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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
☐ Registration Statement Pursuant to Section 12(b) or 12(g) of The Securities Exchange Act of 1934
OR
☒ Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 for the fiscal year ended
December 31, 2011
☐ Transition Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
OR
☐ Shell Company Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
OR
Commission file number 0-30752
AETERNA ZENTARIS INC.
(Exact Name of Registrant as Specified in its Charter)
Not Applicable
(Translation of Registrant’s Name into English)
Canada
(Jurisdiction of Incorporation)
1405 du Parc-Technologique Blvd.
Quebec City, Quebec
Canada, G1P 4P5
(Address of Principal Executive Offices)
Dennis Turpin
Telephone: 418-652-8525
E-mail: dturpin@aezsinc.com
1405 du Parc-Technologique Blvd.
Quebec City, Quebec
Canada, G1P 4P5
(Name, Telephone, E-mail and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Shares
Name of Each Exchange on Which Registered
Nasdaq Global Market
Toronto Stock Exchange
Securities registered or to be registered pursuant to Section 12(g) of the Act: NONE
Securities for which there is a reporting obligation pursuant to Section 15(d) of the ACT: NONE
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as at the close of the period covered by the annual report:
104,762,096 common shares as at December 31, 2011.
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes ☐ No ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or, or a non-accelerated filer. See definitions of “accelerated filer”
and “large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
Accelerated filer ☒
Non-accelerated filer ☐
US GAAP ☐
International Financial Reporting Standards as
issued by the International Accounting Standards
Board ☒
Other ☐
If “other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
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Basis of Presentation
General
Except where the context otherwise requires, all references in this annual report on Form 20-F (“Form 20-F”) to the “Company”, “Aeterna Zentaris Inc.”, “we”,
“us”, “our” or similar words or phrases are to Aeterna Zentaris Inc. and its subsidiaries, taken together. In this annual report, references to “$” and “US$” are to
United States dollars, references to “CAN$” are to Canadian dollars and references to “EUR” are to euros. Unless otherwise indicated, the statistical and financial
data contained in this annual report are presented as at December 31, 2011.
This annual report on Form 20-F also contains certain information regarding products or product candidates that may potentially compete with our products and
product candidates, and such information has been primarily derived from information made publicly available by the companies developing such potentially
competing products and product candidates and has not been independently verified by Aeterna Zentaris Inc.
Forward-Looking Statements
This annual report contains forward-looking statements made pursuant to the safe harbor provisions of the U.S. Securities Litigation Reform Act of 1995.
Forward-looking statements involve known and unknown risks and uncertainties, which could cause the Company’s actual results to differ materially from those
in the forward-looking statements. Such risks and uncertainties include, among others, the availability of funds and resources to pursue our research and
development (“R&D”) projects, the successful and timely completion of clinical studies, the ability of the Company to take advantage of business opportunities in
the pharmaceutical industry, uncertainties related to the regulatory process and general changes in economic conditions. Investors should consult the Company’s
quarterly and annual filings with the Canadian and U.S. securities commissions for additional information on risks and uncertainties relating to the forward-
looking statements. Investors are cautioned not to rely on these forward-looking statements. The Company does not undertake to update these forward-looking
statements and disclaim any obligation to update any such factors or to publicly announce the result of any revisions to any of the forwards-looking statements
contained herein to reflect future results, events or developments except if required to do so by a governmental authority or applicable law.
Table of Contents
TABLE OF CONTENTS
GENERAL INFORMATION
PART I
Item 1.
Identity of Directors, Senior Management and Advisers
Item 2.
Item 3.
A. Directors and senior management
B. Advisors
C. Auditors
Offer Statistics and Expected Timetable
A. Offer statistics
B. Method and expected timetable
Key Information
A. Selected financial data
B. Capitalization and indebtedness
C. Reasons for the offer and use of proceeds
D. Risk factors
Item 4.
Information on the Company
A. History and development of the Company
B. Business overview
C. Organizational structure
D. Property, plants and equipment
Item 4A. Unresolved Staff Comments
Item 5.
Item 6.
Item 7.
Item 8.
Item 9.
Operating and Financial Review and Prospects
Directors, Senior Management and Employees
A. Directors and senior management
B. Compensation
C. Board Practices
D. Employees
E. Share ownership
Major Shareholders and Related Party Transactions
A. Major shareholders
B. Related party transactions
C. Interests of experts and counsel
Financial Information
A. Consolidated statements and other financial information
B. Significant changes
The Offering and Listing
A. Offer and listing details
B. Plan of distribution
C. Markets
D. Selling shareholders
E. Dilution
F. Expenses of the issuer
Item 10. Additional Information
A. Share capital
B. Memorandum and articles of association
Page
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C. Material contracts
D. Exchange controls
E. Taxation
F. Dividends and paying agents
G. Statement by experts
H. Documents on display
I. Subsidiary information
Quantitative and Qualitative Disclosures About Market Risk
Description of Securities Other than Equity Securities
A. Debt securities
B. Warrants and rights
C. Other securities
D. American depositary shares
Item 11.
Item 12.
PART II
Item 13.
Defaults, Dividend Arrearages and Delinquencies
Item 14.
Material Modification to the Rights of Security Holders and Use of Proceeds
Controls and Procedures
Item 15.
Item 16A. Audit Committee Financial Expert
Item 16B. Code of Ethics
Item 16C. Principal Accountant Fees and Services
A. Audit Fees
B. Audit-related Fees
C. Tax Fees
D. All Other Fees
E. Audit Committee Pre-Approval Policies and Procedures
Item 16D. Exemptions from the Listing Standards for Audit Committees
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Item 16F. Changes in Registrant’s Certifying Accountant
Item 16G. Corporate Governance
Item 16H. Mine Safety Disclosure
PART III
Item 17.
Item 18.
Item 19.
Financial Statements
Financial Statements
Exhibits
127
129
130
136
136
136
137
137
139
139
139
139
139
140
140
140
140
141
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PART I
Item 1. Identity of Directors, Senior Management and Advisers
A. Directors and senior management
Not applicable.
B. Advisors
Not applicable.
C. Auditors
Not applicable.
Item 2. Offer Statistics and Expected Timetable
A. Offer statistics
Not applicable.
B. Method and expected timetable
Not applicable.
Item 3. Key Information
A. Selected financial data
The consolidated statement of comprehensive loss data set forth in this Item 3.A with respect to the years ended December 31, 2011 and 2010, and the
consolidated statement of financial position data as at December 31, 2011 and 2010, have been derived from the audited consolidated financial statements listed
in Item 18, which have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting
Standards Board (“IASB”). The consolidated statement of operations data set forth in this Item 3.A with respect to the years ended December 31, 2009, 2008 and
2007, and the consolidated balance sheet data as at December 31, 2009, 2008 and 2007, have been derived from our previous consolidated financial statements
not included herein, which were prepared in accordance with Canadian GAAP, except as otherwise described therein. The selected financial data should be read
in conjunction with our audited consolidated financial statements and the related notes included elsewhere in this annual report, and “Item 5. — Operating
and Financial Review and Prospects” of this annual report.
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Consolidated Statements of Comprehensive Loss
(in thousands of US dollars, except share and per share data)
Derived from financial statements prepared in accordance with IFRS
Revenues
Sales and royalties
License fees and other
Operating expenses
Cost of sales
Research and development costs, net of refundable tax credits and grants
Selling, general and administrative expenses
Loss from operations
Finance income
Finance costs
Net finance income (costs)
Loss before income taxes
Income tax expense
Net loss
Other comprehensive (loss) income:
Foreign currency translation adjustments
Actuarial gain (loss) on defined benefit plans
Comprehensive loss
Net loss per share
Basic and diluted
Weighted average number of shares outstanding
Basic and diluted
2
Years ended December 31,
2011
$
2010
$
31,306
4,747
36,053
24,857
2,846
27,703
27,560
24,517
16,170
68,247
18,700
21,257
12,552
52,509
(32,194)
(24,806)
6,239
(8)
6,231
1,800
(5,445)
(3,645)
(25,963)
(1,104)
(28,451)
-
(27,067)
(28,451)
(789)
(1,335)
1,001
191
(29,191)
(27,259)
(0.29)
(0.38)
94,507,988 75,659,410
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Consolidated Statements of Operations Data
(in thousands of US dollars, except share and per share data)
Derived from financial statements prepared in accordance with Canadian GAAP
Revenues
Operating expenses
Cost of sales, excluding depreciation and amortization
Research and development costs
Research and development tax credits and grants
Selling, general and administrative expenses
Depreciation and amortization
Property, plant and equipment
Intangible assets
Impairment of long-lived assets held for sale
Loss from operations
Other income (expenses)
Interest income
Interest expense
Foreign exchange gain (loss)
Loss on disposal of long-lived assets held for sale
Loss on disposal of equipment
Loss before income taxes from continuing operations
Income tax (expense) recovery
Net loss from continuing operations
Net loss from discontinued operations
Net loss for the year
Net loss per share from continuing operations
Basic and diluted
Net loss per share
Basic and diluted
Weighted average number of shares
Basic and diluted
Years Ended December 31,
2008
$
38,478
2009
$
63,237
2007
$
42,068
16,501
44,217
(403)
16,040
3,285
7,555
—
87,195
19,278
57,448
(343)
17,325
1,515
5,639
—
100,862
12,930
39,248
(2,060)
20,403
1,562
4,004
735
76,822
(23,958)
(62,384)
(34,754)
349
(5)
(1,110)
—
—
(766)
868
(118)
3,071
(35)
(44)
3,742
1,904
(85)
(1,035)
—
(28)
756
(24,724)
(58,642)
(33,998)
—
(1,175)
1,961
(24,724)
(59,817)
(32,037)
—
(24,724)
—
(59,817)
(259)
(32,296)
(0.43)
(1.12)
(0.61)
(0.43)
(1.12)
(0.61)
3
56,864,484 53,187,470 53,182,803
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Consolidated Statements of Operations Data
(in thousands of US dollars, except share and per share data)
Derived from reconciliation to US GAAP
Net loss for the year
Of which:
Net loss from continuing operations
Net loss from discontinued operations
Net loss per share from continuing operations
Basic and diluted
Net loss per share from discontinued operations
Basic and diluted
Net loss per share
Basic and diluted
Weighted average number of shares
Basic and diluted
Consolidated Statement of Financial Position Data
(in thousands of US dollars)
Years ended December 31,
2008*
$
2009*
$
2007*
$
(16,794)
(56,070)
(37,428)
(16,794)
—
(56,070)
—
(36,415)
(1,013)
(0.30)
(1.05)
(0.68)
—
—
(0.02)
(0.30)
(1.05)
(0.70)
56,864,484 53,187,470 53,182,803
Derived from financial statements prepared in accordance with IFRS for 2011 and 2010, and Canadian GAAP for 2009, 2008 and 2007
As at December 31,
2011
$
2010
$
2009* 2008* 2007*
$
$
$
Cash and cash equivalents
Short-term investments
Working capital
Restricted cash
Total assets
Warrant liability short-term
Warrant liability long-term
Long-term payable
Share capital
Shareholders’ (deficiency) equity
* We adopted IFRS in 2011 with a transition date of January 1, 2010. The selected financial information for the years ended December 31, 2009, 2008 and 2007 is derived from financial statements that were
46,881 31,998 38,100 49,226 10,272
493 31,115
42,254 29,444 29,745 39,554 37,325
—
75,369 61,448 86,262 108,342 123,363
*
*
—
101,884 60,900 41,203 30,566 30,566
(4,546) (17,575) 9,226 21,475 88,591
955
9,162 13,412
90
— 1,934 —
*
*
172
*
*
143
806
827
878
29
42
—
presented in accordance with Canadian GAAP and has not been restated in accordance with IFRS. Consequently, the selected financial information for the years ended December 31, 2009, 2008 and 2007 may
not be comparable with the corresponding selected financial information for the years ended December 31, 2011 and 2010. Please refer to “Critical Accounting Policies, Estimates and Judgments” for the
policy differences between Canadian GAAP and IFRS.
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Consolidated Statement of Financial Position Data
(in thousands of US dollars)
Derived from financial statements prepared in accordance with IFRS for 2011 and 2010, and US GAAP for 2009, 2008 and 2007
As at December 31,
2011
$
2010
$
2009* 2008* 2007*
$
$
$
Cash and cash equivalents
Short-term investments
Working capital
Restricted cash
Total assets
Warrant liability, short-term
Warrant liability, long-term
Long-term payable
Share capital
Shareholders’ (deficiency) equity
* We adopted IFRS in 2011 with a transition date of January 1, 2010. The selected financial information for the years ended December 31, 2009, 2008 and 2007 is derived from financial statements that were
46,881 31,998 38,100 49,226 10,272
493 31,115
42,254 29,444 29,745 39,554 37,325
—
75,369 61,448 84,116 100,001 109,182
*
*
—
101,884 60,900 33,226 22,589 22,589
(4,546) (17,575) 5,729 13,134 74,410
*
9,162 13,412 1,351
143
— 1,934 —
*
*
172
806
955
827
878
29
42
90
—
presented in accordance with Canadian GAAP and has not been restated in accordance with IFRS. Consequently, the selected financial information for the years ended December 31, 2009, 2008 and 2007 may
not be comparable with the corresponding selected financial information for the years ended December 31, 2011 and 2010. Please refer to “Critical Accounting Policies, Estimates and Judgments” for the
policy differences between Canadian GAAP and IFRS.
B.
Capitalization and indebtedness
Not applicable.
C.
Reasons for the offer and use of proceeds
Not applicable.
D.
Risk factors
Risks Relating to Us and Our Business
Investments in biopharmaceutical companies are generally considered to be speculative.
The prospects for companies operating in the biopharmaceutical industry may generally be considered to be uncertain, given the very nature of the industry and,
accordingly, investments in biopharmaceutical companies should be considered to be speculative.
We have a history of operating losses and we may never achieve or maintain operating profitability.
Our product candidates remain at the development stage, and we have incurred substantial expenses in our efforts to develop products. Consequently, we have
incurred recurrent operating losses and, as disclosed in our audited consolidated financial statements as at December 31, 2011 and December 31, 2010 and for the
years ended December 31, 2011 and 2010, we had an accumulated deficit of $189.0 million as at December 31, 2011. Our operating losses have adversely
impacted, and will continue to adversely impact, our working capital, total assets and shareholders’ deficiency. We do not expect to reach operating profitability
in the immediate future, and our expenses are likely to increase as we continue to expand our R&D and clinical study programs and our sales and marketing
activities and seek regulatory approval for our product candidates. Even if we succeed in developing new commercial products, we expect to incur additional
operating losses for at least the next several years. If we ultimately do not generate sufficient revenue from commercialized products and achieve or maintain
operating profitability, an investment in our securities could result in a significant or total loss.
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Our clinical trials may not yield results which will enable us to obtain regulatory approval for our products, and a setback in any of our clinical trials would
likely cause a drop in the price of our securities.
We will only receive regulatory approval for a product candidate if we can demonstrate in carefully designed and conducted clinical trials that the product
candidate is both safe and effective. We do not know whether our pending or any future clinical trials will demonstrate sufficient safety and efficacy to obtain the
requisite regulatory approvals or will result in marketable products. Unfavorable data from those studies could result in the withdrawal of marketing approval for
approved products or an extension of the review period for developmental products. For example, our partner Keryx is conducting phase 3 trials of perifosine for
the treatment of colorectal cancer and multiple myeloma. The enrollment of the trial in colorectal cancer has been completed and results of this trial are expected
in the near future. If the results of this clinical trial are unfavorable, it would likely adversely affect our and our partners’ perifosine development programs. In
addition, unfavorable results in this trial could adversely affect our stock price. Clinical trials are inherently lengthy, complex, expensive and uncertain processes
and have a high risk of failure. It typically takes many years to complete testing, and failure can occur at any stage of testing. Results attained in preclinical
testing and early clinical studies, or trials, may not be indicative of results that are obtained in later studies.
None of our product candidates has to date received regulatory approval for its intended commercial sale. We cannot market a pharmaceutical product in any
jurisdiction until it has completed rigorous preclinical testing and clinical trials and passed such jurisdiction’s extensive regulatory approval process. In general,
significant research and development and clinical studies are required to demonstrate the safety and efficacy of our product candidates before we can submit
regulatory applications. Preclinical testing and clinical development are long, expensive and uncertain processes. Preparing, submitting and advancing
applications for regulatory approval is complex, expensive and time-consuming and entails significant uncertainty. Data obtained from preclinical and clinical
tests can be interpreted in different ways, which could delay, limit or prevent regulatory approval. It may take us many years to complete the testing of our
product candidates and failure can occur at any stage of this process. In addition, we have limited experience in conducting and managing the clinical trials
necessary to obtain regulatory approval in the United States, in Canada and abroad and, accordingly, we may encounter unforeseen problems and delays in the
approval process. Though we may engage a contract research organization (a “CRO”) with experience in conducting regulatory trials, errors in the conduct,
monitoring and/or auditing could invalidate the results from a regulatory perspective. Even if a product candidate is approved by the United States Food and Drug
Administration (the “FDA”), the Canadian Therapeutic Products Directorate or any other regulatory authority, we may not obtain approval for an indication
whose market is large enough to recoup our investment in that product candidate. In addition, there can be no assurance that we will ever obtain all or any
required regulatory approvals for any of our product candidates.
We are currently developing our product candidates based on R&D activities, preclinical testing and clinical trials conducted to date, and we may not be
successful in developing or introducing to the market these or any other new products or technology. If we fail to develop and deploy new products successfully
and on a timely basis, we may become non-competitive and unable to recoup the R&D and other expenses we incur to develop and test new products.
Interim results of preclinical or clinical studies do not necessarily predict their final results, and acceptable results in early studies might not be obtained in later
studies. Safety signals detected during clinical studies and preclinical animal studies may require us to do additional studies, which could delay the development
of the drug or lead to a decision to discontinue development of the drug. Product candidates in the later stages of clinical development may fail to show the
desired safety and efficacy traits despite positive results in initial clinical testing. Results from earlier studies may not be indicative of results from future clinical
trials and the risk remains that a pivotal program may generate efficacy data that will be insufficient for the approval of the drug, or may raise safety concerns that
may prevent approval of the drug. Interpretation of the prior preclinical and clinical safety and efficacy data of our product candidates may be flawed and there
can be no assurance that safety and/or efficacy concerns from the prior data were overlooked or misinterpreted, which in subsequent, larger studies appear and
prevent approval of such product candidates.
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Furthermore, we may suffer significant setbacks in advanced clinical trials, even after promising results in earlier studies. Based on results at any stage of clinical
trials, we may decide to repeat or redesign a trial or discontinue development of one or more of our product candidates. Further, actual results may vary once the
final and quality-controlled verification of data and analyses has been completed. If we fail to adequately demonstrate the safety and efficacy of our products
under development, we will not be able to obtain the required regulatory approvals to commercialize our product candidates.
Clinical trials are subject to continuing oversight by governmental regulatory authorities and institutional review boards and:
— must meet the requirements of these authorities;
— must meet requirements for informed consent; and
— must meet requirements for good clinical practices.
We may not be able to comply with these requirements in respect of one or more of our product candidates.
In addition, we rely on third parties, including CROs and outside consultants, to assist us in managing and monitoring clinical trials. Our reliance on these third
parties may result in delays in completing, or in failing to complete, these trials if one or more third parties fails to perform with the speed and level of
competence we expect.
A failure in the development of any one of our programs or product candidates could have a negative impact on the development of the others. Setbacks in any
phase of the clinical development of our product candidates would have an adverse financial impact (including with respect to any agreements and partnerships
that may exist between us and other entities), could jeopardize regulatory approval and would likely cause a drop in the price of our securities.
If we are unable to successfully complete our clinical trial programs, or if such clinical trials take longer to complete than we project, our ability to execute
our current business strategy will be adversely affected.
Whether or not and how quickly we complete clinical trials is dependent in part upon the rate at which we are able to engage clinical trial sites and, thereafter, the
rate of enrollment of patients, and the rate at which we collect, clean, lock and analyze the clinical trial database. Patient enrollment is a function of many factors,
including the design of the protocol, the size of the patient population, the proximity of patients to and availability of clinical sites, the eligibility criteria for the
study, the perceived risks and benefits of the drug under study and of the control drug, if any, the efforts to facilitate timely enrollment in clinical trials, the patient
referral practices of physicians, the existence of competitive clinical trials, and whether existing or new drugs are approved for the indication we are studying.
Certain clinical trials are designed to continue until a pre-determined number of events have occurred to the patients enrolled. Such trials are subject to delays
stemming from patient withdrawal and from lower than expected event rates and may also incur increased costs if enrollment is increased in order to achieve the
desired number of events. If we experience delays in identifying and contracting with sites and/or in patient enrollment in our clinical trial programs, we may
incur additional costs and delays in our development programs, and may not be able to complete our clinical trials on a cost-effective or timely basis. In addition,
conducting multi-national studies adds another level of complexity and risk as we are subject to events affecting countries outside North America. Moreover,
negative or inconclusive results from the clinical trials we conduct or adverse medical events could cause us to have to repeat or terminate the clinical trials.
Accordingly, we may not be able to complete the clinical trials within an acceptable time frame, if at all. If we or any third party have difficulty enrolling a
sufficient number of patients to conduct our clinical trials as planned, we may need to delay or terminate ongoing clinical trials.
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Additionally, we have never filed a New Drug Application (“NDA”), or similar application for approval in the United States or in any country for our current
product candidates, which may result in a delay in, or the rejection of, our filing of an NDA or similar application. During the drug development process,
regulatory agencies will typically ask questions of drug sponsors. While we endeavor to answer all such questions in a timely fashion, or in the NDA filing, some
questions may not be answered by the time we file our NDA. Unless the FDA waives the requirement to answer any such unanswered questions, submission of an
NDA may be delayed or rejected.
We are and will continue to be subject to stringent ongoing government regulation for our products and, even if we obtain regulatory approvals, for our
product candidates.
The manufacture, marketing and sale of our products and product candidates are and will continue to be subject to strict and ongoing regulation, even if
regulatory authorities approve our product candidates. Compliance with such regulation will be expensive and consume substantial financial and management
resources. For example, an approval for a product may be conditioned on our agreement to conduct costly post-marketing follow-up studies to monitor the safety
or efficacy of the products. In addition, as a clinical experience with a drug expands after approval because the drug is used by a greater number and more diverse
group of patients than during clinical trials, side effects or other problems may be observed after approval that were not observed or anticipated during pre-
approval clinical trials. In such a case, a regulatory authority could restrict the indications for which the product may be sold or revoke the product’s regulatory
approval.
We and our contract manufacturers are and will continue to be required to comply with applicable current Good Manufacturing Practice (“cGMP”) regulations for
the manufacture of our products. These regulations include requirements relating to quality assurance, as well as the corresponding maintenance of rigorous
records and documentation. Manufacturing facilities must be approved before we can use them in the commercial manufacturing of our products and are subject
to subsequent periodic inspection by regulatory authorities. In addition, material changes in the methods of manufacturing or changes in the suppliers of raw
materials are subject to further regulatory review and approval.
If we, or any future marketing collaborators or contract manufacturers, fail to comply with applicable regulatory requirements, we may be subject to sanctions
including fines, product recalls or seizures and related publicity requirements, injunctions, total or partial suspension of production, civil penalties, suspension or
withdrawals of previously granted regulatory approvals, warning or untitled letters, refusal to approve pending applications for marketing approval of new
products or of supplements to approved applications, import or export bans or restrictions, and criminal prosecution and penalties. Any of these penalties could
delay or prevent the promotion, marketing or sale of our products and product candidates.
If our products do not gain market acceptance, we may be unable to generate significant revenues.
Even if our products are approved for commercialization, they may not be successful in the marketplace. Market acceptance of any of our products will depend
on a number of factors including, but not limited to:
— demonstration of clinical efficacy and safety;
— the prevalence and severity of any adverse side effects;
— limitations or warnings contained in the product’s approved labeling;
— availability of alternative treatments for the indications we target;
— the advantages and disadvantages of our products relative to current or alternative treatments;
— the availability of acceptable pricing and adequate third-party reimbursement; and
— the effectiveness of marketing and distribution methods for the products.
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If our products do not gain market acceptance among physicians, patients, healthcare payers and others in the medical community, which may not accept or utilize
our products, our ability to generate significant revenues from our products would be limited and our financial conditions will be materially adversely affected. In
addition, if we fail to further penetrate our core markets and existing geographic markets or successfully expand our business into new markets, the growth in
sales of our products, along with our operating results, could be negatively impacted.
Our ability to further penetrate our core markets and existing geographic markets in which we compete or to successfully expand our business into additional
countries in Europe, Asia or elsewhere is subject to numerous factors, many of which are beyond our control. Our products, if successfully developed, may
compete with a number of drugs and therapies currently manufactured and marketed by major pharmaceutical and other biotechnology companies. Our products
may also compete with new products currently under development by others or with products which may be less expensive than our products. We cannot assure
you that our efforts to increase market penetration in our core markets and existing geographic markets will be successful. Our failure to do so could have an
adverse effect on our operating results and would likely cause a drop in the price of our securities.
We will likely require significant additional financing, and we may not have access to sufficient capital.
We will likely require additional capital to pursue planned clinical trials, regulatory approvals, as well as further R&D and marketing efforts for our product
candidates and potential products. Except as otherwise described in this annual report, we do not anticipate generating significant revenues from operations in the
near future and we currently have no committed sources of capital.
We may attempt to raise additional funds through public or private financings, collaborations with other pharmaceutical companies or financing from other
sources. Additional funding may not be available on terms which are acceptable to us. If adequate funding is not available to us on reasonable terms, we may
need to delay, reduce or eliminate one or more of our product development programs or obtain funds on terms less favorable than we would otherwise accept. To
the extent that additional capital is raised through the sale of equity securities or securities convertible into or exchangeable for equity securities, the issuance of
those securities would result in dilution to our shareholders. Moreover, the incurrence of indebtedness could result in a substantial portion of our future operating
cash flow, if any, being dedicated to the payment of principal and interest on such indebtedness and could impose restrictions on our operations. This could render
us more vulnerable to competitive pressures and economic downturns.
We anticipate that our existing working capital, including the proceeds from any sale and anticipated revenues, will be sufficient to fund our development
programs, clinical trials and other operating expenses for more than 12 months following year-end. However, our future capital requirements are substantial and
may increase beyond our current expectations depending on many factors including:
— the duration and results of our clinical trials for our various product candidates going forward;
— unexpected delays or developments in seeking regulatory approvals;
— the time and cost involved in preparing, filing, prosecuting, maintaining and enforcing patent claims;
— other unexpected developments encountered in implementing our business development and commercialization strategies;
— the outcome of litigation, if any; and
— further arrangements, if any, with collaborators.
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In addition, global economic and market conditions as well as future developments in the credit and capital markets may make it even more difficult for us to
raise additional financing in the future.
A substantial portion of our future revenues may be dependent upon our agreements with Keryx Biopharmaceuticals, Inc. and Yakult Honsha Co. Ltd
We currently expect that a substantial portion of our future revenues may be dependent upon our strategic partnerships with Keryx Biopharmaceuticals, Inc.
(“Keryx”) for North America and Yakult Honsha Co. Ltd. (“Yakult”) for Japan. Under these strategic partnerships, Keryx and Yakult have significant
development and commercialization responsibilities with respect to the development and sale of perifosine in their respective territories. If Keryx or Yakult were
to terminate their agreements with us, fail to meet their obligations or otherwise decrease their level of efforts, allocation of resources or other commitments under
their respective agreements, our future revenues and/or prospects could be negatively impacted and the development and commercialization of perifosine would
be interrupted. In addition, if either Keryx or Yakult does not achieve some or any of their respective development, regulatory and commercial milestones or if
they do not achieve certain net sales thresholds as set forth in the agreements, we will not fully realize the expected economic benefits of such agreements.
Further, the achievement of certain of the milestones under these strategic partnership agreements will depend on factors that are outside of our control and most
are not expected to be achieved for several years, if at all. Any failure to successfully maintain our strategic partnership agreements could materially and
adversely affect our ability to generate revenues.
If we are unsuccessful in increasing our revenues and/or raising additional funding, we may possibly cease to continue operating as we currently do.
Although our audited consolidated financial statements as at December 31, 2011 and December 31, 2010 and for the years ended December 31, 2011 and 2010
have been prepared on a going concern basis, which contemplates the realization of assets and liquidation of liabilities during the normal course of operations, our
ability to continue as a going concern is dependent on the successful execution of our business plan, which will require an increase in revenue and/or additional
funding to be provided by potential investors as well as non-traditional sources of financing. Although we stated in our audited consolidated financial statements
as at December 31, 2011 and December 31, 2010 and for the years ended December 31, 2011 and 2010 that management believed that the Company had, as at
December 31, 2011, sufficient financial resources to fund planned expenditures and other working capital needs for at least, but not limited to, the 12-month
period following such date, there can be no assurance that management’s assumptions will not change in our future financial statements.
Since our inception, we have incurred losses, accumulated deficits and negative cash flows from operations. We expect that this will continue throughout 2012.
Additional funding may be in the form of debt or equity or a hybrid instrument depending on the needs of the investor. In light of present and future global
economic and credit market conditions, we may not be able to raise additional cash resources through these traditional sources of financing. Although we are also
pursuing non-traditional sources of financing with third parties, the global credit markets may adversely affect the ability of potential third parties to pursue such
transactions with us. Accordingly, as a result of the foregoing, we continue to review traditional sources of financing, such as private and public debt or various
equity financing alternatives, as well as other alternatives to enhance shareholder value including, but not limited to, non-traditional sources of financing, such as
alliances with strategic partners, the sale of assets or licensing of our technology or intellectual property, a combination of operating and related initiatives or a
substantial reorganization of our business. If we do not raise additional capital, we do not expect our operations to generate sufficient cash flow to fund our
obligations as they come due.
There can be no assurance that we will achieve profitability or positive cash flows or be able to obtain additional funding or that, if obtained, they will be
sufficient, or whether any other initiatives will be successful, such that we may continue as a going concern. There could be material uncertainties related to
certain adverse conditions and events that could cast significant doubt on our ability to remain a going concern.
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We may not achieve our projected development goals in the time-frames we announce and expect.
We set goals and make public statements regarding the timing of the accomplishment of objectives material to our success, such as the commencement,
enrollment and completion of clinical trials, anticipated regulatory submission and approval dates and time of product launch. The actual timing of these events
can vary dramatically due to factors such as delays or failures in our clinical trials, the uncertainties inherent in the regulatory approval process and delays in
achieving manufacturing or marketing arrangements sufficient to commercialize our products. There can be no assurance that our clinical trials will be completed,
that we will make regulatory submissions or receive regulatory approvals as planned or that we will be able to adhere to our current schedule for the launch of any
of our products. If we fail to achieve one or more of these milestones as planned, the price of our securities would likely decline.
If we fail to obtain acceptable prices or adequate reimbursement for our products, our ability to generate revenues will be diminished.
The ability for us and/or our partners to successfully commercialize our products will depend significantly on our ability to obtain acceptable prices and the
availability of reimbursement to the patient from third-party payers, such as governmental and private insurance plans. These third-party payers frequently require
companies to provide predetermined discounts from list prices, and they are increasingly challenging the prices charged for pharmaceuticals and other medical
products. Our products may not be considered cost-effective, and reimbursement to the patient may not be available or sufficient to allow us or our partners to sell
our products on a competitive basis. It may not be possible to negotiate favorable reimbursement rates for our products.
In addition, the continuing efforts of third-party payers to contain or reduce the costs of healthcare through various means may limit our commercial opportunity
and reduce any associated revenue and profits. We expect proposals to implement similar government control to continue. In addition, increasing emphasis on
managed care will continue to put pressure on the pricing of pharmaceutical and biopharmaceutical products. Cost control initiatives could decrease the price that
we or any current or potential collaborators could receive for any of our products and could adversely affect our profitability. In addition, in the United States, in
Canada and in many other countries, pricing and/or profitability of some or all prescription pharmaceuticals and biopharmaceuticals are subject to government
control.
If we fail to obtain acceptable prices or an adequate level of reimbursement for our products, the sales of our products would be adversely affected or there may
be no commercially viable market for our products.
Competition in our targeted markets is intense, and development by other companies could render our products or technologies non-competitive.
The biomedical field is highly competitive. New products developed by other companies in the industry could render our products or technologies non-
competitive. Competitors are developing and testing products and technologies that would compete with the products that we are developing. Some of these
products may be more effective or have an entirely different approach or means of accomplishing the desired effect than our products. We expect competition
from biopharmaceutical and pharmaceutical companies and academic research institutions to increase over time. Many of our competitors and potential
competitors have substantially greater product development capabilities and financial, scientific, marketing and human resources than we do. Our competitors
may succeed in developing products earlier and in obtaining regulatory approvals and patent protection for such products more rapidly than we can or at a
lower price.
We may not obtain adequate protection for our products through our intellectual property.
We rely heavily on our proprietary information in developing and manufacturing our product candidates. Our success depends, in large part, on our ability to
protect our competitive position through patents, trade secrets, trademarks and other intellectual property rights. The patent positions of pharmaceutical and
biopharmaceutical firms, including Aeterna Zentaris, are uncertain and involve complex questions of law and fact for which
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important legal issues remain unresolved. Applications for patents and trademarks in Canada, the United States and in other foreign territories have been filed and
are being actively pursued by us. Pending patent applications may not result in the issuance of patents and we may not be able to obtain additional issued patents
relating to our technology or products. Even if issued, patents to us or our licensors may be challenged, narrowed, invalidated, held to be unenforceable or
circumvented, which could limit our ability to stop competitors from marketing similar products or limit the length of term of patent protection we may have for
our products. Changes in either patent laws or in interpretations of patent laws in the United States and other countries may diminish the value of our intellectual
property or narrow the scope of our patent protection. The patents issued or to be issued to us may not provide us with any competitive advantage or protect us
against competitors with similar technology. In addition, it is possible that third parties with products that are very similar to ours will circumvent our patents by
means of alternate designs or processes. We may have to rely on method of use and new formulation protection for our compounds in development, and any
resulting products, which may not confer the same protection as claims to compounds per se.
In addition, our patents may be challenged by third parties in patent litigation, which is becoming widespread in the biopharmaceutical industry. There may be
prior art of which we are not aware that may affect the validity or enforceability of a patent claim. There may also be prior art of which we are aware, but which
we do not believe affects the validity or enforceability of a claim, which may, nonetheless, ultimately be found to affect the validity or enforceability of a claim.
No assurance can be given that our patents would, if challenged, be held by a court to be valid or enforceable or that a competitor’s technology or product would
be found by a court to infringe our patents. Our granted patents could also be challenged and revoked in opposition or nullity proceedings in certain countries
outside the United States. In addition, we may be required to disclaim part of the term of certain patents.
Patent applications relating to or affecting our business have been filed by a number of pharmaceutical and biopharmaceutical companies and academic
institutions. A number of the technologies in these applications or patents may conflict with our technologies, patents or patent applications, and any such conflict
could reduce the scope of patent protection which we could otherwise obtain. Because patent applications in the United States and many other jurisdictions are
typically not published until eighteen months after their first effective filing date, or in some cases not at all, and because publications of discoveries in the
scientific literature often lag behind actual discoveries, neither we nor our licensors can be certain that we or they were the first to make the inventions claimed in
our or their issued patents or pending patent applications, or that we or they were the first to file for protection of the inventions set forth in these patent
applications. If a third party has also filed a patent application in the United States covering our product candidates or a similar invention, we may have to
participate in an adversarial proceeding, known as an interference, declared by the United States Patent and Trademark Office to determine priority of invention
in the United States. The costs of these proceedings could be substantial and it is possible that our efforts could be unsuccessful, resulting in a loss of our
U.S. patent position.
In addition to patents, we rely on trade secrets and proprietary know-how to protect our intellectual property. If we are unable to protect the confidentiality of our
proprietary information and know-how, the value of our technology and products could be adversely affected. We seek to protect our unpatented proprietary
information in part by requiring our employees, consultants, outside scientific collaborators and sponsored researchers and other advisors to enter into
confidentiality agreements. These agreements provide that all confidential information developed or made known to the individual during the course of the
individual’s relationship with us is to be kept confidential and not disclosed to third parties except in specific circumstances. In the case of our employees, the
agreements provide that all of the technology which is conceived by the individual during the course of employment is our exclusive property. These agreements
may not provide meaningful protection or adequate remedies in the event of unauthorized use or disclosure of our proprietary information. In addition, it is
possible that third parties could independently develop proprietary information and techniques substantially similar to ours or otherwise gain access to our trade
secrets. If we are unable to protect the confidentiality of our proprietary information and know-how, competitors may be able to use this information to develop
products that compete with our products and technologies, which could adversely impact our business.
We currently have the right to use certain technology under license agreements with third parties. Our failure to comply with the requirements of material license
agreements could result in the termination of such agreements, which could cause us to terminate the related development program and cause a complete loss of
our investment in that program.
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As a result of the foregoing factors, we may not be able to rely on our intellectual property to protect our products in the marketplace.
We may infringe the intellectual property rights of others.
Our commercial success depends significantly on our ability to operate without infringing the patents and other intellectual property rights of third parties. There
could be issued patents of which we are not aware that our products or methods may be found to infringe, or patents of which we are aware and believe we do not
infringe but which we may ultimately be found to infringe. Moreover, patent applications and their underlying discoveries are in some cases maintained in
secrecy until patents are issued. Because patents can take many years to issue, there may be currently pending applications of which we are unaware that may
later result in issued patents that our products or methods are found to infringe. Moreover, there may be published pending applications that do not currently
include a claim covering our products or methods but which nonetheless provide support for a later drafted claim that, if issued, our products or methods could be
found to infringe.
If we infringe or are alleged to infringe intellectual property rights of third parties, it will adversely affect our business. Our research, development and
commercialization activities, as well as any product candidates or products resulting from these activities, may infringe or be accused of infringing one or more
claims of an issued patent or may fall within the scope of one or more claims in a published patent application that may subsequently issue and to which we do
not hold a license or other rights. Third parties may own or control these patents or patent applications in the United States and abroad. These third parties could
bring claims against us or our collaborators that would cause us to incur substantial expenses and, if successful against us, could cause us to pay substantial
damages. Further, if a patent infringement suit were brought against us or our collaborators, we or they could be forced to stop or delay research, development,
manufacturing or sales of the product or product candidate that is the subject of the suit.
The biopharmaceutical industry has produced a proliferation of patents, and it is not always clear to industry participants, including us, which patents cover
various types of products. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform. In the event of
infringement or violation of another party’s patent or other intellectual property rights, we may not be able to enter into licensing arrangements or make other
arrangements at a reasonable cost. Any inability to secure licenses or alternative technology could result in delays in the introduction of our products or lead to
prohibition of the manufacture or sale of products by us or our partners and collaborators.
Patent litigation is costly and time consuming and may subject us to liabilities.
Our involvement in any patent litigation, interference, opposition or other administrative proceedings will likely cause us to incur substantial expenses, and the
efforts of our technical and management personnel will be significantly diverted. In addition, an adverse determination in litigation could subject us to significant
liabilities.
We may not obtain trademark registrations.
We have filed applications for trademark registrations in connection with our product candidates in various jurisdictions, including the United States. We intend to
file further applications for other possible trademarks for our product candidates. No assurance can be given that any of our trademark applications will be
registered in the United States or elsewhere, or that the use of any registered or unregistered trademarks will confer a competitive advantage in the marketplace.
Furthermore, even if we are successful in our trademark registrations, the FDA and regulatory authorities in other countries have their own process for drug
nomenclature and their own views concerning appropriate proprietary names. The FDA and other regulatory authorities also have the power, even after granting
market approval, to request a company to reconsider the name for a product because of evidence of confusion in the marketplace. No assurance can be given that
the FDA or any other regulatory authority will approve of any of our trademarks or will not request reconsideration of one of our trademarks at some time in the
future. The loss, abandonment, or cancellation of any of our trademarks or trademark applications could negatively affect the success of the product candidates to
which they relate.
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Our revenues and expenses may fluctuate significantly, and any failure to meet financial expectations may disappoint securities analysts or investors and
result in a decline in the price of our securities.
We have a history of operating losses. Our revenues and expenses have fluctuated in the past and are likely to do so in the future. These fluctuations could cause
our share price to decline. Some of the factors that could cause our revenues and expenses to fluctuate include but are not limited to:
— the inability to complete product development in a timely manner that results in a failure or delay in receiving the required regulatory approvals to
commercialize our product candidates;
— the timing of regulatory submissions and approvals;
— the timing and willingness of any current or future collaborators to invest the resources necessary to commercialize our product candidates;
— the revenue available from royalties derived from our strategic partners;
— licensing fees revenues;
— tax credits and grants (R&D);
— the outcome of litigation, if any;
— changes in foreign currency fluctuations;
— the timing of achievement and the receipt of milestone payments from current or future collaborators; and
— failure to enter into new or the expiration or termination of current agreements with collaborators.
Due to fluctuations in our revenues and expenses, we believe that period-to-period comparisons of our results of operations are not necessarily indicative of our
future performance. It is possible that in some future quarter or quarters, our revenues and expenses will be above or below the expectations of securities analysts
or investors. In this case, the price of our securities could fluctuate significantly or decline.
We will not be able to successfully commercialize our product candidates if we are unable to make adequate arrangements with third parties for
such purposes.
We currently have a lean sales and marketing staff. In order to commercialize our product candidates successfully, we need to make arrangements with third
parties to perform some or all of these services in certain territories.
We contract with third parties for the sales and marketing of our products. Our revenues will depend upon the efforts of these third parties, whose efforts may not
be successful. If we fail to establish successful marketing and sales capabilities or to make arrangements with third parties for such purposes, our business,
financial condition and results of operations will be materially adversely affected.
If we had to resort to developing a sales force internally, the cost of establishing and maintaining a sales force would be substantial and may exceed its cost
effectiveness. In addition, in marketing our products, we would likely compete with many companies that currently have extensive and well-funded marketing
and sales operations. Despite our marketing and sales efforts, we may be unable to compete successfully against these companies.
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We are currently dependent on strategic partners and may enter into future collaborations for the research, development and commercialization of our product
candidates. Our arrangements with these strategic partners may not provide us with the benefits we expect and may expose us to a number of risks.
We are dependent on, and rely upon, strategic partners to perform various functions related to our business, including, but not limited to, the research,
development and commercialization of some of our product candidates. Our reliance on these relationships poses a number of risks.
We may not realize the contemplated benefits of such agreements nor can we be certain that any of these parties will fulfill their obligations in a manner which
maximizes our revenue. These arrangements may also require us to transfer certain material rights or issue our equity, voting or other securities to corporate
partners, licensees and others. Any license or sublicense of our commercial rights may reduce our product revenue.
These agreements also create certain risks. The occurrence of any of the following or other events may delay product development or impair commercialization of
our products:
— not all of our strategic partners are contractually prohibited from developing or commercializing, either alone or with others, products and services that are
similar to or competitive with our product candidates and, with respect to our strategic partnership agreements that do contain such contractual prohibitions or
restrictions, prohibitions or restrictions do not always apply to our partners’ affiliates and they may elect to pursue the development of any additional product
candidates and pursue technologies or products either on their own or in collaboration with other parties, including our competitors, whose technologies or
products may be competitive with ours;
— our strategic partners may under-fund or fail to commit sufficient resources to marketing, distribution or other development of our products;
— we may not be able to renew such agreements;
— our strategic partners may not properly maintain or defend certain intellectual property rights that may be important to the commercialization of our products;
— our strategic partners may encounter conflicts of interest, changes in business strategy or other issues which could adversely affect their willingness or ability
to fulfill their obligations to us (for example, pharmaceutical companies historically have re-evaluated their priorities following mergers and consolidations,
which have been common in recent years in this industry);
— delays in, or failures to achieve, scale-up to commercial quantities, or changes to current raw material suppliers or product manufacturers (whether the change
is attributable to us or the supplier or manufacturer) could delay clinical studies, regulatory submissions and commercialization of our product candidates; and
— disputes may arise between us and our strategic partners that could result in the delay or termination of the development or commercialization of our product
candidates, resulting in litigation or arbitration that could be time-consuming and expensive, or causing our strategic partners to act in their own self-interest
and not in our interest or those of our shareholders or other stakeholders.
In addition, our strategic partners can terminate our agreements with them for a number of reasons based on the terms of the individual agreements that we have
entered into with them. If one or more of these agreements were to be terminated, we would be required to devote additional resources to developing and
commercializing our product candidates, seek a new partner or abandon this product candidate which would likely cause a drop in the price of our securities.
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We have entered into important strategic partnership agreements relating to certain of our product candidates for various indications. Detailed information on our
research and collaboration agreements is available in our various reports and disclosure documents filed with the Canadian securities regulatory authorities and
filed with or furnished to the United States Securities and Exchange Commission (“SEC”), including the documents incorporated by reference into this Annual
Report on Form 20-F. See, for example, Note 5 to our audited consolidated financial statements as at December 31, 2011 and December 31, 2010 and for the
years ended December 31, 2011 and 2010 included in this Annual Report on Form 20-F.
We have also entered into a variety of collaborative licensing agreements with various universities and institutes under which we are obligated to support some of
the research expenses incurred by the university laboratories and pay royalties on future sales of the products. In turn, we have retained exclusive rights for the
worldwide exploitation of results generated during the collaborations.
In particular, we have entered into an agreement with the Tulane Educational Fund (“Tulane”), which provides for the payment by us of single-digit royalties on
future worldwide net sales of cetrorelix, including Cetrotide . Tulane is also entitled to receive a low double-digit participation payment on any lump-sum,
periodic or other cash payments received by us from sub-licensees.
®
We rely on third parties to conduct, supervise and monitor our clinical trials, and those third parties may not perform satisfactorily.
We rely on third parties such as CROs, medical institutions and clinical investigators to enroll qualified patients and conduct, supervise and monitor our clinical
trials. Our reliance on these third parties for clinical development activities reduces our control over these activities. Our reliance on these third parties, however,
does not relieve us of our regulatory responsibilities, including ensuring that our clinical trials are conducted in accordance with Good Clinical Practice guidelines
and the investigational plan and protocols contained in an Investigational New Drug (“IND”) application, or comparable foreign regulatory submission.
Furthermore, these third parties may also have relationships with other entities, some of which may be our competitors. In addition, they may not complete
activities on schedule, or may not conduct our preclinical studies or clinical trials in accordance with regulatory requirements or our trial design. If these third
parties do not successfully carry out their contractual duties or meet expected deadlines, our efforts to obtain regulatory approvals for, and commercialize, our
product candidates may be delayed or prevented.
In carrying out our operations, we are dependent on a stable and consistent supply of ingredients and raw materials.
There can be no assurance that we, our contract manufacturers or our partners, will be able, in the future, to continue to purchase products from our current
suppliers or any other supplier on terms similar to current terms or at all. An interruption in the availability of certain raw materials or ingredients, or significant
increases in the prices paid by us for them, could have a material adverse effect on our business, financial condition, liquidity and operating results.
The failure to perform satisfactorily by third parties upon which we rely to manufacture and supply products may lead to supply shortfalls.
We rely on third parties to manufacture and supply marketed products. We also have certain supply obligations to our licensing partners who are responsible for
marketing such products. To be successful, our products have to be manufactured in commercial quantities in compliance with quality controls and regulatory
requirements. Even though it is our objective to minimize such risk by introducing alternative suppliers to ensure a constant supply at all times, we cannot
guarantee that we will not experience supply shortfalls and, in such event, we may not be able to perform our obligations under contracts with our partners.
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We are subject to intense competition for our skilled personnel, and the loss of key personnel or the inability to attract additional personnel could impair our
ability to conduct our operations.
We are highly dependent on our management and our clinical, regulatory and scientific staff, the loss of whose services might adversely impact our ability to
achieve our objectives. Recruiting and retaining qualified management and clinical, scientific and regulatory personnel is critical to our success. Competition for
skilled personnel is intense, and our ability to attract and retain qualified personnel may be affected by such competition.
Our strategic partners’ manufacturing capabilities may not be adequate to effectively commercialize our product candidates.
Our manufacturing experience to date with respect to our product candidates consists of producing drug substance for clinical studies. To be successful, these
product candidates have to be manufactured in commercial quantities in compliance with regulatory requirements and at acceptable costs. Our strategic partners’
current manufacturing facilities have the capacity to produce projected product requirements for the foreseeable future, but we will need to increase capacity if
sales continue to grow. Our strategic partners may not be able to expand capacity or to produce additional product requirements on favorable terms. Moreover,
delays associated with securing additional manufacturing capacity may reduce our revenues and adversely affect our business and financial position. There can be
no assurance that we will be able to meet increased demand over time.
We are subject to the risk of product liability claims, for which we may not have or be able to obtain adequate insurance coverage.
The sale and use of our products, in particular our biopharmaceutical products, involve the risk of product liability claims and associated adverse publicity. Our
risks relate to human participants in our clinical trials, who may suffer unintended consequences, as well as products on the market whereby claims might be
made directly by patients, healthcare providers or pharmaceutical companies or others selling, buying or using our products. We manage our liability risks by
means of insurance. We maintain liability insurance covering our liability for our preclinical and clinical studies and for our pharmaceutical products already
marketed. However, we may not have or be able to obtain or maintain sufficient and affordable insurance coverage, including coverage for potentially very
significant legal expenses, and without sufficient coverage any claim brought against us could have a materially adverse effect on our business, financial
condition or results of operations.
Our business involves the use of hazardous materials and, as such, we are subject to environmental and occupational safety laws regulating the use of such
materials. If we violate these laws, we could incur significant fines or liabilities or suffer other adverse consequences.
Our discovery and development processes involve the controlled use of hazardous and radioactive materials. We are subject to federal, provincial and local laws
and regulations governing the use, manufacture, storage, handling and disposal of such materials and certain waste products. The risk of accidental contamination
or injury from these materials cannot be completely eliminated. In the event of an accident or a failure to comply with environmental or occupational safety laws,
we could be held liable for any damages that result, and any such liability could exceed our resources. We may not be adequately insured against this type of
liability. We may be required to incur significant costs to comply with environmental laws and regulations in the future, and our operations, business or assets
may be materially adversely affected by current or future environmental laws or regulations.
Legislative actions, new accounting pronouncements and higher insurance costs are likely to impact our future financial position or results of operations.
Changes in financial accounting standards or implementation of accounting standards may cause adverse, unexpected revenue or expense fluctuations and affect
our financial position or results of operations. New pronouncements and varying interpretations of pronouncements have occurred with greater frequency and are
expected to occur in the future, and we may make or be required to make changes in our accounting policies in the
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future. Compliance with changing regulations of corporate governance and public disclosure, notably with respect to internal controls over financial reporting,
may result in additional expenses. Changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for
companies such as ours, and insurance costs are increasing as a result of this uncertainty.
We are subject to additional reporting requirements under applicable Canadian securities laws and the Sarbanes-Oxley Act in the United States. We can
provide no assurance that we will at all times in the future be able to report that our internal controls over financial reporting are effective.
As a public company, we are required to comply with Section 404 of the Sarbanes-Oxley Act (“Section 404”) and National Instrument 52-109 — Certification of
Disclosure in Issuers’ Annual and Interim Filings, and we are required to obtain an annual attestation from our independent auditors regarding our internal control
over financial reporting. In any given year, we cannot be certain as to the time of completion of our internal control evaluation, testing and remediation actions or
of their impact on our operations. Upon completion of this process, we may identify control deficiencies of varying degrees of severity under applicable SEC and
Public Company Accounting Oversight Board rules and regulations. As a public company, we are required to report, among other things, control deficiencies that
constitute material weaknesses or changes in internal controls that, or that are reasonably likely to, materially affect internal controls over financial reporting. A
“material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a
material misstatement of the Company’s annual consolidated financial statements will not be prevented or detected on a timely basis. If we fail to comply with the
requirements of Section 404, Canadian requirements or report a material weakness, we might be subject to regulatory sanction and investors may lose confidence
in our consolidated financial statements, which may be inaccurate if we fail to remedy such material weakness.
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 “Item 10.E — Taxation — Material U.S. Federal Income Tax Considerations” in this
Annual Report on Form 20-F) that directly or indirectly hold common shares or warrants 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 percent of our gross income is “passive income” or (ii) at least 50 percent 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.
We believe that we were not a PFIC for the 2011 taxable year. However, the fair market value of our assets may be determined in large part by the market price of
our common shares, which is likely to fluctuate, and the composition of our income and assets will be affected by how, and how quickly, we spend any cash that
is raised in any financing transaction. Thus no assurance can be provided that we will not be classified as a PFIC for the 2012 taxable year and for any future
taxable year.
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
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. However, a
mark-to-market election is not available in respect of a warrant.
Under recently enacted U.S. tax legislation and subject to future guidance, if the Company is a PFIC, U.S. Holders will be required to file an annual information
return with the Internal Revenue Service (“IRS”) (on IRS Form 8621, which PFIC shareholders will be required to file with their income tax or information
returns) relating to their ownership of our common shares. Pursuant to Notice 2011-55, the IRS has suspended this new
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filing requirement for U.S. Holders that are not otherwise required to file the current version of the IRS Form 8621 until the IRS releases a subsequent revision of
IRS Form 8621, modified to reflect the recently enacted U.S. tax legislation. Guidance has not yet been issued regarding the information required to be included
on such form. This new filing requirement is in addition to any pre-existing reporting requirements that apply to a U.S. Holder’s interest in a PFIC (which the
recently enacted tax legislation and IRS Notice 2011-55 do not affect).
For a more detailed discussion of the potential tax impact of us being a PFIC, see “Item 10.E — Taxation — Material U.S. Federal Income Tax Considerations” in
this Annual Report on Form 20-F.
We may incur losses associated with foreign currency fluctuations.
Our operations are in many instances conducted in currencies other than the euro, our functional currency. Fluctuations in the value of currencies could cause us
to incur currency exchange losses. We do not currently employ a hedging strategy against exchange rate risk. We cannot assert with any assurance that we will not
suffer losses as a result of unfavorable fluctuations in the exchange rates between the United States dollar, the euro, the Canadian dollar and other currencies. For
more information, see “Item 11. — Quantitative and Qualitative Disclosures About Market Risk” in this Annual Report on Form 20-F.
We may not be able to successfully integrate acquired businesses.
Future acquisitions may not be successfully integrated. The failure to successfully integrate the personnel and operations of businesses which we may acquire in
the future with ours could have a material adverse effect on our operations and results.
Risks Related to our Securities
Our share price is volatile, which may result from factors outside of our control. If our common shares were to be delisted from the NASDAQ Global Market
(“NASDAQ”) or the Toronto Stock Exchange (the “TSX”), investors may have difficulty in disposing of our common shares held by them.
Our common shares are currently listed and traded only on NASDAQ and TSX. Our valuation and share price since the beginning of trading after our initial
listings, first in Canada and then in the United States, have had no meaningful relationship to current or historical financial results, asset values, book value or
many other criteria based on conventional measures of the value of shares.
During the year ended December 31, 2011, the closing price of our common shares ranged from $1.43 to $2.58 on NASDAQ and from C$1.41 to C$2.51 per
share on TSX. Our share price may be affected by developments directly affecting our business and by developments out of our control or unrelated to us. The
stock market generally, and the biopharmaceutical sector in particular, are vulnerable to abrupt changes in investor sentiment. Prices of shares and trading
volumes of companies in the biopharmaceutical industry can swing dramatically in ways unrelated to, or that bear a disproportionate relationship to, operating
performance. Our share price and trading volume may fluctuate based on a number of factors including, but not limited to:
— clinical and regulatory developments regarding our product candidates;
— delays in our anticipated development or commercialization timelines;
— developments regarding current or future third-party collaborators;
— other announcements by us regarding technological, product development or other matters;
— arrivals or departures of key personnel;
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— governmental or regulatory action affecting our product candidates and our competitors’ products in the United States, Canada and other countries;
— developments or disputes concerning patent or proprietary rights;
— actual or anticipated fluctuations in our revenues or expenses;
— general market conditions and fluctuations for the emerging growth and biopharmaceutical market sectors; and
— economic conditions in the United States, Canada or abroad.
Our listing on both NASDAQ and TSX may increase price volatility due to various factors, including different ability to buy or sell our common shares, different
market conditions in different capital markets and different trading volumes. In addition, low trading volume may increase the price volatility of our common
shares. A thin trading market could cause the price of our common shares to fluctuate significantly more than the stock market as a whole.
A period of large price decline in the market price of our common shares could increase the risk that securities class action litigation could be initiated against us.
Litigation of this type could result in substantial costs and diversion of management’s attention and resources, which would adversely affect our business. Any
adverse determination in litigation could also subject us to significant liabilities.
We must meet continuing listing requirements to maintain the listing of our common shares on NASDAQ and TSX. For continued listing, NASDAQ requires,
among other things, that listed securities maintain a minimum closing bid price of not less than $1.00 per share.
If we are unsuccessful in maintaining NASDAQ’s minimum bid price or other requirements in the future and are unable to subsequently regain compliance within
the applicable grace period, our common shares will be subject to delisting. Should we receive a delisting notification, we may appeal to the Listing
Qualifications Panel or apply to transfer the listing of our common shares to the NASDAQ Capital Market if we satisfy at such time all of the initial listing
standards of the NASDAQ Capital Market, other than compliance with the minimum closing bid price requirement. If the application to the NASDAQ Capital
Market were approved, then we would have an additional 180-day grace period in order to regain compliance with the minimum bid price requirement while
listed on the NASDAQ Capital Market. There can be no assurance that we will meet the requirements for continued listing or whether an application to the
NASDAQ Capital Market would be approved or that any appeal would be granted by the Listing Qualifications Panel.
We do not intend to pay dividends in the near future.
To date, we have not declared or paid any dividends on our common shares. We currently intend to retain our future earnings, if any, to finance further research
and the expansion of our business. As a result, the return on an investment in our securities will, for the foreseeable future, depend upon any future appreciation in
value. There is no guarantee that our securities will appreciate in value or even maintain the price at which shareholders have purchased their securities.
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Item 4. Information on the Company
A.
History and development of the Company
Aeterna Zentaris Inc. is a late-stage drug development company specialized in oncology and endocrine therapy.
We were incorporated on September 12, 1990 under the Canada Business Corporations Act (the “CBCA”) and continue to be governed by the CBCA. Our
registered office is located at 1405 du Parc-Technologique Blvd., Quebec City, Quebec, Canada G1P 4P5, our telephone number is (418) 652-8525 and our
website is www.aezsinc.com. None of the documents or information found on our website shall be deemed to be included in or incorporated by reference into this
annual report.
On December 30, 2002, we acquired Zentaris AG, a biopharmaceutical company based in Frankfurt, Germany. Zentaris was a spin-off of Degussa AG and Asta
Medica GmbH, a former pharmaceutical company. With this acquisition, the Company changed its risk profile and inherited an extensive and robust product
pipeline with capabilities from drug discovery to commercialization with a particular focus on endocrine therapy and oncology. As part of the acquisition, we also
acquired a very experienced pharmaceutical team along with a network of strategic pharmaceutical partners. The total consideration paid for the acquisition of
Zentaris was $51.9 million, net of cash and cash equivalents acquired of $2.3 million, of which an amount of $26.7 million was paid in cash and the remaining
amount of $25.2 million as a balance of purchase price.
In May 2004, we changed our name to Aeterna Zentaris Inc. and on May 11, 2007, Zentaris GmbH was renamed Aeterna Zentaris GmbH (“AEZS GmbH”).
AEZS GmbH is our principal operating subsidiary.
On April 6, 2005, our former subsidiary Atrium Biotechnologies Inc. (now Atrium Innovations Inc.) (“Atrium”), completed its initial public offering in Canada
and began trading on the TSX under the ticker symbol “ATB”.
Throughout 2006, as part of a thorough, strategic planning process, our management and Board of Directors (the “Board”) made the decision to spin off Atrium in
two phases. On September 19, 2006, we initiated the first phase, a secondary offering in which we sold 3,485,000 Subordinate Voting Shares of Atrium at a price
of CAN$15.80 per share. This secondary offering closed on October 18, 2006, generating net proceeds of nearly $45 million to Aeterna Zentaris. With this
transaction closed, our remaining interest in Atrium was 11,052,996 Subordinate Voting Shares representing 36.1% of its issued and outstanding shares.
Therefore, we no longer had a controlling interest in Atrium as at October 18, 2006.
The second phase was to distribute our remaining interest in Atrium to our shareholders concurrently with a reduction of the stated capital of our common shares.
On December 15, 2006, our shareholders approved a reduction of the stated capital of our common shares in an amount equal to the fair market value of our
remaining interest in Atrium by way of a special distribution in kind to all our shareholders. This special distribution was completed on January 2, 2007. For each
common share held as at the record date of December 29, 2006, our shareholders received 0.2078824 Subordinate Voting Shares of Atrium.
In May 2007, we opened an office in the United States, located at 20 Independence Boulevard, Warren, New Jersey 07059-2731. The Company moved this office
to a new location in December 2011 at 25 Mountainview Blvd., Suite 203, Basking Ridge, NJ 07920.
We currently have three wholly-owned direct and indirect subsidiaries, Aeterna Zentaris GmbH (“AEZS Germany”), based in Frankfurt, Germany, Zentaris
IVF GmbH, a direct wholly-owned subsidiary of AEZS Germany based in Frankfurt, Germany, and Aeterna Zentaris, Inc., based in Basking Ridge, New Jersey
in the United States.
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From the formation of Atrium as our subsidiary in 1999 until the distribution of our remaining interest in Atrium on January 2, 2007, Atrium did not declare or
pay any dividends to its shareholders. Since the disposition of our entire interest in Atrium, we have not had access to the liquidity or cash flows generated by
Atrium.
Our current drug development strategy focuses mainly on our late-stage compounds perifosine and AEZS-108 (zoptarelin doxorubicin) in oncology, AEZS-130
(macimorelin) in endocrinology, as well as on strategic and targeted earlier-stage compounds, as depicted in the chart reproduced under the heading, “Our Product
Pipeline”.
Our common shares are listed for trading on the TSX under the trading symbol “AEZ” and on NASDAQ under the trading symbol “AEZS”.
The Company’s agent for service of process and SEC matters in the United States is its wholly-owned subsidiary, Aeterna Zentaris, Inc., located at 25
Mountainview Blvd., Suite 203, Basking Ridge, NJ 07920.
There have been no public takeover offers by third parties with respect to the Company or by the Company in respect of other companies’ shares during the last
or current fiscal year.
B.
Business overview
We are a late-stage drug development company specialized in oncology and endocrine therapy.
Our pipeline encompasses compounds at all stages of development, from drug discovery through to marketed products. The highest development priorities in
oncology are the completion of Phase 3 trials with perifosine in colorectal cancer (“CRC”) and in multiple myeloma (“MM”), as well as the further advancement
of AEZS-108, for which we have successfully completed a Phase 2 trial in advanced endometrial and advanced ovarian cancer. We are planning for the initiation
of a pivotal program with AEZS-108 in endometrial cancer and also a Phase 2 trial in triple-negative breast cancer. AEZS-108 is also in development in other
cancer indications, including castration- and taxane-resistant prostate cancer, as well as refractory bladder cancer.
Our pipeline also encompasses other earlier-stage programs in oncology. AEZS-112, an oral anticancer agent which involves three mechanisms of action (tubulin,
topoisomerase II and angiogenesis inhibition) has completed a Phase 1 trial in advanced solid tumors and lymphoma. Additionally, several novel targeted
potential anti-cancer candidates such as AEZS-120, a live recombinant oral tumor vaccine candidate, as well as our phosphoinositide 3-kinase (“PI3K”)/Erk
inhibitors AEZS-129, AEZS-131, AEZS-132 and their respective follow-up compounds are currently in preclinical development.
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Our lead program in endocrinology, a Phase 3 trial under a Special Protocol Assessment (“SPA”) obtained from the FDA with AEZS-130 as an oral diagnostic
test for adult growth hormone deficiency (“AGHD”), has been completed with positive results. We are planning to file an NDA for the registration of AEZS-130
in the United States, subject to a successful pre-NDA meeting with the FDA. Furthermore, AEZS-130 is in a Phase 2A trial for the treatment of cancer cachexia.
Recent Developments
For a complete description of our recent corporate and pipeline developments, refer to “Item 5. — Operating and Financial Review and Prospects — Highlights”.
Our Business Strategy
Our primary business strategy is to advance, with the collaboration of our strategic partners, our product development pipeline with a focus on our flagship
product candidates in oncology and endocrinology. In addition, we also continue to advance certain other clinical and preclinical programs as described below,
some of which are conducted through grants from various governmental agencies. Our vision is to become a fully-integrated specialty biopharmaceutical
company.
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Our product pipeline
Pipeline table
Status of our drug pipeline as at March 27, 2012
Discovery
Preclinical
AEZS-120
Prostate cancer
vaccine
(oncology)
AEZS-129, 131, 132
and 136;
Erk & PI3K
inhibitors (oncology)
AEZS-137
(Disorazol Z)
(oncology)
AEZS-125 (LHRH-
Disorazol Z)
(oncology)
~120,000
compound
library
Partners
Commercial
Cetrotide
®
(in vitro
fertilization)
Phase 3
Perifosine
• Refractory
advanced
colorectal cancer
• Multiple myeloma
AEZS-130
• Diagnostic in adult growth
hormone deficiency
(endocrinology)
Perifosine:
Keryx
North America
Handok
Korea
Yakult
Japan
Hikma
Middle East/
North Africa
Cetrotide :
®
Merck Serono
World except
Japan
Nippon
Kayaku /
Shionogi
Japan
Phase 1
AEZS-112
(oncology)
Phase 2
Perifosine
• Multiple cancers
AEZS-108
• Endometrial cancer
• Triple-negative
breast cancer
• Ovarian cancer
• Castration-and
taxane-resistant -
prostate cancer
• Refractory bladder
cancer
Ozarelix
• Prostate cancer
AEZS-130
• Therapeutic in
cancer cachexia
Perifosine:
Keryx
North America
Handok
Korea
Yakult
Japan
Hikma
Middle East/
North Africa
Ozarelix:
Spectrum
World (ex-Japan for
oncology indications,
ex-Korea and ex-other
Asian countries for
BPH indication)
Handok
Korea and other Asian countries
for BPH
indication
Nippon Kayaku
Japan for oncology
indications
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Oncology
Our highest priorities in oncology are with perifosine, to complete the two Phase 3 trials in CRC and in MM, and to continue our Phase 2 program in multiple
cancers, as well as the further advancement of AEZS-108, for which we successfully completed Phase 2 trials in advanced endometrial and advanced ovarian
cancer.
Perifosine
Perifosine is a novel, oral anticancer treatment that inhibits Akt activation in the PI3K pathway. Perifosine, in combination with chemotherapeutic agents, is
currently in Phase 3 studies for the treatment of metastatic colorectal cancer (“mCRC”), MM and in Phase 2 studies for the treatment of other cancers. We believe
perifosine is the most advanced anticancer compound of its class in late-stage development. Perifosine as monotherapy is also being explored in chronic
lymphocytic leukemia (“CLL”). The FDA has granted perifosine orphan-drug designation in MM and in neuroblastoma and Fast Track designations in both MM
and refractory advanced CRC. Additionally, an agreement was reached with the FDA to conduct the Phase 3 trials in both of these indications under a SPA.
Perifosine has also been granted Orphan Medicinal Product designation from the European Medicine Agency (“EMA”) in MM, and has received positive
Scientific Advice from the EMA for both the MM and advanced CRC programs, with ongoing Phase 3 trials for these indications expected to be sufficient for
registration in Europe. Perifosine rights have been licensed to Keryx for North America, to Yakult for Japan, to Handok Pharmaceuticals Co. Ltd. (“Handok”) for
Korea and to Hikma Pharmaceuticals PLC (“Hikma”) for the Middle East and North Africa (“MENA”) region.
AEZS-108
AEZS-108 represents a new targeting concept in oncology leading to personalized medicine using a cytotoxic peptide conjugate which is a hybrid molecule
composed of a synthetic peptide carrier and doxorubicin. The design of AEZS-108 allows for the specific binding and selective uptake of the cytotoxic conjugate
by luteinizing hormone-releasing hormone (“LHRH”) receptor-positive tumors. Phase 2 trials in advanced endometrial cancer and advanced ovarian cancer have
been successfully completed. AEZS-108 is also in development in other cancer indications, including refractory bladder and castration-and taxane-resistant
prostate cancer. A pivotal trial in endometrial cancer and also a Phase 2 trial in triple-negative breast cancer are expected to be initiated in 2012. We have obtained
orphan-drug status for AEZS-108 in advanced ovarian cancer from the FDA and from the Committee for Orphan Medicinal Products (“COMP”) of the EMA. An
IND in the United States is in place for the treatment of prostate, bladder and triple-negative breast cancer. We own the worldwide rights to AEZS-108 and also
have a collaboration agreement with Ventana Medical Systems, Inc. (“Ventana”), a member of the Roche Group, to develop a companion diagnostic for the
immunohistochemical determination of LHRH-receptor expression, for AEZS-108.
Endocrinology
In endocrinology, aside from Cetrotide , we completed a Phase 3 trial with AEZS-130, which would be the first oral diagnostic test for AGHD.
®
AEZS-130
AEZS-130, a ghrelin agonist, is an orally available novel synthetic small molecule that stimulates the secretion of growth hormone. We completed a Phase 3 trial
under a SPA obtained from the FDA and after conclusion of a successful pre-NDA meeting with the FDA, we plan to file a NDA in the United States. AEZS-130
has been granted orphan-drug designation by the FDA. In addition to the diagnostic indication, we believe that AEZS-130 has potential application for the
treatment of cachexia, a condition frequently associated with severe chronic diseases such as cancer, chronic obstructive pulmonary disease and Acquired
Immune Deficiency Syndrome (“AIDS”). Furthermore, the FDA agreed to allow for the initiation of a physician sponsored IND Phase 2A trial in cancer induced
cachexia. The study is currently conducted under a cooperative research and development agreement (“CRADA”) with the Michael E. DeBakey Veterans Affairs
Medical Center which will be funding the study.
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Clinical and Preclinical Programs
Additionally, we are advancing AEZS-112 in Phase 1, an oral anticancer agent which involves three mechanisms of action, (tubulin, topoisomerase II and
angiogenesis inhibition), as well as several preclinical programs with targeted potential development candidates. Among the agents that we expect to reach the
clinical development stage in the coming years are: AEZS-120 (oral prostate cancer vaccine), AEZS-129, AEZS-131 and AEZS-132 or their respective follow-up
compounds (Erk and PI3K inhibitors).
We also continue to perform targeted drug discovery activities from which we are able to derive preclinical candidates. This drug discovery includes high
throughput screening systems and a library of more than 120,000 compounds.
We are currently in a stage in which some of our products and product candidates are being further developed or marketed jointly with strategic partners or with
fundings from governmental organizations.
1.0
1.1
ONCOLOGY
SIGNAL TRANSDUCTION INHIBITORS
1.1.1
Perifosine
Perifosine is a novel, oral anticancer treatment that inhibits Akt activation in the PI3K pathway.
Perifosine is an alkylphosphocholine compound with structural similarity to phospholipids, which are the main constituents of cellular membranes, and it is an
active ingredient with antitumor capacities. In tumor cells, perifosine has demonstrated interactions with vital signal transduction mechanisms and induction of
programmed cell death (apoptosis).
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Perifosine exerts a marked cytotoxic effect in animal and human tumor cell lines. The most sensitive cancer cell lines were larynx carcinoma, breast, small cell
lung, prostate and colon. Based on the in vitro trials, the mode of action of perifosine appears to be fundamentally different from that of currently available
cytotoxics.
Pharmacodynamic data have demonstrated that perifosine possesses antitumor activity, including tumor models that are resistant to currently available agents for
cancer therapy. This activity is based on a direct and relatively specific action on tumors.
In preclinical and clinical Phase 1 trials (solid tumors), this orally administered agent has been found to have good tolerability.
Based on findings in various tumor models, the U.S. National Cancer Institute (“NCI”), along with our North American partner, Keryx, investigated additional
dosage regimens of perifosine in oncology patients. A number of screening Phase 2 studies examined perifosine as a single agent or in combination in several
tumor types. Encouraging results lead to further development in specific indications.
Perifosine, in combination with chemotherapeutic agents, is currently in Phase 3 studies for the treatment of CRC and MM, and in Phase 2 studies for the
treatment of other cancers, and we believe is the most advanced anticancer compound of its class in late-stage development.
Perifosine as monotherapy is also being explored in CLL. The FDA has granted perifosine orphan-drug designation in MM and in neuroblastoma and Fast Track
designations in both refractory advanced CRC and MM. Additionally, an agreement was reached with the FDA to conduct the Phase 3 trials in both of these
indications under a SPA. Perifosine has also been granted Orphan Medicinal Product designation from the EMA in MM, and has received positive Scientific
Advice from the EMA for both the advanced CRC and MM programs, with ongoing Phase 3 trials for these indications expected to be sufficient for registration in
Europe. Perifosine rights have been licensed to Keryx for North America, to Handok for Korea, to Yakult for Japan and Hikma for the MENA region.
On July 12, 2011, the European Patent Office (“EPO”) granted a patent for the use of alkylphosphocholines, more specifically perifosine, in the preparation of a
medicament for the treatment of benign and malignant tumours, prior to and/or during the treatment with approved antitumor antimetabolites such as 5-
fluorouracil (“5-FU”) and capecitabine. Filed on July 29, 2003, the patent (EP #1 545 553) entitled, Use of Alkyl Phosphocholines in Combination with Anti-
Tumours Medicaments, became effective as of July 13, 2011, following its announcement in the European Patent Bulletin, and will expire on July 28, 2023.
1.1.1.1 Perifosine — CRC
Phase 2 trial – perifosine + capecitabine
On October 5, 2011, we announced that a manuscript, entitled Randomized Placebo-Controlled Phase 2 Trials of Perifosine Plus Capecitabine as Second- or
Third-Line Therapy in Patients with Metastatic Colorectal Cancer, had been published in the October 3, 2011 online edition of the Journal of Clinical Oncology
(“JCO”).
This randomized, double-blind, placebo-controlled study was conducted at 11 centers across the United States. Patients with 2 or 3 line mCRC were
randomized to receive capecitabine (Xeloda ), an approved drug for mCRC, at a dose of 825 mg/m BID (total daily dose of 1,650 mg/m ) on days 1 - 14 every
21 days, plus either perifosine or placebo at 50 daily. Treatment was continued until progression. The study enrolled a total of 38 patients, 34 of which were third-
line or greater. Of the 38 patients enrolled, 35 were evaluable for response (20 patients on the perifosine + capecitabine arm and 15 patients on the
placebo + capecitabine arm). Of the three patients on the placebo + capecitabine arm not evaluable for response, 2 patients were not evaluable due to toxicity
(days 14, 46) and 1 patient was not evaluable due to a new malignancy on day 6. All patients in the perifosine + capecitabine arm were evaluable for response.
nd
rd
®
2
2
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The patients in the study were heavily pretreated, with the arms well-balanced in terms of prior treatment regimens. The median number of prior treatment
regimens for all 38 patients was two (range 1-5), with prior treatment regimens as follows: 89% of the patients received FOLFIRI (irinotecan + 5-
FU + leucovorin); 74% FOLFOX (oxaliplatin + 5-FU + leucovorin); 66% were previously treated with both FOLFIRI and FOLFOX; 79% received Avastin ; and
50% Erbitux . Prior treatment with single agent capecitabine was excluded.
®
®
The primary endpoints of this study were to measure 1) time to progression (“TTP”), 2) overall response rate (“ORR”), defined as the percentage of patients
achieving a complete response (“CR”) or partial response (“PR”) by Response Evaluation Criteria in Solid Tumors (“RECIST”), and 3) clinical benefit rate
(“CBR”) defined as the percentage of patients on treatment for greater than three months with at least stable disease (“SD”). Safety of perifosine + capecitabine
vs. placebo + capecitabine in this patient population was evaluated as a secondary endpoint.
Best response and median TTP of perifosine + capecitabine vs. placebo + capecitabine were as follows:
Group
N*
CR
N (%)
PR
N (%)
ORR
N (%)
SD > 12
N (%)
CBR
N (%)
Median TTP
Perifosine + capecitabine 20 1(5%) 3(15%) 4(20%) 11 weeks (55%) 15(75%)
0 1 (7%) 1(7%) 5 weeks (33%) 6(40%)
Placebo + capecitabine
15
27.5 weeks (95% CI**, 12.1 to 48.1)
10.1 weeks (95% CI, 6.6 to 13.0)
* N = Number of patients
** CI = Confidence interval
Perifosine + capecitabine more than doubled TTP vs. placebo + capecitabine with a statistically significant p-value <.001. In addition, perifosine + capecitabine
more than doubled the ORR and almost doubled the CBR vs. placebo + capecitabine.
Although not a primary endpoint in the study, overall survival (“OS”) was analyzed with results as follows:
Group
Perifosine + capecitabine
Placebo + capecitabine
Median OS
17.7 months (95% CI, 8.5 to 24.6)
7.6 months (95% CI, 5.0 to 16.3)
Of notable interest were data showing a highly statistically significant benefit in median OS (more than doubling) and TTP for the subset of patients who were
refractory to a 5-FU chemotherapy-based treatment regimen. 5-FU is a core component of the standard of care FOLFIRI and FOLFOX regimens, and
capecitabine is a 5-FU pro-drug. These results are shown below:
Group
5-FU Ref*
N (%)
> SD (min 12 weeks)
N (%)
p=0.066
Median TTP
p<.001
Median OS
p=0.0088
Perifosine + capecitabine 14(70%)
11(73%)
Capecitabine
1 PR /8 SD (64%)
17.6 weeks (95% CI, 12 to 36)
0 PR /3 SD (27%) 9.0 weeks (95% CI, 6.6 to 11.0)
15.1 months (95% CI, 7.2 to 22.3)
6.5 months (95% CI, 4.8 to 10.9)
* Ref= refractory
All 38 patients were evaluable for safety. The perifosine + capecitabine combination was well-tolerated with Grade 3 and Grade 4 adverse events of > 10%
incidence for perifosine + capecitabine arm versus capecitabine arm as follows: anemia (15% vs. 0%), fatigue (0% vs. 11%), abdominal pain (5% vs. 11%) and
hand-foot syndrome (30% vs. 0%). Of note, incidence of Grade 1 and Grade 2 hand-foot syndrome was similar in both the perifosine + capecitabine and
capecitabine arms (25% vs. 22%, respectively). Hand-foot syndrome is a reported
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adverse event with capecitabine monotherapy. Patients who remained on treatment longer in the Phase 2 study had a greater chance to develop hand-foot
syndrome as illustrated by a median time to onset of Grade 3 and Grade 4 hand-foot syndrome in the perifosine + capecitabine arm of 19 weeks.
Based on the data, in which the combination of perifosine + capecitabine demonstrated statistical significance with respect to median OS and median time to
tumor progression, the investigators concluded that the perifosine + capecitabine combination showed promising clinical activity compared to single-agent
capecitabine, and that the difference in clinical outcome seen with the addition of perifosine was impressive.
Phase 3 trial and regulatory milestones
On February 3, 2010, we announced that our partner Keryx had reached an agreement with the FDA on a SPA for the Phase 3 Xeloda + Perifosine Evaluation in
Colorectal Cancer Treatment (“X-PECT”) trial for perifosine in patients with refractory mCRC.
®
On April 5, 2010, our partner Keryx was granted Fast Track designation by the FDA for the Phase 3 X-PECT registration trial.
®
On April 8, 2010, we announced that our partner Keryx initiated a randomized (1:1), double-blind Phase 3 X-PECT trial comparing the efficacy and safety of
perifosine + capecitabine (Xeloda ) vs. placebo + capecitabine in approximately 430 patients with refractory mCRC. Patients must have failed available therapy
including 5-FU, oxaliplatin (Eloxatin ), irinotecan, bevacizumab (Avastin ) and, if K-Ras wild-type, failed therapy with prior cetuximab (Erbitux ) or
®
panitumumab (Vectibix ). For oxaliplatin-based therapy, failure of therapy also includes patients who discontinued due to toxicity. The primary endpoint is OS,
with secondary endpoints including ORR (CR + PR), progression-free survival (“PFS”) and safety. Approximately 70 U.S. sites are participating in the study and
un-blinding of the study will be triggered by 360 events of death. Dr. Johanna Bendell, Director of GI Oncology Research for the Sarah Cannon Research
Institute, Nashville, Tennessee, leads the Phase 3 investigational team. Patient recruitment for this study was completed in July 2011.
®
®
®
On June 29, 2010, we announced that we had received positive Scientific Advice from the EMA regarding the Phase 3 X-PECT trial for the development of
perifosine in refractory advanced CRC. The Scientific Advice from the EMA indicates that the ongoing study, in conjunction with safety data generated from
other clinical studies with perifosine, is considered sufficient to provide all data necessary to support a marketing authorization of perifosine in advanced CRC.
We do not intend to initiate any additional studies with perifosine for this indication. Therefore, for the development of perifosine in both MM and CRC, we
believe that the planned North American clinical program, sponsored by our partner Keryx, is now sufficient for approval in Europe and in many countries in the
rest of the world, where we hold rights for our compound.
On July 27, 2011, we announced completion of patient recruitment for the ongoing Phase 3 trial with perifosine in refractory advanced CRC, involving over 465
patients from 65 sites in the United States. This Phase 3 X-PECT trial is a randomized (1:1), double-blind trial comparing the efficacy and safety of perifosine +
capecitabine vs. placebo + capecitabine. The primary endpoint is OS, with secondary endpoints including ORR (CR + PR), PFS and safety. Approximately 360
events of death will trigger the unblinding of the study.
On August 31, 2011, an independent Data Safety Monitoring Board (“DSMB”) completed an interim safety and futility analysis of the Phase 3 X-PECT study of
perifosine in patients with refractory advanced CRC and recommended that the study continue to completion, as planned.
On January 3, 2012, we announced that our Japanese partner, Yakult, had initiated a Phase 1/2 trial in Japan to assess the safety and efficacy of perifosine in
combination with a chemotherapeutic agent, capecitabine, in patients with refractory advanced CRC. The primary endpoint of the Phase 1 portion of the trial is
the safety profile of perifosine in combination with capecitabine. The primary endpoint of the Phase 2 portion is efficacy (Disease Control Rate). The initiation of
this trial on December 27, 2011 triggered a milestone receivable of $2.6 million (according to the agreement signed in March 2011 for perifosine in Japan).
29
Table of Contents
Competitors for Perifosine in CRC
Products on the market:
Surgery is often the main treatment for early stage CRC. When CRC metastasizes (spreads to other parts of the body such as the liver), chemotherapy is
commonly used. Treatment of patients with recurrent or advanced CRC depends on the location of the disease. Currently, there are seven approved drugs for
patients with mCRC: 5-FU, capecitabine (Xeloda ), irinotecan (Camptosar ), oxaliplatin (Eloxatin ), bevacizumab (Avastin ), cetuximab (Erbitux ), and
panitumumab (Vectibix ). Depending on the stage of the cancer, two or more of these types of treatment may be combined at the same time, such as FOLFOX (5-
FU; leucovorin; oxaliplatin) and FOLFIRI (5-FU; leucovorin; irinotecan), or used after one another. Bevacizumab, a vascular endothelial growth factor (“VEGF”)
monoclonal antibody, is commonly administered with chemotherapy. Typically, patients who fail 5-FU, oxaliplatin, irinotecan, and bevacizumab-containing
therapies, and who have wild-type KRAS status receive epidermal growth factor receptor (“EGFR”) monoclonal antibody therapy with either cetuximab or
panitumumab. Once patients progress on these agents, there are no further standard treatment options.
®
®
®
®
®
®
Product / mode of action
Company
Sales
®
Avastin (bevacizumab) / a humanized
monoclonal antibody targeting vascular
endothelial growth factor
Oxaliplatin / platinum agent
®
Erbitux (cetuximab) / a chimeric monoclonal
antibody that specifically blocks EGFR
®
Xeloda (capecitabine) / oral fluoropyrimidine
which generates fluorouracil preferentially in
tumor tissues by enzymatic cascade
Vectibix (panitumumab) / a recombinant, human
IgG2 kappa monoclonal antibody that binds
specifically to the human EGFR
®
* G7 = United States, France, Germany, Italy, Spain, UK and Japan.
Manufactured by Genentech/Roche
Sanofi’s Eloxatin/Eloxatine, Yakult Honsha’s
Elplat, generics
Manufactured and distributed in North America:
Bristol-Myers Squibb Co. and Eli Lilly and Co.
Distributed in the rest of the world by Merck
KGaA.
Manufactured by Roche
Manufactured by Amgen
30
According to Decision Resources (Jan. 2012), a
research and advisory firm focusing on
pharmaceutical and healthcare issues (“Decision
Resources (January 2012)”) the 2010 G7* sales
were estimated to be $2.3 billion
According to Decision Resources (January 2012),
the 2010 G7* sales were estimated to be $2.0
billion
According to Decision Resources (January 2012),
the 2010 G7* sales were estimated to be $1.1
billion
According to Decision Resources (January 2012),
the 2010 G7* sales were estimated to be $636
million
According to Decision Resources (January 2012),
the 2010 G7* sales were estimated to be $266.1
million
Table of Contents
Products in Phase 3 development:
According to Decision Resources (January 2012), the most promising emerging therapies for CRC are the following: perifosine, regorafenib, aflibercept and
ramucirumab.
Product / mode of action*
Company*
Development Status*
Regorafenib (BAY 73-4506) / oral multi-kinase
inhibitor targeting angiogenic, stromal and
oncogenic kinases
Aflibercept (Zaltrap ) / intravenous
angiogenesis inhibitor
Ramucirumab (IMC-1121B) / intravenous fully
human immunoglobulin G1 Mab targeted to
VEGF-2
TM
* Source: Company’s Website
Market Data — CRC
Bayer HealthCare Pharmaceuticals / Onyx
Pharmaceuticals, Inc.
Phase 3 completed
Sanofi / Regeneron Pharmaceuticals
ImClone Systems (a subsidiary of Eli Lilly)
Regulatory applications for marketing approval
submitted (FDA and EMA)
Phase 3
According to the American Cancer Society, CRC is the third most common cancer in both men and women in the United States. An estimated 103,170 cases of
colon and 40,290 cases of rectal cancer are expected to occur in 2012 and nearly 51,690 people will die from the disease.
According to Decision Resources (January 2012), 368,000 patients will be diagnosed in Stage II-IV in the G7 market in 2014. In 2010, the total market for stage
IV-second-line CRC treatments accounted for 25% of major-market sales ($1.8 billion) and 5% ($360 million) for the total market for the third-line CRC
treatment.
Treatable pool stage IV patient population*
USA
EU-5
Japan
3 line in 2014
rd
28,320
48,070
19,750
2 line in 2014
nd
41,650
74,480
35,270
* According to Decision Resources (January 2012).
1.1.1.2 Perifosine — MM
Phase 1/2 trial – Perifosine in combination with Revlimid (lenalidomide) + dexamethasone
®
In December 2008, our partner Keryx presented final results of the Phase 1 clinical trial in which patients with relapsed or refractory MM were administered a
combination of perifosine + lenalidomide + dexamethasone. Four cohorts of ³6 patients each were enrolled and perifosine dose was 50 or 100 mg (daily),
lenalidomide dose was 15 or 25 mg for days 1 to 21 and dexamethasone dose was 20 mg (for days 1-4; 9-12; and 17-20 for 4 cycles, then 20 mg for days 1-4) in
28-day cycles. To limit dexamethasone-related toxicities, the protocol was amended to use weekly dexamethasone (40 mg), applying to cohorts 3, 4, and the
maximal tolerated dose (“MTD”) cohort. Dose limiting toxicity (“DLT”) was defined as Grade 3 non-hematologic toxicity, Grade 4 neutropenia for 5 days and/or
neutropenic fever, or platelets <25,000/mm on >1 occasion despite transfusion. Response was assessed by modified EBMT criteria. To be enrolled, patients had
to have received at least one but no more than four prior therapies. Patients refractory to lenalidomide/dexamethasone were excluded. 32 patients (17 men and
15 women,
3
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median age 61 years old, range 37-80) were enrolled; 6 patients in cohort 1 (perifosine 50 mg, lenalidomide 15 mg, dexamethasone 20 mg); 6 patients in cohort 2
(perifosine 50 mg, lenalidomide 25 mg, dexamethasone 20 mg); 8 patients in cohort 3 (perifosine 100 mg, lenalidomide 15 mg, dexamethasone 40 mg/week);
6 patients in cohort 4 (perifosine 100 mg, lenalidomide 25 mg, dexamethasone 40 mg/week) and 6 patients at MTD (Cohort 4). Median prior lines of treatment
was 2 (range 1-4). Prior therapy included dexamethasone (94%), thalidomide (83%), bortezomib (47%), and stem cell transplant (47%). 37% of patients had
progressed on prior thalidomide/dexamethasone. Two patients did not complete one full cycle (non-compliance and adverse event not related to study
drugs — both in cohort 3) and were not included in the safety and efficacy analysis. Of the 30 patients evaluable for safety, the most common (³10%) Grade 1 /
2 events included nausea (13%); diarrhea (17%); weight loss (17%); upper respiratory infection (23%); fatigue (30%); thrombocytopenia (20%); neutropenia
(20%); hypophosphatemia (23%); increased creatinine (23%); anemia (36%); hypercalcemia (47%). Grade 3 / 4 adverse events ³5% included neutropenia (20%);
hypophosphatemia (17%); thrombocytopenia (13%); anemia (10%), fatigue (7%). There was one reported DLT in cohort 3 (nausea). Lenalidomide was reduced
in 8 patients, perifosine reduced in 8 patients and dexamethasone reduced in 6 patients.
Patients have tolerated the treatment regimen of perifosine + lenalidomide + dexamethasone well with manageable toxicity, and with encouraging clinical activity
demonstrated by an ORR (> PR) of 50%.
Updated results of this Phase 1 study were presented in February 2009 at the 12 International Multiple Myeloma Meeting by our partner Keryx. Results
indicated that perifosine in combination with lenalidomide (Revlimid ) + dexamethasone continues to be well tolerated, with a median PFS in responding patients
of 10.9 months. Median OS still was not reached and was at 17 months at time of analysis.
th
®
On December 6, 2010 at the American Society of Hematology’s (“ASH”) 52 annual meeting in Orlando, Florida, we announced final positive results for this
Phase 1 trial. The final data showed a 73% objective response rate (minimal response or better) with a 50% PR or better, a median PFS of 10.8 months, and a
median duration for OS of 30.6 months. The myeloma investigators concluded that perifosine in combination with lenalidomide (Revlimid ) + dexamethasone
was well tolerated even at the highest doses used, and demonstrated encouraging clinical activity and survival.
nd
®
Best Response (N = 30 pts)
N (%)
Duration on Tx (months)
Median (range)
Near complete response (nCR)
4(13%)
32+, 32+, 28, 6
Very good partial response (VGPR)
3(10%)
35, 7, 4
³ PR
³ MR
50%
73%
Partial response (PR)
Minimal reponse (MR)
Stable disease (SD)
Progressive disease (PD)
8(27%)
Median 5.5 (4 – 29)
7(23%)
Median 12 (2 – 34)
6(20%)
Median 3 (2 – 30)
2(7%)
9, 4 weeks
Phase 1/2 trial – Perifosine in combination with Velcade (bortezomib) + dexamethasone
®
Keryx presented preliminary results of a Phase 1/2 multicenter trial of perifosine + bortezomib (Velcade ) in patients with relapsed or relapsed/refractory MM
who were previously relapsed from or refractory to bortezomib ± dexamethasone in December 2008 during the meeting of the ASH and in February 2009 at the
12 International Multiple Myeloma Meeting. Final results were presented during the ASH meeting in December 2009. The Phase 1 stage of the study enrolled a
total of 18 patients in 4 cohorts of 3 patients each with dosing of perifosine
th
®
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50 mg or 100 mg (daily) and bortezomib 1.0 or 1.3 mg/m (on day 1, 4, 8, 11) in 21-day cycles. The selected dose for Phase 2 was perifosine 50 mg once
daily + bortezomib 1.3 mg/m (on day 1, 4, 8, 11) in 21-day cycles, with a planned enrollment of 64 patients. Dexamethasone 20 mg (on day of and after each
bortezomib dose) could be added in patients with PD. For the Phase 1 portion, DLT was defined as any Grade 3 non-hematologic toxicity, Grade 4 neutropenia
for 5 day and/or neutropenic fever, or platelets <10,000/mm on more than one occasion despite transfusion. Response was assessed by modified EBMT and
Uniform criteria.
2
3
2
On October 13, 2011, we announced that the manuscript, entitled Perifosine Plus Bortezomib and Dexamethasone in patients with Relapsed/Refractory Multiple
Myeloma Previously Treated with Bortezomib: Results of a Multicenter Phase 1/2 Trial, had been published in the October 10, 2011 online edition of the Journal
of Clinical Onclogy (JCO), in which Phase 1/2 combination activity of perifosine in the treatment of advanced MM patients was reported.
Eighty-four patients were enrolled in a combined Phase 1/2 study (18 patients in the Phase 1 component and 66 patients in the Phase 2 component), including 74
(88%) with relapsed/refractory MM. Sixty-one patients (73%) were bortezomib refractory and 43 (51%) were refractory to bortezomib with dexamethasone. The
median number of prior treatments was five (range, one to 13 treatments). Prior therapies received at any time point included bortezomib (100%), with patients
receiving a median of two (range, one to four) prior bortezomib-based regimens; dexamethasone (98%); lenalidomide (Revlimid ) (76%); thalidomide
(Thalomid ) (75%); and prior stem cell transplant (58%).
®
®
Of the 73 evaluable patients, 53 patients (73%) were previously refractory to bortezomib (defined as progression on or within 60 days of treatment to a
bortezomib-based regimen). Twenty evaluable patients (27%) were relapsed to a prior bortezomib-based regimen. Best response for all 73 evaluable patients was
as follows:
Evaluable Patients
CR /nCR*
PR
MR
ORR
SD**
All Evaluable Patients (N = 73)
Bortezomib relapsed (N = 20)
Bortezomib refractory (N = 53)
3 4% 13 18% 14 19% 30 41% 30 41%
2 10% 7 35% 4 20% 13 65% 7 35%
1 2% 6 11% 10 19% 17 32% 23 43%
nCR = Near Complete Response is defined as meeting the criteria for CR (non-detectable monoclonal protein by serum and urine), except with detectable
monoclonal protein by immunofixation.
SD = Stable Disease for a minimum of 3 months.
*
**
Approximately 60% (45 / 73) of patients demonstrated progression (or SD for 4 cycles) at some point in their treatment and received 20 mg dexamethasone, four
times per week, in addition to perifosine + bortezomib. Responses occurred both with patients taking perifosine in combination with bortezomib and with patients
receiving the combination + dexamethasone.
Best response for each group was as follows:
Best Response
Perifosine + bortezomib (N = 73)
Dexamethasone added (N = 45)
CR /nCR
PR
MR
ORR
SD
2 3% 10 14% 6 8% 18 25% 19 26%
1 2% 6 13% 10 22% 17 38% 14 31%
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Reported for the first time was median PFS and OS data for all evaluable patients, as follows:
Evaluable Patients
Median PFS*
Median OS**
All Evaluable Patients (N = 73)
6.4 months (95% CI, 5.3, 7.1)
25 months (95% CI, 16.3, 31.1)***
Median PFS and median TTP were identical, as no patient deaths occurred prior to progression.
Kaplan Meier methodology was used to determine OS figures.
*
**
*** Results from the abstract Perifosine Plus Bortezomid and Dexamethasone in Relapsed/Refractory Multiple Myeloma Patients Previously Treated with
Bortezomib: Final Results of a Phase 1/2 Trial (abstract # 815) were presented as an oral presentation at the ASH Annual Meeting and Exposition (Dec.
2011) in San Diego, California.
Of particular interest was the comparison of evaluable patients who were previously refractory and the patients who were relapsed to a bortezomib-based
regimen. Median PFS and OS for bortezomib relapsed vs. refractory was as follows:
Bortezomib Relapsed vs. Refractory
Median PFS*
Median OS**
Bortezomib relapsed (N = 20)
Bortezomib refractory (N = 53)
NR = Not Reached
8.8 months (95% CI, 6.3, 11.2)
5.7 months (95% CI, 4.3, 6.4)
30.4 months (95% CI, 17.8, NR)***
22.5 months (95% CI, 14.2, 31.1)***
Median PFS and median TTP were identical, as no patient deaths occurred prior to progression.
Kaplan Meier methodology was used to determine OS figures.
*
**
*** Results from the abstract Perifosine Plus Bortezomid and Dexamethasone in Relapsed/Refractory Multiple Myeloma Patients Previously Treated with
Bortezomib: Final Results of a Phase 1/2 Trial (abstract # 815) were presented as an oral presentation at the ASH Annual Meeting and Exposition (Dec.
2011) in San Diego, California.
No unexpected adverse events have been observed. Therapy was generally well-tolerated, and toxicities, including gastrointestinal side-effects and fatigue,
proved manageable. No treatment-related mortality was seen. The investigators concluded the data reported for both safety and efficacy in this patient population
were encouraging for the continued study of perifosine.
Phase 3 trial and regulatory milestones
In August 2009, we announced that our partner Keryx reported that it had reached an agreement with the FDA regarding an SPA on the design of a Phase 3 trial
for perifosine, in relapsed or relapsed/refractory MM patients previously treated with bortezomib (Velcade ). The SPA provided agreement that the Phase 3 study
design adequately addresses objectives in support of a regulatory submission.
®
In September 2009, we announced that our partner Keryx had received orphan-drug designation for perifosine from the FDA for the treatment of MM. Orphan-
drug designation is granted by the FDA Office of Orphan Drug Products to novel drugs or biologics that treat a rare disease or condition affecting fewer than
200,000 patients in the United States. The designation provides the drug developer with a seven-year period of U.S. marketing exclusivity if the drug is the first of
its type approved for the specified indication or if it demonstrates superior safety, efficacy or a major contribution to patient care versus another drug of its type
previously granted the designation for the same indication.
On December 2, 2009, we announced that the FDA had granted Fast Track designation for perifosine for the treatment of relapsed/refractory MM. The Fast Track
program of the FDA is designed to facilitate the development and expedite the review of new drugs that are intended to treat serious or life-threatening conditions
and that demonstrate the potential to address unmet medical needs. Fast Track designated drugs ordinarily qualify for priority review, thereby expediting the FDA
review process.
On December 16, 2009, we announced that our partner Keryx initiated a Phase 3 trial for perifosine entitled, A Phase 3 Randomized Study to Assess the Efficacy
and Safety of Perifosine Added to the Combination of Bortezomib (Velcade ) and Dexamethasone in Multiple Myeloma Patients Previously Treated with
®
Bortezomib. The randomized (1:1), double-blind trial powered at 90%, will enroll approximately 400 patients with relapsed or
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relapsed/refractory MM (patients can be relapsed from and refractory to all non-bortezomib based therapies, however, patients can only be relapsed (progressed >
60 days after discontinuing therapy) from prior bortezomib-based therapies. Patients must have been previously treated with both bortezomib (Velcade ) and an
immunomodulatory agent (Revlimid or Thalidomid ) and previously treated with one to four prior lines of therapy. Enrolled patients are randomized to
bortezomib (Velcade ) at 1.3 mg/m days 1, 4, 8 and 11 every 21 days in combination with dexamethasone 20 mg on the day of and day after bortezomib
(Velcade ) treatment, and either perifosine 50 mg daily or placebo. The primary endpoint is PFS and secondary endpoints include ORR, OS and safety.
Approximately 265 events (defined as disease progression or death) will trigger the un-blinding of the data.
®
®
®
®
®
2
In March 2010, we announced that we had received a positive opinion for orphan medicinal product designation for perifosine from the COMP of the EMA, for
the treatment of MM. Orphan medicinal product designation is granted by the European Commission, following a positive opinion from the COMP, to a
medicinal product that is intended for the diagnosis, prevention or treatment of a life-threatening or a chronically debilitating condition affecting not more than
five in 10,000 persons in the European Community when the application for designation is submitted.
Orphan medicinal product designation provides the sponsor with access to the Centralized Procedure for the application for marketing authorization, protocol
assistance, up to a 100% reduction in fees related to a marketing authorization application, preauthorization inspection and post-authorization activities, and could
provide ten years of market exclusivity in the EU, once approved for the treatment of MM.
On April 15, 2010, we received positive Scientific Advice (“PSA”) from the EMA for the Phase 3 registration trial with perifosine in MM, therefore indicating
that the data from the ongoing trial are expected to be sufficient for product registration in Europe.
Competitors for Perifosine in MM
Products on the market
Major products available on the market for the treatment of MM are the following:
Product / mode of action*
Company*
Development Status*
Velcade (bortezomib) / proteasome inhibitor
®
Takeda/Janssen-Cilag/Janssen
®
®
Caelyx /Doxil (pegylated liposomal doxorubicin) /
topoisomerase II inhibitor and DNA intercalating
agent
Thalomid (thalidomide) / antiangiogenic compound
®
Janssen (J&J): Doxil / Merck & Co.: Caelyx
®
Celgene Corporation
®
Revlimid (lenalidomide) / oral immunomodulatory
drug
Celgene Corporation
* Source: Company’s Website
** G7 = United States, France, Germany, Italy, Spain, UK and Japan.
35
According to Decision Resources (January
2012), the 2010 G7** sales were estimated to
be $1.14 billion
According to Decision Resources (January
2012), the 2010 G7** sales were estimated to
be $36.2 million
According to Decision Resources (January
2012), the 2010 G7** sales were estimated to
be $383.9 million
According to Decision Resources (January
2012), the 2010 G7** sales were estimated to
be $1.94 billion
Table of Contents
Products in Phase 3 development:
Product / mode of action*
Company*
Development Status*
Carfilzomib / selective, irreversible proteasome
inhibitors
Pomalidomide / small-molecule, immunomodulatory
drugs (angiogenesis, modulation of proinflammatory
and regulatory cytokines, and immune stimulation of T
cells and NK cells)
Panobinostat (LBH5893) / highly potent pan-
deacetlyase inhibitor targeting the epigenetic
regulation of multiple oncogenic pathways
Zolinza (vorinostat — MK0683) / oral histone
deacetylase inhibitor
Elotuzumab (HuLuc63) / humanized MAb
* Source: Company’s Website
Market Data — MM
Onyx Pharmaceuticals
- NDA submitted to the FDA
Celgene Corporation
Novartis
Merck
- Phase 2 and Phase 3
- Phase 3
- Phase 2 completed
Phase 3
Phase 3 completed
Bristol-Myers Squibb/Abbott
Phase 3
MM is the second most common blood cancer in the United States and constitutes approximately 1% of all cancers (source: NCI).
According to Decision Resources – Patient Data Base (March 2012), 49,840 patients will be diagnosed in the G7 market in 2014.
Treatable pool relapsed/refractory patient population*
USA
EU-5
Japan
3 line in 2014
rd
10,080
11,840
2,860
2 line in 2014
nd
14,830
17,410
4,200
* According to Decision Resources – Patient Data Base (March 2012).
1.1.1.3 Perifosine – Other indications
Perifosine is also studied in different indications including gliomas, RCC, sarcoma, Hodgkin’s lymphoma (“HL”), neuroblastoma and other indications. As a
monotherapy, perifosine is being explored in CLL.
On April 4, 2011, we announced that two posters on perifosine were presented at the 102 annual meeting of the AACR at the Orange County Convention Center
in Orlando, Florida. Perifosine demonstrated antitumor activity in several gastric cancer cell lines. Furthermore, perifosine enhanced the antitumor activity of 5-
FU in parts of the cell lines, including 5-FU resistant cell lines. 5-FU is the active metabolite of the prodrug Xeloda, which is approved for the treatment of
advanced gastric cancer in many countries including Japan.
nd
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Perifosine also markedly enhanced the antitumor activity of the cellular TRAIL based treatment and was able to overcome TRAIL resistance both in vitro and in
vivo. The results are in line with other studies demonstrating the synergistic effects of perifosine with cytotoxic drugs, including bortezomib and 5-FU.
On December 12, 2011, we reported encouraging preclinical data for perifosine in HL. In vitro data from HL cell lines showed that perifosine combined with
sorafenib induced increased apoptosis, while in vivo data for the same combination treatment for HL significantly increased survival in mice. Data were presented
during the ASH Annual Meeting and Exposition, in San Diego, California.
The study was conducted to investigate, in vitro and in vivo, the activity and mechanism(s) of action of perifosine in combination with sorafenib by using three
HL cell lines (HD-MyZ, L-540, HDLM-2). In the in vitro experiments perifosine/sorafenib treatment resulted in synergistic cell growth inhibition and cell death
induction in HD-MyZ and L-540 cell lines, but not in the HDLM-2 cell line. Cell cycle arrest, down-modulating of the MAPK and PI3K/Akt pathways as well as
caspase-independent cell death was observed, which was associated with severe mitochondrial dysfunction. Further, expression of genes involved in amino acid
metabolism, cell cycle, DNA replication and cell death was shown to be modulated. In addition, overexpression of the tribbles homologue 3 [TRIB3] was
observed.
In vivo, perifosine/sorafenib treatment significantly increased survival in the HD-MyZ model (45 vs. 81 days, as compared to controls), with 25% tumor-free
mice at the end of the 200-day observation period. In the L-540 model, subcutaneous tumor volume was also reduced as compared to controls (by 42%),
perifosine (by 35%) or sorafenib (by 46%) alone. In HD-MyZ and L-540 but not HDLM-2, the combined treatment induced an increase in tumor necrosis (2- to
8-fold, P £.0001) and in tumor apoptosis (2- to 2.5-fold, P £.0001). In 2 of 3 HL cell lines, perifosine/sorafenib combination treatment induced potent antitumor
effects. A significant increase in mitochondrial injury and apoptosis and a marked reduction of cell viability were observed in the in vitro experiments. In vivo
combination treatment increased survival and inhibited tumor growth.
On December 13, 2011, we reported encouraging clinical data for an ongoing Phase 2 clinical study in patients with refractory/relapsed HL during the ASH
Annual Meeting and Exposition.
Preliminary response data showed that perifosine combined with sorafenib significantly increased median PFS in refractory/relapsed HL patients with high
phosphorylation levels of Erk and Akt as compared to patients with low baseline phosphorylation levels of Erk and Akt.
The study evaluates phosphorylation levels of Erk (pErk) and Akt (pAkt) in circulating lymphocytes from patients enrolled in two consecutive Phase 2 trials
evaluating activity and safety of sorafenib as a single agent or in combination with perifosine in relapsed/refractory HL patients. Four patients were treated with
sorafenib alone at a dose level of 400 mg BID and twenty-one patients received a 4-week treatment with perifosine alone at a dose level of 50 mg BID, followed
by a perifosine/sorafenib combination therapy with 50 mg BID and 400 mg BID, respectively. Circulating lymphocytes were evaluated for their phosphorylation
levels of Erk and Akt, in order to assess predictive value of the phosphokinase levels for therapy responses.
Clinical response data showed that baseline pErk and pAkt levels were significantly higher in responsive patients, as compared to unresponsive patients. The pErk
and pAkt levels measured after 60 days of therapy with perifosine combined with sorafenib were significantly reduced in responsive patients. The median
baseline value of pErk and pAkt efficiently discriminated responsive and unresponsive patients which was associated with a significantly improved median PFS
for patients with baseline pErk ³43% and/or pAkt >23%. Based on these data, the correlation of baseline pErk and pAkt levels with objective responses and time
to tumor progression will need to be validated in prospective studies. In conclusion, refractory/relapsed HL patients with increased baseline levels of pErk and
pAkt demonstrated increased PFS when treated with perifosine in combination with sorafenib.
1.1.1.4 Partners for perifosine
A CRADA was put in place with the National Institutes of Health/the NCI in May 2000.
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A cooperation and license agreement was signed in September 2002 with Access Oncology, Inc. (“AOI”), for the use of perifosine as an anticancer agent covering
the United States, Canada and Mexico. In January 2004, AOI was acquired by Keryx, which is pursuing the clinical development of perifosine under the same
conditions as AOI. The agreement, in particular, provides us free access to all data from Keryx and its partners’ studies, as well as milestone payments and scale-
up royalties (from high single to low double digit) to be paid to us on future net sales of perifosine in the United States, Canada and Mexico.
In April 2009 we entered into an agreement to out-license the rights of perifosine to Handok in South Korea.
On March 9, 2011, we announced that we had entered into an agreement with Yakult for the development, manufacture and commercialization of perifosine in all
human uses, excluding leishmaniasis, in Japan. Under the terms of this agreement, Yakult made an initial up-front payment to us of €6 million (approximately
$8.4 million). Also per the agreement, we are entitled to receive in addition, up to a total of €44 million (approximately $57.1 million) upon achieving certain pre-
established milestones, including clinical and regulatory events in Japan. Furthermore, we will be supplying perifosine to Yakult on a cost-plus basis and we will
be entitled to receive double-digit royalties on future net sales of perifosine in the Japanese market. Yakult will be responsible for the development, registration
and commercialization of perifosine in Japan.
On November 23, 2011, we announced the signing of an exclusive commercialization and licensing agreement with Hikma for the registration and marketing of
perifosine for the MENA region. Under the terms of the agreement, we received an upfront payment of $0.2 million and are entitled to receive up to a total of
$1.8 million upon achieving certain pre-established milestones. Furthermore, we will be supplying perifosine to Hikma on a cost-plus basis and are entitled to
receive double-digit royalties on future net sales of perifosine in the MENA region. Hikma will be responsible for the registration and commercialization of
perifosine in the MENA region. We own rest of the world rights to perifosine.
1.1.2 Erk/PI3K inhibitors and dual kinase inhibitors
The Ras/Raf/Mek/Erk and the PI3K/Akt signaling pathways are prime targets for drug discovery in proliferative diseases such as cancer. The results of research
to date indicate that both the MAPK and the PI3K signaling pathways represent therapeutic intervention points for the clinical treatment of malignant tumors.
Our multi-parameter optimization program for kinase inhibitor selectivity, cellular efficacy, physicochemical and in vitro ADMET properties has led to the
identification of small molecular compounds with a unique kinase selectivity profile. Our kinase research program comprises the investigation of different
compounds for single Erk inhibition, single PI3K inhibition and dual Erk/PI3K kinase inhibition.
1.1.2.1 AEZS-129
On April 21, 2009, we presented two posters on AEZS-129, a promising compound for clinical intervention of the PI3K/Akt pathway in human tumors, at the
AACR Annual Meeting. In vivo and in vitro data showed significant antitumor activity and a favorable in vitro pharmacologic profile which could lead to further
in vivo profiling.
nd
On November 17, 2010, we presented a poster on encouraging preclinical results for AEZS-129, a novel orally active compound with antitumor effects, at the
22 EORTC-NCI-AACR Symposium on Molecular Targets and Cancer Therapeutics in Berlin, Germany. AEZS-129 has been identified as a highly potent and
selective inhibitor of PI3K. The compound inhibits the PI3K/Akt signaling pathway both in vitro and in vivo and leads to growth inhibition of tumor cells. The
compound was well tolerated during the 4 week treatment period and showed substantial tumor growth inhibition in different mouse xenograft tumor models.
On March 22, 2011, we presented preclinical results for AEZS-129 at the Informa Life Sciences Protein Kinases Congress in Berlin, Germany. AEZS-129 was
identified as a potent inhibitor of class I PI3Ks lacking activity against mTOR. Lack of mTOR activity is considered to potentially lead to a better safety profile.
In biochemical and cellular assays, AEZS-129 demonstrated favorable properties in early in vitro ADMET screening, including
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microsomal stability, plasma stability and screening against a safety profile composed of receptors, enzymes and cardiac ion-channels. In vitro, the compound was
shown to be a selective ATP-competitive inhibitor of PI3K with a broad antiproliferative activity against a broad panel of tumor cell lines. In vivo, AEZS-129
showed excellent plasma exposure and significant tumor growth inhibition in several tumor xenografts models, including A-549 (lung), HCT-116 (colon) and
Hec1B (endometrium). These data suggest that AEZS-129 is a promising compound for clinical intervention of the PI3K/Akt pathway in human tumors.
1.1.2.2 AEZS-131
On March 22, 2011, we presented preclinical results for AEZS-131 at the Informa Life Sciences Protein Kinases Congress in Berlin, Germany. AEZS-131 was
established as a small molecular compound that inhibits Erk in the low nanomolar (“nM”) range and shows an excellent selectivity profile. Further
characterization experiments revealed an ATP-competitive mode of action and the potent inhibition of the cellular downstream target Rsk1 in tumor cells. The
frontrunner, AEZS-131, produces cell cycle arrest in G1 and results in growth inhibition of cancer cells. Furthermore, the potential of combination therapy of
AEZS-131 with inhibitors of the PI3K pathway was addressed and the analysis of combination effects on tumor cell proliferation has been presented. These
results support the evaluation of selective Erk inhibitors as antiproliferative agents either as monotherapy or in combination with inhibitors of the PI3K/Akt
pathway.
On April 5, 2011, we announced results for AEZS-131 at the AACR’s annual meeting. Results showed that AEZS-131 is an orally active small molecular
compound that selectively inhibits Erk 1/2 with an IC50 of 4nM, blocks cellular Rsk-1 phosphorylation, modulates downstream cellular substrate activation,
arrests tumor cells in G1 and inhibits the growth of multiple human tumor cell lines in the nM range. In in vivo pharmacokinetic studies, AEZS-131 showed a
favorable PK profile. Antitumor activity was studied in in vivo mouse xenograft experiments utilizing the HCT 116 CRC model. AEZS-131 significantly
inhibited tumor growth and was well tolerated at daily doses up to 120 mg/kg. Focus on inhibition of downstream kinase Erk 1/2 activity as a therapeutic target
may be attractive because the pharmacologic inhibition of Erk 1/2 reverses Ras and Raf activation in cells which also demonstrate resistance to common Raf
inhibitors, such as PLX-4720/4032.
On August 30, 2011, we presented preclinical data on AEZS-131 at the American Chemical Society National Meeting in Denver, Colorado. Data showed that the
in vitro antiproliferative efficacy proved to be excellent in diverse human tumor cell lines and that GI values in the low nM range were obtained. In vivo
antitumor activity was studied in a mouse xenograft experiment utilizing the human HCT-116 colon cancer model. Up to 74% inhibition of tumor growth was
achived with daily oral doses of 30 – 120 mg/kg. Our medicinal chemistry programs are supported by X-ray crystallography and modeling towards the
optimization of pyrido[2,3-b]pyrazines as novel series of kinase inhibitors.
50
On December 9, 2011, we announced positive preclinical data in triple-negative breast cancer (“TNBC”) for AEZS-131. Data showed that AEZS-131 selectively
inhibits Erk at low nM concentrations and induces G1 arrest. Accordingly, the cytotoxic effect of AEZS-131 was most pronounced in TNBC cell lines with
mutations in the MAPK pathway. Data were presented at the CTRC - AACR San Antonio Breast Cancer Symposium, in San Antonio, Texas. AEZS-131 was
tested to check for selectivity, inhibition of Rsk-phosphorylation (cellular substrate of Erk), mode of action and cleavage of PARP. Cytotoxic efficacy was
evaluated in a selection of TNBC cell lines, with or without mutations in the MAPK signal transduction pathway, by MTT assay. The study showed that AEZS-
131 selectively inhibited Erk with an IC50<4nM. Phosphorylation of Rsk-1, the cellular substrate of Erk, was inhibited with an IC50 of 158 nM. AEZS-131
induced cell cycle arrest in G1 dose-dependently and cleavage of PARP. EC50 values were below 1µM for cell lines with mutations in the MAPK pathway.
TNBC cell lines without mutations in the MAPK pathway were less responsive.
1.1.2.3 AEZS-132
On April 20, 2010, at the AACR’s annual meeting we presented data on our dual Erk/PI3K inhibitors and on our selective Erk inhibitors. Data supported further
evaluation of selective Erk inhibitors as antiproliferative agents, either as monotherapy or in combination with inhibitors of the PI3K/Akt pathway. Other data
resulted in the identification of AEZS-132, a unique dual inhibitor of PI3K and Erk with a favourable pharmacology and ADMET profile, for further evaluation
as an antitumor agent.
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On November 17, 2010, at the EORTC-NCI-AACR meeting, we presented a poster on AEZS-132, the first-in-class dual PI3K/Erk inhibitor being selected as the
optimized lead compound for further development. The compound is a unique orally active low molecular weight dual PI3K/Erk inhibitor derived from Aeterna
Zentaris’ medicinal chemistry program. Due to its dual PI3K and Erk inhibition, a broad antitumor activity is expected in tumors with over-activation of both
pathways. AEZS-132 demonstrated prolonged plasma exposure when given orally in mice. Significant tumor inhibition resulted from mouse xenograft models
with human colon, endometrium and lung tumors.
On March 22, 2011, we presented preclinical results for AEZS-132 at the Informa Life Sciences Protein Kinases Congress in Berlin, Germany. AEZS-132 is a
unique dual inhibitor of PI3K and Erk in the nM range and exerts high selectivity against other serine threonine and tyrosine kinases. AEZS-132 is also an ATP-
competitive inhibitor, with a broad antiproliferative profile in vitro, a favorable safety profile and beneficial ADME properties. In vivo pharmacokinetic
experiments showed plasma profiles expected to result in positive antitumor efficacy, and led to significant antitumor activity in mouse xenograft models,
including HCT-116 (colon), A-549 (lung), and Hec1B (endometrium). Cellular inhibition of the downstream targets p-Akt and p-Rsk was confirmed within the in
vivo tumor studies. In summary, we hope that AEZS-132, by targeting the PI3K and MAPK pathways, will be especially suited to treat tumors with over-
activation of both pathways.
1.2
TUMOR TARGETING CYTOTOXIC CONJUGATES AND CYTOTOXICS
Cytotoxic conjugates
In view of the non-specific toxicity of most chemotherapeutic agents against normal cells, targeting such drugs to cancerous tissue offers a potential benefit for
patients with advanced or metastatic tumors. Targeted cytotoxic peptide conjugates are hybrid molecules composed of a cytotoxic moiety linked to a peptide
carrier which binds to receptors on tumors. Cytotoxic conjugates are designed to achieve differential delivery, or targeting, of the cytotoxic agent to cancer vs.
normal cells.
Our cytotoxic conjugates represent a novel oncological strategy to control and reduce toxicity and improve the effectiveness of cytotoxic drugs.
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In AEZS-108, the most advanced of our cytotoxic conjugates, doxorubicin is chemically linked to an LHRH agonist, a modified natural hormone with affinity for
the LHRH receptor. This design allows for the specific binding and selective uptake of the cytotoxic conjugate by LHRH receptor-positive tumors. Potential
benefits of this targeted approach include a more favorable safety profile with lower incidence and severity of side effects, as normal tissues are spared from toxic
effects of doxorubicin. In addition, the targeted approach may enable treatment of LHRH receptor-positive cancers that have become refractory to doxorubicin
which has been administered in its non-targeted form.
In preclinical studies conducted to date in several animal models of LHRH receptor-positive human cancer cell lines, AEZS-108 antitumor activity and
tolerability were shown to be superior to that of doxorubicin. As would be expected, AEZS-108 was not active or was significantly less active than doxorubicin in
LHRH receptor-negative cancer cell lines. On January 18, 2005, we announced the initiation of a company-sponsored Phase 1 dose-ranging study with the
targeted anticancer agent AEZS-108.
In June 2006 and on November 27, 2006, we disclosed positive Phase 1 results regarding AEZS-108 in patients with gynaecological and breast cancers. Data
showed the compound’s good safety profile and established the maximum tolerated dose at 267 mg/m , which is equimolar to a doxorubicin dose of 77 mg/m .
2
Infusion was well tolerated at all dosages without supportive treatment. Pharmacokinetic analyses showed dose-dependent plasma levels of AEZS-108 and only
minor release of doxorubicin. The Phase 1 open-label, multicenter, dose-escalation, safety and pharmacokinetic study conducted in Europe included 17 patients
suffering from breast, endometrial and ovarian cancers with proven LHRH receptor status. Evidence of antitumor activity was found at 160 mg/m and
267 mg/m doses of AEZS-108, where 7 out of 13 patients showed signs of tumor response, including 3 patients with complete or partial responses.
Recommended dose for Phase 2 trial was 267 mg/m given once every three weeks (source: Emons et al. Dose escalation and pharmacokinetic study of AEZS-
108 (AN-152), an LHRH agonist linked to doxorubicin, in women with LHRH receptor-positive tumors. Gynecol Oncol. 2010 Dec;119(3):457-61).
2
2
2
2
1.2.1 AEZS-108 — Ovarian and Endometrial Cancer
2
In 2007, a Phase 2 open-label, non-comparative, multicenter two indication trial stratified with two stages Simon Design was prepared. The study involved
82 patients with up to 41 patients with either a diagnosis of platinum-resistant ovarian cancer (stratum A) or disseminated endometrial cancer (stratum B). Under
coordination by Prof. Günter Emons, M.D., Chairman of the Department of Obstetrics & Gynaecology at the University of Göttingen, Germany, this open-label,
multicenter and multinational Phase 2 study “AGO-GYN 5” was being conducted by the German AGO Study Group (Arbeitsgemeinschaft Gynäkologische
Onkologie / Gynaecological Oncology Working Group), in cooperation with clinical sites in Europe. As part of a personalized healthcare approach, the study
selected patients with tumors expressing LHRH receptors, the key element in the targeting mechanism of AEZS-108. An i.v. infusion of AEZS-108
(267 mg/m ) was administered over a period of 2 hours, every Day 1 of a 21-day (3-week) cycle. The proposed duration of the study treatment was 6 courses of
3-week cycles. The study was performed with 14 centers of the German Gynaecological Oncology Working Group, in cooperation with 3 clinical sites in Europe.
The primary efficacy endpoint at the end of Stage II was defined as 5 or more patients with partial or complete tumor responses according to RECIST and/or
Gynaecologic Cancer Intergroup (“GCIG”) guidelines. Secondary endpoints included TTP, survival, toxicity, as well as adverse effects. In October 2008, we
announced that we had entered the second stage of patient recruitment for the Phase 2 trial in platinum-resistant ovarian cancer indication. This decision was
taken following the report of two PR among patients with a diagnosis of platinum-resistant ovarian cancer. The second stage of patient recruitment for the
endometrial cancer indication was reached in November 2008 and was based on the report of one CR and two PR among 14 patients with a diagnosis of
disseminated endometrial cancer.
In November 2009, we announced preliminary positive efficacy data from this Phase 2 study in patients with platinum-resistant and taxane-pretreated ovarian
cancer and in patients with advanced or recurrent endometrial cancer. Of the 42 patients with LHRH receptor-positive ovarian cancer and the 43 patients with
LHRH receptor-positive endometrial cancer who entered study AGO-GYN, 5 completed their study treatment. A preliminary evaluation showed that both
indications met the primary efficacy endpoint of 5 or more responders in 41 evaluable patients. Responders, as well as patients with stable disease after
completion of treatment with AEZS-108, were to be followed to assess the duration of PFS and, ultimately, OS.
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On May 6, 2010, we announced that we had received orphan drug designation from the FDA for AEZS-108 for the treatment of ovarian cancer.
On May 17, 2010, we announced that we had received a positive opinion for orphan medicinal product designation from the COMP of the EMA for AEZS-
108 for the treatment of ovarian cancer.
On June 7, 2010, Prof. Günter Emons, Chairman, Department of Obstetrics & Gynaecology Georg-August University Göttingen, Germany, presented positive
efficacy and safety data for AEZS-108 in ovarian cancer at the ASCO Annual Meeting. The poster (abstract #5035) entitled Phase 2 study of AEZS-108, a
targeted cytotoxic LHRH analog, in patients with LHRH receptor-positive platinum resistant ovarian cancer, details the use of AEZS-108 in women with
histologically confirmed taxane-pretreated platinum-resistant/refractory LHRH receptor-positive advanced (FIGO III or IV) or recurrent ovarian cancer.
Forty-two patients with platinum-resistant ovarian cancer entered the study. Efficacy included PR in 5 patients (11.9%) and stable disease for more than 12 weeks
in 11 patients (26.2%). Based on those data, a CBR of 38% can be estimated. Median TTP and OS were 3.5 months (104 days) and 15.6 months (475 days),
respectively. OS compares favourably with data from Doxil and topotecan (8-9 months). In all, tolerability of AEZS-108 was good and commonly allowed
retreatment as scheduled. Only one patient (2.4%) had a dose reduction, and overall, 25 of 170 (14.7%) courses were given with a delay, including cases in which
delay was not related to toxicity. Severe (Grade 3 or 4) toxicity was mainly restricted to rapidly reversible hematologic toxicity (leukopenia / neutropenia)
associated with fever in 3 cases. Good tolerability of AEZS-108 was also reflected with only a few patients with non-hematological toxicities of Grade 3 (none
with Grade 4), including single cases (2.4%) each of nausea, constipation, poor general condition, and an enzyme elevation. No cardiac toxicity was reported.
®
On September 14, 2011, we presented positive final Phase 2 efficacy and safety data for AEZS-108 in advanced endometrial cancer at the European Society of
Gynecological Oncology in Milan, Italy. Data showed that AEZS-108, administered as a single agent at a dosage of 267 mg/m every 3 weeks was active, well
tolerated and that OS is similar to that reported for modern triple combination chemotherapy, but was achieved with lower toxicity. The primary endpoint was the
response rate as defined by the RECIST. Secondary endpoints included safety, TTP and OS.
2
In all, of 43 patients treated with AEZS-108, 39 were evaluable for efficacy. Efficacy confirmed by independent response review included 2 CR, 10 PR, and 17
patients with SD. Based on those data, the estimated ORR (ORR = CR+PR) was 30.8% and the CBR (CBR = CR+PR+SD) was 74.4%. Responses in patients
previously treated with chemotherapy included 1 CR, 1 PR and 2 SDs in 8 of the patients with prior use of platinum/taxane regimens. Median TTP and OS were 7
months and 13.7 months, respectively.
Overall, tolerability of AEZS-108 was good and commonly allowed retreatment as scheduled. Severe (Grade 3 or 4) toxicity was mainly restricted to rapidly
reversible leukopenia and neutropenia, associated with fever in only 1 patient who had been treated only 3 weeks after a surgery. Good tolerability of AEZS-108
was also reflected by a low rate of severe non hematological possibly drug-related adverse events which included single cases each of nausea, diarrhea, fatigue,
general health deterioration, creatinine elevation, and blood potassium decrease. No cardiac toxicity was reported.
Competitors for AEZS-108 in Endometrial Cancer
At present, there is no approved drug product for the treatment of advanced and recurrent metastatic endometrial cancer in the United States and Europe. There is
also no systemic therapy approved in the United States and Europe for treating advanced or recurrent endometrial cancer.
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Product / mode of action*
Company*
Development Status*
Ixabepilone / microtubule inhibitor
Letrozole / non-steroidal aromatase inhibitor
Bristol-Myers Squibb
Novartis
Phase 3
- Phase 2 completed
XL-147 (Exelixis) / potent and highly selective
inhibitor of the class I PI3K family of lipid kinases
which targets the PI3K/PTEN pathway
* Source: Company’s Website and www.clinicaltrials.gov
Sanofi
Market Data — Endometrial Cancer
- Phase 3 (University of California, Davis)
Phase 2
According to the American Cancer Society, endometrial cancer is the most common invasive gynecologic cancer in women in the United States, with an
estimated 47,130 new cases expected to occur in 2012. This disease primarily affects postmenopausal women at an average age of 60 years at diagnosis. In the
United States, it is estimated that approximately 8,010 women will die of endometrial cancer in 2012.
According to Datamonitor Healthcare (March 2010), a research and advisory firm focusing on therapeutic, strategic and ehealth market analysis and competitive
intelligence, the incidence of endometrial cancer in the seven major pharmaceutical markets was 92,180 patients and is forecasted to reach about 98,500 cases by
2019.
1.2.2 AEZS-108 — Prostate and Bladder Cancer
In May 2009, we announced at the ASCO meeting the results supporting the evaluation of AEZS-108 in prostate cancer. Expression of LHRH receptors was
determined using immunohistochemistry and the intensity was graded on a scale from zero to 3. The expression was analyzed in three cohorts of patients: (1) 47
men with localized prostate cancer treated with radical prostatectomy with no hormone therapy, (2) 61 men with localized prostate cancer treated with
neoadjuvant LHRH agonists for varying duration prior to prostatectomy, and (3) 22 men with metastatic prostate cancer who received a palliative transurethral
resection of the prostate after clinical progression. In the final cohort, 15 men were treated with castration and 7 were treated with LHRH agonists. 45 of
47 hormone naïve samples (95.7%) demonstrated LHRH receptor expression. Statistical analysis revealed a correlation between strong receptor expression and
higher pathologic tumor stage as well as shorter OS. 60 of 61 samples treated with neoadjuvant LHRH agonist therapy (98.4%) demonstrated LHRH receptor
expression. All 22 samples from patients with metastatic disease demonstrated LHRH receptor expression. The majority of these samples demonstrated moderate
to strong intensity. LHRH receptors are expressed on prostate cancers cells of hormone naïve and castrated patients. The expression of these receptors appears to
persist despite prolonged treatment with LHRH agonists. The new results show continued expression of LHRH receptors in prostate cancer specimens after
prolonged use of LHRH agonists. These data provide further support to the investigation of the drug in hormone-refractory prostate cancer, a major genitourinary
cancer indication in male patients.
On May 12, 2010, we announced that the FDA had approved our IND application for AEZS-108 in LHRH receptor-positive urothelial (bladder) cancer.
Following this approval from the FDA, this trial will be conducted by Dr. Gustavo Fernandez at the Sylvester Comprehensive Cancer Center at the University of
Miami’s Miller School of Medicine, and will include up to 64 patients, male and female, with advanced LHRH receptor-positive urothelial (bladder) cancer. The
study will be conducted in two parts: first, a dose-finding part in up to 12 patients; subsequently, a selected dose will be studied for its effect on PFS.
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On August 5, 2010, we announced that the NIH had awarded Dr. Jacek Pinski, Associate Professor of Medicine at the Norris Comprehensive Cancer Center of
the University of Southern California, a grant of approximately $1.5 million over three years to conduct a Phase 1/2 study in refractory prostate cancer with
AEZS-108. The study, entitled A Phase I/II Trial of AN-152 [AEZS-108] in Castration- and Taxane-Resistant Prostate Cancer, will enroll up to 55 patients and
will be conducted in two portions: an abbreviated dose-escalation followed by a single arm, Simon Optimum two-stage design Phase 2 study using the dose
selected in the Phase 1 portion. The primary objective of the Phase 2 portion is to evaluate the clinical benefit of AEZS-108 in men with castration- and taxane-
resistant metastatic prostate cancer, for which the presence of LHRH receptors has been confirmed.
On December 14, 2010, we announced the initiation of both Phase 1/2 trials.
On September 26, 2011, we announced positive interim data for the Phase 1 portion of our Phase 1/2 trial with AEZS-108 in castration-and taxane-resistant
prostate cancer at the ESMO meeting, Stockholm, Sweden. This is a single arm study with a Phase 1 lead-in to a Phase 2 clinical trial. The primary endpoint of
the Phase 1 portion is safety. The primary objective of the Phase 2 portion is to evaluate the clinical benefit of AEZS-108 for these patients. Twelve patients
entered the study: 3 patients each received AEZS-108 at the lower dose levels of 160 and and 210 mg/m , and 6 patients at 267 mg/m . Data on 10 patients were
presented as 2 patients were too early for evaluation. AEZS-108 was generally well tolerated and there were no dose limiting toxicities so far. The only Grade 3
and 4 toxicities were hematologic in nature. At the time, there were three Grade 4 toxicities and six Grade 3 toxicities. Signs of therapeutic activity included 5
patients with PSA regression. Three out of 4 evaluable patients with radiologic evaluable disease achieved stable disease per RECIST. The Phase 2 extension is
planned after completion of the toxicity assessment in the final dose level of the Phase 1 portion of the study. In correlative studies, drug internalization was
demonstrated for the first time in captured circulating tumor cells of patients, thus validating the principle of targeted tumor therapy with AEZS-108 in a clinical
setting.
2
2
On February 3, 2012, we reported positive updated results for the Phase 1 portion of our ongoing Phase 1/2 study in castration- and taxane-resistant prostate
cancer (“CRPC”) with AEZS-108. This is a single-arm study with a Phase 1 lead-in portion (testing 3 dose levels) to a Phase 2 clinical trial. The primary endpoint
of the Phase 1 portion is safety. The primary objective of the Phase 2 portion is to evaluate the clinical benefit of AEZS-108 for these patients. Data were
presented by Jacek Pinski, M.D., Ph.D., Associate Professor of Medicine at the Norris Comprehensive Cancer Center of the University of Southern California,
during a poster session at the American Society of Clinical Oncology Genitourinary Cancers Symposium which is being held in San Francisco. Prior interim data
on this study were presented at the European Society of Medical Oncology Congress in September 2011. The trial is being supported by a three-year US$1.6
million grant from the National Institutes of Health to Dr. Pinski.
2
The results were based on 13 patients that were treated on 3 dose levels: 3 at 160 mg/m , 3 at 210 mg/m , and 7 at 267 mg/m . Overall, AEZS-108 was well
tolerated among this group of heavily pretreated older patients. To date, there have been 2 dose limiting toxicities; both were cases of asymptomatic Grade 4
neutropenia at the 267 mg/m dose level and both patients fully recovered. The Grade 3 and 4 toxicities were primarily hematologic. There has been minimal non-
hematologic toxicity, most frequently fatigue and alopecia. Despite the low doses of AEZS-108 in the first cohorts, there was some evidence of antitumor activity.
One patient received 8 cycles (at 210 mg/m ) due to continued benefit. Among the 5 evaluable patients with measurable disease, 4 achieved stable disease. At the
time of submission of the abstract, a decrease in PSA was noted in 6 patients. Six of 13 (46%) treated patients received at least 5 cycles of therapy with no
evidence of disease progression at 12 weeks. Correlation studies on circulating tumor cells (“CTCs”) demonstrated the uptake of AEZS-108 into the targeted
tumor. After completion of 3 additional patients at the 210 mg/m dose level, the study is expected to be extended into the Phase 2 portion.
2
2
2
2
2
1.2.3 AEZS-108 — Triple-Negative Breast Cancer
On October 25, 2011, we announced that the FDA had completed the review of the IND application filed by Alberto J. Montero M.D. of the Sylvester
Comprehensive Cancer Center and concluded that Dr. Montero may proceed with the initiation of a randomized Phase 2 trial in chemotherapy refractory triple-
negative (ER/PR/HER2-negative) LHRH receptor-positive metastatic breast cancer with AEZS-108. This open-label, randomized, two-arm, multicenter Phase 2
study will involve up to 74 patients who will be randomized in a 1:1 ratio into one of the two treatment arms: AEZS-108 (267 mg/m every 21 days) [Arm A] or
standard single agent cytotoxic chemotherapy [Arm B].
2
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The primary study endpoint will be PFS. Secondary endpoints will include ORR and OS. The study will also evaluate AEZS-108’s toxicity profile and the
patients’ quality of life relative to conventional cytotoxic chemotherapy used in the control arm of this study.
1.2.4 AEZS-108 - Companion Diagnostic Tool
On January 5, 2012, we announced that we had entered into a collaboration agreement, dated December 19, 2011, with Ventana, to develop a companion
diagnostic for the immunohistochemical determination of LHRH receptor expression, for AEZS-108. In humans, LHRH receptors are expressed in a significant
proportion of endometrial, ovarian, breast, bladder, prostate and pancreatic tumors. AEZS-108 specifically targets LHRH receptors and could therefore prove to
be more efficient in treating patients with these types of LHRH receptor-positive cancers.
1.2.5 AEZS-137 (Disorazol Z) / AEZS-125 (LHRH-Disorazol Z)
In search of new antitumor agents, we found that disorazol Z (AEZS-137), isolated from the myxobacterium Sorangium cellulosum, possesses remarkable, non-
specific cytotoxicity in a panel of different tumor cell lines. Inhibition of tubulin polymerization, cell cycle arrest and efficient induction of apoptosis, have been
identified as modes of action. AEZS-137 is thus a bacterially produced compound with cytotoxic activity in the sub-nanomal range.
In order to obtain a specifically acting antitumor agent, we have linked disorazol Z to [D-Lys ] LHRH. The resulting conjugate, AEZS-125, has been
characterized with respect to in vitro and in vivo antitumor activity. In CD 1 nu/nu mice xenografted with the LHRH receptor-positive, human ovarian carcinoma
cell line OVCAR-3, we have shown tumor suppression by single administration of AEZS-125 in doses as low as 45 nmol/kg (0.1 mg/kg). Proof of concept for
this approach is the far more efficient tumor suppression obtained with AEZS-125 in comparison to equimolar doses of disorazol Z itself. The results were
published during the 99 AACR Annual Meeting in April 2008 in San Diego, California.
th
6
On March 24, 2011, we were awarded a $1.5 million grant from the German Ministry of Education and Research to develop, up to the clinical stage, cytotoxic
conjugates of the proprietary cytotoxic compound AEZS-137 and peptides targeting G-protein coupled receptors, including the LHRH receptors. The compounds
being developed will combine the targeting principle successfully employed in Phase 2 with AEZS-108 (doxorubicin and LHRH receptor targeting agent) with
the novel cytotoxic disorazol Z. Furthermore, diagnostic tools systematically assessing the receptor expression in tumor specimens will be developed to allow the
future selection of patients and tumor types with the highest chance of benefiting from this personalized medicine approach. The grant will be payable as a partial
reimbursement of qualifying expenditures over a three-year period. The qualified project will be performed with Morphisto GmbH and the Helmholts Institute in
Saarbrücken, Germany, which will receive additional funding of approximately US$0.7 million. Researchers from the departments of Gynecology and Obstetrics
at both the University of Göttigen and the University of Würzburg, Germany, will also be part of the collaboration.
On November 16, 2011, we announced the presentation of a poster at the AACR-NCI-EORTC International Conference on Molecular Targets and Cancer
Therapeutics on encouraging preclinical data for AEZS-137. Data showed that AEZS-137 possesses outstanding cytotoxicity in a highly diverse panel of 60
different tumor cell lines, and also underlined the identification of important aspects of this novel natural compound’s mechanism of action. AEZS-137 has been
identified as a tubulin binding agent with highly potent antitumor properties. Cell cycle analysis revealed that AEZS-137 arrested cells in the G2/M phase and
subsequently induced apoptosis with remarkable potency, as shown by subnanomolar EC50 values. Currently, experiments are under way to determine the tubulin
binding site for disorazol Z and to identify further mechanisms of action of this novel highly potent agent. To expand our AEZS-108 technology platform, we aim
to evaluate the utility of disorazol Z as a cytotoxic component in a drug-targeting approach utilizing GPCR ligands as the targeting moieties for the treatment of
GPCR over-expressing cancers.
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1.3
TUBULIN INHIBITORS / VASCULAR TARGETING AGENTS
1.3.1 AEZS-112 — Development of a Low Molecular Weight Tubulin Inhibitor with Antiangiogenic Properties
Tubulin is a protein found in all cells that plays an important role during cell division, in that it helps to transmit genetic information to the daughter cells.
Inhibition of this process leads to the death of the affected cell. The antitumor agents taxol and vincristine, which are widely used in cancer therapy, are based on
this principle. Both compounds are expensive natural substances and cause severe side effects when used in humans.
We are currently identifying and developing novel tubulin inhibitors which, compared with currently used products, exhibit improved efficacy in animal models,
have a more acceptable side effect profile, an incomplete or no cross-resistance and are administered orally.
AEZS-112 is a drug development candidate with a favorable safety and tolerability profile showing excellent in vivo activity in various tumor models including
mammary, colon, melanoma and leukemia cancers at acceptable and very well tolerated doses administered orally once weekly. This compound acts through three
mechanisms of action. Strong anticancer activity is combined with proapoptotic and antiangiogenic properties. AEZS-112 inhibits the polymerization of cancer
tubulin rather than bovine brain tubulin, it destroys the mitotic spindle of the cancer cells and it inhibits topoisomerase II activity. AEZS-112 arrests the cancer
cells in the G2M phase at a nM concentration and induced apoptosis. AEZS-112 is not cross-resistant to cisplatin, vincristine and doxorubicine in cell lines
resistant to these drugs. No findings with respect to cardiotoxicity and neurotoxicology parameters could be observed during the toxicological evaluation in mice,
rats and dogs. With this profile of activity, AEZS-112 is a promising candidate for further clinical development.
On January 8, 2007, we announced the initiation of a Phase 1 trial for AEZS-112 in patients with solid tumors and lymphoma. This open-label, dose-escalation,
multicenter, intermittent treatment Phase 1 trial is being conducted in the United States with Daniel D. Von Hoff, M.D., Senior Investigator at the Translational
Genomics Research Institute in Phoenix, AZ, as the lead investigator. The trial includes up to 50 patients with advanced solid tumors and lymphoma who have
either failed standard therapy or for whom no standard therapy exists. Patients will receive a once-a-week oral administration of AEZS-112 for three consecutive
weeks, followed by a one-week period without treatment. The cycles will be repeated every four weeks based on tolerability and response, basically planned for
up to four cycles, but allowing for continuation in case of potential benefit for the patient. The starting dose of AEZS-112 in this study is 13 mg/week, with
doubling of doses in subsequent cohorts in the absence of significant toxicity. Primary endpoint of the Phase 1 trial focuses on determining the safety and
tolerability of AEZS-112 as well as establishing the recommended Phase 2 dose and regimen. Secondary endpoints are aimed at establishing the pharmacokinetics
and determining the efficacy based on standard response criteria.
Results of this Phase 1 study were presented in April 2009 at the AACR meeting. In part I, 22 patients (12 men / 10 women) were studied on 7 dose levels
ranging from 13 to 800 mg/week. In all, 62 treatment cycles were administered. In part II, the weekly dose was split into 3 doses taken 8 hours apart. Ultimately,
22 patients (12 men / 10 women) were studied on 5 dose levels ranging from 120 to 600 (= 200 x 3) mg/week. As at April 1, 2009, 62 treatment cycles were
administered (mean 3.2/patient) and treatment was ongoing in 8 patients. SD for more than 12 weeks was observed in 16 patients; 4 more patients were ongoing
at less than 12 weeks. Prolonged courses of SD ranging from 20 to 39+ weeks were observed in 9 patients with the following primary cancer types: trachea (39+),
tongue (30+), thyroid (29+), prostate and melanoma (28), non-small cell lung cancer (26+), pancreas and 2x colorectal (20). Except for one patient with a
background of gastrointestinal problems (“GI”) who had dose-limiting GI reactions and electrolyte loss at a dose of 200 x 3 mg/week, no clinically relevant drug-
related adverse events or changes in laboratory parameters were observed. AEZS-112 was shown to be metabolically stable in human plasma. As predicted by
pharmacokinetic modelling based on data from part I of
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the study, the split-dose scheme leads to a higher Cmax and trough values after administration of comparable doses. Those preliminary results showed that a
maximum tolerated dose for weekly dosing has not been defined so far. However, prolonged courses of stable disease in both parts of the study are an
encouraging observation.
Completion of this Phase 1 trial was announced on September 21, 2009. Stable disease with time to failure ranging from 20 to 60+ weeks was achieved in
12 patients with various cancer types, including melanoma and cancers of the colon/rectum, lung, pancreas, prostate, tongue, trachea and thyroid. In several of
these patients, the duration of stabilization exceeded the duration of disease control on previous treatment regimens. Except for a dose-limiting gastrointestinal
reaction in a patient with pre-existing GI problems, no clinically relevant drug-related adverse events or changes in laboratory safety parameters were observed.
During the year 2011, we have developed a higher concentrated oral formulation of AEZS-112 in order to improve patient compliance. Clinical protocol is in
preparation to continue to advance AEZS-112 with this new formulation.
1.4
IMMUNOTHERAPY / VACCINES
1.4.1 AEZS-120
Cellular proteins expressed by oncogenes have been recognized as a major cause of tumor development. One of the central oncoproteins involved in cancer
formation are the Raf proteins. Based on these proteins, new unique therapeutic strategies, new predictive animal models and new development products have
been generated to efficiently combat cancer. These consist of virulence attenuated, genetically modified bacteria expressing tumor antigens, including
oncoproteins or enzymes. Such bacteria are used for vaccination as well as tumor targeting and delivery of antitumoral compounds towards the tumor tissues.
Therefore, this new vaccine approach exploits the ability of bacteria to induce potent immune responses as well as direct these responses against malignancies.
The immunogenicity of the vaccine will be further enhanced by the capacity of bacteria to colonize tumor tissues. This property will be used to transport
substances, e.g. proteins, into the tumor tissue, which are capable of converting non-toxic pro-drugs into active drugs. The use of bacterial carriers for therapeutic
vaccination against tumors and the concept of bacterial tumor targeting will be further developed with the Julius-Maximilians-University of Würzburg, including
the highly recognized researchers Prof. Dr. Ulf R. Rapp, who is a member of our Scientific Advisory Board, and Prof. Dr. Werner Goebel. Prof. Rapp is a known
expert in the field of cell and tumor biology and Prof. Goebel is a pioneer in the field of vaccines based on recombinant bacteria.
The preclinical proof of principle has already been shown in a transgenic animal model and is supported by several patent applications filed in November 2006.
In 2007, the PSA vaccine (AEZS-120) was selected as the first preclinical development candidate of an antitumor vaccine. AEZS-120 is a live recombinant oral
tumor vaccine candidate based on Salmonella typhi Ty21a as a carrier strain. Salmonella typhi Ty21a is an approved oral typhoid vaccine which has been safely
applied in more than 350 million doses. The principle of AEZS-120 is based on the recombinant expression of prostate specific antigen fused to the B subunit of
cholera toxin and a secretion signal in the presence of the Escherichia coli type I hemolysin secretion system. The proprietary system allows the secretion of the
antigen together with an immunological adjuvant which has been demonstrated to be required for optimal induction of CD8 T-cell responses by recombinant
Salmonella based bacterial vaccines. The proof-of-concept was already demonstrated for the mouse homologue of AEZS-120 in a mouse tumor challenge model.
A grant application was filed in Germany and was approved in 2008 for a preclinical development program for AEZS-120 with our research collaborators, the
Department of Medical Radiation Biology and Cell Research, and the Department of Microbiology of the University of Würzburg, Germany. In accordance with
this grant, 50% of our preclinical development costs and 100% of those of our university partner will be reimbursed by the German Ministry of Science and
Education.
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On July 20, 2011, we reached a key milestone in this non-clinical development program of AEZS-120 which encompassed the full development of a GMP
process, including GMP production and quality testing of a clinical batch, as well as a non-clinical safety and toxicology package. Once this non-clinical program
will have been completed and subject to a positive review by regulatory authorities, we aim to start Phase 1 clinical development in 2012. AEZS-120 has been
developed through a research collaboration with the Department of Medical Radiation Biology and Cell Research, and the Department of Microbiology of the
University of Würzburg, Germany. The collaboration was funded with a total of $890,000 for us and $870,000 for the university partner by the German Ministry
of Education and Research (BMBF) for a period of three years. As part of the collaboration, a melanoma vaccine based on the recombinant expression of a
modified B-Raf protein has been generated.
2.0
2.1
ENDOCRINOLOGY
AEZS-130 — ORAL GHRELIN AGONIST
AEZS-130, a ghrelin agonist, is a novel orally active small molecule that stimulates the secretion of growth hormone by binding the ghrelin receptor (GHSR-1a).
It can be used in both endocrinology and in oncology indications. In endocrinology, we have completed a Phase 3 trial for its use as a simple oral diagnostic test
for AGHD. AEZS-130 works by stimulating a patient’s growth hormone secretion, which normally only occurs during sleep, after which a healthcare provider
will measure how well the body responds to that stimulation based on the patient’s growth hormone levels over a period of time. Low growth hormone levels,
despite giving an effective stimulating agent, confirm a diagnosis of AGHD. AEZS-130 has been granted orphan-drug designation by the FDA for use as a
diagnostic test for growth hormone deficiency. We own the worldwide rights to AEZS-130 which, if approved, would become the first orally administered
diagnostic test for AGHD. In oncology, the FDA has allowed for the initiation of a physician sponsored IND Phase 2A trial with AEZS-130 in cancer induced
cachexia, a disease which leads to significant weight loss and diminished functional performance. Since ghrelin agonists such as AEZS-130 have been shown to
stimulate food intake and increase body weight in rats and mice, AEZS-130 could lead to better quality of life for patients with cancer induced cachexia. Ghrelin
agonists have been in clinical trials for over a decade and have demonstrated good safety and efficacy profiles.
In June 2006, Ardana presented results regarding AEZS-130 at the 2006 ENDO Convention. These results referred to the Phase 1 trial regarding the stimulating
effects of AEZS-130 on growth hormone following both oral and intra-duodenal administration in healthy males. This study showed that AEZS-130 was well
tolerated by the 36 volunteers enrolled and no adverse events were reported. Administration of AEZS-130 either orally or via intra-duodenal infusion results in
increased levels of growth hormone in the blood. This stimulation of growth hormone appears to be selective as no other hormones/analytes that were measured
(cortisol, ghrelin, prolactin, insulin, glucose and ACTH (adrenocorticotropic hormone)) were affected in a dose-dependent or statistically significant way by
administration of AEZS-130 either orally or via intra-duodenal infusion.
In May 2007, Ardana gained orphan drug designation for AEZS-130 as a diagnostic test for growth hormone deficiency in adults. The clinical development and
toxicology programs for this indication were ongoing and Ardana announced the commencement in the United States of the planned pivotal registration study and
the enrolment of the first patient in August 2007.
In June 2008, Ardana announced that the company stopped its operations and entered into voluntary administration. Consequently, the clinical study of AEZS-
130 as a diagnostic test for AGHD was suspended.
In June 2009, we reported that, after having regained from Ardana in the prior year the worldwide rights to the growth hormone secretagogue, AEZS-130, we had
entered into an agreement with the administrators of Ardana to acquire all Ardana assets relating to AEZS-130 for $232,000. These assets include development
data, inventory of compound, regulatory authorizations, including IND and orphan drug status as a diagnostic test granted in the United States, as well as a patent
application protecting the use of AEZS-130 for the diagnostic of growth hormone secretion deficiency.
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During the same month, the first clinical data relating to the use of AEZS-130 as a simple diagnostic test for AGHD were presented at the ENDO 2009 meeting
by the main investigators Dr G. Merriam and Dr B.M.K. Biller. Data showed that in adult growth hormone deficient patients, the responses to the orally
administered AEZS-130 compound were comparable to currently validated agents and clearly separated patients from normal control subjects.
In October 2009, we announced that we had initiated activities intended to complete the clinical development of AEZS-130 which could be the first oral
diagnostic test approved for growth hormone deficiency (“GHD”). We had already assumed the sponsorship of the IND and discussed with the FDA the best way
to complete the ongoing Phase 3 clinical trial and subsequently file a NDA for approval of AEZS-130 as a diagnostic test for AGHD.
The pivotal Phase 3 trial is designed to investigate the safety and efficacy of the oral administration of AEZS-130 as a growth hormone stimulation diagnostic
test. It was accepted by the FDA that for the ongoing part of the study, AEZS-130 is not tested against a comparator drug, as Geref has been removed from the
market.
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On June 21, 2010, we presented positive data at the 92 ENDO Meeting on AEZS-130 for diagnostic and therapeutic use. The preclinical data showed that
AEZS-130 is a potent and safe oral synthetic GH-releasing compound with potential utility as a diagnostic test for growth hormone deficiencies. In addition to the
diagnostic indication, we believe that, based on the results of Phase 1 studies, AEZS-130 has potential applications for the treatment of cachexia, a condition
frequently associated with severe chronic diseases such as cancer, chronic obstructive pulmonary disease and AIDS.
nd
On July 14, 2010, we announced the presentation of a poster on AEZS-130, entitled Use of the Orally Active Ghrelin Mimetic AEZS-130 as a Simple Test for the
Diagnosis of Growth Hormone (GH) Deficiency (GHD) in adults (AGHD). Merriam G.R., Yuen K., Bonert V., Dobs A, Garcia J., Kipnes M., Molitch M.,
Swerdloff R., Wang C., Cook D., Altemose I. and Biller B. This poster was presented at the Seventh International Congress of Neuroendocrinology, in
Rouen, France.
On October 5, 2010, we announced at the Fifth International Congress of the Growth Hormone Research Society and the Insulin-like Growth Factors Society,
after the interim Phase 3 analysis, that AEZS-130 demonstrated the potential to provide a simple, well tolerated and safe oral diagnostic test for AGHD.
On December 20, 2010, we announced we had reached agreement with the FDA on an SPA for AEZS-130, enabling the Company to complete the ongoing
registration study required to gain approval as a diagnostic test for AGHD.
Study Design
The SPA agreement has resulted in a modification to the original study, but does not alter the basic study design so that the completed portion of the study will
work with the new part of the study to provide one complete Phase 3 study.
Original Study
The first part of the study conducted by our former partner, Ardana, was a two-way cross-over study and included 42 patients with confirmed AGHD or multiple
pituitary hormone deficiencies and a low insulin-like growth factor-I. A control group of 10 subjects without AGHD were matched to patients for age, gender,
body mass index and (for females) estrogen status.
Each patient received two dosing regimens in random order, while fasting, at least 1 week apart. One regimen consisted of a 1 µg/kg (max. 100 µg) dose of
GHRH (Geref Diagnostic , Serono) with 30 g of ARG (ArGine , Pfizer) administered intravenously over 30 minutes; the other regimen was a dose of 0.5 mg/kg
body weight of AEZS-130 given in an oral solution of 0.5 mg/ml.
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Completion of the study will be accomplished with the following revisions/additions to the current protocol:
— an additional 30 normal controls subjects will be enrolled to match the AGHD patients from the original cohort;
— further, an additional 20 subjects will be enrolled — 10 AGHD patients and 10 matched normal control subjects;
— the above will bring the database to approximately 100 patients;
— all subjects will receive a dose of 0.5 mg/kg body weight of AEZS-130; and
— as a secondary endpoint, the protocol will require that at least 8 of the 10 newly enrolled AGHD patients be correctly classified by a pre-specified peak GH
threshold level.
On July 26, 2011, we announced the completion of the Phase 3 study on AEZS-130 as a first oral diagnostic test for AGHD and the decision to meet with the
FDA for the future filing of a NDA for the registration of AEZS-130 in the United States.
On August 30, 2011, we announced favorable top-line results of our completed Phase 3 study with AEZS-130 as a first oral diagnostic test for AGHD. Results
showed that AEZS-130 reached its primary endpoint demonstrating >90% area-under-the-curve (“AUC”) of the Receiver Operating Characteristic (“ROC”)
curve, which determines the level of specificity and sensitivity of the product. Importantly, the primary efficacy parameters show that the study achieved both
specificity and sensitivity at a level of 90% or greater. In addition, 8 of the 10 newly enrolled AGHD patients were correctly classified by a pre-specified peak GH
threshold level. The use of AEZS-130 was shown to be safe and well tolerated overall throughout the completion of this trial. We are currently proceeding with
further detailed analyses of the data and preparing for a pre-NDA meeting with the FDA in the upcoming months, which would be followed by the filing of a
NDA for the registration of AEZS-130 in the United States.
On November 28, 2011, we announced that the FDA had completed the review of an IND application filed by Jose M. Garcia, M.D., Ph.D., Assistant Professor,
Division of Diabetes Endocrinology and Metabolism, Departments of Medicine and Molecular and Cell Biology, Baylor College of Medicine and Michael E.
DeBakey Veterans Affairs Medical Center, in Houston Texas and concluded that Dr. Garcia may proceed with the initiation of a Phase 2A trial to assess the safety
and efficacy of repeated doses of AEZS-130, in patients with cancer cachexia. Cachexia, which is characterized by diminished appetite and food intake in cancer
patients, is defined as an involuntary weight loss of at least 5% of the pre-illness body weight over the previous 6 months.
On March 8, 2012, we announced that the Michael E. DeBakey Veterans Affairs Medical Center, in Houston, Texas, initiated a Phase 2A trial assessing the safety
and efficacy of repeated doses of AEZS-130 in patients with cancer cachexia. The study is conducted under a CRADA between the Company and the Michael E.
DeBakey Veterans Affairs Medical Center which is funding the study.
This is a double-blind, randomized, placebo-controlled Phase 2A trial to test the effects of different doses of the ghrelin agonist, AEZS-130, in 18 to 26 patients
with cancer-cachexia. AEZS-130 will be provided by Aeterna Zentaris. The study will involve 3 sequential groups receiving differing doses of AEZS-130. Each
dose group will have 6 patients who will receive AEZS-130 and 2-4 patients who will receive placebo. After analysis of safety and efficacy at each dose level vs.
placebo, a decision will be taken either to decrease or increase the dose. If there are major safety issues, the study will be stopped. For this study, adequate
efficacy will be defined as a ³0.8 kg of body weight gain or a ³50 ng/mL increase in plasma IGF-1 levels. The primary objective of the study is to evaluate the
safety and efficacy of repeated oral administration of AEZS-130 at different doses daily for 1 week in view of developing a treatment for cachexia. The following
parameters will be recorded to assess efficacy during the study: change of body weight, change of IGF-1 plasma levels, and change of quality of life score
(Anderson Symptom Assessment Scale, FACIT-F). Other secondary objectives will include food intake, and changes in the following: appetite, muscle strength,
energy expenditure, reward from food and functional brain connectivity.
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Competitors for AEZS-130
Competitors for AEZS-130 as a diagnostic test for AGHD are principally the diagnostic tests currently performed by endocrinologists.
Most commonly used diagnostics tests for GHD are:
— measurement of blood levels of Insulin Growth Factor (“IGF”)-1, which is often used as the first test when GHD is suspected. However, this test is not used to
definitively rule out GHD as many growth hormone deficient patients show normal IGF-1 levels;
— Insulin Tolerance Test (“ITT”), which is considered to be the “gold standard” for GH secretion provocative tests but requires constant monitoring and is
contra-indicated in patients with seizure disorders, with cardiovascular disease and in brain injured patients and elderly patients. ITT is administered i.v.;
— GHRH + Arginine test, which is an easier test to perform in an office setting and has a very good safety profile but is considered to be costly to administer
compared to ITT and Glucagon. This test is contra-indicated in patients with renal failure. GHRH + Arginine is approved in the EU and has been proposed to
be the best alternative to ITT, but it is no longer available in the United States. This test is administered i.v.; and
— glucagon test, which is simple to perform and is considered relatively safe by endocrinologists but is contraindicated in malnourished patients and patients who
have not eaten for more than 48 hours. Since there is a suspicion that this test may cause hypoglycemia, it may not be appropriate in diabetic populations. This
test is administered i.m.
Oral administration of AEZS-130 offers more convenience and simplicity over the current GHD tests used, requiring either i.v. or i.m. administration.
Additionally, AEZS-130 may demonstrate a more favorable safety profile than existing diagnostic tests, some of which may be inappropriate for certain patient
populations e.g. diabetes mellitus or renal failure, and have demonstrated a variety of side effects which AEZS-130 has not thus far. These factors may be limiting
the use of GHD testing and may enable AEZS-130 to become the diagnostic test of choice for GHD.
Market Data — AGHD
According to the Hormone Foundation, in the United States, about 35,000 adults have GHD, with about 6,000 newly diagnosed each year (source: Hormone
Foundation’s Website).
2.2
LHRH ANTAGONISTS
2.2.1 Cetrorelix
Cetrorelix is a peptide-based active substance which was developed in cooperation with Nobel Laureate Professor Andrew Schally presently of the United States
Veterans Administration-Miami, University of Miami, and formerly of Tulane University in New Orleans. This compound is a luteinising hormone releasing
hormone (LHRH, also known as GnRH) antagonist that blocks the pituitary LHRH receptors resulting in a rapid decrease of sexual hormone levels. Moreover,
cetrorelix allows the LHRH receptors on the pituitary gland to be blocked gradually. Conversely, the side effects usually associated with the use of agonists and
resulting from total hormone withdrawal can be avoided in conditions that do not require a castrating degree of hormone withdrawal. Therefore, in contrast to
treatment with agonists, LHRH antagonists permit dose-dependent hormone suppression which is of critical importance for the tolerability of hormonal therapy.
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2.2.1.1 Cetrorelix In Vitro Fertilization (COS/ART)
Cetrotide
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Cetrorelix is the first LHRH antagonist which was approved for therapeutic use as part of fertilization programs in Europe and was launched on the market under
the trade name Cetrotide (cetrorelix acetate) in 1999. In women who undergo controlled ovarian stimulation for recovery of ovocytes for subsequent
fertilization, Cetrotide helps prevent premature ovulation. LHRH is a naturally occurring hormone produced by the brain to control the secretion of LH and,
therefore, final egg maturation and ovulation. Cetrotide is designed to prevent LH production by the pituitary gland and to delay the hormonal event, known as
the “LH surge” which could cause eggs to be released too early in the cycle, thereby reducing the opportunity to retrieve the eggs for the assisted reproductive
techniques procedure.
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In comparison with LHRH agonists that require a much longer pre-treatment, the use of Cetrotide , permits the physician to interfere in the hormone regulation of
the women undergoing treatment much more selectively and within a shorter time.
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The effectiveness of Cetrotide has been examined in five clinical trials (two Phase 2 and three Phase 3 trials). Two dose regimens were investigated in these
trials: either a single dose per treatment cycle or multiple dosing. In the Phase 2 studies, a single dose of 3 mg was established as the minimal effective dose for
the inhibition of premature LH surges with a protection period of at least four days. When Cetrotide is administered in a multi-dose regimen, 0.25 mg was
established as the minimal effective dose. The extent and duration of LH suppression was found to be dose-dependent. In the Phase 3 program, efficacy of the
single 3 mg dose regimen and the multiple 0.25 mg dose regimen was established separately in two controlled studies utilizing active comparators. A third non-
comparative study evaluated only the multiple 0.25 mg dose regimen of Cetrotide . In the five Phase 2 and Phase 3 trials, 184 pregnancies were reported out of a
total of 732 patients (including 21 pregnancies following the replacement of frozen-thawed embryos). In these studies, drug-related side effects were limited to a
low incidence of injected site reactions; however, none of them was serious — such as an allergic type of reaction — or required withdrawal from treatment. In
addition, no drug-related allergic reactions were reported from these clinical studies.
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Cetrotide is the only LHRH antagonist that is available in two dosing regimens. With an immediate onset of action, Cetrotide permits precise control — a
single dose (3 mg), which controls the LH surge for up to four days, or a daily dose (0.25 mg) given over a short period of time (usually five to seven days). The
treatment with Cetrotide can be accomplished during a one-month cycle with a simplified, more convenient and shorter treatment requiring fewer injections than
LHRH agonists.
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Cetrotide is marketed in a 3 mg and a 0.25 mg subcutaneous injection as cetrorelix acetate by Merck Serono in the United States and Europe. In September 2006,
we announced the launch of Cetrotide in Japan for in vitro fertilization. Cetrotide is marketed in Japan by our partner Shionogi. We receive revenue from the
supply of Cetrotide to our Japanese partners. The market competitor is ganirelix (Antagon™/Orgalutran ) from Schering-Plough (Organon) indicated for the
inhibition of premature LH surges in women undergoing controlled ovarian hyperstimulation.
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Partners for Cetrotide
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In August 2000, we entered into a commercialization agreement with Merck Serono for Cetrotide . Under the terms of this agreement, we granted an exclusive
license to Merck Serono to commercialize Cetrotide for IVF/COS/ART worldwide ex-Japan and we are entitled to receive fixed and sales royalties from Merck
Serono. The Japanese rights for this indication are held by Shionogi whereby, according to a commercialization agreement, we received transfer pricing
from Shionogi.
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In November 2008, we sold our rights to royalties on future sales of Cetrotide covered by our license agreement with Merck Serono for $52.5 million to Cowen
Healthcare Royalty Partners (“CHRP”) less transaction costs of $1.0 million, resulting in initial net proceeds to us of $51.5 million. In addition, upon net sales of
Cetrotide having reached a specified level in 2010, we received an additional payment of $2.5 million from CHRP in February 2011. Furthermore, under the
terms of the agreement, we agreed to make a one-time cash payment to CHRP in an amount ranging from $5 million up to a maximum of $15 million in the event
cetrorelix is approved for sale by the European regulatory authorities in an indication other than in vitro fertilization. The amount which would be due to CHRP
will be higher the earlier the product receives European regulatory approval. Since cetrorelix development has been terminated, we do not expect to make this
one-time cash payment to CHRP.
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Cetrorelix clinical development has been terminated in all indications other than in vitro fertilization (COS/ART). Furthermore, we focus on our manufacturing on
behalf of Merck Serono and Shionogi.
2.2.2 Ozarelix
Ozarelix is a modified LHRH antagonist which is a linear decapeptide sequence. Ozarelix is a fourth-generation LHRH antagonist designed to extend the
suppression of testosterone levels, which does not require a sophisticated depot formulation for long-lasting activity.
On August 12, 2004, we entered into a licensing and collaboration agreement with Spectrum Pharmaceuticals, Inc. (“Spectrum”) for ozarelix and its potential to
treat hormone-dependent cancers as well as benign proliferative disorders, such as BPH and endometriosis for all potential indications in North America
(including Canada and Mexico) and India while keeping the rights for the rest of the world. In addition, Spectrum is entitled to receive 50% of upfront and
milestone payments and royalties received from our Japanese partner, Nippon Kayaku, that are generated in the Japanese market for oncological indications. In
November 2010, this agreement with Spectrum was amended. Under the terms of the amended agreement, Spectrum is entitled to use our patent rights and know-
how to develop, use, make, have made, sell, offer for sale, have sold, import, export and commercialize ozarelix in all worldwide territories except Japan, Korea,
Indonesia, Malaysia, the Philippines and Singapore. Under the terms of the amended agreement, Spectrum granted, as further consideration, 326,956 shares of its
common stock, with an equivalent fair value of approximately $1,263,000, as an upfront nonrefundable license fee payment to us. Also per the amended
agreement, we will be entitled to receive a total of approximately $22,765,000 in cash payments, as well as approximately $670,000 of Spectrum’s common
stock, upon achieving certain regulatory milestones in various markets. Furthermore, we will be entitled to receive royalties (scale-up royalties from high single
to low double-digit) on future net sales of ozarelix products in the named territories.
During the third quarter of 2008, we entered into a commercialization agreement with Handok for ozarelix (BPH indication) for the Korean market.
On January 27, 2010, Spectrum announced that it had terminated its development program with ozarelix in BPH. Consequently, an impairment loss of
approximately $1,422,000 was recorded as part of amortization expense, and all corresponding unamortized deferred revenues related to the use of ozarelix,
totalling approximately $1,606,000, were fully recognized in our consolidated statement of operations for the year ended December 31, 2009.
2.2.2.1 Prostate Cancer Clinical Trials
In August 2006, we announced positive Phase 2 results for ozarelix in hormone-dependent inoperable prostate cancer. This open-label, randomized-controlled
dose-finding trial enrolled 64 patients receiving different IM dosage regimens of ozarelix to assess its safety and efficacy. The study achieved its primary endpoint
of defining a tolerable dosage regimen of ozarelix that would ensure continuous suppression of testosterone at castration level for a three-month test period. A
secondary efficacy endpoint aimed at assessing tumor response as determined by a 50% or greater reduction of serum PSA level, compared to baseline, was also
achieved. The best results regarding the primary endpoint of continuous suppression were obtained with a dose of 130 mg per cycle where all patients remained
suppressed to castration until at least day 85. In patients with continuous testosterone suppression below castration level, tumor response as measured by PSA
levels was 97%.
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On August 3, 2006, we announced a licensing and collaboration agreement with Nippon Kayaku for ozarelix. Under the terms of the agreement, we granted
Nippon Kayaku an exclusive license to develop and market ozarelix for all potential oncological indications in Japan. In return, we received an upfront payment
upon signature and are eligible to receive payments upon achievement of certain development and regulatory milestones, in addition to low double-digit royalties
on potential net sales. Spectrum is entitled to receive 50% of the upfront, milestone payments and royalties received from Nippon Kayaku.
Our partner, Spectrum, is currently recruiting patients in Phase 2 trial for the treatment of prostate cancer. This is an international, multicenter, open-label,
randomized study assessing the safety and efficacy of a monthly dosing regimen of ozarelix versus goserelin depot in men with prostate cancer (source:
www.clinicaltrials.gov).
RAW MATERIALS
Raw materials and supplies are generally available in quantities adequate to meet the needs of our business. We are dependent on third-party manufacturers for
the pharmaceutical products that we market. An interruption in the availability of certain raw materials or ingredients, or significant increases in the prices paid by
us for them, could have a material adverse effect on our business, financial condition, liquidity and operating results.
DISTRIBUTION
We currently have a lean sales and marketing staff. In order to commercialize our product candidates successfully, we need to make arrangements with third
parties to perform some or all of these services in certain territories.
We contract with third parties for the sales and marketing of our products. We are currently dependent on strategic partners and may enter into future
collaborations for the research, development and commercialization of our product candidates. Our arrangements with these strategic partners may not provide us
with the benefits we expect and may expose us to a number of risks.
REGULATORY COMPLIANCE
Governmental authorities in Canada, the United States, Europe and other countries extensively regulate the preclinical and clinical testing, manufacturing,
labeling, storage, record keeping, advertising, promotion, export, marketing and distribution, among other things, of our product candidates. Under the laws of the
United States, the countries of the European Union, and other countries, we and the institutions at which we sponsor research are subject to obligations to ensure
that our clinical trials are conducted in accordance with GCP guidelines and the investigational plan and protocols contained in an IND application, or comparable
foreign regulatory submission. The Japanese regulatory process for approval of new drugs is similar to the FDA approval process described below except that
Japanese regulatory authorities request bridging studies to verify that foreign clinical data are applicable to Japanese patients and also require the tests to
determine appropriate dosages for Japanese patients to be conducted on Japanese patient volunteers. Due to these requirements, delays of two to three years in
introducing a drug developed outside of Japan to the Japanese market are possible. Set forth below is a brief summary of the material government regulations
affecting the Company in the major markets in which we intend to market our products.
Canada
In Canada, the Canadian Therapeutic Products Directorate is the Canadian federal authority that regulates pharmaceutical drugs and medical devices for human
use. Prior to being given market authorization, a manufacturer must present substantive scientific evidence of a product’s safety, efficacy and quality as required
by the Food and Drugs Act and other legislation and regulations. The requirements for the development and sale of pharmaceutical drugs in Canada are
substantially similar to those in the United States, which are described below.
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United States
In the United States, the FDA under the Federal Food, Drug, and Cosmetic Act, the Public Health Service Act and other federal statutes and regulations, subject
pharmaceutical products to rigorous review.
In order to obtain approval of a new product from the FDA, we must, among other requirements, submit proof of safety and efficacy as well as detailed
information on the manufacture and composition of the product. In most cases, this proof entails extensive preclinical, clinical, and laboratory tests. Before
approving a new drug or marketing application, the FDA also typically conducts pre-approval inspections of the company, its contract research organizations
and/or its clinical trial sites to ensure that clinical, safety, quality control, and other regulated activities are compliant with Good Clinical Practices, or GCP, or
Good Laboratory Practices, or GLP, for specific non-clinical toxicology studies. Manufacturing facilities used to produce a product are also subject to ongoing
inspection by the FDA. The FDA may also require confirmatory trials, post-marketing testing, and extra surveillance to monitor the effects of approved products,
or place conditions on any approvals that could restrict the commercial applications of these products. Once approved, the labeling, advertising, promotion,
marketing, and distribution of a drug or biologic product must be in compliance with FDA regulatory requirements.
The first stage required for ultimate FDA approval of a new biologic or drug involves completion of preclinical studies and the submission of the results of these
studies to the FDA. This, together with proposed clinical protocols, manufacturing information, analytical data, and other information in an IND, must become
effective before human clinical trials may commence. Preclinical studies involve laboratory evaluation of product characteristics and animal studies to assess the
efficacy and safety of the product. The FDA regulates preclinical studies under a series of regulations called the current GLP regulations. If the sponsor violates
these regulations, the FDA may require that the sponsor replicate those studies.
After the IND becomes effective, a sponsor may commence human clinical trials. The sponsor typically conducts human clinical trials in three sequential phases,
but the phases may overlap. In Phase 1 trials, the sponsor tests the product in a small number of patients or healthy volunteers, primarily for safety at one or more
doses. Phase 1 trials in cancer are often conducted with patients who have end-stage or metastatic cancer. In Phase 2, in addition to safety, the sponsor evaluates
the efficacy of the product in a patient population somewhat larger than Phase 1 trials. Phase 3 trials typically involve additional testing for safety and clinical
efficacy in an expanded population at geographically dispersed test sites. The sponsor must submit to the FDA a clinical plan, or “protocol”, accompanied by the
approval of the institutions participating in the trials, prior to commencement of each clinical trial. The FDA may order the temporary or permanent
discontinuation of a clinical trial at any time. In the case of product candidates for cancer, the initial human testing may be done in patients with the disease rather
than in healthy volunteers. Because these patients are already afflicted with the target disease, such studies may provide results traditionally obtained in Phase 2
studies. Accordingly, these studies are often referred to as “Phase 1/2” studies. Even if patients participate in initial human testing and a Phase 1/2 study is carried
out, the sponsor is still responsible for obtaining all the data usually obtained in both Phase 1 and Phase 2 studies.
The sponsor must submit to the FDA the results of the preclinical and clinical testing, together with, among other things, detailed information on the manufacture
and composition of the product, in the form of a NDA or, in the case of a biologic, a BLA. In a process that can take a year or more, the FDA reviews this
application and, when and if it decides that adequate data are available to show that the new compound is both safe and effective for a particular indication and
that other applicable requirements have been met, approves the drug or biologic for marketing. The amount of time taken for this approval process is a function of
a number of variables, including the quality of the submission and studies presented and the potential contribution that the compound will make in improving the
treatment of the disease in question.
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Orphan-drug designation is granted by the FDA Office of Orphan Drug Products to novel drugs or biologics that treat a rare disease or condition affecting fewer
than 200,000 patients in the U.S. The designation provides the drug developer with a seven-year period of U.S. marketing exclusivity if the drug is the first of its
type approved for the specified indication or if it demonstrates superior safety, efficacy or a major contribution to patient care versus another drug of its type
previously granted the designation for the same indication. We have been granted orphan drug designations for perifosine in the MM and neuroblastoma
indications, for AEZS-108 for the treatment of advanced ovarian cancer and for AEZS-130 for the diagnosis of growth hormone deficiency.
Under the Hatch-Waxman Act, newly-approved drugs and indications may benefit from a statutory period of non-patent data exclusivity. The Hatch-Waxman Act
provides five-year data exclusivity to the first applicant to gain approval of an NDA for a new chemical entity, or NCE, meaning that the FDA has not previously
approved any other drug containing the same active pharmaceutical ingredient, or active moiety. Although protection under the Hatch-Waxman Act will not
prevent the submission or approval of another full NDA, such an NDA applicant would be required to conduct its own preclinical and adequate, well controlled
clinical trials to demonstrate safety and effectiveness.
The Hatch-Waxman Act also provides three years of data exclusivity for the approval of new and supplemental NDAs, including Section 505(b)(2) applications,
for, among other things, new indications, dosage forms, routes of administration, or strengths of an existing drug, or for a new use, if new clinical investigations
that were conducted or sponsored by the applicant are determined by the FDA to be essential to the approval of the application. This exclusivity, which is
sometimes referred to as clinical investigation exclusivity, would not prevent the approval of another application if the applicant has conducted its own adequate,
well-controlled clinical trials demonstrating safety and efficacy, nor would it prevent approval of a generic product that did not incorporate the exclusivity-
protected changes of the approved drug product.
The labeling, advertising, promotion, marketing, and distribution of a drug or biologic product must be in compliance with FDA regulatory requirements. Failure
to comply with applicable requirements can lead to the FDA demanding that production and shipment cease and, in some cases, that the manufacturer recall
products, or to enforcement actions that can include seizures, injunctions, and criminal prosecution. These failures can also lead to FDA withdrawal of approval
to market a product.
European Union
Medicines can be authorized in the European Union by using either the centralized authorization procedure or national authorization procedures.
Centralized procedure
The European Union has implemented a centralized procedure coordinated by the EMA for the approval of human medicines, which results in a single marketing
authorization issued by the European Commission that is valid across the European Union, as well as Iceland, Liechtenstein and Norway. The centralized
procedure is compulsory for human medicines that are derived from biotechnology processes, such as genetic engineering, contain a new active substance
indicated for the treatment of certain diseases, such as HIV/AIDS, cancer, diabetes, neurodegenerative disorders or autoimmune diseases and other immune
dysfunctions, and designated orphan medicines. For medicines that do not fall within these categories, an applicant has the option of submitting an application for
a centralized marketing authorization to the EMA, as long as the medicine concerned is a significant therapeutic, scientific or technical innovation, or if its
authorization would be in the interest of public health.
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National authorization procedures
There are also two other possible routes to authorize medicinal products in several European Union countries, which are available for investigational drug
products that fall outside the scope of the centralized procedure:
Decentralized procedure. Using the decentralized procedure, an applicant may apply for simultaneous authorization in more than one European Union country
of medicinal products that have not yet been authorized in any European Union country and that do not fall within the mandatory scope of the centralized
procedure.
The application will be reviewed by a selected Reference Member State (“RMS”). The Marketing Authorization granted by the RMS will then be recognized by
the other Member States involved in this procedure.
Mutual recognition procedure. In the mutual recognition procedure, a medicine is first authorized in one European Union Member State, in accordance with the
national procedures of that country. Following this, further marketing authorizations can be sought from other European Union countries in a procedure whereby
the countries concerned agree to recognize the validity of the original, national marketing authorization.
For more information about the regulatory risks associated with the Company’s business operations, see “Item 3. — Key Information — Risk Factors”.
DRUG DISCOVERY
There is an increasing demand on the world market for active substances. Our internal drug discovery unit provides an important prerequisite for the provision of
new patented active substances, which can then be developed further or licensed to third parties.
Our drug discovery unit concentrates on the search for active substances for innovative targets which open the door to the introduction of new therapeutic
approaches. Further, this unit searches for new active substances having improved properties for clinically validated targets for which drugs are already being
used in humans and which produce inadequate effects, cause severe side effects, are not economical or are not available in a patient-friendly form.
To this end, we possess an original substance library for the discovery of active compounds with a comprehensive range of promising natural substances which
can serve as models for the construction of synthetic molecules. The initial tests involve 120,000 samples from our internal substance library in the form of high-
throughput screening. The “hits”, which are the first active compounds found in the library, are tested further and built up specifically into potential lead
structures. Based on two to three lead structures, they are then optimized in a further step to potential development candidates.
INTELLECTUAL PROPERTY — PATENTS
We believe that we have a solid intellectual property portfolio that covers compounds, manufacturing processes, compositions and methods of medical use for our
lead drugs and drug candidates. Our patent portfolio consists of approximately 50 owned and in-licensed patent families (issued, granted or pending in the
United States, Europe and other jurisdictions). Independent from the original patent expiry date additional exclusivity is possible in the United States, Europe and
several other countries by data protection for new chemical entities, by orphan drug designation, or by patent term extension respective supplementary protection
certificate.
In the United States, the patent term of a patent that covers an FDA-approved drug may also be eligible for patent term extension, which permits patent term
restoration as compensation for the patent term lost during the FDA regulatory review process. The Drug Price Competition and Patent Term Restoration Act of
1984, or the Hatch-Waxman Act, permits a patent term extension of up to five years beyond the expiration of the patent. The length of the patent term extension is
related to the length of time the drug is under regulatory review. Patent extension cannot extend the remaining term of a patent beyond a total of 14 years from the
date of product approval and only one patent applicable to an approved drug may be extended. Similar provisions are available in Europe and other foreign
jurisdictions to extend the term of a patent that covers an approved drug. In the future, if and when our pharmaceutical products receive FDA approval, we expect
to apply for patent term extensions on patents covering those products. While we anticipate that any such applications for patent term extensions will likely be
granted, we cannot predict the precise length of the time for which such patent terms would be extended in the United States, Europe or other jurisdictions. If we
are not able to secure patent term extensions on patents covering our products for meaningful periods of additional time, we may not achieve or sustain
profitability, which would adversely affect our business.
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Of the issued or granted patents, the protective rights described below form the core of our patent portfolio with regard to our lead drugs and drug candidates.
Perifosine:
— U.S. patent 6,172,050 provides protection in the United States for the compound perifosine and other related alkyl phospholipid derivatives, pharmaceutical
compositions comprising the compounds as well as their medical use for the treatment of tumors. This U.S. patent expires in July 2013. A patent term
extension of up to five years may be possible.
— European patent 0 579 939 provides protection in European countries for the compound perifosine and other related alkyl phospholipid derivatives,
pharmaceutical compositions comprising the compounds as well as their medical use for the treatment of tumors. This European patent expires in June 2013.
A patent term extension of up to five years by Supplementary Protection Certificates (“SPC”) may be possible.
— Japanese patent 3 311 431 provides protection in Japan for the compound perifosine and other related alkyl phospholipid derivatives. This Japanese patent
expires in July 2013. A patent term extension of up to five years may be possible.
— Perifosine combined with antimetabolites:
– U.S., European and Japanese patent applications have been filed, comprising the combination of perifosine with an antimetabolite for treating tumour
diseases;
– U.S. patent application 10/632,187, filed July 2003 and further continuation applications US 12/751,454, US 12/751,608 and US 12/798,267 are still
pending. Granted patents will be expire in July 2023;
– European patent 1 545 553 expires in July 2023;
– Japanese patent application 2004-525354, filed July 2003 is still pending. Granted patent will expire in July 2023.
AEZS-108:
— U.S. patent 5,843,903 provides protection in the United States for the compound AEZS-108 and other related targeted cytotoxic anthracycline analogs,
pharmaceutical compositions comprising the compounds as well as their medical use for the treatment of cancer. This U.S. patent expires in November 2015.
A patent term extension of up to five years may be possible.
— European patent 0 863 917 B1 provides protection in Europe for the compound AEZS-108 and other related targeted cytotoxic anthracycline analogs,
pharmaceutical compositions comprising the compounds as well as their medical use for the treatment of tumors. This European patent expires in
November 2016. A patent term extension of up to five years may be possible.
— Japanese patent 3 987 575 provides protection in Japan for the compound AEZS-108 and other related targeted cytotoxic anthracycline analogs,
pharmaceutical compositions comprising the compounds as well as their medical use for the treatment of tumors. This Japanese patent expires in
November 2016. A patent term extension of up to five years may be possible.
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AEZS-130:
— U.S. patent 6,861,409 protects the compound AEZS-130 and U.S. patent 7,297,681 protects other related growth hormone secretagogue compounds, each also
protecting pharmaceutical compositions comprising the compounds as well as their medical use for elevating the plasma level of growth hormone. This
U.S. patent 6,861,409 expires in August 2022. A patent term extension of up to five years may be possible.
— European patent 1 289 951 protects the compound AEZS-130 and European patent 1 344 773 protects other related growth hormone secretagogue compounds,
pharmaceutical compositions comprising the compounds as well as their medical use for elevating the plasma level of growth hormone. This European patent
1 289 951 expires in June 2021. A patent term extension of up to five years by SPC may be possible.
— Japanese patent 3 522 265 protects the compound AEZS-130 and pharmaceutical compositions comprising the compounds as well as their medical use for
elevating the plasma level of growth hormone. This Japanese patent expires in June 2021. A patent term extension of up to five years may be possible.
Cetrotide :
®
— European patent 0 299 402 provides protection in European countries for the compound cetrorelix and other LHRH antagonists. This patent will expire in
July 2013 pursuant to granted requests for SPC.
— U.S. patent 5,198,533 provided protection in U.S.A. for the compound cetrorelix per se. This patent expired in extended status in October 2010.
— Japanese patent 2 944 669 provides protection in Japan for the compound cetrorelix and other LHRH antagonists. This patent will expire in July 2013 pursuant
to granted requests for patent term extension.
— U.S. patent 6,828,415 protects a method for preparing sterile lyophilizate formulations of cetrorelix. It specifically protects the lyophilization process used to
manufacture Cetrotide . This U.S. patent will expire in December 2021.
®
— European patent 0 611 572 protects a method for preparing sterile lyophilizate formulations of cetrorelix. It specifically protects the lyophilization process
used to manufacture Cetrotide . This patent will expire in February 2014.
®
— Japanese patent 4 033 919 protects a method for preparing sterile lyophilizate formulations of cetrorelix. It specifically protects the lyophilization process used
to manufacture Cetrotide . This patent will expire in February 2014.
®
— U.S. patent 7,790,686 protects an aqueous injectable solution of the compound cetrorelix or other LHRH antagonists in an organic, pharmaceutically
acceptable acid. This patent will expire in October 2023.
— European patent 1 448 221 protects an aqueous injectable solution of the compound cetrorelix or other LHRH antagonists in an organic, pharmaceutically
acceptable acid. This patent will expire in November 2022.
Ozarelix:
— U.S. patent 6,627,609 provides protection in the United States for the compound ozarelix and related third-generation LHRH antagonists and pharmaceutical
compositions comprising them. This U.S. patent will expire in March 2020. A patent term extension of up to five years may be possible.
— European patent 1 163 264 provides protection in Europe for the compound ozarelix and related third-generation LHRH antagonists and pharmaceutical
compositions comprising them. This European patent will expire in March 2020. A SPC of up to five years may be possible.
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— Japanese patent 3 801 867 provides protection in Japan for the compound ozarelix and related third-generation LHRH antagonists and pharmaceutical
compositions comprising them. This Japanese patent will expire in March 2020. A patent term extension of up to five years may be possible.
The table below lists some of our issued or granted patents in the United States, Europe and Japan:
Patent No.
Title
Country
Perifosine
U.S. 6,172,050
EP 0 579 939
JP 3 311 431
EP 1 545 553
AEZS-108
U.S. 5,843,903
EP 0 863 917
JP 3 987 575
AEZS-130
U.S. 6,861,409
EP 1 289 951
Phospholipid derivatives
Phospholipid derivatives
Phospholipid derivatives
Alkylphosphocholines combined with
antimetabolites
United States
Germany, United Kingdom,
France, Switzerland and others
Japan
Europe
Targeted cytotoxic anthracycline analogs
Targeted cytotoxic anthracycline analogs
Targeted cytotoxic anthracycline analogs
United States
Europe
Japan
Growth hormone secretagogues
Growth hormone secretagogues
JP 3 522 265
Growth hormone secretagogues
Cetrotide
®
EP 0 299 402
EP 0 611 572
U.S. 6,828,415
U.S. 6,716,817
U.S. 6,863,891
U.S. 6,867,191
U.S. 7,605,121
U.S. 7,790,686
AEZS-112
U.S. 7,365,081
EP 1 309 585
LHRH antagonists
Process to prepare a cetrorelix lyophilised
composition
Oliogopeptide lyophilisate, their
preparation and use
Method of treatment of female infertility
Oligopeptide lyophilisate, their preparation
and use
Preparation and use of oligopeptide
lyophilisate for gonad protection
Oligopeptide lyophilisate, their preparation
and use
Injection solution of an LHRH antagonist
Indole derivatives and their use as
medicaments
Indole derivatives and their use as
medicaments
United States
Germany, United Kingdom,
France, Switzerland and others
Japan
Germany, United Kingdom,
France, Switzerland and others
Germany, United Kingdom,
France, Switzerland and others
United States
United States
United States
United States
United States
United States
United States
Germany, United Kingdom,
France, Switzerland and others
60
Expiry Date
2013-07-07
2013-06-03
2013-07-08
2023-07-28
2015-11-27
2016-11-14
2016-11-14
2022-08-01
2021-06-13
2021-06-13
2013-07-10*
2014-02-04
2021-12-07
2014-02-22
2014-02-22
2014-02-22*
2014-02-22
2023-10-28
2017-09-08
2021-07-26
Table of Contents
Patent No.
Ozarelix
U.S. 6,627,609
EP 1 163 264
JP 3 801 867
Title
LHRH antagonists having improved
solubility properties
LHRH antagonists having improved
solubility properties
LHRH antagonists having improved
solubility properties
Country
United States
Germany, United Kingdom,
France, Switzerland and others
Japan
Expiry Date
2020-03-14
2020-03-11
2020-03-11
* Including Patent Term Extension
C.
Organizational structure
The following chart presents our corporate structure, the jurisdiction of incorporation of our direct and indirect subsidiaries and the percentage of shares that we
held in those subsidiaries as at December 31, 2011.
D.
Property, plants and equipment
Our corporate head office and facilities are located in Quebec City, Province of Quebec, Canada. The following table sets forth information with respect to our
main facilities as at March 27, 2012.
Location
Use of space
Fully occupied for management, R&D and administration
Square
Footage
Type of
interest
4,400
Leased
1405 du Parc Technologique
Blvd., Quebec City (Quebec), Canada
25 Mountainview Blvd., Suite
203, Basking Ridge, NJ 07920
Weismüllerstr. 50
D-60314
Frankfurt-am-Main, Germany
Fully occupied for management, R&D and administration
3,188
Leased
Fully occupied for management, R&D, business development and administration
46,465
Leased
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Item 4A.
Unresolved Staff Comments
None.
Item 5.
Operating and Financial Review and Prospects
Highlights
Perifosine
§ March 9, 2011: We announced that we had entered into an agreement with Yakult Honsha Co. Ltd. (Tokyo: 2267) (“Yakult”) for the development, manufacture
and commercialization of perifosine in all human uses, excluding leishmaniasis, in Japan. Under the terms of the agreement, we received an initial $8.4 million
upfront payment and are entitled to receive additional payments of up to $57.1 million upon achieving certain pre-established milestones including clinical and
regulatory events in Japan. Furthermore, we will be supplying perifosine to Yakult on a cost-plus-basis and be entitled to receive double-digit royalties on
future net sales of perifosine in Japan. Yakult will be responsible for the development, registration and commercialization of perifosine in Japan.
§ April 4, 2011: We announced that two posters on our lead anticancer agent, perifosine, had been presented at the 102 annual meeting of the American
nd
Association for Cancer Research (“AACR”) held at the Orange County Convention Center in Orlando, Florida. The first poster demonstrated perifosine’s
antitumor activity in several gastric cancer cell lines. Furthermore, perifosine enhanced the antitumor activity of 5-fluorouracil (“5-FU”) in parts of the cell
lines - including 5-FU resistant cell lines. As for the second poster, perifosine markedly enhanced the antitumor activity of the cellular TRAIL based treatment
and was able to overcome TRAIL resistance both in vitro and in vivo. The results are in line with other studies demonstrating the synergistic effects of
perifosine with cytotoxic drugs, including bortezomib and 5-FU.
§ July 12, 2011: We announced that the European Patent Office had granted a patent for the use of alkylphosphocholines, more specifically perifosine, in
combination with antitumor anti-metabolites, which include among others 5-FU and capecitabine in the preparation of a medicament for the treatment of
benign and malignant tumors. This patent will expire on July 28, 2023.
§ July 27, 2011: We announced the completion of patient recruitment (over 465 patients) for the ongoing Phase 3 trial with perifosine in refractory advanced
colorectal cancer (“CRC”).
§ August 31, 2011: We announced the completion of the pre-specified safety and futility interim analysis by the Data Safety Monitoring Board (“DSMB”) for
the Phase 3 trial with perifosine in refractory advanced colorectal cancer. The DSMB recommended that the trial proceed as planned.
§ October 5, 2011: We announced that an article on perifosine had been published in the October 2011 online issue of the Journal of Clinical Oncology (“JCO”),
in which positive Phase 2 results in metastatic colorectal cancer were reported.
§ October 13, 2011: We announced that an article on perifosine had been published in the October 2011 online issue of the JCO, in which positive Phase 1/2
results in multiple myeloma were reported.
§ November 23, 2011: We announced the signing of an exclusive commercialization and licensing agreement with Hikma Pharmaceuticals PLC (“Hikma”)
(LSE: HIK) (NASDAQ Dubai: HIK) for the registration and marketing of perifosine for the Middle East and North Africa (“MENA”) region. Under the terms
of the agreement, we received an upfront payment of $0.2 million and are entitled to receive up to a total of $1.8 million upon achieving certain pre-
established milestones. Furthermore, we will be supplying perifosine to Hikma on a cost-plus-basis and are entitled to receive double-digit royalties on future
net sales of perifosine in the MENA region. Hikma will be responsible for the registration and commercialization of perifosine in the MENA territory.
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§ December 12, 2011: We announced encouraging preclinical data for perifosine in Hodgkin’s lymphoma (“HL”). In vitro data from HL cell lines showed that
perifosine combined with sorafenib induced increased apoptosis, while in vivo data for the same combination treatment for HL significantly increased survival
in mice. Data were presented during the American Society of Hematology (“ASH”) Annual Meeting and Exposition held in San Diego, California.
§ December 13, 2011: We announced encouraging clinical data for an ongoing Phase 2 clinical study in patients with refractory/relapsed HL. Preliminary
response data showed that perifosine combined with sorafenib significantly increased median progression free survival (“PFS”) in refractory/relapsed HL
patients with high phosphorylation levels of Erk and Akt, as compared to patients with low baseline phosphorylation levels of Erk and Akt. Data were
presented during the ASH Annual Meeting and Exposition held in San Diego, California.
§ On January 3, 2012: We announced that our Japanese partner, Yakult had initiated a Phase 1/2 trial in Japan to assess the safety and efficacy of perifosine, in
combination with a chemotherapeutic agent, capecitabine, in patients with refractory advanced CRC. The initiation of this trial on December 27, 2011
triggered a milestone receivable of $2.6 million.
AEZS-108
th
§ September 14, 2011: We presented positive final Phase 2 efficacy and safety data for AEZS-108 (zoptarelin doxorubicin) in advanced endometrial cancer at
the 17 International Meeting of the European Society of Gynecological Oncology in Milan, Italy. Furthermore, a Parallel Scientific Advice process was
granted by and initiated with the United States Food and Drug Administration (the “FDA”) and the European Medicines Agency (“EMA”), with the aim of
establishing a pivotal program in endometrial cancer.
§ September 26, 2011: We announced positive interim data for the Phase 1 portion of our Phase 1/2 trial with AEZS-108 in castration- and taxane-resistant
prostate cancer (“CRPC”) at the European Society of Medical Oncology (“ESMO”) meeting in Stockholm, Sweden.
§ October 25, 2011: We announced that the FDA had agreed to allow for the initiation by Alberto J. Montero, M.D., of the Sylvester Comprehensive Cancer
Center of an Investigational New Drug (“IND”) Phase 2 trial in triple-negative breast cancer (“TNBC”) with AEZS-108.
§ On January 5, 2012: We announced an agreement, dated December 19, 2011, with Ventana Medical Systems, Inc., a member of the Roche Group, to develop a
companion diagnostic for the immunohistochemical determination of LHRH-receptor expression, for AEZS-108.
AEZS-120
§ July 20, 2011: We announced that we had reached a key milestone in the non-clinical development of AEZS-120, our oral prostate cancer vaccine candidate.
The program encompassed the full development of a Good Manufacturing Practice (“GMP”) process as well as a safety and toxicology package.
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AEZS-129
§ On March 22, 2011: We presented preclinical results for AEZS-129 at the Informa Life Sciences Protein Kinases Congress in Berlin, Germany. AEZS-129 was
identified as a potent inhibitor of class I phosphoinositide 3-kinase’s (“PI3K”) lacking activity against mTOR. Data suggest that AEZS-129 is a promising
compound for clinical intervention of the PI3K/Akt pathway in human tumors.
AEZS-130
§ July 26, 2011: We announced the completion of the Phase 3 study for AEZS-130 (macimorelin) as a first oral diagnostic test for adult growth hormone
deficiency (“AGHD”).
§ August 30, 2011: We reported favorable top-line results for the completed Phase 3 study for AEZS-130 as a first oral diagnostic test for AGHD. We also
announced our intention to meet with the FDA for the future filing of a New Drug Application (“NDA”). The results showed that AEZS-130 reached its
primary endpoint demonstrating >90% area-under-the-curve (“AUC”) of the Receiver Operating Characteristic (“ROC”) curve, which determines the level of
specificity and sensitivity of the product.
§ November 28, 2011: We announced that the FDA agreed to allow for the initiation by Jose M. Garcia, M.D., Ph.D., of Baylor College of Medicine and
Michael E. DeBakey of Veterans Affairs Medical Center of an IND Phase 2A trial to assess the safety and efficacy of repeated doses of AEZS-130 in cancer-
cachexia.
§ On March 8, 2012: We announced that the Michael E. DeBakey of Veterans Affairs Medical Center, in Houston, Texas, had initiated a Phase 2A trial with
AEZS-130 in patients with cancer-cachexia.
AEZS-131
§ March 22, 2011: We presented preclinical results for AEZS-131 at the Informa Life Sciences Protein Kinases Congress in Berlin, Germany. AEZS-131 was
established as a small molecular compound that inhibits Erk in the low nanomolar (“nM”) range and shows an excellent selectivity profile. Results support the
evaluation of selective Erk inhibitors as antiproliferative agents either as monotherapy or in combination with inhibitors of the PI3K/Akt pathway.
§ April 5, 2011: We announced that a poster on our highly selective Erk 1/2 inhibitor anticancer compound, AEZS-131, had been presented at the 102 annual
meeting of the AACR. Results showed that AEZS-131 selectively inhibits Erk 1/2 with an IC50 of 4nM, blocks cellular Rsk-1 phosphorylation, modulates
downstream cellular substrate activation, arrests tumor cells in G1 and inhibits the growth of multiple human tumor cell lines in the nanomolar range. In in
vivo pharmacokinetic studies, AEZS-131 showed a favorable PK profile.
nd
§ August 30, 2011: We announced preclinical results demonstrating antitumor activity in different human tumor cell lines for AEZS-131 at the American
Chemical Society National Meeting in Denver, Colorado.
§ December 9, 2011: We announced positive preclinical data in TNBC for AEZS-131 at the 34 Annual San Antonio Breast Cancer Symposium. Data showed
that AEZS-131 selectively inhibits Erk at low nanomolar concentrations and induces G1 arrest. Accordingly, the cytotoxic effect of AEZS-131 was most
pronounced in TNBC cell lines with mutations in the MAPK pathway.
th
AEZS-132
§ On March 22, 2011: We presented preclinical results for AEZS-132 at the Informa Life Sciences Protein Kinases Congress in Berlin, Germany. In summary,
AEZS-132 is a unique dual kinase inhibitor targeting the PI3K and MAPK pathways, expected to be especially suited to treat tumors with over-activation of
both pathways.
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AEZS-137
§ March 24, 2011: We announced that we had been awarded a grant of $1.5 million from the German Ministry of Education and Research to develop, up to the
clinical stage, cytotoxic conjugates of the proprietary cytotoxic compound AEZS-137 (disorazol Z) and peptides targeting G-protein coupled receptors,
including luteinizing hormone releasing hormone (“LHRH”) receptors.
§ November 16, 2011: We announced the presentation of a poster on encouraging preclinical data for AEZS-137 at the AACR-NCI-EORTC International
Conference on Molecular Targets and Cancer Therapeutics, held at the Moscone Center West, in San Francisco. AEZS-137 has been identified as a tubulin
binding agent with highly potent antitumor properties. Cell cycle analysis revealed that AEZS-137 arrested cells in the G2/M phase and subsequently induced
apoptosis with remarkable potency, as shown by subnanomolar EC50 values.
Corporate Developments
§ On February 22, 2011: We entered into an “At-the-Market” (“ATM”) sales agreement with MLV & Co. LLC (formerly McNicoll, Lewis & Vlak LLC)
(“MLV”), under which we were able to sell up to 12.5 million of our common shares through ATM issuances on the NASDAQ Global Market (the
“NASDAQ”) for aggregate gross proceeds not to exceed $19.8 million. On April 29, 2011, we completed the drawdowns from this ATM, bringing the total
aggregate gross proceeds to $19.8 million.
§ On February 28, 2011: We announced that we had received a net sales royalty milestone of $2.5 million from Cowen Healthcare Royalty Partners L.P.
(“Cowen”). This milestone was payable pursuant to the sale, in December 2008, to Cowen of our rights to royalties on future net sales of Cetrotide .
®
§ On June 29, 2011: We entered into an additional ATM Sales Agreement (the “June ATM Sales Agreement”) with MLV, under which we could, at our
discretion, from time to time during the 24-month term of the agreement, sell up to a maximum of 9.5 million of our common shares through ATM issuances
on NASDAQ for aggregate gross proceeds not to exceed $24.0 million. On December 7, 2011, we completed the drawdowns from this ATM, bringing the total
aggregate gross proceeds to $17.7 million.
Subsequent to Year-End
At-The-Market issuance program
§ On January 23, 2012, the Company, pursuant to its existing ATM sales agreement dated June 29, 2011, with MLV, was commencing a new ATM issuance
program (“January 2012 ATM Sales Agreement”) under which it may, at its discretion, from time to time during the term of the sales agreement, sell up to a
maximum of 10.4 million of its common shares through ATM issuances on NASDAQ up to an aggregate amount of $16.0 million.
§ From January 23, 2012 through March 15, 2012, the Company issued a total of 3.6 million common shares under the January 2012 ATM Sales Agreement for
aggregate gross proceeds of $6.4 million, less cash transaction costs of $0.2 million and previously deferred transaction costs of $56,000.
AEZS-108
§ On February 3, 2012: We reported positive updated results for the Phase 1 portion of our ongoing Phase 1/2 study in CRPC with AEZS-108. Data, presented
during a poster session at the American Society of Clinical Oncology Genitourinary Cancers Symposium in San Francisco, showed that AEZS-108 was well
tolerated and demonstrated early evidence of antitumor activity in men with CRPC.
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Introduction
This Management’s Discussion and Analysis (“MD&A”) provides a review of the results of operations, financial condition and cash flows of Aeterna Zentaris
Inc. for the year ended December 31, 2011. In this MD&A, “Aeterna Zentaris”, the “Company”, “we”, “us”, “our” and the “Group” mean Aeterna Zentaris Inc.
and its subsidiaries. This discussion should be read in conjunction with the information contained in the Company’s consolidated financial statements and related
notes as at December 31, 2011 and December 31, 2010 and for the years ended December 31, 2011 and 2010. Our consolidated financial statements have been
prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
All amounts in this MD&A are presented in US dollars, except for share, option and warrant data, per share and per warrant data and as otherwise noted.
Adoption of International Financial Reporting Standards (“IFRS”)
In 2008, the Canadian Accounting Standards Board confirmed that all publicly accountable enterprises must adopt IFRS in place of Canadian generally accepted
accounting principles (“Canadian GAAP”) beginning on January 1, 2011 (for entities with a calendar year-end). As such, our consolidated financial statements as
at December 31, 2011 and December 31, 2010 and for the years ended December 31, 2011 and 2010 have been prepared in accordance with IFRS, as issued by
the IASB, applicable to the preparation of annual financial statements.
Additionally, our consolidated statement of financial position as at January 1, 2010 and our comparative consolidated financial statements for 2010 have been
adjusted to reflect our adoption of IFRS on a retrospective basis, effective on January 1, 2010 (the “Transition Date”). Consequently, 2010 comparative financial
information presented in this MD&A reflects the consistent, retrospective application of IFRS.
These updated figures were reflected in our first quarter report to shareholders.
Our transition to IFRS resulted in a decrease of shareholders’ equity (deficiency) on the IFRS consolidated statement of financial position as at December 31,
2010 of approximately $30.0 million and an increase in 2010 comprehensive loss of approximately $4.1 million.
Our transition to IFRS also resulted in a decrease in shareholders’ equity (deficiency) of $20.1 million, a decrease in total assets of $17.7 million and an increase
in total liabilities of $2.4 million, as at January 1, 2010. The decrease in shareholders’ equity (deficiency) was primarily a result of the impairment of Cetrotide
®
asset, the derecognition of deferred transaction costs and the liability accounting for share purchase warrants.
A complete description of our transition to IFRS, including reconciliations of previously reported Canadian GAAP information, is provided in note 29 to our
consolidated financial statements as at December 31, 2011 and December 31, 2010 and for the years ended December 31, 2011 and 2010.
In this MD&A, we also include comparative financial information derived from our consolidated financial statements as at December 31, 2010 and 2009 and for
each of the years then ended which, prior to January 1, 2011, were prepared in accordance with Canadian GAAP.
About Forward-Looking Statements
This document contains forward-looking statements, which reflect our current expectations regarding future events. Forward-looking statements may include
words such as “anticipate”, “assuming”, “believe”, “could”, “expect”, “foresee”, “goal”, “guidance”, “intend”, “may”, “objective”, “outlook”, “plan”, “seek”,
“should”, “strive”, “target” and “will”.
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Forward-looking statements involve risks and uncertainties, many of which are discussed in this MD&A. Results or performance may differ significantly from
expectations. For example, the results of current clinical trials cannot be foreseen, nor can changes in policy or actions taken by regulatory authorities such as the
FDA, the European Medicines Agency (“EMA”), the Therapeutic Products Directorate of Health Canada or any other organization responsible for enforcing
regulations in the pharmaceutical industry.
Given these uncertainties and risk factors, readers are cautioned not to place undue reliance on any forward-looking statements. We disclaim any obligation to
update any such factors or to publicly announce any revisions to any of the forward-looking statements contained herein to reflect future results, events or
developments, unless required to do so by a governmental authority or by applicable law.
About Material Information
This MD&A includes information that we believe to be material to investors after considering all circumstances, including potential market sensitivity. We
consider information and disclosures to be material if they result in, or reasonably would be expected to result in, a significant change in the market price or value
of our securities, or where it is likely that a reasonable investor would consider the information and disclosures to be important in making an investment decision.
The Company is a reporting issuer under the securities legislation of all of the provinces of Canada, and its securities are registered with the United States
Securities and Exchange Commission. The Company is therefore required to file or furnish continuous disclosure information such as interim and annual
financial statements, MD&As, proxy circulars, annual reports on Form 20-F, material change reports and press releases with the appropriate securities regulatory
authorities. Copies of these documents may be obtained free of charge upon request from the Company’s Investor Relations department or on the Internet at the
following addresses: www.aezsinc.com, www.sedar.com and www.sec.gov.
Company Overview
Aeterna Zentaris Inc. (NASDAQ: AEZS and TSX: AEZ) is a late-stage drug development company specializing in oncology and endocrine therapy. Our pipeline
encompasses compounds at all stages of development, from drug discovery through to marketed products. The highest development priorities in oncology are the
completion of Phase 3 trials with perifosine in colorectal cancer and in multiple myeloma, as well as the further advancement of AEZS-108, for which we have
successfully completed a Phase 2 trial in advanced endometrial and advanced ovarian cancer. We are planning for the initiation of a pivotal program with AEZS-
108 in endometrial cancer and also a Phase 2 trial in triple-negative breast cancer. AEZS-108 is also in development in other cancer indications, including
castration- and taxane-resistant prostate cancer, as well as refractory bladder cancer.
Our pipeline also encompasses other earlier-stage programs in oncology. AEZS-112, an oral anticancer agent which involves three mechanisms of action (tubulin,
topoisomerase II and angiogenesis inhibition) has completed a Phase 1 trial in advanced solid tumors and lymphoma. Additionally, several novel targeted
potential anti-cancer candidates such as AEZS-120, a live recombinant oral tumor vaccine candidate, as well as our PI3K/Erk inhibitors AEZS-129, AEZS-131,
AEZS-132 and their respective follow-up compounds are currently in preclinical development.
Our lead program in endocrinology, a Phase 3 trial under a Special Protocol Assessment (“SPA”) obtained from the FDA with AEZS-130 as an oral diagnostic
test for AGHD, has been completed with positive results. We are planning to file an NDA for the registration of AEZS-130 in the United States, subject to a
successful pre-NDA meeting with the FDA. Furthermore, AEZS-130 is in a Phase 2A trial for the treatment of cancer-cachexia.
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Key Developments for the Year Ended December 31, 2011
Drug Development
Status of our drug pipeline as at March 27, 2012
Discovery Preclinical
AEZS-120
~120,000
Prostate cancer
compound
vaccine (oncology)
library
Phase 1
AEZS-112
(oncology)
Phase 2
Perifosine
§ Multiple cancers
AEZS-129, 131,
132 and 136;
Erk/PI3K
inhibitors
(oncology)
AEZS-137
(Disorazol Z)
(oncology)
AEZS-125
(LHRH-
Disorazol Z)
(oncology)
Partners
§ AEZS-108
§ Endometrial cancer
§ Triple-negative breast cancer
§ Ovarian cancer
§ Castration- and taxane-resistant prostate cancer
§ Refractory bladder cancer
Ozarelix
§ Prostate cancer
AEZS-130
§ Therapeutic in cancer-cachexia
Perifosine:
Keryx
North America
Handok
Korea
Yakult
Japan
Hikma
Middle East/North Africa
Ozarelix:
Spectrum
World (ex-Japan for oncology indications, ex-Korea and ex-other
Asian countries for BPH indication)
Handok
Korea and other Asian countries for BPH indication
Nippon Kayaku
Japan for oncology indications
68
Commercial
Cetrotide
®
(in vitro
fertilization)
Phase 3
Perifosine
§ Refractory
advanced
colorectal cancer
§ Multiple myeloma
AEZS-130
§ Diagnostic in adult
growth hormone
deficiency
(endocrinology)
Perifosine:
Keryx
North America
Handok
Korea
Yakult
Japan
Hikma
Middle East/North
Africa
Cetrotide :
®
Merck Serono
(World except
Japan)
Nippon
Kayaku /
Shionogi
Japan
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Perifosine
Perifosine is a novel, oral anticancer treatment that inhibits Akt activation in the PI3K pathway. Perifosine, in combination with chemotherapeutic agents, is
currently in Phase 3 studies for the treatment of colorectal cancer and multiple myeloma, as well as in Phase 2 studies for the treatment of other cancers, and we
believe is the most advanced anti-cancer compound of its class in late-stage development. The FDA has granted perifosine orphan-drug designation in multiple
myeloma and in neuroblastoma and Fast Track designations in both refractory advanced colorectal cancer and multiple myeloma. Additionally, an agreement was
reached with the FDA to conduct the Phase 3 trials in both of these indications under a SPA. Perifosine has also been granted Orphan Medicinal Product
designation from the EMA in multiple myeloma, and based on discussions with the EMA, we believe the ongoing Phase 3 trials of perifosine in the colorectal
cancer and multiple myeloma programs would be sufficient for registration in Europe for these indications, assuming positive data from the Phase 3 trials.
Perifosine rights have been licensed to Keryx Biopharmaceuticals, Inc. (“Keryx”) for North America, to Handok Pharmaceuticals Co. Ltd. for Korea, to Yakult
for Japan and to Hikma for the MENA region.
On March 8, 2011, we entered into an agreement with Yakult for the development, manufacture and commercialization of perifosine in all human uses, excluding
leishmaniasis, in Japan. Under the terms of this agreement, Yakult made an initial, non-refundable gross upfront payment to us of €6.0 million (approximately
$8.4 million). Also per the agreement, we are entitled to receive in addition, up to a total of €44.0 million (approximately $57.1 million) upon achieving certain
pre-established milestones, including the occurrence of certain clinical and regulatory events in Japan. As at December 31, 2011, following the achievement of a
milestone, we have revenue and trade receivables recorded for an additional amount of €2.0 million (approximately $2.6 million) in connection with the
agreement. Furthermore, we will be entitled to receive double-digit royalties on future net sales of perifosine in the Japanese market.
On November 23, 2011, we entered into an agreement with Hikma for the development, and commercialization of perifosine in all oncology uses. Under the
terms of this agreement, Hikma made an initial, non-refundable gross upfront payment to us of $0.2 million. Also per the agreement, we are entitled to receive up
to a total of $1.8 million upon achieving certain pre-established milestones, including the occurrence of certain regulatory events in certain countries in the
MENA region. Furthermore, we will be entitled to receive double-digit royalties on future net sales of perifosine in the MENA market.
We have substantial continuing involvement in the aforementioned arrangements, including the use of commercially reasonable efforts to develop, apply for and
obtain relevant regulatory approval for, manufacture and commercialize perifosine outside Japan and the MENA region, which will facilitate the ultimate
commercialization process within Japan and the MENA region. Additionally, we are contractually obligated to ensure a stable supply of perifosine and related
trial products to Yakult and Hikma throughout the ongoing development process and will maintain relevant patent rights over the term of the arrangements.
Lastly, per the terms of the aforementioned agreements, we have agreed to supply perifosine, on a cost-plus basis, to Yakult and Hikma following regulatory
approvals.
We have deferred the non-refundable license fees and we are amortizing the related payments as revenue on a straight-line basis over the duration of our
continuing involvement, which approximates the estimated life cycle of the product that is currently under development and the expected period over which
Yakult and Hikma will derive value from the use of, and access to, the underlying licenses.
In determining the period over which license revenues are to be recognized, and in addition to due consideration of our continuing involvement, as discussed
above, we considered the remaining expected life of applicable patents as the most reasonable basis for estimating the underlying product’s life cycle. However,
we may adjust the amortization period based on appropriate facts and circumstances not yet known, including, but not limited to, the extension(s) of patents, the
granting of new patents, the economic lives of competing products and other events that would significantly change the duration of our continuing involvement
and performance obligations or benefits expected to be derived by Yakult and Hikma.
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Future milestones will be recognized as revenue individually and in full upon the actual achievement of the related milestone, given the substantive nature of each
milestone. Lastly, upon initial commercialization and sale of the developed product, we will recognize royalty revenues as earned, based on the contractual
percentage applied to the actual net sales achieved by Yakult and Hikma, as per the aforementioned agreements.
We were required to remit to the Japanese tax authorities $0.8 million of the gross proceeds received from Yakult and will be required to remit approximately
€0.2 million (approximately $0.26 million) when the milestone receivable will be paid by Yakult. These amounts, which were withheld at source, were
recognized as income tax expense in our consolidated statement of comprehensive loss.
On April 4, 2011, we announced that two posters on perifosine were presented at the 102 annual meeting of the AACR at the Orange County Convention Center
in Orlando, Florida. Perifosine demonstrated antitumor activity in several gastric cancer cell lines. Furthermore, perifosine enhanced the antitumor activity of 5-
FU in parts of the cell lines, including 5-FU resistant cell lines. 5-FU is the active metabolite of the prodrug Xeloda, which is approved for the treatment of
advanced gastric cancer in many countries including Japan.
nd
Perifosine also markedly enhanced the antitumor activity of the cellular TRAIL based treatment and was able to overcome TRAIL resistance both in vitro and in
vivo. The results are in line with other studies demonstrating the synergistic effects of perifosine with cytotoxic drugs, including bortezomib and 5-FU.
On July 12, 2011, we announced that the European Patent Office had granted a patent for the use of alkylphosphocholines, more specifically perifosine (octadecyl
1,1-dimethylpiperidino-4-yl phosphate), in the preparation of a medicament for the treatment of benign and malignant tumors, prior to and/or during the treatment
with approved antitumor anti-metabolites such as 5-FU and capecitabine. Filed on July 29, 2003, the patent (EP #1 545 553), entitled Use of Alkyl
Phosphocholines in Combination with Anti-Tumour Medicaments, became effective as of July 13, 2011 and will expire on July 28, 2023.
On July 27, 2011, we announced completion of patient recruitment for the ongoing Phase 3 trial with perifosine in refractory advanced colorectal cancer,
involving over 465 patients from 65 sites in the United States. This Phase 3 X-PECT (Xeloda + Perifosine Evaluation in Colorectal Cancer Treatment) trial is a
randomized (1:1), double-blind trial comparing the efficacy and safety of perifosine + capecitabine vs. placebo + capecitabine. The primary endpoint is overall
survival, with secondary endpoints including overall response rate (complete + partial responses), progression-free survival and safety. Approximately 360 events
of death will trigger the unblinding of the study.
®
On August 31, 2011, we announced that the DSMB for the Phase 3 X-PECT study of perifosine in patients with refractory advanced colorectal cancer had
completed a pre-specified interim analysis for safety and futility. The DSMB recommended that the Phase 3 study continue to completion, as planned.
On October 5, 2011, we announced that a manuscript, entitled Randomized Placebo-Controlled Phase 2 Trial of Perifosine Plus Capecitabine as Second- or
Third-Line Therapy in Patients with Metastatic Colorectal Cancer, had been published in the October 3, 2011 online edition of the Journal of Clinical Onclogy
(“JCO”), in which Phase 2 activity of perifosine in the treatment of patients with refractory advanced CRC was reported. The publication highlighted the efficacy
and safety data on the 38 CRC patients participating in this Phase 2, randomized, multicenter study, comparing perifosine plus capecitabine (P-CAP) to placebo
plus capecitabine. Based on the data, in which the combination of P-CAP demonstrated statistical significance with respect to median overall survival and median
time to tumor progression, the investigators concluded that the P-CAP combination showed promising clinical activity compared to single-agent capecitabine, and
that the difference in clinical outcome seen with the addition of perifosine was impressive.
Efficacy data from this study had been previously presented in June 2010 at the 46 Annual Meeting of the American Society of Clinical Oncology.
th
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On October 13, 2011, we announced that the manuscript, entitled Perifosine Plus Bortezomib and Dexamethasone in patients with Relapsed/Refractory Multiple
Myeloma Previously Treated with Bortezomib: Results of a Multicenter Phase 1/2 Trial, had been published in the October 10, 2011 online edition of the JCO, in
which Phase 1/2 combination activity of perifosine in the treatment of advanced multiple myeloma patients was reported. Results showed that the Overall
Response Rate was 65% for bortezomib-relapsed patients and 32% for bortezomib-refractory patients. Median PFS was 6.4 months, with a median PFS of
8.8 months in the bortezomib-relapsed population. Therapy was generally well-tolerated, and toxicities, including gastrointestinal side-effects and fatigue, proved
manageable. No treatment-related mortality was seen. The investigators concluded the data reported for both safety and efficacy in this patient population were
encouraging for the continued study of perifosine. Data from this study had been previously presented at the 2009 ASH conference.
On December 12, 2011, we reported encouraging preclinical data for perifosine in HL. In vitro data from HL cell lines showed that perifosine combined with
sorafenib induced increased apoptosis, while in vivo data for the same combination treatment for HL significantly increased survival in mice. Data were presented
during the ASH Annual Meeting and Exposition, in San Diego, California.
The study was conducted to investigate, in vitro and in vivo, the activity and mechanism(s) of action of perifosine in combination with sorafenib by using three
HL cell lines (HD-MyZ, L-540, HDLM-2). In the in vitro experiments perifosine/sorafenib treatment resulted in synergistic cell growth inhibition and cell death
induction in HD-MyZ and L-540 cell lines, but not in the HDLM-2 cell line. Cell cycle arrest, down-modulating of the MAPK and PI3K/Akt pathways as well as
caspase-independent cell death was observed, which was associated with severe mitochondrial dysfunction. Further, expression of genes involved in amino acid
metabolism, cell cycle, DNA replication and cell death was shown to be modulated. In addition, overexpression of the tribbles homologue 3 [TRIB3] was
observed.
In vivo, perifosine/sorafenib treatment significantly increased survival in the HD-MyZ model (45 vs. 81 days, as compared to controls), with 25% tumor-free
mice at the end of the 200-day observation period. In the L-540 model, subcutaneous tumor volume was also reduced as compared to controls (by 42%),
perifosine (by 35%) or sorafenib (by 46%) alone. In HD-MyZ and L-540 but not HDLM-2, the combined treatment induced an increase in tumor necrosis (2- to
8-fold, P £.0001) and in tumor apoptosis (2- to 2.5-fold, P £.0001). In 2 of 3 HL cell lines, perifosine/sorafenib combination treatment induced potent antitumor
effects. Striking increase of mitochondrial injury and apoptosis, and marked reduction of cell viability was observed in the in vitro experiments. In vivo
combination treatment increased survival and inhibited tumor growth.
On December 13, 2011, we reported encouraging clinical data for an ongoing Phase 2 clinical study in patients with refractory/relapsed HL. Preliminary response
data showed that perifosine combined with sorafenib significantly increased median PFS in refractory/relapsed HL patients with high phosphorylation levels of
Erk and Akt, as compared to patients with low baseline phosphorylation levels of Erk and Akt. Data were presented during the ASH Annual Meeting and
Exposition, in San Diego, California.
The study evaluated phosphorylation levels of Erk (pErk) and Akt (pAkt) in circulating lymphocytes from patients enrolled in two consecutive Phase 2 trials
evaluating activity and safety of sorafenib as a single agent or in combination with perifosine in relapsed/refractory HL patients. Four patients were treated with
sorafenib alone at a dose level of 400mg BID and twenty-one patients received a 4-week treatment with perifosine alone at a dose level of 50mg BID, followed
by a perifosine/sorafenib combination therapy with 50mg BID and 400mg BID, respectively. Circulating lymphocytes were evaluated for their phosphorylation
levels of Erk and Akt, in order to assess predictive value of the phosphokinase levels for therapy responses.
Clinical response data showed that baseline pErk and pAkt levels were significantly higher in responsive patients, as compared to unresponsive patients. The pErk
and pAkt levels measured after 60 days of therapy with perifosine combined with sorafenib were significantly reduced in responsive patients. The median
baseline value of pErk and pAkt efficiently discriminated responsive and unresponsive patients which was associated with a significantly improved median PFS
for patients with baseline pErk ³43% and/or pAkt >23%. Based on these data, the correlation of baseline pErk and pAkt levels with objective responses and time
to tumor progression will need to be validated in prospective studies.
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On January 3, 2012, we announced that our Japanese partner, Yakult, had initiated a Phase 1/2 trial in Japan to assess the safety and efficacy of perifosine in
combination with chemotherapeutic agent, capecitabine, in patients with refractory advanced CRC. The primary endpoint of the Phase 1 portion of the trial is the
safety profile of perifosine in combination with capecitabine. The primary endpoint of the Phase 2 portion is efficacy (Disease Control Rate). This trial is
sponsored by Yakult and its initiation on December 27, 2011 triggered a milestone payment which is payable in the first quarter of 2012 of approximately
€2 million from Yakult to Aeterna Zentaris under the agreement signed in March 2011 for perifosine in Japan described above.
AEZS-108
On September 14, 2011, we presented positive final Phase 2 efficacy and safety data for AEZS-108 (zoptarelin doxorubicin) in advanced endometrial cancer at
the European Society of Gynecological Oncology in Milan, Italy. Data showed that AEZS-108, administered as a single agent at a dosage of 267 mg/m every 3
weeks was active, well tolerated and that overall survival is similar to that reported for modern triple combination chemotherapy, but was achieved with lower
toxicity. The primary endpoint was the response rate as defined by the Response Evaluation Criteria in Solid Tumors (“RECIST”). Secondary endpoints included
safety, time-to-progression (“TTP”) and overall survival (“OS”).
2
In all, of 43 patients treated with AEZS-108, 39 were evaluable for efficacy. Efficacy confirmed by independent response review included 2 complete responses
(“CR”), 10 partial responses (“PR”), and 17 patients with disease stabilization (“SD”). Based on those data, the estimated Overall Response Rate (“ORR” =
CR+PR) was 30.8% and the Clinical Benefit Rate (“CBR”) (CBR = CR+PR+SD) was 74.4%. Responses in patients previously treated with chemotherapy
included 1 CR, 1 PR and 2 SDs in 8 of the patients with prior use of platinum/taxane regimens. Median TTP and OS were 7 months and 13.7 months,
respectively.
Overall, tolerability of AEZS-108 was good and commonly allowed retreatment as scheduled. Severe (Grade 3 or 4) toxicity was mainly restricted to rapidly
reversible leukopenia and neutropenia, associated with fever in only 1 patient who had been treated only 3 weeks after a surgery. Good tolerability of AEZS-108
was also reflected by a low rate of severe non hematological possibly drug-related adverse events which included single cases each of nausea, diarrhea, fatigue,
general health deterioration, creatinine elevation, and blood potassium decrease. No cardiac toxicity was reported.
On September 26, 2011, we announced positive interim data for the Phase 1 portion of our Phase 1/2 trial with AEZS-108 in castration- and taxane-resistant
prostate cancer at the ESMO meeting in Stockholm, Sweden. This is a single arm study with a Phase 1 lead-in to a Phase 2 clinical trial. The primary endpoint of
the Phase 1 portion is safety. The primary objective of the Phase 2 portion is to evaluate the clinical benefit of AEZS-108 for these patients. Data showed that
AEZS-108 was well tolerated at all dose levels and early evidence of antitumor activity was observed even at low dose level. The Phase 2 extension is planned
after completion of the toxicity assessment in the final dose level of the Phase 1 portion of the study. Furthermore, data from correlative studies demonstrated for
the first time the internalization of AEZS-108 in circulating tumor cells of patients.
On October 25, 2011, we announced that the FDA had completed the review of the IND application filed by Alberto J. Montero, M.D., Assistant Professor,
Department of Medicine, Division of Hematology/Oncology, Sylvester Comprehensive Cancer Center at the University of Miami Miller School of Medicine and
concluded that Dr. Montero may proceed with the initiation of a randomized Phase 2 trial in chemotherapy refractory triple-negative (ER/PR/HER2-negative)
LHRH receptor-positive metastatic breast cancer with AEZS-108. This will be an open-label, randomized, two-arm, multicenter Phase 2 study involving up to 74
patients. The primary study endpoint will be PFS. Secondary endpoints will also include overall response rate, and overall survival. The study will also evaluate
AEZS-108’s toxicity profile and patients’ quality of life relative to conventional cytotoxic chemotherapy used in the control arm of this study.
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On January 5, 2012, we announced that we had entered into a collaboration agreement with Ventana Medical Systems, Inc., a member of the Roche Group, to
develop a companion diagnostic for the immunohistochemical determination of LHRH-receptor expression, for AEZS-108. In humans, LHRH receptors are
expressed in a significant proportion of endometrial, ovarian, breast, bladder, prostate and pancreatic tumors. AEZS-108 specifically targets LHRH receptors and
could, therefore, prove to be more efficient in treating patients with these types of LHRH-receptor positive cancers.
AEZS-120
On July 20, 2011, we announced that we had successfully reached a key milestone in the non-clinical development of our live recombinant prostate cancer
vaccine candidate, AEZS-120, for oral administration. The program encompassed the full development of a GMP process, including GMP production and quality
testing of a clinical batch, as well as a non-clinical safety and toxicology package, as previously agreed with the regulatory authorities. Subject to a positive
review by the regulatory authorities, we aim to start Phase 1 clinical development in 2012. AEZS-120 has been developed through a research collaboration with
the Department of Medical Radiation Biology and Cell Research, and the Department of Microbiology of the University of Würzburg, Germany. The
collaboration was funded with a total of $890,000 for the Company and $870,000 for the university partner by the German Ministry of Education and Research
(BMBF) for a period of three years. As part of the collaboration, a melanoma vaccine based on the recombinant expression of a modified B-Raf protein has been
generated.
AEZS-129
On March 22, 2011, we presented preclinical results for AEZS-129 at the Informa Life Sciences Protein Kinases Congress in Berlin, Germany. AEZS-129 was
identified as a potent inhibitor of class I PI3Ks lacking activity against mTOR. Lack of mTOR activity is considered to potentially lead to a better safety profile.
In biochemical and cellular assays, AEZS-129 demonstrated favorable properties in early in vitro ADMET screening, including microsomal stability, plasma
stability and screening against a safety profile composed of receptors, enzymes and cardiac ion-channels. In vitro, the compound was shown to be a selective
ATP-competitive inhibitor of PI3K with a broad antiproliferative activity against a broad panel of tumor cell lines. In vivo, AEZS-129 showed excellent plasma
exposure and significant tumor growth inhibition in several tumor xenografts models, including A-549 (lung), HCT-116 (colon) and Hec1B (endometrium). These
data suggest that AEZS-129 is a promising compound for clinical intervention of the PI3K/Akt pathway in human tumors.
AEZS-130
On July 26, 2011, we announced the completion of the Phase 3 study on AEZS-130 as a first oral diagnostic test for AGHD and the decision to meet with the
FDA for the future filing of an NDA for the registration of AEZS-130 in the United States.
On August 30, 2011, we announced favorable top-line results of the completed Phase 3 study with AEZS-130 as the first oral diagnostic test for AGHD. The
results showed that AEZS-130 reached its primary endpoint demonstrating >90% AUC of the ROC curve, which determines the level of specificity and
sensitivity of the product.
The first part of the study, conducted by our former partner, Ardana, was a two-way crossover study involving 42 patients with confirmed AGHD or multiple
pituitary hormone deficiencies and a low insulin-like growth factor-I. A control group of 10 subjects without AGHD were matched to patients for age, gender,
body mass index and (for females) estrogen status. Each patient received two dosing regimens in random order, while fasting, at least 1 week apart. One regimen
consisted of a 1 µg/kg (max. 100 µg) dose of GHRH (Geref Diagnostic , Serono) with 30 g of ARG (Ar-Gine , Pfizer) administered intravenously over 30
minutes; the other regimen was a dose of 0.5 mg/kg body weight of AEZS-130 given in an oral solution of 0.5 mg/ml. As a result of the SPA reached with the
FDA in order to complete the trial, the second part of the study contained the following revisions/additions to the first protocol:
®
®
§ An additional 30 normal control subjects were to be enrolled to match the AGHD patients from the original cohort;
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§ Further, an additional 20 subjects were to be enrolled: 10 AGHD patients and 10 matched normal control subjects;
§ The above brought the database to ~100 subjects;
§ All subjects received a dose of 0.5 mg/kg body weight of AEZS-130;
§ As a secondary endpoint, the protocol required that at least 8 of the 10 newly enrolled AGHD patients be correctly classified by a pre-specified peak GH
threshold level.
The parameters of the study were achieved as agreed to with the FDA under our SPA. Importantly, the primary efficacy parameters showed that the study
achieved both specificity and sensitivity at a level of 90% or greater. In addition, 8 of the 10 newly enrolled AGHD patients were correctly classified by a pre-
specified peak GH threshold level. The use of AEZS-130 was shown to be safe and well tolerated overall throughout the completion of this trial.
The Company is planning for the filing of an NDA for the registration of AEZS-130 in the United States as a diagnostic test for AGHD.
On November 28, 2011, we announced that the FDA had completed the review of an IND application filed by Jose M. Garcia, M.D., Ph.D., Assistant Professor,
Division of Diabetes Endocrinology and Metabolism, Departments of Medicine and Molecular and Cell Biology, Baylor College of Medicine and the Michael E.
DeBakey Veterans Affairs Medical Center, in Houston Texas and concluded that Dr.Garcia may proceed with the initiation of a Phase 2A trial to assess the safety
and efficacy of repeated oral administration of AEZS-130 at different doses daily for 1 week in view of developing a treatment for cancer-cachexia. Cachexia,
which is characterized by diminished appetite and food intake in cancer patients, is defined as an involuntary weight loss of at least 5% of the pre-illness body
weight over the previous six months.
On March 8, 2012, we announced that the Michael E. DeBakey Veterans Affairs Medical Center, in Houston, Texas, initiated a Phase 2A trial assessing the safety
and efficacy of repeated doses of AEZS-130 in patients with cancer-cachexia. The study is conducted under a CRADA between the Michael E. DeBakey Veterans
Affairs Medical Center, which is funding the study, and us. This is a double-blind, randomized, placebo-controlled Phase 2A trial to test the effects of different
doses of the ghrelin agonist, AEZS-130, in 18 to 26 patients with cancer-cachexia. AEZS-130 will be provided by us. The study will involve 3 sequential groups
receiving differing doses of AEZS-130. Each dose group will have 6 patients who will receive AEZS-130 and 2-4 patients who will receive a placebo. After
analysis of safety and efficacy at each dose level vs. placebo, a decision will be taken either to decrease or increase the dose. If there are major safety issues, the
study will be stopped. For this study, adequate efficacy will be defined as a ³0.8 kg of body weight gain or a ³50 ng/mL increase in plasma IGF-1 levels. The
primary objective of the study is to evaluate the safety and efficacy of repeated oral administration of AEZS-130 at different doses daily for 1 week in view of
developing a treatment for cachexia. The following parameters will be recorded to assess efficacy during the study: change of body weight, change of IGF-1
plasma levels, and change of quality of life score (Anderson Symptom Assessment Scale, FACIT-F). Other secondary objectives will include food intake, and
changes in the following: appetite, muscle strength, energy expenditure, reward from food and functional brain connectivity.
AEZS-131
On March 22, 2011, we presented preclinical results for AEZS-131 at the Informa Life Sciences Protein Kinases Congress in Berlin, Germany. AEZS-131 was
established as a small molecular compound that inhibits Erk in the low nanomolar range and shows an excellent selectivity profile. Further characterization
experiments revealed an ATP-competitive mode of action and the potent inhibition of the cellular downstream target Rsk1 in tumor cells. The frontrunner, AEZS-
131, produces cell cycle arrest in G1 and results in growth inhibition of cancer cells. Furthermore, the potential of combination therapy of AEZS-131 with
inhibitors of the PI3K pathway was
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addressed and the analysis of combination effects on tumor cell proliferation has been presented. These results support the evaluation of selective Erk inhibitors
as antiproliferative agents either as monotherapy or in combination with inhibitors of the PI3K/Akt pathway.
On April 5, 2011, we announced that a poster on our highly selective Erk 1/2 inhibitor anticancer compound, AEZS-131, had been presented at the 102 annual
meeting of the AACR. Results showed that AEZS-131 selectively inhibits Erk 1/2 with an IC50 of 4nM, blocks cellular Rsk-1 phosphorylation, modulates
downstream cellular substrate activation, arrests tumor cells in G1 and inhibits the growth of multiple human tumor cell lines in the nanomolar range. In in vivo
pharmacokinetic studies, AEZS-131 showed a favorable PK profile. Antitumor activity was studied in in vivo mouse xenograft experiments utilizing the HCT 116
colon cancer model. AEZS-131 significantly inhibited tumor growth and was well tolerated at daily doses up to 120 mg/kg. Focus on inhibition of downstream
kinase Erk 1/2 activity as a therapeutic target may be attractive because the pharmacologic inhibition of Erk 1/2 reverses Ras and Raf activation in cells which
also demonstrate resistance to common Raf inhibitors, such as PLX-4720/4032.
nd
On August 30, 2011, we announced that a poster on our novel orally active anticancer Erk inhibitor, which includes AEZS-131, was presented at the American
Chemical Society National Meeting in Denver, Colorado. The in vitro antiproliferative efficacy proved to be excellent in diverse human tumor cell lines. GI50
values in the low nanomolar range were obtained. In vivo antitumor activity was studied in a mouse xenograft experiment utilizing the human HCT-116 colon
cancer model. Up to 74% inhibition of tumor growth was achieved with daily oral doses of 30 -120 mg/kg. Our medicinal chemistry programs are supported by
X-ray crystallography and modeling towards the optimization of pyrido[2,3-b]pyrazines as novel series of kinase inhibitors.
On December 9, 2011, we announced positive preclinical data in TNBC for AEZS-131 at the 34 Annual San Antonio Breast Cancer Symposium. AEZS-131 was
tested to check for selectivity, inhibition of Rsk-phosphorylation (cellular substrate of Erk), mode of action and cleavage of PARP. Cytotoxic efficacy was
evaluated in a selection of TNBC cell lines, with or without mutations in the MAPK signal transduction pathway, by MTT assay. The study showed that AEZS-
131 selectively inhibited ERK with an IC50<4nM. Phosphorylation of Rsk-1 was inhibited with an IC50 of 158 nM. AEZS-131 induced cell cycle arrest in G1
dose-dependently and cleavage of PARP. EC50 values were below 1µM for cell lines with mutations in the MAPK pathway. TNBC cell lines without mutations
in the MAPK pathway were less responsive.
th
AEZS-132
On March 22, 2011, we presented preclinical results for AEZS-132 at the Informa Life Sciences Protein Kinases Congress in Berlin, Germany. AEZS-132 is a
unique dual inhibitor of PI3K and Erk in the nanomolar range and exerts high selectivity against other serine threonine and tyrosine kinases. AEZS-132 is also an
ATP-competitive inhibitor, with a broad antiproliferative profile in vitro, a favorable safety profile and beneficial ADME properties. In vivo pharmacokinetic
experiments showed plasma profiles expected to result in positive antitumor efficacy, and led to significant antitumor activity in mouse xenograft models,
including HCT-116 (colon), A-549 (lung), and Hec 1B (endometrium). Cellular inhibition of the downstream targets p-Akt and p-Rsk was confirmed within the
in vivo tumor studies. In summary, AEZS-132 is a unique dual kinase inhibitor targeting the PI3K and MAPK pathways, expected to be especially suited to treat
tumors with over-activation of both pathways.
AEZS-137
On March 24, 2011, we announced that we had been awarded a $1.5 million grant from the German Ministry of Education and Research to develop, up to the
clinical stage, cytotoxic conjugates of the proprietary cytotoxic compound AEZS-137 (disorazol Z) and peptides targeting G-protein coupled receptors, including
the LHRH receptors. The compounds being developed will combine the targeting principle successfully employed in Phase 2 with AEZS-108 (doxorubicin and
LHRH receptor targeting agent) with the novel cytotoxic disorazol Z. Furthermore, diagnostic tools systematically assessing the receptor expression in tumor
specimens will be developed to allow the future selection of patients and tumor types with the highest chance of benefitting from this personalized medicine
approach. The grant will be payable as a partial reimbursement of qualifying
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expenditures over a three-year period. The qualified project will be performed with Morphisto GmbH and the Helmholtz Institute in Saarbrücken, Germany,
which will receive additional funding of approximately $0.7 million. Researchers from the department of Gynecology and Obstetrics at both the University of
Göttingen and Würzburg, Germany, will also be part of the collaboration.
On November 16, 2011, we announced encouraging preclinical data for AEZS-137 from a poster presentation at the AACR-NCI-EORTC International
Conference on Molecular Targets and Cancer Therapeutics, in San Francisco. The poster showed that AEZS-137 possesses outstanding cytotoxicity in a highly
diverse panel of 60 different tumor cell lines, and also underlined the identification of important aspects of this novel natural compound’s mechanism of action.
AEZS-137 has been identified as a tubulin binding agent with highly potent antitumor properties. Cell cycle analysis revealed that AEZS-137 arrested cells in the
G2/M phase and subsequently induced apoptosis with remarkable potency, as shown by subnanomolar EC50 values.
Corporate Developments
At-the-Market Sales Agreement
On February 22, 2011, we entered into an ATM sales agreement with MLV, under which we were able to sell up to 12.5 million of our common shares through
ATM issuances on NASDAQ for aggregate gross proceeds not to exceed $19.8 million. The ATM sales agreement provided that common shares were to be sold
at market prices prevailing at the time of sale, and, as a result, prices may have varied. From February 20, 2011 and up to April 29, 2011, we issued a total of
10.0 million of our common shares for aggregate gross proceeds of $19.8 million, less cash transaction costs of $0.6 million and previously deferred transaction
costs of $0.2 million.
On June 29, 2011, we entered into a second ATM, the June ATM Sales Agreement with MLV, under which we could, at our discretion, from time to time during
the 24-month term of the agreement, sell up to 9.5 million of our common shares through ATM issuances on NASDAQ for aggregate gross proceeds not to
exceed $24.0 million. The June ATM Sales Agreement, similar to the February ATM Sales Agreement, provided that common shares were to be sold at market
prices prevailing at the time of sale, and, as a result, prices may have varied. From June 29, 2011 and up to December 7, 2011, under the June ATM agreement,
we issued a total of 9.5 million of our common shares for aggregate gross proceeds of $17.7 million, less cash transactions costs of $0.6 million and previously
deferred transaction costs of $0.2 million.
Gross proceeds raised under both ATM sales agreements totalled $37.5 million for the year ended December 31, 2011.
Cowen Royalty Sales Milestone Payment
On February 28, 2011, we announced that we had received a net sales milestone of $2.5 million from Cowen Healthcare Royalty Partners, L.P. (“Cowen”). This
milestone was payable pursuant to the previously announced sale to Cowen of Aeterna Zentaris’ rights to royalties on future net sales of Cetrotide , covered by
the Company’s license agreement with Merck Serono, and was contingent on 2010 net sales of Cetrotide reaching a specified level.
®
®
Subsequent to Year-End
At-The-Market Issuance Program
On January 23, 2012, the Company, pursuant to its existing ATM sales agreement dated June 29, 2011, with MLV, was commencing a new ATM issuance
program (“January 2012 ATM Sales Agreement”) under which it may, at its discretion, from time to time during the term of the sales agreement, sell up to a
maximum of 10.4 million of its common shares through ATM issuances on NASDAQ up to an aggregate amount of $16.0 million.
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From January 23, 2012 through March 15, 2012, the Company issued a total of 3.6 million common shares under the January 2012 ATM Sales Agreement for
aggregate gross proceeds of $6.4 million, less cash transaction costs of $0.2 million and previously deferred transaction costs of $56,000.
AEZS-108
On February 3, 2012, we reported positive updated results for the Phase 1 portion of our ongoing Phase 1/2 study in CRPC with AEZS-108. This is a single-arm
study with a Phase 1 lead-in portion (testing 3 dose levels) to a Phase 2 clinical trial. The primary endpoint of the Phase 1 portion is safety. The primary objective
of the Phase 2 portion is to evaluate the clinical benefit of AEZS-108 for these patients. Data were presented by Jacek Pinski, M.D., Ph.D., Associate Professor of
Medicine at the Norris Comprehensive Cancer Center of the University of Southern California, during a poster session at the American Society of Clinical
Oncology Genitourinary Cancers Symposium in San Francisco. The trial is being supported by a three-year $1.6 million grant from the National Institutes of
Health to Dr. Pinski.
The results were based on 13 patients who have been treated on 3 dose levels: 3 at 160 mg/m , 3 at 210 mg/m , and 7 at 267 mg/m . Overall, AEZS-108 has been
well tolerated among this group of heavily pre-treated older patients. To date, there have been 2 dose limiting toxicities; both were cases of asymptomatic Grade 4
neutropenia at the 267 mg/m dose level and both patients fully recovered. The Grade 3 and 4 toxicities were primarily hematologic. There has been minimal non-
hematologic toxicity, most frequently fatigue and alopecia.
2
2
2
2
Despite the low doses of AEZS-108 in the first cohorts, there was some evidence of antitumor activity. One patient received 8 cycles (at 210 mg/m ) due to
continued benefit. Among the 5 evaluable patients with measurable disease, 4 achieved stable disease. At the time of submission of the abstract, a decrease in
PSA was noted in 6 patients. Six of 13 (46%) treated patients have received at least 5 cycles of therapy with no evidence of disease progression at 12 weeks.
Correlative studies on circulating tumor cells (“CTC”) have demonstrated the uptake of AEZS-108 into the targeted tumor. After completion of 3 additional
patients at the 210 mg/m dose level, the study is expected to be extended into the Phase 2 portion.
2
2
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Consolidated Statements of Comprehensive Loss Information
(in thousands, except share and per share data)
Revenues
Sales and royalties
License fees and other
Operating expenses
Cost of sales
Research and development costs, net of refundable tax credits and grants
Selling, general and administrative expenses
Depreciation and amortization*
Loss from operations
Finance income
Finance costs
Net finance income (costs)
Loss before income taxes
Income tax expense
Net loss
Other comprehensive (loss) income:
Foreign currency translation adjustments
Actuarial gain (loss) on defined benefit plans
Comprehensive loss
Net loss per share
Basic and diluted
Weighted average number of shares outstanding
Basic and diluted
Years ended December 31,
2010
$
2009*
$
2011
$
31,306
4,747
36,053
27,560
24,517
16,170
*
68,247
24,857
2,846
27,703
18,700
21,257
12,552
*
52,509
20,957
42,280
63,237
16,501
43,814
16,040
10,840
87,195
(32,194)
(24,806)
(23,958)
6,239
(8)
6,231
1,800
(5,445)
(3,645)
349
(1,115)
(766)
(25,963)
(1,104)
(28,451)
-
(24,724)
-
(27,067)
(28,451)
(24,724)
(789)
(1,335)
1,001
191
(1,335)
-
(29,191)
(27,259)
(26,059)
(0.29)
(0.38)
(0.43)
94,507,988
75,659,410
56,864,484
* We adopted IFRS in 2011 with a transition date of January 1, 2010. The selected financial information for the years ended December 31, 2009, 2008 and 2007 is derived from financial statements that were
presented in accordance with Canadian GAAP and has not been restated in accordance with IFRS. Consequently, the selected financial information for the years ended December 31, 2009, 2008 and 2007 may
not be comparable with the corresponding selected financial information for the years ended December 31, 2011 and 2010. Please refer to “Critical Accounting Policies, Estimates and Judgments” for the
policy differences between Canadian GAAP and IFRS.
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Revenues
Revenues are derived primarily from sales and royalties as well as from license fees. Sales are derived from Cetrotide (cetrorelix acetate solution for injection),
marketed globally (ex-Japan) by ARES Trading S.A. (“Merck Serono”) for reproductive health assistance for in vitro fertilization, as well as from active
pharmaceutical ingredients. Royalties are derived indirectly from Merck Serono’s net sales of Cetrotide and represent the periodic amortization, under the units-
of-revenue method, of the proceeds received in connection with the 2008 sale to Cowen Healthcare Royalty Partners L.P. of the underlying future royalty stream.
®
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License fees include periodic milestone payments, research and development (“R&D”) contract fees and the amortization of upfront payments received from our
licensing partners.
Sales and royalties were $31.3 million for the year ended December 31, 2011, compared to $24.9 million for the year ended December 31, 2010. This increase is
largely related to comparatively higher deliveries of Cetrotide to Merck Serono.
®
Despite our original expectations for only slight sales volume increases for the year 2011, our sales and royalties were substantially higher than our original
expectations due to an unforeseen increase in sales to Merck Serono.
Sales and royalties in 2012 are expected to stabilize, as compared to the amounts recorded in 2011, since we expect that the volume of Cetrotide sales will
stabilize in 2012.
®
License fees and other revenues were $4.7 million for the year ended December 31, 2011, compared to $2.8 million for the year ended December 31, 2010. This
increase is mainly due to the recording of a milestone payment from Yakult with respect to the initiation of a Phase 1/2 trial with perifosine in CRC in Japan
during the last quarter of the year 2011.
During 2012, we expect to provide more R&D services, compared to 2011, related to perifosine to our license partner for North America, Keryx. We expect the
results of the ongoing Phase 3 trial of perifosine in CRC in the second quarter of 2012. If the data from the trial is positive, we expect to receive development and
regulatory milestone payments from our various license partners. With these additional revenues, we expect that our license fees and other revenues will increase
significantly in 2012, as compared to 2011.
Operating Expenses
Cost of sales was $27.6 million for the year ended December 31, 2011, compared to $18.7 million for the year ended December 31, 2010. This increase is largely
attributable to the comparative increase in volume of sales of Cetrotide to Merck Serono, as discussed above. Additionally, cost of sales as a percentage of sales
and royalties increased to approximately 88.03% for the year ended December 31, 2011, compared to 75.23% for the year ended December 31, 2010. Our lower
margins are largely attributable to a decrease of $3.4 million of royalties in 2011, as compared to 2010.
®
R&D costs, net of refundable tax credits and grants, were $24.5 million for the year ended December 31, 2011, compared to $21.3 million for the year ended
December 31, 2010. The comparative increase is mainly attributable to an increase in third-party costs incurred in connection with the advancement of perifosine,
AEZS-130 and Erk/PI3K compounds (AEZS-129, AEZS-131, AEZS-132)-related activities
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The following table summarizes our net R&D costs by nature of expense:
(in thousands)
Employee compensation and fringe benefits
Third-party costs
Facilities rent and maintenance
Other costs*
R&D refundable tax credits and grants
* including depreciation and amortization charges.
Years ended December 31,
2011
$
10,028
10,244
1,835
2,793
(383)
24,517
2010
$
9,226
8,138
1,773
2,807
(687)
21,257
The following table summarizes primary third-party R&D costs, by product candidate, incurred by the Company during the years ended December 31, 2011 and
2010.
(in thousands, except percentages)
Product
Status
Indication
$
Years ended December 31,
2010
2011
%
%
$
Perifosine
AEZS-130
Cetrorelix
AEZS-108
AEZS-112
AEZS-129, AEZS-131 and
AEZS-132; Erk/PI3K
Other
Phases 2 and 3
Oncology
3,726 36.4 968 11.9
Phase 3
Phase 3*
Phase 2
Phase 1
Endocrinology
(diagnosis of AGHD)
BPH*
Oncology
Oncology
-
1,156 11.3 865 10.6
- 2,046 25.1
1,652 16.1 2,089 25.7
3.2
5.3 259
538
Preclinical
Oncology
1,860 18.2 923 11.4
Oncology and
endocrinology
1,312 12.7 988 12.1
10,244 100.0 8,138 100.0
* Development activities terminated in the last quarter of 2009 and beginning of 2010.
We expect net R&D costs for 2012 to increase, compared to 2011, as we continue to focus on the development of perifosine and AEZS-108. In particular, we plan
to pursue the ongoing Phase 3 study with perifosine in multiple myeloma, as well as initiate, with AEZS-108, a pivotal trial in endometrial cancer and support the
ongoing Phase 1/2 studies in connection with triple-negative breast cancer and other indications.
We expect, excluding the impact of unforeseen foreign exchange rate fluctuations, that net R&D costs will total between $30.0 million and $32.0 million for the
twelve-month period ending December 31, 2012, due to the additional expenses discussed above. We note, however, that our R&D estimates may be revised as
we continue to advance our development activities and as new information becomes available. We also expect that many perifosine-related development activities
will be sponsored by our North American license partner, Keryx, and Japanese partner, Yakult, and that we will continue to seek government grants for our
earlier-stage projects.
Selling, general and administrative (“SG&A”) expenses were $16.2 million for the year ended December 31, 2011, compared to $12.6 million for the year
ended December 31, 2010. SG&A expenses were higher during the year 2011 mainly due to the recognition of impairment losses and due to the initiation of pre-
launch and marketing efforts related to the potential commercialization of perifosine in Europe.
During the year 2011, we recognized an impairment loss ($1.1 million) following impairment testing that was performed on our Cetrotide asset. The impairment
loss was recognized predominantly to take into account management’s lower trend estimates related to the commercialization of Cetrotide , due to changes in the
competitive environment in the Japanese market.
®
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In addition, during the year 2011, following the relocation of one of the Company’s offices, we recognized an impairment loss on property plant and equipment
(leasehold improvements and furniture and fixtures ($0.3 million)) and an additional onerous lease provision ($0.2 million).
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Furthermore, we initiated our pre-launch and marketing efforts related to the potential marketing by the Company of perifosine in Europe. During the year 2011,
we incurred approximately $0.9 million in connection with the preparation of a launch plan, including market research, pricing expectations and forecast
calculations.
We expect that our SG&A expenses will slightly decrease in 2012, as compared to 2011, as costs return to more normalized operating levels, despite our expected
inclusion of certain investments in perifosine’s European pre-launch and marketing efforts.
Net finance income (costs), comprised predominantly of net foreign exchange gains (losses), the change in fair value of our warrant liability and the gain on our
short-term investment, for the year ended December 31, 2011, totalled $6.2 million, compared to ($3.6 million) for the year ended December 31, 2010, as
presented below.
(in thousands)
Finance income
Net gains due to changes in foreign currency exchange rates
Change in fair value of warrant liability
Interest income
Gain on held-for-trading financial instrument
Finance costs
Change in fair value of warrant liability
Unwinding of discount
Years ended December 31,
2011
$
2010
$
2,197
2,533
231
1,278
6,239
-
(8)
(8)
6,231
932
-
181
687
1,800
(5,437)
(8)
(5,445)
(3,645)
The significant increase in net finance income, as compared to the same period in 2010, is mainly due to the change in fair value of our warrant liability. That
change results from the periodic “mark-to-market” revaluation, via the application of the Black-Scholes option pricing model, of currently outstanding share
purchase warrants. The Black-Scholes “mark-to-market” warrant valuation most notably has been impacted by the market price of our common shares, which, on
NASDAQ, has fluctuated from $0.81 as at January 4, 2010 to $1.72 as at December 31, 2010, and $1.54 as at December 31, 2011.
Additionally, our net finance income increased during the year 2011 from the same period in 2010 due to higher foreign exchange gains, which in turn resulted
primarily from the overall substantial weakening, during 2011, of the euro against the US dollar, as compared to an overall lower weakening of the euro against
the US dollar within the 2010 period. As a result, during the twelve-month period ended December 31, 2011, we recorded foreign exchange gains on transactions
and on cash and cash equivalent balances denominated in US dollars.
The increase in our net finance income during the year ended December 31, 2011, as compared to the year ended December 31, 2010, also included gains on our
short-term investment, which was sold during the year 2011.
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It can be noted that the gains or losses resulting from the periodic mark-to-market valuation of our share purchase warrants did not result in any cash receipt or
cash disbursement during the three-month or twelve-month periods ended December 31, 2011 and 2010.
Income tax expense was $1.1 million for the year ended December 31, 2011, as compared to nil for the same period in 2010. The increase consists of foreign
withholding taxes related to the Yakult upfront and milestone license fees revenues discussed above.
Net loss for the year ended December 31, 2011 was $27.1 million, or $0.29 per basic and diluted share, compared to $28.5 million, or $0.38 per basic and diluted
share for the year ended December 31, 2010.
The decrease in net loss for the year ended December 31, 2011, as compared to the year ended December 31, 2010, is largely due to the significant increase in
license fees revenues, as well as net finance income, partly offset by lower margin contribution from Cetrotide , higher net R&D costs and SG&A expenses,
combined with the recording of income tax expense of $1.1 million in 2011, as discussed above.
®
Quarterly Consolidated Results of Operations Information
The following is a summary of selected consolidated financial information derived from our unaudited interim period consolidated financial statements for each
of the eight most recently completed quarters.
(in thousands, except for per share data)
Revenues
Loss from operations
Net (loss) income
Net (loss) income per share
Basic and diluted
Revenues
Loss from operations
Net loss
Net loss per share*
Basic and diluted
Quarters ended
December 31,
2011
$
September 30,
2011
$
June 30,
2011
$
March 31,
2011
$
12,627
(8,688)
(7,519)
9,514
(8,244)
1,078
6,523
(7,971)
(10,569)
7,389
(7,291)
(10,057)
(0.07)
0.01
(0.12)
(0.12)
Quarters ended
December 31,
2010
$
September 30,
2010
$
June 30,
2010
$
March 31,
2010
$
9,971
(4,003)
(6,610)
5,726
(5,456)
(9,920)
5,584
(7,950)
(6,176)
6,422
(7,397)
(5,745)
(0.08)
(0.12)
(0.08)
(0.09)
* Net income (loss) per share is based on each reporting period’s weighted average number of shares outstanding, which may differ on a quarter-to-quarter basis. As such, the sum of the quarterly net income
(loss) per share amounts may not equal year-to-date net loss per share.
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In the last eight quarters, revenues have increased, when compared quarter over quarter for each of the corresponding periods in 2011 vs. 2010, mainly due to the
higher deliveries of Cetrotide to Merck Serono, which increase have started in the fourth quarter of 2010, the recording of a contingent payment received from
Cowen in the fourth quarter of 2010 as well as the recording of a milestone payment from Yakult in the fourth quarter of 2011.
®
In the last eight quarters, net (loss) income have been impacted by revenues, as mentioned above, by the increased level of net R&D costs in connection with the
advancement of perifosine, AEZS-130 and Erk/PI3K compounds, by the recognition of impairment losses in the third and fourth quarters of 2011, by the
initiation of pre-launch and marketing efforts related to the potential commercialization of perifosine in Europe in the third and fourth quarters of 2011, as well as
by the foreign exchange gain or loss, the change in fair value of our warrant liability and the gain on our short-term investment.
Fourth Quarter 2011 Results
Revenues
Revenues were $12.6 million for the quarter ended December 31, 2011, compared to $10.0 million for the same quarter in 2010. The increase in revenues is due
primarily to comparative higher deliveries of Cetrotide to Merck Serono ($3.6 million) and to the recording of a milestone payment ($2.6 million) from Yakult
with respect to the initiation of a Phase 1/2 trial with perifosine in CRC in Japan, partly offset by the lower royalties in 2011 attributable to the contingent
payment of $2.5 million from Cowen recorded in December 2010.
®
Operating expenses
Cost of sales was $8.1 million for the quarter ended December 31, 2011, compared to $5.4 million for the same quarter in 2010. This increase is largely
attributable to the comparative increase in volume of sales of Cetrotide to Merck Serono, as discussed above. Additionally, cost of sales as a percentage of sales
and royalties increased to approximately 88% for the quarter ended December 31, 2011, compared to 63% for the same period in 2010. Our lower margins are
largely attributable to a lower contribution of royalties to total sales and royalties in 2011, as compared to 2010, as a result of a $3.4 million royalty milestone
payment recorded in 2010 from Cowen.
®
R&D costs, net of refundable tax credits and grants were $7.8 million for the quarter ended December 31, 2011, compared to $5.4 million for the same quarter
in 2010. The comparative increase in R&D expenses primarily results from the increase in third-party costs incurred in connection with the advancement of
perifosine, AEZS-108 and Erk/PI3K compounds (AEZS-129, AEZS-131, AEZS-132)-related activities.
Selling, general and administrative (“SG&A”) expenses were $5.4 million for the quarter ended December 31, 2011, compared to $3.2 million for the same
quarter in 2010. The increase in SG&A expenses is mainly related to the recognition of an impairment loss on property, plant and equipment (leasehold
improvements and furniture and fixtures ($0.3 million)) and an additional onerous lease provision ($0.2 million), combined with the pre-launch and marketing
efforts related to the potential commercialization of perifosine in Europe ($0.5 million) and with the increase in foreign exchange loss ($0.6 million).
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Net finance income (costs), comprised predominantly of net foreign exchange gains, the change in fair value of our warrant liability and the gain on our short-
term investment (2010 only), for the quarter ended December 31, 2011, totalled $1.4 million, compared to ($2.6 million) for the same period in 2010, as presented
below.
(in thousands)
Finance income
Net gains due to changes in foreign currency exchange rates
Change in fair value of warrant liability
Interest income
Gain on held-for-trading financial instrument
Finance costs
Change in fair value of warrant liability
Unwinding of discount
Three months
ended
December 31,
2011
$
Three months
ended
December 31,
2010
$
1,118
221
95
-
1,434
-
(2)
(2)
1,432
276
-
70
687
1,033
(3,638)
(2)
(3,640)
(2,607)
Net loss amounted to $7.5 million, or $0.07 per basic and diluted share, for the quarter ended December 31, 2011, compared to $6.6 million, or $0.08 per basic
and diluted share, for the same quarter in 2010. The increase in net loss is mainly attributable to the higher comparative R&D and SG&A expenses, partly offset
by the significant increase in net finance income and by higher gross margin relating to sales of Cetrotide .
®
Primarily, given the presence in our 2011 fourth quarter revenues of the $2.6 million milestone receivable from Yakult with respect to the initiation of a Phase 1/2
trial with perifosine in CRC in Japan, and excluding any impact of foreign exchange gains or losses, as well as change in fair value of warrant liability, we expect
that the net loss for the first quarter of 2012 will increase, as compared to the fourth quarter of 2011.
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Consolidated Statement of Financial Position Information
(in thousands)
Cash and cash equivalents
Short-term investment
Trade and other receivables and other current assets
Restricted cash
Property, plant and equipment, net
Other non-current assets
Total assets
Payables and other current liabilities
Long-term payable (current and non-current portions)
Warrant liability (current and non-current portions)
Non-financial non-current liabilities
Total liabilities
Shareholders’ (deficiency) equity
Total liabilities and shareholders’ (deficiency) equity
**
As at December 31,
2010
$
2011
$
*
2009
$
46,881
-
13,258
806
2,512
11,912
75,369
17,784
88
9,204
52,839
79,915
(4,546)
75,369
31,998
1,934
9,877
827
3,096
13,716
61,448
13,350
150
14,367
51,156
79,023
(17,575)
61,448
38,100
-
10,913
878
4,358
32,013
86,262
19,211
200
-
57,625
77,036
9,226
86,262
*
We adopted IFRS in 2011 with a transition date of January 1, 2010. The selected financial information for the years ended December 31, 2009, 2008 and 2007 is derived from financial statements that were
presented in accordance with Canadian GAAP and has not been restated in accordance with IFRS. Consequently, the selected financial information for the years ended December 31, 2009, 2008 and 2007
may not be comparable with the corresponding selected financial information for the years ended December 31, 2011 and 2010. Please refer to “Critical Accounting Policies, Estimates and Judgments” for
the policy differences between Canadian GAAP and IFRS.
**
Comprised mainly of non-current portion of deferred revenues, employee future benefits and provision.
The increase in cash and cash equivalents as at December 31, 2011, as compared to December 31, 2010, is due to the receipt of net proceeds pursuant to
drawdowns made in connection with the February and June ATM Sales Agreements, as discussed above, to the proceeds from the sale of our short-term
investment, to the receipt of the upfront license payment in connection with our development, commercialization and licensing agreement entered into with
Yakult, as noted above, as well as to the receipt of net proceeds from the exercise of share purchase warrants. These increases were partially offset by recurring
disbursements and other variations in components of our working capital.
Trade and other receivables and other current assets increased from December 31, 2010 to December 31, 2011 mainly due to the increase in trade receivable in
connection with the higher deliveries of Cetrotide to Merck Serono for an amount of approximately $2.9 million and due to the perifosine inventory to be sold to
our partner Keryx for an amount of approximately $0.7 million which in turn were partly offset by the impact of foreign exchange rate fluctuations.
®
Other non-current assets decreased from December 31, 2010 to December 31, 2011 primarily due to the net reduction in the carrying value of our identifiable
intangible assets, which was negatively impacted by the impairment loss recognized on Cetrotide , as discussed above.
®
Payables and other current liabilities increased from December 31, 2010 to December 31, 2011 mainly due to an increase of approximately $2.4 million in trade
accounts payable and accrued liabilities in connection with the higher deliveries of Cetrotide and with the higher level of R&D expenses resulting from the
advancement of perifosine, AEZS-130 and Erk/PI3K compounds, which includes an increase due to the perifosine R&D inventory received and payable for an
amount of approximately $1.3 million, to the increase in current portion of deferred revenues for an amount of $1.3 million, and to the increase in accrued salaries
for an amount of approximately $0.5 million which in turn were partly offset by the impact of foreign exchange rate fluctuations.
®
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Our warrant liability was lower as at December 31, 2011, as compared to December 31, 2010, predominantly due to the change in fair value pursuant to the
periodic “mark-to-market” revaluation of the underlying outstanding share purchase warrants, as well as following various warrant exercises during the twelve-
month period ended December 31, 2011.
Non-financial liabilities were higher as at December 31, 2011, as compared to December 31, 2010, mainly as a result of the deferral of the upfront payment
received in connection with our development, commercialization and licensing agreement entered into with Yakult, partially offset by the recurring amortization
of deferred revenues.
The net decrease in shareholders’ deficiency as at December 31, 2011, as compared to December 31, 2010, is predominantly attributable to an increase in share
capital following the issuance of common shares pursuant to the aforementioned drawdowns made in connection with the February and June ATM Sales
Agreements, partially offset by the increase in our deficit due to the net loss for the year ended December 31, 2011 and by the decrease in accumulated other
comprehensive income, which in turn is comprised of cumulative translation adjustments.
Financial Liabilities, Obligations and Commitments
We have certain contractual leasing obligations and purchase obligation commitments. Purchase obligation commitments mainly include R&D services and
manufacturing agreements related to the production of Cetrotide and to other R&D programs. The following tables summarize future cash requirements with
respect to these obligations.
®
Future minimum lease payments and future minimum sublease payments expected to be received under non-cancellable operating leases (subleases), as well as
future payments in connection with utility service agreements, as at December 31, 2011 are as follows:
(in thousands)
Less than 1 year
1 – 3 years
4 – 5 years
More than 5 years
Total
Minimum
lease payments
$
Minimum
sub-lease payments
$
1,690
3,128
2,172
373
7,363
(226)
(451)
(451)
(244)
(1,372)
Utilities
$
609
793
496
-
1,898
Service and manufacturing commitments given, which consist of R&D service agreements and manufacturing agreements for Cetrotide , are as follows:
®
(in thousands)
Less than 1 year
1 – 3 years
4 – 5 years
More than 5 years
Total
86
As at
December 31, 2011
$
10,760
3,855
-
-
14,615
Table of Contents
Outstanding Share Data
As at March 27, 2012, there were 108,787,366 common shares issued and outstanding, as well as 7,497,634 stock options outstanding. Share purchase warrants
outstanding as at March 27, 2012 represented a total of 8,752,868 equivalent common shares.
Capital Disclosures
Our objective in managing capital, primarily composed of shareholders’ deficiency and cash and cash equivalents, is to ensure sufficient liquidity to fund our
R&D activities, SG&A expenses, working capital and capital expenditures.
Historically, our priority has been to optimize our liquidity by non-dilutive sources, including the sale of non-core assets, investment tax credits and grants,
interest income, licensing and related services and royalties. More recently, however, we have raised additional capital via registered direct offerings and
drawdowns related to the February and June ATM Sales Agreements, and we expect to continue to raise capital via drawdowns related to the January 2012 ATM
Sales Agreement.
At December 31, 2011, cash and cash equivalents amounted to $46.9 million. The Company believes that its cash position will be sufficient to finance its
operations and capital needs for at least the next twelve months.
Our capital management objective remains the same as that of previous periods. The policy on dividends is to retain cash to keep funds available to finance the
activities required to advance our product development pipeline.
We are not subject to any capital requirements imposed by any regulators or any other external source.
It is important to note that historical patterns of expenditures cannot be taken as an indication of future expenditures. The amount and timing of expenditures and
availability of capital resources vary substantially from period to period, depending on the level of research and development activity being undertaken at any
given time and on the availability of funding from investors and prospective commercial partners.
Liquidity, Cash Flows and Capital Resources
Our operations and capital expenditures have been financed mainly through cash flows from operating activities and other non-dilutive activities, except for the
registered direct offerings completed during the year ended December 31, 2010 and, more recently, the drawdowns related to our various ATM Sales Agreements,
as discussed above.
Our cash and cash equivalents amounted to $46.9 million as at December 31, 2011, as compared to $32.0 million as at December 31, 2010. As at December 31,
2011, cash and cash equivalents, denominated in euro, amounted to €10.3 million.
Based on our assessment, which took into account current cash levels, as well as our strategic plan and corresponding budgets and forecasts, we believe that we
have sufficient liquidity and financial resources to fund planned expenditures and other working capital needs for at least, but not limited to, the twelve-month
period following the balance sheet date of December 31, 2011.
We may endeavour to secure additional financing, as required, through strategic alliance arrangements or through other non-dilutive activities, as well as via the
issuance of new share capital.
The variations in our liquidity by activity are explained below.
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Operating Activities
Cash used in operating activities totalled $26.2 million for the year ended December 31, 2011, as compared to $31.7 million for the year ended December 31,
2010. The decrease in cash used in operating activities is due in large part to the receipt, during the year 2011, of nearly $8.4 million in connection with our
development, commercialization and licensing agreement entered into with Yakult, as discussed above, as well as to lower trade accounts payable settlements,
partially offset by lower trade accounts receivable settlements.
We expect net cash used in operating activities to increase during 2012, as compared to 2011, as we increase our investment in perifosine and in AEZS-108, as
discussed above.
Financing Activities
Cash flows provided by financing activities increased to $38.6 million for the year ended December 31, 2011, as compared to $26.0 million for the year ended
December 31, 2010. The increase is primarily due to the receipt of higher net proceeds from offerings such as the drawdowns related to the February and June
ATM Sales Agreements, discussed above, as well as to the increase in proceeds received following the exercise of share purchase warrants.
Investing Activities
Cash flows provided by investing activities reached $2.5 million for the year ended December 31, 2011, as compared to cash flows used in investing activities of
nearly $0.05 million for the year ended December 31, 2010. The increase in cash provided by investing activities is due to the increase in cash proceeds received
on the sale of our short-term investment, partly offset by cash disbursements made in connection with the purchases of laboratory and other equipment used in
ongoing R&D activities.
Critical Accounting Policies, Estimates and Judgments
As noted above, our consolidated financial statements as at December 31, 2011 and December 31, 2010 and for the years ended December 31, 2011 and 2010
have been prepared in accordance with IFRS. Note 29 “Transition to IFRS” to our consolidated financial statements as at December 31, 2011 and December 31,
2010 and for the years ended December 31, 2011 and 2010 discusses the impact of the transition to IFRS on our reported financial position, financial performance
and cash flows, including the nature and effect of significant changes in accounting policies from those used in our previous Canadian GAAP consolidated
financial statements as at December 31, 2010 and for the year then ended. Comparative figures for 2010 have been adjusted to give effect to these changes.
These consolidated financial statements were approved by our Board of Directors for issue on March 27, 2012.
Additionally, the preparation of consolidated financial statements in accordance with IFRS often requires management to make estimates about and apply
assumptions or subjective judgment to future events and other matters that affect the reported amounts of our assets, liabilities, revenues, expenses and related
disclosures. Assumptions, estimates and judgments are based on historical experience, expectations, current trends and other factors that management believes to
be relevant at the time at which our consolidated financial statements are prepared. Management reviews, on a regular basis, the Company’s accounting policies,
assumptions, estimates and judgments in order to ensure that the consolidated financial statements are presented fairly and in accordance with IFRS.
Critical accounting estimates and judgments are those that have a significant risk of causing material adjustment and are often applied to matters or outcomes that
are inherently uncertain and subject to change. As such, management cautions that future events often vary from forecasts and expectations and that estimates
routinely require adjustment.
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A summary of those areas where we believe critical accounting policies affect the significant judgments and estimates used in the preparation of our consolidated
financial statements can be found in note 3 to our consolidated financial statements as at December 31, 2011 and December 31, 2010 and for the years ended
December 31, 2011 and 2010.
Accounting Standards Not Yet Adopted
In November 2009 and October 2010, the IASB issued IFRS 9, Financial Instruments (“IFRS 9”), which represents the completion of the first part of a three-part
project to replace IAS 39, Financial Instruments: Recognition and Measurement, with a new standard. Per the new standard, an entity choosing to measure a
liability at fair value will present the portion of the change in its fair value due to changes in the entity’s own credit risk in the other comprehensive income or loss
section of the entity’s statement of comprehensive loss, rather than within profit or loss. Additionally, IFRS 7 Amendment includes revised guidance related to the
derecognition of financial instruments. IFRS 9 applies to financial statements for annual periods beginning on or after January 1, 2015, with early adoption
permitted. We currently are evaluating any impact that this new guidance may have on our consolidated financial statements.
In May 2011, the IASB issued IFRS 10, Consolidated Financial Statements (“IFRS 10”), which builds on existing principles by identifying the concept of control
as the determining factor in whether an entity should be included within the consolidated financial statements of a parent company. IFRS 10 also provides
additional guidance to assist in the determination of control where this is difficult to assess. IFRS 10 applies to financial statements for annual periods beginning
on or after January 1, 2013, with early adoption permitted. We currently are evaluating any impact that this new guidance may have on our consolidated financial
statements.
In May 2011, the IASB issued IFRS 11, Joint Arrangements (“IFRS 11”), which enhances accounting for joint arrangements, particularly by focusing on the
rights and obligations of the arrangement, rather than the arrangement’s legal form. IFRS 11 also addresses inconsistencies in the reporting of joint arrangements
by requiring a single method to account for interests in jointly controlled entities and prohibits proportionate consolidation. IFRS 11 applies to financial
statements for annual periods beginning on or after January 1, 2013, with early adoption permitted. We currently are evaluating any impact that this new guidance
may have on our consolidated financial statements.
In May 2011, the IASB issued IFRS 12, Disclosure of Interests in Other Entities (“IFRS 12”), which is a comprehensive standard on disclosure requirements for
all forms of interests in other entities, including joint arrangements, associates, special purpose vehicles and other off-balance sheet vehicles. IFRS 12 applies to
financial statements for annual periods beginning on or after January 1, 2013, with early adoption permitted. We currently are evaluating any impact that this new
guidance may have on our consolidated financial statements.
In May 2011, the IASB issued IFRS 13, Fair Value Measurement (“IFRS 13”), which defines fair value, sets out in a single IFRS a framework for measuring fair
value and requires disclosures about fair value measurements. IFRS 13 does not determine when an asset, a liability or an entity’s own equity instrument is
measured at fair value. Rather, the measurement and disclosure requirements of IFRS 13 apply when another IFRS requires or permits the item to be measured at
fair value (with limited exceptions). IFRS 13 applies to financial statements for annual periods beginning on or after January 1, 2013, with early adoption
permitted. We currently are evaluating any impact that this new guidance may have on our consolidated financial statements.
In June 2011, the IASB amended IAS 1, Presentation of Financial Statements (“IAS 1”), to change the disclosure of items presented in other comprehensive
income into two groups, based on whether those items may be recycled to profit or loss in the future. The amendments to IAS 1 apply to financial statements for
annual periods beginning after July 1, 2012, with early adoption permitted. We currently are evaluating any impact that this new guidance may have on our
consolidated financial statements.
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In June 2011, the IASB issued an amended version of IAS 19, Employee Benefits (“IAS 19”), including the elimination of the option to defer the recognition of
actuarial gains and losses (known as the “corridor method”), the streamlining of the presentation of changes in assets and liabilities arising from defined benefit
plans and the enhancement of the disclosure requirements for defined benefit plans, including additional information about the characteristics of defined benefit
plans and the risks to which entities are exposed through participation in those plans. The amendments to IAS 19 apply to financial statements for annual periods
beginning on or after January 1, 2013, with early adoption permitted. We currently are evaluating any impact that this new guidance may have on our
consolidated financial statements.
Outlook for 2012
Perifosine
Our primary focus continues to be on the advancement of the ongoing Phase 3 registration studies in both refractory advanced colorectal cancer and multiple
myeloma. We expect the results of the ongoing Phase 3 trial of perifosine in CRC in the second quarter of 2012.
We expect to continue to invest in the preparation of marketing and pre-launch activities of perifosine in Europe.
AEZS-108
We expect to initiate a multi-center pivotal study in endometrial cancer, as well as a multi-center Phase 2 study in triple-negative breast cancer. We also expect to
pursue our Phase 1/2 studies in castration- and taxane-resistant prostate cancer with the University of Southern California, and in refractory bladder cancer with
the University of Miami.
AEZS-130
Following the completion and positive Phase 3 results for AEZS-130 as a diagnostic for AGHD in the United States, we expect, after a successful receipt of pre-
NDA meeting with the FDA, to file an NDA.
We also expect to pursue our ongoing Phase 2A study with AEZS-130 as a treatment for cancer-cachexia.
Revenue Expectations
Revenues are expected to increase in 2012, as compared to 2011, given our expectation for potential increased license fees revenues from our partners and despite
the expected stabilization of our sales and royalties, as discussed above.
Operating Expense Expectations
During 2012, we expect to continue to focus our R&D efforts on our later-stage compounds, including perifosine and AEZS-108. With our focused strategy, and
given our expectations related to R&D investments made on behalf of Keryx, we now expect our R&D expenses to total between $30 million and $32 million for
the whole of 2012, as compared to $24.5 million in 2011. However, certain perfosine-related R&D expenses will be reimbursed by our partner, Keryx.
We expect that our overall operating burn in 2012 will increase, as compared to 2011, due most notably to the receipt in 2011 of $8.4 million in connection with
our licensing agreement entered into with Yakult and our expected increase in R&D investments, as discussed above, partly offset by increased license fees from
our partners.
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Financial Risk Factors and Other Instruments
Fair Value
The change in fair value of our warrant liability results from the periodic “mark-to-market” revaluation, via the application of the Black-Scholes option pricing
model, of currently outstanding share purchase warrants. The Black-Scholes valuation is impacted, among other inputs, by the market price of our common
shares. As a result, the change in fair value of the warrant liability, which is reported as finance income (costs) in our consolidated statements of comprehensive
loss, has been and may continue in future periods to be materially affected most notably by changes in our common share price, which has ranged from $1.43 to
$2.58 on NASDAQ during the year ended December 31, 2011.
Assuming the following variations of the market price of our common shares over a 12-month period:
•
Market price variations of -10% and +10%
If these variations were to occur, the impact on our net loss for warrant liability held at December 31, 2011 would be as follows:
(in thousands)
Warrant liability*
Total impact on net loss – decrease/(increase)
* Includes current and non-current portions.
Foreign Currency Risk
Carrying
amount
$
9,204
-10%
$
1,155
1,155
+10%
$
(1,174)
(1,174)
Since we operate internationally, we are exposed to currency risks as a result of potential exchange rate fluctuations related to non-intragroup transactions. In
particular, fluctuations in the US dollar exchange rates against the euro could have a potentially significant impact on our results of operations.
The following variations are reasonably possible over a 12-month period:
•
Foreign exchange rate variations of -5% (depreciation of the EUR) and +5% (appreciation of the EUR) against the US$, from a year-end rate of EUR1 =
US$1.2972.
If these variations were to occur, the impact on the Company’s net loss for each category of financial instruments held at December 31, 2011 would be as follows:
(in thousands)
Cash and cash equivalents
Warrant liability*
Total impact on net loss – decrease/(increase)
* Includes current and non-current portions.
91
Balances denominated in US$
Carrying
amount
$
33,669
9,204
-5%
$
1,683
(460)
1,223
+5%
$
(1,683)
460
(1,223)
Table of Contents
For the year ended December 31, 2011, we were not a party to any forward-exchange contracts, and no forward-exchange contracts were outstanding as at
March 27, 2012.
Liquidity Risk
Liquidity risk is the risk that we will not be able to meet our financial obligations as they become due. As indicated in the Capital Disclosures section above, we
manage this risk through the management of our capital structure. We also manage liquidity risk by continuously monitoring actual and projected cash flows. The
Board of Directors reviews and approves our operating and capital budgets, as well as any material transactions out of the ordinary course of business. We have
adopted an investment policy in respect of the safety and preservation of our capital to ensure our liquidity needs are met. The instruments are selected with
regard to the expected timing of expenditures and prevailing interest rates.
Credit Risk
Credit risk is the risk of an unexpected loss if a customer or counterparty to a financial instrument fails to meet its contractual obligations. We regularly monitor
credit risk exposure and take steps to mitigate the likelihood of this exposure resulting in losses. Our exposure to credit risk currently relates to cash and cash
equivalents, to trade and other receivables and to restricted cash. We invest our available cash in amounts that are readily convertible to known amounts of cash
and deposit our cash balances with financial institutions that have a minimum rating of “A3”.
As at December 31, 2011, trade accounts receivable for an amount of approximately $7,415,000 were with two external customers or partners.
As at December 31, 2011, no trade accounts receivable were past due or impaired.
Generally, we do not require collateral or other security from customers for trade accounts receivable; however, credit is extended following an evaluation of
creditworthiness. In addition, we perform ongoing credit reviews of all our customers and establish an allowance for doubtful accounts when accounts are
determined to be uncollectible.
Related Party Transactions and Off-Balance Sheet Arrangements
We did not enter into transactions with any related parties during the year ended December 31, 2011.
As at December 31, 2011, we did not have any interests in variable interest entities or any other off-balance sheet arrangements.
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Item 6.
Directors, Senior Management and Employees
A.
Directors and senior management
The following table sets forth information about our directors and corporate officers as at March 27, 2012.
Name and Place of Residence
Position with Aeterna Zentaris
Aubut, Marcel
Quebec, Canada
Blake, Paul
Pennsylvania, United States
Dorais, José P.
Quebec, Canada
Engel, Juergen
Alzenau, Germany
Ernst, Juergen
Brussels, Belgium
Lapalme, Pierre
Quebec, Canada
Limoges, Gérard
Quebec, Canada
Métivier, Amélie
Quebec, Canada
Meyers, Michael
New York, United States
Pelliccione, Nicholas
New York, United States
Seeber, Matthias
Frankfurt, Germany
Shapiro, Elliot
Quebec, Canada
Turpin, Dennis
Quebec, Canada
Director
Senior Vice President and Chief Medical Officer
Director
President and Chief Executive Officer and Director
Chairman of the Board and Director
Director
Director
Assistant Secretary
Director
Senior Vice President, Regulatory Affairs and
Quality Assurance
Senior Vice President, Administration and Legal Affairs
Corporate Secretary
Senior Vice President and Chief Financial Officer
There are no family relationships among any of the directors or executive officers of the Company and its subsidiaries. The following is a brief biography of each
of our directors and senior officers.
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Table of Contents
Marcel Aubut has served as a director on our Board since 1996. Mr. Aubut is a managing partner of Heenan Blaikie Aubut LLP, a law firm. The countless
companies and boards with which Marcel Aubut has been involved over the years demonstrate his versatility and, above all, his vast experience in the world of
business. These include, among others, Atomic Energy of Canada, Olymel L.P. (Olybro), Boralex Power Income Fund, Triton Electronik, Whole Foods Market
Canada, Hydro-Québec (Executive Committee), Purolator Courier Ltd., Tremblant Resort, Cinar Inc., La Laurentienne générale, La Laurentienne vie, Investors
Group Inc., Transforce Inc., Intra Continental Insurers Ltd., the National Hockey League Pension Society, Boréal Entreprises Premier CDN Ltée, Les Industries
Amisco Ltée, Donohue Matane Inc., La Société de développement du Loisir et du Sport du Québec, the Canadian Olympic Committee, the Canadian Olympic
Foundation, member of VANOC’s Audit Committee, Governance and Ethics Committee and Observer Team, Sodic Québec Inc., Innovatech Québec, Textile
Dionne, Canada’s Sports Hall of Fame, the Committee for the 2002 Quebec City Olympic Games Bid, the Committee for the 2015 Toronto Pan American Games
Bid, la Fondation Nordiques, etc. He has also presided over the establishment of numerous industrial projects in the greater region of Quebec City.
Paul Blake was appointed our Senior Vice President and Chief Medical Officer in August 2007. Prior to joining us, Dr. Blake was Chief Medical Officer of
Avigenics, Inc. since January 2007. In 2005, he was Senior Vice President, Clinical Research and Regulatory Affairs at Cephalon, Inc. before being promoted to
Executive Vice President, Worldwide Medical & Regulatory Operations. From 1992 to 1998, he held the position of Senior Vice President and Medical Director,
Clinical Research and Development at SmithKline Beecham Pharmaceuticals (now GSK). Dr. Blake earned a medical degree from the London University, Royal
Free Hospital. He was elected Fellow of the American College of Clinical Pharmacology, Fellow of the Faculty of Pharmaceutical Medicine, Royal College of
Physicians in the UK, and he is a Fellow of the Royal College of Physicians in the UK. Dr. Blake is also a Director of Oxford BioMedica (non-executive) and
member of its remuneration committee.
José P. Dorais has served as a director on our Board since 2006. Mr. Dorais is a partner of Miller Thomson Pouliot LLP where he mainly practices administrative,
corporate, business and international trade law. Over his 35-year career, he has worked in both the private and public sectors; in the latter he acted as Secretary to
the Minister of Justice and as Secretary of the consulting committee on the Free Trade Agreement for the Quebec Provincial Government. Mr. Dorais has been a
member of numerous boards of directors, including the Société des Alcools du Québec, Biochem Pharma and St-Luc Hospital in Montreal. He is now a member
of the Board of Alliance Films Inc., Investissement Québec and Chairman of the Board of Foster Wheeler Énergie Inc. He holds a law degree from the University
of Ottawa and is a member of the Barreau du Québec.
Juergen Engel was appointed President and Chief Executive Officer, effective September 1, 2008, after having up to such time served as our Executive Vice
President and Chief Scientific Officer. He became a director on our Board in 2003. Dr. Engel has been Managing Director of AEZS Germany, the Company’s
principal operating subsidiary, since the beginning of 2001. Before that, he was in charge of all research and development activities of ASTA Medica AG. He is
member of the Advisory Board of GIG, Berlin and ElexoPharm, Saarbrücken. He served as a member of the Board of Directors of Isotechnika Pharma Inc until
February 2011.
Juergen Ernst was appointed Chairman of the Board, effective August 13, 2007, after having been Interim President and Chief Executive Officer from April 11,
2008 until August 31, 2008. He has served as a director on our Board since 2005. A seasoned executive with more than 20 years of pharmaceutical industry
expertise mainly in the field of corporate development and pharmaceutical product marketing, Mr. Ernst was worldwide General Manager, Pharmaceutical Sector
of Solvay S.A., before retiring in 2004. He has served as a director of Pharming Group N.V., Leiden, Netherlands since April 15, 2009.
Pierre Lapalme has served as a director on our Board since December 2009. Mr. Lapalme has over the course of his career held numerous senior management
positions in various global life sciences companies. He is former Senior Vice-President, Sales and Marketing for Ciba-Geigy (which subsequently became
Novartis) and former Chief Executive Officer and Chairman of the Board of Rhone-Poulenc Pharmaceuticals Inc. in Canada and in North America, as well as
Executive Vice-President and Chief Executive Officer of Rhone-Poulenc-Rorer Inc. North America (now sanofi-aventis), where he supervised the development,
manufacturing and sales of prescription products in North and Central America. Mr. Lapalme served on the Board of the National
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Pharmaceutical Council USA and was a Board member of the Pharmaceutical Manufacturers Association of Canada, where he played a leading role in
reinstituting patent protection for pharmaceuticals. Until recently, he was Board member and Chairman of the Board of Sciele Pharma Inc. which was acquired by
Shionogi and Co. Ltd. Mr. Lapalme is currently Chairman of the Board of Biomarin Inc., Chairman of the Board of Pediapharm Inc., Board member of
Algorithme Pharma Inc. and Insy’s Therapeutics Inc., a Phoenix Arizona based specialty pharma Co. He studied at the University of Western Ontario and at
INSEAD, France.
Gérard Limoges has served as a director on our Board since 2004. Mr. Limoges served as the Deputy Chairman of Ernst & Young LLP Canada until his
retirement in September 1999. After a career of 37 years with Ernst & Young, Mr. Limoges has been devoting his time as a director of a number of companies.
Mr. Limoges began his career with Ernst & Young in Montreal in 1962. After graduating from the Management Faculty of Université de Montréal
(HEC Montréal) in 1966, he wrote the CICA exams the same year (Honors: Governor General’s Gold Medal for the highest marks in Canada and Gold Medal of
the Ordre des Comptables Agréés du Québec). He became a chartered accountant in 1967 and partner of Ernst & Young in 1971. After practicing as auditor since
1962 and partner since 1971, he was appointed Managing Partner of the Montreal Office in 1979 and Chairman for Quebec in 1984 when he also joined the
National Executive Committee. In 1992, he was appointed Vice-chairman of Ernst & Young Canada and the following year, Deputy Chairman of the Canadian
firm. After retirement from public practice at the end of September 1999, he was appointed Trustee of the School board of Greater Montreal (1999), member of
the Quebec Commission on Health Care and Social Services (2000-2001) and special advisor to the Rector of the University de Montreal and affiliate schools
(2000-2003). Mr. Limoges, at the request of the Board of the University of Montreal, has participated in the selection of the Dean of the Faculty of Medicine in
2011. Mr. Limoges is a board member or trustee and chairman of the audit committees of the following public companies: Aeterna Zentaris Inc. (TSX and
NASDAQ), Atrium Innovations Inc. (TSX), Hartco Inc. (TSX) and Hart Stores Inc. (TSXV). He is also a board member of various private companies and
charities. Mr. Limoges became an FCA in 1984 and received the Order of Canada in 2002.
Amélie Métivier, Assistant Secretary. Ms. Métivier has served as our Assistant Secretary since April 2009. In addition, Ms. Métivier is currently a lawyer at the
law firm of Norton Rose Canada LLP with a business law and transaction-oriented practice, where she has worked since 2003. She is a member of the Barreau du
Québec since 2006, and holds an LL.B. (2004) degree from Université de Montréal.
Michael Meyers, M.P.H. is a co-founding member, Chief Executive Officer and Chief Investment Officer of Arcoda Capital Management LP (“Arcoda”), a
private investment fund manager. Prior to founding Arcoda in 2007, Mr. Meyers was a Partner and Portfolio Manager of two other money management firms
located in New York. Between 2000 and 2003 Mr. Meyers was a Managing Director, Partner and Director of a life sciences venture capital firm located in
New York and Zurich, Switzerland. Between 1997 and 2000, Mr. Meyers was Director, Biotechnology and Pharmaceutical Investment Banking at Merrill
Lynch & Co. Between 1993 and 1997, Mr. Meyers was Vice President, Health Care Investment Banking at Cowen & Company. Prior to Cowen & Company,
Mr. Meyers was Special Assistant to the Chief Executive Officer of St. Barnabas Hospital System. Mr. Meyers began his career as a Biotechnology and Medical
Device Research Associate at Hambrecht & Quist in New York. Mr. Meyers holds an M.P.H. in Health Policy and Management from Columbia University and an
A.B. in Biology from Brandeis University in Massachusetts. Mr. Meyers has also served on the Board of Directors of six companies at various times.
Nicholas J. Pelliccione was appointed our Senior Vice President, Regulatory Affairs and Quality Assurance in May 2007. In previous roles, Dr. Pelliccione has
been responsible for the clinical/preclinical and CMC regulatory aspects of new drugs in the oncology, anti-infectives, cytokines and cardiovascular therapy areas,
leading to several approvals. He served as Senior Vice President, Regulatory and Pharmaceutical Sciences at Chugai Pharma USA from May 2005 until
March 2007. Prior to his experience at Chugai, Dr. Pelliccione spent more than 15 years at Schering Plough Corporation holding positions with increasing
responsibility from Manager of Regulatory Affairs, Oncology to, prior to his departure, Vice President, Global Regulatory Affairs, Chemistry, Manufacturing and
Controls. Dr. Pelliccione holds a Ph.D. in Biochemistry from Mount Sinai School of Medicine, New York and a BS in Chemistry from Polytechnic University.
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Matthias Seeber was appointed our Senior Vice President, Administration and Legal Affairs in December 2008. Mr. Seeber served as Managing Director of
AEZS Germany since July 2003 up to his most recent appointment. Prior to that, he had assumed the position of Investor Relations Manager of Altana AG,
following several years in the banking industry with Deka Investment Management and Dresdner Bank AG. Mr. Seeber is a member of the Deutsche Vereinigung
für Finanzanalyse und Asset Management (DVFA/CEFA). He obtained his M.B.A. from George Mason University Graduate School of Business Administration
in the United States.
Elliot Shapiro was appointed our Corporate Secretary in April 2009. In addition, Mr. Shapiro is currently a partner and a lawyer at the law firm of Norton Rose
Canada LLP with a business law and transaction-oriented practice, where he has worked since 1999. He has been a member of the Barreau du Québec since
2000. Mr. Shapiro holds B.C.L. (1999), LL.B. (1999) and B.A. (1993) degrees from McGill University.
Dennis Turpin was appointed our Senior Vice President and Chief Financial Officer in August 2007. Prior to that, he served as our Vice President and Chief
Financial Officer since June 1999. Mr. Turpin joined Aeterna Zentaris in August 1996 as Director of Finance. Prior to that, he was Director in the tax department
at Coopers Lybrand, now PricewaterhouseCoopers, from 1988 to 1996 and worked as an auditor from 1985 to 1988. Mr. Turpin earned his Bachelor’s degree in
Accounting from Laval University in Québec. He obtained his license in accounting in 1985 and became a chartered accountant in 1987.
B.
Compensation
Our executive officers are generally paid in their home country’s currency. Unless otherwise indicated, all directors’ and executive compensation information
included in this document is presented in US dollars and, to the extent a director or officer has been paid in a currency other than US dollars (Canadian dollars or
euros), the amounts have been converted from such person’s home country currency to US dollars based on the following average exchange rates: for the
financial year ended December 31, 2011: €1.000 = US$1.3919 and CAN$1.000 = US$1.0111; for the financial year ended December 31, 2010: €1.000 =
US$1.326 and CAN$1.000 = US$0.970; and for the financial year ended December 31, 2009: €1.000 = US$1.388 and CAN$1.000 = US$0.876.
1.
Compensation of Outside Directors
The compensation paid to the Company’s directors is designed to (i) attract and retain the most qualified people to serve on the Board and its committees,
(ii) align the interests of the Company’s directors with those of its shareholders, and (iii) provide appropriate compensation for the risks and responsibilities
related to being an effective director. This compensation is recommended to the Board by the Corporate Governance, Nominating and Human Resources
Committee (the “Governance Committee”). The Governance Committee is composed of three (3) directors, each of whom is independent, namely Messrs. José P.
Dorais (Chair), Juergen Ernst and Gérard Limoges. One of the members of the Governance Committee, Juergen Ernst, is Chairman of the Board.
The Board has adopted a formal mandate for the Governance Committee, which is available on our website at www.aezsinc.com. The mandate of the Governance
Committee provides that it is responsible for (i) assisting the Board in developing our approach to corporate governance issues, (ii) proposing new Board
nominees, (iii) assessing the effectiveness of the Board and its committees, their respective chairs and individual directors and (iv) making recommendations to
the Board with respect to directors’ compensation.
We did not employ the services of any external compensation consultant in or with respect to the financial year ended December 31, 2011.
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Annual Retainers and Attendance Fees
Annual retainers and attendance fees are paid on a quarterly basis to the members of the Board who are not employees of the Company or its subsidiaries
(“Outside Directors”) as described in the table below.
Type of Compensation
(1)
Chairman’s Retainer
Vice Chairman’s Retainer
Board Retainer
Board Meeting Attendance Fees
Audit Committee Chair Retainer
Audit Committee Member Retainer
Audit Committee Meeting Attendance Fees
Governance Committee Chair Retainer
Governance Committee Member Retainer
Governance Committee Meeting Attendance Fees
(1)
There is currently no Vice Chairman of the Board.
Annual compensation for the year 2011
(in units of home country currency)
45,000
15,000
15,000
1,000 per meeting
15,000
4,000
1,000
12,000
2,000
1,000
All amounts in the above table are paid to Board and committee members in their home country currency.
The President and Chief Executive Officer is the only member of the Board who is not an Outside Director. Therefore, he is not compensated in his capacity as a
director. The Chairman is an Outside Director and is compensated as such. Outside Directors are reimbursed for travel and other out-of-pocket expenses incurred
in attending Board or committee meetings.
Outstanding Option-Based Awards and Share-Based Awards
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The following table shows all awards outstanding to each Outside Director up to the end of the financial year ending and as at December 31, 2011:
Option-based Awards
Share-based Awards
Aubut, Marcel
Name
Dorais, José P.
Ernst, Juergen
Lapalme, Pierre
Limoges, Gérard
Meyers, Michael
Number of
Securities
Underlying
Unexercised
(1)
Options
(#)
15,000
30,000
15,000
15,000
5,000
25,000
15,000
20,000
30,000
50,000
30,000
50,000
15,000
15,000
5,000
25,000
100,000
15,000
20,000
30,000
50,000
20,000
30,000
50,000
15,000
15,000
5,000
25,000
15,000
20,000
30,000
50,000
20,000
40,000
Option
Exercise
Price
(CAN$ or
US$)
CAN$3.68
CAN$1.74
CAN$5.83
CAN$3.53
CAN$4.65
CAN$1.82
CAN$0.55
CAN$0.95
CAN$1.52
US$1.74
CAN$1.52
US$1.74
CAN$5.09
CAN$3.53
CAN$4.65
CAN$1.82
CAN$0.65
CAN$0.55
CAN$0.95
CAN$1.52
US$1.74
CAN$0.95
CAN$1.52
US$1.74
CAN$5.83
CAN$3.53
CAN$4.65
CAN$1.82
CAN$0.55
CAN$0.95
CAN$1.52
US$1.74
US$2.36
US$1.74
Value of
Unexercised
In-the-money
Options
(2)
(CAN$ or
US$)
—
—
—
—
—
—
CAN$15,150
CAN$12,200
CAN$1,200
—
CAN$1,200
—
—
—
—
—
CAN$91,000
CAN$15,150
CAN$12,200
CAN$1,200
—
CAN$12,200
CAN$1,200
—
—
—
—
—
CAN$15,150
CAN$12,200
CAN$1,200
—
—
—
Option
Expiration
Date
(mm-dd-
yyyy)
12-15-2012
12-10-2013
12-13-2014
12-12-2015
01-03-2017
12-10-2017
12-08-2018
12-08-2019
12-07-2020
12-06-2021
12-07-2020
12-06-2021
02-24-2015
12-12-2015
01-03-2017
12-10-2017
11-13-2018
12-08-2018
12-08-2019
12-07-2020
12-06-2021
12-08-2019
12-07-2020
12-06-2021
12-13-2014
12-12-2015
01-03-2017
12-10-2017
12-08-2018
12-08-2019
12-07-2020
12-06-2021
05-26-2021
12-06-2021
Number of
Shares or
Units of
Shares
that have Not
Vested
(#)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Issuance
Date
(mm-dd-
yyyy)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Issuance
Date
(mm-dd-
yyyy)
12-16-2002
12-11-2003
12-14-2004
12-13-2005
01-04-2007
12-11-2007
12-08-2008
12-09-2009
12-08-2010
12-07-2011
12-08-2010
12-07-2011
02-25-2005
12-13-2005
01-04-2007
12-11-2007
11-14-2008
12-08-2008
12-09-2009
12-08-2010
12-07-2011
12-09-2009
12-08-2010
12-07-2011
12-14-2004
12-13-2005
01-04-2007
12-11-2007
12-08-2008
12-09-2009
12-08-2010
12-07-2011
05-27-2011
12-07-2011
Market or Payout
Value of Share-
based
Awards that have
Not Vested
($)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(1)
(2)
The number of securities underlying unexercised options represent all awards outstanding as at December 31, 2011.
“Value of unexercised in-the-money options” at financial year-end is calculated based on the difference between the closing prices of the common shares on the TSX or NASDAQ, as applicable, on the last
trading day of the fiscal year (December 30, 2011) of CAN$1.56 and US$1.54, respectively, and the exercise price of the options, multiplied by the number of unexercised options.
See “Summary of the Stock Option Plan” below for more details on the Stock Option Plan (as defined below).
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Total Compensation of Outside Directors
The table below summarizes the total compensation earned by the Outside Directors during the financial year ended December 31, 2011 (all amounts are in
US dollars):
Name
Retainer
(1)
Attendance
(1)
Fees earned
($)
Share-
based
Awards
Option-
based
Awards
(2)
Non-Equity
Incentive Plan
Compensation
Pension
Value
All Other
Compensation
(3)
Total
(4)
Aubut, Marcel
Dorais, José P.
Ernst, Juergen
Lapalme, Pierre
Limoges, Gérard
MacDonald, Pierre
Meyers, Michael
(7)
(5)
(6)
15,166
27,298
86,299
19,210
32,354
11,883
13,250
4,044
8,088
9,743
9,099
11,122
3,033
4,500
($)
($)
— 63,000
— 63,000
— 63,000
— 63,000
— 63,000
— —
— 85,800
($)
—
—
—
—
—
—
—
($)
—
—
—
—
—
—
—
($)
—
506
5,568
—
—
506
500
($)
82,210
98,892
164,610
91,309
106,476
15,422
104,050
(1)
(2)
These amounts represent the portion paid in cash to the Outside Directors and are paid in each director’s home country currency.
The value of option-based awards represents the closing price of the common shares on NASDAQ at the date of grant (US$1.74 for options granted on December 7, 2011 and US$2.36 for options granted
to Michael Meyers on May 27, 2011) multiplied by the Black-Scholes factor as at such date (72.41% for options granted on December 7, 2011 and 75.00% for options granted to Michael Meyers on
May 27, 2011) and the number of stock options granted on such date.
These amounts represent fees paid in cash for special tasks or overseas travelling and are also paid in each director’s home country currency.
(3)
(4)
José P. Dorais was appointed Chairman of the Governance Committee on May 18, 2011.
(5) Gérard Limoges has been a member of the Governance Committee since May 18, 2011.
(6)
Pierre MacDonald was a director of the Company from 2001 to May 18, 2011. He did not stand for re-election as director at the annual and special meeting of shareholders held on May 18, 2011 and
therefore ceased to be a director as of such date.
(7) Michael Meyers was appointed director on March 22, 2011 and has been a member of the Audit Committee since May 18, 2011.
During the financial year ended December 31, 2011, the Company paid an aggregate amount of $262,169 to all of its Outside Directors for services rendered in
their capacity as directors, excluding reimbursement of out-of-pocket expenses and the value of option-based awards granted in 2011.
2.
Compensation of Executive Officers
The mandate of the Governance Committee provides that it is responsible for taking all reasonable measures to ensure that appropriate human resources systems
and procedures, such as hiring policies, competency profiles, training policies and compensation structures are in place so that we can attract, motivate and retain
the quality of senior management required to meet our business objectives.
The Governance Committee also assists the Board in discharging its responsibilities relating to executive and other human resources hiring, assessment,
compensation and succession planning matters.
Thus, the Governance Committee recommends the appointment of senior officers, including the terms and conditions of their appointment and termination, and
reviews the evaluation of the performance of such senior officers, including recommending their compensation and overseeing risk identification and
management in relation to executive compensation policies and practices. The Board, which includes the members of the Governance Committee, reviews the
corporate goals and objectives that are set annually and evaluates the Chief Executive Officer’s performance and compensation in light of such goals
and objectives.
The Governance Committee recognizes that the industry and competitive environment in which the Company operates requires a balanced level of risk-taking to
promote and achieve the performance expectations required to provide its shareholders with a fair return. However, the executive compensation program should
not encourage senior executives in taking excessive risk. In this regard, the Governance Committee recommends the implementation of compensation methods
that tie a portion of senior executive compensation to each of the short-term and longer-term performance of the Company and each executive officer and that
take into account the advantages and risks associated with such compensation methods. The Governance Committee is also responsible for creating compensation
policies that are intended to reward the creation of shareholder value while reflecting a balance between the short-term and longer-term performance of the
Company and of each executive officer.
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Compensation Discussion & Analysis
Compensation Philosophy and Objectives
The Company’s executive compensation program is designed to attract, motivate and retain high performing senior executives, encourage and reward superior
performance and align the executives’ interests with those of our shareholders by:
— providing the opportunity for an executive to earn compensation that is competitive with the compensation received by executives employed by a group of
comparable North American companies;
— providing executives with an equity-based incentive plan, namely a stock option plan;
— aligning employee compensation with company corporate objectives; and
— attracting and retaining highly qualified individuals in key positions.
Risk Assessment of Executive Compensation Program
The Board, through the Governance Committee, oversees the implementation of compensation methods that tie a portion of executive compensation to each of
the short-term and longer-term performance of the Company and of each executive officer and that take into account the advantages and risks associated with
such compensation methods. In addition, the Board oversees the creation of compensation policies that are intended to reward the creation of shareholder value
while reflecting a balance between the short-term and longer-term performance of the Company and of each executive officer.
The Governance Committee has considered in general terms the concept of risk as it relates to the Company’s executive compensation program.
Base salaries are fixed in amount to provide a steady income to the executive officers regardless of share price and thus do not encourage or reward risk-taking to
the detriment of other important business metrics. The variable compensation elements (annual bonuses and stock options) are designed to reward both short and
long-term performance. For short-term performance, an annual bonus is awarded based on the level of attainment of specific operational and corporate goals that
the Governance Committee believes to be challenging, yet does not encourage unnecessary or excessive risk-taking (for 2011, such operational and corporate
goals are listed in the table below). While the Company’s bonus payments are generally based on annual results, their value is generally capped and represents
only a portion of each individual’s overall total compensation opportunities. Finally, a significant portion of the compensation provided to the Company’s
executive officers is in the form of equity awards under the long-term incentive compensation plan that further align executives’ interests with those of
shareholders. The Governance Committee believes that these awards do not encourage unnecessary or excessive risk-taking since the ultimate value of the awards
is tied to the Company’s share price, and since grants under the long-term incentive compensation plan are subject to long-term vesting schedules to help ensure
that executives generally have significant value tied to long-term share price performance.
The Governance Committee believes that the variable compensation elements (annual bonuses and stock options) represent a percentage of overall compensation
that is sufficient to motivate the Company’s executive officers to produce superior short-term and long-term corporate results, while the fixed compensation
element (base salary) is also sufficient to discourage executive officers from taking unnecessary or excessive risks. The Governance Committee and the Board
also generally have the discretion to adjust annual bonuses and stock option grants based on individual performance and any other factors it may determine to be
appropriate in the circumstances.
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Such factors may include, where necessary or appropriate, the level of risk-taking a particular executive officer may have engaged in during the preceding year.
Based on the foregoing, the Governance Committee has not identified any risks associated with the Company’s executive compensation program that are
reasonably likely to have a material adverse effect on the Company. The Governance Committee believes that the Company’s executive compensation program
does not encourage or reward any unnecessary or excessive risk-taking behaviour.
The Board, based on the Governance Committee’s recommendation, set goals for the Company at the end of 2010, which constitute the performance objectives
for the Chief Executive Officer and the Company’s other executive officers. The performance objectives are not established for individual executive officers but
rather by function(s) exercised within the Company, for many of which the Named Executive Officers are responsible.
In December 2011, the Governance Committee determined that the Company’s executive officers met or exceeded each of the objectives set forth in the table
below as follows:
Objectives for 2011
Clinical
Advancement of product pipeline
• Perifosine
• AEZS-130
• AEZS-108
Regulatory
Optimize regulatory strategy with lead authorities
Business Development/Alliance Management:
Expand partner portfolio for Perifosine in non-core territories
Ensure steady supply of Cetrotide to Merck Serono
®
Manage alliances with existing drug development and commercialization
partners actively
Financial
Pursue dilutive and non-dilutive financing alternatives to ensure year-end
2011 cash and cash equivalents in excess of $30 million
Results for 2011
• Completed recruitment of metastatic colorectal Phase 3 study (468
patients)
• Supported Phase 3 study in MM by opening several centres outside
North America
• Reported positive Phase 3 data as diagnostic in AGHD
• Reported positive final Phase 2 data in endometrial cancer
• Initiated Phase 1/2 study in refractory bladder cancer in the United States
• Obtained parallel scientific advice for a pivotal study for AEZS-108 in
endometrial cancer by both the Food and Drug Administration (FDA)
and the EMA
• Signed license agreements with Yakult (for Japan) and Hikma (for
MENA region)
• Exceeded pre-defined threshold of Cetrotide sales triggering further
milestone payment by Cowen Healthcare Royalty Partners, L. P.
®
• Continued to maintain excellent relations with alliance partners
• Completed two successful At-the-Market Financings (ATMs) generating
proceeds in excess of $36 million
• Closed further licensing agreements generating significant upfront
payments
• Cash and cash equivalents as of December 31, 2011 totalled $46.9
million
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Investor Relations
Expand North American research analyst coverage
• Initiation of coverage by several North American institutions including,
among others, Oppenheimer & Co Inc., JMP Securities and Needham &
Company LLC.
Continue to present at strategic healthcare conferences
• Presented at several strategic healthcare and partnership conferences and
continued to build the Company’s investor base
Human Resources
Maintain high level of motivation at all levels (and sites) of the Company
• Executed effective HR policy comprising both monetary (compensation)
and non-monetary (training, etc.) components to ensure both short- and
long-term commitment of personnel while generally aligning employee’s
and shareholders’ interests
• Maintained HR-attrition policy while progressing development pipeline
(active headcount virtually unchanged as compared to the prior year)
The determination of individual performance does not involve quantitative measures using a mathematical calculation in which each individual performance
objective is given a numerical weight. Instead, the Governance Committee’s determination of individual performance is a subjective determination as to whether
a particular executive officer substantially achieved the stated objectives or over-performed or under-performed with respect to corporate objectives that were
deemed to be important to the Company’s success.
While the Company has not formally adopted a policy prohibiting or restricting its executive officers and directors from purchasing financial instruments,
including, for greater certainty, pre-paid variable forward contracts, equity swaps, collars, or units of exchange funds, which are designed to hedge or offset a
decrease in market value of equity securities granted as executive compensation or directors’ remuneration, the Company’s executive officers and directors have
not historically engaged in such financial instruments or transactions. In addition, the Company’s disclosure and trading policy requires that all “reporting
insiders”, including executive officers and directors, pre-clear with the Company’s Corporate Secretary each trade relating to the Company’s securities, which
would include the entering into of any such financial instrument or transaction, hedge, swap or forward contract.
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Benchmarking
In order to attain our objectives of providing market competitive compensation opportunities, our executive compensation plan, based on a study provided by
AON Consulting (and updated annually), is benchmarked against market compensation data gathered from organizations of comparable size and/or stage of
development of other companies that the Company competes for executive talent (the “Reference Group”). We did not, however, pay AON Consulting any fee or
other remuneration in 2011. An overview of the characteristics of the Reference Group is provided in the following table:
(In millions of US$)
Location
Industries
Revenues
Last fiscal year
Market Capitalization
As at October 31, 2011
Net Loss
Last fiscal year
Aeterna Zentaris
North America and Europe
Biopharmaceutical
Survey Reference Group
North America
Biopharmaceutical
27.70
(1)
175.07
23.22
(1)
57.02
(2)
290.34
19.82
(2)
(1)
(2)
For the year ended December 31, 2010, as presented in our 2010 audited consolidated financial statements, which were presented in conformity with Canadian GAAP.
The Reference Group for the financial year ended December 31, 2011 was selected in October 2011 and these data are based on their most recently completed fiscal year at such time.
The Reference Group used in respect of the financial year ended December 31, 2011 was composed of the following companies: Acadia Pharmaceuticals Inc.;
Acorda Therapeutics Inc.; Array Biopharma Inc.; BioSanté Pharmaceuticals, Inc.; Cell Therapeutics Inc.; Enzon Pharmaceuticals Inc.; Genomic Health Inc.; Ista
Pharmaceuticals Inc.; Ligand Pharmaceuticals Inc.; Neurocrine Biosciences Inc.; Nps Pharmaceuticals Inc.; OncoGenex Pharmaceuticals Inc.; Onyx
Pharmaceuticals, Inc.; Salix Pharmaceuticals Ltd; Savient Pharmaceuticals Inc.; and Xoma Ltd.
Positioning
The Company’s compensation policy is for executive compensation to be generally aligned with the 50 percentile of the Reference Group. The Governance
Committee uses discretion and judgment when determining compensation levels as they apply to a specific executive officer. Individual compensation may be
positioned above or below median, based on individual experience and performance or other criteria deemed important by the Governance Committee. The total
cash target payment for the Company’s executive officers generally falls within the 50 percentile competitive range of the Reference Group.
th
th
Compensation Elements
An executive compensation policy has been established to acknowledge and reward the contributions of the executive officers to our success and to ensure
competitive compensation, in order that we may benefit from the expertise required to pursue our objectives.
Our executive compensation policy is comprised of both fixed and variable components. The variable components include equity and non-equity incentive plans.
Each compensation component is intended to serve a different function, but all elements are intended to work in concert to maximize both company and
individual performance by establishing specific, competitive operational and corporate goals and by providing financial incentives to employees based on their
level of attainment of these goals.
Our current executive compensation program is comprised of the following four basic components:
(i)
base salary;
(ii)
non-equity incentives – consisting of a cash bonus linked to both individual and corporate performance;
(iii)
long-term compensation – consisting of our stock option plan established for the benefit of our directors, executive officers and employees (the “Stock
Option Plan”); and
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(iv)
other elements of compensation – consisting of benefits, perquisites and retirement benefits.
Base Salary
Salaries of our executive officers are established based on a comparison with competitive benchmark positions. The starting point to determine executive base
salaries is the median of executive salaries in the Reference Group.
In determining individual base salaries, the Governance Committee takes into consideration individual circumstances that may include the scope of an executive’s
position, the executive’s relevant competencies or experience and retention risk. The Governance Committee also takes into consideration the fulfillment of our
corporate objectives as well as the individual performance of the executive.
Short-Term Non-Equity Incentive Compensation
The short-term non-equity incentive compensation plan sets out the allocation of incentive awards based on the financial results and the advancement of the
Company’s product pipeline and strategic objectives.
In the case of executive officers, a program is designed to maximize both corporate and individual performance by establishing specific operational, clinical,
regulatory, financial and corporate goals and to provide financial incentives to executive officers based on their level of attainment of these goals. The granting of
incentives requires the approval of both the Governance Committee and the Board and is based upon an assessment of each individual’s performance, as well as
the performance of the Company. The underlying objectives are set at the end of each financial year as part of the annual review of corporate strategies.
For the financial year ended December 31, 2011, the Governance Committee recommended, and the Board approved, in the best interests of the Company, that, to
the extent earned, a maximum of 70% of an executive officers’ maximum bonus be paid in cash in respect of the year 2011 (paid in early 2012), while the
remainder of any earned bonus be payable in the form of stock options (as had been done in 2010 as to 50% of any earned bonus and in 2009 as to 100% of any
earned bonus), whereby US$1.00 generally equals one stock option, as adjusted based on each senior executive’s individual performance, such that, on a dollar-
for-dollar basis, the US$ amount of the non-cash bonus was determined to be paid in the form of stock options to vest in equal one-third tranches at six-month
intervals, with the first one-third to vest on the six-month anniversary of the date of grant, in order to allow these grants to serve their purpose as partial
replacement for annual cash bonuses. For the Company’s European executives, the number of options was “grossed-up” by a multiple of 1.35 to reflect the then
prevailing US$ to € exchange rate. See “Summary of the Stock Option Plan” below for more details on the Stock Option Plan.
In making decisions related to the short-term non-equity incentive compensation for the Named Executive Officers, other than the President and Chief Executive
Officer, the Governance Committee concluded as follows, based on the goals and results for 2011, as described in Section “Risk Assessment of Executive
Compensation Program”.
Mr. Turpin’s 2011 goals were aligned with the Company’s overall objectives, with an emphasis on supporting attainment of the financial objectives. Based upon
results achieved, the Governance Committee determined that Mr. Turpin’s individual performance exceeded expectations as follows: completed two successful
At-the-Market Financings (ATMs) generating proceeds in excess of $36 million as a consequence of which the Company completed 2011 with cash and cash
equivalents exceeding significantly the budget amount, and contributed significantly to the achievement of the Company ‘s various goals set in the area of
Investor Relations. The Compensation Committee determined that Mr. Turpin’s contributions to the achievement of the Company’s goals merited a cash bonus in
an amount of $80,509 and an equity-based bonus in an amount of $34,125 paid through the granting of 34,125 stock options based on 2011 performance.
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Mr. Seeber’s 2011 goals were aligned with the Company’s overall objectives, with an emphasis on the achievement of the Company’s strategic milestones. Based
upon results achieved, the Governance Committee determined that Mr. Seeber’s individual performance contributed significantly to the achievement of the
Company’s various strategic milestones, including in respect of the various goals set in the areas of Business Development/Alliance Management and Human
Resources. The Governance Committee determined that Mr. Seeber’s contributions to the achievement of the Company’s goals merited a cash bonus in an amount
of $82,818 and an equity-based bonus in an amount of $34,425 paid through the granting of 34,425 stock options based on 2011 performance.
Dr. Blake’s 2011 goals were aligned with the Company’s overall objectives, with an emphasis on overseeing and supporting the attainment of the Company’s
clinical and regulatory objectives. Based upon results achieved, the Governance Committee determined that Mr. Blake’s individual performance exceeded
expectations, particularly in respect of the advancement of the product pipeline and the optimization of the Company’s regulatory strategy with lead authorities.
The Governance Committee determined that Mr. Blake’s contributions to the achievement of the Company’s goals merited a cash bonus in an amount of $89,670
and an equity-based bonus in an amount of $38,430 paid through the granting of 38,430 stock options based on 2011 performance.
Mr. Pellicione’s 2011 goals were aligned with the Company’s overall objectives, with an emphasis on overseeing and supporting the attainment of the Company’s
clinical and regulatory objectives. Based upon results achieved, the Governance Committee determined that Mr. Pellicione’s individual performance exceeded
expectations, particularly in respect of the advancement of the product pipeline and the optimization of the Company’s regulatory strategy with lead authorities.
The Governance Committee determined that Mr. Pellicione’s contributions to the achievement of the Company’s goals merited a cash bonus in an amount of
$77,739 and an equity-based bonus in an amount of $33,316 paid through the granting of 33,316 stock options based on 2011 performance.
For the financial year ended December 31, 2011, cash bonuses paid to all of our executive officers under our short-term non-equity incentive compensation plan
represented 70% of the target payout established by the Governance Committee under such plan. Similarly, stock options granted to our executive officers under
the same short-term non-equity incentive compensation plan, in partial replacement of the remainder of any earned cash bonuses, represented 30% of the target
payout previously established by the Governance Committee.
Long-Term Equity Compensation Plan of Executive Officers
The long-term component of the compensation of the Company’s executive officers is based exclusively on the Stock Option Plan, which permits the award of a
number of options based on the contribution of the officers and their responsibilities. To encourage retention and focus management on developing and
successfully implementing the continuing growth strategy of the Company, stock options generally vest over a period of three years, with the first one-third to
vest on the one-year anniversary of the date of grant; however, as mentioned in the section above, the vesting schedule for certain of the options granted to senior
executives in the financial years ended December 2011, 2010 and 2009 was accelerated from three years to 18 months since the grants were intended to serve as a
partial replacement for a certain portion of earned cash bonuses. Stock options are usually granted to executive officers in December of each year.
For the financial year ended December 31, 2011, the Governance Committee recommended, and the Board approved, in the best interests of the Company, that
stock options be granted to executive officers under the long-term equity compensation plan, such stock options to vest according to the vesting schedule set forth
in the Company’s Stock Option Plan. The Governance Committee considered the performance of the Company and each executive in determining the appropriate
level of equity incentive opportunity granted to each executive officer under the long-term equity compensation program in 2011. The Company and the
Governance Committee believe that an equitable granting of stock options to senior executives is an important element of the Company’s overall compensation
philosophy with a view to ensuring that senior management works to ensure the long-term success and viability of the Company’s business, particularly in light of
the length of time required for a biopharmaceutical company such as Aeterna Zentaris to advance its product pipeline from pre-clinical to clinical through the
commercialization stages of development.
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Based on the foregoing, the Governance Committee approved stock option awards as part of the long-term incentive compensation plan to each NEO on
December 7, 2011 as follows:
Named Executive Officer
Engel, Juergen
Turpin, Dennis
Seeber, Matthias
Blake, Paul
Pelliccione, Nicholas J.
Summary of the Stock Option Plan
Stock Options
Number granted
200,000
70,000
70,000
70,000
70,000
Exercise price
US$1.74
US$1.74
US$1.74
US$1.74
US$1.74
We established the Stock Option Plan in order to attract and retain directors, executive officers and employees, who will be motivated to work towards ensuring
the success of the Company. The Board has full and complete authority to interpret the Stock Option Plan, to establish applicable rules and regulations and to
make all other determinations it deems necessary or useful for the administration of the Stock Option Plan, provided that such interpretations, rules, regulations
and determinations are consistent with the rules of all stock exchanges and quotation systems on which our securities are then traded and with all relevant
securities legislation.
Individuals eligible to participate under the Stock Option Plan are determined from time to time by either the Board or the Governance Committee.
Options granted under the Stock Option Plan may be exercised at any time within a maximum period of ten years following the date of their grant (the “Outside
Expiry Date”). The Board or the Governance Committee, as the case may be, designates, at its discretion, the individuals to whom stock options are granted under
the Stock Option Plan and determines the number of common shares covered by each of such option grants, the grant date, the exercise price of each option, the
expiry date, the vesting schedule and any other matter relating thereto, in each case in accordance with the applicable rules and regulations of the regulatory
authorities. The price at which the common shares may be purchased may not be lower than the greater of the closing prices of the common shares on the TSX or
NASDAQ, as applicable, on the last trading day preceding the date of grant of the option. Options granted under the Stock Option Plan generally vest in equal
tranches over a three-year period (one-third each year, starting on the first anniversary of the grant date) or as otherwise determined by the Board or the
Governance Committee, as the case may be, although, as described above, under section “Short-Term Non-Equity Incentive Compensation”, a certain number of
stock options granted to executive officers since 2009 have an accelerated vesting schedule of 18 months.
Unless the Board or the Governance Committee decides otherwise, option holders cease to be entitled to exercise their options under the Stock Option Plan:
(i) immediately, in the event an option holder who is an officer or employee resigns or voluntarily leaves his or her employment with the Company or one of its
subsidiaries or the employment with the Company or one of its subsidiaries is terminated with cause and, in the case of an optionee who is a non-employee
director of the Company or one of its subsidiaries, the date on which such optionee ceases to be a member of the relevant board of directors; (ii) six months
following the date on which employment is terminated as a result of the death of an option holder who is an officer or employee and, in the case of an optionee
who is a non-employee director of the Company or one of its subsidiaries, six months following the date on which such optionee ceases to be a member of the
relevant board of directors by reason of death; (iii) 30 days following the date on which an option holder’s employment with the Company or any of its
subsidiaries is terminated for a reason other than those mentioned in (i) or (ii) above including, without limitation, upon the disability, long-term illness,
retirement or early retirement of the option holder; and (iv) where the option holder is a service supplier, 30 days following the date on which such option holder
ceases to act as such, for any cause or reason (each, an “Early Expiry Date”).
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The Stock Option Plan also provides that, if the expiry date of an option(s) (whether an Early Expiry Date or an Outside Expiry Date) occurs during a “blackout
period” or within the seven business days immediately after a blackout period imposed by the Company, the expiry date will be automatically extended to the date
that is seven business days after the last day of the blackout period. For the purposes of the foregoing, “blackout period” means the period during which trading in
the Company’s securities is restricted in accordance with its corporate policies.
Option holders may not assign their options (nor any interest therein) other than by will or in accordance with the applicable laws of estates and succession.
In the event that, at any time, an offer to purchase is made to holders of all our common shares, notice of such offer shall be given by the Company to each
optionee and all unexercised options will become exercisable immediately at their respective exercise prices, but only to the extent necessary to enable optionees
to tender their common shares in response to such offer.
The Stock Option Plan currently provides that the following amendments may be made to the plan upon approval of each of the Board and our shareholders as
well as receipt of all required regulatory approvals:
— any amendment to Section 3.2 of the Stock Option Plan (which sets forth the limit on the number of options that may be granted to insiders) that would have
the effect of permitting, without having to obtain shareholder approval on a “disinterested vote” at a duly convened shareholders’ meeting, the grant of any
option(s) under the Stock Option Plan otherwise prohibited by Section 3.2;
— any amendment to the number of securities issuable under the Stock Option Plan (except for certain permitted adjustments, such as in the case of stock splits,
consolidations or reclassifications);
— any amendment which would permit any option granted under the Stock Option Plan to be transferable or assignable other than by will or in accordance with
the applicable laws of estates and succession;
— the addition of a cashless exercise feature, payable in cash or securities, which does not provide for a full deduction of the number of underlying securities
from the Stock Option Plan reserve;
— the addition of a deferred or restricted share unit component or any other provision which results in employees receiving securities while no cash consideration
is received by the Company;
— with respect to any option holder whether or not such option holder is an “insider” and except in respect of certain permitted adjustments, such as in the case of
stock splits, consolidations or reclassifications:
-
-
any reduction in the exercise price of any option after the option has been granted, or
any cancellation of an option and the re-grant of that option under different terms;
— any extension to the term of an option beyond its Outside Expiry Date to an option holder who is an “insider” (except for extensions made in the context of a
“blackout period”);
— any amendment to the method of determining the exercise price of an option granted pursuant to the Stock Option Plan;
— the addition of any form of financial assistance or any amendment to a financial assistance provision which is more favourable to employees; and
— any amendment to the foregoing amending provisions requiring Board, shareholder and regulatory approvals.
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The Stock Option Plan further currently provides that the following amendments may be made to the Stock Option Plan upon approval of the Board and upon
receipt of all required regulatory approvals, but without shareholder approval:
— amendments of a “housekeeping” or clerical nature or to clarify the provisions of the Stock Option Plan;
— amendments regarding any vesting period of an option;
— amendments regarding the extension of an option beyond an Early Expiry Date in respect of any option holder, or the extension of an option beyond the
Outside Expiry Date in respect of any option holder who is a “non-insider” of the Company;
— adjustments to the number of issuable common shares underlying, or the exercise price of, outstanding options resulting from a split or a consolidation of the
common shares, a reclassification, the payment of a stock dividend, the payment of a special cash or non-cash distribution to our shareholders on a pro rata
basis provided such distribution is approved by our shareholders in accordance with applicable law, a recapitalization, a reorganization or any other event
which necessitates an equitable adjustment to the outstanding options in proportion with corresponding adjustments made to all outstanding common shares;
— discontinuing or terminating the Stock Option Plan; and
— any other amendment which does not require shareholder approval under the terms of the Stock Option Plan.
The maximum number of common shares issuable under the Stock Option Plan is fixed at 11.4% of the issued and outstanding common shares at any given time,
which, as at March 27, 2012, represented 12,401,760 common shares. There are currently 7,497,634 options outstanding under the Stock Option Plan
representing approximately 6.9% of all issued and outstanding common shares. Under the Stock Option Plan, (i) the number of securities issued to insiders, at any
time, or issuable within any one-year period, under all of the Company’s security-based compensation arrangements, cannot exceed 10% of the Company’s issued
and outstanding securities and (ii) no single option holder may hold options to purchase, from time to time, more than 5% of the Company’s issued and
outstanding common shares.
Outstanding Option-Based Awards and Share-Based Awards
The following table shows all awards outstanding to each of our Company’s President and Chief Executive Officer, the Chief Financial Officer and our three
(3) other most highly compensated executive officers of the Company during the most recently completed financial year (collectively, the “Named Executive
Officers”) as at December 31, 2011:
Name
Engel, Juergen
Issuance Date
(mm-dd-yyyy)
02-20-2003
12-11-2003
12-14-2004
12-13-2005
01-04-2007
12-11-2007
11-14-2008
12-08-2008
Option-based Awards
Option
Exercise
Price
Option
Expiration
Date
(mm-dd-yyyy)
Number of
Securities
Underlying
Unexercised
Options
(1)
Value of
Unexercised
In-the-money
Options
(2)
Issuance
Date
Share-based Awards
Number of
Shares or
Units of
shares that
have Not
Vested
Market or
Payout
Value of
Share-based
Awards that
have Not
Vested
(#)
(CAN$ or
US$)
60,000 CAN$2.43
60,000 CAN$1.74
100,000 CAN$5.83
50,000 CAN$3.53
50,000 CAN$4.65
50,000 CAN$1.82
200,000 CAN$0.65
75,000 CAN$0.55
108
12-31-2012
12-10-2013
12-13-2014
12-12-2015
01-03-2017
12-10-2017
11-13-2018
12-08-2018
(CAN$ or
US$)
—
—
—
—
—
—
CAN$182,000
CAN$75,750
—
—
—
—
—
—
—
—
(#)
—
—
—
—
—
—
—
—
($)
—
—
—
—
—
—
—
—
Table of Contents
Turpin, Dennis
Blake, Paul
Seeber, Matthias
Pelliccione, Nicholas J.
Issuance Date
(mm-dd-yyyy)
Name
Option-based Awards
Option
Exercise
Price
Option
Expiration
Date
(mm-dd-yyyy)
Number of
Securities
Underlying
Unexercised
Options
(1)
Value of
Unexercised
In-the-money
Options
(2)
Issuance
Date
Share-based Awards
Number of
Shares or
Units of
shares that
have Not
Vested
Market or
Payout
Value of
Share-based
Awards that
have Not
Vested
12-09-2009
12-08-2010
12-07-2011
11-01-2002
12-16-2002
12-11-2003
12-14-2004
12-13-2005
01-04-2007
12-11-2007
12-09-2009
12-08-2010
12-07-2011
07-27-2007
12-11-2007
12-08-2008
12-09-2009
12-08-2010
12-07-2011
02-20-2003
12-11-2003
12-14-2004
12-13-2005
01-04-2007
12-11-2007
12-08-2008
12-09-2009
12-08-2010
12-07-2011
05-07-2007
12-11-2007
12-08-2008
12-09-2009
12-08-2010
12-07-2011
(CAN$ or
US$)
(#)
165,000 CAN$0.95
222,750 CAN$1.52
267,000
US$1.74
90,000 CAN$0.94
50,000 CAN$3.68
60,000 CAN$1.74
90,000 CAN$5.83
50,000 CAN$3.53
50,000 CAN$4.65
50,000 CAN$1.82
115,000 CAN$0.95
56,850 CAN$1.52
US$1.74
104,125
US$3.05
45,000
50,000
US$1.82
50,000 CAN$0.55
110,000 CAN$0.95
64,050 CAN$1.52
US$1.74
108,430
15,000 CAN$2.43
45,000 CAN$1.74
50,000 CAN$5.83
40,000 CAN$3.53
30,000 CAN$4.65
25,000 CAN$1.82
30,000 CAN$0.55
46,667 CAN$0.95
51,975 CAN$1.52
US$1.74
104,425
US$3.96
25,000
50,000
US$1.82
20,000 CAN$0.55
60,000 CAN$0.95
50,000 CAN$1.52
US$1.74
103,316
12-08-2019
12-07-2020
12-06-2021
10-31-2012
12-15-2012
12-10-2013
12-13-2014
12-12-2015
01-03-2017
12-10-2017
12-08-2019
12-07-2020
12-06-2021
07-26-2017
12-10-2017
12-08-2018
12-08-2019
12-07-2020
12-06-2021
12-31-2012
12-10-2013
12-13-2014
12-12-2015
01-03-2017
12-10-2017
12-08-2018
12-08-2019
12-07-2020
12-06-2021
05-06-2017
12-10-2017
12-08-2018
12-08-2019
12-07-2020
12-06-2021
(CAN$ or
US$)
CAN$100,650
CAN$8,910
—
CAN$55,800
—
—
—
—
—
—
CAN$70,150
CAN$2,274
—
—
—
CAN$50,500
CAN$67,100
CAN$2,562
—
—
—
—
—
—
—
CAN$30,300
CAN$28,467
CAN$2,079
—
—
—
CAN$20,200
CAN$36,600
CAN$2,000
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(#)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
($)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(1)
(2)
The number of securities underlying unexercised options represents all awards outstanding at December 31, 2011.
“Value of unexercised in-the-money options” at financial year-end is calculated based on the difference between the closing prices of the common shares on the TSX or NASDAQ, as applicable, on the last
trading day of the year (December 30, 2011) of CAN$1.56 and US$1.54, respectively, and the exercise price of the options, multiplied by the number of unexercised options.
There are no vested share-based awards that have not yet been paid out or distributed.
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Table of Contents
Incentive Plan Awards – Value Vested or Earned During the Year
The following table shows the incentive plan awards value vested or earned for each Named Executive Officer for the financial year ended December 31, 2011.
Name
Engel, Juergen
Turpin, Dennis
Seeber, Matthias
Blake, Paul
Pelliccione, Nicholas J.
Option-based awards –
Value
vested during the year
(1)
Share-based awards – Value
vested during the year
($)
251,776
73,461
83,158
92,499
52,840
($)
—
—
—
—
—
Non-equity incentive plan
compensation - Value
earned
during the year
($)
160,764
80,509
82,818
89,670
77,739
(1) The amount represents the aggregate dollar value that would have been realized if the options had been exercised on the vesting date, based on the difference between the closing price of the common
shares on the TSX or NASDAQ, as applicable, and the exercise price on such vesting date.
Other Forms of Compensation
Benefits and Perquisites
Our executive employee benefits program also includes life, medical, dental and disability insurance. Perquisites consist of a car allowance and human resources
counselling. These benefits and perquisites are designed to be competitive overall with equivalent positions in comparable North American organizations in the
life sciences industry.
Pension Plan
One of our Named Executive Officers, namely Dr. Juergen Engel, the President and Chief Executive Officer, participates in a non-contributory defined benefit
pension plan. Benefits payable under this plan correspond to 40% of the executive officer’s average salary of the last twelve months during the first five working
years after initial participation in this plan and increase by 0.4% for each additional year of employment.
As the normal retirement age is 65 years, first payments under the pension plan were made to Dr. Engel as of September 1, 2010. The following table shows total
annual pension benefits payable to Dr. Engel pursuant to this plan. Upon the death of a participant, the surviving spouse and/or children of the participant will be
entitled to a benefit equal to 60% of the benefits to which such participant was entitled. All benefits payable under this plan are in addition to German
governmental social security benefits.
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Table of Contents
Defined Benefit Plans Table as at December 31, 2011
Number
of years
of
credited
service
Name
Annual benefits payable
At year
end
At age 65
Accrued
obligation at
start of year
Compensatory
change
Non-
compensatory
change
Accrued
obligation at
year end
Engel, Juergen
(#)
34
(1)
($)
202,755
(1)
($)
202,755
($)
($)
(1)
($)
3,323,028
549,986
(103,977)
(1)(2)
($)
3,569,399
(1) By way of exception to other currency conversions in this Circular, all amounts in the above table have been converted from euros to US$ based on the exchange rate on December 31, 2011, which was
€1.000 = US$1.2972.
The figure in the column “Accrued obligation at year end” was further reduced by an amount of $199,638 representing mandatory pension payments made to Dr. Engel during 2011.
(2)
Employer Contribution to Employees’ Retirement Plan
In 2008, the Board approved a plan whereby we would contribute to our employees’ retirement plans both in Canada (RRSP) and the United States (401(k)) to
the extent of 50% of the employee’s contribution up to a maximum of $7,750 annually for employees under 50 years old. The plan also includes a contribution for
employees over 50 years old up to a maximum of $10,250 for Canadian employees and $11,000 for those in the United States. Employees based in Frankfurt,
Germany also benefit from certain employer contributions into the employees’ pension funds (DUPK/RUK). Our executive officers, including the Named
Executive Officers, are eligible to participate in the aforementioned employer-contribution plans to the same extent and in the same manner as all of our other
employees.
Summary Compensation Table
The Summary Compensation Table set forth below shows compensation information for the Named Executive Officers for services rendered in all capacities
during the financial years ended December 31, 2011, 2010 and 2009.
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Table of Contents
SUMMARY COMPENSATION TABLE
Name and principal
position
Years
Salary
Share
based
awards
Option
based
awards
(1)
Engel, Juergen
President and CEO
Turpin, Dennis
Senior Vice President
and CFO
Seeber, Matthias
Senior Vice President,
Administration and
Legal Affairs
Blake, Paul
Senior Vice President
and Chief Medical
Officer
Pelliccione, Nicholas J.
Senior Vice President Regulatory Affairs and
Quality Assurance
($)
505,260
(4)
419,348
458,040
332,434
(4)
309,978
284,700
342,512
(4)
288,162
306,748
370,223
(4)
359,876
366,000
321,062
(4)
311,992
317,300
2011
2010
2009
2011
2010
2009
2011
2010
2009
2011
2010
2009
2011
2010
2009
($)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
($)
336,420
265,763
79,497
131,198
67,828
55,407
131,576
62,011
55,407
136,622
76,418
52,998
130,178
59,655
28,908
Non-equity incentive
plan compensation
Annual
incentive
plan
($)
160,764
109,395
—
80,509
55,169
—
Long-term
incentive
plans
($)
—
—
—
—
—
—
82,818
51,051
—
89,670
64,050
—
77,739
50,001
—
—
—
—
—
—
—
—
—
—
Pension
Value
All other
compensation
(2)
Total
compensation
($)
590,136
34,605
431,110
—
—
—
—
—
—
—
—
—
—
—
—
($)
214,212
68,593
3,209
5,056
7,518
—
(3)
(5)
(6)
(7)
56,966
38,217
54,300
(6)
(6)
(6)
11,000
(8)
11,000
10,250
11,000
11,000
8,250
(8)
(8)
(8)
(8)
(8)
($)
1,806,792
897,704
971,856
549,197
440,493
340,107
613,872
439,441
416,455
607,515
511,344
429,248
539,979
432,648
354,458
(1)
(2)
The value of the option-based awards represents the closing price of the common shares on NASDAQ at the date of grant (US$1.74 for options granted on December 7, 2011, CAN$1.52 equivalent to
US$1.47 for options granted on December 8, 2010, and CAN$0.95 equivalent to US$0.83 for options granted on December 9, 2009) multiplied by the Black-Scholes factor as at such date (72.414% for
options granted on December 7, 2011, 80.921% for options granted on December 8, 2010, and 57.895% for options granted on December 9, 2009) and the number of stock options granted on such dates.
“All Other Compensation” represents perquisites and other personal benefits which, in the aggregate, amount to $50,000 or more, or are equivalent to 10% or more of a Named Executive Officer’s total
salary for the financial year ended December 31, 2011. The type and amount of each perquisite, the value of which exceeds 25% of the total value of perquisites, is separately disclosed for each Named
Executive Officer, if applicable. In the case of the President and CEO, “All Other Compensation” also includes mandatory pension payments paid to him commencing in 2010. See note (3) and note
(5) below.
(3) Represents mandatory pension payments made to Dr. Engel during 2011.
(4)
(5) Represents DUPK/RUK (Germany) employer contributions to Dr. Engel’s retirement savings plans from January 1, 2010 to August 31, 2010. The reported amount also includes $67,169 in mandatory
In 2010, the Named Executive Officers agreed to a voluntary reduction in salary between May 1, 2010 and August 31, 2010.
pension payments made to Dr. Engel after attaining age 65 commencing on September 1, 2010 for the remainder of 2010. See Section “Pension Plan”, above.
(6) Represents DUPK/RUK (Germany) employer contributions to Dr. Engel’s and Mr. Seeber’s retirement savings plans.
(7) Represents RRSP employer contribution to Mr. Turpin’s retirement savings plan.
(8) Represents 401(k) employer contributions to Messrs. Blake’s and Pelliccione’s retirement savings plans.
Compensation of the Chief Executive Officer
The compensation of the President and Chief Executive Officer is governed by the Company’s executive compensation policy described in Section
“Compensation of Executive Officers”, and the President and Chief Executive Officer participates together with the other Named Executive Officers in all of the
Company’s incentive plans.
Dr. Engel’s total earned salary for 2011 was $505,260, which places him approximately 1.03 times the 50 percentile in relation to the companies in the
Reference Group.
th
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Based upon the results attained versus established goals for fiscal 2011, as described in Section “Short-Term Non-Equity Incentive Compensation” the
Governance Committee determined that the individual performance of Prof. Dr. Engel exceeded expectations in a number of key strategic areas, including in
respect of the various goals set in the areas of Business Development and Investor Relations. See Section “Risk Assessment of Executive Compensation
Program” above for more details on such goals.
Based on the foregoing, the Governance Committee recommended, and the Board approved, in the best interests of the Company given its financial situation, and
in light of the Company’s and the CEO’s performance in 2011 as well as the fact that in the previous two years, the payment of cash bonuses was limited, that a
maximum of 70% of the CEO’s bonus under the short-term incentive plan be paid in cash in respect of the year 2011 (paid in early 2012), while the remainder of
the bonus be payable in the form of stock options based on his individual performance. Thus, Prof. Dr. Engel received 70% of his target cash bonus for 2011,
amounting to $160,764, for his performance in the context of the Company’s objectives and was awarded a grant of 67,000 stock options on December 7, 2011 (at
an exercise price of US$1.74) for his exceptional performance in leading the Company to attain its objectives in 2011. The terms of such stock options grant
provide for accelerated vesting conditions, in order to allow these stock options to serve their purpose as a partial replacement for the remaining 30% of the
CEO’s 2011 bonus that would otherwise have been paid in cash. See Section “Short-Term Non-Equity Incentive Compensation” above for more details on such
grants.
For the financial year ended December 31, 2011, the Governance Committee also recommended, and the Board approved, that 200,000 stock options be granted
to the President and Chief Executive Officer under the long-term equity compensation plan, such stock options to vest in accordance with the vesting schedule set
forth in the Company’s Stock Option Plan. See Section “Long-Term Equity Compensation Plan of Executive Officers—Summary of the Stock Option Plan”, for a
complete description of our Stock Option Plan.
C.
Board Practices
Our Articles provide that our Board shall be composed of a minimum of five and a maximum of fifteen directors. Directors are elected annually by our
shareholders, but the directors may from time to time appoint one or more directors, provided that the total number of directors so appointed does not exceed one-
third of the number of directors elected at the last annual meeting of shareholders. Each elected director will remain in office until termination of the next annual
meeting of the shareholders or until his or her successor is duly elected or appointed, unless his or her post is vacated earlier. For information regarding
Dr. Engel’s employment agreement with the Company, which provides for benefits on termination of his employment, see “Item 10.C — Material Contracts”.
None of the other directors are party to any directors’ service contracts with the Company providing for benefits on termination of employment.
Committees of the Board of Directors
Audit Committee
Our Board has established an Audit Committee and a Governance Committee.
The Audit Committee assists the Board in fulfilling its oversight responsibilities. The Audit Committee reviews the financial reporting process, the system of
internal control, the audit process, and the Company’s process for monitoring compliance with laws and regulations and with our Code of Ethical Conduct. In
performing its duties, the Audit Committee will maintain effective working relationships with the Board, management, and the external auditors. To effectively
perform his or her role, each committee member will obtain an understanding of the detailed responsibilities of committee membership as well as the Company’s
business, operations and risks.
The function of the Audit Committee is oversight and while it has the responsibilities and powers set forth in its charter (incorporated by reference to
Exhibit 11.2), it is neither the duty of the committee to plan or to conduct audits or to determine that the Company’s financial statements are complete, accurate
and in accordance with generally accepted accounting principles, nor to maintain internal controls and procedures.
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The current members of the Audit Committee are Pierre Lapalme, Gérard Limoges and Michael Meyers.
Governance Committee
The mandate of the Governance Committee provides that it is responsible for taking all reasonable measures to ensure that appropriate human resources systems
and procedures, such as hiring policies, competency profiles, training policies and compensation structures are in place so that the Company can attract, motivate
and retain the quality of personnel required to meet its business objectives.
The Governance Committee also assists the Board in discharging its responsibilities relating to executive and other human resources hiring, assessment,
compensation and succession planning matters.
Thus, the Governance Committee recommends the appointment of senior officers, including the terms and conditions of their appointment and termination, and
reviews the evaluation of the performance of our senior officers, including recommending their compensation and overseeing risk identification and management
in relation to executive compensation policies and practices. The Board, which includes the members of the Governance Committee, reviews the Chief Executive
Officer’s corporate goals and objectives and evaluates his or her performance and compensation in light of such goals and objectives.
The current members of the Governance Committee are Juergen Ernst, José P. Dorais and Gérard Limoges.
D.
Employees
As at March 1, 2012, we had a total of 89 Full Time Equivalents (“FTE”) (as compared to 87.8 at March 1, 2011 and 99 at March 1, 2010), of which 75.3 are
based in Frankfurt, Germany, 5 in New Jersey, United States, and 8.7 in Quebec City, Canada. Of these, 53 are involved in discovery, preclinical, clinical and
pharmaceutical development, 9 are involved in regulatory affairs, quality assurance and intellectual property, and 27 are involved in business operations,
communications, finance, information technology, human resources, project management and legal affairs. We have agreements with all of our employees
covering confidentiality and loyalty, non-competition, and assignment to the Company of all intellectual property rights developed during the employment period.
E.
Share ownership
The information in the table below is provided as at March 27, 2012:
Name
No. of common
shares owned or
held
Percent
(1)
No. of stock
options held
(2)
No. of currently
exercisable
options
Marcel Aubut
Paul Blake
José P. Dorais
Juergen Engel
Juergen Ernst
Pierre Lapalme
Gérard Limoges
Michael Meyers
Nicholas J. Pelliccione
Matthias Seeber
Dennis Turpin
Total
112,500
70,350
0
117,779
58,850
0
9,000
0
27,750
0
21,250
417,479
*
*
*
*
*
*
*
*
*
*
*
0.38
220,000
427,480
80,000
1,299,750
275,000
100,000
175,000
60,000
308,316
438,067
715,975
4,099,588
143,334
297,700
10,000
958,500
198,334
23,334
98,334
0
188,334
316,317
592,900
2,827,087
Less than 1%
*
(1) Based on 108,787,366 common shares outstanding as at March 27, 2012.
(2)
For information regarding option expiration dates and exercise price refer to the tables included under Item 6.B.
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Item 7.
Major Shareholders and Related Party Transactions
A. Major shareholders
We are not directly or indirectly owned or controlled by another corporation or by any foreign government.
Based on filings with the SEC and the Canadian securities regulatory authorities, as at March 27, 2012, there are no persons/entities who beneficially owned,
directly or indirectly, or exercised control or direction over our common shares carrying more than 5% of the voting rights attached to all our common shares.
United States Shareholders
As at December 31, 2011, there were a total of 219 holders of record of our common shares, of which 9 were registered with addresses in the United States
holding in the aggregate approximately 50.02% of our outstanding common shares. We believe that the number of beneficial owners of our common shares is
substantially greater than the number of record holders, because a large portion of our common shares are held in broker “street names”.
B.
Related party transactions
None
C.
Interests of experts and counsel
Not applicable.
Item 8.
Financial Information
A.
Consolidated statements and other financial information
The financial statements filed as part of this annual report are presented under “Item 18. — Financial Statements”.
B.
Significant changes
No significant changes occurred since the date of our annual consolidated financial statements included elsewhere in this annual report.
Item 9.
The Offering and Listing
A.
Offer and listing details
Not Applicable, except for Item 9A(4).
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Our common shares are listed and posted for trading on NASDAQ under the symbol “AEZS” and on the TSX under the symbol “AEZ”. The following table
indicates, for the relevant periods, the high and low closing prices of our common shares on NASDAQ and on the TSX:
NASDAQ (US$)
TSX (CAN$)
High
2.58
2.09
2.83
1.80
4.36
1.25
2.83
2.35
0.97
1.96
1.40
2.09
0.93
1.78
2.35
2.58
2.00
2.15
1.83
1.71
1.78
1.76
1.75
1.99
Low
1.43
0.79
0.46
0.40
1.46
0.80
0.89
0.89
0.46
1.22
0.95
0.80
0.79
1.43
1.43
1.82
1.55
1.69
1.58
1.56
1.51
1.46
1.43
1.48
High
2.51
2.14
3.11
1.85
5.10
1.40
3.11
2.63
1.25
1.98
1.44
2.14
0.99
1.80
2.26
2.51
1.93
2.13
1.84
1.78
1.80
1.80
1.72
1.98
Low
1.41
0.80
0.57
0.44
1.47
0.83
0.97
1.06
0.57
1.22
1.00
0.80
0.81
1.47
1.41
1.75
1.54
1.67
1.58
1.58
1.54
1.50
1.47
1.54
2011
2010
2009
2008
2007
2009
Fourth quarter
Third quarter
Second quarter
First quarter
2010
Fourth quarter
Third quarter
Second quarter
First quarter
2011
Fourth quarter
Third quarter
Second quarter
First quarter
(1)
Most recent 6 months
March 2012
February 2012
January 2012
December 2011
November 2011
October 2011
September 2011
(1) Up to and including March 26, 2012
B.
Plan of distribution
Not applicable.
C. Markets
Our common shares are listed and posted for trading on NASDAQ under the symbol “AEZS” and on the TSX under the symbol “AEZ”.
D.
Selling shareholders
Not applicable.
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E.
Dilution
Not applicable.
F.
Expenses of the issuer
Not applicable.
Item 10.
Additional Information
A.
Share capital
Not applicable.
B. Memorandum and articles of association
The Company is governed by its restated articles of incorporation (the “Restated Articles of Incorporation”) under the Canada Business Corporations Act
(the “CBCA”) and by its bylaws (the “bylaws”). The Company’s Restated Articles of Incorporation are on file with the Corporations Directorate of Industry
Canada under Corporation Number 264271-9. The Restated Articles of Incorporation do not include a stated purpose and do not place any restrictions on the
business that the Company may carry on.
Inspection Rights of Shareholders
Under the CBCA, shareholders are entitled to be provided with a copy of the list of registered shareholders of the Company. In order to obtain the shareholder list,
the Company must be provided with an affidavit including, among other things, a statement that the list will only be used for the purposes permitted by the
CBCA. These permitted purposes include an effort to influence the voting of shareholders of the Company, an offer to acquire securities of the Company and any
other matter relating to the affairs of the Company. The Company is entitled to charge a reasonable fee for the provision of the shareholder list and must deliver
that list no more than ten days after receipt of the affidavit described above.
Under the CBCA, shareholders of the Company have the right to inspect certain corporate records, including its Restated Articles of Incorporation and bylaws
and minutes of meetings and resolutions of the shareholders. Shareholders have no statutory right to inspect minutes of meetings and resolutions of directors of
the Company. Shareholders of the Company have the right to certain financial information respecting the Company. In addition to the annual and quarterly
financial statements required to be filed under applicable securities laws, under the CBCA the Company is required to place before every annual meeting of
shareholders its audited comparative annual financial statements. In addition, shareholders have the right to examine the financial statements of each of our
subsidiaries and any other corporate entity whose accounts are consolidated in the financial statements of the Company.
Directors
The minimum number of directors of the Company is five and the maximum number is fifteen. In accordance with the CBCA, a majority of its directors must be
residents of Canada. In order to serve as a director, a person must be a natural person at least 18 years of age, of sound mind, not bankrupt, and must not be
prohibited by any court from holding the office of director. For as long as the Company is a company that publicly distributes its securities, at least two-thirds of
its directors must not be officers or employees of the Company or its subsidiaries. None of the Restated Articles of Incorporation, the bylaws and the CBCA
imposes any mandatory retirement requirements for directors.
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The directors are elected by a majority of the votes cast at the annual meeting at which an election of directors is required, to hold office until the election of their
successors except in the case of resignations or if their offices become vacant by death or otherwise. Subject to the provisions of the Company’s bylaws, all
directors may, if still qualified to serve as directors, stand for re-election. The Board is not replaced at staggered intervals but is elected annually.
There is no provision in the Company’s bylaws or its Restated Articles of Incorporation that requires that a director of the Company must be a shareholder.
The directors are entitled to remuneration as shall from time to time be determined by the Board or by a committee to which the Board may delegate the power to
do so. Under the mandate of the Company’s Governance Committee, such committee, comprised of a majority of independent directors, is tasked with making
recommendations to the Board concerning director remuneration.
The CBCA provides that a director who is a party to, or who is a director or officer of, or has a material interest in, any person who is a party to a material
contract or transaction or proposed material contract or transaction with the Company must disclose to the Company the nature and extent of his or her interest at
the time and in the manner provided by the CBCA, or request that same be entered in the minutes of the meetings of the Board, even if such contract, in
connection with the normal business activity of the Company, does not require the approval of either the directors or the shareholders. At the request of the
president or any director, the director placed in a situation of conflict of interest must leave the meeting while the Board discusses the matter. The CBCA prohibits
such a director from voting on any resolution to approve the contract or transaction unless the contract or transaction:
— relates primarily to his or her remuneration as a director, officer, employee or agent of the Company or an affiliate;
— is for indemnity or insurance for director’s liability as permitted by the CBCA; or
— is with an affiliate of the Company.
The CBCA provides that the Board may, on behalf of the Company and without authorization of its shareholders:
— borrow money upon the credit of the Company;
— issue, reissue, sell or pledge debt obligations of the Company;
— give a guarantee on behalf of the Company to secure performance of an obligation of any person; and
— mortgage, hypothecate, pledge or otherwise create a security interest in all or any property of the Company, owned or subsequently acquired, to secure any
obligation of the Company.
The shareholders have the ability to restrict such powers through the Company’s Restated Articles of Incorporation or bylaws (or through a unanimous
shareholder agreement), but no such restrictions are in place.
The CBCA prohibits the giving of a guarantee to any shareholder, director, officer or employee of the Company or of an affiliated corporation or to an associate
of any such person for any purpose or to any person for the purpose of or in connection with a purchase of a share issued or to be issued by the Company or its
affiliates, where there are reasonable grounds for believing that the Company is or, after giving the guarantee, would be unable to pay its liabilities as they
become due, or the realizable value of the Company’s assets in the form of assets pledged or encumbered to secure a guarantee, after giving the guarantee, would
be less than the aggregate of the Company’s liabilities and stated capital of all classes. These borrowing powers may be varied by the Company’s bylaws or its
Restated Articles of Incorporation. However, the Company’s bylaws and Restated Articles of Incorporation do not contain any restrictions on or variations of
these borrowing powers.
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Pursuant to the CBCA, the directors of the Company manage and administer the business and affairs of the Company and exercise all such powers and authority
as the Company is authorized to exercise pursuant to the CBCA, the Restated Articles of Incorporation and the bylaws. The general duties of a director or officer
of the Company under the CBCA are to act honestly and in good faith with a view to the best interests of the Company and to exercise the care, diligence and
skill that a reasonably prudent person would exercise in comparable circumstances. Any breach of these duties may lead to liability to the Company and its
shareholders for breach of fiduciary duty. In addition, a breach of certain provisions of the CBCA, including the improper payment of dividends or the improper
purchase or redemption of shares, will render the directors who authorized such action liable to account to the Company for any amounts improperly paid
or distributed.
The Company’s bylaws provide that the Board may, from time to time, appoint from amongst their number committees of the Board, and delegate to any such
committee any of the powers of the Board except those which pursuant to the CBCA a committee of the Board has no authority to exercise. As such, the Board
has two standing committees: the Audit Committee and the Governance Committee.
Subject to the limitations provided by the CBCA, the Company’s bylaws provide that the Company shall, to full extent provided by law, indemnify a director or
an officer of the Company, a former director or officer of the Company or a person who acts or acted at the Company’s request as a director or officer of a body
corporate of which the Company is or was a shareholder or creditor, and his or her heirs and legal representatives, against all costs, losses, charges and expenses,
including an amount paid to settle an action or satisfy a judgment, reasonably incurred by him or her in respect of any civil, criminal or administrative action or
proceeding to which he or she is made a party by reason of having been a director or officer of the Company or such body corporate, provided:
(a)
he or she acted in good faith in the best interests of the Company; and
(b)
in the case of a criminal or an administrative action or proceeding that is enforced by a monetary penalty, he or she had reasonable grounds to believe that
his or her conduct was lawful.
The directors of the Company are authorized to indemnify from time to time any director or other person who has assumed or is about to assume in the normal
course of business any liability for the Company or for any corporation controlled by the Company, and to secure such director or other person against any loss by
the pledge of all or part of the movable or immovable property of the Company through the creation of a hypothec or any other real right in all or part of such
property or in any other manner.
Share Capitalization
Our authorized share capital structure consists of an unlimited number of shares of the following classes (all classes are without nominal or par value): common
shares; and first preferred shares (the “First Preferred Shares”) and second preferred shares (the “Second Preferred Shares” and, together with the First Preferred
Shares, the “Preferred Shares”), both issuable in series. As at March 27, 2012, there were 108,787,366 common shares outstanding. No Preferred Shares of the
Company have been issued to date. The Company has also issued warrants to acquire common shares in connection with certain equity financings.
Common Shares
The holders of the common shares are entitled to one vote for each common share held by them at all meetings of shareholders, except meetings at which only
shareholders of a specified class of shares are entitled to vote. In addition, the holders are entitled to receive dividends if, as and when declared by the Company’s
Board of Directors on the common shares. Finally, the holders of the common shares are entitled to receive the remaining property of the Company upon any
liquidation, dissolution or winding-up of the affairs of the Company, whether voluntary or involuntary. Shareholders have no liability to further capital calls as all
shares issued and outstanding are fully paid and non-assessable.
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Preferred Shares
The First and Second Preferred Shares are issuable in series with rights and privileges specific to each class. The holders of Preferred Shares are generally not
entitled to receive notice of or to attend or vote at meetings of shareholders. The holders of First Preferred Shares are entitled to preference and priority to any
participation of holders of Second Preferred Shares, common shares or shares of any other class of shares of the share capital of the Company ranking junior to
the First Preferred Shares with respect to dividends and, in the event of the liquidation of the Company, the distribution of its property upon its dissolution or
winding-up, or the distribution of all or part of its assets among the shareholders, to an amount equal to the value of the consideration paid in respect of such
shares outstanding, as credited to the issued and paid-up share capital of the Company, on an equal basis, in proportion to the amount of their respective claims in
regard to such shares held by them. The holders of Second Preferred Shares are entitled to preference and priority to any participation of holders of common
shares or shares of any other class of shares of the share capital of the Company ranking junior to the Second Preferred Shares with respect to dividends and, in
the event of the liquidation of the Company, the distribution of its property upon its dissolution or winding-up, or the distribution of all or part of its assets among
the shareholders, to an amount equal to the value of the consideration paid in respect of such shares outstanding, as credited to the issued and paid-up share
capital of the Company, on an equal basis, in proportion to the amount of their respective claims in regard to such shares held by them.
Our Board of Directors may, from time to time, provide for additional series of Preferred Shares to be created and issued, but the issuance of any Preferred Shares
is subject to the general duties of the directors under the CBCA to act honestly and in good faith with a view to the best interests of the Company and to exercise
the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.
Shareholder Actions
The CBCA provides that shareholders of the Company may, with leave of a court, bring an action in the name of and on behalf of the Company for the purpose of
prosecuting, defending or discontinuing an action on behalf of the Company. In order to grant leave to permit such an action, the CBCA provides that the court
must be satisfied that the directors of the Company were given adequate notice of the application, the shareholder is acting in good faith and that it appears to be
in the Company’s best interests that the action be brought.
Shareholder Rights Plan
Objectives and Background of the Shareholder Rights Plan
The fundamental objectives of the Company’s Shareholder Rights Plan (the “Rights Plan”) are to provide adequate time for our Board and shareholders to assess
an unsolicited take-over bid for the Company, to provide the Board with sufficient time to explore and develop alternatives for maximizing shareholder value if a
take-over bid is made, and to provide shareholders with an equal opportunity to participate in a take-over bid.
The Rights Plan encourages a potential acquiror who makes a take-over bid to proceed either by way of a “Permitted Bid”, as described below, which requires a
take-over bid to satisfy certain minimum standards designed to promote fairness, or with the concurrence of our Board. If a take-over bid fails to meet these
minimum standards and the Rights Plan is not waived by the Board, the Rights Plan provides that holders of common shares, other than the acquiror, will be able
to purchase additional common shares at a significant discount to market, thus exposing the person acquiring common shares to substantial dilution of
its holdings.
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Summary of the Rights Plan
The following is a summary of the principal terms of the Rights Plan, which summary is qualified in its entirety by reference to the terms thereof. Capitalized
terms not otherwise defined in this summary shall have the meaning ascribed to such terms in the Shareholder Rights Plan Agreement which sets forth the Rights
Plan. The Rights Plan is filed as an exhibit to this annual report on Form 20-F.
Operation of the Rights Plan
Pursuant to the terms of the Rights Plan, one right was issued in respect of each common share outstanding at 5:01 p.m. on March 29, 2010 (the “Effective
Date”). In addition, one right will be issued for each additional common share issued after the Record Time and prior to the earlier of the Separation Time
(as defined below) and the Expiration Time (as defined below). The rights have an initial exercise price equal to the Market Price (as defined below) of the
common shares as determined at the Separation Time, multiplied by five, subject to certain anti-dilution adjustments (the “Exercise Price”), and they are not
exercisable until the Separation Time. Upon the occurrence of a Flip-in Event, each right will entitle the holder thereof, other than an Acquiring Person or any
other person whose rights are or become void pursuant to the provisions of the Rights Plan, to purchase from the Company, effective at the close of business on
the eighth trading day after the Stock Acquisition Date, upon payment to the Company of the Exercise Price, common shares having an aggregate Market Price
equal to twice the Exercise Price on the date of consummation or occurrence of such Flip-in Event, subject to certain anti-dilution adjustments.
Definition of Market Price
Market Price is generally defined in the Rights Plan, on any given day on which a determination must be made, as the volume weighted average trading price of
the common shares for the five consecutive trading days (i.e. days on which the TSX is open for the transaction of business, subject to certain exceptions),
through and including the trading day immediately preceding such date of determination, subject to certain exceptions.
Trading of Rights
Until the Separation Time (or the earlier termination or expiration of the rights), the rights trade together with the common shares and are represented by the same
share certificates as the common shares or an entry in the Company’s securities register in respect of any outstanding common shares. From and after the
Separation Time and prior to the Expiration Time, the rights are evidenced by rights certificates and trade separately from the common shares. The rights do not
carry any of the rights attaching to the common shares such as voting or dividend rights.
Separation Time
The rights will separate from the common shares to which they are attached and become exercisable at the time (the “Separation Time”) of the close of business
on the eighth business day after the earliest to occur of:
1. the first date (the “Stock Acquisition Date”) of a public announcement of facts indicating that a person has become an Acquiring Person; and
2. the date of the commencement of, or first public announcement of the intention of any person (other than the Company or any of its subsidiaries) to commence
a take-over bid or a share exchange bid for more than 20% of the outstanding common shares of the Company other than a Permitted Bid or a Competing
Permitted Bid (as defined below), so long as such take-over bid continues to satisfy the requirements of a Permitted Bid or a Competing Permitted Bid), as the
case may be.
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The Separation Time can also be such later time as may from time to time be determined by the Board, provided that if any such take-over bid expires, or is
cancelled, terminated or otherwise withdrawn prior to the Separation Time, without securities deposited thereunder being taken up and paid for, it shall be deemed
never to have been made and if the Board determines to waive the application of the Rights Plan to a Flip-in Event, the Separation Time in respect of such Flip-in
Event shall be deemed never to have occurred.
From and after the Separation Time and prior to the Expiration Time, each right entitles the holder thereof to purchase one common share upon payment to the
Company of the Exercise Price.
Flip-in Event
The acquisition by a person (an “Acquiring Person”), including others acting jointly or in concert with such person, of more than 20% of the outstanding common
shares, other than by way of a Permitted Bid, a Competing Permitted Bid or in certain other limited circumstances described in the Rights Plan, is referred to as a
“Flip-in Event”.
In the event that, prior to the Expiration Time, a Flip-in Event which has not been waived occurs (see “Waiver and Redemption” below), each right (other than
those held by or deemed to be held by the Acquiring Person) will thereafter entitle the holder thereof, effective as at the close of business on the eighth trading
day after the Stock Acquisition Date, to purchase from the Company, upon payment of the Exercise Price and otherwise exercising such right in accordance with
the terms of the Rights Plan, that number of common shares having an aggregate Market Price on the date of consummation or occurrence of the Flip-in Event
equal to twice the Exercise Price, for an amount in cash equal to the Exercise Price (subject to certain anti-dilution adjustments described in the Rights Plan).
A bidder may enter into Lock-up Agreements with the Company’s shareholders (“Locked-up Persons”) who are not affiliates or associates of the bidder and who
are not, other than by virtue of entering into such agreement, acting jointly or in concert with the bidder, whereby such shareholders agree to tender their common
shares to the take-over bid (the “Lock-up Bid”) without the bidder being deemed to beneficially own the common shares deposited pursuant to the Lock-up Bid.
Any such agreement must include a provision that permits the Locked-up Person to withdraw the common shares to tender to another take-over bid or to support
another transaction that will either provide greater consideration to the shareholder than the Lock-up Bid or provide for a right to sell a greater number of shares
than the Lock-up Bid contemplates (provided that the Lock-up Agreement may require that such greater number exceed the number of shares under the Locked-
up Bid by a specified percentage not to exceed 7%).
The Lock-up Agreement may require that the consideration under the other transaction exceed the consideration under the Lock-up Bid by a specified amount.
The specified amount may not be greater than 7%. For greater certainty, a Lock-up Agreement may contain a right of first refusal or require a period of delay
(or other similar limitation) to give a bidder an opportunity to match a higher price in another transaction as long as the limitation does not preclude the exercise
by the Locked-up Person of the right to withdraw the common shares during the period of the other take-over bid or transaction.
The Rights Plan requires that any Lock-up Agreement be made available to the Company and the public. The definition of Lock-up Agreement also provides that
under a Lock-up Agreement, no “break up” fees, “topping” fees, penalties, expenses or other amounts that exceed in aggregate the greater of (i) 2 /2% of the price
or value of the aggregate consideration payable under the Lock-up Bid, and (ii) 50% of the amount by which the price or value of the consideration received by a
Locked-up Person under another take-over bid or transaction exceeds what such Locked-up Person would have received under the Lock-up Bid, can be payable
by such Locked-up Person if the Locked-up Person fails to deposit or tender common shares to the Lock-up Bid or withdraws common shares previously tendered
thereto in order to deposit such common shares to another take-over bid or support another transaction.
1
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Permitted Bid Requirements
The requirements of a Permitted Bid include the following:
1. the take-over bid must be made by means of a take-over bid circular;
2. the take-over bid must be made to all holders of common shares wherever resident, on identical terms and conditions, other than the bidder;
3. the take-over bid must not permit common shares tendered pursuant to the bid to be taken up or paid for:
a) prior to the close of business on a date which is not less than 60 days following the date of the bid, and
b) then only if at such date more than 50% of the then outstanding common shares held by shareholders other than any other Acquiring Person, the bidder, the
bidder’s affiliates or associates, persons acting jointly or in concert with the bidder and any employee benefit plan, deferred profit-sharing plan, stock
participation plan or trust for the benefit of employees of the Company or any of its subsidiaries, unless the beneficiaries of such plan or trust direct the
manner in which the common shares are to be voted or direct whether the common shares are to be tendered to a take-over bid (the “Independent
Shareholders”), have been deposited or tendered to the take-over bid and not withdrawn;
4. the take-over bid must allow common shares to be deposited, unless the take-over bid is withdrawn, at any time up to the close of business on the date that the
common shares are to be first taken up and paid for;
5. the take-over bid must allow common shares to be withdrawn until taken up and paid for; and
6. if more than 50% of the then outstanding common shares held by Independent Shareholders are deposited or tendered to the take-over bid within the 60-day
period and not withdrawn, the bidder must make a public announcement of that fact and the take-over bid must remain open for deposits and tenders of
common shares for not less than ten days from the date of such public announcement.
A Permitted Bid need not be a bid for all outstanding common shares not held by the bidder, i.e., a Permitted Bid may be a partial bid. The Rights Plan also
allows a competing Permitted Bid (a “Competing Permitted Bid”) to be made while a Permitted Bid is in existence. A Competing Permitted Bid must satisfy all
the requirements of a Permitted Bid other than the requirement set out in clause 3(a) above and must not permit common shares tendered or deposited pursuant to
the bid to be taken up or paid for prior to the close of business on a date which is earlier than 35 days (or such longer minimum period of days that the bid must be
open for acceptance after the date of the bid under applicable Canadian provincial securities legislation) and the 60th day after the earliest date on which any other
Permitted Bid or Competing Permitted Bid that is then in existence was made.
Waiver and Redemption
The Board may, prior to the occurrence of a Flip-in Event, waive the dilutive effects of the Rights Plan in respect of, among other things, a particular Flip-in
Event resulting from a take-over bid made by way of a take-over bid circular to all holders of common shares of the Company. In such an event, such waiver shall
also be deemed to be a waiver in respect of any other Flip-in Event occurring under a take-over bid made by way of a take-over bid circular to all holders of
common shares prior to the expiry of the first mentioned take-over bid.
The Board may, with the approval of a majority of Independent Shareholders (or, after the Separation Time has occurred, holders of rights, other than rights which
are void pursuant to the provisions of the Rights Plan or which, prior to the Separation Time, are held otherwise than by Independent Shareholders), at any time
prior to the occurrence of a Flip-in Event which has not been waived, elect to redeem all, but not less than all, of the then outstanding rights at a price of $0.00001
each, appropriately adjusted as provided in the Rights Plan (the “Redemption Price”).
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Where a take-over bid that is not a Permitted Bid or Competing Permitted Bid is withdrawn or otherwise terminated after the Separation Time has occurred and
prior to the occurrence of a Flip-in Event, the Board may elect to redeem all the outstanding rights at the Redemption Price without the consent of the holders of
the common shares or the rights and reissue rights under the Rights Plan to holders of record of common shares immediately following such redemption. Upon
the rights being so redeemed and reissued, all the provisions of the Rights Plan will continue to apply as if the Separation Time had not occurred, and the
Separation Time will be deemed not to have occurred and the Company shall be deemed to have issued replacement rights to the holders of its then outstanding
common shares.
Amendment to the Rights Plan
The Rights Plan may be amended to correct any clerical or typographical error or to make such changes as are required to maintain the validity of the Rights Plan
as a result of any change in any applicable legislation, regulations or rules thereunder, without the approval of the holders of the common shares or rights. Prior to
the Separation Time, the Company may, with the prior consent of the holders of common shares, amend, vary or delete any of the provisions of the Rights Plan in
order to effect any changes which the Board, acting in good faith, considers necessary or desirable. The Company may, with the prior consent of the holders of
rights, at any time after the Separation Time and before the Expiration Time, amend, vary or delete any of the provisions of the Rights Plan.
Protection Against Dilution
The Exercise Price, the number and nature of securities which may be purchased upon the exercise of rights and the number of rights outstanding are subject to
adjustment from time to time to prevent dilution in the event of stock dividends, subdivisions, consolidations, reclassifications or other changes in the outstanding
common shares, pro rata distributions to holders of common shares and other circumstances where adjustments are required to appropriately protect the interests
of the holders of rights.
Fiduciary Duty of Board
The Rights Plan will not detract from or lessen the duty of the Board to act honestly and in good faith with a view to the best interests of the Company and its
shareholders. The Board will continue to have the duty and power to take such actions and make such recommendations to the Company’s shareholders as are
considered appropriate.
Exemptions for Investment Advisors
Fund managers, investment advisors (for fully-managed accounts), trust companies (acting in their capacities as trustees and administrators), statutory bodies
whose business includes the management of funds, and administrators of registered pension plans are exempt from triggering a Flip-in Event, provided that they
are not making, or are not part of a group making, a take-over bid.
Term
The Rights Plan will expire (the “Expiration Time”) on the earlier of the first annual meeting of shareholders of the Company following March 29, 2016, being
the sixth anniversary of the Effective Date (subject to the approval of the resolution by the shareholders at the Meeting and reconfirmation at the first annual
meeting of shareholders of the Company following March 29, 2013 (being the third anniversary of the Effective Date)) and the time at which the right to exercise
rights shall terminate pursuant to the provisions of the Rights Plan pertaining to the redemption of rights and the waiver of the application of the Rights Plan, after
which time it will automatically terminate.
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Action Necessary to Change Rights of Shareholders
In order to change the rights of its shareholders, the Company would need to amend its Restated Articles of Incorporation to effect the change. Such an
amendment would require the approval of holders of two-thirds of the issued and outstanding shares cast at a duly called special meeting. For certain amendments
such as those creating a class of Preferred Shares, a shareholder is entitled under the CBCA to dissent in respect of such a resolution amending the Restated
Articles of Incorporation and, if the resolution is adopted and the Company implements such changes, demand payment of the fair value of its shares.
Disclosure of Share Ownership
In general, under applicable securities regulation in Canada, a person or company who beneficially owns, or who exercises control or direction over directly or
indirectly, voting securities of a reporting issuer; voting securities of an issuer or a combination of both, carrying more than ten percent of the voting rights
attached to all the issuer’s outstanding voting securities is an insider and must, within ten days of becoming an insider, file a report in the required form effective
the date on which the person became an insider, disclosing any direct or indirect beneficial ownership of, or control or direction over, securities of the reporting
issuer.
Additionally, securities regulation in Canada provides for the filing of a report by an insider of a reporting issuer whose holdings change, which report must be
filed within five days from the day on which the change takes place.
Section 13 of the United States Securities Exchange Act of 1934 (the “Exchange Act”) imposes reporting requirements on persons who acquire beneficial
ownership (as such term is defined in the Rule 13d-3 under the Exchange Act) of more than five percent of a class of an equity security registered under
Section 12 of the Exchange Act. The Company’s common shares are so registered. In general, such persons must file, within ten days after such acquisition, a
report of beneficial ownership with the SEC containing the information prescribed by the regulations under Section 13 of the Exchange Act. This information is
also required to be sent to the issuer of the securities and to each exchange where the securities are traded.
Meeting of Shareholders
An annual meeting of shareholders is held each year for the purpose of considering the financial statements and reports, electing directors, appointing auditors
and fixing or authorizing the Board to fix their remuneration and for the transaction of other business as may properly come before a meeting of shareholders.
Any annual meeting may also constitute a special meeting to take cognizance and dispose of any matter of which a special meeting may take cognizance and
dispose. Under the bylaws, the Chief Executive Officer or the President of the Company has the power to call a meeting of shareholders.
The CBCA provides that the holders of not less than 5% of the outstanding voting shares of the Company may requisition the directors of the Company to call a
meeting of shareholders for the purpose stated in the requisition. Except in limited circumstances, including where a meeting of shareholders has already been
called and a notice of meeting already given or where it is clear that the primary purpose of the requisition is to redress a personal grievance against the Company
or its directors, officers or shareholders, the directors of the Company, on receipt of such requisition, must call a meeting of shareholders. If the directors fail to
call a meeting of shareholders within twenty-one days after receiving the requisition, any shareholder who signed the requisition may call the meeting of
shareholders and, unless the shareholders resolve otherwise at the meeting, the Company shall reimburse the shareholders for the expenses reasonably incurred by
them in requisitioning, calling and holding the meeting of shareholders.
The CBCA also provides that, except in limited circumstances, a resolution in writing signed by all of the shareholders entitled to vote on that resolution at a
meeting of shareholders is as valid as if it had been passed at a meeting of shareholders.
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A quorum of shareholders is present at an annual or special meeting of shareholders, regardless of the number of persons present in person at the meeting, if the
holder or holders of shares representing at least 10% of the outstanding voting shares at such meeting are present in person or represented in accordance with the
Company’s bylaws. In the case where the CBCA, the Restated Articles of Incorporation or the bylaws of the Company require or permit the vote by class of
holders of a given class of shares of the share capital of the Company, the quorum at any meeting will be one or more persons representing 10% of the
outstanding shares of such class.
Notice of the time and place of each annual or special meeting of shareholders must be given not less than 21 days, nor more than 50 days, before the date of each
meeting to each director, to the auditor and to each shareholder entitled to vote thereat. If the address of any shareholder, director or auditor does not appear in the
books of the Company, the notice may be sent to such address as the person sending the notice may consider to be most likely to reach such shareholder, director
or auditor promptly. Every person who, by operation of the CBCA, transfers or by any other means whatsoever, becomes entitled to any share, shall be bound by
every notice given in respect of such share which, prior to the entry of his or her name and address on the register of the Company, is given to the person whose
name appears on the register at the time such notice is sent. Notice of meeting of shareholders called for any other purpose other than consideration of the
financial statements and auditor’s report, election of directors and reappointment of the incumbent auditor, must state the nature of the business in sufficient detail
to permit the shareholder to form a reasoned judgment on and must state the text of any special resolution or bylaw to be submitted to the meeting.
Limitations on Right to Own Securities
Neither Canadian law nor the Company’s Restated Articles of Incorporation or bylaws limit the right of a non-resident to hold or vote common shares, other than
as provided in the Investment Canada Act (the “Investment Act”). The Investment Act prohibits implementation of certain direct reviewable investments by an
individual, government or agency thereof, corporation, partnership, trust or joint venture that is not a “Canadian”, as defined in the Investment Act (a “non-
Canadian”), unless, after review, the minister responsible for the Investment Act is satisfied or is deemed to be satisfied that the investment is likely to be of net
benefit to Canada. An investment in the common shares of the Company by a non-Canadian (other than a “WTO Investor”, as defined below) would be
reviewable under the Investment Act if it were an investment to acquire direct control of the Company, and the book value of the assets of the Company were
CAN$5 million or more (provided that immediately prior to the implementation of the investment the Company was not controlled by WTO Investors). Subject to
the Amendments (as defined below), an investment in common shares of the Company by a WTO Investor would be reviewable under the Investment Act if it
were an investment to acquire direct control of the Company and the value of the assets of the Company equalled or exceeded CAN$330 million (for 2012). A
non-Canadian, whether a WTO Investor or otherwise, would be deemed to acquire control of the Company for purposes of the Investment Act if he or she
acquired a majority of the common shares of the Company. The acquisition of less than a majority, but at least one-third of the shares, would be presumed to be
an acquisition of control of the Company, unless it could be established that the Company was not controlled in fact by the acquirer through the ownership of the
shares. In general, an individual is a WTO Investor if he or she is a “national” of a country (other than Canada) that is a member of the World Trade Organization
(“WTO Member”) or has a right of permanent residence in a WTO Member. A corporation or other entity will be a “WTO Investor” if it is a “WTO Investor-
controlled entity”, pursuant to detailed rules set out in the Investment Act. The United States is a WTO Member. Certain transactions involving the common
shares would be exempt from the Investment Act, including: (a) an acquisition of the shares if the acquisition were made in the ordinary course of that person’s
business as a trader or dealer in securities; (b) an acquisition of control of the Company in connection with the realization of a security interest granted for a loan
or other financial assistance and not for any purpose related to the provisions of the Investment Act; and (c) an acquisition of control of the Company by reason of
an amalgamation, merger, consolidation or corporate reorganization, following which the ultimate direct or indirect control in fact of the Company, through the
ownership of voting interests, remains unchanged.
The Canadian Federal Government adopted certain amendments (the “Amendments”) to the Investment Act in 2009. Some of the Amendments, which came into
force on February 6, 2009, introduce a national security test and review process, authorizing the Canadian Minister of Industry to review investments that “could
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to national security”, regardless of the size of the transaction. Some of the other Amendments will come into force on a day to be fixed by order of the Canadian
Governor in Council, including the increase to the thresholds that trigger governmental review for WTO Investors. Therefore, the thresholds for the review of
direct acquisitions of control by WTO Investors would increase from the current CAN$330 million (based on book value) to CAN$600 million (to be based on
the “enterprise value” of the Canadian business) for the two years after such Amendments come into force, to CAN$800 million in the following two years and
then to CAN$1 billion for the next two years. Thereafter, the thresholds are to be adjusted to account for inflation. A number of the Amendments still require
additional definition and details, which will be set forth in regulations promulgated under the Investment Act.
There are no limits on the rights of non-Canadians to exercise voting rights on their common shares of the Company.
C. Material contracts
Other than as disclosed herein under “Shareholder Rights Plan” and below, and except for contracts entered into in the ordinary course of business, there are no
material contracts to which the Company or any of its subsidiaries is a party.
Employment Agreements
The Company and/or its subsidiaries have entered into employment agreements (the “Employment Agreements”) with each of the Named Executive Officers. The
Employment Agreements provide that we will pay the Named Executive Officers a base salary and an annual bonus and that such executives will be eligible to
receive grants of stock options which will be reviewed annually in accordance with our policies. The Employment Agreements have an indefinite term. However,
in addition to his Employment Agreement, Dr. Engel had previously entered into a service contract in his prior capacity as Managing Director with AEZS GmbH,
our Company’s principal operating subsidiary, which service contract has an indefinite term. Each of the Employment Agreements provides that, if we terminate
the employment of a Named Executive Officer without cause, then the executive will be entitled to receive, in the case of Dr. Engel, a lump-sum payment, less
statutory deductions, of the equivalent of 24 months of his then applicable base salary, an amount equivalent to twice the annual bonus received for the most
recently completed year and an amount equivalent to twelve months of the cost of the other benefits to which he is entitled. In the case of Mr. Turpin, the lump-
sum payment will be equivalent to 18 months of his then applicable base salary, 1.5 times the annual bonus of the preceding year and 18 months of the value of
the other benefits to which he is entitled. In the case of Dr. Blake and Messrs. Pelliccione and Seeber, they are entitled to receive, upon termination of
employment without cause, a lump-sum payment equivalent to twelve months of their then applicable base salaries, an amount equivalent to the annual bonus
received for the preceding year and twelve months of the value of the other benefits to which they are entitled.
Furthermore, each Named Executive Officer shall not, directly or indirectly, solicit any of our customers for the purpose or intent of selling them any products
which are similar to or otherwise competing with our products; nor shall any Named Executive Officer induce, entice or otherwise attempt to directly or indirectly
hire or engage any of our employees, for a period equal to one year following such executive’s termination of employment with the Company.
Pursuant to the Employment Agreements, each of the Named Executive Officers is also entitled to certain payments (the “Change of Control Payments”) in the
event (i) a “Change of Control” occurs and (ii) during the twelve-month period following the Change of Control, either the Company terminates the employment
of the executive “without Cause” or if the executive terminates his or her employment “for Good Reason”.
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The Change of Control Payments are as follows:
— for Dr. Engel and Mr. Seeber, (i) the equivalent of 24 months of their then prevailing annual base salaries, (ii) an amount equivalent to twice the annual bonus,
if any, which the executive would have been entitled to receive in the year during which the Change of Control occurred, and (iii) an amount equivalent to
24 months of the value of the benefits which were in force at the time of termination of the executive’s employment, calculated on a yearly basis, including car
allowance, but excluding operating costs;
— for Mr. Turpin, the Change of Control Payment would be the same as in the context of a termination of employment described above, except that the
1.5 multiple of his bonus payment would be based on his potential bonus for the year in which the Change of Control occurs as opposed to his actual bonus
received for the preceding financial year; and
— for Dr. Blake and Mr. Pelliccione (i) the equivalent of 18 months of their then prevailing annual base salaries, (ii) an amount equivalent to 1.5 times the annual
bonus, if any, which the executive would have been entitled to receive in the year during which the Change of Control occurred, and (iii) an amount equivalent
to 18 months of the value of the benefits which were in force at the time of termination of the executive’s employment, calculated on a yearly basis, including
car allowance, but excluding operating costs.
All Change of Control Payments described above are subject to applicable statutory withholdings. In addition, any outstanding stock options held by a Named
Executive Officer are unaffected by the change of control provisions included in the Employment Agreements and, in the event of a Change of Control followed
by termination of employment within twelve months, such stock options will be treated in accordance with the applicable provisions of the Stock Option Plan
described elsewhere in this annual report.
For the purposes of the Employment Agreements (including the annexes and schedules thereto):
— a “Change of Control” shall be deemed to have occurred in any of the following circumstances: (i) subject to certain exceptions, upon the acquisition by a
person (or one or more persons who are affiliates of one another or who are acting jointly or in concert) of a beneficial interest in securities of the Company
representing in any circumstance 50% or more of the voting rights attaching to the then outstanding securities of the Company; (ii) upon a sale or other
disposition of all or substantially all of the Company’s assets; (iii) upon a plan of liquidation or dissolution of the Company; or (iv) if, for any reason, including
an amalgamation, merger or consolidation of the Company with or into another company, the individuals who, as at the date of the relevant Employment
Agreement, constituted the Board (and any new directors whose appointment by the Board or whose nomination for election by the Company’s shareholders
was approved by a vote of at least two-thirds of the directors then still in office who either were directors as at the date of the relevant Employment Agreement
or whose appointment or nomination for election was previously so approved) cease to constitute a majority of the members of the Board;
— termination of employment by the Company “for Cause” includes (but is not limited to) (i) if the executive commits any fraud, theft, embezzlement or other
criminal act of a similar nature, and (ii) if the executive is guilty of serious misconduct or willful negligence in the performance of his duties; and
— termination of employment by the executive officer for “Good Reason” means the occurrence, without the executive’s express written consent, of any of the
following acts: (i) a material reduction of the executive’s total compensation (including annual base salary plus annual bonus, benefits and number of stock
options) as in effect on the date of the relevant Employment Agreement or as same may be increased from time to time; (ii) a material reduction or change in
the executive’s duties, authority, responsibilities, accountability or a change in the business or corporate structure of the Company which materially affects his
or her authority, compensation or ability to perform duties or responsibilities (such as shifting from a policy-making to a policy-implementation position);
(iii) a forced relocation; or (iv) a material change in the terms and conditions of the change of control provisions included in the relevant Employment
Agreement.
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Other Material Contracts
Cetrotide
®
®
In November 2008, we signed a definitive agreement to sell to CHRP our rights to royalties on future sales of Cetrotide covered by our license agreement with
Merck Serono. This license agreement was signed in 2000 and amended in 2003 and granted Merck Serono exclusive rights to market, distribute and sell
Cetrotide worldwide, with the exception of Japan, in the field of in vitro fertilization. On closing, we received $52.5 million from CHRP (less transaction costs
of $1.0 million) and, upon net sales of Cetrotide having reached a specified level in 2010, we received an additional payment of $2.5 million from CHRP in
February 2011. Under the terms of the agreement, if cetrorelix is approved for sale by the European regulatory authorities in an indication other than in vitro
fertilization, we have agreed to make a one-time cash payment to CHRP in an amount ranging from $5 million up to $15 million.
®
®
Perifosine
We are party to a license and collaboration agreement with Keryx. Under the terms of this agreement, Keryx undertakes, at its own cost, all development activities
necessary to obtain regulatory and marketing approvals of perifosine, a signal transduction inhibitor, for all uses in the United States, Canada and Mexico. The
agreement provides for, among other things, the availability of data generated by both parties free of charge. In September 2002, we received an upfront payment
of approximately $0.5 million and are eligible to receive payments of up to an aggregate of $18.3 million upon Keryx’s successful achievement of clinical
development and regulatory milestones, in addition to scale-up royalties (from high single to low double-digit) on future net sales in the United States, Canada
and Mexico. The license and collaboration agreement terminates upon the later of the expiration of all underlying patent rights or ten years from the first
commercial sale of perifosine in any of the covered territories. In addition, Keryx may, at its option, terminate the agreement with respect to a country in the
covered territories or as to the entire agreement at any time by giving written notice to us. Upon such termination, the license shall terminate and Keryx shall pay
us any accrued amounts payable under the agreement. The agreement may also be terminated for material breach by the other party and in the certain events of
bankruptcy or insolvency of the other party.
On March 8, 2011, we entered into an agreement with Yakult for the development, manufacture and commercialization of perifosine in all human uses, excluding
leishmaniasis, in Japan. Under the terms of this agreement, Yakult has made an initial non-refundable upfront payment to us of €6.0 million (approximately
$8.4 million). Also per the agreement, we will be entitled to receive up to a total of €44.0 million (approximately $57.1 million) upon achieving certain pre-
established milestones, including clinical and regulatory events in Japan. Furthermore, we will be entitled to receive double-digit royalties on future net sales of
perifosine in the Japanese market. We have also agreed to supply perifosine to Yakult on a cost-plus-basis. In addition, under the agreement, we agreed to use
commercially reasonable efforts to develop, manufacture and commercialize perifosine outside of Japan for specific indications, and Yakult is responsible for the
development, registration and commercialization of perifosine in Japan. Either party may terminate the agreement for the material, uncured breach by the other
party and in certain events of bankruptcy or insolvency of the other party.
D.
Exchange controls
Canada has no system of exchange controls. There are no exchange restrictions on borrowing from foreign countries or on the remittance of dividends, interest,
royalties and similar payments, management fees, loan repayments, settlement of trade debts or the repatriation of capital.
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E.
Taxation
THE FOLLOWING SUMMARY IS OF A GENERAL NATURE ONLY AND IS NOT INTENDED TO BE, NOR SHOULD IT BE CONSTRUED TO BE,
LEGAL OR TAX ADVICE TO ANY PARTICULAR HOLDER. CONSEQUENTLY, HOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
FOR ADVICE AS TO THE TAX CONSEQUENCES OF AN INVESTMENT IN THE COMMON SHARES HAVING REGARD TO THEIR PARTICULAR
CIRCUMSTANCES.
Material Canadian Income Tax Considerations
The following summary describes the principal Canadian federal income tax considerations to a holder who acquires common shares (a “holder”) and who, for
the purposes of the Canadian federal Income Tax Act, R.S.C. 1985, as amended (the “Tax Act”), and at all relevant times, deals at arm’s length with, and is not
affiliated with, the Company or a subsequent purchaser of such common shares and holds their common shares as capital property. Common shares will generally
be considered to be capital property to a holder for purposes of the Tax Act unless either the holder holds such common shares in the course of carrying on a
business of trading or dealing in securities, or the holder has held or acquired such common shares in a transaction or transactions considered to be an adventure
in the nature of trade.
This summary is not applicable to a holder (i) that is a “financial institution”, as defined in the Tax Act for purposes of the mark-to-market rules, (ii), that is a
“specified financial institution”, as defined in the Tax Act, (iii) an interest in which would be a “tax shelter investment” as defined in the Tax Act, or (iv) that has
made a functional currency reporting election for purposes of the Tax Act. Such holders should consult their own tax advisors.
This summary is based upon the current provisions of the Tax Act and the regulations promulgated thereunder (the “Regulations”) and the Company’s
understanding of the current published administrative policies and assessing practices of the Canada Revenue Agency (“CRA”). It also takes into account all
proposed amendments to the Tax Act and the Regulations publicly released by the Minister of Finance (Canada) prior to the date hereof (“Tax Proposals”), and
assumes that all such Tax Proposals will be enacted as currently proposed. No assurance can be given that the Tax Proposals will be enacted in the form proposed
or at all. This summary does not otherwise take into account or anticipate any changes in law or administrative or assessing practice or policy of the CRA,
whether by legislative, regulatory, judicial or administrative action or interpretation, nor does it address any provincial, local, territorial or foreign tax
considerations.
Holders Not Resident in Canada
The following discussion applies to a holder of common shares who, at all relevant times, for purposes of the Tax Act , is neither resident nor deemed to be
resident in Canada and does not, and is not deemed to, use or hold common shares in carrying on a business or part of a business in Canada (a “Non-Resident
holder”). In addition, this discussion does not apply to an insurer who carries on an insurance business in Canada and elsewhere or to an authorized foreign bank
(as defined in the Tax Act).
Disposition of Common Shares
A Non-Resident holder generally will not be subject to tax under the Tax Act in respect of any capital gain realized by such Non-Resident holder on a disposition
or deemed disposition of common shares unless such shares constitute “taxable Canadian property” (as defined in the Tax Act) of the Non-Resident holder at the
time of disposition and the gain is not exempt from tax pursuant to the terms of an applicable income tax treaty or convention.
As long as the common shares are listed on a designated stock exchange (which currently includes NASDAQ and the TSX) at the time of their disposition, the
common shares generally will not constitute taxable Canadian property of a Non-Resident holder, unless at any time during the 60-month period immediately
preceding the
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disposition: (i) the Non-Resident holder, persons with whom the Non-Resident holder did not deal at arm’s length, or the Non-Resident holder together with all
such persons, owned 25% or more of the issued shares of any class or series of shares of the corporation; and (ii) more than 50% of the fair market value of the
shares of the corporation was derived directly or indirectly from one or any combination of real or immovable property situated in Canada, “Canadian resource
properties” ( as defined in the Tax Act), “timber resource properties” (as defined in the Tax Act) or options in respect of, or interests in, or for civil law rights in,
such property whether or not such property exists.
A Non-Resident holder’s capital gain (or capital loss) in respect of common shares that constitute or are deemed to constitute taxable Canadian property ( and are
not “treaty-protected property” as defined for purposes of the Tax Act) will generally be computed in the manner described below under the heading “Holders
Resident in Canada — Disposition of Common Shares”.
If the common shares were to cease being listed on NASDAQ, the TSX or another “recognized stock exchange”, a Non-Resident holder who disposes of common
shares that are taxable Canadian property may be required to fulfill the requirements of section 116 of the Tax Act.
Non-Resident holders whose common shares are taxable Canadian property should consult their own tax advisors.
Taxation of Dividends on Common Shares
Dividends paid or credited or deemed to be paid or credited to a Non-Resident holder by the corporation are subject to Canadian withholding tax at the rate of
25% unless reduced by the terms of an applicable tax treaty or convention.
Under the Canada — United States Tax Convention (1980) (the “Convention”) as amended, the rate of withholding tax on dividends paid or credited to a Non-
Resident holder who is the beneficial owner of the dividends, is resident in the U.S. for purposes of the Convention and entitled to the benefits of the Convention
(a “U.S. holder”) is generally limited to 15% of the gross amount of the dividend (or 5% in the case of a U.S. holder that is a company beneficially owning at
least 10% of the corporation’s voting shares). Non-Resident holders should consult their own tax advisors.
Holders Resident in Canada
The following discussion applies to a holder of common shares who, at all relevant times, for purposes of the Tax Act, is or is deemed to be resident in Canada
(a “Canadian holder”). Certain Canadian holders whose common shares might not otherwise qualify as capital property may, in certain circumstances, treat the
common shares and every other “Canadian security” (as defined in the Tax Act) owned by the Canadian holder as capital property by making an irrevocable
election provided by subsection 39(4) of the Tax Act.
Taxation of Dividends on Common Shares
Dividends received or deemed to have been received on the common shares will be included in a Canadian holder’s income for purposes of the Tax Act. Such
dividends received or deemed to have been received by a Canadian holder that is an individual (other than certain trusts) will be subject to the gross-up and
dividend tax credit rules generally applicable under the Tax Act in respect of dividends received on shares of taxable Canadian corporations. Generally, a dividend
will be eligible for the enhanced gross-up and dividend tax credit if the corporation designates the dividend as an “eligible dividend” (within the meaning of the
Tax Act) in accordance with the provisions of the Tax Act. There may be limitations on the ability of the Company to designate dividends as eligible dividends. A
Canadian holder that is a corporation will be required to include such dividends in computing its income and will generally be entitled to deduct the amount of
such dividends in computing its taxable income. A Canadian holder that is a “private corporation” or a “subject corporation” (as such terms are defined in the
Tax Act), may be liable under Part IV of the Tax Act to pay a refundable tax of 33 /3% on dividends received or deemed to have been received on the common
shares to the extent such dividends are deductible in computing the holder’s taxable income.
1
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Disposition of Common Shares
A disposition, or a deemed disposition, of a common share by a Canadian holder will generally give rise to a capital gain (or a capital loss) equal to the amount by
which the proceeds of disposition of the share, net of any reasonable costs of disposition, exceed (or are less than) the adjusted cost base of the share to the holder.
Such capital gain (or capital loss) will be subject to the treatment described below under “Taxation of Capital Gains and Capital Losses”.
Additional Refundable Tax
A Canadian holder that is a “Canadian-controlled private corporation” (as such term is defined in the Tax Act) may be liable to pay an additional refundable tax of
6 2/3% on certain investment income including amounts in respect of “Taxable Capital Gains”, as defined below.
Taxation of Capital Gains and Capital Losses
In general, one half of any capital gain (a “Taxable Capital Gain”) realized by a Canadian holder in a taxation year will be included in the holder’s income in the
year. Subject to and in accordance with the provisions of the Tax Act, one half of any capital loss (an “Allowable Capital Loss”) realized by a Canadian holder in
a taxation year must be deducted from Taxable Capital Gains realized by the holder in the year and Allowable Capital Losses in excess of Taxable Capital Gains
may be carried back and deducted in any of the three preceding taxation years or carried forward and deducted in any subsequent taxation year against net
Taxable Capital Gains realized in such years. The amount of any capital loss realized by a Canadian holder that is a corporation on the disposition or deemed
disposition of a common share may be reduced by the amount of dividends received or deemed to have been received by it on such common share (or on a share
for which the common share has been substituted) to the extent and under the circumstances prescribed by the Tax Act. Similar rules may apply where a
corporation is a member of a partnership or a beneficiary of a trust that owns common shares, directly or indirectly, through a partnership or a trust. A Taxable
Capital Gain realized and taxable dividends received or deemed to have been received by a Canadian holder who is an individual (including a trust, other than
certain specified trusts) may give rise to liability for alternative minimum tax.
Material U.S. Federal Income Tax Considerations
The following discussion is a summary of material U.S. federal income tax consequences applicable to the ownership and disposition of common shares by a
U.S. Holder (as defined below), but does not purport to be a complete analysis of all potential U.S. federal income tax effects. This summary is based on the
Internal Revenue Code of 1986, as amended (the “Code”), U.S. Treasury regulations promulgated thereunder, IRS rulings and judicial decisions in effect on the
date hereof. All of these are subject to change, possibly with retroactive effect, or different interpretations.
This summary does not address all aspects of U.S. federal income taxation that may be relevant to particular U.S. Holders in light of their specific circumstances
(for example, U.S. Holders subject to the alternative minimum tax provisions of the Code) or to holders that may be subject to special rules under U.S. federal
income tax law. This summary also does not address the tax consequences of holding, exercising or disposing of warrants in the Company. If the Company is a
PFIC, as defined below, U.S. Holders of its warrants will be subject to adverse tax rules and will not be able to make the mark-to-market or the QEF election
described below with respect to such warrants. U.S. Holders of warrants should consult their tax advisors with regard to the U.S. federal income tax consequences
of holding, exercising or disposing of warrants in the Company, including in the situation in which the Company is classified as a PFIC.
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This summary also does not discuss any aspect of state, local or foreign law, or estate or gift tax law as applicable to U.S. Holders. U.S. Holders should consult
their tax advisors about the potential application of such laws and the application of the U.S. federal income tax rules summarized below to their particular
situation. In addition, this discussion is limited to U.S. Holders holding common shares as capital assets. For purposes of this summary, “U.S. Holder” means a
beneficial holder of common shares who or that for U.S. federal income tax purposes is:
— an individual citizen or resident of the United States;
— a corporation or other entity classified as a corporation for U.S. federal income tax purposes created or organized in or under the laws of the United States, any
state thereof or the District of Columbia;
— an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or
— a trust, if a court within the United States is able to exercise primary supervision over the administration of such trust and one or more “U.S. persons” (within
the meaning of the Code) have the authority to control all substantial decisions of the trust, or if a valid election is in effect for it to be treated as a U.S. person
for U.S. federal income tax purposes.
If a partnership or other entity or arrangement classified as a partnership for U.S. federal income tax purposes holds common shares, the U.S. federal income tax
treatment of a partner generally will depend on the status of the partner and the activities of the partnership. This summary does not address the tax consequences
to any such partner. Such a partner should consult its own tax advisor as to the tax consequences of the partnership owning and disposing of common shares.
Dividends
Subject to the PFIC rules discussed below, any distributions paid by the Company out of current or accumulated earnings and profits (as determined for
U.S. federal income tax purposes), before reduction for any Canadian withholding tax paid with respect thereto, will generally be taxable to a U.S. Holder as
foreign source dividend income, and will not be eligible for the dividends received deduction generally allowed to corporations. Distributions in excess of current
and accumulated earnings and profits will be treated as a non-taxable return of capital to the extent of the U.S. Holder’s adjusted tax basis in the common shares
and thereafter as capital gain. U.S. Holders should consult their own tax advisors with respect to the appropriate U.S. federal income tax treatment of any
distribution received from the Company.
For taxable years beginning before January 1, 2013, dividends paid by the Company should be taxable to a non-corporate U.S. Holder at the special reduced rate
normally applicable to long term capital gains, provided that certain conditions are satisfied. A U.S. Holder will not be able to claim the reduced rate if the
Company is treated as a PFIC for the taxable year in which the dividend is paid or the preceding year. See “Passive Foreign Investment Company Considerations”
below.
Under current law, payments of dividends by the Company to non-Canadian investors are generally subject to a 25 percent Canadian withholding tax. The rate of
withholding tax applicable to U.S. Holders that are eligible for benefits under the Canada-United States Tax Convention (the “Convention”) is reduced to a
maximum of 15 percent. This reduced rate of withholding will not apply if the dividends received by a U.S. Holder are effectively connected with a permanent
establishment of the U.S. Holder in Canada. For U.S. federal income tax purposes, U.S. Holders will be treated as having received the amount of Canadian taxes
withheld by the Company, and as then having paid over the withheld taxes to the Canadian taxing authorities. As a result of this rule, the amount of dividend
income included in gross income for U.S. federal income tax purposes by a U.S. Holder with respect to a payment of dividends may be greater than the amount of
cash actually received (or receivable) by the U.S. Holder from the Company with respect to the payment.
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A U.S. Holder will generally be entitled, subject to certain limitations, to a credit against its U.S. federal income tax liability, or a deduction in computing its
U.S. federal taxable income, for Canadian income taxes withheld by the Company. For purposes of the foreign tax credit limitation, dividends paid by the
Company generally will constitute foreign source income in the “passive category income” basket. The foreign tax credit rules are complex and prospective
purchasers should consult their tax advisors concerning the foreign tax credit implications of the payment of Canadian taxes.
Dividends paid in Canadian dollars will be included in the gross income of a U.S. Holder in a U.S. dollar amount calculated by reference to the exchange rate in
effect on the date the U.S. Holder receives the dividend, regardless of whether such Canadian dollars are actually converted into U.S. dollars at that time. Gain or
loss, if any, realized on a sale or other disposition of the Canadian dollars will generally be U.S. source ordinary income or loss to a U.S. Holder.
The Company generally does not pay any dividends and does not anticipate paying any dividends in the foreseeable future.
Sale or Other Taxable Disposition
Subject to the PFIC rules discussed below, upon a sale or other taxable disposition of common shares, a U.S. Holder generally will recognize capital gain or loss
for U.S. federal income tax purposes equal to the difference, if any, between the amount realized on the sale or other taxable disposition and the U.S. Holder’s
adjusted tax basis in the common shares.
This capital gain or loss will be long-term capital gain or loss if the U.S. Holder’s holding period in the common shares exceeds one year. For taxable years
beginning before January 1, 2013, the rates of taxation for long-term capital gains of non-corporate U.S. Holders are reduced compared to such rates thereafter
provided that certain conditions are satisfied. The deductibility of capital losses is subject to limitations. Any gain or loss will generally be U.S. source for
U.S. foreign tax credit purposes.
Passive Foreign Investment Company Considerations
A foreign corporation will be classified as a PFIC for any taxable year in which, after taking into account the income and assets of the corporation and certain
subsidiaries pursuant to applicable “look-through rules”, either (i) at least 75% of its gross income is “passive income” or (ii) at least 50% of the average value of
its assets is attributable to assets which produce passive income or are held for the production of passive income.
The Company believes it was not a PFIC for the 2011 taxable year. However, the fair market value of the Company’s assets may be determined in large part by
the market price of the common shares, which is likely to fluctuate, and the composition of the Company’s income and assets will be affected by how, and how
quickly, the Company spends any cash that is raised in any financing transaction. Thus, no assurance can be provided that the Company will not be classified as a
PFIC for the 2012 taxable year and for any future taxable year.
If the Company is classified as a PFIC for any taxable year during which a U.S. Holder owns common shares, the U.S. Holder, absent certain elections (including
the mark-to-market election described below), will generally be subject to adverse rules (regardless of whether the Company continues to be classified as a PFIC)
with respect to (i) any “excess distributions” (generally, any distributions received by the U.S. Holder on the common shares in a taxable year that are greater than
125% of the average annual distributions received by the U.S. Holder in the three preceding taxable years or, if shorter, the U.S. Holder’s holding period for the
common shares) and (ii) any gain realized on the sale or other disposition of the common shares.
Under these adverse rules (a) the excess distribution or gain will be allocated ratably over the U.S. Holder’s holding period, (b) the amount allocated to the current
taxable year and any taxable year prior to the first taxable year in which the Company is classified as a PFIC will be taxed as ordinary income, and (c) the amount
allocated to each of the other taxable years during which the Company was classified as a PFIC will be subject to tax at the highest rate of tax in effect for the
applicable class of taxpayer for that year and an interest charge will be imposed with respect to the resulting tax attributable to each such other taxable year.
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U.S. Holders can avoid the interest charge described above by making a mark-to-market election with respect to the common shares, provided that common
shares are “marketable”. The common shares will be marketable if they are regularly traded on a qualified exchange or other market. For this purpose, the
common shares generally will be considered to be regularly traded during any calendar year during which they are traded, other than in de minimis quantities, on
at least 15 days during each calendar quarter. The common shares are currently listed and regularly traded on NASDAQ, which constitutes a qualified exchange.
If the common shares were delisted from NASDAQ and were not traded on another qualified exchange for the requisite time period described above, the mark-to-
market election would not be available.
A U.S. Holder that makes a mark-to-market election must include in gross income, as ordinary income, for each taxable year an amount equal to the excess, if
any, of the fair market value of the U.S. Holder’s common shares at the close of the taxable year over the U.S. Holder’s adjusted tax basis in the common shares.
An electing U.S. Holder may also claim an ordinary loss deduction for the excess, if any, of the U.S. Holder’s adjusted tax basis in the common shares over the
fair market value of the common shares at the close of the taxable year, but this deduction is allowable only to the extent of any net mark-to-market gains for prior
taxable years. A U.S. Holder that makes a mark-to-market election generally will adjust such U.S. Holder’s tax basis in the common shares to reflect the amount
included in gross income or allowed as a deduction because of such mark-to-market election. Gains from an actual sale or other disposition of the common shares
will be treated as ordinary income, and any losses incurred on a sale or other disposition of the common shares will be treated as ordinary losses to the extent of
any net mark-to-market gains for prior taxable years.
A mark-to-market election will be effective for the taxable year for which the election is made and all subsequent taxable years. The election cannot be revoked
without the consent of the IRS unless the common shares cease to be marketable, in which case the election is automatically terminated. If the Company is
classified as a PFIC for any taxable year in which a U.S. Holder owns common shares but before a mark-to-market election is made, the interest charge rules
described above will apply to any mark-to-market gain recognized in the year the election is made.
In some cases, a shareholder of a PFIC can avoid the interest charge and the other adverse PFIC consequences described above by making a qualified electing
fund (“QEF”) election to be taxed currently on its share of the PFIC’s undistributed income. The Company does not, however, expect to provide the information
regarding its income that would be necessary in order for a U.S. Holder to make a QEF election with respect to common shares if the Company is classified as a
PFIC.
If the Company is classified as a PFIC, a U.S. Holder of common shares will generally be treated as owning stock owned by the Company in any direct or indirect
subsidiaries that are also PFICs and will be subject to similar adverse rules with respect to distributions to the Company by, and dispositions by the Company of
the stock of such subsidiaries. A mark-to-market election is not permitted for the shares of any subsidiary of the Company that is also classified as a PFIC.
If the Company is classified as a PFIC and then ceases to be so classified, a U.S. Holder may make an election (a “deemed sale election”) to be treated for
U.S. federal income tax purposes as having sold such U.S. Holder’s common shares on the last day of the taxable year of the Company during which it was a
PFIC. A U.S. Holder that made a deemed sale election would then cease to be treated as owning a stock in a PFIC by reason of ownership of common shares in
the Company. However, gain recognized as a result of making the deemed sale election would be subject to the adverse rules described above.
Under recently enacted U.S. tax legislation and subject to future guidance, if the Company is a PFIC, U.S. Holders will 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 income tax or information returns) relating to their ownership
of common shares. Pursuant to Notice 2011-55, the IRS has suspended this new filing
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requirement for U.S. Holders that are not otherwise required to file the current version of the IRS Form 8621 until the IRS releases a subsequent revision of IRS
Form 8621, modified to reflect the recently enacted U.S. tax legislation. Guidance has not yet been issued regarding the information required to be included on
such form.
This new filing requirement is in addition to any pre-existing reporting requirements that apply to a U.S. Holder’s interest in a PFIC (which the recently enacted
tax legislation and IRS Notice 2011-55 do not affect).
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.
Information Reporting and Backup Withholding
The proceeds of a sale or other disposition of common shares, as well as dividends paid or deemed paid with respect to common shares by a U.S. payor, generally
will be reported to the IRS and to the U.S. Holder as required under applicable regulations. Backup withholding tax may apply to these payments if the
U.S. Holder fails to timely provide in the appropriate manner an accurate taxpayer identification number or otherwise fails to comply with, or establish an
exemption from, such backup withholding tax requirements. Certain U.S. Holders are not subject to the information reporting or backup withholding tax
requirements described herein. U.S. Holders should consult their tax advisors as to their qualification for exemption from backup withholding tax and the
procedure for establishing an exemption.
Backup withholding tax is not an additional tax. U.S. Holders generally will be allowed a refund or credit against their U.S. federal income tax liability for
amounts withheld, provided the required information is timely furnished to the IRS.
Subject to specified exceptions and future guidance, recently enacted U.S. tax legislation generally requires a U.S. Holder (that is an individual or, to the extent
provided in future guidance, a domestic entity) to report to the IRS on IRS Form 8938 such U.S. Holder’s interests in stock or securities issued by a non-
U.S. person (such as the Company) for taxable years beginning after March 18, 2010. U.S. Holders should consult their tax advisors regarding the information
reporting obligations that may arise from their acquisition, ownership or disposition of common shares.
F.
Dividends and paying agents
Not applicable.
G.
Statement by experts
Not applicable.
H.
Documents on display
In addition to placing our audited comparative annual financial statements before every annual meeting of shareholders as described above, we are subject to the
information requirements of the Securities Exchange Act of 1934, as amended. In accordance with these requirements, we file and furnish reports and other
information with the SEC. These materials, including this annual report on Form 20-F and the exhibits thereto, may be inspected and copied at the SEC’s Public
Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. The public may obtain information on the operation of the SEC’s Public Reference
Room by calling the SEC in the United States at 1-800-SEC-0330. The SEC also maintains a website at www.sec.gov that contains reports, proxy statements and
other information regarding registrants that file electronically with the SEC. The Company’s annual reports and some of the other information submitted by the
Company to the SEC may be accessed through this website. In addition, material filed by the Company can be inspected on the Canadian Securities
Administrators’ electronic filing system, SEDAR, accessible at the website www.sedar.com. This material
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includes the Company’s Management Information Circular for its annual meeting to be held on May 9, 2012 to be furnished to the SEC on Form 6-K, which
provides information including directors’ and officers’ remuneration and indebtedness and principal holders of securities. Additional financial information is
provided in our audited annual financial statements for the year ended December 31, 2011 and our MD&A relating to these statements included elsewhere in this
annual report. These documents are also accessible on SEDAR (www.sedar.com) and on EDGAR (www.sec.gov).
I.
Subsidiary information
The subsidiaries of the Company are set forth under “Item 4C. — Organizational Structure”.
Item 11.
Quantitative and Qualitative Disclosures About Market Risk
We have not entered into any forward currency contracts or other financial derivatives to hedge foreign exchange risk. We are therefore subject to foreign
currency transaction and translation gains and losses.
Fair value
The Company classifies its financial instruments in the following categories: “Financial assets at fair value through profit or loss (“FVTPL”)”; “Loans and
receivables”; “Financial liabilities at FVTPL”; and “Other financial liabilities”.
— Financial assets at FVTPL are comprised exclusively of the Company’s short-term investment.
— The Company’s loans and receivables are comprised of cash and cash equivalents, trade and other receivables and restricted cash.
— Financial liabilities at FVTPL are currently comprised of the Company’s warrant liability.
— Other financial liabilities include trade accounts payable and accrued liabilities, long-term payable and other long-term liabilities.
The carrying values of all of the aforementioned financial instruments, excluding cash and cash equivalents, short-term investment, restricted cash and warrant
liability which are stated at fair value, approximate their fair values due to their short-term maturity or to the prevailing interest rates of these 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 currency risk), and how the Company manages those risks.
(a) Credit risk
Credit risk is the risk of an unexpected loss if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Company regularly
monitors credit risk exposure and takes steps to mitigate the likelihood of this exposure resulting in losses. The Company’s exposure to credit risk currently
relates to cash and cash equivalents, to trade and other receivables and to restricted cash. The Company invests its available cash in amounts that are readily
convertible to known amounts of cash and deposits its cash balances with financial institutions that have a minimum rating of “A3”.
As at December 31, 2011, trade accounts receivable for an amount of approximately $7,415,000 were with two external customers or partners.
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As at December 31, 2011, no trade accounts receivable were past due or impaired.
Generally, the Company does not require collateral or other security from customers for trade accounts receivable; however, credit is extended following an
evaluation of creditworthiness. In addition, the Company performs ongoing credit reviews of all its customers and establishes an allowance for doubtful accounts
when accounts are determined to be uncollectible.
The maximum exposure to credit risk approximates the amount recognized on the statement of financial position.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. As indicated in the capital disclosures section (see
“Item 5 — Operating and Financial Review and Prospects”) the Company manages this risk through the management of its capital structure. It also manages
liquidity risk by continuously monitoring actual and projected cash flows. The Board of Directors reviews and approves the Company’s operating and capital
budgets, as well as any material transactions out 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.
(b) Market risk
Share price risk
The change in fair value of our warrant liability results from the periodic “mark-to-market” revaluation, via the application of the Black-Scholes option pricing
model, of currently outstanding share purchase warrants. The Black-Scholes valuation is impacted, among other inputs, by the market price of our common
shares. As a result, the change in fair value of the warrant liability, which is reported as finance income (costs) in our consolidated statements of comprehensive
loss, has been and may continue in future periods to be materially affected most notably by changes in our common share price, which has ranged from $1.43 to
$2.58 on NASDAQ and from C$1.41 to C$2.51 on the TSX during the twelve months ended December 31, 2011. Assuming the following variations of the
market price of the Company’s common shares over a 12-month period:
— Market price variations of -10% and +10%
If these variations were to occur, the impact on the Company’s net loss for warrant liability held at December 31, 2011 would be as follows:
Warrant liability*
Total impact on net loss – decrease/(increase)
*Includescurrent and non-current portions.
Foreign currency risk
Carrying
amount
$
-10%
$
+10%
$
9,204
1,155
1,155
(1,174)
(1,174)
Since the Company operates internationally, it is exposed to currency risks as a result of potential exchange rate fluctuations related to non-intragroup
transactions. In particular, fluctuations in the US dollar exchange rates against the EUR could have a potentially significant impact on the Company’s results of
operations. The following variations are reasonably possible over a 12-month period:
— Foreign exchange rate variation of -5% (depreciation of the EUR) and +5% (appreciation of the EUR) against the US$, from a year-end rate of EUR1 =
US$1.2972.
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If these variations were to occur, the impact on the Company’s net loss for each category of financial instruments held at December 31, 2011 would be as follows:
Carrying
amount
$
Balances denominated in US$
-5%
$
+5%
$
33,669 1,683
(460)
1,223
9,204
(1,683)
460
(1,223)
Cash and cash equivalents
Warrant liability*
Total impact on net loss – decrease/(increase)
* Includes current and non-current portions.
Item 12.
Description of Securities Other than Equity Securities
A.
Debt securities
Not applicable.
B. Warrants and rights
Not applicable.
C.
Other securities
Not applicable.
D.
American depositary shares
Not applicable.
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Item 13.
Defaults, Dividend Arrearages and Delinquencies
None.
Item 14.
Material Modification to the Rights of Security Holders and Use of Proceeds
PART II
None.
Item 15.
Controls and Procedures
Under the supervision of and with the participation of the Registrant’s management, including the Chief Executive Officer and Chief Financial Officer, we have
conducted an evaluation pursuant to Rule 13a-15, promulgated under the Securities Exchange Act of 1934, as amended, of the effectiveness of our disclosure
controls and procedures as at December 31, 2011. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these
disclosure controls and procedures were effective as at December 31, 2011.
Management’s Annual Report on Internal Control over Financial Reporting
The Registrant’s management is responsible for establishing and maintaining adequate internal control over financial reporting. The Registrant’s internal control
over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with IFRS.
The Registrant’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the Registrant’s assets; (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 Registrant are being made only in
accordance with authorizations of the Registrant’s management; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the Registrant’s 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 the Registrant’s internal control over financial reporting based on the criteria established in Internal
Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management
concluded that the Registrant’s internal control over financial reporting was effective as at December 31, 2011.
The effectivemess of the Registrant’s internal control over financial reporting as of December 31, 2011, has been audited by PricewaterhouseCoopers LLP,
independent auditors, as stated in their report which is included under “Item 18. — Financial Statements”.
Attestation Report of the Independent Auditors
140
Table of Contents
There have been no changes in our internal control over financial reporting during the year ended December 31, 2011 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
Changes in Internal Control over Financial Reporting
Item 16A.
Audit Committee Financial Expert
The Board of the Registrant has determined that the Registrant has at least one audit committee financial expert (as defined in paragraph (b) of Item 16A to
Form 20-F). The name of the audit committee financial expert of the Registrant is Mr. Gérard Limoges, FCA, the Audit Committee’s Chairman. The Commission
has indicated that the designation of Mr. Limoges as the audit committee financial expert of the Registrant does not: (i) make Mr. Limoges an “expert” for any
purpose, including without limitation for purposes of Section 11 of the Securities Act of 1933, as amended, as a result of this designation; (ii) impose any duties,
obligations or liability on Mr. Limoges that are greater than those imposed on him as a member of the Audit Committee and the Board in the absence of such
designation; or (iii) affect the duties, obligations or liability of any other member of the Audit Committee or the Board. The other members of the Audit
committee are Mr. Pierre Lapalme and Mr. Michael Meyers, each of whom, along with Mr. Limoges, is independent, as that term is defined in the NASDAQ
listing standards. For a description of their respective education and experience, please refer to “Item 6. — Directors, Senior Management and Employees”.
Item 16B.
Code of Ethics
On March 29, 2004, the Board adopted a “Code of Ethical Conduct”, which has been amended by the Board on November 3, 2004, December 13, 2005, March 2,
2007 and March 10, 2009. The December 13, 2005 amendment incorporates changes to the duty to report violations consistent with applicable laws. The
Registrant has selected an independent third party supplier to provide a confidential and anonymous communication channel for reporting concerns about possible
violations to the Registrant’s Code of Ethical Conduct as well as financial and/or accounting irregularities or fraud. A copy of the Code of Ethical Conduct, as
amended, is included as Exhibit 11.1 to this annual report and is also available on the Registrant’s Web site at www.aezsinc.com under the
Investors — Governance tab. The Code of Ethical Conduct is a “code of ethics” as defined in paragraph (b) of Item 16B to Form 20-F. The Code of Ethical
Conduct applies to all of the Registrant’s employees, directors and officers, including the Registrant’s principal executive officer, principal financial officer, and
principal accounting officer or controller, or persons performing similar functions, and includes specific provisions dealing with integrity in accounting matters,
conflicts of interest and compliance with applicable laws and regulations. The Registrant will provide this document without charge to any person or company
upon request to the Chief Financial Officer of the Registrant, at its head office at 1405 du Parc-Technologique Boulevard, Quebec City, Quebec,
G1P 4P5, Canada.
Item 16C.
Principal Accountant Fees and Services
(All amounts are in US dollars)
A.
Audit Fees
During the financial years ended December 31, 2011 and 2010, the Registrant’s principal accountant, PricewaterhouseCoopers LLP, billed $650,460 and
$605,614, respectively, for the audit of the Registrant’s annual consolidated financial statements and for services rendered in connection with the Registrant’s
statutory and regulatory filings.
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B.
Audit-related Fees
During the financial years ended December 31, 2011 and 2010, the Registrant’s principal accountant, PricewaterhouseCoopers LLP, billed $76,822 and $131,833,
respectively, for audit or attest services not required by statute or regulation, for accounting consultations on proposed transactions, for the review of prospectuses
and prospectus supplements, including the delivery of customary consent and comfort letters in connection therewith, as well as evaluations of accounting policy
decisions and expected adjustments related to the Registrant’s transition to IFRS.
C.
Tax Fees
During the financial years ended December 31, 2011 and 2010, the Registrant’s principal accountant, PricewaterhouseCoopers LLP, billed $50,282 and $58,476,
respectively, for services related to tax compliance, tax planning and tax advice.
D.
All Other Fees
During the financial years ended December 31, 2011 and 2010, the Registrant’s principal accountant, PricewaterhouseCoopers LLP, billed $Nil and $Nil,
respectively, for services not included in audit fees, audit-related fees and tax fees.
E.
Audit Committee Pre-Approval Policies and Procedures
Under applicable Canadian securities regulations, the Registrant is required to disclose whether its Audit Committee has adopted specific policies and procedures
for the engagement of non-audit services and to prepare a summary of these policies and procedures. The Audit Committee Charter (included as Exhibit 11.2
to this annual report on Form 20-F) provides that it is such committee’s responsibility to approve all audit engagement fees and terms as well as reviewing
policies for the provision of non-audit services by the external auditors and, when required, the framework for pre-approval of such services. The Audit
Committee delegates to its Chairman the pre-approval of such non-audit fees. The pre-approval by the Chairman is then presented to the Audit Committee at its
first scheduled meeting following such pre-approval.
For each of the years ended December 31, 2011 and 2010, none of the non-audit services provided by the Registrant’s external auditor were approved by the
Audit Committee pursuant to the “de minimis exception” to the pre-approval requirement for non-audit services.
During the financial year ended on December 31, 2011, only full-time, permanent employees of the Registrant’s principal accountant,
PricewaterhouseCoopers LLP, performed audit work on the Registrant’s financial statements.
Item 16D.
Exemptions from the Listing Standards for Audit Committees
None.
Item 16E.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
Item 16F.
Changes in Registrant’s Certifying Accountant
None.
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Item 16G.
Corporate Governance
The Registrant is in compliance with the corporate governance requirements of NASDAQ except as described below. The Registrant is not in compliance with the
NASDAQ requirement that a quorum for a meeting of the holders of the common stock of the Registrant be no less than 33 /3% of such outstanding shares. The
by-laws of the Registrant provide that a quorum for purposes of any meeting of shareholders of the Registrant consists of at least 10% of the outstanding voting
shares. The Registrant benefits from an exemption from NASDAQ from this quorum requirement because the quorum provided for in the by-laws of the
Registrant is consistent with generally accepted business practices in Canada, the Registrant’s country of domicile, and with the TSX, the home country exchange
on which the Registrant’s voting shares are traded.
1
In addition, the Registrant follows certain of its home country practices in lieu of compliance with the NASDAQ requirements that: (i) independent directors of
the Registrant have regularly scheduled meetings at which only independent directors are present (“executive sessions”); (ii) the compensation of the chief
executive officer and the other executive officers of the Registrant be determined, or recommended to the Registrant’s Board for determination, by a
compensation committee comprised solely of independent directors; and (iii) the director nominees be selected, or recommended for selection by the Registrant’s
Board, by a nominations committee comprised solely of independent directors. The Chairman of the Board of the Registrant from time to time ensures that
directors hold meetings at which senior management is not present, and the Registrant’s Corporate Governance, Nominating and Human Resources Committee,
which serves as the Registrant’s compensation and nominations committee, is comprised of three members, each of whom is independent. In accordance with
applicable current NASDAQ requirements, the Registrant has in the past provided to NASDAQ letters from outside counsel certifying that these practices are not
prohibited by the Registrant’s home country law.
Item 16H.
Mine Safety Disclosure
None.
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Item 17.
Financial Statements
We have elected to provide financial statements pursuant to Item 18.
Item 18.
Financial Statements
The financial statements appear on pages 145 through 205.
PART III
144
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Aeterna Zentaris Inc.
Consolidated Financial Statements
As at December 31, 2011 and December 31, 2010 and for the years ended
December 31, 2011 and 2010
(in thousands of US dollars)
145
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March 27, 2012
Independent Auditor’s Report
To the Shareholders of Aeterna Zentaris Inc.
We have completed integrated audits of Aeterna Zentaris Inc. and its subsidiaries’ 2011 and 2010 consolidated financial statements and their internal control over
financial reporting as at December 31, 2011. Our opinions, based on our audits, are presented below.
Report on the consolidated financial statements
We have audited the accompanying consolidated financial statements of Aeterna Zentaris Inc. and its subsidiaries, which comprise the consolidated statements of
financial position as at December 31, 2011, December 31, 2010 and January 1, 2010 and the consolidated statement of comprehensive loss, changes in
shareholders’ equity and cash flows for the years ended December 31, 2011 and December 31, 2010, and the related notes, which comprise a summary of
significant accounting policies and other explanatory information.
Management’s responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial
Reporting Standards as issued by the International Accounting Standards Board and for such internal control as management determines is necessary to enable the
preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian
generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan
and perform an audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. Canadian generally
accepted auditing standards also require that we comply with ethical requirements.
An audit involves performing procedures to obtain audit evidence, on a test basis, about the amounts and disclosures in the consolidated financial statements. The
procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company’s preparation and fair presentation
of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation
of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion on the consolidated
financial statements.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Aeterna Zentaris Inc. and its subsidiaries as at
December 31, 2011, December 31, 2010 and January 1, 2010 and its financial performance and its cash flows for the years ended December 31, 2011 and
December 31, 2010 in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Report on internal control over financial reporting
We have also audited Aeterna Zentaris Inc. and its subsidiaries’ internal control over financial reporting as at December 31, 2011, based on criteria established in
Internal Control – Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
PricewaterhouseCoopers LLP/s.r.l./s.e.n.c.r.l., Chartered Accountants
1250 René-Lévesque Boulevard West, Suite 2800, Montréal, Quebec, Canada H3B 2G4
T: +1 514 205 5000, F: +1 514 876 1502, www.pwc.com/ca
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership, which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal
entity.
146
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Management’s responsibility for internal control over financial reporting
Management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over
financial reporting included in the section entitled, “Management’s Annual Report on Internal Control over Financial Reporting” appearing on Page 140 of this
Annual Report on Form 20-F.
Auditor’s responsibility
Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit. We conducted our audit of internal
control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects.
An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other
procedures as we consider necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion on the company’s internal control over financial reporting.
Definition of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial
reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Inherent limitations
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with
the policies or procedures may deteriorate.
Opinion
In our opinion, Aeterna Zentaris Inc. and its subsidiaries maintained, in all material respects, effective internal control over financial reporting as at December 31,
2011, based on criteria established in Internal Control – Integrated Framework issued by COSO.
Montréal, Québec, Canada
1
Chartered accountant auditor permit No. 21323
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Aeterna Zentaris Inc.
Consolidated Statements of Financial Position
(in thousands of US dollars)
ASSETS
Current assets
Cash and cash equivalents (note 6)
Short-term investment (note 7)
Trade and other receivables (note 8)
Inventory (note 9)
Prepaid expenses and other current assets
Restricted cash (note 10)
Property, plant and equipment (note 11)
Other non-current assets
Identifiable intangible assets (note 12)
Goodwill (note 13)
LIABILITIES
Current liabilities
Payables and accrued liabilities (note 14)
Current portion of deferred revenues (note 5)
Income taxes (notes 5 and 22)
Current portion of long-term payable
Deferred revenues (note 5)
Warrant liability (note 15)
Long-term payable
Employee future benefits (note 19)
Provision and other non-current liabilities (note 16)
SHAREHOLDERS’ DEFICIENCY
Share capital (note 17)
Other capital
Deficit
Accumulated other comprehensive (loss) income
December 31,
2011
$
December 31,
2010
$
January 1,
2010
$
46,881
-
8,325
3,456
1,477
60,139
806
2,512
830
1,769
9,313
75,369
12,257
5,310
259
59
17,885
39,242
9,162
29
12,880
717
79,915
31,998
1,934
5,421
3,311
1,145
43,809
827
3,096
803
3,299
9,614
61,448
10,260
4,045
-
60
14,365
39,052
13,412
90
11,533
571
79,023
38,100
-
3,549
4,415
2,407
48,471
878
4,358
528
4,127
10,246
68,608
11,845
6,327
965
57
19,194
45,919
1,664
143
12,021
507
79,448
101,884
82,327
(188,969)
212
(4,546)
75,369
60,900
81,091
(160,567)
1,001
(17,575)
61,448
41,524
79,943
(132,307)
-
(10,840)
68,608
Subsequent event (note 30)
The accompanying notes are an integral part of these consolidated financial statements.
Approved by the Board of Directors
Juergen Ernst
Director
Gérard Limoges
Director
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Aeterna Zentaris Inc.
Consolidated Statements of Changes in Shareholders’ Deficiency
For the years ended December 31, 2011 and 2010
(in thousands of US dollars, except share data)
offerings, net of transaction costs (note 17)
19,917,075
18,391
Balance – January 1, 2010
Net loss
Other comprehensive income:
Foreign currency translation adjustments
Actuarial gain on defined benefit plans
Comprehensive loss
Issuances pursuant to registered direct
Issuance pursuant to the exercise of warrants
(note 15)
Issuance pursuant to the exercise of stock
options (note 17)
Share-based compensation costs
Balance – December 31, 2010
Net loss
Other comprehensive loss:
Foreign currency translation adjustments
Actuarial loss on defined benefit plans
Comprehensive loss
Share issuances in connection with “At-the-
Market” drawdowns (note 17)
Share issuances pursuant to the exercise of
warrants (note 15)
Share issuances pursuant to the exercise of
stock options (note 17)
Share-based compensation costs
Balance – December 31, 2011
*Issued and paid in full
Common shares
(number of)*
Share capital Other capital
63,089,954
-
$
41,524
-
$
79,943
-
-
-
-
-
-
-
298,817
829
124,068
-
83,429,914
-
-
-
-
156
-
60,900
-
-
-
-
19,464,548
35,881
1,707,286
4,861
Deficit
$
(132,307)
(28,451)
-
191
(28,260)
-
-
-
-
-
-
-
(44)
1,192
81,091
-
-
-
(160,567)
(27,067)
-
-
-
-
-
-
(1,335)
(28,402)
-
-
Accumulated
other
comprehensive
income (loss)
$
-
-
Total
$
(10,840)
(28,451)
1,001
-
1,001
1,001
191
(27,259)
-
-
18,391
829
-
-
1,001
-
(789)
-
(789)
112
1,192
(17,575)
(27,067)
(789)
(1,335)
(29,191)
-
-
35,881
4,861
-
-
212
145
1,333
(4,546)
160,348
-
104,762,096
242
-
101,884
(97)
1,333
82,327
-
-
(188,969)
The accompanying notes are an integral part of these consolidated financial statements.
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Table of Contents
Aeterna Zentaris Inc.
Consolidated Statements of Comprehensive Loss
For the years ended December 31, 2011 and 2010
(in thousands of US dollars, except share and per share data)
Revenues
Sales and royalties
License fees and other
Operating expenses (note 18)
Cost of sales
Research and development costs, net of refundable tax credits and grants
Selling, general and administrative expenses (notes 11 and 12)
Loss from operations
Finance income (note 20)
Finance costs (note 20)
Net finance income (costs)
Loss before income taxes
Income tax expense (notes 5 and 22)
Net loss
Other comprehensive (loss) income:
Foreign currency translation adjustments
Actuarial gain (loss) on defined benefit plans
Comprehensive loss
Net loss per share (note 26)
Basic and diluted
Weighted average number of shares outstanding (note 26)
Basic and diluted
Years ended December 31,
2011
$
2010
$
31,306
4,747
36,053
24,857
2,846
27,703
27,560
24,517
16,170
68,247
18,700
21,257
12,552
52,509
(32,194)
(24,806)
6,239
(8)
6,231
1,800
(5,445)
(3,645)
(25,963)
(1,104)
(28,451)
-
(27,067)
(28,451)
(789)
(1,335)
1,001
191
(29,191)
(27,259)
(0.29)
(0.38)
94,507,988 75,659,410
The accompanying notes are an integral part of these consolidated financial statements.
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Table of Contents
Aeterna Zentaris Inc.
Consolidated Statements of Cash Flows
For the years ended December 31, 2011 and 2010
(in thousands of US dollars)
Cash flows from operating activities
Net loss
Items not affecting cash and cash equivalents
Change in fair value of warrant liability (note 15)
Depreciation, amortization and impairment (notes 11 and 12)
Share-based compensation costs (note 17)
Non-cash consideration received in connection with an amended licensing agreement
Gain on held-for-trading financial instrument (note 7)
Employee future benefits (note 19)
Amortization of deferred revenues
Foreign exchange gain on items denominated in foreign currencies
(Gain) loss on disposal of property, plant and equipment
Amortization of prepaid and other non-cash items
Changes in operating assets and liabilities (note 21)
Net cash used in operating activities
Cash flows from financing activities
Proceeds from issuances of common shares, net of cash transaction costs of $1,204 in 2011 and $1,506 in 2010 (note 17)
Proceeds from the exercise of share purchase warrants (note 15)
Proceeds from the exercise of stock options (note 17)
Repayment of long-term payable
Net cash provided by financing activities
Cash flows from investing activities
Proceeds from the sale of short-term investment (note 7)
Purchase of identifiable intangible assets (note 12)
Purchases of property, plant and equipment (note 11)
Disposals of property, plant and equipment (note 11)
Net cash provided by (used in) investing activities
Effect of exchange rate changes on cash and cash equivalents
Net change in cash and cash equivalents
Cash and cash equivalents – Beginning of the year
Cash and cash equivalents – End of the year
Cash and cash equivalents components (note 6):
Cash
Cash equivalents
Years ended December 31,
2011
$
2010
$
(27,067)
(28,451)
(2,533)
2,876
1,333
-
(1,278)
492
(5,840)
(1,955)
(26)
4,207
3,548
(26,243)
36,250
2,222
145
(61)
38,556
3,242
(69)
(736)
26
2,463
107
14,883
31,998
46,881
15,112
31,769
46,881
5,437
1,573
1,192
(1,263)
(687)
249
(5,873)
(965)
28
4,587
(7,539)
(31,712)
25,580
396
112
(59)
26,029
-
-
(82)
32
(50)
(369)
(6,102)
38,100
31,998
12,922
19,076
31,998
The accompanying notes are an integral part of these consolidated financial statements.
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Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2011 and December 31, 2010 and for the years ended December 31, 2011 and 2010
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
1
Summary of business, reporting entity and basis of preparation
Summary of business
Aeterna Zentaris Inc. (“Aeterna Zentaris” or the “Company”) is a late-stage global biopharmaceutical company specializing in oncology and endocrine
therapy with expertise in drug discovery, development and commercialization. The Company’s pipeline encompasses compounds at all stages of
development, from drug discovery through marketed products.
The Company benefits from strategic collaborators and licensee partners to contribute to the development of its pipeline of product candidates and to
establish commercial activities in specific territories.
The highest development priorities in oncology are the completion of Phase 3 trials with perifosine in colorectal cancer and in multiple myeloma as well as
the further advancement of AEZS-108, for which the Company has successfully completed a Phase 2 trial in advanced endometrial and advanced ovarian
cancer. The Company is currently planning for the initiation of a pivotal program with AEZS-108 in endometrial cancer. AEZS-108 is also in development
in other cancer indications, including castration and taxane-resistant prostate cancer, refractory bladder cancer, as well as triple-negative breast cancer.
The Company’s pipeline also encompasses other earlier-stage programs in oncology. AEZS-112, an oral anticancer agent which involves three mechanisms
of action (tubulin, topoisomerase II and angiogenesis inhibition) has completed a Phase 1 trial in advanced solid tumors and lymphoma. Additionally,
several targeted potential anti-cancer candidates such as AEZS-120, a live recombinant oral tumor vaccine candidate, as well as our PI3K/Erk inhibitors
AEZS-129, AEZS-131, AEZS-132 and their respective follow-up compounds are currently in preclinical development.
The Company’s lead program in endocrinology, a Phase 3 trial under a Special Protocol Assessment obtained from the FDA with AEZS-130 as an oral
diagnostic test for Growth Hormone Deficiency in adults, has been completed with positive results. The Company expects to file a New Drug Application
for the registration of AEZS-130 in the United States. Furthermore, AEZS-130 is in development for the treatment of cancer cachexia.
Reporting entity
The accompanying consolidated financial statements include the accounts of Aeterna Zentaris Inc., an entity incorporated under the Canada Business
Corporations Act, and its wholly-owned subsidiaries (collectively referred to as the “Group”). Aeterna Zentaris Inc. is the parent company of the Group
and represents the ultimate parent of the Group.
The Company currently has three wholly-owned direct and indirect subsidiaries, Aeterna Zentaris GmbH (“AEZS Germany”), based in Frankfurt,
Germany, Zentaris IVF GmbH, a direct wholly-owned subsidiary of AEZS Germany based in Frankfurt, Germany, and Aeterna Zentaris, Inc., based in
Basking Ridge, New Jersey in the United States.
The address of the Company is 1405, du parc-Technologique Blvd, Québec, Canada, G1P 4P5.
The Company’s common shares are listed on both the Toronto Stock Exchange and the NASDAQ.
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Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2011 and December 31, 2010 and for the years ended December 31, 2011 and 2010
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
Basis of preparation
(a) Statement of compliance
The accompanying consolidated financial statements represent the first annual financial statements of the Company and its subsidiaries prepared in
accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”). The
accompanying consolidated financial statements were also prepared in accordance with IFRS 1, First-time Adoption of International Financial
Accounting Standards (“IFRS 1”). The first date at which IFRS was applied was January 1, 2010 (the “Transition Date”).
Prior to January 1, 2011, the Company’s consolidated financial statements were prepared in accordance with Canadian generally accepted accounting
principles (“GAAP”). In these consolidated financial statements, the term “Canadian GAAP” refers to Canadian GAAP as applicable prior to the
adoption of IFRS.
Subject to certain transition exceptions and exemptions, discussed in note 29, the Company has consistently applied the same accounting policies in the
preparation of its opening IFRS statement of financial position at January 1, 2010 throughout all periods presented, as if these policies had always been
in effect. Note 29 discusses the impact of the transition to IFRS on the Company’s reported financial position, financial performance and cash flows,
including the nature and effect of significant changes in accounting policies from those used in the Company’s consolidated financial statements for the
year ended December 31, 2010 prepared in accordance with Canadian GAAP.
These consolidated financial statements were approved by the Company’s Board of Directors for issue on March 27, 2012.
The accompanying consolidated financial statements were prepared on a going concern basis, under the historical cost convention, except for held-for-
trading financial assets and of the warrant liability derivatives, which are measured at fair value through profit or loss (“FVTPL”).
The preparation of financial statements in accordance with IFRS requires the use of certain critical accounting estimates and the exercise of
management’s judgment in applying the Company’s accounting policies. Areas involving a high degree of judgment or complexity and areas where
assumptions and estimates are significant to the Company’s consolidated financial statements are discussed in note 3.
(b) Principles of consolidation
These consolidated financial statements include all entities in which the Company, directly or indirectly, holds more than 50% of the voting rights or
over which it exercises control. Entities are included in the consolidation from the date that control is obtained by the Company, while entities are
deconsolidated from the consolidation from the date that control ceases. The purchase method of accounting is used to account for acquisitions. All
intercompany balances and transactions are eliminated on consolidation.
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Notes to Consolidated Financial Statements
As at December 31, 2011 and December 31, 2010 and for the years ended December 31, 2011 and 2010
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
(c) Foreign currency
The accompanying consolidated financial statements are presented in thousands of US dollars, which is the Company’s presentation currency.
Assets and liabilities of Group entities are translated from euro at the period end rates of exchange, and the results of their operations are translated from
euro at average rates of exchange for the period. The resulting translation adjustments are included in accumulated other comprehensive income within
shareholders’ deficiency.
Items included in the financial statements of the Group’s entities are measured using the currency of the primary economic environment in which the
entities operate (the “functional currency”), which is the euro (“EUR”). Foreign currency transactions are translated into the functional currency using
the exchange rates prevailing at the dates of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and
from the translation of monetary assets and liabilities not denominated in euro are recognized in the consolidated statement of comprehensive loss.
Foreign exchange gains and losses that relate to cash and cash equivalents, the short-term investment and the warrant liability are presented within
finance income or finance costs in the consolidated statement of comprehensive loss. All other foreign exchange gains and losses are presented in the
consolidated statement of comprehensive loss within operating expenses.
2
Summary of significant accounting policies
Cash and cash equivalents
Cash and cash equivalents consist of unrestricted cash on hand and balances with banks, as well as short-term interest-bearing deposits (including a money
market account) that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
Short-term investment
The Company’s short-term investment represents shares of a publicly held company and is classified as held-for-trading and stated at fair value.
Inventory
Inventory is valued at the lower of cost and net realizable value, which is defined as the estimated selling price in the ordinary course of business less the
estimated costs of completion and the estimated selling costs. Cost is determined on a first-in, first-out basis. The cost of finished goods and work in
progress includes raw materials, labour and manufacturing overhead under the absorption costing method.
Restricted cash
Restricted cash is comprised of a bank deposit, related to a long-term operating lease obligation that cannot be used for current purposes.
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Notes to Consolidated Financial Statements
As at December 31, 2011 and December 31, 2010 and for the years ended December 31, 2011 and 2010
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
Property, plant and equipment and depreciation
Items of property, plant and equipment are recorded at cost, net of related government grants and accumulated depreciation and impairment charges.
Depreciation is calculated using the following methods, annual rates and period:
Equipment
Furniture and fixtures
Computer equipment
Leasehold improvements
Methods
Declining balance and straight-line
Declining balance and straight-line
Straight-line
Straight-line
Annual rates
and period
20%
10% and 20%
25% and 33 /3%
Remaining lease term
1
Depreciation expense is allocated to the appropriate expense categories to which the underlying items of property, plant and equipment relate, and is
recorded under the captions selling, general and administrative expenses, and research and development (“R&D”) on the statement of comprehensive
income.
Identifiable intangible assets
Identifiable intangible assets with finite useful lives consist of in-process R&D, acquired in business combinations, patents and trademarks, technology and
other. In-process R&D acquired in business combinations are recognised at fair value at the acquisition date. Patents and trademarks are comprised of costs,
including professional fees incurred in connection with the filing of patents and the registration of trademarks for product marketing and manufacturing
purposes, net of related government grants, impairment losses, where applicable, and accumulated amortization. Identifiable intangible assets with finite
useful lives are amortized on a straight-line basis over their estimated useful lives of eight to fifteen years for in-process R&D and patents and ten years for
trademarks. Amortization expense is allocated to the appropriate expense categories to which the underlying identifiable intangible assets relate, and
recorded under the captions selling, general and administrative expenses, and R&D on the statement of comprehensive income.
Goodwill
Goodwill represents the excess of the purchase price over the fair values of the net assets of entities acquired at their respective dates of acquisition.
Goodwill is carried at cost less accumulated impairment losses. Goodwill is allocated to each cash-generating unit (“CGU”) or group of CGUs that are
expected to benefit from the related business combination.
Impairment of assets
Items of property, plant and equipment and identifiable intangible assets with finite lives subject to depreciation or amortization, respectively, are reviewed
for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be recoverable. Management is
required to assess at each reporting date whether there is any indication that an asset may be impaired. Where such an indication exists, the asset’s
recoverable amount is compared to its carrying value, and an impairment loss is recognized for the amount by which the asset’s carrying amount exceeds
its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purpose of
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Notes to Consolidated Financial Statements
As at December 31, 2011 and December 31, 2010 and for the years ended December 31, 2011 and 2010
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows, or CGU. In determining value in use of
a given asset or CGU, estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset. Impairment losses are allocated to the appropriate expense categories to which
the underlying identifiable intangible assets relate, and recorded under the captions selling, general and administrative expenses, and R&D on the statement
of comprehensive income.
Items of property, plant and equipment and amortizable identifiable intangible assets with finite lives that suffered impairment are reviewed for possible
reversal of the impairment if there has been a change, since the date of the most recent impairment test, in the estimates used to determine the impaired
asset’s recoverable amount. However, an asset’s carrying amount, increased due to the reversal of a prior impairment loss, must not exceed the carrying
amount that would have been determined, net of depreciation or amortization, had the original impairment not occurred.
Goodwill is not subject to amortization and instead is tested for impairment annually or more often if there is an indication that the CGU to which the
goodwill has been allocated may be impaired. Impairment is determined for goodwill by assessing whether the carrying value of a CGU, including the
allocated goodwill, exceeds its recoverable amount, which is the higher of fair value less costs to sell and value in use. In the event that the carrying amount
of goodwill exceeds its recoverable amount, an impairment loss is recognized in an amount equal to the excess. Impairment losses related to goodwill are
not subsequently reversed.
Share purchase warrants
Share purchase warrants are classified as liabilities, since the Company does not have the unconditional right to avoid delivering cash to the holders in the
future. The warrant liability is initially measured at fair value, and any subsequent changes in fair value are recognized as gains or losses through profit or
loss. Any transaction costs related to the share purchase warrants are expensed as incurred.
The warrant liability is classified as non-current, unless the underlying share purchase warrants are expected to expire or be settled within 12 months from
the end of a given reporting period.
Employee benefits
Salaries and other short-term benefits
Salaries and other short-term benefit obligations are measured on an undiscounted basis and are recognized in the consolidated statement of comprehensive
loss over the related service period or when the Company has a present legal or constructive obligation to make payments as a result of past events and
when the amount payable can be estimated reliably.
Post-employment benefits
The Company’s subsidiary in Germany maintains defined contribution and unfunded defined benefit plans, as well as other benefit plans for its employees.
For defined benefit pension plans and other post-employment benefits, net periodic pension expense is actuarially determined on an annual basis using the
projected unit credit method. The cost of pension and other benefits earned by employees is determined by applying certain assumptions, including
discount rates, the projected age of employees upon retirement, the expected rate of future compensation and employee turnover.
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Notes to Consolidated Financial Statements
As at December 31, 2011 and December 31, 2010 and for the years ended December 31, 2011 and 2010
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
The employee future benefits liability is recognized at its present value, which is determined by discounting the estimated future cash outflows using
interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity
approximating the terms of the related future benefit liability. Actuarial gains and losses that arise in calculating the present value of the defined benefit
obligation are recognized in other comprehensive loss, net of tax, in the deficit in the consolidated statement of financial position in the year in which the
actuarial gains and losses arise and without recycling to the consolidated statement of comprehensive loss in subsequent periods.
For defined contribution plans, expenses are recorded in the consolidated statement of comprehensive loss as incurred—namely, over the period that the
related employee service is rendered.
Termination benefits
Termination benefits are recognized in the consolidated statement of comprehensive loss when the Company is demonstrably committed, without the
realistic possibility of withdrawal, to a formal detailed plan either to terminate employment before the normal retirement date or to provide termination
benefits as a result of an offer made to encourage voluntary redundancy. Termination benefit liabilities expected to be settled after 12 months from the end
of a given reporting period are discounted to their present value, where material.
Financial instruments
The Company classifies its financial instruments in the following categories: “Financial assets at FVTPL”; “Loans and receivables”; “Financial liabilities at
FVTPL”; and “Other financial liabilities”.
Financial assets and liabilities are offset, and the net amount is reported in the consolidated statement of financial position, when there is a legally
enforceable right to offset the recognized amounts and there is an intention to settle on a net basis or realize the asset and settle the liability simultaneously.
(a) Classification
Financial assets at fair value through profit or loss
Financial assets at FVTPL are financial assets held for trading. Fair value is defined as the amount at which the financial assets could be exchanged
in a current transaction between willing parties, other than in a forced or liquidation sale. A financial asset is classified as at FVTPL if the instrument
is acquired or received as consideration principally for the purpose of selling in the short-term. Financial assets at FVTPL are classified as current
assets if expected to be settled within 12 months from the end of a given reporting period; otherwise, the assets are classified as non-current.
Financial assets at FVTPL are comprised exclusively of the Company’s short-term investment.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and
receivables are included in current assets, except for instruments with maturities greater than 12 months after the end of a given reporting period or
where restrictions apply that limit the Company from using the instrument for current purposes, which are classified as non-current assets.
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Notes to Consolidated Financial Statements
As at December 31, 2011 and December 31, 2010 and for the years ended December 31, 2011 and 2010
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
The Company’s loans and receivables are comprised of cash and cash equivalents, trade and other receivables and restricted cash.
Financial liabilities at fair value through profit or loss
Financial liabilities at FVTPL are financial liabilities held for trading. A financial liability is classified as at FVTPL if the instrument is acquired or
incurred principally for the purpose of selling or repurchasing in the short-term or where the Company does not have the unconditional right to avoid
delivering cash or another financial asset to the holders in certain circumstances. Financial liabilities at FVTPL are classified as current liabilities if
expected or potentially required to be settled within 12 months from the end of a given reporting period; otherwise, the liabilities are classified as
non-current.
Financial liabilities at FVTPL are currently comprised of the Company’s warrant liability.
Other financial liabilities
Other financial liabilities include trade accounts payable and accrued liabilities, long-term payable and other long-term liabilities.
(b) Recognition and measurement
Financial assets at fair value through profit or loss
Financial assets at FVTPL are recognized on the settlement date, which is the date on which the asset is delivered to the Company. Financial assets at
FVTPL are initially recognized at fair value, and transaction costs are expensed immediately in the consolidated statement of comprehensive loss.
Financial assets at FVTPL are derecognized when the rights to receive cash flows from the underlying investment have expired or have been
transferred and when the Group has transferred substantially all risks and rewards of ownership. Gains and losses arising from changes in the fair
value of financial assets at FVTPL are presented in the consolidated statement of comprehensive loss within finance income or finance costs in the
period in which they arise.
Loans and receivables
Loans and receivables are recognized on the settlement date and are measured initially at fair value and subsequently at amortized cost using the
effective interest rate method.
Financial liabilities at fair value through profit or loss
Financial liabilities at FVTPL are recognized on the settlement date. Financial liabilities at FVTPL are initially recognized at fair value, and
transaction costs are expensed immediately in the consolidated statement of comprehensive loss. Gains and losses arising from changes in the fair
value of financial liabilities at FVTPL are presented in the consolidated statement of comprehensive loss within finance income or finance costs in
the period in which they arise.
Other financial liabilities
Financial instruments classified as “Other financial liabilities” are measured initially at fair value and subsequently at amortized cost using the
effective interest rate method.
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Notes to Consolidated Financial Statements
As at December 31, 2011 and December 31, 2010 and for the years ended December 31, 2011 and 2010
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
(c)
Impairment
Financial assets measured at amortized cost are reviewed for impairment at each reporting date. Where there is objective evidence that impairment
exists for a financial asset measured at amortized cost, an impairment charge equivalent to the difference between the asset’s carrying amount and the
present value of estimated future cash flows is recorded in the consolidated statement of comprehensive loss. The expected cash flows exclude future
credit losses that have not been incurred and are discounted at the financial asset’s original effective interest rate.
Impairment charges of financial assets carried at amortized cost are reversed if, in a subsequent period, the amount of the impairment loss decreases
and the decrease can be related objectively to an event occurring after the impairment was recognized. However, the reversal cannot result in a
carrying amount of the financial asset that exceeds what the amortized cost would have been had the impairment not been recognized at the date the
impairment is reversed.
Share capital
The Company has authorized an unlimited number of 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.
Common shares are classified as equity. Incremental costs that are directly attributable to the issue of common shares and stock options are recognized as a
deduction from equity, net of any tax effects.
Provisions
Provisions represent liabilities to the Company for which the amount or timing is uncertain. Provisions are recognized when the Company has a present
legal or constructive obligation as a result of past events, when it is probable that an outflow of resources will be required to settle the obligation and where
the amount can be reliably estimated. Provisions are not recognized for future operating losses.
Provisions are made for any contracts, including lease arrangements, which are deemed onerous. A contract is onerous if the unavoidable costs of meeting
the obligations under the contract exceed the economic benefits expected to be received under it. Provisions for onerous contracts are measured at the
present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Present value is
determined based on expected future cash flows that are discounted at a pre-tax rate that reflects current market assessments of the time value of money and
the risks specific to the liability. The unwinding of the discount is recognized in finance costs.
Revenue recognition
Sales of products
Revenues from the sale of goods are recognized when the Company has transferred to the buyer the significant risks and rewards of ownership of the goods
(which is at the time the goods are shipped), when the Company retains neither continuing managerial involvement to the degree usually associated with
ownership nor effective control over the goods sold, when the amount of revenues can be measured reliably, when it is probable that the economic benefits
associated with the transaction will flow to the Company and when the costs incurred or to be incurred in respect of the transaction can be measured
reliably.
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Notes to Consolidated Financial Statements
As at December 31, 2011 and December 31, 2010 and for the years ended December 31, 2011 and 2010
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
Royalty revenues
The Company has deferred recognition of proceeds received in December 2008 from Cowen Healthcare Royalty Partners L.P. (“Cowen”) relating to the
Company’s rights to royalties on future sales of Cetrotide covered by a license agreement with ARES Trading S.A. (“Merck Serono”) in which the latter
had been granted worldwide marketing, distribution and selling rights, except in Japan, for Cetrotide , a compound used for in vitro fertilization. Royalties
on Merck Serono’s net sales of Cetrotide , formerly payable to the Company, are now payable directly to Cowen.
®
®
®
The Company recognized the proceeds received from Cowen as royalty revenues over the life of the underlying royalty sale arrangement, pursuant to the
“units-of-revenue” method. Under that method, periodic royalty revenues are calculated as the ratio of the remaining deferred revenue amount to the total
estimated remaining royalties that Merck Serono is expected to pay to Cowen over the term of the underlying arrangement multiplied by the royalty
payments due to Cowen for the period.
Licensing revenues and multiple element arrangements
The Company is currently in a phase in which certain potential products are being further developed or marketed jointly with strategic partners. Existing
licensing agreements usually foresee one-time payments (upfront payments), payments for R&D services in the form of cost reimbursements, milestone
payments and royalty receipts for licensing and marketing product candidates. Revenues associated with those multiple-element arrangements are allocated
to the various elements based on their relative fair value.
Agreements containing multiple elements are divided into separate units of accounting if certain criteria are met, including whether the delivered element
has stand-alone value to the customer and whether there is objective and reliable evidence of the fair value of the undelivered obligation(s). The
consideration received is allocated among the separate units based on each unit’s fair value, and the applicable revenue recognition criteria are applied to
each of the separate units.
License fees representing non-refundable payments received at the time of signature of license agreements are recognized as revenue upon signature of the
license agreements when the Company has no significant future performance obligations and collectibility of the fees is probable. Upfront payments
received at the beginning of licensing agreements are deferred and recognized as revenue on a systematic basis over the period during which the related
services are rendered and all obligations are performed.
Milestone payments
Milestone payments, which are generally based on developmental or regulatory events, are recognized as revenue when the milestones are achieved,
collectibility is assured, and when the Company has no significant future performance obligations in connection with the milestones.
Cost of sales
Cost of sales represents the cost of goods sold and represents almost exclusively the amount of inventory recognized as an expense during the year. This
amount includes the cost of raw materials, supplies, manufacturing fees as well as write-down of inventories.
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Notes to Consolidated Financial Statements
As at December 31, 2011 and December 31, 2010 and for the years ended December 31, 2011 and 2010
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
Share-based compensation costs
The Company operates an equity-settled share-based compensation plan under which the Company receives services from employees as consideration for
equity instruments of the Company.
The Company accounts for all forms of employee stock-based compensation using the fair value-based method. Fair value of stock options is determined at
the date of grant using the Black-Scholes option pricing model, which includes estimates of the number of awards that are expected to vest over the vesting
period. Where granted share options vest in installments over the vesting period (defined as graded vesting), the Company treats each installment as a
separate share option grant. Share-based compensation expense is recognized over the vesting period, or as specified vesting conditions are satisfied, and
credited to Other Capital.
Any consideration received by the Company in connection with the exercise of stock options is credited to Share Capital. Any Other Capital component of
the stock-based compensation is transferred to Share Capital upon the issuance of shares.
Current and deferred income tax
The tax expense for the period comprises current and deferred tax. Tax is recognized in profit or loss, except that a change attributable to an item of income
or expense recognized as other comprehensive income (loss) or directly in equity (deficit) is also recognized directly in other comprehensive income (loss)
or directly in equity (deficit). Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation
is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
The current income tax charge is calculated on the basis of tax rates and laws that have been enacted or substantively enacted by the reporting date in the
countries where the company’s subsidiaries operate and generate taxable income.
Deferred income tax is recognized on temporary differences (other than temporary differences associated with unremitted earnings from foreign
subsidiaries and associates to the extent that the investment is essentially permanent in duration, or temporary differences associated with the initial
recognition of goodwill) arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements and on
unused tax losses or R&D non-refundable tax credits in the group. Deferred income tax is determined using tax rates and laws that have been enacted or
substantively enacted by the reporting date.
Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary
differences can be utilised.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and
when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or
different taxable entities where there is an intention to settle the balances on a net basis.
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Notes to Consolidated Financial Statements
As at December 31, 2011 and December 31, 2010 and for the years ended December 31, 2011 and 2010
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
Research and development costs
Research costs are expensed as incurred. Development costs are expensed as incurred except for those which meet generally accepted criteria for deferral,
in which case, the costs are capitalized and amortized to operations over the estimated period of benefit. No costs have been deferred during any of the
periods presented.
Research and development refundable tax credits and grants
The Company’s German subsidiary is entitled to receive research grants from the German Federal Ministry of Education and Research. Funding is earned
on qualified projects, and corresponding expenses are reimbursed at a rate of 50% of eligible base amounts.
Refundable R&D tax credits and grants are accounted for using the cost reduction method. Accordingly, refundable R&D tax credits and grants are
recorded as a reduction of the related expenses or capital expenditures in the period the expenses are incurred, provided that the Company has reasonable
assurance the refundable R&D tax credits or grants will be realized.
Net loss per share
Basic net loss per share is calculated using the weighted average number of common shares outstanding during the year.
Diluted net loss per share is calculated based on the weighted average number of common shares outstanding during the year, plus the effects of dilutive
common share equivalents, such as stock options and share purchase warrants. This method requires that diluted net loss per share be calculated using the
treasury stock method, as if all common share equivalents had been exercised at the beginning of the reporting period, or period of issuance, as the case
may be, and that the funds obtained thereby were used to purchase common shares of the Company at the average trading price of the common shares
during the period.
3
Critical accounting estimates and judgments
The preparation of consolidated financial statements in accordance with IFRS often requires management to make estimates about and apply assumptions
or subjective judgment to future events and other matters that affect the reported amounts of the Company’s assets, liabilities, revenues, expenses and
related disclosures. Assumptions, estimates and judgments are based on historical experience, expectations, current trends and other factors that
management believes to be relevant at the time at which the Company’s consolidated financial statements are prepared. Management reviews, on a regular
basis, the Company’s accounting policies, assumptions, estimates and judgments in order to ensure that the consolidated financial statements are presented
fairly and in accordance with IFRS.
Critical accounting estimates and judgments are those that have a significant risk of causing material adjustment and are often applied to matters or
outcomes that are inherently uncertain and subject to change. As such, management cautions that future events often vary from forecasts and expectations
and that estimates routinely require adjustment.
The following discusses the most significant accounting estimates and judgments that the Company has made in the preparation of the consolidated
financial statements.
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Notes to Consolidated Financial Statements
As at December 31, 2011 and December 31, 2010 and for the years ended December 31, 2011 and 2010
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
Revenue recognition
Royalty revenues calculated under the “units-of-revenue” method are dependent upon certain assumptions, including expected future third-party net sales
of Cetrotide . Any future changes in the assumptions utilized to determine the amortization of deferred revenues could result in a change in the timing of
the Company’s royalty revenue recognition.
®
Management’s assessments related to the recognition of revenues related to arrangements containing multiple elements are based on estimates and
assumptions. Judgment is necessary to identify separate units of accounting and to allocate related consideration to each separate unit of accounting. Where
deferral of upfront payments or license fees is deemed appropriate, subsequent revenue recognition is often determined based upon certain assumptions and
estimates, including arrangement-specific cash flow projections (discounted using appropriate interest rates), the Company’s continuing involvement in the
arrangement, the benefits expected to be derived by the customer and expected patent lives. To the extent that any of the assumptions or estimates change,
future operating results could be affected.
Fair value of the short-term investment, warrant liability and stock options
Determining the fair value of the short-term investment, warrant liability and stock options requires judgment related to the choice of a pricing model, the
estimation of stock price volatility and the expected term of the underlying instruments. Any changes in the estimates or inputs utilized to determine fair
value could result in a significant impact on the Company’s future operating results, liabilities or other components of shareholders’ deficiency. Fair value
assumptions used are described in notes 7, 15 and 17.
Identifiable intangible assets and goodwill impairment
The values associated with identifiable intangible assets with finite lives and goodwill are determined by applying significant estimates and assumptions,
including those related to cash flow projections, economic risk, discount rates and asset useful lives.
Valuations performed in connection with post-acquisition assessments of impairment of identifiable intangible assets are based on estimates that include
risk-adjusted future cash flows, which are discounted using appropriate interest rates. Projected cash flows are based on business forecasts, trends and
expectations and are therefore inherently judgmental. Future events could cause the assumptions utilized in impairment assessments to change, resulting in
a potentially significant effect on the Company’s future operating results due to increased impairment charges, or reversals thereof, or adjustments to
amortization charges.
The annual impairment assessment related to goodwill is based on estimates that are derived from current market capitalization and on other factors,
including assumptions related to recent industry-specific market analyses. Future events, including a significant reduction in the Company’s share price,
could cause the assumptions utilized in the impairment tests to change, resulting in a potentially adverse effect on the Company’s future results due to
increased impairment charges.
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Notes to Consolidated Financial Statements
As at December 31, 2011 and December 31, 2010 and for the years ended December 31, 2011 and 2010
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
Employee future benefits
The determination of expense and obligations associated with employee future benefits requires the use of assumptions, such as the discount rate to
measure obligations, the projected age of employees upon retirement, the expected rate of future compensation and estimated employee turnover. Because
the determination of the cost and obligations associated with employee future benefits requires the use of various assumptions, there is measurement
uncertainty inherent in the actuarial valuation process. Actual results will differ from results that are estimated based on the aforementioned assumptions.
Income taxes
The estimation of income taxes includes evaluating the recoverability of deferred tax assets based on an assessment of Group entities’ ability to utilize the
underlying future tax deductions against future taxable income prior to expiry of those deductions. Management assesses whether it is probable that some
or all of the deferred income tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future
taxable income, which in turn is dependent upon the successful commercialization of the Company’s products. To the extent that management’s assessment
of any Group entity’s ability to utilize future tax deductions changes, the Company would be required to recognize more or fewer deferred tax assets, and
future income tax provisions or recoveries could be affected.
4
Recent accounting pronouncements
In November 2009 and October 2010, the IASB issued IFRS 9, Financial Instruments (“IFRS 9”), which represents the completion of the first part of a
three-part project to replace IAS 39, Financial Instruments: Recognition and Measurement, with a new standard. Per the new standard, an entity choosing
to measure a liability at fair value will present the portion of the change in its fair value due to changes in the entity’s own credit risk in the other
comprehensive income or loss section of the entity’s statement of comprehensive loss, rather than within profit or loss in case where the fair value option is
taken for financial liabilities. Additionally, IFRS 7 Amendment includes revised guidance related to the derecognition of financial instruments. IFRS 9
applies to financial statements for annual periods beginning on or after January 1, 2015, with early adoption permitted. The Company currently is
evaluating any impact that this new standard may have on the Company’s consolidated financial statements.
In May 2011, the IASB issued IFRS 10, Consolidated Financial Statements (“IFRS 10”), which builds on existing principles by identifying the concept of
control as the determining factor in whether an entity should be included within the consolidated financial statements of a parent company. IFRS 10 also
provides additional guidance to assist in the determination of control where this is difficult to assess. IFRS 10 applies to financial statements for annual
periods beginning on or after January 1, 2013, with early adoption permitted. The Company currently is evaluating any impact that this new guidance may
have on the Company’s consolidated financial statements.
In May 2011, the IASB issued IFRS 11, Joint Arrangements (“IFRS 11”), which enhances accounting for joint arrangements, particularly by focusing on
the rights and obligations of the arrangement, rather than the arrangement’s legal form. IFRS 11 also addresses inconsistencies in the reporting of joint
arrangements by requiring a single method to account for interests in jointly controlled entities and prohibits proportionate consolidation. IFRS 11 applies
to financial statements for annual periods beginning on or after January 1, 2013, with early adoption permitted. The Company currently is evaluating any
impact that this new guidance may have on the Company’s consolidated financial statements.
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Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2011 and December 31, 2010 and for the years ended December 31, 2011 and 2010
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
In May 2011, the IASB issued IFRS 12, Disclosure of Interests in Other Entities (“IFRS 12”), which is a comprehensive standard on disclosure
requirements for all forms of interests in other entities, including joint arrangements, associates, special purpose vehicles and other off-balance sheet
vehicles. IFRS 12 applies to financial statements for annual periods beginning on or after January 1, 2013, with early adoption permitted. The Company
currently is evaluating any impact that this new guidance may have on the Company’s consolidated financial statements.
In May 2011, the IASB issued IFRS 13, Fair Value Measurement (“IFRS 13”), which defines fair value, sets out in a single IFRS a framework for
measuring fair value and requires disclosures about fair value measurements. IFRS 13 does not determine when an asset, a liability or an entity’s own
equity instrument is measured at fair value. Rather, the measurement and disclosure requirements of IFRS 13 apply when another IFRS requires or permits
the item to be measured at fair value (with limited exceptions). IFRS 13 applies to financial statements for annual periods beginning on or after January 1,
2013, with early adoption permitted. The Company currently is evaluating any impact that this new guidance may have on the Company’s consolidated
financial statements.
In June 2011, the IASB amended IAS 1, Presentation of Financial Statements (“IAS 1”), to change the disclosure of items presented in other
comprehensive income into two groups, based on whether those items may be recycled to profit or loss in the future. The amendments to IAS 1 apply to
financial statements for annual periods beginning after July 1, 2012, with early adoption permitted. The Company currently is evaluating any impact that
this new guidance may have on the Company’s consolidated financial statements.
In June 2011, the IASB issued an amended version of IAS 19, Employee Benefits (“IAS 19”), including the elimination of the option to defer the
recognition of actuarial gains and losses (known as the “corridor method”), the streamlining of the presentation of changes in assets and liabilities arising
from defined benefit plans and the enhancement of the disclosure requirements for defined benefit plans, including additional information about the
characteristics of defined benefit plans and the risks to which entities are exposed through participation in those plans. The amendments to IAS 19 apply to
financial statements for annual periods beginning on or after January 1, 2013, with early adoption permitted. The Company currently is evaluating any
impact that this new standard may have on the Company’s consolidated financial statements.
5
Development, commercialization and license agreement
On March 8, 2011, the Company entered into an agreement with Yakult Honsha Co. Ltd. (“Yakult”) for the development, manufacture and
commercialization of perifosine in all human uses, excluding leishmaniasis, in Japan. Under the terms of this agreement, Yakult made an initial, non-
refundable gross upfront payment to the Company of €6,000,000 (approximately $8,412,000). Also per the agreement, the Company is entitled to receive
up to a total of €44,000,000 (approximately $57,075,000) upon achieving certain pre-established milestones, including the occurrence of certain clinical
and regulatory events in Japan. As at December 31, 2011, following the achievement of a milestone, the Company has revenue and trade receivables
recorded for an additional amount of €2,000,000 (approximately $2,594,000) in connection with the agreement. Furthermore, the Company will be entitled
to receive double-digit royalties on future net sales of perifosine in the Japanese market.
On November 23, 2011, the Company entered into an agreement with Hikma Pharmaceuticals LLC. (“Hikma”) for the development and commercialization
of perifosine in all oncology uses in certain countries in the Middle East and North Africa (“MENA”). Under the terms of this agreement, Hikma made an
initial, non-refundable gross upfront payment to the Company of $200,000. Also per the agreement,
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Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2011 and December 31, 2010 and for the years ended December 31, 2011 and 2010
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
the Company will be entitled to receive up to a total of $1,800,000 upon achieving certain pre-established milestones, including the occurrence of certain
regulatory events in certain countries in the MENA region. Furthermore, the Company will be entitled to receive double-digit royalties on future net sales
of perifosine in the MENA market.
The Company has substantial continuing involvement in the aforementioned arrangements, including the use of commercially reasonable efforts to
develop, apply for and obtain relevant regulatory approval for, manufacture and commercialize perifosine outside Japan and MENA region, which will
facilitate the ultimate commercialization process within Japan and MENA region. Additionally, the Company will ensure a stable supply of perifosine and
related trial products to Yakult and Hikma throughout the ongoing development process and will maintain relevant patent rights over the term of the
arrangements. Lastly, per the terms of the aforementioned agreements, the Company has agreed to supply perifosine, on a cost-plus basis, to Yakult and
Hikma following regulatory approvals.
The Company has applied the provisions of IAS 18, Revenue, and has determined that all deliverables and performance obligations contemplated by the
agreements with Yakult and Hikma should be accounted for as a single unit of accounting, limited to amounts that are not contingent upon the delivery of
additional items or the meeting of other specified performance conditions which are not known, probable or estimable at the time at which the agreements
with Yakult and Hikma were entered into.
The Company has deferred the non-refundable license fees and is amortizing the related payments as revenue on a straight-line basis over the duration of
the Company’s continuing involvement in the arrangements, which approximate the estimated life cycle of the product that is currently under development
and the expected period over which Yakult and Hikma will derive value from the use of, and access to, the underlying licenses.
In determining the period over which license revenues are to be recognized, and in addition to due consideration of the Company’s continuing involvement,
as discussed above, the Company considered the remaining expected life of applicable patents as the most reasonable basis for estimating the underlying
product’s life cycle. However, the Company may adjust the amortization period based on appropriate facts and circumstances not yet known, including, but
not limited to, the extension(s) of patents, the granting of new patents, the economic lives of competing products and other events that would significantly
change the duration of the Company’s continuing involvement and performance obligations or benefits expected to be derived by Yakult and Hikma.
Future milestones will be recognized as revenue individually and in full upon the actual achievement of the related milestone, given the substantive nature
of each milestone. Lastly, upon initial commercialization and sale of the developed product, the Company will recognize royalty revenues as earned, based
on the contractual percentage applied to the actual net sales achieved by Yakult and Hikma, as per the aforementioned agreement.
The Company was required to remit to the Japanese tax authorities $841,000 of the gross proceeds received from Yakult and will be required to remit
€200,000 (approximately $259,000) when the milestone receivable will be paid by Yakult. These amounts, which were (will be) withheld at the source,
were recognized as income tax expense in the consolidated statement of comprehensive loss in accordance with the provision of IAS 12, Income Taxes.
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Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2011 and December 31, 2010 and for the years ended December 31, 2011 and 2010
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
6
Cash and cash equivalents
Cash on hand and balances with banks
Short-term interest-bearing deposits
7
Short-term investment
As at December 31,
2011
$
15,112
31,769
As at December 31,
2010
$
12,922
19,076
As at January 1,
2010
$
33,100
5,000
46,881
31,998
38,100
The short-term investment consisted of shares of a publicly held company. The underlying shares were sold in July 2011.
The change in the Company’s short-term investment can be summarized as follows:
Balance at January 1
Addition of short-term investment
Change in fair value of shares
Change in value attributable to foreign exchange rate changes
Sale of short term investment
Balance at December 31
Years ended December 31,
2010
2011
$
$
1,934
-
1,278
30
(3,242)
-
-
1,263
687
(16)
-
1,934
The fair value of the short-term investment as at December 31, 2010 was discounted via the application of the Black-Scholes pricing model with the
following inputs and assumptions:
Number of shares
Market-value price per share
Expected dividend yield
Expected volatility
Risk-free annual interest rate
Expected life (years)
Discount per share
326,956
$6.87
0%
36.2%
0.3%
0.34
$0.98
The Black-Scholes valuation methodology uses “Level 2” inputs in calculating fair value, as defined in IFRS 7, Financial Instruments: Disclosures (“IFRS
7”), and as discussed in note 24.
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Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2011 and December 31, 2010 and for the years ended December 31, 2011 and 2010
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
8
Trade and other receivables
Trade accounts receivable
Value added tax
Other
9
Inventory
Raw materials
Work in progress
10
Restricted cash
As at December 31,
2011
$
As at December 31,
2010
$
As at January 1,
2010
$
7,716
439
170
8,325
4,555
595
271
5,421
2,444
729
376
3,549
As at December 31,
2011
$
As at December 31,
2010
$
As at January 1,
2010
$
1,608
1,848
3,456
1,899
1,412
3,311
2,998
1,417
4,415
In support of the Company’s long-term operating lease obligation in Germany and in replacement of a related bank guarantee, the Company transferred
approximately $806,000 to a restricted cash account. The fixed amount, including any interest earned thereon, is restricted for as long as the underlying
lease arrangement has not expired and therefore cannot be utilized for current purposes as at December 31, 2011.
11
Property, plant and equipment
Components of the Company’s property, plant and equipment are summarized below.
At January 1, 2010
Additions
Disposals
Impact of foreign exchange rate changes
At December 31, 2010
Additions
Disposals
Impact of foreign exchange rate changes
At December 31, 2011
Furniture and
fixtures
$
1,653
-
-
(102)
1,551
-
-
(49)
1,502
Cost
Computer
equipment
$
1,851
6
(5)
(114)
1,738
46
(2)
(58)
1,724
Leasehold
improvements
$
1,232
-
-
(76)
1,156
6
-
(37)
1,125
Total
$
14,677
82
(460)
(915)
13,384
736
(98)
(474)
13,548
Equipment
$
9,941
76
(455)
(623)
8,939
684
(96)
(330)
9,197
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Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2011 and December 31, 2010 and for the years ended December 31, 2011 and 2010
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
At January 1, 2010
Disposals
Impairment loss
Recurring depreciation expense
Impact of foreign exchange rate changes
At December 31, 2010
Disposals
Impairment loss
Recurring depreciation expense
Impact of foreign exchange rate changes
At December 31, 2011
At January 1, 2010
At December 31, 2010
At December 31, 2011
Equipment
$
6,831
(395)
-
736
(423)
6,749
(96)
-
728
(255)
7,126
Equipment
$
3,110
2,190
2,071
Accumulated depreciation
Furniture
and fixtures
$
1,382
-
-
54
(84)
1,352
-
134
39
(47)
1,478
Computer
equipment
$
1,678
(5)
-
102
(103)
1,672
(2)
-
50
(56)
1,664
Leasehold
improvements
$
428
-
-
113
(26)
515
-
178
101
(26)
768
Carrying amount
Furniture
and fixtures
$
271
199
24
Computer
equipment
$
173
66
60
Leasehold
improvements
$
804
641
357
Total
$
10,319
(400)
-
1,005
(636)
10,288
(98)
312
918
(384)
11,036
Total
$
4,358
3,096
2,512
Depreciation of $918,000 ($1,005,000 in 2010) is included in the statement of comprehensive loss: $824,000 ($902,000 in 2010) in R&D and $94,000
($103,000 in 2010) in selling, general and administrative expenses.
During the year ended December 31, 2011, an impairment loss was recognized based on the results of impairment testing of the Company’s Leasehold
improvements and Furniture and fixtures assets. The impairment loss was recognized predominantly to take into account the relocation of one of the
Company’s offices.
Following management’s analyses, which demonstrated that the remaining carrying value of these assets was no longer recoverable, an impairment charge
of approximately $312,000, was recorded as additional depreciation expense, which in turn is included within general and administrative expenses in the
accompanying consolidated statement of comprehensive loss.
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Notes to Consolidated Financial Statements
As at December 31, 2011 and December 31, 2010 and for the years ended December 31, 2011 and 2010
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
12
Identifiable intangible assets
Identifiable intangible assets with finite useful lives consist entirely of in-process R&D costs, patents and trademarks. The changes in the carrying value of
the Company’s identifiable intangible assets with finite useful lives are summarized below.
Balances – At January 1
Additions
Impairment loss
Recurring amortization expense
Impact of foreign exchange rate changes
Balances – At December 31
Year ended December 31, 2011
Accumulated
amortization
$
(35,842)
-
(1,093)
(553)
1,275
Carrying
value
$
3,299
69
(1,093)
(553)
47
Cost
$
39,141
69
-
-
(1,228)
Year ended December 31, 2010
Accumulated
amortization
$
(37,588)
-
-
(568)
2,314
Cost
$
41,715
-
-
-
(2,574)
Carrying
value
$
4,127
-
-
(568)
(260)
37,982
(36,213)
1,769
39,141
(35,842)
3,299
Amortization of $553,000 ($568,000 in 2010) is included in the statement of comprehensive loss: $507,000 ($481,000 in 2010) in R&D and $46,000
($87,000 in 2010) in selling expenses.
During the year ended December 31, 2011, an impairment loss was recognized based on the results of impairment testing of the Company’s Cetrotide
®
asset. The impairment loss was recognized predominantly to take into account management’s lower trend estimates related to the commercialization of
Cetrotide , due to changes in the competitive environment in the Japanese market.
®
Management determined that the recoverable amount of Cetrotide , as at September 30, 2011, was equivalent to the asset’s value in use, as defined by IAS
36, Impairment of Assets. Value in use was determined by applying a discount rate of 20%—a pre-tax rate that reflects both current market assessments of
the time value of money and the risks specific to the asset for which the future cash flow estimates have not been adjusted—to the estimated future cash
flows deemed to be attributable to the use of Cetrotide . Management has projected cash flows over a period of 11 years, which is until the end of the
expected life of Cetrotide and has used an average growth rate of 1.7 % for the years 1 to 6 and an average growth rate of -9.7% for the years 7 to 11 to
extrapolate cash flow projections. More specifically, the discount rate represents an estimate of a reasonable return that would be expected by an investor in
an arm’s length monetization transaction in respect of future Cetrotide -derived cash flows.
®
®
®
®
Following management’s analyses, which demonstrated that the remaining carrying value of Cetrotide was no longer recoverable, an impairment charge
of approximately $1,093,000, was recorded during the year ended December 31, 2011 as additional amortization expense, which in turn is included within
selling expenses in the accompanying consolidated statement of comprehensive loss.
®
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Notes to Consolidated Financial Statements
As at December 31, 2011 and December 31, 2010 and for the years ended December 31, 2011 and 2010
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
13 Goodwill
Goodwill has been allocated to the only CGU of the Group.
The change in carrying value is as follows:
Balance as at January 1, 2010
Impact of foreign exchange rate changes
Balance as at December 31, 2010
Impact of foreign exchange rate changes
Balance as at December 31, 2011
14
Payables and accrued liabilities
Trade accounts payable
Salaries, employment taxes and benefits
Current portion of warrant liability
Accrued R&D costs
Accrued Cetrotide services and deliveries
®
Other
Cost
$
10,246
(632)
9,614
(301)
9,313
Accumulated
impairment loss
$
-
-
-
-
-
Carrying
amount
$
10,246
(632)
9,614
(301)
9,313
As at
December 31,
2011
As at
December 31,
2010
$
8,062
1,958
42
1,056
160
979
$
6,388
1,427
955
615
221
654
As at
January 1,
2010
$
8,152
587
-
1,883
65
1,158
12,257
10,260
11,845
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Notes to Consolidated Financial Statements
As at December 31, 2011 and December 31, 2010 and for the years ended December 31, 2011 and 2010
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
15 Warrant liability
The change in the Company’s warrant liability can be summarized as follows:
Balance – Beginning of the year
Share purchase warrants granted during the year (note 17)
Share purchase warrants exercised during the year
Change in fair value of share purchase warrants
Change in value attributable to foreign exchange rate changes
Less: current portion
Balance – End of the year
* Includes current portion of $0 and non-current portion of $1,664.
A summary of the activity related to the Company’s share purchase warrants is provided below.
Years ended December 31,
2010
2011
$
$
14,367
-
(2,638)
(2,533)
8
9,204
(42)
9,162
1,664*
7,341
(429)
5,437
354
14,367
(955)
13,412
Balance - Beginning of the year
Granted
Exercised
Expired
Balance - End of the year
Years ended December 31,
2011
2010
Weighted
average
exercise price
(US$)
1.53
-
1.30
2.10
Number
4,110,603
9,111,604
(298,817)
-
Number
12,923,390
-
(1,707,286)
(2,148,936)
9,067,168
1.44
12,923,390
Weighted
average
exercise price
(US$)
1.70
1.44
1.32
-
1.53
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Notes to Consolidated Financial Statements
As at December 31, 2011 and December 31, 2010 and for the years ended December 31, 2011 and 2010
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
The following table summarizes the share purchase warrants outstanding and exercisable as at December 31, 2011:
Exercise price
(US$)
1.25
1.37
1.50
1.72
Warrants outstanding and currently exercisable
Weighted average
remaining
contractual life
(years)
Total
intrinsic value
Number
733,334
3,496,879
4,572,777
264,178
9,067,168
2.81
3.47
3.72
3.46
3.54
213
586
183
-
982
The table presented below shows the inputs and assumptions applied to the Black-Scholes option pricing model in order to determine the fair value of
warrants outstanding as at December 31, 2011.
Number of equivalent shares
Market-value per share price
Exercise price
Risk-free annual interest rate
Expected volatility
Expected life (years)
Expected dividend yield
October 2009
Investor
Warrants
October 2009
Compensation
Warrants
733,334
1.54
1.25
0.34%
95.18%
2.81
0.0%
(a)
(b)
(c)
(d)
128,333
1.54
1.50
0.12%
56.85%
0.81
0.0%
April 2010
Investor
Warrants
4,444,444
1.54
1.50
0.55%
99.25%
3.80
0.0%
June 2010
Investor
Warrants
3,496,879
1.54
1.37
0.47%
98.95%
3.47
0.0%
June 2010
Compensation
Warrants
264,178
1.54
1.72
0.47%
99.13%
3.46
0.0%
(a)
(b)
(c)
(d)
Based on United States Treasury Government Bond interest rates with a term that is consistent with the expected life of the warrants.
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.
Based upon time to expiry from the reporting period date.
The Company has not paid dividends nor intends to pay dividends in the foreseeable future.
The Black-Scholes valuation methodology uses “Level 2” inputs in calculating fair value, as defined in IFRS 7 and as discussed in note 24.
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Notes to Consolidated Financial Statements
As at December 31, 2011 and December 31, 2010 and for the years ended December 31, 2011 and 2010
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
16
Provision and other non-current liabilities
Onerous lease provision (see below)
Other
Current
Non-current
Onerous lease provision*
Balance at January 1, 2011
Additional provision recognised
Utilization of provision
Effect of change in the discount rate
Unwinding of discount
Balance at December 31, 2011
Current portion
Non-current portion at December 31, 2011
As at December 31,
2011
$
619
187
806
89
717
806
As at December 31,
2010
$
441
183
624
53
571
624
As at January 1,
2010
$
491
66
557
50
507
557
Year ended
December 31,
2011
$
441
189
(62)
43
8
619
(89)
530
* The provision for onerous lease contract represents the present value of the future lease payments that the Company is presently obligated to make under
non-cancellable onerous operating lease contract, less revenue expected to be earned on the lease, including estimated future sub-lease revenue. The
estimate may vary as a result of changes in the utilisation of the leased premises and sub-lease arrangement. The unexpired term of the lease is six years.
On December 1 2011, following the relocation of one of the Company’s offices, the lease arrangement became fully onerous. As such, an additional
provision was recognised.
st
17
Share capital
The Company has authorized an unlimited number of 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.
Common shares issued in connection with “At-the-Market” (“ATM”) drawdowns
February ATM Sales Agreement
On February 22, 2011, the Company entered into an ATM sales agreement (the “February ATM Sales Agreement”), under which the Company was able, at
its discretion and from time to time during the 24-month term of the agreement, to sell up to 12,500,000 of its common shares through ATM issuances on
the Nasdaq Stock Market for aggregate gross proceeds not to exceed $19,750,831. The February ATM Sales Agreement provided that common shares were
to be sold at market prices prevailing at the time of sale, and, as a result, prices may have varied.
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Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2011 and December 31, 2010 and for the years ended December 31, 2011 and 2010
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
The Company issued a total of 9,964,548 common shares under the February ATM Sales Agreement for aggregate gross proceeds of $19,749,945, less cash
transaction costs of $592,498 and previously deferred transaction costs of $207,000.
June ATM Sales Agreement
On June 29, 2011, the Company entered into an additional ATM sales agreement (the “June ATM Sales Agreement”), under which the Company was able,
at its discretion, from time to time during the 24-month term of the agreement, sell up to 9,500,000 of its common shares through ATM issuances on the
Nasdaq Stock Market for aggregate gross proceeds not to exceed $24,000,000. The June ATM Sales Agreement provided that common shares were to be
sold at market prices prevailing at the time of sale, and, as a result, prices may have varied.
The Company issued a total of 9,500,000 common shares under the June ATM Sales Agreement for aggregate gross proceeds of $17,705,416, less cash
transaction costs of $612,357 and previously deferred transaction costs of $162,407.
Common shares issued in connection with registered direct offerings
April 20, 2010 registered direct offering
On April 20, 2010, the Company completed a registered direct offering of 11,111,111 units, with each unit consisting of one common share and a warrant to
purchase 0.40 of a common share, at a price of $1.35 per unit (the “April 2010 Offering”). Total proceeds raised upon completion of the April 2010
Offering amounted to $15,000,000, less cash transaction costs of approximately $1,315,000. The securities described above were offered by the Company
pursuant to a shelf prospectus dated March 12, 2010 and a prospectus supplement dated April 15, 2010.
The Company granted warrants (the “April 2010 Investor Warrants”) to the investors who participated in the April 2010 Offering. Each April 2010 Investor
Warrant entitles the holder to purchase 0.40 of a common share at an exercise price of $1.50 per share. The April 2010 Investor Warrants are exercisable
between October 20, 2010 and October 20, 2015, and, upon complete exercise, would result in the issuance of an aggregate of 4,444,444 common shares.
The Company estimated the fair value attributable to the April 2010 Investor Warrants of $3,639,815 as of the date of grant by applying the Black-Scholes
pricing model, to which the following additional assumptions were applied: a risk-free annual interest rate of 2.56%, expected volatility of 87.3%, an
expected term of 5 years, a dividend yield of 0.0% and an issue-date market share price of $1.24.
June 21, 2010 registered direct offering
On June 21, 2010, the Company completed a registered direct offering of 8,805,964 units, with each unit consisting of one common share and a warrant to
purchase 0.50 of a common share, at a price of $1.3725 per unit (the “June 2010 Offering”). Total proceeds raised upon completion of the June 2010
Offering amounted to $12,086,186, less cash transaction costs of approximately $783,000. The securities described above were offered by the Company
pursuant to a shelf prospectus dated March 12, 2010 and a prospectus supplement dated June 15, 2010.
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Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2011 and December 31, 2010 and for the years ended December 31, 2011 and 2010
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
The Company granted warrants (the “June 2010 Investor Warrants”) to the investors who participated in the June 2010 Offering. Each June 2010 Investor
Warrant entitles the holder to purchase a common share at an exercise price of $1.3725 per share. The June 2010 Investor Warrants are exercisable between
June 21, 2010 and June 21, 2015, and, upon complete exercise, would result in the issuance of an aggregate of 4,402,982 common shares.
The Company estimated the fair value attributable to the June 2010 Investor Warrants of $3,502,572 as of the date of grant by applying the Black-Scholes
pricing model, to which the following additional assumptions were applied: a risk-free annual interest rate of 2.05%, expected volatility of 89.3%, an
expected term of 5 years, a dividend yield of 0.0% and an issue-date market share price of $1.18.
The Company also granted warrants (the “June 2010 Compensation Warrants”) to the sole placement agent (and to certain of its designated representatives)
engaged in connection with the June 2010 Offering. Each June 2010 Compensation Warrant entitles the holder to purchase a common share at an exercise
price of $1.7156 per share. The June 2010 Compensation Warrants are exercisable between June 15, 2010 and June 15, 2015, and, upon complete exercise,
would result in the issuance of 264,178 common shares.
The Company estimated the fair value attributable to the June 2010 Compensation Warrants of $198,609 as of the date of grant by applying the Black-
Scholes pricing model, to which the following additional assumptions were applied: a risk-free annual interest rate of 2.04%, expected volatility of 89.4%,
an expected term of 5 years, a dividend yield of 0.0% and an issue-date market share price of $1.18. The initial fair value of the June 2010 Compensation
Warrants has been accounted for as additional transaction costs, since the instruments were granted to the sole placement agent as part of the terms of the
underlying engagement and in recognition of the efforts made in connection with the June 2010 Offering.
Shareholder rights plan
Effective March 29, 2010, the Company adopted a shareholder rights plan (the “Rights Plan”). The Rights Plan was approved by the Board of Directors on
March 22, 2010 and ratified on May 13, 2010 by the Company’s shareholders. The rights issued to the shareholders under the Rights Plan will be
exercisable, under certain conditions, only when a person or entity, including related parties, acquires or announces his/her or its intention to acquire more
than twenty (20) percent of the outstanding common shares of the Company (as such shares may be redesignated or reclassified) without complying with
the “permitted bid” provisions of the Rights Plan or without approval of the Company’s Board of Directors. Should such an acquisition occur, each right
would, upon exercise, entitle a holder, other than the person pursuing the acquisition together with any related parties, to purchase common shares of the
Company at a fifty (50) percent discount to the market price of the Company’s shares at that time.
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Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2011 and December 31, 2010 and for the years ended December 31, 2011 and 2010
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
Stock options
In December 1995, the Company’s Board of Directors adopted a stock option plan (the “Stock Option Plan”) for its directors, senior executives, employees
and other collaborators who provide services to the Company. The total number of common shares that may be issued under the Stock Option Plan cannot
exceed 11.4% of the total number of issued and outstanding common shares at any given time.
Options granted under the Stock Option Plan expire after a maximum period of ten years following the date of grant. Options granted under the Stock
Option Plan generally vest over a three-year period. However, 524,468 of the options granted in 2011 and 883,525 of the options granted in 2010 vest over
a period of 18 months.
The following table summarizes the activity under the Company’s stock option plan.
Years ended December 31,
2011
2010
Canadian Dollar
Options
US Dollar
Options
Canadian Dollar
Options
US Dollar
Options
Weighted
average
exercise
price
Number
(CAN$) Number
Weighted
average
exercise
price
(US$)
Weighted
average
exercise
price
Number
(CAN$) Number
Weighted
average
exercise
price
(US$)
Balance - Beginning of the year
Granted
Exercised
Forfeited
Expired
6,558,679 2.55
15,000 1.93
(160,348) 0.89
(46,666) 1.54
(178,333) 6.18
293,334 2.83
1,434,468 1.75
-
-
-
-
-
-
5,920,588 2.72
1,088,525 1.51
(124,068) 0.90
(74,699) 0.95
(251,667) 3.22
293,334 2.83
-
-
-
-
-
-
-
-
Balance - End of the year
6,188,332 2.50
1,727,802 1.93
6,558,679 2.55
293,334 2.83
Exercise price
(CAN$)
0.55 to 0.95
0.96 to 1.56
1.57 to 1.82
1.83 to 3.54
3.55 to 4.92
4.93 to 8.88
CAN$ options outstanding as at December 31, 2011
Weighted average
remaining
contractual life (years)
Weighted average
exercise price
(CAN$)
7.55
8.14
3.05
2.34
1.98
2.07
4.85
0.82
1.50
1.77
3.21
4.08
5.96
2.50
Total
intrinsic
value
(CAN$)
1,319
63
-
-
-
-
1,382
Number
1,776,974
1,048,525
944,500
797,500
775,333
845,500
6,188,332
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Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2011 and December 31, 2010 and for the years ended December 31, 2011 and 2010
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
Exercise price
(CAN$)
0.55 to 0.95
0.96 to 1.56
1.57 to 1.82
1.83 to 3.54
3.55 to 4.92
4.93 to 8.88
Exercise price
(US$)
1.74 to 1.78
1.79 to 1.87
1.88 to 3.96
Exercise price
(US$)
1.79 to 1.87
1.88 to 3.96
CAN$ options exercisable as at December 31, 2011
Weighted average
remaining
contractual life (years)
Weighted average
exercise price
(CAN$)
7.54
7.73
3.05
2.20
1.98
2.07
4.55
0.81
1.49
1.77
3.23
4.08
5.96
2.57
US$ options outstanding as at December 31, 2011
Weighted average
remaining
contractual life
(years)
Weighted average
exercise price
(US$)
9.93
5.94
5.74
9.19
1.74
1.82
3.37
1.93
US$ options exercisable as at December 31, 2011
Weighted average
remaining
contractual life
(years)
Weighted average
exercise price
(US$)
5.94
5.33
5.57
1.82
3.48
2.83
Number
1,723,646
692,353
944,500
782,500
775,333
845,500
5,763,832
Number
1,414,468
115,000
198,334
1,727,802
Number
115,000
178,334
293,334
Total
intrinsic
value
(CAN$)
1,287
48
-
-
-
-
1,335
Total
intrinsic
value
(US$)
-
-
-
-
Total
intrinsic
value
(US$)
-
-
-
As at December 31, 2011, the total compensation cost related to unvested Canadian Dollar stock options not yet recognized amounted to $146,641
($1,014,958 in 2010). This amount is expected to be recognized over a weighted average period of 0.98 year (1.02 years in 2010).
As at December 31, 2011, the total compensation cost related to unvested US Dollar stock options not yet recognized amounted to $1,322,752 ($0 in 2010).
This amount is expected to be recognized over a weighted average period of 1.48 years.
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Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2011 and December 31, 2010 and for the years ended December 31, 2011 and 2010
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
The Company settles stock options exercised through the issuance of common shares from treasury.
Fair value input assumptions for Canadian Dollar Options granted
The table below shows the assumptions, or weighted average parameters, applied to the Black-Scholes option pricing model in order to determine stock-
based compensation costs over the life of the awards.
Expected dividend yield
Expected volatility
Risk-free annual interest rate
Expected life (years)
Weighted average grant date fair value
Years ended December 31,
2011
2010
(a)
(b)
(c)
(d)
0.0%
81.0%
1.8%
6.82
0.0%
84.5%
2.6%
6.07
CAN$1.40
CAN$1.09
(a)
(b)
(c)
(d)
The Company has not paid dividends nor intends to pay dividends in the foreseeable future.
Based on the historical volatility of the Company’s stock price over the most recent period consistent with the expected life of the stock options, as well as on future expectations.
Based on Canadian Government Bond interest rates with a term that is consistent with the expected life of the stock options.
Based upon historical data related to the exercise of stock options, on post-vesting employment terminations and on future expectations related to exercise behaviour.
Fair value input assumptions for US Dollar Options granted
The table below shows the assumptions, or weighted average parameters, applied to the Black-Scholes option pricing model in order to determine stock-
based compensation costs over the life of the awards.
Expected dividend yield
Expected volatility
Risk-free annual interest rate
Expected life (years)
Weighted average grant date fair value
(a)
(b)
(c)
(d)
Year ended
December 31, 2011
0.0%
81.6%
1.4%
6.82
US$1.27
(a)
(b)
(c)
(d)
The Company has not paid dividends nor intends to pay dividends in the foreseeable future.
Based on the historical volatility of the Company’s stock price over the most recent period consistent with the expected life of the stock options, as well as on future expectations.
Based on United States Treasury Government Bond interest rates with a term that is consistent with the expected life of the stock options.
Based upon historical data related to the exercise of stock options, on post-vesting employment terminations and on future expectations related to exercise behaviour.
The Black-Scholes pricing models referred above use “Level 2” inputs in calculating fair value, as defined by IFRS 7, and as discussed in note 24.
179
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Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2011 and December 31, 2010 and for the years ended December 31, 2011 and 2010
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
18 Operating expenses
Components of the Company’s operating expenses include the following:
Subcontractor fees
Raw material purchases
Change in inventory
Cost of sales
Salaries, employment taxes and short-term benefits
Post-employment benefits
Termination benefits
Share-based compensation costs
Total employee benefits expenses
(2)
(1)
Goods and services
Lease payments , net of sublease payments of $179,000
Refundable tax credits and grants
Depreciation and amortization
Impairment losses
Operating foreign exchange (gains) loss
Total operating expenses
Years ended December 31,
2011
$
25,667
2,154
(261)
27,560
13,029
864
182
1,333
15,408
2010
$
15,907
1,897
896
18,700
11,885
665
45
1,192
13,787
20,334
2,153
(383)
1,471
1,405
299
17,316
1,825
(687)
1,573
-
(5)
68,247
52,509
(1)
(2)
Goods and services include third-party R&D costs, laboratory supplies, royalty expenses, professional fees, marketing services, insurance as well as travel expenses.
Lease expense also includes changes in the onerous lease provision (note 16), except for the unwinding of discount.
180
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Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2011 and December 31, 2010 and for the years ended December 31, 2011 and 2010
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
19
Employee future benefits
The Company’s subsidiary in Germany provides unfunded defined benefit pension plans and unfunded post-employment benefit plans for some groups of
employees. Provisions for pension obligations are established for benefits payable in the form of retirement, disability and surviving dependent pensions.
The following table provides a reconciliation of the changes in the aforementioned plans’ accrued benefit obligations:
Pension benefit plans
2011
$
2010
$
Other benefit plans
2011
$
2010
$
Obligation – Beginning of year
10,492
10,767
1,041
1,254
Current service cost
Interest cost
Actuarial (gain) loss
Benefits paid
Effect of foreign currency exchange rate changes
185
555
1,335
(354)
(444)
217
546
(191)
(173)
(674)
206
54
46
(196)
(40)
254
63
(370)
(86)
(74)
Obligation – End of year
11,769
10,492
1,111
1,041
Amount recognized
In comprehensive loss
In other comprehensive (loss) income
(740)
(1,335)
(763)
191
(306)
-
53
-
The cumulative amount of actuarial losses recognized in other comprehensive (loss) income as at December 31, 2011 is approximately $1,144,000
(cumulative actuarial gain of approximately $191,000 as at December 31, 2010).
The significant actuarial assumptions adopted to determine the Company’s accrued benefit obligations are as follows:
Actuarial assumptions
Discount rate
Pension benefits increase
Rate of compensation increase
Pension benefit plans
2010
%
2011
%
2011
%
Other benefit plans
4.20
2.00
5.10
2.00
2.75 to 3.75 2.75 to 3.75
4.20
2.00
2.75
2010
%
5.10
2.00
2.75
The last actuarial reports give effect to the pension and post-employment benefit obligations as at December 31, 2011. The next actuarial reports are
planned for December 31, 2012.
181
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Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2011 and December 31, 2010 and for the years ended December 31, 2011 and 2010
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
In accordance with the assumptions used as at December 31, 2011, the future benefits expected to be paid can be presented as follows:
2012
2013
2014
2015
2016
2017 through 2020
$
680
745
702
692
644
3,148
6,611
Cash required in the next year to fund the plans will approximate the amount of expected benefits.
Total expenses for the Company’s defined contribution plan in its German subsidiary amounted to approximately $312,984 for the year ended
December 31, 2011 ($257,260 for 2010).
20
Finance income and finance costs
Components of the Company’s finance income and finance costs can be summarized as follows:
Finance income
Net gains due to changes in foreign currency exchange rates
Net change in fair value of warrant liability
Interest income
Gain on held-for-trading financial instrument
Finance costs
Net change in fair value of warrant liability
Unwinding of discount
182
Years ended December 31,
2011
$
2010
$
2,197
2,533
231
1,278
6,239
932
-
181
687
1,800
-
(8)
(8)
(5,437)
(8)
(5,445)
6,231
(3,645)
Table of Contents
Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2011 and December 31, 2010 and for the years ended December 31, 2011 and 2010
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
21
Supplemental disclosure of cash flow information
Changes in operating assets and liabilities
Trade and other receivables
Inventory
Prepaid expenses and other current assets
Other non-current assets
Payables and accrued liabilities
Provision and other non-current liabilities
Deferred revenues
Income taxes
Years ended December 31,
2011
$
2010
$
(3,332)
(261)
(4,068)
(456)
2,970
(24)
8,614
105
3,548
(2,029)
896
(3,344)
(315)
(1,956)
109
-
(900)
(7,539)
During the year ended December 31, 2011, the Company paid approximately $841,000 in income taxes, as discussed in note 5.
22
Income taxes
Current:
Deferred:
Origination and reversal of temporary differences
Change in enacted tax rates
Adjustments in respect of prior years
Change in unrecognized tax assets
Income tax expense
183
Years ended December 31,
2011
$
2010
$
(1,104)
-
9,017
(104)
3,428
(12,341)
-
(1,104)
7,632
(272)
(176)
(7,184)
-
-
Table of Contents
Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2011 and December 31, 2010 and for the years ended December 31, 2011 and 2010
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
The reconciliation of the combined Canadian federal and Quebec provincial income tax rate to the income tax expense is provided below:
Combined Canadian federal and provincial statutory income tax rate
Income tax recovery based on statutory income tax rate
Change in unrecognized tax assets
Permanent difference attributable to the use of local currency for tax reporting
Permanent difference attributable to net change in fair value of warrant liability
Stock-based compensation costs
Difference in statutory income tax rate of foreign subsidiaries
Permanent difference attributable to unrealized foreign exchange gain/loss
Change in enacted rates used
Expiry of loss carryforwards
Foreign witholding tax
Adjustments in respect of prior years
Other
Years ended December 31,
2010
2011
28.4%
29.9%
Years ended December 31,
2010
$
8,500
(7,184)
1,232
(1,761)
(357)
391
(159)
(272)
(164)
-
(176)
(50)
2011
$
7,290
(12,341)
378
661
(441)
893
(32)
(104)
-
(1,104)
3,428
268
(1,104)
-
The decrease in the applicable tax rates is mainly due to the reduction of the federal income tax rate in 2011 from 18% to 16.5%.
Income tax expense of $1,104,000 for the year ended December 31, 2011 represents current taxation in the form of foreign jurisdiction tax withholdings on
payments pursuant to a licensing agreement (note 5).
Deferred income tax assets are recognized to the extent that the realization of the related tax benefit through reversal of temporary differences and future
taxable profits is probable. If income tax assets had been booked in 2011, an amount of $12,341,000 would have been credited to the income statement,
$425,000 to other comprehensive income and $334,000 to equity. The remaining variation in unrecognized tax assets of $2,610,000 is due to exchange rate
differences.
184
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Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2011 and December 31, 2010 and for the years ended December 31, 2011 and 2010
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
Loss before income taxes
Loss before income taxes is attributable to the Company’s tax jurisdictions as follows:
Germany
Canada
United States
Significant components of deferred tax assets and liabilities:
Deferred tax assets
Long-term:
Operating losses carried forward
Research and development costs
Deferred tax liabilities
Deferred revenues
Property, plant and equipment
Warrant liability
Other
Deferred tax assets (liabilities), net
Years ended December 31,
2011
$
2010
$
(25,246) (19,763)
(8,664)
(24)
(290)
(427)
(25,963) (28,451)
As at
December 31,
2011
$
As at
December 31,
2010
$
As at
January 1,
2010
$
224
-
224
-
197
-
27
224
-
1,531
169
1,700
1,083
243
169
205
1,700
-
1,383
226
1,609
1,089
262
188
70
1,609
-
185
Table of Contents
Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2011 and December 31, 2010 and for the years ended December 31, 2011 and 2010
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
Significant components of unrecognized deferred tax assets are as follows:
Deferred tax assets
Inventory
Deferred revenues
Other
Long term:
Operating losses carried forward
Intangible assets
Research and development costs
Unused tax credits
Employee future benefits
Property, plant and equipment
Share issue expenses
Deferred revenues
Onerous lease provision
Other
Unrecognized deferred tax assets
As at December
31,
2011
$
As at December
31,
2010
$
As at
January 1,
2010
$
740
507
-
1,247
38,665
13,170
12,310
10,667
1,534
1,301
813
589
186
139
79,374
80,621
352
65
9
426
33,745
14,394
10,934
7,158
1,233
1,237
715
-
151
138
69,705
70,131
262
713
108
1,083
26,078
16,448
10,257
6,738
1,136
702
374
-
174
1
61,908
62,991
As at December 31, 2011, amounts and expiry dates of tax attributes to be deferred for which no deferred tax asset was recognized were as follow:
2015
2028
2029
2030
2031
186
Canada
Federal
$
Provincial
$
4,719
10,962
6,520
5,586
2,606
30,393
-
10,079
6,496
5,666
2,606
24,747
Table of Contents
Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2011 and December 31, 2010 and for the years ended December 31, 2011 and 2010
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
The Company has estimated non-refundable research and development tax credits of approximately $10,667,000 which can be carried forward to reduce
Canadian federal income taxes payable and which expire at dates ranging from 2018 to 2030. Furthermore, the Company has unrecognized tax assets in
respect of operating losses in Germany and in the United States. The losses amount to $106,521,789 in Germany, for which there is no expiry date and to
$791,333 in the United States, which expire as follows:
2027
2028
2029
United States
$
17
596
178
791
The operating loss carryforwards and the tax credits claimed are subject to review, and potential adjustment, by tax authorities.
Other deductible temporary differences for which tax assets have not been booked are not subject to a time limit, except for share issue expenses which are
amortizable over 5 years.
23
Capital disclosures
The Company’s objective in managing capital, primarily composed of shareholders’ deficiency and cash and cash equivalents, is to ensure sufficient
liquidity to fund R&D activities, general and administrative expenses, working capital and capital expenditures.
The Company’s priority is to optimize its liquidity needs by non-dilutive sources, including the sale of non-core assets, investment tax credits and grants,
interest income, licensing and related services and royalties. More recently, however, the Company has raised additional capital via registered direct
offerings and drawdowns related to the Company’s ATM sales agreement, as discussed in notes 17 and 30.
At December 31, 2011, cash and cash equivalents amounted to US$46,881,000. The Company believes that its cash position will be sufficient to finance its
operations and capital needs for at least, but not limited to the next twelve months.
The capital management objective of the Company remains the same as that of previous periods. The policy on dividends is to retain cash to keep funds
available to finance the activities required to advance the Company’s product development pipeline.
The Company is not subject to any capital requirements imposed by any regulators or by any other external source.
187
Table of Contents
Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2011 and December 31, 2010 and for the years ended December 31, 2011 and 2010
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
24
Financial instruments and financial risk management
Financial assets (liabilities) as at December 31, 2011, December 31, 2010 and January 1, 2010 are presented below.
December 31, 2011
Cash and cash equivalents
Trade and other receivables (note 8)
Restricted cash (note 10)
Payables and accrued liabilities (note 14)
Long-term payable*
Warrant liability (note 15)*
Other non-current liabilities (note 16)
* Includes current and non-current portions.
December 31, 2010
Cash and cash equivalents
Short-term investment (note 7)
Trade and other receivables (note 8)
Restricted cash (note 10)
Payables and accrued liabilities (note 14)
Long-term payable*
Warrant liability (note 15)*
Other non-current liabilities (note 16)
*Includes current and non-current portions.
Loans and
receivables
$
Financial
liabilities at
FVTPL
$
Other
financial
liabilities
$
Total
$
46,881
8,325
806
-
-
-
-
56,012
-
-
-
-
-
(9,204)
-
-
-
-
(12,126)
(88)
-
(187)
46,881
8,325
806
(12,126)
(88)
(9,204)
(187)
(9,204)
(12,401)
34,407
Financial
asset at
FVTPL
$
Loans and
receivables
$
Financial
liabilities
at FVTPL
$
Other
financial
liabilities
$
Total
$
-
1,934
-
-
-
-
-
-
1,934
31,998
-
5,421
827
-
-
-
-
-
-
-
-
-
-
(14,367)
-
-
-
-
-
(9,305)
(150)
-
(183)
31,998
1,934
5,421
827
(9,305)
(150)
(14,367)
(183)
38,246
(14,367)
(9,638)
16,175
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Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2011 and December 31, 2010 and for the years ended December 31, 2011 and 2010
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
January 1, 2010
Cash and cash equivalents
Trade and other receivables (note 8)
Restricted cash (note 10)
Payables and accrued liabilities (note 14)
Long-term payable*
Warrant liability (note 15)
Other non-current liabilities (note 16)
*Includes current and non-current portions.
Fair value
Loans and
receivables
$
38,100
3,549
878
-
-
-
-
Financial
liabilities at
FVTPL
Other
financial
liabilities
$
$
Total
$
-
-
-
-
-
(1,664)
-
-
-
-
(11,845)
(200)
-
(66)
38,100
3,549
878
(11,845)
(200)
(1,664)
(66)
42,527
(1,664)
(12,111)
28,752
The Black-Scholes valuation methodology uses “Level 2” inputs in calculating fair value, as defined in IFRS 7, which establishes a hierarchy that
prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or
liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The input levels discussed in IFRS 7 are:
Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 –
Inputs other than quoted prices included within Level 1 that are observable for an asset or liability, either directly (i.e. prices) or
indirectly (i.e. derived from prices).
Level 3 – Inputs for an asset or liability that are not based on observable market data (unobservable inputs).
The carrying values of the Company’s cash and cash equivalents, trade and other receivables, restricted cash, payables, provisions, accrued liabilities, long-
term payable and other long-term liabilities approximate their fair values due to their short-term maturities or to the prevailing interest rates of the related
instruments, which are comparable to those of the market.
Financial risk factors
The following provides disclosures relating to the nature and extent of the Company’s exposure to risks arising from financial instruments, including credit
risk, liquidity risk and market risk (share price risk and currency risk), and how the Company manages those risks.
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Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2011 and December 31, 2010 and for the years ended December 31, 2011 and 2010
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
(a)
Credit risk
Credit risk is the risk of an unexpected loss if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The
Company regularly monitors credit risk exposure and takes steps to mitigate the likelihood of this exposure resulting in losses. The Company’s
exposure to credit risk currently relates to cash and cash equivalents (note 6), to trade and other receivables (note 8) and to restricted cash (note 10).
The Company invests its available cash in amounts that are readily convertible to known amounts of cash and deposits its cash balances with
financial institutions that have a minimum rating of “A3”.
As at December 31, 2011, trade accounts receivable for an amount of approximately $7,415,000 were with Company 1 and Company 3 (note 28).
As at December 31, 2011, no trade accounts receivable were past due or impaired.
Generally, the Company does not require collateral or other security from customers for trade accounts receivable; however, credit is extended
following an evaluation of creditworthiness. In addition, the Company perform ongoing credit reviews of all its customers and establish an
allowance for doubtful accounts when accounts are determined to be uncollectible.
The maximum exposure to credit risk approximates the amount recognized on the statement of financial position.
(b)
Liquidity risk:
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. As indicated in the capital
disclosures section (note 23), the Company manages this risk through the management of its capital structure. It also manages liquidity risk by
continuously monitoring actual and projected cash flows. The Board of Directors reviews and approves the Company’s operating and capital
budgets, as well as any material transactions out of the ordinary course of business. The Company has adopted an investment policy in respect of the
safety and preservation of its capital to ensure the Company’s liquidity needs are met. The instruments are selected with regard to the expected
timing of expenditures and prevailing interest rates.
(c) Market risk
Share price risk
The change in fair value of the Company’s warrant liability, which is measured at FVTPL, results from the periodic “mark-to-market” revaluation,
via the application of the Black-Scholes option pricing model, of currently outstanding share purchase warrants. The Black-Scholes valuation is
impacted, among other inputs, by the market price of the Company’s common shares. As a result, the change in fair value of the warrant liability,
which is reported as finance income (costs) in the accompanying consolidated statements of comprehensive loss, has been and may continue in
future periods to be materially affected most notably by changes in the Company’s common share price, which on the Nasdaq market, has ranged
from $1.43 to $2.58 during the year ended December 31, 2011. Assuming the following variations of the market price of the Company’s common
shares over a 12-month period:
— Market price variations of -10% and +10%
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Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2011 and December 31, 2010 and for the years ended December 31, 2011 and 2010
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
If these variations were to occur, the impact on the Company’s net loss for warrant liability held at December 31, 2011 would be as follows:
Warrant liability*
Total impact on net loss – decrease/(increase)
*Includes current and non-current portions.
Foreign currency risk
Carrying
amount
$
-10%
+10%
$
$
9,204
1,155
1,155
(1,174)
(1,174)
Since the Company operates internationally, it is exposed to currency risks as a result of potential exchange rate fluctuations related to non-intragroup
transactions. In particular, fluctuations in the US dollar exchange rates against the EUR could have a potentially significant impact on the Company’s
results of operations. The following variations are reasonably possible over a 12-month period:
— Foreign exchange rate variations of -5% (depreciation of the EUR) and +5% (appreciation of the EUR) against the US$, from a year-end rate of EUR1 =
US$1.2972.
If these variations were to occur, the impact on the Company’s net loss for each category of financial instruments held at December 31, 2011 would be as
follows:
Cash and cash equivalents
Warrant liability*
Total impact on net loss – decrease/(increase)
*Includes current and non-current portions.
25
Commitments, contingencies and guarantee
Carrying
amount
$
33,669
9,204
Balances denominated in US$
-5%
$
+5%
$
1,683
(460)
1,223
(1,683)
460
(1,223)
The Company is committed to various operating leases for its premises plus service and manufacturing contracts.
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Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2011 and December 31, 2010 and for the years ended December 31, 2011 and 2010
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
Future minimum lease payments and future minimum sublease payments expected to be received under non-cancellable operating leases (subleases), as
well as future payments in connection with utility service agreements, as at December 31, 2011 are as follows:
Less than 1 year
1 – 3 years
4 – 5 years
More than 5 years
Total
Minimum lease
payments
$
1,690
3,128
2,172
373
Minimum sub-lease
payments
$
(226)
(451)
(451)
(244)
7,363
(1,372)
Utilities
$
609
793
496
-
1,898
The Company has a leasing arrangement in Germany under which it rents laboratory, storage and office space. The original term of the lease, ten years (or
March 2016), is automatically renewable for two further five-year periods if not terminated otherwise by the Company within 12 months prior to original
expiry. Under the terms of the arrangement, the minimum lease payment may be increased or lowered proportionally to the fluctuation in consumer price
index for Germany if that change is more than 5% on an accumulated basis. The terms of the lease arrangement for the ten years following automatic
renewal are the same as per the original agreement.
In October 2007, the Company entered into a $100,000 letter of credit agreement in favour of its landlord in the United States with respect to the
Company’s long-term lease obligation. In August 2009 and November 2011, the amount of the letter of credit was reduced to $75,000 and $50,000,
respectively, as per the original landlord-tenant agreement, and is payable to the landlord in the event that the Company fails to perform any of its
obligations under the related lease agreement.
Service and manufacturing commitments given, which consist of R&D service agreements and manufacturing agreements for Cetrotide , are as follows:
®
Less than 1 year
1 – 3 years
4 – 5 years
More than 5 years
Total
Contingencies
December 31, 2011
$
10,760
3,855
-
-
14,615
In the normal course of operations, the Company may become involved in various claims and legal proceedings related to, for example, contract
terminations, employee-related and other matters. No contingent liabilities have been accrued as at December 31, 2011 or 2010, nor are there any known
disputes pending against the Company that could significantly impact the Company’s consolidated financial statements.
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Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2011 and December 31, 2010 and for the years ended December 31, 2011 and 2010
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
26
Net loss 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.
Net loss
Basic weighted average number of shares outstanding
Dilutive effect of stock options
Dilutive effect of share purchase warrants
Diluted weighted average number of shares outstanding
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
Warrants (number of equivalent shares)
Years ended December 31,
2011
$
2010
$
(27,067)
94,507,988
1,143,749
1,697,418
(28,451)
75,659,410
326,478
-
97,349,155
75,985,888
3,681,864
-
4,999,656
12,923,390
For the years ended December 31, 2011 and 2010, the diluted net loss per share was the same as the basic net loss per share, since the effect of the assumed
exercise of stock options and warrants to purchase common shares is anti-dilutive. Accordingly, the diluted net loss per share for these periods was
calculated using the basic weighted average number of shares outstanding.
The weighted average number of shares is influenced most notably by share issuances made in connection with financing activities, such as ATM
drawdowns and registered direct offerings, which resulted in the issuance of a total of 19,464,548 and 19,917,075 common shares (see note 17) during the
years ended December 31, 2011 and 2010, respectively. See also note 30.
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Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2011 and December 31, 2010 and for the years ended December 31, 2011 and 2010
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
27
Compensation of key management
Compensation awarded to key management* included:
Salaries and short-term employee benefits
Post-employment benefits
Termination benefits
Share-based compensation cost
2011
$
2,886
684
-
936
4,506
2010
$
2,524
114
-
554
3,192
* Key management includes the Company’s directors and members of the Executive Committee.
28
Segment information
The Company operates in a single operating segment, being the biopharmaceutical segment.
Geographical information
The Company is domiciled in Canada and derives all its revenues from its operating subsidiaries domiciled in Germany.
Revenues by geographical area are detailed as follows:
United States
Switzerland
Japan
Other
Years ended December 31,
2011
$
5,492
24,977
5,472
112
36,053
2010
$
9,902
15,907
1,684
210
27,703
Revenues have been allocated to geographic regions based on the country of residence of the Company’s external customers or partners.
194
As at
January 1,
2010
$
18,109
551
71
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Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2011 and December 31, 2010 and for the years ended December 31, 2011 and 2010
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
Non-current assets* by geographical area are detailed as follows:
As at
December 31,
2011
$
As at
December 31,
2010
$
Germany
United States
Canada
13,557
-
36
13,593
15,579
381
49
16,009
18,731
* Non-current assets exclude financial instruments and other non-current assets.
Companies information about major customers representing 10% or more of the Company’s revenues in any of the last two years are as follows:
Company 1
Company 2
Company 3
29
Transition to IFRS
Years ended December 31,
2010
2011
$
$
15,907
7,990
-
24,977
4,556
3,657
The accompanying consolidated financial statements were prepared as described in note 1 and reflect the relevant provisions of IFRS 1. IFRS 1 is based on
the principle that the adoption of IFRS should be applied retrospectively. Retrospective application necessitates that comparative financial information be
provided, and, as a result, the first date at which the Company has applied IFRS was January 1, 2010. However, IFRS 1 offers certain optional exemptions
and mandatory exceptions to the retrospective application of IFRS to first-time preparers of IFRS financial statements. Those exemptions and exceptions,
which are relevant to the Company, are discussed in turn below.
Optional IFRS exemptions
Business combinations
IFRS 1 allows first-time preparers to elect not to restate any business combinations that have occurred prior to the Transition Date in accordance with IFRS
3, Business Combinations (as revised in 2008) (“IFRS 3”). Retrospective application would require that all business combinations that occurred prior to an
entity’s date of transition to IFRS be restated, and any goodwill arising on such business combinations would be adjusted from its carrying value as
determined under Canadian GAAP.
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Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2011 and December 31, 2010 and for the years ended December 31, 2011 and 2010
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
The Company has elected to apply this exemption and has not restated any prior business combinations. Consequently, IFRS 3 is applicable only to
business combinations occurring after the Transition Date. There have been no business combinations since the Transition Date, and, as a result, the
Company will apply the provisions of IFRS 3 to future transactions, if any.
Currency translation differences
Full retrospective application of IFRS would require an entity to determine the cumulative foreign currency translation differences, as per the provisions of
IAS 21, The Effects of Changes in Foreign Exchange Rates, from the date that a subsidiary or an equity-method investee was acquired. IFRS 1 permits a
first-time adopter to reset any cumulative translation differences that existed at the date of transition to IFRS to zero. The Company has elected to reset its
cumulative translation adjustment balance to zero on January 1, 2010, with a corresponding adjustment to the Company’s Transition Date deficit.
Mandatory IFRS exception
Accounting estimates
IFRS 1 requires that estimates under IFRS at the date of transition should be consistent with estimates made for the same date under previous GAAP, after
applying any adjustments to reflect differences in accounting policies, unless there is objective evidence that those estimates were made in error. As such, a
first-time adopter cannot use hindsight in order to create or revise any accounting estimates. Estimates previously made by the Company under Canadian
GAAP have not been revised, except where necessary to reflect any differences in accounting policies.
Reconciliation of Canadian GAAP to IFRS
IFRS 1 requires a first-time adopter of IFRS to reconcile shareholders’ equity (deficiency), comprehensive income (loss) and cash flows for prior periods
beginning on the date of transition to IFRS. The Company’s first-time adoption of IFRS did not have any impact on previously reported cash flows from
operating activities, financing activities or investing activities. Reconciliations of shareholders’ equity (deficiency) as at January 1, 2010 and December 31,
2010 and comprehensive loss for the year December 31, 2010 are provided below.
Reconciliation of shareholders’
equity (deficiency)
Shareholders’ equity under Canadian GAAP
IFRS adjustments attributable to:
Impairment of Cetrotide asset
Derecognition of deferred transaction costs
Liability accounting for share purchase warrants
Onerous lease provision
Termination benefit adjustment
®
Shareholders’ deficiency under IFRS
196
As at
December 31,
2010
$
As at
January 1,
2010
$
12,439
9,226
(a)
(b)
(c)
(d)
(e)
(11,179)
(3,947)
(14,367)
(312)
(209)
(12,907)
(4,747)
(1,664)
(367)
(381)
(17,575)
(10,840)
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Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2011 and December 31, 2010 and for the years ended December 31, 2011 and 2010
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
Reconciliation of comprehensive loss
®
Comprehensive loss under Canadian GAAP
IFRS adjustments attributable to:
Impairment of Cetrotide asset
Derecognition of deferred transaction costs
Liability accounting for share purchase warrants
Onerous lease provision
Termination benefit adjustment
Share-based compensation
Foreign currency translation adjustments to shareholders’ deficiency
Comprehensive loss under IFRS
Explanatory notes
Year ended
December 31,
2010
$
(23,169)
924
504
(6,368)
52
152
(306)
952
(27,259)
(a)
(b)
(c)
(d)
(e)
(f)
In addition to the IFRS 1 exemptions discussed above, the following section discusses the changes in accounting policies that resulted in the adjustments
shown in the preceding reconciliations.
(a)
Impairment of assets
Under Canadian GAAP, property, plant and equipment and intangible assets with finite lives were reviewed for impairment whenever events or
circumstances indicated that the carrying values of those assets may not be recoverable. Impairments were deemed to exist when the carrying value
of the asset or asset group was greater than the undiscounted future cash flows expected to be provided by the asset or asset group. The amount of
impairment loss, if any, was equivalent to the excess of the asset’s or asset group’s carrying value over fair value, which in turn was determined
based upon discounted cash flows or appraised values, depending on the nature of assets.
Under IFRS, once an indication of impairment is identified, similar to Canadian GAAP, an entity is required to make a formal estimate of
recoverable amount. However, unlike Canadian GAAP, the carrying amount of an asset that is subject to impairment testing under IFRS is compared
to the higher of fair value less costs to sell or value in use. Where the recoverable amount of an asset subject to impairment testing is compared to the
asset’s value in use, any future cash flows expected to be provided by the asset are discounted, unlike Canadian GAAP.
As a result of the change in measurement methodology, the Company recognized an additional impairment charge, amounting to $12,907,000 as of
the Transition Date related to the intangible asset, Cetrotide , since the carrying amount of that asset exceeded its recoverable amount. The Company
has adjusted related amortization charges in the Company’s comparative consolidated statement of comprehensive loss for the year ended
December 31, 2010.
®
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Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2011 and December 31, 2010 and for the years ended December 31, 2011 and 2010
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
(b) Deferred transaction costs
Under Canadian GAAP, transaction costs incurred in connection with the Company’s December 2008 sale to Cowen of the Company’s rights to
royalties on future sales of Cetrotide were capitalized as deferred charges and were being amortized based on the “units-of-revenue” method and
over the same period in which the related deferred revenues were recognized as royalty revenues.
®
Under IFRS, the related transaction costs have been charged to expense as incurred.
As a result, the Company has derecognized the remaining unamortized portion of the deferred transaction costs, amounting to $4,747,000, as of the
Transition Date and has reversed any related amortization expense in the Company’s comparative consolidated statements of comprehensive loss for
the year ended December 31, 2010.
(c) Accounting for share purchase warrants
Under Canadian GAAP, the Company had classified and was accounting for all of its outstanding common share purchase warrants as equity, on the
basis that the warrants did not embody a contractual obligation on the Company to deliver cash or another financial asset to the holder of those
warrants. All share purchase warrants issued in connection with the Company’s registered direct offerings contain a written put option, arising upon
the occurrence of a Fundamental Transaction, as defined in all outstanding warrants and including a change in control. The exercise of the put
options was not considered to be probable at any reporting date under Canadian GAAP.
Under IFRS, financial instruments that have terms whereby the issuer of the instrument does or could in the future not have the unconditional right to
avoid delivering cash must be classified as a liability and measured at FVTPL. Additionally, IFRS requires that any transaction costs on financial
instruments carried at FVTPL be expensed immediately, and not included in the initial measurement of the instrument.
As a result of the presence of the aforementioned put options, and despite the fact that the repurchase feature is conditional on a defined contingency,
the share purchase warrants are required to be classified as a liability under IFRS, since such a contingency ultimately could result in the transfer of
assets by the Company. As a result, all share purchase warrants are classified as a liability and are measured at fair value, or $1,664,000 as of the
Transition Date, and any periodic changes in fair value are recognized as gains or losses through profit or loss. Transaction costs related to the
FVTPL instruments were expensed under IFRS.
(d) Onerous lease provision
Under Canadian GAAP, there is no single standard that provides guidance related to the identification or accounting for provisions, nor are
provisions specifically defined. Additionally, onerous contracts are not specifically referred to under Canadian GAAP. Implicit references to onerous
arrangements are derived from broader principles underlying the definition of a contingency or liability and are oftentimes limited in practice to an
entity’s exit or restructuring activities.
Under IFRS, accounting for onerous contracts, defined as contracts in which the unavoidable costs of meeting the obligations under the contract
exceed the economic benefits expected to be received under it, is explicitly prescribed. Furthermore, the Company is required to determine, at each
reporting date, whether any onerous contracts exist, and, if the Company has a contract that is deemed to be onerous, the present obligation under
that contract must be recognized and measured as a provision.
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Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2011 and December 31, 2010 and for the years ended December 31, 2011 and 2010
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
The Company determined that it had a lease arrangement that was partially onerous as of the Transition Date, and as a result, a provision of $367,000
was recognized at that date.
(e)
Employee benefits
Actuarial gains and losses
Under Canadian GAAP, all actuarial gains and losses arising in the calculation of the Company’s defined benefit obligation have been recorded in
profit or loss as incurred.
Under IFRS, actuarial gains and losses may be recognized, as incurred, in other comprehensive income or loss, provided that the Company does so
for all of its defined benefit plans and all of its actuarial gains and losses.
Management has chosen to recognize actuarial gains and losses as incurred directly in other comprehensive loss beginning on the Transition Date.
As a result, the Company adjusted its employee benefit expenses to remove the net actuarial gains, amounting to $191,000 for the year ended
December 31, 2010. Instead, net actuarial gains has been recorded directly in other comprehensive loss, net of tax, in the deficit in the consolidated
statement of financial position as at December 31, 2010, without recycling to the consolidated statement of comprehensive loss in subsequent
periods.
Termination benefits
Certain Group employees in Germany are eligible to participate in a partial retirement program, which is composed of a full-time service period and
an inactive period, where the employee receives 50% of his or her salary for each year as well as an annual bonus during the entire partial retirement
period.
Under Canadian GAAP, the annual bonus to be paid in the inactive period is recognized as expense on a pro rata basis over the full-time service
period.
Under IFRS, the entire bonus element of the partial retirement arrangement is recognized as an expense immediately when the related partial
retirement agreement is established.
As a result, the Company has recognized an additional liability, amounting to $381,000, to reflect the aggregate bonus element of the partial
retirement arrangement as of the Transition Date.
(f)
Share-based payments
Under Canadian GAAP, for share-based awards with graded vesting, the Company recognizes the fair value of the award (all tranches) on a straight-
line basis over the underlying vesting period. Additionally, forfeitures of awards are not estimated at the date of grant and therefore are not included
in the calculation of the grant-date fair value. Instead, all forfeitures of awards are recognized as they occur.
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Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2011 and December 31, 2010 and for the years ended December 31, 2011 and 2010
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
Under IFRS, each tranche of a share-based award with graded vesting is treated as a separate award, and the resulting compensation expense is
recognized for each tranche over its distinct vesting period. Furthermore, expected forfeitures of awards are required to be estimated at the date of
grant and therefore are factored into the determination of fair value.
The Company has adjusted its periodic share-based compensation expense for underlying awards in order to reflect the change in policy related to
graded vesting and estimated expected forfeitures. These adjustments have resulted in an increase in share-based compensation costs of $306,000 for
the year ended December 31, 2010.
Reconciliations of consolidated financial statements
Presented below are reconciliations of the Company’s consolidated financial statements previously prepared under Canadian GAAP to the consolidated
financial statements prepared in accordance with IFRS.
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Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2011 and December 31, 2010 and for the years ended December 31, 2011 and 2010
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
Reconciliation of Consolidated Statement of Financial Position as at December 31, 2010
Canadian GAAP accounts
ASSETS
Current assets
Cash and cash equivalents
Short-term investment
Accounts receivable
Trade
Other
Income taxes
Inventory
Prepaid expenses and other current assets
Restricted cash
Property, plant and equipment
Deferred charges and other long-term
assets
Intangible assets
Goodwill
LIABILITIES
Current liabilities
Accounts payable and accrued
liabilities
Deferred revenues
Current portion of long-term payable
Deferred revenues
Long-term payable
Employee future benefits
Other long-term liability
SHAREHOLDERS’ EQUITY
Share capital
Warrants
Other capital
Deficit
Accumulated other comprehensive
income
Canadian GAAP
balances
$
IFRS
adjustments
$
IFRS
reclassifications
$
IFRS
balances
IFRS accounts
$
31,998
1,934
4,555
748
118
3,311
1,511
44,175
827
3,096
4,384
14,478
9,614
76,574
9,382
4,045
60
13,487
39,052
-
90
11,324
182
64,135
60,149
9,493
80,785
(150,756)
-
-
-
-
-
-
(366)
(366)
-
-
(3,581)
(11,179)
-
(15,126)
878
-
-
878
-
13,412
-
209
389
14,888
751
(9,493)
306
(9,811)
12,768
12,439
76,574
(11,767)
(30,014)
(15,126)
201
ASSETS
Current assets
31,998 Cash and cash equivalents
1,934
Short-term investment
5,421 Trade and other receivables
-
-
3,311
1,145
43,809
Inventory
Prepaid expenses and other current
assets
827 Restricted cash
3,096 Property, plant and equipment
Deferred charges and other non-
current assets
Identifiable intangible assets
803
3,299
9,614 Goodwill
61,448
LIABILITIES
Current liabilities
Payables and accrued liabilities
10,260
4,045 Current portion of deferred revenues
60 Current portion of long-term payable
14,365
39,052 Deferred revenues
13,412 Warrant liability
90 Long-term payable
11,533 Employee future benefits
Provision and other non-current
liabilities
SHAREHOLDERS’ DEFICIENCY
Share capital
571
79,023
60,900
-
81,091 Other capital
(160,567) Deficit
Accumulated other comprehensive
income
1,001
(17,575)
61,448
-
-
866
(748)
(118)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Table of Contents
Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2011 and December 31, 2010 and for the years ended December 31, 2011 and 2010
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
Reconciliation of Consolidated Statement of Comprehensive Loss for the year ended December 31, 2010
Canadian GAAP accounts
Revenues
Sales and royalties
License fees and other
Operating expenses
Cost of sales, excluding depreciation and
amortization
Research and development costs, net of
tax credits and grants
Selling, general and administrative
expenses
Depreciation and amortization
Property, plant and equipment
Intangible assets
Loss from operations
Other income
Unrealized gain on held-for-trading
financial instrument
Interest income
Foreign exchange gain
Loss on disposal of equipment
Net loss
Other comprehensive income:
Foreign currency translation
adjustments
Net loss per share
Basic and diluted
Weighted average number of shares
Canadian GAAP
balances
$
IFRS
adjustments
$
IFRS
reclassifications
$
IFRS
balances
$
IFRS accounts
24,857
2,846
27,703
18,700
-
-
-
-
-
-
-
Revenues
24,857 Sales and royalties
2,846 License fees and other
27,703
Operating expenses
-
18,700 Cost of sales
19,859
1,398
-
21,257
Research and development costs, net
of refundable tax credits and
grants
Selling, general and administrative
11,875
682
1,005
1,492
52,931
(1,005)
(1,492)
(417)
(5)
-
-
(5)
12,552
expenses
-
-
52,509
(25,228)
417
5
(24,806) Loss from operations
687
181
1,170
(28)
-
2,010
(23,218)
-
-
1,091
-
(6,741)
(5,650)
(5,233)
(687)
4,860
(2,261)
28
(1,945)
(5)
-
5,041 Finance income
-
- Finance costs
(8,686) Net finance income (costs)
(3,645)
(28,451) Net loss
Comprehensive loss
(23,169)
(4,090)
49
-
952
191
Basic and diluted
75,659,410
-
202
-
-
-
Other comprehensive income:
Foreign currency translation
1,001
adjustments
191
Actuarial gain on defined
benefit plans, net of tax
(27,259) Comprehensive loss
Net loss per share
Weighted average number of
shares
-
75,659,410 Basic and diluted
(0.31)
(0.07)
-
(0.38) Basic and diluted
Table of Contents
Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2011 and December 31, 2010 and for the years ended December 31, 2011 and 2010
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
Reconciliation of Consolidated Statement of Financial Position as at January 1, 2010
Canadian GAAP accounts
ASSETS
Current assets
Cash and cash equivalents
Accounts receivable
Trade
Other
Income taxes
Inventory
Prepaid expenses and other current
assets
Restricted cash
Property, plant and equipment
Deferred charges and other long-
term assets
Intangible assets
Goodwill
LIABILITIES
Current liabilities
Accounts payable and accrued
liabilities
Deferred revenues
Income taxes
Current portion of long-term
payable
Deferred revenues
Long-term payable
Employee future benefits
Other long-term liability
SHAREHOLDERS’ EQUITY
Share capital
Warrants
Other capital
Deficit
Accumulated other comprehensive
income
Canadian GAAP
balances
$
IFRS
adjustments
$
IFRS
reclassifications
$
IFRS
balances
IFRS accounts
$
38,100
2,444
992
113
4,415
2,949
49,013
878
4,358
4,733
17,034
10,246
86,262
-
-
-
-
-
(542)
(542)
-
-
(4,205)
(12,907)
-
(17,654)
11,919
(74)
6,327
965
57
19,268
45,919
-
143
11,640
66
77,036
41,203
2,899
79,943
(127,538)
12,719
9,226
86,262
-
-
-
(74)
-
1,664
-
381
441
2,412
321
(2,899)
-
(4,769)
(12,719)
(20,066)
(17,654)
203
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Inventory
Prepaid expenses and other
current assets
-
38,100
3,549
-
-
4,415
2,407
48,471
878
4,358
Restricted cash
Property, plant and equipment
Deferred charges and other
non-current assets
Identifiable intangible assets
528
4,127
10,246 Goodwill
68,608
LIABILITIES
Current liabilities
11,845
6,327
965
Payables and accrued liabilities
Current portion of deferred
revenues
Income taxes
Current portion of long-term
payable
57
19,194
45,919
1,664 Warrant liability
Deferred revenues
143
12,021
507
79,448
41,524
-
Long-term payable
Employee future benefits
Provision and other non-
current liability
SHAREHOLDERS’
DEFICIENCY
Share capital
79,943 Other capital
(132,307)
Deficit
-
(10,840)
68,608
1,105
(992)
(113)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Table of Contents
Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2011 and December 31, 2010 and for the years ended December 31, 2011 and 2010
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
30
Subsequent events
On January 23, 2012, the Company, pursuant to its existing ATM sales agreement dated June 29, 2011, with MLV, was commencing a new ATM issuance
program (“January 2012 ATM Sales Agreement”) under which it may, at its discretion, from time to time during the term of the sales agreement, sell up to a
maximum of 10,400,000 of its common shares through ATM issuances on the NASDAQ up to an aggregate amount of $16,000,000.
From January 23, 2012 through March 15, 2012, the Company issued a total of 3,565,470 common shares under the January 2012 ATM Sales Agreement for
aggregate gross proceeds of $6,397,045, less cash transaction costs of $191,911 and previously deferred transaction costs of $56,000.
204
Table of Contents
Item 19.
Exhibits
Exhibit Index
1.1
1.2
2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11†
4.12†
Restated Certificate of Incorporation and Restated Articles of Incorporation of the Registrant (incorporated by reference to Exhibit 99.2 to the
Registrant’s report on Form 6-K furnished to the Commission on May 25, 2011)
By-Law One adopted by the Registrant’s Board of Directors on March 22, 2011 (incorporated by reference to Exhibit 1.2 of the Registrant’s annual
report on Form 20-F for the financial year ended December 31, 2010 filed with the Commission on March 31, 2011)
Amended and Restated Shareholder Rights Plan Agreement between the Registrant and Computershare Trust Company of Canada dated as at
March 29, 2010 (incorporated by reference to Exhibit 99.1 to the Registrant’s report on Form 6-K furnished to the Commission on March 29, 2010)
Stock Option Plan of the Registrant (incorporated by reference to Exhibit 4.1 of the Registrant’s annual report on Form 20-F for the financial year
ended December 31, 2008 filed with the Commission on March 30, 2009)
Employment Agreement dated July 18, 2007 between Paul Blake, M.D. and the Registrant (incorporated by reference to Exhibit 4.2 of the
Registrant’s annual report on Form 20-F for the financial year ended December 31, 2007 filed with the Commission on March 28, 2008)
Service Contract dated December 5, 2007 between Aeterna Zentaris GmbH and Prof. Juergen Engel, Ph.D. Consent of the Registrant’s Independent
Registered Public Accounting Firm (incorporated by reference to Exhibit 4.3 of the Registrant’s annual report on Form 20-F for the financial year
ended December 31, 2007 filed with the Commission on March 28, 2008)
Amendment #1 to Service Contract dated September 1, 2008 between Aeterna Zentaris GmbH and Prof. Juergen Engel, Ph.D. (incorporated by
reference to Exhibit 4.4 of the Registrant’s annual report on Form 20-F for the financial year ended December 31, 2008 filed with the Commission on
March 30, 2009)
Amendment #2 to Service Contract dated August 30, 2010 between Aeterna Zentaris GmbH and Prof. Juergen Engel, Ph.D. (incorporated by
reference to Exhibit 4.5 of the Registrant’s annual report on Form 20-F for the financial year ended December 31, 2010 filed with the Commission on
March 31, 2011)
Employment Agreement dated September 1, 2008 between the Registrant and Prof. Juergen Engel, Ph.D. (incorporated by reference to Exhibit 4.5 of
the Registrant’s annual report on Form 20-F for the financial year ended December 31, 2008 filed with the Commission on March 30, 2009)
Employment Agreement dated May 7, 2007 between the Registrant and Nicholas J. Pelliccione (incorporated by reference to Exhibit 4.7 of the
Registrant’s annual report on Form 20-F for the financial year ended December 31, 2007 filed with the Commission on March 28, 2008)
Service Contract dated May 18, 2006 among Aeterna Zentaris GmbH, the Registrant and Matthias Seeber (incorporated by reference to Exhibit 4.7 of
the Registrant’s annual report on Form 20-F for the financial year ended December 31, 2008 filed with the Commission on March 30, 2009)
Amendment #1 to Service Contract dated December 9, 2008 among Aeterna Zentaris GmbH, the Registrant and Matthias Seeber (incorporated by
reference to Exhibit 4.8 of the Registrant’s annual report on Form 20-F for the financial year ended December 31, 2008 filed with the Commission on
March 30, 2009)
Amendment to Amended Employment Agreement dated as at June 20, 2007 among the Registrant, Aeterna Zentaris, Inc. and Dennis Turpin
(incorporated by reference to Exhibit 4.8 of the Registrant’s annual report on Form 20-F for the financial year ended December 31, 2007 filed with the
Commission on March 28, 2008)
Purchase Agreement by and among Aeterna Zentaris IVF GmbH, Aeterna Zentaris GmbH, the Registrant and Cowen Healthcare Royalty Partners L.P.
dated November 11, 2008 (incorporated by reference to the Registrant’s report on Form 6-K furnished to the Commission on November 24, 2008)
License and Cooperation Agreement for Perifosine by and between Zentaris AG and AOI Pharma, Inc. dated September 18, 2002 (incorporated by
reference to Exhibit 99.1 to the Registrant’s report on Form 6-K furnished to the Commission on March 30, 2010)
205
Table of Contents
4.13†
4.14†
4.15††
8.1
11.1
11.2
12.1
12.2
13.1
13.2
15.1
Addendum agreement to License and Cooperation Agreement for Perifosine by and between Zentaris AG and AOI Pharma, Inc. dated December 3,
2003 (incorporated by reference to Exhibit 99.2 to the Registrant’s report on Form 6-K furnished to the Commission on March 30, 2010)
First Amendment to License and Cooperation Agreement for perifosine by and between Aeterna Zentaris GmbH and AOI Pharma Inc., dated
November 29, 2007 (incorporated by reference to Exhibit 99.3 to the Registrant’s report on Form 6-K furnished to the Commission on March 30,
2010)
Development, Commercialization and Licensing Agreement for perifosine by and between Aeterna Zentaris GmbH and Yakult Honsha Co., Ltd
dated March 8, 2011 (incorporated by reference to Exhibit 99.1 to the Registrant’s report on Form 6-K furnished to the Commission on March 31,
2011)
Subsidiaries of the Registrant
Code of Ethical Conduct of the Registrant (incorporated by reference to Exhibit 11.1 of the Registrant’s annual report on Form 20-F for the financial
year ended December 31, 2008 filed with the Commission on March 30, 2009)
Audit Committee Charter of the Registrant (incorporated by reference to Exhibit 11.2 of the Registrant’s annual report on Form 20-F for the financial
year ended December 31, 2010 filed with the Commission on March 31, 2011)
Certification of the Principal Executive Officer pursuant to §302 of the Sarbanes-Oxley Act of 2002
Certification of the Principal Financial Officer pursuant to §302 of the Sarbanes-Oxley Act of 2002
Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
Consent of the Independent Auditors
†
††
Confidential treatment has been granted for certain portions of this exhibit, which portions have been omitted and filed separately with the U.S. Securities and Exchange Commission.
Confidential treatment has been requested for certain portions of this exhibit, which portions have been omitted and filed separately with the U.S. Securities and Exchange Commission.
206
Table of Contents
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this
annual report on its behalf.
Date: March 27, 2012
AETERNA ZENTARIS INC.
/s/ Dennis Turpin
Dennis Turpin, CA
Senior Vice President and Chief Financial Officer
SUBSIDIARIES OF THE REGISTRANT
AETERNA ZENTARIS INC.
Exhibit 8.1
Certification of the Principal Executive Officer pursuant to §302 of the Sarbanes-Oxley Act of 2002
Certification
Exhibit 12.1
I, Prof. Dr. Juergen Engel, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 20-F of Aeterna Zentaris Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the company as at, and for, the periods presented in this report;
The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure
that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as at the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual
report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and
5.
The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely
to adversely affect the company’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over
financial reporting.
Date: March 27, 2012
/s/ Juergen Engel
Prof. Dr. Juergen Engel
President and Chief Executive Officer
(principal executive officer)
Certification of the Principal Financial Officer pursuant to §302 of the Sarbanes-Oxley Act of 2002
Certification
Exhibit 12.2
I, Dennis Turpin, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 20-F of Aeterna Zentaris Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the company as at, and for, the periods presented in this report;
The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure
that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as at the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual
report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and
5.
The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely
to adversely affect the company’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over
financial reporting.
Date: March 27, 2012
/s/ Dennis Turpin
Dennis Turpin, CA
Senior Vice President and Chief Financial Officer
(principal financial officer)
Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 13.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the annual report of Aeterna Zentaris Inc. (the “Company”) on Form 20-F for the year ended December 31, 2011 as filed with the Securities
and Exchange Commission on the date hereof (the “Report”), I, Juergen Engel, President and Chief Executive Officer of the Company, certify, pursuant to 18
U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: March 27, 2012
/s/ Juergen Engel
Prof. Dr. Juergen Engel
President and Chief Executive Officer
Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 13.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the annual report of Aeterna Zentaris Inc. (the “Company”) on Form 20-F for the year ended December 31, 2011 as filed with the Securities
and Exchange Commission on the date hereof (the “Report”), I, Dennis Turpin, Senior Vice President and Chief Financial Officer of the Company, certify,
pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: March 27, 2012
/s/ Dennis Turpin
Dennis Turpin, CA
Senior Vice President and Chief Financial Officer
Exhibit 15.1
We hereby consent to the incorporation by reference in the Registration Statements on Form F-3/A (No. 333-165037) and on Form F-10/A (No. 333-167915) of
our report dated March 27, 2012 relating to the consolidated financial statements, and the effectiveness of internal control over financial reporting , which appears
in Aeterna Zentaris Inc.’s Annual Report on Form 20-F.
Consent of Independent Auditors
Montréal, Québec, Canada
March 27, 2012
1
Chartered accountant auditor permit No. 21323
PricewaterhouseCoopersLLP/s.r.l./s.e.n.c.r.l., Chartered Accountants
1250René-Lévesque Boulevard West, Suite 2800, Montréal, Quebec, Canada H3B 2G4
T:+1514 205 5000, F: +1 514 876 1502, www.pwc.com/ca
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership, which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal
entity.