approximately $1,132. There was no
impairment assessed at June 30, 2020.
8.
|
Payables
and accrued liabilities
|
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
|
|
$
|
|
|
$
|
|
Trade accounts payable
|
|
|
436
|
|
|
|
1,087
|
|
Salaries, employment taxes and benefits
|
|
|
132
|
|
|
|
64
|
|
Accrued audit fees
|
|
|
208
|
|
|
|
216
|
|
PIP study payables
|
|
|
3
|
|
|
|
118
|
|
Accrued severance
|
|
|
171
|
|
|
|
427
|
|
Accrued offering costs (note 21)
|
|
|
480
|
|
|
|
—
|
|
Other accrued liabilities
|
|
|
267
|
|
|
|
236
|
|
|
|
|
1,697
|
|
|
|
2,148
|
|
9.
|
Provision
for restructuring and other costs
|
On
June 6, 2019, the Company announced that it was reducing the size of its German workforce to more closely reflect the Company’s
ongoing commercial activities in Frankfurt. AEZS Germany and its Works Council approved a restructuring that affected 8 employees
that was completed by January 31, 2020.
The
changes in the Company’s provision for restructuring and other costs can be summarized as follows:
|
|
Cetrotide(R) onerous contracts
|
|
|
German Restructuring: severance
|
|
|
Total
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Balance – January 1, 2020
|
|
|
396
|
|
|
|
330
|
|
|
|
726
|
|
Utilization of provision
|
|
|
(25
|
)
|
|
|
(323
|
)
|
|
|
(348
|
)
|
Change in provision
|
|
|
14
|
|
|
|
—
|
|
|
|
14
|
|
Impact of foreign exchange rate changes
|
|
|
|
|
|
|
(7
|
)
|
|
|
(7
|
)
|
Balance – June 30, 2020
|
|
|
385
|
|
|
|
—
|
|
|
|
385
|
|
Less current portion
|
|
|
107
|
|
|
|
—
|
|
|
|
107
|
|
Non-current portion
|
|
|
278
|
|
|
|
—
|
|
|
|
278
|
|
|
|
Six months ended
|
|
|
Year ended
|
|
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
|
|
$
|
|
|
$
|
|
Balance – Beginning of period
|
|
|
903
|
|
|
|
1,522
|
|
Interest paid as charged to comprehensive income (loss) as other finance costs
|
|
|
(15
|
)
|
|
|
(66
|
)
|
Payment against lease liabilities
|
|
|
(199
|
)
|
|
|
(614
|
)
|
Modification of lease liability
|
|
|
(463
|
)
|
|
|
—
|
|
Impact of foreign exchange rate changes
|
|
|
(4
|
)
|
|
|
61
|
|
Balance – End of period
|
|
|
222
|
|
|
|
903
|
|
Current lease liabilities
|
|
|
119
|
|
|
|
648
|
|
Non-current lease liabilities
|
|
|
103
|
|
|
|
255
|
|
Effective
March 31, 2020, the Company and its landlord mutually agreed to modify its existing building lease agreement for its German subsidiary,
extended the lease term for its portion of the reduced space from April 30, 2021 to March 31, 2022 and, retained one sub-lessee
until April 30, 2021.
On
May 5, 2020, the sub-lessee terminated its lease with the Company effective April 30, 2020. Concurrent with this termination,
the Company was able to renegotiate a further reduction in leased square footage with the landlord, which resulted in a lease
modification and a resulting gain of $34 which is recorded in the condensed interim consolidated statements of comprehensive loss.
The
change in the Company’s warrant liability can be summarized as follows:
|
|
Six months ended
|
|
|
Year ended
|
|
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
|
|
$
|
|
|
$
|
|
Balance – Beginning of period
|
|
|
2,255
|
|
|
|
3,634
|
|
Issuance of warrants (a)
|
|
|
2,325
|
|
|
|
3,457
|
|
Warrants exercised during the period
|
|
|
—
|
|
|
|
(318
|
)
|
Net gain on change in fair value of warrant liability
|
|
|
(331
|
)
|
|
|
(4,518
|
)
|
Warrant liability reclassified to equity (b)
|
|
|
(4,237
|
)
|
|
|
—
|
|
Balance – End of period
|
|
|
12
|
|
|
|
2,255
|
|
Current portion of warrant liability
|
|
|
12
|
|
|
|
6
|
|
Long-term portion of warrant liability
|
|
|
—
|
|
|
|
2,249
|
|
The
table presented below shows the inputs and assumptions applied to the Black-Scholes option pricing model in order to determine
the fair value of all warrants outstanding as at June 30, 2020.
|
|
Number of equivalent shares
|
|
|
Market value per share price
|
|
|
Weighted average exercise price
|
|
|
Risk-free annual interest rate
|
|
|
Expected volatility
|
|
|
Expected life (years)
|
|
|
Expected dividend yield
|
|
|
|
|
|
|
|
|
($)
|
|
|
|
($)
|
|
|
|
(i)
|
|
|
|
(ii)
|
|
|
|
(iii)
|
|
|
|
(iv)
|
|
December 2015 Warrants
|
|
|
2,331,000
|
|
|
|
0.802
|
|
|
|
7.10
|
|
|
|
0.16
|
%
|
|
|
133.7
|
%
|
|
|
0.46
|
|
|
|
0.00
|
%
|
|
(i)
|
Based
on United States Treasury Government Bond interest rates with a term that is consistent with the expected life of the warrants.
|
|
(ii)
|
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.
|
|
(iii)
|
Based
upon time to expiry from the reporting period date.
|
|
(iv)
|
The
Company has not paid dividends and it does not intend to pay dividends in the foreseeable future.
|
A
summary of the activity related to the Company’s share purchase warrants that are classified as a liability is provided
below.
|
|
Six months ended
|
|
|
Year ended
|
|
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
|
|
Number
|
|
|
Weighted average exercise price
|
|
|
Number
|
|
|
Weighted average exercise price
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
Balance – Beginning of period
|
|
|
6,629,144
|
|
|
|
4.00
|
|
|
|
3,391,844
|
|
|
|
6.23
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
(87,700
|
)
|
|
|
1.07
|
|
Issued (a)
|
|
|
2,852,174
|
|
|
|
1.24
|
|
|
|
3,325,000
|
|
|
|
1.65
|
|
Reclassified to equity (b)
|
|
|
(6,177,174
|
)
|
|
|
1.46
|
|
|
|
—
|
|
|
|
—
|
|
Expired (c)
|
|
|
(973,144
|
)
|
|
|
4.60
|
|
|
|
—
|
|
|
|
—
|
|
Balance – End of period
|
|
|
2,331,000
|
|
|
|
7.10
|
|
|
|
6,629,144
|
|
|
|
4.00
|
|
2020
On
February 21, 2020, the Company closed a registered direct offering for 3,478,261 common shares, at a purchase price of $1.29 per
share, priced at-the-market (note 13). Additionally, the Company issued to the investors unregistered warrants to purchase up
to an aggregate of 2,608,696 common shares in a concurrent private placement. The warrants have an exercise price of $1.20 per
common share, are exercisable immediately and will expire five and one-half years following the date of issuance. The Company
also issued 243,478 warrants to the placement agent with an exercise price of $1.62 per common share, which are exercisable immediately
and will expire five years following the date of issuance.
On
July 7, 2020, the Company closed a public offering for gross proceeds of $12,000, with the issuance of common shares and warrants,
see note 21.
2019
On
September 20, 2019, the Company entered into a securities purchase agreement for $4,988 (before total transaction costs of $786)
of its common shares in a registered direct offering and warrants to purchase common shares in a concurrent private placement
(together, the “Offering”). The combined purchase price for one common share and one warrant was $1.50 (note 13).
Under the terms of the securities purchase agreement, the Company sold 3,325,000 common shares. In a concurrent private placement,
the Company issued warrants to purchase up to an aggregate of 3,325,000 common shares. The warrants are exercisable commencing
six months from the date of issuance, have an exercise price of $1.65 per share and expire 5 years following the date of issuance.
All
issued warrants contain a provision where if, at any time while the warrants are outstanding, the Company completes a Fundamental
Transaction (as defined in the warrant agreements) but is generally understood to be a change of control of the Company, the warrant
holders will have the right to receive payment for the unexercised warrant (as defined in the warrant agreements).
|
(b)
|
Warrant
liability reclassified to equity
|
The
Company had issued 3,325,000 unregistered investor warrants in the September 2019 closed direct offering as well as 2,608,696
unregistered investor warrants and 234,478 unregistered placement agent warrants in the February 2020 closed direct offering transaction.
The terms of the warrant agreement stated that if the warrants remained unregistered, the warrant holder could elect to exercise
the warrants by way of a cashless exercise. This violated the fixed-for-fixed criterion due to the cashless exercise option, and
accordingly these warrants had been accounted for as a liability.
Effective
June 16, 2020, the Company registered the common shares underlying these warrants by way of a registration statement which eliminated
the cashless exercise option on the warrants, on a one-for-one basis. Accordingly, as of June 16, 2020, the warrant liability
was measured at fair value using Black-Scholes option pricing model, with the amount of the remeasurement loss recognized in the
condensed interim consolidated statements of comprehensive loss. The carrying value of the warrants was then reclassified from
warrant liability to other capital within equity (note 13).
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 such warrants as at June 16, 2020.
|
|
Number of equivalent shares
|
|
|
Market value per share price
|
|
|
Weighted average exercise price
|
|
|
Risk-free annual interest rate
|
|
|
Expected volatility
|
|
|
Expected life (years)
|
|
|
Expected dividend yield
|
|
|
|
|
|
|
($)
|
|
|
($)
|
|
|
(i)
|
|
|
(ii)
|
|
|
(iii)
|
|
|
(iv)
|
|
September 2019 Warrants
|
|
|
3,325,000
|
|
|
|
0.96
|
|
|
|
1.65
|
|
|
|
0.30
|
%
|
|
|
104.5
|
%
|
|
|
4.3
|
|
|
|
0.00
|
%
|
February 2020 Investor Warrants
|
|
|
2,608,696
|
|
|
|
0.96
|
|
|
|
1.20
|
|
|
|
0.36
|
%
|
|
|
119.3
|
%
|
|
|
5.2
|
|
|
|
0.00
|
%
|
February 2020 Placement Agent Warrants
|
|
|
243,478
|
|
|
|
0.96
|
|
|
|
1.62
|
|
|
|
0.32
|
%
|
|
|
113.3
|
%
|
|
|
4.7
|
|
|
|
0.00
|
%
|
|
(i)
|
Based
on United States Treasury Government Bond interest rates with a term that is consistent with the expected life of the warrants.
|
|
(ii)
|
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.
|
|
(iii)
|
Based
upon time to expiry from the reporting period date.
|
|
(iv)
|
The
Company has not paid dividends and it does not intend to pay dividends in the foreseeable future.
|
On
March 10, 2020, the Company had 28,144 share purchase warrants expire, each with an exercise price of $1.07. On May 1, 2020, the
Company had 945,000 share purchase warrants expire, each with an exercise price of $4.70.
12.
|
Employee
future benefits
|
The
Company sponsors a pension plan in Germany (The Aeterna Zentaris GmbH Pension Plan). The change in the Company’s accrued
benefit obligations is summarized as follows:
|
|
June 30, 2020
|
|
|
Year ended December 31, 2019
|
|
|
|
Pension benefit plans
|
|
|
Other benefit plans
|
|
|
Total
|
|
|
Total
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
Balances – Beginning of the period
|
|
|
13,705
|
|
|
|
83
|
|
|
|
13,788
|
|
|
|
13,205
|
|
Current service cost
|
|
|
23
|
|
|
|
1
|
|
|
|
24
|
|
|
|
49
|
|
Interest cost
|
|
|
75
|
|
|
|
—
|
|
|
|
75
|
|
|
|
241
|
|
Actuarial loss arising from changes in financial assumptions
|
|
|
30
|
|
|
|
—
|
|
|
|
30
|
|
|
|
1,040
|
|
Benefits paid
|
|
|
(214
|
)
|
|
|
(1
|
)
|
|
|
(215
|
)
|
|
|
(483
|
)
|
Impact of foreign exchange rate changes
|
|
|
(24
|
)
|
|
|
—
|
|
|
|
(24
|
)
|
|
|
(264
|
)
|
Balances – End of the period
|
|
|
13,595
|
|
|
|
83
|
|
|
|
13,678
|
|
|
|
13,788
|
|
Amounts recognized:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In net income (loss)
|
|
|
(98
|
)
|
|
|
(1
|
)
|
|
|
(99
|
)
|
|
|
(262
|
)
|
In other comprehensive loss
|
|
|
(6
|
)
|
|
|
—
|
|
|
|
(6
|
)
|
|
|
(810
|
)
|
The
calculation of the pension benefit obligation is sensitive to the discount rate assumption. Effective March 31, 2020, the Company
incorporated a decline of 10.35% in its pension liabilities based on publicly available actuarial information. Effective June
30, 2020, based on publicly available actuarial information, this decline was predominantly reversed. The discount rate as at
March 31, 2020 was 1.8% while at June 30, 2020, it was 1.1% (December 31, 2019: 1.1%).
13.
|
Share
and other capital
|
The
Company has an unlimited number of authorized common shares (being voting and participating shares) with no par value, as well
as an unlimited number of preferred, first and second ranking shares, issuable in series, with rights and privileges specific
to each class, with no par value.
2020
On
February 21, 2020, the Company closed a registered direct offering for 3,478,261 common shares, at a purchase price of $1.29 per
share, priced at-the-market. Additionally, 2,608,696 investor share purchase warrants were issued at an exercise price of $1.20
per common share and 243,478 broker share purchase warrants were issued at an exercise price of $1.62 per common share (note 11(a)).
The net cash proceeds to the Company from the offering totaled approximately $3,900. The gross proceeds of $4,500 was allocated
as $2,326 to warrants based on the ascribed fair value (note 11) and the remaining gross proceeds of $2,174 were allocated to
share capital. The transaction costs of $600 were allocated between share capital and warrants based on their relative fair values.
The fair value of the share capital was recorded within equity net of the allocated transaction costs. The transaction costs of
$310 allocated to the warrant liability were recorded as expense in the statement of comprehensive (loss) income.
During
the second quarter of 2020, directors who were no longer on the Board redeemed their DSUs in full whereby 111,300 common shares
were issued.
On
July 7, 2020, the Company closed a public offering for $12,000 in gross proceeds, with the issuance of common shares and warrants,
see note 21.
2019
On
September 20, 2019, the Company entered into a securities purchase agreement with U.S. institutional investors to purchase $4,988
(before total transaction costs of $786) of its common shares in a registered direct offering and warrants to purchase common
shares in a concurrent private placement (together, the “Offering”). The combined purchase price for one common share
and one warrant was $1.50. Under the terms of the securities purchase agreement, the Company sold 3,325,000 common shares. In
a concurrent private placement, the Company issued warrants to purchase up to an aggregate of 3,325,000 common shares (note 11(a)).
The gross proceeds of $4,988 was allocated as $3,457 to warrants based on the ascribed fair value and the remaining gross proceeds
of $1,531 were allocated to share capital. The transaction costs of $795 were allocated between share capital and warrants based
on their relative fair values. The fair value of the share capital was recorded within equity net of the allocated transaction
costs. The transaction costs of $550 allocated to the warrant liability were recorded as expense in the statement of comprehensive
(loss) income.
Shareholder
rights plan
Effective
May 8, 2019, the shareholders re-approved the Company’s shareholder rights plan (the “Rights Plan”) that provides
the Board and the Company’s shareholders with additional time to assess any unsolicited take-over bid for the Company and,
where appropriate, to pursue other alternatives for maximizing shareholder value. Under the Rights Plan, one right has been issued
for each currently issued common share, and one right will be issued with each additional common share that may be issued from
time to time.
Other
capital
The
Company accounts for costs associated with share-based compensation from security grants under its long-term incentive plan (the
“LTIP”) and stock option plans as other capital in its consolidated statements of changes in shareholders’ equity
(deficiency) and as operating expenses in its condensed interim consolidated statements of comprehensive loss.
The
following tables summarize the activity under the LTIP and the Stock Option Plan:
|
|
Six months ended
June 30, 2020
|
|
|
|
US$ Stock options
|
|
|
Weighted average exercise price
|
|
|
DSUs
|
|
|
CAN$ Stock options
|
|
|
Weighted average exercise price
|
|
June 30, 2020
|
|
(Number)
|
|
|
(US$)
|
|
|
(Number)
|
|
|
(Number)
|
|
|
(CAN$)
|
|
Balance – Beginning of period
|
|
|
741,116
|
|
|
|
3.61
|
|
|
|
212,000
|
|
|
|
441
|
|
|
|
912.00
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
120,000
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
(159,000
|
)
|
|
|
—
|
|
|
|
—
|
|
Canceled/Forfeited
|
|
|
(330,350
|
)
|
|
|
2.14
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Expired
|
|
|
(84,366
|
)
|
|
|
15.51
|
|
|
|
—
|
|
|
|
(431
|
)
|
|
|
912.00
|
|
Balance – End of period
|
|
|
326,400
|
|
|
|
2.03
|
|
|
|
173,000
|
|
|
|
10
|
|
|
|
912.00
|
|
|
|
Year ended
December 31, 2019
|
|
|
|
US$ Stock options
|
|
|
Weighted average exercise price
|
|
|
DSUs
|
|
|
CAN$ Stock options
|
|
|
Weighted average exercise price
|
|
December 31, 2019
|
|
(Number)
|
|
|
(US$)
|
|
|
(Number)
|
|
|
(Number)
|
|
|
(CAN$)
|
|
Balance – Beginning of period
|
|
|
727,816
|
|
|
|
4.07
|
|
|
|
161,000
|
|
|
|
869
|
|
|
|
743.56
|
|
Granted
|
|
|
185,000
|
|
|
|
1.07
|
|
|
|
150,000
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
(64,850
|
)
|
|
|
2.75
|
|
|
|
(99,000
|
)
|
|
|
—
|
|
|
|
—
|
|
Canceled/Forfeited
|
|
|
(6,000
|
)
|
|
|
13,39
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Expired
|
|
|
(100,850
|
)
|
|
|
2.24
|
|
|
|
—
|
|
|
|
(428
|
)
|
|
|
570.00
|
|
Balance – End of period
|
|
|
741,116
|
|
|
|
3.61
|
|
|
|
212,000
|
|
|
|
441
|
|
|
|
912.00
|
|
The
following table summarizes the activity regarding warrants that were reclassified into equity:
|
|
Six months ended
June 30, 2020
|
|
|
Year
ended December 31, 2019
|
|
|
|
|
|
Weighted
average
exercise price
|
|
|
|
|
|
|
|
|
Number
|
|
|
(US$)
|
|
|
$
|
|
|
$
|
Balance – Beginning
of the period
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Nil
|
Warrant
liability reclassified to equity (note 11(b))
|
|
|
6,177,174
|
|
|
|
1.46
|
|
|
|
4,237
|
|
|
Nil
|
Balance
– End of the period
|
|
|
6,177,174
|
|
|
|
1.46
|
|
|
|
4,237
|
|
|
Nil
|
The
nature of the Company’s operating expenses from operations include the following:
|
|
Six months ended June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
$
|
|
|
$
|
|
Key management personnel:
|
|
|
|
|
|
|
|
|
Salaries and short-term employee benefits
|
|
|
483
|
|
|
|
594
|
|
Consultant fees
|
|
|
76
|
|
|
|
118
|
|
Share-based compensation costs
|
|
|
127
|
|
|
|
681
|
|
Post-employment benefits
|
|
|
27
|
|
|
|
18
|
|
|
|
|
713
|
|
|
|
1,411
|
|
Other employees:
|
|
|
|
|
|
|
|
|
Salaries and short-term employee benefits
|
|
|
491
|
|
|
|
1,042
|
|
Share-based compensation costs
|
|
|
(104
|
)
|
|
|
9
|
|
Post-employment benefits
|
|
|
92
|
|
|
|
158
|
|
|
|
|
479
|
|
|
|
1,209
|
|
Cost of inventory used and services provided
|
|
|
874
|
|
|
|
101
|
|
Professional fees
|
|
|
929
|
|
|
|
1,474
|
|
Restructuring costs
|
|
|
—
|
|
|
|
773
|
|
Consulting fees
|
|
|
274
|
|
|
|
76
|
|
Insurance
|
|
|
432
|
|
|
|
446
|
|
Third-party research and development
|
|
|
74
|
|
|
|
307
|
|
Travel
|
|
|
41
|
|
|
|
84
|
|
Marketing services
|
|
|
29
|
|
|
|
2
|
|
Laboratory supplies
|
|
|
—
|
|
|
|
28
|
|
Other goods and services
|
|
|
50
|
|
|
|
64
|
|
Leasing costs, net of sublease receipts of $107 (2019 - $58)
|
|
|
62
|
|
|
|
176
|
|
Gain on modification of building lease (notes 6 and 10)
|
|
|
(219
|
)
|
|
|
—
|
|
Impairment of right of use asset (note 6)
|
|
|
—
|
|
|
|
401
|
|
Impairment of prepaid asset
|
|
|
—
|
|
|
|
197
|
|
Depreciation and amortization
|
|
|
14
|
|
|
|
19
|
|
Depreciation of right of use assets (note 6)
|
|
|
132
|
|
|
|
117
|
|
Operating foreign exchange losses
|
|
|
(9
|
)
|
|
|
17
|
|
|
|
|
3,875
|
|
|
|
6,902
|
|
15.
|
Supplemental
disclosure of cash flow information
|
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other receivables
|
|
|
(149
|
)
|
|
|
133
|
|
|
|
(156
|
)
|
|
|
(196
|
)
|
Inventory
|
|
|
(8
|
)
|
|
|
(191
|
)
|
|
|
828
|
|
|
|
(496
|
)
|
Prepaid expenses and other current assets
|
|
|
(279
|
)
|
|
|
(267
|
)
|
|
|
99
|
|
|
|
(123
|
)
|
Payables and accrued liabilities
|
|
|
41
|
|
|
|
502
|
|
|
|
(451
|
)
|
|
|
247
|
|
Current portion of deferred revenues
|
|
|
11
|
|
|
|
—
|
|
|
|
(395
|
)
|
|
|
—
|
|
Employee future benefits (note 12)
|
|
|
(110
|
)
|
|
|
(108
|
)
|
|
|
(215
|
)
|
|
|
(217
|
)
|
|
|
|
(494
|
)
|
|
|
69
|
|
|
|
(290
|
)
|
|
|
(785
|
)
|
The
Company’s objective in managing capital, consisting of shareholders’ equity, with cash and cash equivalents and restricted
cash being its primary components, is to ensure sufficient liquidity to fund operating expenses and working capital requirements.
Over the past several years, the Company has raised capital via public equity and registered direct offerings and issuances under
various at-the-market sales programs as its primary source of liquidity. The policy on dividends is to retain cash to keep funds
available to finance the activities required to advance the Company’s product development portfolio and to pursue appropriate
commercial opportunities as they may arise. The Company is not subject to any capital requirements imposed by any regulators or
by any other external source.
17.
|
Financial
instruments and financial risk management
|
Financial
assets and liabilities as at June 30, 2020 and December 31, 2019 are presented below.
June 30, 2020
|
|
Financial assets at amortized cost
|
|
|
Financial Liabilities at FVTPL
|
|
|
Financial liabilities at amortized cost
|
|
|
Total
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Cash and cash equivalents
|
|
|
6,743
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,743
|
|
Trade and other receivables
|
|
|
295
|
|
|
|
—
|
|
|
|
—
|
|
|
|
295
|
|
Restricted cash equivalents
|
|
|
313
|
|
|
|
—
|
|
|
|
—
|
|
|
|
313
|
|
Payables and accrued liabilities
|
|
|
—
|
|
|
|
—
|
|
|
|
1,697
|
|
|
|
1,697
|
|
Lease liabilities
|
|
|
—
|
|
|
|
—
|
|
|
|
222
|
|
|
|
222
|
|
Warrant liability
|
|
|
—
|
|
|
|
12
|
|
|
|
—
|
|
|
|
12
|
|
|
|
|
7,351
|
|
|
|
12
|
|
|
|
1,919
|
|
|
|
5,420
|
|
December 31, 2019
|
|
Financial assets at amortized cost
|
|
|
Financial liabilities at FVTPL
|
|
|
Financial liabilities at amortized cost
|
|
|
Total
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Cash and cash equivalents
|
|
|
7,838
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,838
|
|
Trade and other receivables
|
|
|
404
|
|
|
|
—
|
|
|
|
—
|
|
|
|
404
|
|
Restricted cash equivalents
|
|
|
364
|
|
|
|
—
|
|
|
|
—
|
|
|
|
364
|
|
Payables and accrued liabilities
|
|
|
—
|
|
|
|
—
|
|
|
|
2,148
|
|
|
|
2,148
|
|
Lease liabilities
|
|
|
—
|
|
|
|
—
|
|
|
|
903
|
|
|
|
903
|
|
Warrant liability
|
|
|
—
|
|
|
|
2,255
|
|
|
|
—
|
|
|
|
2,255
|
|
|
|
|
8,606
|
|
|
|
2,255
|
|
|
|
3,051
|
|
|
|
3,300
|
|
Fair
value
IFRS
13, establishes a hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to
unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to
unobservable inputs (Level 3 measurement). The input levels discussed in IFRS 13 are:
Level
1 – Unadjusted quoted prices in active markets for identical assets or liabilities.
Level
2 – Inputs other than quoted prices included within Level 1 that are observable for an asset or liability, either directly
(i.e. prices) or indirectly (i.e. derived from prices).
Level
3 – Inputs for an asset or liability that are not based on observable market data (unobservable inputs).
In
note 11 - Warrant liability, the Black-Scholes valuation methodology uses “Level 2” inputs in calculating fair value.
The
carrying values of the Company’s cash and cash equivalents, trade and other receivables, restricted cash equivalents, payables
and accrued liabilities and provision for restructuring and other costs approximate their fair values due to their short-term
maturities or to the prevailing interest rates of the related instruments, which are comparable to those of the market.
Financial
risk factors
The
following provides disclosures relating to the nature and extent of the Company’s exposure to risks arising from financial
instruments, including credit risk, liquidity risk and market risk (share price risk) and how the Company manages those risks.
Credit
risk is the risk of an unexpected loss if a customer or counterparty to a financial instrument fails to meet its contractual obligations.
As at June 30, 2020, trade accounts receivable for an amount of approximately $121 were with five counterparties of which $60
was past due and impaired and fully provided for (December 31, 2019 - $265 with four counterparties and $55 past due and impaired
and fully provided for). The licensee is obligated to pay its quarterly royalties, 45 days after quarter-end. At June 30, 2020,
the Company has provided for all outstanding and unpaid amounts relating to its operations before its licensing of MacrilenTM
(macimorelin). The licensee has paid all amounts owing within 60 days of invoicing. The maximum exposure to credit risk
approximates the amount outstanding in the Company’s consolidated statement of financial position.
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
16 - Capital disclosure, the Company manages this risk through the management of its capital structure. It also manages liquidity
risk by continuously monitoring actual and projected cash flows. The Board 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.
Share
price risk
The
change in fair value of the Company’s warrant liability, which is measured at FVTPL, results from the periodic “mark-to-market”
revaluation, via the application of option pricing models, of currently outstanding share purchase warrants. These valuation models
are impacted, among other inputs, by the market price of the Company’s common shares. As a result, the change in fair value
of the warrant liability, which is reported in the consolidated statements of comprehensive loss, has been and may continue in
future periods to be materially affected most notably by changes in the Company’s common share closing price, which on the
NASDAQ ranged from $1.44 to $0.42 during the six-months ended June 30, 2020.
|
(e)
|
Foreign
exchange risk
|
Entities
using the Euro as their functional currency
The
Company is exposed to foreign exchange risk due to its investments in foreign operations whose functional currency is the Euro.
As at June 30, 2020, if the US dollar had increased or decreased by 10% against the Euro, with all variables held constant, net
income for the six-month period ended June 30, 2020 would have been lower or higher by approximately $37 (2019 - $546).
The
Company operates in a single operating segment, being the biopharmaceutical segment.
19.
|
Net
(loss) income per share
|
The
following table sets forth pertinent data relating to the computation of basic and diluted net loss per share attributable to
common shareholders.
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Net (loss) income
|
|
|
(3,450
|
)
|
|
|
206
|
|
|
|
(2,671
|
)
|
|
|
(4,705
|
)
|
Basic weighted average number of shares outstanding
|
|
|
23,515,579
|
|
|
|
16,622,415
|
|
|
|
22,519,497
|
|
|
|
16,532,090
|
|
Net (loss) income per share (basic)
|
|
|
(0.15
|
)
|
|
|
0.01
|
|
|
|
(0.12
|
)
|
|
|
(0.28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of stock options
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Dilutive effect of share purchase warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Diluted weighted average number of shares outstanding
|
|
|
23,515,579
|
|
|
|
17,260,016
|
|
|
|
22,519,497
|
|
|
|
16,532,090
|
|
Net (loss) income per share (diluted)
|
|
|
(0.15
|
)
|
|
|
0.01
|
|
|
|
(0.12
|
)
|
|
|
(0.28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items excluded from the calculation of diluted net loss per share because the exercise price was greater than the average market price of the common shares or due to their anti-dilutive effect
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
326,410
|
|
|
|
161,021
|
|
|
|
326,410
|
|
|
|
641,021
|
|
Deferred share units
|
|
|
173,000
|
|
|
|
150,000
|
|
|
|
173,000
|
|
|
|
288,000
|
|
Warrants (number of equivalent shares)
|
|
|
8,508,174
|
|
|
|
3,276,000
|
|
|
|
8,508,174
|
|
|
|
3,296,008
|
|
Net
(loss) income per share is calculated by dividing net (loss) income by the weighted average number of shares outstanding during
the relevant period. Diluted weighted average number of shares reflects the dilutive effect of equity instruments, such as any
“in the money” stock options and share purchase warrants. In periods with reported net losses, all stock options and
share purchase warrants are deemed anti-dilutive such that basic net loss per share and diluted net loss per share are equal,
and thus “in the money” stock options and share purchase warrants have not been included in the computation of net
loss per share because to do so would be anti-dilutive.
20.
|
Commitments
and Contingencies
|
|
|
Service and manufacturing
|
|
|
|
$
|
|
Less than 1 year
|
|
|
910
|
|
1 - 3 years
|
|
|
5
|
|
4 - 5 years
|
|
|
5
|
|
More than 5 years
|
|
|
2
|
|
Total
|
|
|
922
|
|
Contingencies
In
the normal course of operations, the Company may become involved in various claims and legal proceedings related to, for example,
contract terminations and employee-related and other matters.
Securities
class action lawsuit
On
March 9, 2020, the Company settled the previously disclosed class-action lawsuit against it pending in the U.S. District Court
for New Jersey. The settlement payment of $6,500 will be funded entirely by the Company’s insurers. The class-action lawsuit
alleged that the Company and certain of its former officers and directors violated the Securities Exchange Act of 1934 in connection
with certain public statements between August 30, 2011 and November 6, 2014, regarding the safety and efficacy of Macrilen™
(macimorelin) and the prospects for the approval of the Company’s NDA for the product by the FDA. This settlement remains
subject to execution of final settlement documents and approval by the U.S. District Court for the District of New Jersey.
On
July 7, 2020, the Company closed a public offering of 26,666,666 units at a price to the public of $0.45 per unit, for gross proceeds
of $12,000, before deducting placement agent fees and other offering expenses payable by the Company, estimated at $1,500. Each
unit contained one common share (or common share equivalent in lieu thereof) and one investor share purchase warrant to purchase
one common share. In total, 26,666,666 common shares, 26,666,666 investor share purchase warrants at an exercise price of $0.45
per share expiring July 7, 2025 and 1,866,667 placement agent warrants with an exercise price of $0.5625 per share, expiring July
1, 2025 were issued. As at June 30, 2020, the Company had incurred $537 in offering costs which were deferred and classified in
the condensed interim consolidated statements of financial position, in the line “Prepaid expenses and other current assets”
and $480 in accrued issuance costs were included within “Payables and accrued liabilities” in the condensed interim
consolidated statements of financial position. Upon the completion of the public offing on July 7, 2020, the deferred offering
costs were netted against the gross proceeds of the offering within equity. As a result of the public offering, the Company
believes it has stockholders’ equity of at least $2.5 million as of the date of this filing and thereby satisfies the minimum
stockholders’ equity requirement for continued listing on The Nasdaq Capital Market (“Nasdaq”). The Company
received Nasdaq’s formal confirmation of such compliance on July 30, 2020.
Additionally, on August
3, 2020, the Company announced that it had entered into a securities purchase agreement with several institutional investors in
the United States providing for the sale and issuance of 12,427,876 common shares at a purchase price of $0.56325 per common share
in a registered direct offering priced at-the-market under Nasdaq rules. The offering resulted in gross proceeds of approximately
$7,000 and closed on August 5, 2020. Concurrently, the Company issued to the purchasers unregistered warrants to purchase up to
an aggregate of 9,320,907 common shares. The warrants are exercisable for a period of five and one-half years, exercisable immediately
following the issuance date and have an exercise price of $0.47 per common share. In addition, the Company has issued unregistered
warrants to the placement agent to purchase up to an aggregate of 869,952 common shares, with an exercise price of $0.7040625
per share and an expiration date of August 3, 2025.
Exhibit
99.2
Second
Quarter 2020 MD&A
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
Introduction
This
Management’s Discussion and Analysis (“MD&A”) provides a review of the financial condition as of June 30,
2020, and the results of operations and cash flows for the three- and six- months ended June 30, 2020 and 2019 of Aeterna Zentaris
Inc. In this MD&A, “Aeterna Zentaris”, the “Company”, “we”, “us” and “our”
mean Aeterna Zentaris Inc. and its subsidiaries. This discussion should be read in conjunction with the information contained
in the Company’s unaudited condensed consolidated financial statements and the accompanying notes thereto as at June 30,
2020 and for the three- and six- months ended June 30, 2020 and 2019 and the audited consolidated financial statements and MD&A
for the years ended December 31, 2019 and 2018, which were prepared in accordance with International Financial Reporting Standards
(“IFRS”) as issued by the International Accounting Standards Board (“IASB”). The Company’s common
shares are listed on both the NASDAQ Capital Market (“NASDAQ”) and on the Toronto Stock Exchange (“TSX”)
under the symbol “AEZS”.
All
amounts in this MD&A are presented in U.S. dollars, except for share, option and share purchase warrant data, or as otherwise
noted.
This
MD&A was approved by the Company’s Board of Directors on August 5, 2020. This MD&A is dated August 5, 2020.
Company
Overview
Aeterna
Zentaris is a specialty biopharmaceutical company commercializing and developing therapeutics and diagnostic tests. The Company’s
lead product, Macrilen™ (macimorelin), is the first and only United States Food and Drug Administration (“FDA”)
and European Commission approved oral test indicated for the diagnosis of patients with adult growth hormone deficiency (“AGHD”).
Macrilen™ (macimorelin) is currently marketed in the United States through a license and assignment agreement (the “License
Agreement”) with Novo Nordisk A/S (“Novo”). Aeterna Zentaris is also pursuing the development of macimorelin
for the diagnosis of child-onset growth hormone deficiency (“CGHD”), an area of significant unmet need. In addition,
we are actively pursuing business development opportunities for the commercialization of macimorelin in Europe and the rest of
the world in addition to other non-strategic assets to monetize their value.
About
Forward-Looking Statements
This
document contains forward-looking statements (as defined by applicable securities legislation) made pursuant to the safe-harbor
provision of the U.S. Private Securities Litigation Reform Act of 1995, which reflect our current expectations regarding future
events. Forward-looking statements may include, but are not limited to statements preceded by, followed by, or that include the
words “will,” “expects,” “believes,” “intends,” “would,” “could,”
“may,” “anticipates,” and similar terms that relate to future events, performance, or our results. Forward-looking
statements involve known and unknown risks and uncertainties, including those discussed in this press release and in our Annual
Report on Form 20-F, under the caption “Key Information - Risk Factors” filed with the relevant Canadian securities
regulatory authorities in lieu of an annual information form and with the U.S. Securities and Exchange Commission. Known and unknown
risks and uncertainties could cause our actual results to differ materially from those in forward-looking statements. Such risks
and uncertainties include, among others, our ability to raise capital and obtain financing to continue our currently planned operations,
our ability to continue to list our Common Shares on the NASDAQ, our ability to continue as a going concern is dependent, in part,
on our ability to transfer cash from Aeterna Zentaris GmbH (“AEZS Germany”) to Aeterna Zentaris and our U.S. subsidiary
and secure additional financing, our now heavy dependence on the success of Macrilen™ (macimorelin) and related out-licensing
arrangements and the continued availability of funds and resources to successfully commercialize the product, including our heavy
reliance on the success of the License Agreement with Novo, our ability to enter into out-licensing, development, manufacturing,
marketing and distribution agreements with other pharmaceutical companies and keep such agreements in effect, our reliance on
third parties for the manufacturing and commercialization of Macrilen™ (macimorelin), potential disputes with third parties,
leading to delays in or termination of the manufacturing, development, out-licensing or commercialization of our product candidates,
or resulting in significant litigation or arbitration, uncertainties related to the regulatory process, unforeseen global instability,
including the instability due to the global pandemic of the novel coronavirus or COVID-19, our ability to efficiently commercialize
or out-license Macrilen™ (macimorelin), our reliance on the success of the pediatric clinical trial in the European Union
(“E.U.”) and U.S. for Macrilen™ (macimorelin), the degree of market acceptance of Macrilen™ (macimorelin),
our ability to obtain necessary approvals from the relevant regulatory authorities to enable us to use the desired brand names
for our product, our ability to successfully negotiate pricing and reimbursement in key markets in the E.U. for Macrilen™
(macimorelin), any evaluation of potential strategic alternatives to maximize potential future growth and shareholder value may
not result in any such alternative being pursued, and even if pursued, may not result in the anticipated benefits, our ability
to take advantage of business opportunities in the pharmaceutical industry, our ability to protect our intellectual property,
and the potential of liability arising from shareholder lawsuits and general changes in economic conditions. Investors should
consult our quarterly and annual filings with the Canadian and U.S. securities regulatory authorities for additional information
on risks and uncertainties. Given these uncertainties and risk factors, readers are cautioned not to place undue reliance on these
forward-looking statements. We disclaim any obligation to update any such factors or to publicly announce any revisions to any
of the forward-looking statements contained herein to reflect future results, events or developments, unless required to do so
by a governmental authority or applicable law.
About
Material Information
This
MD&A includes information that we believe to be material to investors after considering all circumstances. We consider information
and disclosures to be material if they result in, or would reasonably be expected to result in, a significant change in the market
price or value of our securities, or where it is likely that a reasonable investor would consider the information and disclosures
to be important in making an investment decision.
We
are a reporting issuer under the securities legislation of all of the provinces of Canada, and our securities are registered with
the SEC. We are therefore required to file or furnish continuous disclosure information, such as interim and annual financial
statements, MD&A, proxy or information circulars, annual reports on Form 20-F, material change reports and press releases
with the appropriate securities regulatory authorities. Copies of these documents may be obtained free of charge upon request
from our Corporate Secretary or on the Internet at the following addresses: www.zentaris.com, www.sedar.com and www.sec.gov.
Key
Developments
Financing
activities
On
February 21, 2020, the Company closed a registered direct offering for 3,478,261 common shares, at a purchase price of $1.29375
per share, priced at-the-market. Additionally, the Company issued to the investors in the offering unregistered warrants to purchase
up to an aggregate of 2,608,696 common shares in a concurrent private placement. The warrants have an exercise price of $1.20
per common share, are exercisable immediately and will expire five and one-half years following the date of issuance. The net
cash proceeds to the Company from the offering totaled $3.9 million. The Company issued 243,478 warrants to the placement agent
with an exercise price of $1.61719 per common share, which are exercisable immediately and will expire five years following the
date of issuance. Collectively, this financing is referred to as the “February 2020 Financing”.
Effective
June 16, 2020, the Company registered under the Securities Act of 1933 the 2,608,696 investor warrants and 243,478 placement agent
warrants issued on February 21, 2020 and the 3,325,000 investor warrants issued on September 20, 2019.
Subsequent
to the end of the fiscal quarter, on July 7, 2020, the Company closed a public offering of 26,666,666 units at a price to the
public of $0.45 per unit, for gross proceeds of $12 million, before deducting placement agent fees and other offering expenses
payable by the Company, estimated at $1.5 million. Each unit contained one common share (or common share equivalent in lieu thereof)
and one investor share purchase warrant to purchase one common share. In total, 26,666,666 common shares, 26,666,666 investor
share purchase warrants with an exercise price of $0.45 per share expiring July 7, 2025 and 1,866,667 placement agent warrants
with an exercise price of $0.5625 per share expiring July 1, 2025 were issued.
Additionally, on August 3, 2020, the
Company announced that it had entered into a securities purchase agreement with several institutional investors in the United
States providing for the sale and issuance of 12,427,876 common shares at a purchase price of $0.56325 per common share in a registered
direct offering priced at-the-market under Nasdaq rules for gross proceeds of approximately $7.0 million, closing on August 5,
2020. Concurrently, the Company also issued to the purchasers unregistered warrants to purchase up to an aggregate of 9,320,907
common shares. The warrants are exercisable for a period of five and one-half years, exercisable immediately following the issuance
date and have an exercise price of $0.47 per common share. In addition, the Company has issued unregistered warrants to the placement
agent to purchase up to an aggregate of 869,952 common shares, with an exercise price of $0.7040625 per share and an expiration
date of August 3, 2025.
Commercialization
of Macrilen™ (macimorelin) in U.S. and Canada
On
January 16, 2018, the Company entered into the License Agreement which provides (i) for the “right to use” license
relating to the adult indication, (ii) for the right to acquire a license for the Pediatric Indication if and when the FDA approves
a pediatric indication, (iii) that the licensee is to fund 70% of the costs of a pediatric clinical trial submitted for approval
to the European Medicines Agency (“EMA”) under the agreed Pediatric Investigation Plan (“PIP”) studies
to be run by the Company with customary oversight from a joint steering committee (the “JSC”) and (iv) an interim
supply arrangement (“Supply Arrangement”). Strongbridge Ireland Limited, effective December 19, 2018, sold the U.S.
and Canadian rights to Macrilen™ (macimorelin) to Novo for a payment plus tiered royalties on net sales.
Following
Novo’s acquisition of the U.S. and Canadian rights to Macrilen™ (macimorelin), the JSC has met regularly to discuss
Novo’s commercialization plan for the U.S. and Canada, their supply chain needs and the enrollment of patients and protocols
of the two PIP studies. The Company expects that quarterly meetings will continue as forecasts for sales, inventory build and
needs for the PIP study progresses.
Royalty
income earned under the License Agreement for the six-month period ending June 30, 2020 was $0.02 million (2019 - $0.02 million)
and, during the six-month period ended June 30, 2020, the Company invoiced Novo $0.3 million for its share of PIP study costs
(2019 - $0.6 million).
The
Company agreed, in the Supply Arrangement to the License Agreement, to supply ingredients for the manufacture of Macrilen™
(macimorelin) during an interim period at a price that is set ‘at cost’ without any profit margin. In November 2019,
Novo contracted AEZS Germany, to provide supply chain services including API batch production and delivery of certain API and
semi-finished goods, as well as the provision of ongoing support activities. During the six-month period ending June 30, 2020,
the Company invoiced Novo $0.09 million for supply chain activities (2019 – $0.03 million) and invoiced $1.0 million in
product sales (2019 - $0.8 million).
Pediatric
clinical trial for Macrilen™ (macimorelin)
On
January 28, 2020, we announced the successful completion of patient recruitment for the first pediatric study of macimorelin as
a growth hormone stimulation test for the evaluation of growth hormone deficiency (“GHD”) in children. This study,
AEZS-130-P01 (“Study P01”), was the first of two studies as agreed with the European Medicines Agency (“EMA”)
in our PIP for macimorelin as a GHD diagnostic. Macimorelin, a ghrelin agonist, is an orally active small molecule that stimulates
the secretion of growth hormone from the pituitary gland into the circulatory system. The goal of Study P01 was to establish a
dose that can both be safely administered to pediatric patients and cause a clear rise in growth hormone concentration in subjects
ultimately diagnosed as not having GHD. The recommended dose derived from Study P01 will be evaluated in the pivotal second study
AEZS-130-P02 (“Study P02”) on diagnostic efficacy and safety. Study P01 was an international, multicenter study which
was conducted in Hungary, Poland, Ukraine, Serbia, Belarus and Russia. Study P01 was an open label, group comparison, dose escalation
trial designed to investigate the safety, tolerability, and pharmacokinetic/pharmacodynamic (“PK/PD”) of macimorelin
acetate after ascending single oral doses of macimorelin at 0.25, 0.5, and 1.0 mg per kg body weight in pediatric patients from
2 to less than 18 years of age with suspected GHD. We enrolled a total of 24 pediatric patients across the three cohorts of the
study. Per study protocol, all enrolled patients completed four study visits after successful completion of the screening period.
At Visit 1 and Visit 3, a provocative GH stimulation test was conducted according to the study sites’ local practices. At
Visit 2, the macimorelin test was performed: following the oral administration of the macimorelin solution, blood samples were
taken at predefined times for PK/PD assessment. Visit 4 was a safety follow-up visit at study end.
The
final study results from Study P01 were published in the second quarter of 2020 indicating positive safety and tolerability data
for use of macimorelin in child-onset growth hormone as well as PK/PD data observed in the range as expected from the adult studies.
Thereafter, we plan to proceed with the pivotal Study P02 with an expected start date in the first quarter of 2021 and an expected
completion date in July 2022, according to the PIP agreement with EMA. Study P02 is designed to investigate the diagnostic efficacy
and safety of macimorelin acetate in a dose of 1.0 mg/kg body weight in pediatric patients from 2 years of age to 18 years of
age with suspected growth hormone deficiency.
On
April 7, 2020 we announced the decision of the EMA to accept our modification request of our PIP as originally approved in March
2017, which covered the conduct of two pediatric studies and defined relevant key elements in the outline of these studies. We
believe this EMA decision supports the development of one globally harmonized study protocol for test validation, specifically
Study P02, which we expect to be accepted both in Europe and the U.S.
Megapharm
Distribution Agreement
On
June 25, 2020, we announced that we entered into an exclusive distribution and related quality agreement with Megapharm Ltd. (“Megapharm”),
a leading Israel-based biopharmaceutical company, for the commercialization in Israel and in the Palestinian Authority of macimorelin,
to be used in the diagnosis of patients with AGHD and in clinical development for the diagnosis of CGHD.
Under
the terms of the agreement, Megapharm will be responsible for obtaining registration to market macimorelin in Israel and the Palestinian
Authority, while we will be responsible for manufacturing, product supply, quality assurance and control, regulatory support,
and maintenance of the relevant intellectual property. The regulatory process for macimorelin in Israel is expected to be completed
in the second half of 2021.
Nasdaq
Letters
On
July 27, 2020, we received a letter from the Listing Qualifications Staff of the NASDAQ (the “Staff”), notifying us
that for the last 30 consecutive business days prior to the date of the letter, the closing bid price of our Common Shares was
below $1.00 per share and, therefore, we did not meet the requirement for continued listing on the NASDAQ as required by Nasdaq
Listing Rule 5550(a)(2) (the “Bid Price Rule”). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we have been
provided a grace period of 180 calendar days, through January 25, 2021, to evidence compliance with the Bid Price Rule. To evidence
compliance, we must evidence a closing bid price of at least $1.00 per share for a minimum of 10 consecutive business days on
or before January 25, 2021. In the event we do not timely evidence compliance with the Bid Price Rule, we may be eligible for
an additional 180-day grace period or may face delisting. In the latter case, we would be entitled to request a hearing before
the Nasdaq Hearings Panel, which request would stay any delisting action by the Staff pending completion of the hearing process.
NASDAQ’s notice has no immediate effect on the listing of our common shares on NASDAQ and does not otherwise impact our
listing on the Toronto Stock Exchange. We are considering the options available to us to evidence compliance with the Bid Price
Rule prior to the expiration of the grace period.
In
addition to the minimum bid price requirement, the continued listing rules of the NASDAQ require us to meet at least one of the
following listing standards: (i) stockholders’ equity of at least $2.5 million, (ii) market value of listed securities (calculated
by multiplying the daily closing bid price of our securities by our total outstanding securities) of at least $35 million or (iii)
net income from continuing operations (in the latest fiscal year or in two of the last three fiscal years) of at least $500,000.
On April 8, 2020, we received a letter
from the Staff notifying us that, based upon the net loss for the fiscal year ended December 31, 2019, the Company no longer satisfies
the minimum net income requirement for continued listing on The Nasdaq Capital Market under Nasdaq Listing Rule 5550(b)(3) and
does not otherwise satisfy the alternative requirements of market value of listed securities or stockholders’ equity. The
Company timely submitted a plan to regain compliance with Nasdaq Listing Rule 5550(b)(3), and on June 3, 2020 the Staff granted
the Company an extension of 180 days, through October 5, 2020, to evidence compliance with this requirement. On July 1, 2020,
we priced an approximate $12 million public offering of our common stock and warrants, pursuant to which we ultimately raised
approximately $10.5 million in net proceeds. As a result of the offering, on July 30, 2020, we received a letter from the Staff
notifying us that the Staff determined that we comply with the stockholders’ equity component of the rules, subject to being
delisted if in a future periodic report we fail to evidence compliance. There is no assurance that we will maintain compliance,
and therefore there can be no assurance that our Common Shares will remain listed on the NASDAQ.
Changes
in personnel
On
December 16, 2019, the Company announced changes to its director composition planned for the first quarter of 2020. Mr. Gilles
Gagnon (M.Sc., MBA, ICD.D) joined the Board of Directors of the Company (the “Board”) on January 1, 2020 and replaced
Robin Hoke Smith on the Nominating, Governance and Compensation Committee effective May 15, 2020. Mr. Gérard Limoges, who
had served on the Board since 2004, retired from the Board on March 31, 2020, and was replaced by Mr. Pierre-Yves Desbiens (CPA,
CA, CF, MBA), who also replaced Mr. Limoges as Chair of the Audit Committee. On May 15, 2020, Mr. Peter Edwards (J.D.) joined
the Board and replaced Dr. Brent Norton on the Audit Committee and on the Nominating, Governance and Compensation Committee
Settlement
of class-action lawsuit
On
March 9, 2020, the Company settled the previously disclosed class-action lawsuit against it pending in the U.S. District Court
for New Jersey. The settlement payment of $6.5 million will be funded entirely by our insurers. The class-action lawsuit alleged
that the Company and certain of its former officers and directors violated the Securities Exchange Act of 1934 in connection with
certain public statements between August 30, 2011 and November 6, 2014, regarding the safety and efficacy of Macrilen™ (macimorelin)
and the prospects for the approval of the Company’s NDA for the product by the FDA. This settlement remains subject to execution
of final settlement documents and approval by the U.S. District Court for the District of New Jersey.
Renegotiation
of German building lease
Effective
March 31, 2020, the Company and its landlord mutually agreed to modify its existing building lease agreement for its German subsidiary
for 30,343 square feet for management, R&D, business development and administration whereby 9,882 square feet was retained
for business development, clinical development, manufacturing, supply chain and management purposes, extended the lease term for
its portion of the reduced space from April 30, 2021 to March 31, 2022 and, retained one sub-lessee until April 30, 2021. On May
5, 2020, the sub-lessee terminated its lease with the Company effective April 30, 2020 and signed a lease directly with the landlord.
AEZS Germany’s revised square footage is 6,835 for business development, clinical development, manufacturing, supply chain
and management purposes.
Exposure
to epidemic or pandemic outbreak
As
of August 5, 2020, coronavirus or COVID-19, a contagious disease that was characterized by the World Health Organization
as a pandemic in early 2020, continues to affect the global community and is adversely affecting our business operations. Given
this rapidly evolving situation, the duration, scope and impact on our business operations, clinical studies and financial results
cannot at this time be fully determined or quantified. Aeterna Zentaris has developed protocols and procedures should they be
required to deal with any potential epidemics and pandemics and has implemented these protocols and procedures in place to address
the current COVID-19 pandemic. Despite appropriate steps being taken to mitigate such risks, there can be no assurance that existing
policies and procedures will ensure that the Company’s operations will not be further adversely affected.
The
COVID-19 pandemic has resulted in a widespread health crisis that has adversely affected the economies and financial markets of
many regions and countries. While the COVID-19 outbreak may still be in its early stages, international stock markets have begun
to reflect the uncertainty associated with the potential economic impact of the outbreak and the significant declines and volatility
in the TSX Composite Index, the NASDAQ and other major indices around the world in the latter part of February and in March 2020
has largely been attributed to the effects of COVID-19. There can be no assurance that a disruption in financial markets, regional
economies and the world economy would not negatively affect Aeterna Zentaris’ access to capital or the financial performance
of the Company.
Uncertain
factors, including the duration of the outbreak, the severity of the disease and the actions to contain or treat its impact, could
impair our operations including, among other things, employee mobility and productivity, availability of our facilities, conduct
of our clinical trials and the availability and the productivity of third party product and service suppliers. Please see the
Risk Factor entitled “The economic effects of a pandemic, epidemic or outbreak of an infectious disease could adversely
affect our operations or the market price of our Common Shares” in our Annual Report on Form 20-F for the year ended December
31, 2019.
Monetization
of non-strategic assets
Opportunities
for the Company to monetize non-strategic assets include preclinical work done on AEZS-120, a prostate cancer vaccine and preclinical
and clinical work done on AEZS-108 (zoptarelin doxorubicin) and AEZS-104 (perifosine).
Condensed
Consolidated Statements of Comprehensive (Loss) Income
(in
thousands, except share and per share data) (unaudited)
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
June 30
|
|
|
June 30
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty income
|
|
|
10
|
|
|
|
8
|
|
|
|
24
|
|
|
|
21
|
|
Product sales
|
|
|
—
|
|
|
|
129
|
|
|
|
1,016
|
|
|
|
129
|
|
Supply chain
|
|
|
40
|
|
|
|
39
|
|
|
|
81
|
|
|
|
45
|
|
Licensing revenue
|
|
|
18
|
|
|
|
18
|
|
|
|
37
|
|
|
|
36
|
|
Total revenues
|
|
|
68
|
|
|
|
194
|
|
|
|
1,158
|
|
|
|
231
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
12
|
|
|
|
101
|
|
|
|
874
|
|
|
|
101
|
|
Research and development costs
|
|
|
189
|
|
|
|
571
|
|
|
|
508
|
|
|
|
1,099
|
|
General and administrative expenses
|
|
|
1,141
|
|
|
|
1,923
|
|
|
|
2,265
|
|
|
|
3,560
|
|
Selling expenses
|
|
|
199
|
|
|
|
495
|
|
|
|
447
|
|
|
|
799
|
|
Restructuring costs
|
|
|
—
|
|
|
|
773
|
|
|
|
—
|
|
|
|
773
|
|
Impairment of right of use asset
|
|
|
—
|
|
|
|
64
|
|
|
|
—
|
|
|
|
401
|
|
Gain on modification of building lease
|
|
|
(34
|
)
|
|
|
—
|
|
|
|
(219
|
)
|
|
|
—
|
|
Impairment of prepaid asset
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
169
|
|
Total operating expenses
|
|
|
1,507
|
|
|
|
3,927
|
|
|
|
3,875
|
|
|
|
6,902
|
|
Loss from operations
|
|
|
(1,439
|
)
|
|
|
(3,733
|
)
|
|
|
(2,717
|
)
|
|
|
(6,671
|
)
|
Gain (loss) due to changes in foreign currency exchange rates
|
|
|
130
|
|
|
|
(6
|
)
|
|
|
26
|
|
|
|
58
|
|
(Loss) gain on change in fair value of warrant liability
|
|
|
(2,139
|
)
|
|
|
3,926
|
|
|
|
331
|
|
|
|
1,865
|
|
Other finance (costs) income
|
|
|
(2
|
)
|
|
|
19
|
|
|
|
(311
|
)
|
|
|
43
|
|
Net finance income (costs)
|
|
|
(2,011
|
)
|
|
|
3,939
|
|
|
|
46
|
|
|
|
1,966
|
|
Net (loss) income
|
|
|
(3,450
|
)
|
|
|
206
|
|
|
|
(2,671
|
)
|
|
|
(4,705
|
)
|
Other comprehensive (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items that may be reclassified subsequently to profit or loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
(209
|
)
|
|
|
(110
|
)
|
|
|
1
|
|
|
|
(26
|
)
|
Items that will not be reclassified to profit or loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial (loss) on defined benefit plans
|
|
|
(1,418
|
)
|
|
|
(756
|
)
|
|
|
(30
|
)
|
|
|
(1,491
|
)
|
Comprehensive (loss)
|
|
|
(5,077
|
)
|
|
|
(660
|
)
|
|
|
(2,700
|
)
|
|
|
(6,222
|
)
|
Net (loss) income per share [basic and diluted]
|
|
|
(0.15
|
)
|
|
|
0.01
|
|
|
|
(0.12
|
)
|
|
|
(0.28
|
)
|
Weighted average number of shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
23,515,579
|
|
|
|
16,622,415
|
|
|
|
22,519,497
|
|
|
|
16,532,090
|
|
Diluted
|
|
|
23,515,579
|
|
|
|
17,260,016
|
|
|
|
22,519,497
|
|
|
|
16,532,090
|
|
Condensed
Consolidated Interim Statements of Financial Position
|
|
As at
June 30, 2020
|
|
|
As at
December 31, 2019
|
|
(in thousands)
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
Cash and cash equivalents
|
|
|
6,743
|
|
|
|
7,838
|
|
Trade and other receivables and other current assets
|
|
|
1,937
|
|
|
|
1,869
|
|
Inventory
|
|
|
375
|
|
|
|
1,203
|
|
Restricted cash equivalents
|
|
|
313
|
|
|
|
364
|
|
Property, plant and equipment
|
|
|
25
|
|
|
|
35
|
|
Right of use assets
|
|
|
190
|
|
|
|
582
|
|
Other non-current assets
|
|
|
8,086
|
|
|
|
8,090
|
|
Total assets
|
|
|
17,669
|
|
|
|
19,981
|
|
Payables and accrued liabilities and income taxes payable
|
|
|
1,697
|
|
|
|
3,596
|
|
Current portion of provision for restructuring and other costs
|
|
|
107
|
|
|
|
418
|
|
Current portion of deferred revenues
|
|
|
596
|
|
|
|
991
|
|
Lease liabilities
|
|
|
222
|
|
|
|
903
|
|
Warrant liability
|
|
|
12
|
|
|
|
2,255
|
|
Non-financial non-current liabilities (1)
|
|
|
14,104
|
|
|
|
14,281
|
|
Total liabilities
|
|
|
16,738
|
|
|
|
22,444
|
|
Shareholders’ equity (deficiency)
|
|
|
931
|
|
|
|
(2,463
|
)
|
Total liabilities and shareholders’ equity (deficiency)
|
|
|
17,699
|
|
|
|
19,981
|
|
(1)
Comprised mainly of employee future benefits, provisions for restructuring and other costs and non-current portion of deferred
revenues.
Basis
of presentation
The
accounting policies in these condensed interim consolidated financial statements are consistent with those presented in the Company’s
annual consolidated financial statements except as noted below:
Share
purchase warrants
The
Company accounts for share purchase warrants that meet the fixed-for-fixed criteria as equity-settled.
Deferred
share units
Deferred
share units (“DSUs) are classified as other capital. The Company grants DSUs to members of its Board of Directors who are
not employees or officers of the Company. DSUs cannot be redeemed until the holder is no longer a director of the Company and
are considered equity-settled instruments. Under the terms of the DSU agreement, the DSUs vest immediately upon grant. The value
attributable to the DSUs is based on the market value of the share price at the time of grant and share based compensation expense
is recognized in general and administrative expenses on the consolidated statements of loss and comprehensive (loss) income. At
the time of redemption, each DSU may be exchanged for one common share of the Company.
Any
consideration received by the Company in connection with the exercise of DSUs is credited to share capital. Any other capital
component of the share-based compensation is transferred to share capital upon the issuance of shares.
Critical
accounting policies, estimates and judgments
The
preparation of condensed interim consolidated financial statements in accordance with IFRS requires management to make judgments,
estimates and assumptions that affect the reported amounts of the Company’s assets, liabilities, revenues, expenses and
related disclosures. Judgments, estimates and assumptions are based on historical experience, expectations, current trends and
other factors that management believes to be relevant at the time at which the Company’s condensed interim consolidated
financial statements are prepared.
Management
reviews, on a regular basis, the Company’s accounting policies, assumptions, estimates and judgments in order to ensure
that the condensed interim consolidated financial statements are presented fairly and in accordance with IFRS. Revisions to accounting
estimates are recognized in the period in which the estimates are revised and in any future periods affected.
Measurement
uncertainty:
The
significant spread of COVID-19 within the U.S., Canada, Germany and elsewhere has resulted in a widespread health crisis and has
had adverse effects on local, national and global economies generally, the markets the Company serves, its operations and the
market price of its common shares.
Uncertain
factors, including the duration of the outbreak, the severity of the disease and the actions to contain or treat its impact, could
cause interruptions in the Company’s operations and supply chain, which could impact the Company’s ability to accurately
measure the net realizable value of inventory and fair value of trade and other receivables.
Critical
accounting estimates and assumptions, as well as critical judgments used in applying accounting policies in the preparation of
our interim condensed consolidated financial statements were the same as those applied to our annual consolidated financial statements
as of December 31, 2019 and December 31, 2018 and for the years ended December 31, 2019, 2018 and 2017.
Impact
of adoption of new IFRS standards in 2020
(a)
|
IAS
1 Presentation of financial statements and IAS 8 Accounting policies, changes in accounting estimates and errors (amendment)
|
The
amendments to IAS 1 and IAS 8 clarify the definition of material and seek to align the definition used in the Conceptual Framework
with that in the standards themselves as well as ensuring the definition of material is consistent across all IFRS. The Company
adopted these amendments effective January 1, 2020. The adoption of these amendments did not have a significant impact on the
Company’s condensed interim consolidated financial statements.
(b)
|
Conceptual
framework for financial reporting
|
Together
with the revised Conceptual Framework published in March 2018, the IASB also issued Amendments to References to the Conceptual
Framework in IFRS Standards. The Company adopted the Revised Conceptual Framework effective January 1, 2020. The adoption of these
amendments did not have a significant impact on the Company’s condensed interim consolidated financial statements.
IFRS
Pronouncements issued but not yet effective
(c)
|
IAS
1 – Presentation of financial statements
|
The
amendment to IAS 1 clarifies how to classify debt and other liabilities as either current or non-current. The amendment will be
effective for annual periods beginning on or after January 1, 2022. The Company is currently evaluating the new guidance and impacts
on its consolidated financial statements.
(d)
|
Annual
improvements to IFRS standards 2018-2020
|
The
annual improvements process addresses issues in the 2018-2020 reporting cycles including changes to IFRS 9, Financial Instruments,
IFRS 1, First Time adoption of IFRS, IFRS 16, Leases, and IAS 41, Biological Assets.
i)
The amendment to IFRS 9 addresses which fees should be included in the 10% test for derecognition of financial liabilities.
ii)
The amendment to IFRS 1 allows a subsidiary adopting IFRS at a later date than its parent to also measure cumulative translation
differences using the amounts reported by the parent based on the parent’s date of transition to IFRS.
iii)
The amendment to IFRS 16’s illustrative example 13 removes the illustration of payments from the lessor related to leasehold
improvements.
These
amendments will be effective for annual periods beginning on or after January 1, 2022. The Company is currently evaluating the
new guidance and impacts on its consolidated financial statements.
(e)
|
IAS 37 - Onerous contracts - Cost of fulfilling a
contract
|
The
amendment to IAS 37 clarifies the meaning of costs to fulfil a contract and that before a separate provision for an onerous contract
is established, an entity recognizes any impairment loss that has occurred on assets used in fulfilling the contract, rather than
on assets dedicated to the contract. This amendment will be effective for annual periods beginning on or after January 1, 2022.
The Company is currently evaluating the new guidance and impacts on its consolidated financial statements.
(f)
|
IAS 16 - Proceeds before intended use
|
The
amendment to IAS 16 prohibits an entity from deducting from the cost of an item of Property, plant and equipment any proceeds
received from selling items produced while the entity is preparing the assets for its intended use (for example, the proceeds
from selling samples produced when testing a machine to see if it is functioning properly). It also clarifies that an entity is
testing whether the asset is functioning properly when it assesses the technical and physical performance of the asset. The amendment
also requires certain related disclosures. This amendment will be effective for annual periods beginning on or after January 1,
2022. The Company is currently evaluating the new guidance and impacts on its consolidated financial statements.
Financial
Risk Factors and Other Instruments
The
nature and extent of our exposure to risks arising from financial instruments, including credit risk, liquidity risk and market
risk (share price risk) and how we manage those risks are described in note 24 to the Company’s annual audited consolidated
financial statements as at December 31, 2019 and 2018 and for the years ended December 31, 2019, 2018 and 2017.
Results
of operations for the three-month period ended June 30, 2020
For
the three-month period ended June 30, 2020, we reported a consolidated net loss of $3.5 million, or $0.15 loss per common share
(basic), as compared with a consolidated net income of $0.2 million, or $0.01 income per common share for the three-month period
ended June 30, 2019. The $3.7 million decline in net results is primarily from a change in fair value of warrant liability of
$6.1 million partially offset by a reduction of $2.3 million in operating expenses.
Revenues
Our
total revenue for the three-month period ended June 30, 2020 was $0.07 million as compared with $0.2 million for the same period
in 2019, representing a decrease of $0.13 million. The 2020 revenue was comprised of $0.01 million in royalty revenue (2019 -
$0.01 million), $nil in product sales of Macrilen™ (macimorelin) to Novo (2019 - $0.13 million), $0.04 million in supply
chain revenue (2019 - $0.04 million) and $0.02 million in licensing revenue (2019 – $0.02 million).
Operating
expenses
Our
total operating expense for the three-month period ended June 30, 2020 was $1.5 million as compared with $3.8 million for the
same period in 2019, representing a decrease of $2.3 million. This decrease arises primarily from a $0.8 million decline in general
and administrative, a $0.8 million decline in restructuring costs, a $0.4 million decline in research and development costs, and
a $0.3 million decline in selling expenses. The impact of our June 2019 restructuring in our German subsidiary, namely for payroll
and share based compensation costs, is a key influence in the declines in general and administrative expenses, selling and research
and development expenses. The further impact on the decline in research and development costs is attributed to the different phases
of activity of Study P01. In the first half of 2019, study activities included study start with document development, medication
manufacturing, study feasibility testing at different sites and clinical trial applications in Hungary, Poland, Belarus, Russia,
Ukraine and Serbia, while in 2020, all sites had completed their enrollment and clinical activities.
Net
finance (costs) income
Our
net finance costs for the three-month period ended June 30, 2020 was $2.0 million as compared with a net finance income of $3.9
million for the same period in 2019, representing a decrease of $5.9 million. This is primarily due to a $6.1 million loss in
fair value of warrant liability offset by $0.2 million from changes in currency exchange rates. Effective June 16, 2020, the Company
registered the common shares underlying the 2,608,696 investor warrants and 243,478 placement agent warrants issued on February
21, 2020 and the 3,325,000 investor warrants issued on September 20, 2019 by way of a registration statement which removed the
cashless exercise option for registered warrants.
Results
of operations for the six-month period ended June 30, 2020
For
the six-month period ended June 30, 2020, we reported a consolidated net loss of $2.7 million, or $0.12 loss per common share,
as compared with a consolidated net loss of $4.7 million, or $0.28 loss per common share (basic), for the six-month period ended
June 30, 2019. The $2.0 million improvement in net results is primarily from a reduction of operating expenses of $2.9 million
and increase in total revenues of $0.9 million partially offset by a $1.9 million decline in net finance income.
Revenues
Our
total revenue for the six-month period ended June 30, 2020 was $1.2 million as compared with $0.2 million for the same period
in 2019, representing an increase of $1.0 million. The 2020 revenue was comprised of $0.02 million in royalty income (2019 - $0.02
million), $1.0 million in product sales (2018 – $0.1 million), $0.08 million in supply chain (2019 - $0.05 million) and
$0.04 million in licensing revenue (2019 - $0.04 million). The product sales in 2020 represented sales of Macrilen™ (macimorelin)
to Novo.
Operating
expenses
Our
total operating expense for the six-month period ended June 30, 2020 was $3.9 million as compared with $6.8 million for the same
period in 2019, representing a decrease of $2.9 million. This decline arises primarily from a $1.3 million reduction in general
and administration expenses, a decrease of $0.8 million in restructuring costs, a $0.6 million reduction in research and development
costs, a reduction of $0.4 million in impairment of right to use assets, $0.4 million reduction in selling costs, a $0.2 million
gain in modification of building lease and $0.2 million impairment of prepaid asset, offset by an increase of $0.8 million in
cost of sales. This decline in operating expenses is in-line with the expected impact of our cost control initiatives previously
implemented.
Net
finance income
Our
net finance income for the six-month period ended June 30, 2020 was $0.05 million as compared with $2.0 million for the same period
in 2019, representing a decrease of $1.9 million. This is primarily due to $1.5 million change in fair value of warrant liability,
an increase of $0.4 million in other finance income and a $0.03 million decline in gain due to foreign currency exchange rates.
Effective June 16, 2020, the Company registered the common shares underlying the 2,608,696 investor warrants and 243,478 placement
agent warrants issued on February 21, 2020 and the 3,325,000 investor warrants issued on September 20, 2019 by way of a registration
statement which removed the cashless exercise option for registered warrants.
Selected
quarterly financial data
|
|
Three
months ended
|
|
(in
thousands, except for per share data) (Unaudited)
|
|
June
30, 2020
|
|
|
March
31, 2020
|
|
|
December
31, 2019
|
|
|
September
30, 2019
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Revenues
|
|
|
68
|
|
|
|
1,090
|
|
|
|
18
|
|
|
|
283
|
|
Net
(loss) income
|
|
|
(3,450
|
)
|
|
|
779
|
|
|
|
(1,006
|
)
|
|
|
(331
|
)
|
Net
(loss) income per share [basic]*
|
|
|
(0.15
|
)
|
|
|
0.04
|
|
|
|
(0.05
|
)
|
|
|
(0.02
|
)
|
Net
(loss) income per share [diluted]*
|
|
|
(0.15
|
)
|
|
|
0.04
|
|
|
|
(0.05
|
)
|
|
|
(0.02
|
)
|
|
|
Three months ended
|
|
(in thousands, except for per share data) (Unaudited)
|
|
June 30, 2019
|
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
|
September 30, 2018
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Revenues
|
|
|
194
|
|
|
|
37
|
|
|
|
1,392
|
|
|
|
663
|
|
Net (loss) income
|
|
|
206
|
|
|
|
(4,911
|
)
|
|
|
(5,126
|
)
|
|
|
(2,509
|
)
|
Net (loss) income per share [basic]*
|
|
|
0.01
|
|
|
|
(0.30
|
)
|
|
|
(0.31
|
)
|
|
|
(0.15
|
)
|
Net loss per share [basic and diluted]*
|
|
|
0.01
|
|
|
|
(0.30
|
)
|
|
|
(0.31
|
)
|
|
|
(0.15
|
)
|
*
|
Net
loss per share is based on the weighted average number of shares outstanding during each reporting period, which may differ
on a quarter-to-quarter basis. As such, the sum of the quarterly net loss per share amounts may not equal full-year net loss
per share.
|
Historical
quarterly results of operations and net income (loss) cannot be taken as reflective of recurring revenue or expenditure patterns
of predictable trends, largely given the non-recurring nature of certain components of our historical revenues, due most notably
to unpredictable quarterly variations in net finance income, which are impacted by periodic “mark-to-market” revaluations
of our warrant liability and of foreign exchange gains and losses. In addition, we cannot predict what the revenues from royalties
will be earned from the License Agreement.
Use
of proceeds
We
began 2020 with $7.8 million in cash and cash equivalents. During the six-month period ended June 30, 2020, our operating activities
consumed $4.9 million, our financing activities provided $3.7 million and the effect of exchange rates on cash and cash equivalents
accounted for $0.01 million. As at June 30, 2020 we had $6.7 million of cash and cash equivalents.
Liquidity
and capital reserves
Our
operations and capital expenditures have generally been financed through certain transactions impacting our cash flows from operating
activities, public equity offerings, registered direct offerings and issuances under various “at-the-market” (“ATM”)
offering programs. In the first quarter of 2020, we closed the February 2020 Financing with net cash proceeds of $3.9 million.
Subsequent to the end of the fiscal quarter, on July 7, 2020, the Company closed a public offering for gross proceeds of $12 million,
with the issuance of common shares and warrants and, on August 5, 2020, a registered direct offering priced at-the-market under
Nasdaq rules for gross proceeds of $7.0 million. See “Financing activities” under Key Developments on pages 2
and 3 of this MD&A.
|
|
Six months ended June 30,
|
|
(in thousands) (Unaudited)
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Cash and cash equivalents - Beginning of period
|
|
|
7,838
|
|
|
|
14,512
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net cash (used in) operating activities
|
|
|
(4,854
|
)
|
|
|
(5,176
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
3,690
|
|
|
|
4
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities
|
|
|
56
|
|
|
|
50
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
13
|
|
|
|
293
|
|
Cash and cash equivalents - End of period
|
|
|
6,743
|
|
|
|
9,683
|
|
Operating
Activities
Cash
used by operating activities totaled $4.9 million for the six months ended June 30, 2020, as compared to $5.2 million used by
operating activities in the same period in 2019. This $0.3 million improvement in operating activities is attributed primarily
to the increase in product sales and supply chain activities, the impact of the June 2019 restructuring in Germany, primarily
impacting payroll and share-based compensation costs, and the reduced costs of the Study P01 given the differing stage of execution,
in the first half of 2020 as compared to the first half of 2019.
Financing
Activities
Cash
provided by financing activities totaled $3.7 million for the six months ended June 30, 2020, as compared with cash used of $nil
in the same period in 2019. On February 21, 2020, the Company closed the February 2020 Financing with net cash proceeds of $3.9
million.
Capital
stock
As
at June 30, 2020, we had 23,584,071 common shares issued and outstanding, as well as 499,410 stock options and deferred share
units outstanding and 8,508,174 share purchase warrants outstanding. As at August 5, 2020, we have 62,678,613 common shares
issued and outstanding, as well as 499,410 stock options and deferred share units outstanding and 47,232,366 share purchase
warrants outstanding
Warrants
as at August 5, 2020
|
|
Warrants
|
|
|
Exercise
Price
|
|
|
|
|
|
#
|
|
|
$
|
|
|
Expiry
date
|
December
2015 registered direct offering
|
|
|
2,331,000
|
|
|
|
7.10
|
|
|
December
13, 2020
|
September
2019 registered direct offering
|
|
|
3,325,000
|
|
|
|
1.65
|
|
|
September
24, 2024
|
February
2020 Financing
|
|
|
2,608,696
|
|
|
|
1.20
|
|
|
August
21, 2025
|
February
2020 Financing
|
|
|
243,478
|
|
|
|
1.61719
|
|
|
February
19, 2025
|
July
2020 Financing
|
|
|
26,666,666
|
|
|
|
0.45
|
|
|
July
7, 2025
|
July
2020 Financing
|
|
|
1,866,667
|
|
|
|
0.5625
|
|
|
July
1, 2025
|
August
2020 Financing
|
|
|
9,320,907
|
|
|
|
0.47
|
|
|
February
5, 2026
|
August
2020 Financing
|
|
|
869,952
|
|
|
|
0.7040625
|
|
|
August
3, 2025
|
|
|
|
47,232,366
|
|
|
|
|
|
|
|
On
March 10, 2020, we had 28,144 share purchase warrants expire, each with an exercise price of $1.07 and on May 1, 2020 we had 945,000
share purchase warrants expire, each with an exercise price of $4.70.
Long-term
incentive and stock option plan
|
|
Six months ended
June 30, 2020
|
|
|
|
US$ Stock options
|
|
|
Weighted average exercise price
|
|
|
DSUs
|
|
|
CAN$ Stock options
|
|
|
Weighted average exercise price
|
|
June 30, 2020
|
|
|
(Number)
|
|
|
|
(US$)
|
|
|
|
(Number)
|
|
|
|
(Number)
|
|
|
|
(CAN$)
|
|
Balance – Beginning of period
|
|
|
741,116
|
|
|
|
3.61
|
|
|
|
212,000
|
|
|
|
441
|
|
|
|
912.00
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
120,000
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
(159,000
|
)
|
|
|
—
|
|
|
|
—
|
|
Canceled/Forfeited
|
|
|
(330,350
|
)
|
|
|
2.14
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Expired
|
|
|
(84,366
|
)
|
|
|
15.51
|
|
|
|
—
|
|
|
|
(431
|
)
|
|
|
912.00
|
|
Balance – End of period
|
|
|
326,400
|
|
|
|
2.03
|
|
|
|
173,000
|
|
|
|
10
|
|
|
|
912.00
|
|
Adequacy
of financial resources
Since
inception, the Company has incurred significant expenses in its efforts to develop and co-promote products. Consequently, the
Company has incurred operating losses and negative cash flow from operations historically and in each of the last several years
except for the year ended December 31, 2018 when the Company earned revenue from the sale of a license for the adult indication
of Macrilen™ (macimorelin) in the United States and Canada. As at June 30, 2020, the Company had an accumulated deficit
of $319.6 million. The Company also had a net loss of $2.7 million for the six months ended June 30, 2020, and negative cash flow
from operations of $4.9 million.
The
Company’s principal focus is on the commercialization of Macrilen™ (macimorelin) and it currently does not have any
other approved products. Under the terms of License Agreement, Novo is funding 70% of the pediatric clinical development submitted
to the EMA and FDA, the Company’s sole development activity. In November 2019, Novo contracted AEZS Germany, our wholly
owned German subsidiary, to provide supply chain services for the manufacture of Macrilen™ (macimorelin). In April 2020,
we announced the results from AEZS-130-P01 (“Study P01”) to establish a dose that can both be safely administered
to pediatric patients and cause a clear rise in growth hormone concentration in subjects ultimately diagnosed as not having growth
hormone deficiency. The Company plans to proceed with the pivotal second study, AEZS-130-P02 (“Study P02”), with an
expected start date in the first quarter of 2021 and an expected completion date in July 2022, according to the pediatric investigation
plan (“PIP”) agreement with the EMA. Study P02 is designed to investigate the diagnostic efficacy and safety of macimorelin
acetate in pediatric patients from 2 years of age to 18 years of age with suspected growth hormone deficiency.
As
at June 30, 2020, a substantial portion of the Company’s cash is held in AEZS Germany, the Company’s principle operating
subsidiary. AEZS Germany is the counter-party to the License Agreement described above with Novo, and as such, for generating
future revenue earned under the License Agreement. Management considers the cash resources available to AEZS Germany in executing
its obligations under the License Agreement. In the event the current and medium term liabilities of AEZS Germany exceed the fair
values ascribed to its assets, under German solvency laws, it may no longer be possible for AEZS Germany’s operations to
continue or for AEZS Germany to transfer cash to Aeterna Zentaris Inc or its U.S. subsidiary, if needed.
In
2020, the COVID-19 pandemic began causing significant financial market declines and social dislocation. The situation is dynamic
with various cities and countries around the world responding in different ways to address the outbreak. The spread of COVID-19
may impact our operations, including the potential interruption of our clinical trial activities and our supply chain, or that
of our licensee. For example, the COVID-19 outbreak may delay enrollment in our clinical trial due to prioritization of hospital
resources toward the outbreak, and some patients may be unwilling to be enrolled in our trials or be unable to comply with clinical
trial protocols if quarantines impede patient movement or interrupt healthcare services, which would delay our ability to conduct
clinical trials or release clinical trial results and could delay our ability to obtain regulatory approval and commercialize
our product candidates. The pandemic may also impact the ability of our suppliers to deliver components or raw materials on a
timely basis or at all. In addition, hospitals may reduce staffing and reduce or postpone certain treatments in response to the
spread of an infectious disease. Our licensee may be impacted due to significant delays of diagnostic activities in the U.S. To
date, the Company has not experienced significant business disruption from COVID-19.
Contractual
obligations and commitments
(in thousands)
|
|
Service and manufacturing
|
|
|
|
$
|
|
Less than 1 year
|
|
|
910
|
|
1 - 3 years
|
|
|
5
|
|
4 - 5 years
|
|
|
5
|
|
More than 5 years
|
|
|
2
|
|
Total
|
|
|
922
|
|
Contingencies
In
the normal course of operations, the Company may become involved in various claims and legal proceedings related to, for example,
contract terminations and employee-related and other matters.
Securities
class action lawsuit
On
March 9, 2020, the Company settled the previously disclosed class-action lawsuit against it pending in the U.S. District Court
for New Jersey. This settlement remains subject to execution of final settlement documents and approval by the U.S. District Court
for the District of New Jersey.
Related
Party Transactions and Off-Balance Sheet Arrangements
Other
than employment agreements and indemnification agreements with our management, there are no related party transactions.
As
at June 30, 2020, we did not have any interests in special purpose entities or any other off-balance sheet arrangements.
Risk
Factors and Uncertainties
An
investment in our securities involves a high degree of risk. In addition to the other information included in this MD&A and
in the related consolidated financial statements, investors are urged to carefully consider the risks described below and under
the caption “Risk Factors and Uncertainties” in our most recent Annual Report on Form 20-F for the year ended December
31, 2019 for a discussion of the various risks that may materially affect our business. The risks and uncertainties not presently
known to us or that we currently deem immaterial may also materially harm our business, operating results and financial condition
and could result in a complete loss of your investment.
Risks
Relating to Us and Our Business
Our
Common Shares may be delisted from the NASDAQ or the TSX, which could affect their market price and liquidity. If our Common Shares
were to be delisted, investors may have difficulty in disposing their Common Shares.
Our
Common Shares are currently listed on both the NASDAQ and the TSX under the symbol “AEZS”. We must meet continuing
listing requirements to maintain the listing of our Common Shares on the NASDAQ and the TSX. For continued listing, the NASDAQ
requires, among other things, that listed securities maintain a minimum closing bid price of not less than $1.00 per share. On
July 27, 2020, we received a letter from the Listing Qualifications Staff of the NASDAQ (the “Staff”), notifying us
that for the last 30 consecutive business days prior to the date of the letter, the closing bid price of our Common Shares was
below $1.00 per share and, therefore, we did not meet the requirement for continued listing on the NASDAQ as required by Nasdaq
Listing Rule 5550(a)(2) (the “Bid Price Rule”). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we have been
provided a grace period of 180 calendar days, through January 25, 2021, to evidence compliance with the Bid Price Rule. To evidence
compliance, we must evidence a closing bid price of at least $1.00 per share for a minimum of 10 consecutive business days on
or before January 25, 2021. In the event we do not timely evidence compliance with the Bid Price Rule, we may be eligible for
an additional 180-day grace period or may face delisting. In the latter case, we would be entitled to request a hearing before
the Nasdaq Hearings Panel, which request would stay any delisting action by the Staff pending completion of the hearing process.
NASDAQ’s notice has no immediate effect on the listing of our common shares on NASDAQ and does not otherwise impact our
listing on the Toronto Stock Exchange. We are considering the options available to us to evidence compliance with the Bid Price
Rule prior to the expiration of the grace period.
In
addition to the minimum bid price requirement, the continued listing rules of the NASDAQ require us to meet at least one of the
following listing standards: (i) stockholders’ equity of at least $2.5 million, (ii) market value of listed securities (calculated
by multiplying the daily closing bid price of our securities by our total outstanding securities) of at least $35 million or (iii)
net income from continuing operations (in the latest fiscal year or in two of the last three fiscal years) of at least $500,000
(collectively, the “Additional Listing Standards”). If we fail to meet at least one of the Additional Listing Standards,
our Common Shares may be subject to delisting after the expiration of the period of time, if any, that we are allowed for regaining
compliance.
On April 8, 2020, we received a letter
from the Listing Qualifications Staff of the NASDAQ, notifying us that, based upon the net loss for the fiscal year ended
December 31, 2019, the Company no longer satisfies the minimum net income requirement for continued listing on The Nasdaq Capital
Market under Nasdaq Listing Rule 5550(b)(3) and does not otherwise satisfy the alternative requirements of market value of listed
securities or stockholders’ equity. The Company timely submitted a plan to regain compliance with Nasdaq Listing Rule 5550(b)(3),
and on June 3, 2020 the Staff granted the Company an extension of 180 days, through October 5, 2020, to evidence compliance with
this requirement. On July 1, 2020, we priced an approximate $12 million public offering of our common stock and warrants, pursuant
to which we ultimately raised approximately $10.5 million in net proceeds. As a result of the offering, on July 30, 2020,
we received a letter from the Staff notifying us that the Staff determined that we comply with the stockholders’
equity component of the rules, subject to being delisted if in a future periodic report we fail to evidence compliance.
There is no assurance that we will maintain compliance, and therefore there can be no assurance that our Common Shares
will remain listed on the NASDAQ or the TSX.. If we fail to meet any of the NASDAQ’s or the TSX’s continued listing
requirements, our Common Shares may be delisted. Any delisting of our Common Shares may adversely affect our ability to raise
additional financing through the public or private sale of equity securities, would significantly adversely affect the ability
of investors to trade our securities and would negatively affect the value and liquidity of our Common Shares. Delisting could
also have other negative results, including the potential loss of confidence by employees, the loss of institutional investor
interest and fewer business opportunities. If our Common Shares are delisted by the NASDAQ or the TSX, the price of our Common
Shares may decline, and a shareholder may find it more difficult to dispose, or obtain quotations as to the market value, of such
shares. Moreover, if we are delisted, we could incur additional costs under state blue sky laws in connection with any sales of
our securities. These requirements could severely limit the market liquidity of our Common Shares and the ability of our shareholders
to sell our Common Shares in the secondary market.
It
is possible that we may be a passive foreign investment company, which could result in adverse tax consequences to U.S. investors.
Adverse
U.S. federal income tax rules apply to “U.S. Holders” (as defined in “Taxation” in our most recent Annual
Report on Form 20-F) who directly or indirectly hold stock of a passive foreign investment company (“PFIC”). We will
be classified as a PFIC for U.S. federal income tax purposes for a taxable year if (i) at least 75% of our gross income is “passive
income” or (ii) at least 50% of the average value of our assets, including goodwill (based on annual quarterly average),
is attributable to assets which produce passive income or are held for the production of passive income.
The
determination of whether we are, or will be, a PFIC for a taxable year depends, in part, on the application of complex U.S. federal
income tax rules, which are subject to various interpretations. Although the matter is not free from doubt, we believe that we
were not a PFIC during our 2019 taxable year and will not likely be a PFIC during our 2020 taxable year. Because PFIC status is
based on our income, assets and activities for the entire taxable year, and our market capitalization, it is not possible to determine
whether we will be characterized as a PFIC for the 2020 taxable year until after the close of the taxable year. The tests for
determining PFIC status are subject to a number of uncertainties. These tests are applied annually, and it is difficult to accurately
predict future income, assets and activities relevant to this determination. In addition, because the market price of our Common
Shares is likely to fluctuate, the market price may affect the determination of whether we will be considered a PFIC. There can
be no assurance that we will not be considered a PFIC for any taxable year (including our 2020 taxable year).
If
we are a PFIC for any taxable year during which a U.S. Holder holds Common Shares, we generally would continue to be treated as
a PFIC with respect to that U.S. Holder for all succeeding years during which the U.S. Holder holds such Common Shares, even if
we ceased to meet the threshold requirements for PFIC status. Accordingly, no assurance can be given that we will not constitute
a PFIC in the current (or any future) tax year or that the Internal Revenue Service (the “IRS”) will not challenge
any determination made by us concerning our PFIC status. PFIC characterization could result in adverse U.S. federal income tax
consequences to U.S. Holders. In particular, absent certain elections, a U.S. Holder would generally be subject to U.S. federal
income tax at ordinary income tax rates, plus a possible interest charge, in respect of a gain derived from a disposition of our
Common Shares, as well as certain distributions by us. If we are treated as a PFIC for any taxable year, a U.S. Holder may be
able to make an election to “mark-to-market” Common Shares each taxable year and recognize ordinary income pursuant
to such election based upon increases in the value of the Common Shares. A mark-to-market election will be unavailable with respect
to our Common Warrants and is not expected to be available with respect to the Pre-Funded Warrants, which are not likely to be
treated as regularly traded on a qualified exchange.
In
addition, U.S. Holders may mitigate the adverse tax consequences of the PFIC rules by making a “qualified electing fund”
(“QEF”) election; however, there can be no assurance that we will satisfy the record keeping requirements applicable
to a QEF or that we will provide the information regarding our income that would be necessary for a U.S. Holder to make a QEF
election.
If
the Company is a PFIC, U.S. Holders will generally be required to file an annual information return with the IRS (on IRS Form
8621, which PFIC shareholders will be required to file with their U.S. federal income tax or information returns) relating to
their ownership of Common Shares. This filing requirement is in addition to any pre-existing reporting requirements that apply
to a U.S. Holder’s interest in a PFIC (which this requirement does not affect).
For
a more detailed discussion of the potential tax impact of us being a PFIC, please see “Taxation” in our most recent
Annual Report on Form 20-F. The PFIC rules are complex. U.S. Holders should consult their tax advisors regarding the potential
application of the PFIC regime and any reporting obligations to which they may be subject under that regime.
Our
net operating losses may be limited for U.S. federal income tax purposes under Section 382 of the Internal Revenue Code.
If
a corporation with net operating losses (“NOLs”) undergoes an “ownership change” within the meaning of
Section 382 of the United States Internal Revenue Code of 1986, as amended, then such corporation’s use of such “pre-change”
NOLs to offset income incurred following such ownership change may be limited. Such limitation also may apply to certain losses
or deductions that are “built-in” (i.e., attributable to periods prior to the ownership change, but not yet taken
into account for tax purposes) as of the date of the ownership change that are subsequently recognized. An ownership change generally
occurs when there is either (i) a shift in ownership involving one or more “5% shareholders,” or (ii) an “equity
structure shift” and, as a result, the percentage of stock of the corporation owned by one or more 5% shareholders (based
on value) has increased by more than 50 percentage points over the lowest percentage of stock of the corporation owned by such
shareholders during the “testing period” (generally the 3 years preceding the testing date). In general, if such change
occurs, the corporation’s ability to utilize its net operating loss carry-forwards and certain other tax attributes would
be subject to an annual limitation, as described below. The unused portion of any such net operating loss carry-forwards or tax
attributes each year is carried forward, subject to the same limitation in future years. The impact of an ownership change on
state NOL carryforwards may vary from state to state. Due to previous ownership changes, or if we undergo any future ownership
change, our ability to use our NOLs could be limited by Section 382 of the Code. Future changes in our stock ownership, some of
which are outside of our control, could result in an ownership change under Sections 382 of the Code. Recent legislation added
several limitations to the ability to claim deductions for NOLs in future years, particularly for tax years beginning after December
31, 2020, including a deduction limit equal to 80% of taxable income and a restriction on NOL carryback deductions. For these
reasons, we may not be able to use a material portion of the NOLs, even if we attain profitability.
Our
most recent Annual Report on Form 20-F was filed with the relevant Canadian securities regulatory authorities in lieu of an annual
information form at www.sedar.com and with the SEC at www.sec.gov, and investors are urged to consult such risk factors.
Disclosure
Controls and Procedures
Under
the supervision and with the participation of our management, including the Chief Executive Officer and the Chief Financial Officer,
we have evaluated the effectiveness of our disclosure controls and procedures as at June 30, 2020. Based on that evaluation, the
Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures were effective
as at June 30, 2020.
Management’s
Annual Report on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control
over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with IFRS as issued by the IASB.
Our
internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of Aeterna Zentaris;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with IFRS, and that receipts and expenditures of the Company are being made only in accordance with authorizations
of Company management; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use or disposition of Company assets that could have a material effect on the financial statements.
Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management
conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria established
in Internal Control – Integrated Framework: 2013 issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on this evaluation, management has concluded that our internal control over financial reporting was effective
as at June 30, 2020.
Changes
in Internal Controls over Financial Reporting
There
were no changes in our internal control over financial reporting during the quarter ended June 30, 2020 that materially affected,
or are reasonably likely to materially affect, our internal control over financial reporting.
The
design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of certain events.
There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, including
conditions that are remote.
Exhibit 99.1
Aeterna Zentaris (NASDAQ:AEZS)
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