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, 2014
☐ 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 Capital 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: 65,509,077
Common Shares as at December 31, 2014.
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 ☐ Accelerated filer ☒ Non-accelerated filer ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
US GAAP ☐ International Financial Reporting Standards as issued by the Other ☐
International Accounting Standards Board ☒
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 ☒
Basis of Presentation
General
Except where the context otherwise requires, all references in this Annual Report on 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 on Form 20-F, 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 on Form 20-F are presented as at December 31, 2014.
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 on Form 20-F contains forward-looking statements made pursuant to the safe harbor provisions of the U.S. Securities Litigation Reform
Act of 1995. Forward-looking statements can be identified by words such as: "intend," "believe," "designed to," "vision," "aimed at," "expect," "may,"
"should," "would," "will" and similar references. Such statements include, but are not limited to, statements about the progress of our research, development
and clinical trials and the timing of, and prospects for, regulatory approval and commercialization of our product candidates, the timing of expected results of
our studies and the anticipated results of these studies, statements about the status of our efforts to establish a commercial operation and to obtain the right to
promote or sell products that we did not develop, and estimates regarding our capital requirements and our needs for, and our ability to obtain, additional
financing. 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 degree of market acceptance once our products
are approved for commercialization, the ability of the Company to take advantage of business opportunities in the pharmaceutical industry, the ability of the
Company to protect its intellectual property, 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 United States ("U.S.") securities commissions for additional information on risks
and uncertainties relating to the forward-looking statements. Investors are cautioned not to place undue reliance on these forward-looking statements. The
Company does not undertake to update these forward-looking statements and disclaims any obligation to update any such factors or to publicly announce the
result of any revisions to any of the forward-looking statements contained herein to reflect future results, events or developments, except if required to do so
by a governmental authority or applicable law.
TABLE OF CONTENTS
GENERAL INFORMATION
Page
PART I
Item 1.
Identity of Directors, Senior Management and Advisers
A. Directors and senior management
B. Advisors
C. Auditors
Item 2.
Offer Statistics and Expected Timetable
A. Offer statistics
B. Method and expected timetable
Item 3.
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.
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
Item 7.
Major Shareholders and Related Party Transactions
A. Major shareholders
B. Related party transactions
C. Interests of experts and counsel
Item 8.
Financial Information
A. Consolidated statements and other financial information
B. Significant changes
Item 9.
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
1
1
1
1
1
1
1
1
1
3
3
3
21
21
22
37
37
37
38
56
56
59
73
74
74
74
74
74
75
75
75
75
75
75
76
76
76
76
76
76
76
76
C. Material contracts
D. Exchange controls
E. Taxation
F. Dividends and paying agents
G. Statement by experts
H. Documents on display
I. Subsidiary information
Item 11.
Item 12.
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
PART II
Item 13.
Item 14.
Item 15.
Item 16A.
Item 16B.
Item 16C.
Item 16D.
Item 16E.
Item 16F.
Item 16G.
Item 16H.
PART III
Item 17.
Item 18.
Item 19.
Defaults, Dividend Arrearages and Delinquencies
Material Modification to the Rights of Security Holders and Use of Proceeds
Controls and Procedures
Audit Committee Financial Expert
Code of Ethics
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
F. Work performed by Full-time, Permanent Employees of Principal Accountant
Exemptions from the Listing Standards for Audit Committees
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Changes in Registrant's Certifying Accountant
Corporate Governance
Mine Safety Disclosure
Financial Statements
Financial Statements
Exhibits
84
86
86
93
93
93
93
93
95
95
95
95
95
96
96
96
97
97
97
97
97
97
97
98
98
98
98
98
98
98
99
99
149
PART I
Item 1.
Identity of Directors, Senior Management and Advisers
A.
Directors and senior management
Not applicable.
B.
Advisers
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) income data set forth in this Item 3.A with respect to the years ended December 31, 2014, 2013 and 2012
and the consolidated statement of financial position data as at December 31, 2014 and 2013 have been derived from the audited consolidated financial
statements set forth 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 financial position data as at December 31, 2012 set forth in this Item 3.A
have been derived from our previous consolidated financial statements not included herein, and have also been prepared in accordance with IFRS, as issued
by the IASB. 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 on Form 20-F, as well as "Item 5. – Operating and Financial Review and Prospects" of this Annual Report on Form 20-F.
1
Consolidated Statements of Comprehensive (Loss) Income
(in thousands of US dollars, except share and per share data)
Derived from consolidated financial statements prepared in accordance with IFRS, as issued by the IASB
Revenues
Sales
License fees
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 from continuing operations
Net income from discontinued operations
Net (loss) income
Other comprehensive (loss) income:
Items that may be reclassified subsequently to profit or loss:
Foreign currency translation adjustments
Items that will not be reclassified to profit or loss:
Actuarial (loss) gain on defined benefit plans
Comprehensive (loss) income
Net loss per share (basic and diluted) from continuing operations
Net income (basic and diluted) from discontinued operations
Net (loss) income (basic and diluted) per share
Weighted average number of shares outstanding:
Basic
Diluted
Years ended December 31,
2014
$
2013
$
2012
$
—
11
11
—
23,716
13,690
37,406
(37,395)
20,319
—
20,319
(17,076)
(111)
(17,187)
623
(16,564)
96
6,079
6,175
51
21,284
12,316
33,651
(27,476)
1,748
(1,512)
236
(27,240)
—
(27,240)
34,055
6,815
834
1,219
2,053
591
20,592
10,606
31,789
(29,736)
6,974
(382)
6,592
(23,144)
—
(23,144)
2,732
(20,412)
(1,158)
1,073
(504)
(1,833)
(19,555)
(0.29)
0.01
(0.28)
2,346
10,234
(0.92)
1.16
0.24
(3,705)
(24,621)
(1.17)
0.14
(1.03)
59,024,730
59,024,730
29,476,455
29,476,455
19,775,073
19,806,687
2
Consolidated Statement of Financial Position Information
(in thousands of US dollars)
Derived from consolidated financial statements prepared in accordance with IFRS, as issued by the IASB
2014
$
As at December 31,
2013
$
2012
$
34,931
760
47,435
8,225
150,544
14,484
43,202
865
59,196
18,010
134,101
17,064
39,521
826
67,655
6,176
122,791
(6,695)
Cash and cash equivalents
Restricted cash equivalents
Total assets
Warrant liability
Share capital
Shareholders' equity (deficiency)
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 are uncertain, given the very nature of the industry, and, accordingly, investments in
biopharmaceutical companies should be considered to be speculative assets.
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 operating losses historically and in each of the last several years. At December 31, 2014, we had an accumulated deficit of $222.3 million. Our
operating losses have adversely impacted, and will continue to adversely impact, our working capital, total assets and shareholders' equity (deficiency). We do
not expect to reach operating profitability in the immediate future, and our operating expenses are likely to continue to represent a significant component of
our overall cost profile as we continue our R&D and clinical study programs and seek regulatory approval for our product candidates and carry out
commercial activities. Even if we succeed in developing, acquiring or in-licensing new commercial products, we could incur additional operating losses for at
least the next several years. If we do not ultimately generate sufficient revenue to achieve profitability, an investment in our securities could result in a
significant or total loss.
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 Common Shares.
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, including ZoptEC (Zoptarelin doxorubicin in
Endometrial Cancer), which is expected to produce interim results in the first half of 2015, 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. Preclinical testing and clinical development 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. In
addition, we have limited experience in conducting and managing the clinical trials necessary to obtain regulatory approval in the U.S., in Canada and abroad
and, accordingly, may encounter unforeseen problems and delays in the approval process. Though we may engage a contract
3
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.
None of our current product candidates have to date received regulatory approval for their 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 R&D and clinical studies are required to demonstrate the safety and efficacy of our product candidates before we can submit
regulatory applications. Even if a product candidate is approved by the US Food and Drug Administration (the "FDA"), the Canadian Therapeutic Products
Directorate ("CTPD") or any other regulatory authority, we may not obtain approval for an indication whose market is large enough to recover our investment
in that product candidate. In addition, there can be no assurance that we will ever obtain all or any required regulatory approvals for any of our product
candidates.
We are currently developing our product candidates based on R&D activities, preclinical testing and clinical trials conducted to date, and we may not be
successful in developing or introducing to the market these or any other new products or technology. If we fail to develop and deploy new products
successfully and on a timely basis, we may become non-competitive and unable to recover the R&D and other expenses we incur to develop and test new
products.
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 perform 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.
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.
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 we 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 other than Canada and the United States. 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.
4
Clinical trials are subject to continuing oversight by governmental regulatory authorities and institutional review boards and must:
• meet the requirements of these authorities;
• meet the requirements for informed consent; and
• meet the 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.
Additionally, we have limited experience in filing a New Drug Application ("NDA") or similar application for approval in the U.S. or in any other country for
our current product candidates, which may result in a delay in, or the rejection of, our filing of an NDA or similar application. During the drug development
process, regulatory agencies will typically ask questions of drug sponsors. While we endeavor to answer all such questions in a timely fashion, some
questions may not be answered in time to prevent the delay of acceptance of an NDA or the rejection of an NDA.
We have incurred, and expect to continue to incur, substantial expenses, and we have made, and expect to continue to make, substantial financial
commitments to establish a commercial operation. There can be no assurance how quickly, if ever, we will realize a profit from our commercial operation.
Our business strategy is to become an integrated specialty biopharmaceutical company with commercial operations to market and sell products that we
develop, may acquire or in-license. To that end, during 2014, we established a commercial operation, including hiring a 19-person contract sales force and
two regional sales managers and establishing a new office location and infrastructure for our North American business and global operations. We have to date
incurred, and expect to continue to incur, substantial expenses, and we have made, and expect to continue to make, substantial financial commitments to build
out our commercial operations. Establishing a commercial operation is expensive and time-consuming, and there can be no assurance how quickly, if ever, we
will realize a profit from our commercial operation. Factors that may inhibit our efforts to realize a profit from our commercial operations, should we be
successful in consummating transactions such as acquisitions, in-licensing, promotional or co-promotional arrangements with third parties, include:
•
•
•
•
our inability to recruit, train and retain adequate numbers of effective sales and marketing personnel and representatives;
the inability of our sales personnel to obtain access to or to persuade adequate numbers of physicians to prescribe our products or the products that we in-
license or co-promote;
the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more
extensive product lines; and
unforeseen costs and expenses associated with creating an independent sales and marketing organization.
Our financial viability depends, in part, on our ability to acquire, in-license or otherwise obtain the right to sell other products. If we are unable to do so,
we will continue to experience operating losses from our commercial operations.
We must acquire, in-license or otherwise acquire the right to sell or promote other products to achieve profitability of our commercial operations. Our
management team is spending a substantial amount of its time on efforts to obtain additional products. These business activities entail numerous operational
and financial risks, including:
•
•
•
•
•
•
the difficulty or inability to secure financing to acquire or in-license products;
the incurrence of substantial debt or dilutive issuances of securities to pay for the acquisition or in-licensing of new products;
the disruption of our business and diversion of our management's time and attention;
higher than expected development, acquisition or in-license and integration costs;
exposure to unknown liabilities; and
the difficulty in locating products that are in our targeted therapeutic areas and that are compatible with other products in our portfolio.
We can provide no assurance that we will be able to identify potential product candidates or strategic commercial partners or, if we identify such product
candidates or partners, that any related commercial arrangements will be consummated on terms that are favorable to us. To the extent that we are successful
in entering into any strategic commercial arrangements, including
5
promotional or co-promotional agreements, or acquisition or in-licensing agreements with third parties, we cannot provide any assurance that any resulting
initiatives or activities will be successful. To the extent that any related investments in such arrangements do not yield the expected benefits, our business,
financial condition and results of operations may be materially adversely affected.
We have limited resources to identify and execute the procurement of additional products and to integrate them into our current commercial operations. The
failure to successfully integrate the personnel and operations of businesses that we may acquire or of products that we may in-license in the future with our
existing operations, business and products could have a material adverse effect on our operations and results. We compete with larger pharmaceutical
companies and other competitors in our efforts to acquire, in-license and/or obtain the right to market new products. Our competitors likely will have access
to greater financial resources than us and may have greater expertise in identifying and evaluating new opportunities. Moreover, we may devote resources to
potential acquisition, in-licensing, promotion or co-promotion opportunities that are never completed, or we may fail to realize the anticipated benefits of such
efforts.
We will require significant additional financing, and we may not have access to sufficient capital.
We will require significant additional capital to fund our commercial operations and to pursue planned clinical trials, regulatory approvals and R&D efforts.
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 from other sources,
including, without limitation, through at-the-market offerings and issuances of Common Shares. Additional funding may not be available on terms which are
acceptable to us. If adequate funding is not available to us on reasonable terms, we may need to delay, reduce or eliminate one or more of our product
development programs or obtain funds on terms less favorable than we would otherwise accept. To the extent that additional capital is raised through the sale
of equity securities or securities convertible into or exchangeable or exercisable for equity securities ("Convertible Securities"), the issuance of those
securities could result in dilution to our shareholders. Moreover, the incurrence of debt financing or the issuance of dividend-paying preferred shares could
result in a substantial portion of our future operating cash flow, if any, being dedicated to the payment of principal and interest on such indebtedness or the
payment of dividends on such preferred shares and could impose restrictions on our operations and on our ability to make certain expenditures and/or to incur
additional indebtedness. This could render us more vulnerable to competitive pressures and economic downturns.
We anticipate that our cash and equivalents as at December 31, 2014 will be sufficient to fund our commercial operations, development programs, clinical
trials and other operating expenses at least through December 31, 2015. However, our future capital requirements are substantial and may increase beyond our
current expectations depending on many factors, including:
•
•
•
•
•
•
•
the duration of, changes to 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;
unexpected developments encountered in implementing our business development and commercialization strategies;
the potential addition of commercialized products to our pipeline;
the outcome of litigation, if any; and
further arrangements, if any, with collaborators.
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.
If we are unsuccessful in increasing our revenues and/or raising additional funding, we may possibly cease to continue operating as we currently do.
We have had sustained operating losses, deficits and negative cash flows from operating activities over the past several years, and we expect that we will
continue to do so for an extended period.
Although our audited consolidated financial statements as at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013
and 2012 were 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
6
provided by potential investors as well as non-traditional sources of financing. Although we state in Item 5 of this Annual Report on Form 20-F that
management believes that we had, as at December 31, 2014, sufficient liquidity and financial resources to fund planned expenditures and other working
capital needs for at least, but not limited to, the 12-month period following such date, there can be no assurance that management will be able to reiterate such
belief in the future, particularly in the event that we do not or are unable to raise additional capital, as we do not expect our operations to generate sufficient
cash flow to fund our operations.
Additional funding may be in the form of debt or equity or a hybrid instrument depending on our needs, those of investors and market conditions. Depending
on the prevailing global economic and credit market conditions, we may not be able to raise additional cash resources through these traditional sources of
financing. Although we may also pursue non-traditional sources of financing with third parties, the global equity and 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 strategic alliances with third parties, 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.
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 also could be material uncertainties related
to certain adverse conditions and events that could impact our ability to remain a going concern. If the going concern assumptions were deemed no longer
appropriate for our consolidated financial statements, adjustments to the carrying value of assets and liabilities, reported expenses and consolidated statement
of financial position classifications would be necessary. Such adjustments could be material.
We are and will be subject to stringent ongoing government regulation for our products and our product candidates, even if we obtain regulatory
approvals for the latter.
The manufacture, marketing and sale of our products and product candidates are and will be subject to strict and ongoing regulation, even if regulatory
authorities approve any of the latter. 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 product. 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 will 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 if 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.
Even if we receive marketing approval for our product candidates, such product approvals could be subject to restrictions or withdrawals. Regulatory
requirements are subject to change.
Regulatory authorities generally approve products for particular indications. If an approval is for a limited indication, this limitation reduces the size of the
potential market for that product. Product approvals, once granted, are subject to continual review and periodic inspections by regulatory authorities. Our
operations and practices are subject to regulation and scrutiny by the United States government, as well as governments of any other countries in which we do
business or conduct activities. Later discovery of previously unknown problems or safety issues and/or failure to comply with domestic or foreign laws,
knowingly or unknowingly, can result in various adverse consequences, including, among other things, a possible delay in the approval or refusal to approve a
product, warning letters, fines, injunctions, civil penalties, recalls or seizures of products, total
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or partial suspension of production, refusal of the government to renew marketing applications, complete withdrawal of a marketing application, criminal
prosecution, withdrawal of an approved product from the market and/or exclusion from government healthcare programs. Such regulatory enforcement could
have a direct and negative impact on the product for which approval is granted, but also could have a negative impact on the approval of any pending
applications for marketing approval of new drugs or supplements to approved applications.
Because we operate in a highly regulated industry, regulatory authorities could take enforcement action against us in connection with our, or our licensees' or
collaborators', business and marketing activities for various reasons.
From time to time, new legislation is passed into law that could significantly change the statutory provisions governing the approval, manufacturing, and
marketing of products regulated by the FDA and other health authorities. Additionally, regulations and guidance are often revised or reinterpreted by health
agencies in ways that may significantly affect our business and our products. It is impossible to predict whether further legislative changes will be enacted, or
whether regulations, guidance, or interpretations will change, and what the impact of such changes, if any, may be. For example, the Patient Protection and
Affordable Care Act and the Healthcare and Education Affordability Reconciliation Act of 2010 (collectively, the "ACA"), enacted in the U.S. in March
2010, substantially changed the way healthcare is financed by both governmental and private insurers, and significantly impacted the pharmaceutical industry.
With regard to pharmaceutical products, among other things, ACA is expected to expand and increase industry rebates for drugs covered under Medicaid
programs and make changes to the coverage requirements under the Medicare D program. We expect both government and private health plans to continue to
require healthcare providers, including healthcare providers that may one day purchase our products, to contain costs and demonstrate the value of the
therapies they provide.
If we market products in a manner that violates healthcare fraud and abuse laws, we may be subject to civil or criminal penalties, including exclusion
from participation in government healthcare programs.
As a pharmaceutical company, even though we do not provide healthcare services or receive payments directly from or bill directly to Medicare, Medicaid or
other third-party payers for our products, certain federal and state healthcare laws and regulations pertaining to fraud and abuse are and will be applicable to
our business. We are subject to healthcare fraud and abuse regulation by both the federal government and the states in which we conduct our business.
The laws that may affect our ability to operate include the federal healthcare program anti-kickback statute, which prohibits, among other things, knowingly
and willfully offering, paying, soliciting, or receiving remuneration to induce, or in return for, the purchase, lease, order, or arrangement for the purchase,
lease or order of any healthcare item or service reimbursable under Medicare, Medicaid or other federally financed healthcare programs. This statute applies
to arrangements between pharmaceutical manufacturers and prescribers, purchasers and formulary managers. Although there are a number of statutory
exceptions and regulatory safe harbors protecting certain common activities, the exceptions and safe harbors are drawn narrowly, and practices that involve
remuneration intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exception or safe harbor.
Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, or
knowingly making, or causing to be made, a false statement to get a false claim paid. Pharmaceutical companies have been prosecuted under these laws for a
variety of alleged promotional and marketing activities, such as providing free product to customers with the expectation that the customers would bill federal
programs for the product; reporting to pricing services inflated average wholesale prices that were then used by federal programs to set reimbursement rates;
engaging in off-label promotion that caused claims to be submitted to Medicaid for non-covered off-label uses; and submitting inflated best price information
to the Medicaid Drug Rebate Program.
The Health Insurance Portability and Accountability Act of 1996 also created prohibitions against healthcare fraud and false statements relating to healthcare
matters. The healthcare fraud statute prohibits knowingly and willfully executing a scheme to defraud any healthcare benefit program, including private
payers. The false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false,
fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services.
In addition, there has been a recent trend of increased federal and state regulation of payments made to physicians. The ACA imposed new requirements on
manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children's Health Insurance
Program (with certain exceptions) to report annually to CMS information related to payments or other "transfers of value" made to physicians (defined to
include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, and applicable manufacturers and group purchasing organizations
to report annually to CMS ownership and investment interests held by physicians (as defined above) and their immediate family members and payments or
other "transfers of value" to such physician owners and their immediate family members. Manufacturers are required to report such data to the government by
the 90th calendar day of each year.
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The majority of states also have statutes or regulations similar to these federal laws, which apply to items and services reimbursed under Medicaid and other
state programs or, in several states, apply regardless of the payer. In addition, some states have laws that require pharmaceutical companies to adopt
comprehensive compliance programs. For example, under California law, pharmaceutical companies must comply with both the April 2003 Office of
Inspector General Compliance Program Guidance for Pharmaceutical Manufacturers and the PhRMA Code on Interactions with Healthcare Professionals, as
amended. Certain states also mandate the tracking and reporting of gifts, compensation, and other remuneration paid by us to physicians and other healthcare
providers.
Although compliance programs can mitigate the risk of investigation and prosecution for violations of these laws, the risks cannot be entirely eliminated. Any
action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our
management's attention from the operation of our business. Moreover, achieving and sustaining compliance with applicable federal and state laws may prove
costly.
Because of the breadth of these laws and the narrowness of the safe harbors, it is possible that some of our business activities could be subject to challenge
under one or more of such laws. The ACA also made several important changes to the federal anti-kickback statute, false claims laws, and healthcare fraud
statute by weakening the intent requirement under the anti-kickback and healthcare fraud statutes that may make it easier for the government, or
whistleblowers to charge such fraud and abuse violations. A person or entity no longer needs to have actual knowledge of this statute or specific intent to
violate it. In addition, the ACA provides that the government may assert that a claim including items or services resulting from a violation of the federal anti-
kickback statute constitutes a false or fraudulent claim for purposes of the false claims statutes. In addition, the ACA increases penalties for fraud and abuse
violations. If our past, present or future operations are found to be in violation of any of the laws described above or other similar governmental regulations to
which we are subject, we may be subject to significant civil, criminal and administrative penalties, damages, fines, imprisonment, exclusion from government
funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations, any of which could adversely affect our
ability to operate our business and negatively impact our financial results.
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:
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demonstration of clinical efficacy and safety;
the prevalence and severity of any adverse side effects;
limitations or warnings contained in the product's approved labeling;
availability of alternative treatments for the indications we target;
the advantages and disadvantages of our products relative to current or alternative treatments;
the availability of acceptable pricing and adequate third-party reimbursement; and
the effectiveness of marketing and distribution methods for the products.
If our products do not gain market acceptance among physicians, patients, healthcare payers and others in the medical community, who may not accept or
utilize our products, our ability to generate significant revenues from our products would be limited and our financial condition could be materially adversely
affected. In addition, if we fail to further penetrate our core markets and existing geographic markets or to 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, therapies, products and tests 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. There can be no assurance 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.
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We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications for
which there may be a greater likelihood of success.
Because we have limited financial and managerial resources, we are currently focusing our efforts on our later-stage clinical research programs, zoptarelin
doxorubicin and Macrilen™ (macimorelin acetate), and we are doing so for specific indications. As a result, we may forego or delay pursuit of opportunities
with other product candidates or for other indications for which there may be a greater likelihood of success or may prove to have greater commercial
potential. Notwithstanding our investment to date and anticipated future expenditures on zoptarelin doxorubicin, Macrilen™ (macimorelin acetate) and our
earlier-stage programs, we have not yet developed, and may never successfully develop, any marketed treatments using these products. Research programs to
identify new product candidates or pursue alternative indications for current product candidates require substantial technical, financial and human resources.
These activities may initially show promise in identifying potential product candidates or indications, yet fail to yield product candidates or indications for
further clinical development.
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 anticipated 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.
Our ability 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 to sell
our products on a competitive basis. It may not be possible to negotiate favorable reimbursement rates for our products. Adverse pricing and reimbursement
conditions would also likely diminish our ability to induce third parties to co-promote 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 controls to continue. In addition, increasing
emphasis on managed care will continue to put pressure on the pricing of pharmaceutical and biopharmaceutical products. Cost control initiatives could
decrease the price that we or any current or potential collaborators could receive for any of our products and could adversely affect our profitability. In
addition, in the U.S., 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 biopharmaceutical 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 pharmaceutical and biopharmaceutical companies and academic research institutions to continue 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.
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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 us, are uncertain and involve complex questions of law and fact for which important legal issues remain unresolved. We
have filed and are pursuing applications for patents and trademarks in Canada, the U.S. and in other territories. 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.
The laws of some countries do not protect intellectual property rights to the same extent as the laws of the U.S. and Canada. Many companies have
encountered significant problems in protecting and defending such rights in foreign jurisdictions. Many countries, including certain countries in Europe, have
compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In addition, many countries limit the enforceability
of patents against government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially
diminish the value of the patent. Compulsory licensing of life-saving drugs is also becoming increasingly popular in developing countries either through
direct legislation or international initiatives. Such compulsory licenses could be extended to include some of our product candidates, which could limit our
potential revenue opportunities. Moreover, the legal systems of certain countries, particularly certain developing countries, do not favor the aggressive
enforcement of patent and other intellectual property protection, which makes it difficult to stop infringement.
Our patents and/or the patents that we license from others 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 U.S. 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 U.S. post-grant proceedings as well as
in opposition or nullity proceedings in certain countries outside the U.S. 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 U.S. 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, we cannot be certain that we were the first to make the inventions claimed in issued patents or pending
patent applications, or that we were the first to file for protection of the inventions set forth in the patent applications. If a third party has also filed a patent
application in the U.S. covering our product candidates or a similar invention, we may have to participate in adversarial proceedings, such as interferences
and deviation proceedings, before the United States Patent and Trademark Office to determine which party is entitled to a U.S. patent claiming the disputed
invention. 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.
Furthermore, the product development timeline for our products is lengthy and it is possible that our issued patents covering our product candidates in the
United States and other jurisdictions may expire prior to commercial launch of the products. The patent that covers the compound zoptarelin doxorubicin and
other related targeted cytotoxic anthracycline analogues, pharmaceutical compositions comprising the compounds as well as their medical use for the
treatment of cancer will expire in the United States in November 2015 and in the EU, Japan, China and Hong Kong in November 2016. As a result, our ability
to protect this compound from competition will be based on the protections provided in the United States for new chemical entities and similar protections, if
any, provided in other countries. We cannot assure you that zoptarelin doxorubicin or any of our other drug candidates will obtain new chemical entity
exclusivity or any other market exclusivity in the U.S., the EU or any
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other territory, or that we will be the first to receive the respective regulatory approval for such drugs so as to be eligible for any market exclusivity protection.
We also 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 patents and technologies under license agreements with third parties. Our failure to comply with the requirements of
one or more of our 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. Inventions claimed in certain in-licensed patents may have been made with funding from the
U.S. government and may be subject to the rights of the U.S. government and we may be subject to additional requirements in the event we seek to
commercialize or manufacture product candidates incorporating such in-licensed technology.
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 technologies are found to infringe. Moreover, there may be published pending applications
that do not currently include a claim covering our products or technologies but which nonetheless provide support for a later drafted claim that, if issued, our
products or technologies 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 be issued 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 U.S. 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.
If we become involved in any patent litigation, interference, opposition or other administrative proceedings we will likely incur substantial expenses in
connection therewith, 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.
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We may not obtain trademark registrations for our product candidates.
We have filed applications for trademark registrations in connection with our product candidates in various jurisdictions, including the U.S. 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 U.S. 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 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.
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 may continue 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:
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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 licensees;
the nature and timing of licensing fee revenues;
the nature and timing of tax credits and grants for our research and development activities;
the outcome of litigation, including the litigation pending against us that is described elsewhere in this Annual Report on Form 20-F;
changes in foreign currency fluctuations;
the timing of achievement and the receipt of milestone payments from current or future collaborators;
failure to enter into new or the expiration or termination of current agreements with collaborators; and
our ability to secure alternative leasing or subleasing arrangements for our underutilized offices in Frankfurt, Germany, and to achieve related cost
savings with respect to our current lease obligations.
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 are currently dependent on certain third parties with which we have significant contractual relationships and we may enter into future collaborations
for the R&D of our product candidates.
We are currently dependent on certain third parties with which we have significant contractual relationships and may enter into future collaborations for the
R&D of our product candidates. Our arrangements with these third parties may not provide us with the benefits we expect and may expose us to a number of
risks.
We are dependent on, and rely upon, third parties to perform various functions related to our business, including, but not limited to, research and development
with respect to some of our product candidates. Our reliance on these relationships poses a number of risks.
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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 to issue our equity, voting or other securities to
third parties. Any license or sublicense of our commercial rights may reduce our product revenue.
These agreements create certain additional risks. The occurrence of any of the following or other events may delay product development or impair
commercialization of our products:
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not all of the third parties 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 contracts that do contain such contractual prohibitions or restrictions,
prohibitions or restrictions do not always apply to the affiliates of the third parties 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;
the third parties may under-fund or fail to commit sufficient resources to marketing, distribution or other development of our products;
the third parties may cease to conduct business for financial or other reasons;
we may not be able to renew such agreements;
the third parties may not properly maintain or defend certain intellectual property rights that may be important to the commercialization of our products;
the third parties 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 the third parties 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 the third parties to act in their own self-interest
and not in our interest or those of our shareholders or other stakeholders.
In addition, the third parties 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 third party with which to contract or abandon the product candidate, which would likely cause a drop in
the price of our securities.
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 a 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.
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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 licensees 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 we pay 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 will rely on third parties to manufacture and supply marketed 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, there are a limited number of contract manufacturers or suppliers that are capable of manufacturing our product
candidates or the materials used in their manufacture. If we are unable to do so ourselves or to arrange for third-party manufacturing or supply of these
product candidates or materials, or to do so on commercially reasonable terms, we may not be able to complete development of these product candidates or
commercialize them ourselves or through our licensees. Reliance on third-party manufacturers entails risks to which we would not be subject if we
manufactured products ourselves, including reliance on the third party for regulatory compliance, the possibility of breach of the manufacturing agreement by
the third party because of factors beyond our control, and the possibility of termination or non-renewal of the agreement by the third party, based on its own
business priorities, at a time that is costly or inconvenient for us.
We are subject to intense competition for our skilled personnel, and the loss of key personnel or the inability to attract additional personnel could impair
our ability to conduct our operations.
We are highly dependent on our management and our clinical, regulatory and scientific staff, the loss of whose services might adversely impact our ability to
achieve our objectives. Recruiting and retaining qualified management and clinical, scientific and regulatory personnel is critical to our success. Reductions in
our staffing levels have eliminated redundancies in key capabilities and skill sets among our full-time staff and required us to rely more heavily on outside
consultants and third parties. We have been unable to increase the compensation of our associates to the extent required to remain fully competitive for their
services, which increased our employee retention risk. The competition for qualified personnel in the biopharmaceutical field is intense, and if we are not able
to continue to attract and retain qualified personnel and/or maintain positive relationships with our outside consultants, we may not be able to achieve our
strategic and operational objectives.
We are currently subject to securities class action litigation and we may be subject to similar or other litigation in the future.
We and certain of our current and former officers are defendants in a purported class-action lawsuit pending in the United States District Court for the District
of New Jersey, brought on behalf of certain shareholders. The lawsuit alleges violations of the Securities Exchange Act of 1934 in connection with allegedly
false and misleading statements made by the defendants between October 18, 2012 and November 6, 2014, or the Class Period, regarding the safety and
efficacy of Macrilen™, a product we developed for use in the diagnosis of Adult Growth Hormone Deficiency ("AGHD"), and the prospects for the approval
of our new drug application for the product by the FDA. The plaintiffs seek to represent a class comprised of purchasers of our Common Shares during the
Class Period and seek damages, costs and expenses and such other relief as determined by the Court.
While we believe we have meritorious defenses and intend to defend this lawsuit vigorously, we cannot predict the outcome. Furthermore, we may, from time
to time, be parties to other litigation in the normal course of business. Monitoring and defending against legal actions, whether or not meritorious, is time-
consuming for our management and detracts from our ability to fully focus our internal resources on our business activities. In addition, legal fees and costs
incurred in connection with such activities may be significant and we could, in the future, be subject to judgments or enter into settlements of claims for
significant monetary damages. A decision adverse to our interests could result in the payment of substantial damages and could have a material adverse effect
on our cash flow, results of operations and financial position.
With respect to any litigation, our insurance may not reimburse us or may not be sufficient to reimburse us for the expenses or losses we may suffer in
contesting and concluding such lawsuit. Substantial litigation costs or an adverse result in any litigation may adversely impact our business, operating results
or financial condition. We believe that our directors' and officers' liability insurance will cover our potential liability with respect to the securities class action
lawsuit described above; however, the insurer has reserved its rights to contest the applicability of the insurance to such claim, the limits of the insurance may
be insufficient to cover our eventual liability, and we will be required to satisfy a substantial self-insured retention before any insurance coverage applies to
the claim.
15
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 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. We are required to comply with environmental and occupational safety laws regulating the use of
such materials. If we violate these laws, we could be subject to significant fines, liabilities or 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.
We are a holding company, and claims of creditors of our subsidiaries will generally have priority as to the assets of such subsidiaries over our claims and
those of our creditors and shareholders.
Aeterna Zentaris Inc. is a holding company and a substantial portion of our non-cash assets is the share capital of our subsidiaries. Aeterna Zentaris GmbH
("AEZS GmbH"), our principal operating subsidiary, based in Frankfurt, Germany, holds most of our intellectual property rights, which represent the
principal assets of our business.
Because Aeterna Zentaris Inc. is a holding company, our obligations to our creditors are structurally subordinated to all existing and future liabilities of our
subsidiaries. Therefore, our rights and the rights of our creditors to participate in any distribution of the assets of any subsidiary in the event that such
subsidiary were to be liquidated or reorganized or in the event of any bankruptcy or insolvency proceeding relating to or involving such subsidiary, and
therefore the rights of the holders of our Common Shares to participate in those assets, are subject to the prior claims of such subsidiary's creditors. To the
extent that we may be a creditor with recognized claims against any such subsidiary, our claims would still be subject to the prior claims of our subsidiary's
creditors to the extent that they are secured or senior to those held by us.
Holders of our Common Shares are not creditors of our subsidiaries. Claims to the assets of our subsidiaries will derive from our own ownership interest in
those operating subsidiaries. Claims of our subsidiaries' creditors will generally have priority as to the assets of such subsidiaries over our own ownership
interest claims and will therefore have priority over the holders of our Common Shares. Our subsidiaries' creditors may from time to time include general
creditors, trade creditors, employees, secured creditors, taxing authorities, and creditors holding guarantees.
Accordingly, in the event of any foreclosure, dissolution, winding-up, liquidation or reorganization, or a bankruptcy or insolvency proceeding relating to us or
our property, or any subsidiary, there can be no assurance as to the value, if any, that would be available to holders of our Common Shares.
In addition, any distributions to us by our subsidiaries could be subject to monetary transfer restrictions in the jurisdictions in which our subsidiaries operate.
Our subsidiaries may incur additional indebtedness and other liabilities.
It may be difficult for U.S. investors to obtain and enforce judgments against us because of our Canadian incorporation and German presence.
We are a company existing under the laws of Canada. Many of our directors and officers, and certain of the experts named herein, are residents of Canada or
otherwise reside outside the U.S., and all or a substantial portion of their assets, and a substantial portion of our assets, are located outside the U.S.
Consequently, although we have appointed an agent for service of process in the U.S., it may be difficult for investors in the U.S. to bring an action against
such directors, officers or experts or to
16
enforce against those persons or us a judgment obtained in a U.S. court predicated upon the civil liability provisions of federal securities laws or other laws of
the U.S. Investors should not assume that foreign courts (1) would enforce judgments of U.S. courts obtained in actions against us or such directors, officers
or experts predicated upon the civil liability provisions of the U.S. federal securities laws or the securities or "blue sky" laws of any state within the U.S. or
(2) would enforce, in original actions, liabilities against us or such directors, officers or experts predicated upon the U.S. federal securities laws or any such
state securities or "blue sky" laws. In addition, we have been advised by our Canadian counsel that in normal circumstances, only civil judgments and not
other rights arising from U.S. securities legislation (for example, penal or similar awards made by a court in a regulatory prosecution or proceeding) are
enforceable in Canada and that the protections afforded by Canadian securities laws may not be available to investors in the U.S.
Healthcare reform measures could hinder or prevent the commercial success of our product candidates and adversely affect our business.
The business prospects and financial condition of pharmaceutical and biotechnology companies are affected by the efforts of governmental and third-party
payers to contain or reduce the costs of healthcare. In the U.S. and in other jurisdictions there have been, and we expect that there will continue to be, a
number of legislative and regulatory proposals aimed at changing the healthcare system, such as proposals relating to the pricing of healthcare products and
services in the U.S. or internationally, the reimportation of drugs into the U.S. from other countries (where they are then sold at a lower price), and the amount
of reimbursement available from governmental agencies or other third party payers. For example, drug manufacturers are required to have a national rebate
agreement with the Department of Health and Human Services in order to obtain state Medicaid coverage, which requires manufacturers to pay a rebate on
drugs dispensed to Medicaid patients.
The ACA may have far-reaching consequences for most healthcare companies, including specialty biopharmaceutical companies like us. For example, if
reimbursement for our product candidates is substantially less than we expect, our revenue prospects could be materially and adversely impacted.
Regardless of the impact of the ACA on us, the U.S. government and other governments have shown significant interest in pursuing healthcare reform and
reducing healthcare costs. Any government-adopted reform measures could cause significant pressure on the pricing of healthcare products and services,
including our product candidates, in the United States and internationally, as well as the amount of reimbursement available from governmental agencies and
other third-party payors.
In addition, on September 27, 2007, the Food and Drug Administration Amendments Act of 2007 was enacted, giving the FDA enhanced post-market
authority, including the authority to require post-marketing studies and clinical trials, labeling changes based on new safety information, and compliance with
risk evaluations and mitigation strategies approved by the FDA. The FDA's exercise of this authority may result in delays or increased costs during the period
of product development, clinical trials and regulatory review and approval, which may also increase costs related to complying with new post-approval
regulatory requirements, and increase potential FDA restrictions on the sale or distribution of approved products.
We are subject to various internal-control 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 U.S. 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, similar Canadian requirements or if we 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.
17
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 – Certain Material U.S. Federal Income Tax
Considerations" in this Annual Report on Form 20-F) that directly or indirectly hold common shares of a passive foreign investment company ("PFIC"). We
will be classified as a PFIC for U.S. federal income tax purposes for a taxable year if (i) at least 75% of our gross income is "passive income" or (ii) at least
50% of the average value of our assets, including goodwill (based on annual quarterly average), is attributable to assets which produce passive income or are
held for the production of passive income.
We believe that we were not a PFIC for the 2014 taxable year. However, the PFIC determination depends on the application of complex U.S. federal income
tax rules concerning the classification of our assets and income for this purpose, and these rules are uncertain in some respects. In addition, 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. No assurance can be provided that
we will not be classified as a PFIC for the 2015 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 generally be subject to U.S. federal income tax at ordinary income tax rates, plus a possible interest charge, in respect of a gain derived from a
disposition of our Common Shares, as well as certain distributions by us. If we are treated as a PFIC for any taxable year, a U.S. Holder may be able to make
an election to "mark to market" Common Shares each taxable year and recognize ordinary income pursuant to such election based upon increases in the value
of the Common Shares. In addition, U.S. Holders may mitigate the adverse tax consequences of the PFIC rules by making a "qualified electing fund" ("QEF")
election; however, we do not expect to provide the information regarding our income that would be necessary for a U.S. Holder to make a QEF election.
If we are a PFIC, U.S. Holders will generally be required to file an annual information return with the Internal Revenue Service (the "IRS") (on IRS Form
8621, which PFIC shareholders will be required to file with their U.S. federal income tax or information returns) relating to their ownership of Common
Shares. This filing requirement is in addition to any preexisting reporting requirements that apply to a U.S. Holder's interest in a PFIC (which this requirement
does not affect).
For a more detailed discussion of the potential tax impact of us being a PFIC, see "Item 10.E – Taxation – Certain Material U.S. Federal Income Tax
Considerations" in this Annual Report on Form 20-F. The PFIC rules are complex. U.S. Holders should consult their tax advisors regarding the potential
application of the PFIC regime and any reporting obligations to which they may be subject under that regime.
We may incur losses associated with foreign currency fluctuations.
Our operations are in many instances conducted in currencies other than our functional currency or the functional currencies of our subsidiaries. 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 US 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.
Legislative actions, new accounting pronouncements and higher insurance costs may 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 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.
Security breaches may disrupt our operations and adversely affect our operating results.
Our network security and data recovery measures and those of third parties with which we contract, may not be adequate to protect against computer viruses,
cyber-attacks, break-ins, and similar disruptions from unauthorized tampering with our computer systems. The misappropriation, theft, sabotage or any other
type of security breach with respect to any of our
18
proprietary and confidential information that is electronically stored, including research or clinical data, could cause interruptions in our operations, and could
result in a material disruption of our clinical activities and business operations, in addition to possibly requiring substantial expenditures of resources to
remedy. This disruption could have a material adverse impact on our business, operating results and financial condition. Additionally, any break-in or trespass
of our facilities that results in the misappropriation, theft, sabotage or any other type of security breach with respect to our proprietary and confidential
information, including research or clinical data, or that results in damage to our research and development equipment and assets could have a material adverse
impact on our business, operating results, and financial condition.
Risks Relating to our Common Shares
Our Common Shares may be delisted from The Nasdaq Capital Market or the Toronto Stock Exchange, which could affect its market price and liquidity.
If our Common Shares were to be delisted, investors may have difficulty in disposing of their shares.
Our Common Shares are currently listed on The Nasdaq Capital Market ("Nasdaq") under the symbol "AEZS" and on the Toronto Stock Exchange ("TSX")
under the symbol "AEZ". 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. On December 19,
2014, we received a notice from The NASDAQ Listing Qualifications Department indicating that the minimum bid price for our Common Shares had fallen
below $1.00 for 30 consecutive business days, and that, therefore, we were no longer in compliance with NASDAQ Marketplace Rule 5550(a)(2) - bid price.
We have 180 calendar days, or until June 16, 2015, to regain compliance with the minimum bid price requirement. To regain compliance, the closing bid price
of our Common Shares must be at least $1.00 per share for a minimum of 10 consecutive business days. The notice did not impact our listing on The
NASDAQ Capital Market when it was issued. If we are not able to regain compliance, NASDAQ would notify us that our securities are subject to delisting.
At that time, we could appeal the determination to delist our Common Shares to a Listing Qualifications Panel.
In addition to the minimum bid price requirement, the continued listing rules of NASDAQ require us to meet at least one of the following listing standards: (i)
stockholders' equity of at least $2.5 million (the "Equity Standard"); (ii) market value of listed securities (calculated by multiplying the daily closing bid price
of our Common Shares by our total outstanding Common Shares) of at least $35 million (the "Market Value Standard"); or (iii) net income from continuing
operations (in the latest fiscal year or in two of the last three fiscal years) of at least $500,000 (the "Net Income Standard"). If our total market capitalization
decreases to an amount less than $35 million for 30 consecutive trading days, it is possible that we could no longer meet any of these three listing standards.
Similar to the process described above in the minimum bid price context, if we fail to meet the Market Value Standard for 30 consecutive trading days and do
not otherwise meet the Equity Standard or the Net Income Standard, we expect that we would then receive a notification letter from NASDAQ advising us
that we fail to comply with the Market Value Standard and providing us a period of 180 calendar days to regain compliance with the Market Value Standard.
In order to regain compliance with the Market Value Standard, the market value of our listed securities would have to be at least $35 million for a period of 10
consecutive business days. Otherwise, our Common Shares may then be subject to delisting.
There can be no assurance that our Common Shares will remain listed on NASDAQ or the TSX. If we fail to meet any of NASDAQ's or TSX's continued
listing requirements, our Common Shares may be delisted. Any delisting of our Common Shares may adversely affect a shareholder's ability to dispose, or
obtain quotations as to the market value, of such shares.
Our share price is volatile, which may result from factors outside of our control.
Our valuation and share price since the beginning of trading after our initial listings, first in Canada and then in the U.S., 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.
Between January 1, 2014 and December 31, 2014, the closing price of our Common Shares ranged from $0.52 to $1.50 on NASDAQ and from C$0.57 to
C$1.66 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 volume of companies in the biopharmaceutical industry can swing dramatically in ways unrelated to, or that bear a disproportionate
relationship to, operating performance. Our share price and trading volume may fluctuate based on a number of factors including, but not limited to:
•
•
clinical and regulatory developments regarding our product candidates;
delays in our anticipated development or commercialization timelines;
19
•
•
•
•
•
•
•
•
developments regarding current or future third-party collaborators;
other announcements by us regarding technological, product development or other matters;
arrivals or departures of key personnel;
governmental or regulatory action affecting our product candidates and our competitors' products in the U.S., 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 U.S., 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.
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 overall commercial expansion of our business. As a result, the return on an investment in our Common Shares will depend upon any future
appreciation in value. There is no guarantee that our Common Shares will appreciate in value or even maintain the price at which shareholders have
purchased them.
Future issuances of securities and hedging activities may depress the trading price of our Common Shares.
Any additional or future issuance of Common Shares or Convertible Securities, including the issuance of Common Shares upon the exercise of stock options
and upon the exercise of outstanding warrants, could dilute the interests of our existing shareholders, and could substantially decrease the trading price of our
Common Shares. We may issue equity securities in the future for a number of reasons, including to finance our operations and business strategy, to satisfy our
obligations upon the exercise of options or warrants or for other reasons. Our Stock Option Plan generally permits us to have outstanding, at any given time,
stock options that are exercisable for a maximum number of Common Shares equal to 11.4% of all then issued and outstanding Common Shares. As at March
17, 2015, there were:
•
•
•
•
90,557,142 Common Shares issued and outstanding;
no issued and outstanding preferred shares;
116,887,987 Common Shares issuable upon exercise of outstanding warrants; and
3,885,200 stock options outstanding.
In addition, the price of Common Shares could also be affected by possible sales of Common Shares by investors who view other investment vehicles as more
attractive means of equity participation in us and by hedging or arbitrage trading activity that may develop involving our Common Shares. This hedging or
arbitrage could, in turn, affect the trading price of our Common Shares.
Cashless exercise and adjustment provisions in certain warrants that we issued in March 2015 may make it more difficult and expensive for us to raise
additional capital in the future and may result in further dilution to holders of our Common Shares and our other outstanding warrants.
On March 11, 2015, in connection with a public offering in the United States of units comprised of Common Shares and warrants, we issued 44,758,065
Series A common share purchase warrants (the "Series A Warrants") and 29,838,710 Series B common share purchase warrants (the "Series B Warrants").
The Series B Warrants include certain adjustment provisions and may at any time be exercised on a "net" or "cashless" basis. More particularly, a Series B
Warrant holder may, in lieu of making a cash payment when exercising a Series B Warrant, elect instead to receive the "net" number of Common Shares
determined in accordance with a formula referred to in the Series B Warrant as the "Alternate Cashless Exercise", if, on or after May 26, 2015 (or prior
thereto in certain limited circumstances), the volume weighted average price ("VWAP") of the Common Shares, as
20
such term is defined in the Series B Warrants, fails to be greater than $0.74 and pursuant to other terms and conditions. If, on or after May 26, 2015, the
VWAP of our Common Shares is below $0.74 at the time of any exercise, these provisions may make it more difficult and more expensive for us to raise
capital in the future. In addition, any reduction in the exercise prices of our Series A and Series B Warrants or any increase in the number of Common Shares
issuable upon the exercise of the Series A Warrants and Series B Warrants may also result in additional dilution in the per share net tangible book value of our
Common Shares.
Our articles of incorporation contain "blank check" preferred share provisions, which could delay or impede an acquisition of our company.
Our articles of incorporation, as amended, authorize the issuance of an unlimited number of "blank check" preferred shares, which could be issued by our
Board of Directors without shareholder approval and which may contain liquidation, dividend and other rights equivalent or superior to our Common Shares.
In addition, we have implemented in our constating documents an advance notice procedure for shareholder approvals to be brought before an annual meeting
of our shareholders, including proposed nominations of persons for election to our Board of Directors. These provisions, among others, whether alone or
together, could delay or impede hostile takeovers and changes in control or changes in our management. Any provision of our constating documents that has
the effect of delaying or deterring a change in control could limit the opportunity for our shareholders to receive a premium for their Common Shares and
could also affect the price that some investors are willing to pay for our Common Shares.
Our business could be negatively affected as a result of the actions of activist shareholders.
Proxy contests have been waged against many companies in the biopharmaceutical industry over the last few years. If faced with a proxy contest, we may not
be able to successfully respond to the contest, which would be disruptive to our business. Even if we are successful, our business could be adversely affected
by a proxy contest because:
•
•
•
responding to proxy contests and other actions by activist shareholders may be costly and time-consuming, and may disrupt our operations and divert the
attention of management and our employees;
perceived uncertainties as to the potential outcome of any proxy contest may result in our inability to consummate potential acquisitions, collaborations
or in-licensing opportunities and may make it more difficult to attract and retain qualified personnel and business partners; and
if individuals that have a specific agenda different from that of our management or other members of our board of directors are elected to our board as a
result of any proxy contest, such an election may adversely affect our ability to effectively and timely implement our strategic plan and to create value for
our shareholders.
Item 4.
Information on the Company
A.
History and development of the Company
We are a specialty biopharmaceutical company engaged in developing and commercializing novel treatments in oncology, endocrinology and women's health.
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 address and head 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 Form 20-F, unless such document is specifically incorporated herein by reference.
On December 30, 2002, we acquired Zentaris AG, a biopharmaceutical company based in Frankfurt, Germany. Zentaris was a spin-off of Asta Medica
GmbH, a former pharmaceutical company affiliated with Degussa AG.
In May 2004, we changed our name to Aeterna Zentaris Inc. and on May 11, 2007, Zentaris GmbH was renamed Aeterna Zentaris GmbH. Aeterna Zentaris
GmbH conducts our drug development efforts. In September 2007, we incorporated Aeterna Zentaris, Inc. under the laws of Delaware. This wholly owned
subsidiary, which is based in the Charleston, South Carolina area, conducts our commercial operations.
On October 2, 2012, we effected a 6-to-1 Share Consolidation (reverse stock split). Our Common Shares commenced trading on a consolidated and adjusted
basis on both NASDAQ and TSX on October 5, 2012.
21
On October 1, 2013, we announced the completion of our previously announced agreements with various partners and licensees with respect to the
manufacturing rights and obligations for our Cetrotide® product. The principal outcome of such agreements was the transfer of all manufacturing rights and
the grant of a license to a subsidiary of Merck KGaA of Darmstadt, Germany for the manufacture, testing, assembling, packaging, storage and release of
Cetrotide® in all territories (the "Cetrotide® Business"). Following this transfer, the Cetrotide® Business has been presented in our consolidated financial
statements as a discontinued operation.
We currently have three wholly-owned direct and indirect subsidiaries, AEZS GmbH, based in Frankfurt, Germany, Zentaris IVF GmbH, a direct wholly-
owned subsidiary of AEZS Germany based in Frankfurt, Germany, and Aeterna Zentaris, Inc., an entity incorporated in the State of Delaware with an office
in the Charleston, South Carolina area in the United States.
Aeterna Zentaris Inc.
(Canada)
100%
Aeterna Zentaris, Inc.
(Delaware)
100%
Aeterna Zentaris GmbH
(Germany)
100%
Zentaris IVF GmbH
(Germany)
Our Common Shares are listed for trading on the TSX under the trading symbol "AEZ" and on NASDAQ under the trading symbol "AEZS".
Our agent for service of process and SEC matters in the United States is our wholly-owned subsidiary, Aeterna Zentaris, Inc., located at 315 Sigma Drive,
Suite 302, Summerville, South Carolina 29483.
There have been no public takeover offers by third parties with respect to us or by us in respect of other companies' shares during the last or current fiscal
year.
B.
Business overview
We are a specialty biopharmaceutical company engaged in developing and commercializing novel treatments in oncology, endocrinology and women's health.
Our drug development efforts are focused currently on two compounds, zoptarelin doxorubicin and Macrilen™, which are in clinical development, and on
two oncology compounds (an Erk inhibitor and LHRH-disorazol Z product candidates), which are in pre-clinical development. We also are working
concurrently to pursue strategic initiatives in connection with our goal to become a commercially operating specialty biopharmaceutical organization.
We have an ongoing Phase 3 ZoptEC trial in endometrial cancer under a Special Protocol Assessment ("SPA") with the FDA with zoptarelin doxorubicin, a
doxorubicin Luteinizing Hormone-Releasing Hormone ("LHRH") targeted conjugate compound for which we have successfully completed a Phase 2 trial in
advanced endometrial and advanced ovarian cancer.
We are evaluating whether to conduct a confirmatory Phase 3 trial for the U.S. registration of Macrilen™, our orally available peptidomimetic ghrelin
receptor agonist with growth hormone secretagogue activity, following a recent meeting with the FDA regarding the design of the study.
As for our compounds in earlier stages of development, as part of our focused initiative to optimize R&D activities, we have decided to streamline our drug
discovery activities and focus on specific projects related to our Erk inhibitors and our LHRH-disorazol Z product candidates. Regarding our Erk inhibitors
program, we are looking to select an optimized molecule for development in the first half of 2015. Our investment in the development of Erk inhibitors and
our LHRH-disorazol Z product candidate will depend on the level of liquidity available to fund our R&D activities.
22
Recent Developments
For a complete description of our recent corporate and pipeline developments, refer to "Item 5. – Operating and Financial Review and Prospects – Key
Developments".
Our Business Strategy
Our primary business strategy is to pursue the development of our pipeline with a focus on our principal product candidates zoptarelin doxorubicin and
Macrilen™ in oncology and endocrinology, respectively, and to commercialize oncology, endocrinology and women's health products that we may acquire,
in-license or promote. Our vision is to become a growth-oriented specialty biopharmaceutical company.
Overview of our Drug Development Efforts
Our product pipeline
_________________________
(1) Phase 2 trial in ovarian cancer completed.
(2) Investigator-driven and sponsored.
(3) Currently evaluating options and future plans after issuance of CRL from the FDA.
(4) Potential oral prostate cancer vaccine available for out-licensing.
(5) Sponsored entirely by licensees.
Our drug development efforts are focused currently on two compounds, zoptarelin doxorubicin and Macrilen™, which are in clinical development, and on
two oncology compounds, an Erk inhibitor (AEZS-134) and LHRH-disorazol Z (AEZS-138), which are in pre-clinical development. We made the decision to
focus our efforts on development of these compounds following a review of our portfolio, during which we concluded that we lack the resources to pursue
other earlier-stage opportunities. As a result of this decision, we discontinued drug discovery efforts, including basic research activities in medicinal
chemistry and biology and our high-throughput-screening operations, which resulted in a reduction of our research and development staff by approximately
29 personnel. During 2015, we will attempt to out-license or to sell the compounds that we are no longer pursuing for commercial development. We also
intend to collaborate with research institutions to pursue, at their own cost, testing on our 100,000-plus library of medicinal compounds.
Zoptarelin Doxorubicin
Zoptarelin doxorubicin represents a new targeting concept in oncology, using a hybrid molecule composed of a synthetic peptide carrier and a well-known
chemotherapy agent, doxorubicin. The compound is an intravenous drug in advanced clinical development that directs the chemotherapy agent specifically to
LHRH-receptor expressing tumors, resulting in more targeted treatment with potentially less damage to healthy tissue. We are conducting a Phase 3 clinical
study ZoptEC of the compound in women with locally advanced, recurrent or metastatic endometrial cancer who have progressed and who have received one
chemotherapeutic regimen with platinum and taxane (either as adjuvant or first-line treatment).
Zoptarelin doxorubicin is a type of compound known as a cytotoxic conjugate. Most chemotherapeutic agents, including doxorubicin, are toxic to normal
cells as well as to cancerous tumor cells. Therefore, a method for targeting such drugs to cancerous tissue offers a potential benefit for patients with advanced
or metastatic tumors. Zoptarelin doxorubicin is a hybrid molecule composed of a doxorubicin chemically linked to an LHRH agonist, a modified natural
hormone with affinity for the
23
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 would be spared
from the toxic effects of doxorubicin. In addition, the targeted approach may enable treatment of LHRH receptor-positive cancers that have become resistant
to doxorubicin in its non-targeted form.
ZoptEC is an open-label, randomized, multicenter trial that is being conducted in North America, Europe and Israel. The trial compares zoptarelin
doxorubicin with doxorubicin as second line therapy and will involve approximately 500 patients. The primary efficacy endpoint of the ZoptEC trial is
improvement in median Overall Survival ("OS"). We are conducting ZoptEC under a SPA agreement with the FDA. The SPA agreement states that the
proposed trial protocol design, clinical endpoints and planned analyses are acceptable to the FDA to support a regulatory submission. Final marketing
approval depends on the results of efficacy, the adverse event profile and an evaluation of the benefit/risk of treatment demonstrated in ZoptEC. We expect to
receive the first interim results of ZoptEC during the first half of 2015.
ZoptEC is being conducted by Ergomed plc, a contract clinical development organization with which we have entered into a co-development and profit-
sharing agreement. Under the terms of the agreement, Ergomed has agreed to assume 30% (up to $10 million) of the clinical and regulatory costs for ZoptEC,
which are estimated at approximately $32.5 million. Ergomed will receive its return on investment based on an agreed single-digit percentage of any net
income or net proceeds from licensing activity we receive for zoptarelin doxorubicin in this indication, up to a specified maximum amount.
We are attempting to commercialize zoptarelin doxorubicin as a treatment for endometrial cancer because, according to the American Cancer Society,
endometrial cancer is the most common invasive gynecologic cancer in women in the United States, with approximately 50,000 new cases annually. This
disease primarily affects postmenopausal women at an average age of 60 years at diagnosis. In the United States, it is estimated that approximately 8,000
women will die of endometrial cancer annually.
We hold the worldwide rights to zoptarelin doxorubicin pursuant to an exclusive license agreement with the Administrators of the Tulane Educational Fund.
On December 1, 2014, we entered into an exclusive license and technology transfer agreement with Sinopharm A-Think Pharmaceuticals Co., Ltd. for the
compound, for the initial indication of endometrial cancer, in the territories of Chinese, Hong Kong and Macau. We are currently attempting to sublicense the
compound to others for development in additional markets.
The illustration above depicts the mode of action of our hybrid cytotoxic compound zoptarelin doxorubicin. The LHRH targeting agent, when bound to a
doxorubicin molecule, causes doxorubicin to bind to the tumor cell.
The following is a summary of the history of our development of zoptarelin doxorubicin in ovarian and endometrial cancer:
•
In 2007, a Phase 2 open-label, non-comparative, multicenter two-indication trial stratified with two stages Simon Design was prepared. The study was
planned to involve up to 82 patients, with up to 41 patients each with 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 conducted by the German AGO
Study Group (Arbeitsgemeinschaft Gynäkologische Onkologie / Gynaecological Oncology Working Group), in cooperation with clinical
24
sites in Europe. An i.v. infusion of zoptarelin doxorubicin (267 mg/m2) was administered over a period of two hours, every Day 1 of a 21-day (3-week)
cycle. The proposed duration of the study treatment was six cycles. The study was performed with 14 centers of the German Gynaecological Oncology
Working Group, in cooperation with three clinical sites in Europe. The primary efficacy endpoint was a response rate with a success criterion at the end
of Stage II defined as five or more patients with partial or complete tumor responses according to Response Evaluation Criteria in Solid Tumors
("RECIST") and/or Gynaecologic Cancer Intergroup ("GCIG") guidelines. Secondary endpoints included time to progression ("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 partial responses ("PR") among patients with 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 complete
response ("CR") and two PR among 14 patients with endometrial cancer.
•
•
•
•
On November 2, 2009, we announced positive preliminary efficacy data for the Phase 2 study in patients with LHRH-receptor positive platinum-resistant
and taxane-pretreated ovarian cancer. All 43 patients who had entered the study had completed their treatment, and a preliminary evaluation had shown
that the study had met its predefined primary efficacy endpoint of five or more responders in 41 evaluable patients. Responders, as well as patients with
stable disease after completion of treatment with zoptarelin doxorubicin, were to be followed to assess the duration of response and, ultimately, OS.
On November 24, 2009, we announced positive results for the Phase 2 study in patients with endometrial cancer. Preliminary evaluation showed that the
study met its predefined primary efficacy endpoint of five or more responders in endometrial cancer patients. Responders, as well as patients with stable
disease after completion of treatment with zoptarelin doxorubicin, were to be followed to assess the duration of progression free survival ("PFS") and,
ultimately, OS.
On June 7, 2010, Prof. Günter Emons, Chairman, Department of Obstetrics & Gynaecology Georg-August University Göttingen, Germany, presented
positive efficacy and safety data for zoptarelin doxorubicin in ovarian cancer at the American Society of Clinical Oncology's ("ASCO") Annual Meeting.
The poster (abstract #5035), was entitled "Phase 2 study of AEZS-108, a targeted cytotoxic LHRH analog, in patients with LHRH receptor-positive
platinum resistant ovarian cancer". Two patients with platinum-resistant ovarian cancer entered the study. Efficacy included PR in five patients (11.9%)
and stable disease for more than twelve weeks in eleven patients (26.2%). Based on those data, a clinical benefit rate ("CBR") of 38% was estimated.
Median TTP and OS were evaluated at 3.5 months (104 days) and 15.6 months (475 days), respectively. OS compared favourably with data from Doxil®
and topotecan (8-9 months). In all, tolerability of zoptarelin doxorubicin 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 three
cases. Good tolerability of zoptarelin doxorubicin was also reflected with only a few patients with non-hematological toxicities of Grade 3 (none with
Grade 4), including single cases each of nausea, constipation, poor general condition, and an enzyme elevation. No cardiac toxicity was reported. Final
evaluation of the ovarian cancer study revealed six patients with PR based on tumor lesions, plus two responders with tumor marker response including
one case with normalization, for an overall response rate of 19% (one unconfirmed CR and seven partial responses). Median TTP and OS were evaluated
at three and twelve months, respectively.
On September 14, 2011, positive final Phase 2 efficacy and safety data for zoptarelin doxorubicin in advanced endometrial cancer were presented at the
European Society of Gynecological Oncology in Milan, Italy. The data showed that zoptarelin doxorubicin, administered as a single agent at a dosage of
267 mg/m2 every three weeks was active, well tolerated and that OS was 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.
In all, of 43 patients treated with zoptarelin doxorubicin, 39 were evaluable for efficacy. Efficacy confirmed by independent response review included
two CR, ten PR, and 17 patients with stable disease ("SD"). Based on those data, the estimated overall response rate ("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 one CR, one PR and two
SDs in eight of the patients with prior use of platinum/taxane regimens. Median TTP and OS were seven months and 13.7 months, respectively. A final
evaluation, not excluding non-evaluable cases, revealed the following results: two CR, eleven PR (including three patients with PR not confirmed at
subsequent time point), and 17 patients with SD, for an ORR of 30.2% and CBR of 70%; median TTP and OS at seven and 15 months, respectively.
Overall, tolerability of zoptarelin doxorubicin 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 one patient who had been treated only three weeks after a
surgery. Good tolerability of zoptarelin doxorubicin was also reflected by a low rate of severe non-hematological and 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.
25
At present, we are not aware of any approved drug product for the treatment of advanced and recurrent metastatic endometrial cancer in either the United
States or Europe. To the best of our knowledge, there is also no systemic therapy approved in either the United States or Europe (except Germany, where
doxorubicin is approved for this therapy) for treating advanced or recurrent endometrial cancer.
The following products are among some of the many products currently in clinical trial in endometrial cancer:
Product / mode of action*
Company*
Development Status*/Sponsor
Carboplatin / DNA replication inhibitor
Teva Pharmaceutical
Paclitaxel / Anti microtubule agent
Bevacizumab / VEGF inhibitor
Brivanib / VEGFR-2 and FGFR inhibitor
Buparlisib (BKM120)/PI3K inhibitor
Cediranib / VEGFR inhibitor
Dovitinib (TKI258)/FGFR inhibitor
Everolimus / mTOR inhibitor
Ixabepilone / microtubule inhibitor
Lenvatinib (E7080)/Multi-kinase inhibitor
Letrozole / non-steroidal aromatase inhibitor
Metformin / anti-hyperglycemic agent
Nintedanib / multiple RTKs inhibitor and non-RTKs
Sunitinib malate/Tyrosine kinase inhibitor
Temsirolimus / mTOR inhibitor
Trastuzumab / HER3/neu receptor antagonist
_________________________
* Source: www.clinicaltrials.gov and competitor company's website.
HQ SPCLT Pharma / Abraxis BioScience
Genentech
Bristol-Myers Squibb
Novartis
Astra Zeneca
Novartis
Novartis
Bristol-Myers Squibb
Eisai
Novartis
Bristol-Myers Squibb
Boehringer Ingelheim
Pfizer
PF Prism CV
Genentech
Phase 3 / GOG
Phase 3 / GOG
Phase 2 / NCI
Phase 2 / GOG
Phase 2 / Argacy-Gineco group
Phase 2 / NCI
Phase 2 / Novartis
Phase 2 / NCI or MD Anderson
Phase 2 / NCI
Phase 2 / Eisai
Phase 2 / MD Anderson
Phase 2 / GOG
Phase 2 / GOG
Phase 2 / NCI
Phase 2 / NCI or MD Anderson
Phase 2 / Yale
We believe that zoptarelin doxorubicin may be useful in treating other cancers, including breast cancer, bladder cancer and prostate cancer. We terminated
early clinical trials of the compound as a treatment for triple-negative breast cancer and bladder cancer as part of our ongoing review of our development
activities to ensure the most effective use of our resources. We are currently assisting Dr. Jacek Pinski, Associate Professor of Medicine at the Norris
Comprehensive Cancer Center of the University of Southern California, to conduct a Phase 1/2 study in refractory prostate cancer with zoptarelin
doxorubicin. Dr. Pinski received a $1.6 million grant from The National Institutes of Health ("NIH") to conduct the study. 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 zoptarelin doxorubicin in men with castration- and taxane-resistant metastatic
prostate cancer, for which the presence of LHRH receptors has been confirmed. The following is a summary of Dr. Pinski's study:
•
•
On December 14, 2010, we announced the initiation of the Phase 1/2 trial.
On September 26, 2011, we announced positive interim data for the Phase 1 portion of the Phase 1/2 trial with zoptarelin doxorubicin in castration-and
taxane-resistant prostate cancer at the European Society for Medical Oncology ("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. Twelve patients entered the study: three patients each
received zoptarelin doxorubicin at the lower dose levels of 160 and 210 mg/m2, and six patients at 267 mg/m2. Data on ten patients were presented as two
patients were too early for evaluation. Zoptarelin doxorubicin was generally well tolerated and there were no dose limiting toxicities at such time. The
only Grade 3 and 4 toxicities were hematologic in nature. At the time, there were three Grade 4 toxicities (two at 210 mg/m2 and one at 267 mg/m2), all
of which were asymptomatic. There were six Grade 3 toxicities including two cases of Grade 3 anemia after repeated courses (cycles five and six) and
one case of febrile neutropenia that occurred during cycle one. Signs of therapeutic activity included five patients with Prostate Specific Antigen ("PSA")
regression. One of these patients treated at the lowest dose level, received eight treatment cycles because the patient demonstrated continued clinical
benefit. Three out of four 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 uptake was demonstrated
for the first time in captured circulating tumor cells of patients, thus validating the principle of targeted tumor therapy with zoptarelin doxorubicin in a
clinical setting.
26
•
•
•
•
On February 3, 2012, we reported updated results for the Phase 1 portion of the study. The results were based on 13 patients who had been previously
treated with androgen-deprivation therapy (LHRH agonist) and at least one taxane-based chemotheraphy regimen, who were treated on three dose levels
of zoptarelin doxorubicin: three at 160 mg/m2, three at 210 mg/m2, and seven at 267 mg/m2. Overall, zoptarelin doxorubicin was well tolerated among
this group of heavily pretreated older patients. There were two dose-limiting toxicities, each of which having been a case of asymptomatic Grade 4
neutropenia at the 267 mg/m2 dose level and both patients fully recovered. The Grade 3 and 4 toxicities were primarily hematologic. There was minimal
non-hematologic toxicity, most frequently fatigue and alopecia. Despite the low doses of zoptarelin doxorubicin in the first cohorts, there was some
evidence of antitumor activity. One patient received eight cycles (at 210 mg/m2) due to continued benefit. Among the five evaluable patients with
measurable disease, four achieved stable disease. At the time of submission of the abstract, a decrease in PSA was noted in six patients. Six of 13 (46%)
treated patients received at least five cycles of therapy with no evidence of disease progression at twelve weeks. Correlative studies on circulating tumor
cells ("CTC") demonstrated the uptake of zoptarelin doxorubicin into the targeted tumor.
On November 12, 2012, we announced the initiation of the Phase 2 portion of the ongoing Phase 1/2 study of zoptarelin doxorubicin in prostate cancer.
The primary endpoint of the Phase 2 portion is to evaluate the clinical benefit of zoptarelin doxorubicin for these patients. Secondary endpoints include
toxicity, time to RECIST and PSA progression, RECIST response rate for patients with measurable disease, PSA response rate, pain palliation and
overall survival.
On June 3, 2013, we announced that final data for the Phase 1 portion of the ongoing Phase 1/2 trial with zoptarelin doxorubicin in prostate cancer
demonstrated the compound's promising anti-tumor activity. Results were presented by Dr. Pinski during a poster session at the ASCO Annual Meeting
in Chicago. Eighteen men with a median of two prior chemotherapy regimens (range 1/5) and a median PSA of 106.4 ng/mL (range 8.4-1624.0) were
enrolled. The dose of zoptarelin doxorubicin was escalated from 160 mg/m2 to 210 mg/m2 then to 267 mg/m2. There were two Dose-Limiting Toxicities
("DLT") in the seven patients receiving zoptarelin doxorubicin at a dose of 267 mg/m2 (grade 4 neutropenia), establishing 210 mg/m2 as the Maximum
Tolerated Dose ("MTD"). Significant non-hematologic toxicities included one case of grade 3 nausea. No cardiotoxicity was seen on serial evaluation
and six patients completed six cycles. Internalization of zoptarelin doxorubicin was consistently visualized in CTCs 1 to 3 hours after dosing. Maximal
PSA response was stable or decreased in 8 of 18 men. Among the 15 evaluable patients with measurable disease, ten achieved stable disease and a drop
in PSA was noted in three patients. The MTD of zoptarelin doxorubicin in this indication is 210 mg/m2, which is below the MTD reported in women
with refractory endometrial and ovarian cancer.
On December 29, 2014 we announced that an article on final data for the Phase 1 portion of the ongoing Phase 1/2 trial in prostate cancer with zoptarelin
doxorubicin was published in the December issue of Clinical Cancer Research. The article outlines data previously disclosed in June 2013 at the
American Society of Clinical Oncology's ("ASCO") Annual Meeting. The article is entitled "Phase I, Dose-Escalation Study of the Targeted Cytotoxic
LHRH Analog AEZS-108 in Patients with Castration- and Taxane-Resistant Prostate Cancer", Liu SV, Tsao-Wei DD, Xiong S, Groshen S, Dorff TB,
Quinn DI, Tai YC, Engel J, Hawes D, Schally AV, Pinski J.
Macrilen™ (Macimorelin Acetate)
Macrilen™ (macimorelin acetate) is a novel orally available peptidomimetic ghrelin receptor agonist that stimulates the secretion of growth hormone by
binding to the ghrelin receptor (GHSR-1a) and that has potential uses in both endocrinology and oncology indications. Macrilen™ has been granted orphan-
drug designation by the FDA for use in evaluating growth hormone deficiency ("GHD").
In November 2013, we filed an NDA for Macrilen™ for the evaluation of adult GHD ("AGHD") by evaluating the pituitary gland secretion of growth
hormone in response to an oral dose of the product. The FDA accepted the NDA for substantive review in January 2014. On November 6, 2014, the FDA
informed us, by issuing a Complete Response Letter ("CRL"), that it had determined that our NDA could not be approved in its present form. The CRL stated
that the planned analysis of our pivotal trial did not meet its stated primary efficacy objective as agreed to in the SPA agreement between us and the FDA. The
CRL further mentioned issues related to the lack of complete and verifiable source data for determining whether patients were accurately diagnosed with
AGHD. The FDA concluded that, "in light of the failed primary analysis and data deficiencies noted, the clinical trial does not by itself support the
indication." To address the deficiencies identified above, the CRL stated that we will need to demonstrate the efficacy of macimorelin as a diagnostic test for
GHD in a new, confirmatory clinical study. The CRL also stated that a serious event of electrocardiogram QT interval prolongation occurred for which
attribution to drug could not be excluded. Therefore a dedicated thorough QT study to evaluate the effect of macimorelin on the QT interval would be
necessary.
27
Following receipt of the CRL, we assembled a panel of experts in the field of growth-hormone deficiency, including distinguished experts in the field from
both the United States of America and the EU. The panel met On January 8, 2015, during which we discussed our conclusions from the CRL, as well as the
potential design of a new pivotal study. In parallel, we are collecting information on timelines and costs for such a study. We are evaluating whether to
conduct a confirmatory Phase 3 trial for the U.S. registration of Macrilen™, our orally available peptidomimetic ghrelin receptor agonist with growth
hormone secretagogue activity, following a recent meeting with the FDA regarding the design of the study.
The following is a summary of the history of our development of Macrilen™:
• We out-licensed the development compound macimorelin acetate to Ardana Bioscience in 2004. Ardana Bioscience subsequently initiated the clinical
development program of macimorelin acetate as an orally active compound intended to be used in the diagnosis of adult growth hormone deficiency.
Following agreement with the FDA on the study design, Ardana Bioscience initiated a pivotal Phase 3 study in 2007, which tested the compound
compared to a test of growth hormone-releasing hormone ("GHRH") + L-Arginine ("ARG") , using a competitor's compound. The study was
discontinued in 2008 due to Ardana Bioscience's bankruptcy. We terminated Ardana Bioscience's license to the compound due to its bankruptcy.
•
•
•
•
•
•
•
•
On October 19, 2009, we announced that we had initiated activities intended to complete the clinical development of Macrilen™ for use in evaluating
AGHD. We had already assumed the sponsorship of the IND from Ardana Bioscience and discussed with the FDA the best way to complete the ongoing
Phase 3 clinical trial and subsequently to file an NDA for approval of Macrilen™ for use in evaluating AGHD. The pivotal Phase 3 trial was designed to
investigate the safety and efficacy of the oral administration of Macrilen™ as a growth hormone stimulator for use in evaluating AGHD. It was accepted
by the FDA that for the ongoing part of the study, Macrilen™ would not be compared to the GHRH + ARG test because the competitor's compound had
been removed from the market.
On June 21, 2010, we presented positive data at the 92nd ENDO Meeting on Macrilen™ for evaluation and therapeutic use. The preclinical data showed
that Macrilen™ is a potent and safe oral synthetic GH-releasing compound with potential utility in evaluating GHD.
On July 14, 2010, we announced the presentation of a poster on Macrilen™, 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, at the Fifth International Congress of the Growth Hormone Research Society and the Insulin-like Growth Factors Society, we
announced that, after the interim Phase 3 analysis, Macrilen™ demonstrated the potential to provide a simple, well tolerated and safe oral product for use
in evaluating AGHD.
On December 20, 2010, we announced we had reached agreement with the FDA on a SPA for Macrilen™, enabling us to complete the ongoing
registration study required to gain approval for use in evaluating AGHD. The first part of the study, conducted by our former licensee, 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 was matched to patients for age, gender, body mass index and (for females) estrogen status.
On July 26, 2011, we announced the completion of the Phase 3 study of Macrilen™ as a first oral product for use in evaluating AGHD and the decision
to meet with the FDA for the future filing of an NDA for the registration of Macrilen™ in the United States.
On August 30, 2011, we announced favorable top-line results of our completed Phase 3 study with Macrilen™ as a first oral product for use in evaluating
AGHD. The results showed that Macrilen™ had 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 showed that the study achieved both specificity and sensitivity at a level of 90% or greater. In addition, eight of the ten newly enrolled AGHD
patients were correctly classified by a pre-specified peak GH threshold level. The use of Macrilen™ was shown to be safe and well tolerated overall
throughout the completion of this trial.
On June 26, 2012, we announced that the final results from a Phase 3 trial for Macrilen™ showed that the drug is safe and effective in evaluating AGHD.
Jose M. Garcia, MD, PhD, of the Baylor College of Medicine and the Michael E. DeBakey VA Medical Center (the "DeBakey Center"), disclosed these
data during an oral presentation at the 94th ENDO Annual Meeting and Expo in Houston, Texas. The study had originally been designed as a cross-over
trial of Macrilen™ compared to the GHRH + ARG test in AGHD patients and in controls matched for body mass index ("BMI"), estrogen status, gender
28
and age. After 43 AGHD patients and ten controls had been tested, the GHRH + ARG test became unavailable because the competitor's compound was
withdrawn from the market. The study was completed by testing ten more AGHD patients and 38 controls with Macrilen™ alone. Of the 53 AGHD
subjects enrolled, 52 received Macrilen™, and 50 who had confirmed AGHD prior to study entry were included in this analysis, along with 48 controls.
Two AGHD subjects could not be matched due to the combination of young age, high BMI and estrogen use. The objective of this clinical trial was to
determine the efficacy and safety of Macrilen™ in the evaluation of AGHD. Mean peak growth hormone ("GH") levels in AGHD patients and controls
following Macrilen™ administration were 2.36ng/mL (range 0.03-33) and 17.71ng/mL (range 10.5-94), respectively. The ROC plot analysis yielded an
optimal GH cut-point of 2.7ng/mL, with 82% sensitivity, 92% specificity and a 13% misclassification rate. Obesity (BMI>30) was present in 58% of
cases and controls, and peak GH levels were inversely associated with BMI in controls. Adverse events ("AE") were seen in 37% of AGHD patients and
in 21% of controls following Macrilen™. In contrast, 61% of AGHD subjects and 30% of controls experienced AEs with L ARG+GHRH. The most
common AEs after Macrilen™ were unpleasant taste (19.2%) and diarrhea (3.8%) for the AGHD patients and unpleasant taste (4.2%) and diarrhea
(4.2%) for the matched controls. No clinically meaningful changes from baseline in ECG results during the study for AGHD patients were observed;
however, one control subject had an ECG change (T wave abnormality and QTc interval prolongation) one hour after treatment with Macrilen™ that was
considered a serious treatment-related adverse event and resolved spontaneously within 24 hours. The subject had been pre-treated with citalopram, a
drug that was later reported by the FDA to be associated with QT prolongation, although the patient had stopped this medication seven days prior to
dosing. Overall, this study demonstrated that Macrilen™ is safe and effective for use in evaluating AGHD.
•
•
•
•
On August 7, 2012, the United States Patent and Trademark Office granted us a patent for the use of Macrilen™ as a product to be used in evaluating
AGHD. Filed on February 19, 2007, the patent (US 8,192,719 B2), entitled "Methods and Kits to Diagnose Growth Hormone Deficiency by Oral
Administration of EP1572 or EP1573 Compounds", became effective as of June 5, 2012 and will expire on October 12, 2027. The corresponding
composition of matter patent (US 6,861,409 B2), filed on June 13, 2001 and granted on March 1, 2005, will expire on August 1, 2022, with the
possibility of a patent term extension of up to five years.
On September 25, 2012, the European Patent Office granted us a patent for the use of Macrilen™ related to methods and kits for use in relation to the
evaluation of GHD in a human or animal subject. Filed on February 19, 2007, the patent, (EP #1 984 744 B1) entitled "Methods and Kits to Diagnose
Growth Hormone Deficiency", was effective as of September 19, 2012 following its publication in the European Patent Bulletin, and it will expire on
February 19, 2027.
On September 26, 2012, we received notification from the FDA that Fast Track designation previously applied for had not been granted for Macrilen™
as a product for use in evaluating AGHD.
On October 18, 2012, we announced that results from a multicenter open-label Phase 3 trial for Macrilen™ demonstrated that the drug is safe and
effective in evaluating AGHD. George R. Merriam, MD, Director of the Clinical Study Unit at the Veterans Affairs Puget Sound Health Care System,
and Professor of Medicine at the University of Washington, Seattle and Tacoma, WA, disclosed these data at the 6th International Congress of the GRS
and IGF Society in Munich, Germany. His presentation confirmed data previously presented by Dr. Garcia at the 94th ENDO Meeting in Houston, Texas
in June 2012. Dr. Merriam's presentation drew attention to the effect of BMI on optimizing the cut-off values to improve the sensitivity and specificity of
the test. Responses in normal subjects classified as obese, with BMIs above 30, were significantly lower than in leaner subjects. Since GH deficiency can
lead to increased body fat, many of the patients also met criteria for obesity, and therefore, a lower peak GH cut-off is more accurate in separating obese
normals from obese patients. Based upon these study results, a cut-off of 2.7 µg/L was optimal for subjects with a BMI≥30 and a cut-off of 6.8 µg/L for
subjects with a BMI<30. Age had a weaker effect on test performance and gender made no difference. Dr. Merriam's study concluded that GH
stimulation with oral Macrilen™ may provide a simple, rapid, safe, and well-tolerated product used in evaluating AGHD, with accuracy comparable to
that of the GHRH-ARG test.
We hold the worldwide rights to macimorelin pursuant to an exclusive license agreement with The French Centre National de la Recherche Scientifique, as
licensor, and AEZS GmbH, as licensee.
If approved by the FDA, Macrilen™ would be the first orally administered drug indicated for the evaluation of AGHD. Competitors for Macrilen™ as a
product for the evaluation of AGHD are principally the diagnostic tests currently performed by endocrinologists, although none of these tests are approved by
the FDA for this purpose. The most commonly used diagnostic tests for GHD are:
• Measurement of blood levels of Insulin Growth Factor ("IGF")-1, which is typically used as the first test when GHD is suspected. However, this test is
not used to definitively diagnose GHD because many growth hormone deficient patients show normal IGF-1 levels.
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•
•
•
Insulin Tolerance Test ("ITT"), which is considered to be the "gold standard" for GH secretion provocative tests but which requires constant patient
monitoring while the test is administered and is contra-indicated in patients with seizure disorders, with cardiovascular disease and in brain injured
patients and elderly patients. The ITT is administered i.v.
GHRH + ARG test, which is an easier test to perform in an office setting and has a 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 + ARG 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.
Glucagon test, which is simple to perform and is considered relatively safe by endocrinologists. The mechanism of action for this test is unclear. Also,
this test takes up to three to four hours. It produces side effects in up to one-third of the patients. 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 Macrilen™ offers more convenience and simplicity over the current GHD tests used, requiring either i.v. or i.m. administration.
Additionally, Macrilen™ 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 Macrilen™ has not thus far. These factors
may be limiting the use of GHD testing and may potentially enable Macrilen™ to become the product of choice in evaluating AGHD.
There are approximately 36,000 AGHD tests performed annually in the U.S. Based on published information from the U.S. Centers for Disease Control and
Prevention, different scientific publications and by Navigant Research, we estimate that the total potential U.S. market for AGHD evaluation is approximately
158,000 tests per year, including the evaluation of patients who have suffered traumatic brain injury ("TBI"). In patients with TBI, GHD is frequent and may
contribute to cognitive sequel and reduction in quality of life. GHD develops in approximately 19% of both severe and moderate hospitalized TBI victims.
Erk Inhibitors (AEZS-134)
We believe that the results of research to date indicate that the MAPK signaling pathway represents a therapeutic intervention point for the clinical treatment
of malignant tumors. In this pathway, we have focussed on Erk inhibitors. As a result of our multi-parameter optimization program for kinase inhibitor
selectivity, cellular efficacy, physicochemical and in vitro ADMET properties, we developed compounds that we believe might have therapeutic potential. We
concluded that, among these compounds, AEZS-134, a highly potent and selective ATP competitive Erk inhibitor, has the most potential. Therefore, we are
continuing with the optimization and pre-clinical development of AEZS-134. On April 9, 2014, we announced the presentation of a poster on AEZS-134
during the American Association for Cancer Research Annual Meeting. The data presented provide a rationale for new therapeutic opportunities in oncology,
suggesting that Erk inhibitors such as AEZS-134 may provide a treatment option for patients suffering from tumors that are resistant to currently established
therapies such as B-Raf and Mek inhibitors. AEZS-134 demonstrated potent anti-proliferative activity in B-Raf wildtype, B-RafV600E mutant, Ras wildtype
and K-Ras mutant tumor cell lines in comparison to common Raf inhibitors. Furthermore, we could show that AEZS-134 is efficacious in Mek inhibitor
resistant Hct116 and MDA MB231 cells that have been well characterized in terms of Mek F129L allosteric binding pocket mutation, varying degrees of K-
Ras amplification, cellular proliferation assays and MAPK pathway phosphorylation studies. Our data indicate a broader targeting potency for Erk rather than
Mek and/or Raf.
LHRH-Disorazol Z (AEZS-138)
In search of new antitumor agents, we found that disorazol Z, a compound that was isolated from the myxobacterium Sorangium cellulosum, possesses
cytotoxicity in the picomolar range 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-138 is a cytotoxic conjugate of disorazol Z and a synthetic peptide carrier that targets the LHRH
receptor. It is, therefore, an outgrowth of our research that lead to our formulation of zoptarelin doxorubicin. The following is a summary of our development
efforts with respect to AEZS-138:
•
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 disorazol Z and peptides targeting G-protein coupled receptors, including the LHRH
receptors. The compounds combine the targeting principle being studied in Phase 3 with zoptarelin doxorubicin with the novel cytotoxic disorazol Z. The
grant was payable as a partial reimbursement of qualifying expenditures over a three-year period, until January 31, 2014. The qualified project was
performed with Morphisto GmbH and the Helmholtz Institute in Saarbrücken, Germany, which received additional funding of approximately US$0.7
million. Researchers from the departments of Gynecology and Obstetrics at both the University of Göttingen and the University of Würzburg, Germany,
were also part of the collaboration.
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•
•
•
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 disorazol Z. The data showed that disorazol Z possesses 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. Disorazol Z
has been identified as a tubulin binding agent with highly potent antitumor properties. Cell cycle analysis revealed that disorazol Z arrested cells in the
G2/M cell cycle phase and subsequently induced apoptosis with remarkable potency, as shown by sub-nanomolar 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 zoptarelin doxorubicin 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.
On April 10, 2013, we announced at the American Association for Cancer Research's ("AACR") encouraging updated proof-of-concept results for
disorazol Z cytotoxic conjugates, such as AEZS-138, in human ovarian and endometrial cancer xenograft models. Data demonstrated that conjugates of
D-Lys6-LHRH and disorazol Z retained strong binding to the LHRH receptor and showed potent inhibition of tubulin polymerization. Cellular
cytotoxicity of the conjugates was in the low nanomolar EC50 range. Increased cytotoxicity in cells over-expressing the LHRH receptor, support receptor
targeting as a mechanism of action. The LHRH receptor-dependent efficacies of disorazol Z - D-Lys6-LHRH conjugates in vitro and in mouse xenograft
models that were presented support the principle of tumor targeting by the LHRH receptor as already employed by zoptarelin doxorubicin.
On February 11, 2014, at the 11th International Symposium on GnRH, in Salzburg, Austria, we presented further data on the mechanism of action and
proof of concept of the disorazol Z cytotoxic conjugate, AEZS-138, which had led to the initiation of its preclinical development during the second
quarter of 2013.
Overview of our Commercial Operations
Our commercial operations consist of full-time sales force and a sales-management staff. We currently have 19 sales representatives in the United States who
provide services for us pursuant to our agreement with Ventiv Commercial Services, LLC, an affiliate of inVentiv Health, Inc. ("inVentiv"), a contract-sales
organization. Our sales force is managed by our Senior Vice President, Commercial, a national sales director and two regional sales directors.
We promote EstroGel®, a leading non-patch transdermal hormone replacement therapy product, pursuant to a co-promotion agreement (the "Ascend
Agreement") with ASCEND Therapeutics US LLC ("ASCEND"), which we entered into in August 2014. The Ascend Agreement provides that we will detail
EstroGel® in specific agreed-upon U.S. territories in exchange for a sales commission that is based upon incremental sales volumes of the product that are
generated over pre-established baselines.
The Ascend Agreement has a two-year term that commenced in November 2014. It is subject to extension for successive periods of two years each upon our
agreement with ASCEND. The Ascend Agreement has customary termination provisions and, in addition, is subject to termination for convenience by either
party upon the provision of not less than six months' written notice to the other party. During the term of the Ascend Agreement, either party may offer other
products that it acquires to the other party for inclusion in the co-promotion arrangement established by the Ascend Agreement.
Our agreement with inVentiv provides that the inVentiv personnel who provide services to us are independent contractors and not our employees. InVentiv is
solely responsible for the human resource and performance-management functions of all such personnel. It is also responsible for paying the compensation,
benefits, payroll-related or withholding taxes and any governmental charges or benefits, including unemployment and disability insurance contributions or
benefits and workers compensation contributions with respect to such personnel and for reimbursing them for their expenses.
We paid inVentiv an implementation fee to compensate it for services provided to us up to the date of the hire of the first sales representative it employed to
provide services to us. We pay a fixed monthly fee to inVentiv for the services of the sales representatives it provides for us, which is subject to adjustment if
the assumptions regarding the annual salary paid to the sales representative prove to be too high or too low, and we also reimburse inVentiv for certain
expenses that it incurs as a result of providing sales representatives to us.
Our agreement with inVentiv has a two-year term that started in November 2014. The term may be extended for additional periods of one year upon our
reaching a written agreement with inVentiv regarding the terms of the extension not less than 60 days before the end of the expiring term. The agreement is
subject to customary termination provisions for non-payment of amounts due, material breach and bankruptcy or insolvency. In addition, we may terminate
the agreement without cause by giving inVentiv at least 90 days' prior written notice. If we terminate the agreement prior to the first anniversary of the
commencement of the term, we will owe inVentiv an early-termination fee, the amount of which is determined by reference to the termination date.
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RAW MATERIALS
Raw materials and supplies are generally available in quantities adequate to meet the needs of our business. We will be dependent on third-party
manufacturers for the pharmaceutical products that we will 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.
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 pharmaceuticals. Under the laws of the
United States, the countries of the EU, 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 Good Clinical Practices ("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 likely. Set forth below is a brief summary of the material
governmental regulations affecting us in the major markets in which we intend to market our products and/or promote products that we acquire or in-license
or to which we obtain promotional rights.
Canada
In Canada, the CTPD 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.
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,
subjects 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 CROs and/or its clinical trial
sites to ensure that clinical, safety, quality control, and other regulated activities are compliant with GCP, or Good Laboratory Practices ("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
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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 an NDA or, in the case of a biologic, a Biologics License Applications ("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.
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 zoptarelin doxorubicin for the
treatment of advanced ovarian cancer and for Macrilen™ for the evaluation of growth hormone deficiency.
Under the Drug Price Competition and Patent Term Restoration Act of 1984 (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 EU by using either the centralized authorization procedure or national authorization procedures.
Centralized procedure
The EU 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 EU, 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, that 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 EU 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 EU country of
medicinal products that have not yet been authorized in any EU 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 EU Member State, in accordance with the national
procedures of that country. Following this, further marketing authorizations can be sought from other EU countries in a procedure whereby the countries
concerned agree to recognize the validity of the original, national marketing authorization.
Regulation of Commercial Operations
The marketing, promotional, and pricing practices of human pharmaceutical manufacturers, as well as the manner in which manufacturers interact with
purchasers and prescribers, are subject to various U.S. federal and state laws, including the federal anti-kickback statute and the False Claims Act and state
laws governing kickbacks, false claims, unfair trade practices, and consumer protection, and to similar laws in other countries. In the United States, these laws
are administered by, among others, the Department of Justice (DOJ), the Office of Inspector General of the Department of Health and Human Services, the
Federal Trade Commission, the Office of Personnel Management, and state attorneys general. Over the past several years, the FDA, the DOJ, and many other
agencies have increased their enforcement activities with respect to pharmaceutical companies and increased the inter-agency coordination of enforcement
activities.
In the United States, biopharmaceutical and medical device manufacturers are required to record any transfers of value made to licensed physicians and
teaching hospitals and to disclose such data to the Department of Health and Human Services ("HHS"). In addition to civil penalties for failure to report
transfers of value to physicians or teaching hospitals, there will be criminal penalties, if a manufacturer intentionally makes false statements or excludes
information in such reports. The payment data across biopharmaceutical and medical device companies is posted by HHS on a publicly available website.
Increased access to such data by fraud and abuse investigators, industry critics and media will draw attention to our collaborations with reported entities and
will importantly provide opportunities to underscore the critical nature of our collaborations for developing new medicines and exchanging scientific
information. This national payment transparency effort coupled with industry commitment to uphold voluntary codes of conduct (such as the PhRMA Code
on Interactions with Healthcare Professionals and PhRMA Guiding Principles Direct to Consumer Advertisements About Prescription Medicines) and
rigorous internal training and compliance efforts will complement existing laws and regulations to help ensure ethical collaboration and truthful product
communications.
The Canadian association of Research-Based Pharmaceutical Companies ("Rx & D") adopted "Guidelines for Transparency in Stakeholder Funding" that
require member companies to regularly disclose, by means of the web sites and annual reports, a list of all stakeholders to which they provide direct funding.
The term "stakeholder" is defined in Rx & D’s Code of Ethical Practices to include "Health Care Professionals". In the EU, the disclosure code of transfers of
value to healthcare professionals and organizations adopted by the European Federation of Pharmaceutical Industries and Associations ("EFPIA") requires all
members of EFPIA to disclose transfers of value to healthcare professionals and healthcare organizations beginning in 2016, covering the relevant transfers in
2015. Each member company will be required to document and disclose: (i) the names of healthcare professionals and associations that have received
payments or other transfers of value and (ii) the amounts or value transferred, and the type of relationship.
For more information about the regulatory risks associated with our business operations, see "Item 3. – Key Information – Risk Factors".
Intellectual Property - Patents
We seek to protect our compounds, manufacturing processes, compositions and methods of medical use for our lead drugs and drug candidates through a
combination of patents, trade secrets and know-how. Our patent portfolio consists of approximately 28 owned and in-licensed patent families (issued, granted
or pending in the United States, Europe and other jurisdictions). The patent positions of companies in the biotechnology and pharmaceutical industries are
highly uncertain and involve complex legal and factual questions. Therefore, we cannot predict the breath of claims, if any, that may be allowed under any of
our
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patent applications, or the enforceability of any of our allowed patents. See "Item 3D. Risk Factors – We may not obtain adequate protection for our products
through our intellectual property."
Patents extend for varying periods according to the date of patent filing or grant and the legal term of patents in the various countries where patent protection
is obtained. The actual protection afforded by a patent, which can vary from country to country, depends on the type of patent, the scope of its coverage and
the availability of legal remedies in the country. 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 Hatch-
Waxman Act permits a patent term extension of up to five years beyond the expiration of the patent, in which the patentee may file an application for yearly
interim extensions within five years if the patent will expire and the FDA has not yet approved the NDA. 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 these jurisdictions,
however, no interim extensions exist and the marketing approval must be granted before the patent expires. 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 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.
In addition to patent protection, our products may benefit from the market-exclusivity provisions contained in the orphan-drug regulations or the pediatric-
exclusivity provisions or other provisions of the United States Food, Drug and Cosmetic Act of 1938, as amended, such as new chemical entity exclusivity or
new formulation exclusivity. Orphan drug regulations provide incentives to pharmaceutical and biotechnology companies to develop and manufacture drugs
for the treatment of rare diseases, currently defined as diseases that exist in fewer than 200,000 individuals in the U.S., or diseases that affect more than
200,000 individuals in the U.S. but that the sponsor does not realistically anticipate will generate a net profit. Under these provisions, a manufacturer of a
designated orphan drug can seek tax benefits, and the holder of the first FDA approval of a designated orphan product will be granted a seven-year period of
marketing exclusivity for such FDA-approved orphan product. In the U.S., the FDA has the authority to grant additional data protection for approved drugs
where the sponsor conducts specified testing in pediatric or adolescent populations. If granted, this pediatric exclusivity provides an additional six months
which are added to the term of data protection as well as to the term of any relevant patents, to the extent these protections have not already expired. We may
also seek to utilize market exclusivities in other territories, such as in the EU. We cannot assure you that any of our drug candidates will obtain such orphan
drug designation, pediatric exclusivity, new chemical entity exclusivity or any other market exclusivity in the U.S., the EU or any other territory, or that we
will be the first to receive the respective regulatory approval for such drugs so as to be eligible for any market exclusivity protection.
Our drug development efforts are focused currently on two compounds, zoptarelin doxorubicin and Macrilen™ (macimorelin), which are in clinical
development, and on two oncology compounds, an Erk inhibitor (AEZS-134) and LHRH-disorazol Z (AEZS-138), which are in pre-clinical development.
The following is a description of our intellectual property rights with respect to these compounds.
Zoptarelin doxorubicin:
We license intellectual property relating to LH-RH agonists and LH-RH antagonists carrying various cytotoxic radicals (including zoptarelin doxorubicin)
from the Administrators of the Tulane Educational Fund ("Tulane") pursuant to a License Agreement dated September 17, 2002 (the "Tulane Agreement").
The Tulane Agreement grants to us an exclusive worldwide license for all therapeutic uses of LH-RH agonists and LH-RH antagonists carrying various
cytotoxic radicals, to the extent covered by one of the patents listed below. The term of the Tulane Agreement continues for ten years after the first
commercial sale of a product based on the licensed intellectual property (a "Licensed Product") or until the expiration of the last to expire of the patents listed
below, whichever is longer, on a country-by-country basis.
Pursuant to the Tulane Agreement, we are required to pay Tulane the following amounts: (i) US$400,000 upon the first grant of regulatory approval for a
Licensed Product in the United States, Canada, the European Union or Japan; (ii) 10% of all consideration received by us from a sublicensee for authorization
to use the licensed intellectual property to develop, manufacture, market, distribute and sell a Licensed Product; (iii) 5% of our net sales of Licensed Products;
and (iv) 50% of any royalties that we receive from a sublicensee with respect to its net sales of Licensed Products; provided, however, that the payment with
respect to royalties received from a sublicensee shall not be less than 3.5% nor more than 5% of the sublicensee's net sales of the Licensed Product.
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The following patents are covered by the Tulane Agreement:
•
•
•
•
•
U.S. patent 5,843,903 covers zoptarelin doxorubicin and other related targeted cytotoxic anthracycline analogs, pharmaceutical compositions comprising
the compounds as well as their medical use for the treatment of cancer. This patent expires in November 2015.
European patent 0 863 917 B1 covers zoptarelin doxorubicin and other related targeted cytotoxic anthracycline analogs, pharmaceutical compositions
comprising the compounds as well as their medical use for the treatment of tumors. This patent expires in November 2016.
Japanese patent 3 987 575 covers zoptarelin doxorubicin and other related targeted cytotoxic anthracycline analogs, pharmaceutical compositions
comprising the compounds as well as their medical use for the treatment of tumors. This patent expires in November 2016.
Chinese patent ZL96198605.0 covers zoptarelin doxorubicin and other related targeted cytotoxic anthracycline analogs, pharmaceutical compositions
comprising the compounds as well as their medical use for the treatment of tumors. This patent expires in November 2016.
Hong Kong patent 1017363 covers zoptarelin doxorubicin and other related targeted cytotoxic anthracycline analogs, pharmaceutical compositions
comprising the compounds as well as their medical use for the treatment of tumors. This patent expires in November 2016.
Macimorelin:
•
•
•
•
•
•
•
U.S. patent 6,861,409 covers macimorelin and U.S. patent 7,297,68 covers other related growth hormone secretagogue compounds, each also covering
pharmaceutical compositions comprising the compounds as well as their medical use for elevating the plasma level of growth hormone. U.S. patent
6,861,409 and U.S. patent 7,297,681 both expire in August 2022.
European patent 1 289 951 covers macimorelin and European patent 1 344 773 covers 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. EP patent 1 289
951 and EP patent 1 344 773 both expire in June 2021.
Japanese patent 3 522 265 covers macimorelin and pharmaceutical compositions comprising the compounds as well as their medical use for elevating the
plasma level of growth hormone. This patent expires in June 2021.
Canadian patent 2,407,659 covers macimorelin and pharmaceutical compositions comprising the compounds as well as their medical use for elevating
the plasma level of growth hormone. This patent expires in June 2021.
U.S. patent 8,192,719 covers a method of assessing pituitary-related growth hormone deficiency in a human or animal subject comprising an oral
administration of the compound macimorelin and determination of the level of growth hormone in the sample and assessing whether the level of growth
hormone in the sample is indicative of growth hormone deficiency. This patent 8,192,719 expires in October 2027.
European patent 1 984 744 covers a method of assessing pituitary-related growth hormone deficiency by oral administration of macimorelin. This expires
in February 2027.
Japanese patent 4 852 728 covers a method of assessing pituitary-related growth hormone deficiency by oral administration of macimorelin. This expires
in February 2027.
Erk inhibitors (AEZS-134):
We own a number of patents that relate to our Erk inhibitors, of which AEZS-134 is our lead candidate.
•
•
•
U.S. patent 8,791,118 covers AEZS-134 as well as methods of treatment for this compound. This patent expires in May 2032 (including PTA).
European Patent Application No. EP2,694,067 covers AEZS-134 as well as methods of treatment for this compound. If granted, the EP patent would
expire in April 2032.
Japanese patent application based on PCT/EP2012/056138 covers AEZS-134 as well as methods of treatment for this compound. If granted, the patent
would expire in April 2032.
36
Disorazol Z - LHRH conjugates (AEZS-138):
•
•
•
•
U.S. patent 7,741,277 covers AEZS-138 (disorazole Z - LHRH conjugate). This patent will expire in January 2028 (including PTA).
U.S. patent 8,470,776 covers methods of treatment for compound AEZS-138 (disorazole Z - LHRH conjugate). This patent will expire in February 2029
(including PTA).
European patent application 2,066,679 covers AEZS-138 (disorazole Z - LHRH conjugate) as well as methods of treatment for this compound. If
granted, this patent will expire in September 2027.
Japanese patent 5,340,155 covers AEZS-138 (disorazole Z - LHRH conjugate) as well as methods of treatment for this compound. This patent will expire
in September 2027.
C.
Organizational structure
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, 2014 is depicted in the chart set forth under the caption "Item 4A. History and development of the Company".
D.
Property, plants and equipment
Our corporate head office is located in Quebec City, Province of Quebec, Canada. The following table sets forth information with respect to our main
facilities as at December 31, 2014.
Location
Use of space
1405 du Parc Technologique Blvd., Quebec City (Quebec),
Canada
Fully occupied for management, R&D, administration,
commercial operations and business development
315 Sigma Drive, Suite 302D, Summerville SC 29483
Weismüllerstr. 50
D-60314
Frankfurt-am-Main, Germany
Item 4A Unresolved Staff Comments
None.
Partially occupied for management, administration,
commercial operations and business development
Partially occupied for management, R&D, business
development and administration
37
Square
Footage
Type of interest
3,561
Leasehold
4,623
Leasehold
46,465
Leasehold
Item 5.
Operating and Financial Review and Prospects
Key Developments
Commercial Developments
•
During the fourth quarter, our full-time contract sales force of 19 sales representatives started the field selling in the US of EstroGel®, pursuant to the co-
promotion services agreement (the "Co-promotion Agreement") entered into with ASCEND Therapeutics US LLC ("ASCEND") in August 2014. The
Co-promotion Agreement provides that we or one of our subsidiaries detail and market ASCEND's leading non-patch transdermal hormone replacement
therapy product, available under the name EstroGel®, in specific agreed-upon US territories, in exchange for a sales commission, which will be payable
to us based upon incremental EstroGel® sales volumes that are generated over certain pre-established thresholds.
Product Candidate Developments
Zoptarelin Doxorubicin
•
•
During the year, we completed site initiation, with over 120 sites currently in operation, for our ZoptEC (Zoptarelin doxorubicin in Endometrial Cancer)
Phase 3 trial in women with locally advanced, recurrent or metastatic endometrial cancer. To date, over 400 of the expected 500 patients have been
entered into the trial. The ZoptEC Phase 3 trial is an open-label, randomized, multicenter trial conducted in North America, Europe and Israel under a
Special Protocol Assessment ("SPA") with the FDA; it compares zoptarelin doxorubicin with doxorubicin as second line therapy. The primary efficacy
endpoint is improvement in median Overall Survival.
On December 1, 2014, we entered into a master collaboration agreement, a Technology Transfer and Technical Assistance Agreement ("TTA") and a
License Agreement ("LA") with Sinopharm A-Think Pharmaceuticals Co., Ltd. ("Sinopharm") for the development, manufacture and commercialization
of zoptarelin doxorubicin ("the Product") in all human uses, in the People's Republic of China, including Hong Kong and Macau (collectively, "the
Territory"). Under the terms of the TTA, Sinopharm made a one-time, non-refundable payment of $1.1 million ("Transfer Fee") to us for the transfer of
technical documentation and materials, know-how and technical assistance services. Additionally, per the LA, we will be entitled to receive additional
consideration upon achieving certain pre-established milestones, including the occurrence of certain regulatory and commercial events in the Territory.
Furthermore, we will be entitled to receive royalties on future net sales of the Product in the Territory.
Macrilen™
•
On November 6, 2014, the FDA issued a Complete Response Letter ("CRL") for our New Drug Application ("NDA") for Macrilen™ in the evaluation of
adult growth hormone deficiency ("AGHD"). Based on its review, the FDA determined that our NDA could not be approved in its form as submitted. The
CRL stated that the planned analysis of our pivotal trial did not meet its stated primary efficacy objective as agreed to in the SPA agreement between the
Company and the FDA, and that we will need to demonstrate the efficacy of macimorelin as a diagnostic test for growth hormone deficiency in a new,
confirmatory clinical study. The CRL also stated that a serious event of electrocardiogram QT interval prolongation occurred for which attribution to
drug could not be excluded. Therefore, a dedicated thorough QT study to evaluate the effect of macimorelin on the QT interval would be necessary. We
intend to make a decision regarding the future development of Macrilen™ in the near term, taking into account various considerations, including our
prior and upcoming discussions with the FDA.
Erk Inhibitors
•
On April 9, 2014, we announced that we had presented, at the American Association for Cancer Research Annual Meeting in San Diego, a poster,
entitled Erk Inhibition as a Therapeutic Option for the Treatment of Raf- and Mek- Inhibitor Resistant Tumors, on AEZS-134, a highly potent and
selective adenosine triphosphate competitive Erk inhibitor. The poster provided a rationale for new therapeutic opportunities in oncology with this
compound, given that preclinical data suggest that Erk inhibitors such as AEZS-134 may provide a treatment option for patients suffering from tumors
that are resistant to currently established therapies such as B-Raf and Mek inhibitors.
38
Corporate Developments
Establishment of Global Commercial Operations and Resource Optimization
•
•
On May 5, 2014, we announced that we had selected Charleston, South Carolina, as the new location for our North American business and global
commercial operations. In conjunction with our plans and commitment to our Charleston office, we expect to be eligible to receive job development
investment tax credits pursuant to approval received from the Coordinating Council for Economic Development of South Carolina.
On August 7, 2014, our Nominating, Governance and Compensation Committee approved our global resources optimization program (the "Resource
Optimization Program"), which has been rolled out as part of our strategy to transition into a commercially operating specialty biopharmaceutical
organization. The Resource Optimization Program, the goal of which is to streamline R&D activities and to increase commercial operations and
flexibility, is expected to result in the termination of 30 employees. Employee departures under this program, which commenced during the first quarter
of 2015, will continue through August 31, 2015. We expect that overall annualized savings upon completion of the Resource Optimization Program will
amount to approximately $2.3 million. Total restructuring costs associated with the Resource Optimization Program recorded during 2014 were
approximately $2.5 million, representing our estimated severance payments, onerous lease provision and other directly related costs. Our estimates of
restructuring costs and annualized savings may be revised in future periods as new information becomes available.
Public Offerings
•
•
•
On January 14, 2014, we completed a public offering of 11.0 million units, generating net proceeds of approximately $12.2 million, with each unit
consisting of one common share and 0.80 of a warrant to purchase one common share, at a purchase price of $1.20 per unit (the "January 2014
Offering").
On March 11, 2015, we completed a public offering of 59,677,420 units (the "Units"), generating net proceeds of approximately $34.5 million, with each
Unit consisting of either one common share or one warrant to purchase one common share ("Series C Warrant"), 0.75 of a warrant to purchase one
common share ("Series A Warrant") and 0.50 of a warrant to purchase one common share ("Series B Warrant"), at a purchase price of $0.62 per Unit (the
"March 2015 Offering"). The Series A Warrants are exercisable for a period of five years at an exercise price of $0.81 per share, and the Series B
Warrants are exercisable for a period of 18 months at an exercise price of $0.81 per share. Both the Series A and Series B warrants are subject to certain
anti-dilution provisions. The Series C Warrants are exercisable for a period of five years at an exercise price of $0.62 per share. Total gross proceeds
payable to us in connection with the exercise of the Series C Warrants have been pre-paid by investors and therefore are included in the aforementioned
proceeds.
In connection with the March 2015 Offering, the holders of 21,123,332 of the 21,900,000 outstanding warrants issued by us in connection with a
previous public offering of units in November 2013 and with the January 2014 Offering, as defined above, entered into an amendment agreement that
caused such previously issued warrants to expire and terminate in exchange of a cash payment made by us in the aggregate amount of approximately $5.7
million.
"At-the-Market" Issuance Program
•
Between July 1, 2014 and December 31, 2014, we issued a total of approximately nine million common shares under our At-the-Market ("ATM") sales
agreement entered into May 2014 with MLV & Co. LLC (the "May 2014 ATM Program"), at an average price of $1.36 for aggregate gross proceeds of
approximately $12.2 million, less cash and non-cash transaction costs of approximately $0.4 million. The May 2014 ATM Program provides that we may,
at our discretion, from time to time during the term of the sales agreement, sell up to a maximum of 14.0 million of our common shares through ATM
issuances on the NASDAQ, up to an aggregate amount of $15 million.
NASDAQ Minimum Bid Price Compliance
•
On December 18, 2014, we received a notice from the NASDAQ regarding our failure to comply with the NASDAQ's $1.00 minimum bid price
requirement. The Company has 180 calendar days, or until June 16, 2015, to regain compliance with the minimum bid price requirement.
39
Status of Our Drug Pipeline
_________________________
(1) Phase 2 trial in ovarian cancer completed.
(2) Investigator-driven and sponsored.
(3) Currently evaluating options and future plans after issuance of CRL from the FDA.
(4) Potential oral prostate cancer vaccine available for out-licensing.
(5) Sponsored entirely by licensees.
We are focused on advancing our ZoptEC Phase 3 program with zoptarelin doxorubicin in endometrial cancer, as discussed further below, and on evaluating
our options for Macrilen™ for the evaluation of AGHD.
40
As for our compounds in earlier stages of development, as part of the Resource Optimization Program, we have decided to streamline our drug discovery
activities and focus on specific projects related to our Erk inhibitors and our LHRH-disorazol Z product candidates. Regarding our Erk inhibitors program, we
are looking to select an optimized molecule for development in the first half of 2015.
Our investment in the development of Erk inhibitors and our LHRH-disorazol Z product candidate will depend on the level of liquidity available to fund our
R&D activities.
Consolidated Statements of Comprehensive Income (Loss) Information
(in thousands, except share and per share data)
Three-month periods ended
December 31,
2014
$
2013
$
Years ended December 31,
2014
$
2013
$
2012
$
Revenues
Sales
License fees
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)
Income (loss) before income taxes
Income tax expense
Net income (loss) from continuing operations
Net income from discontinued operations
Net income (loss)
Other comprehensive income (loss):
Items that may be reclassified subsequently to profit or loss:
—
11
11
—
6,282
4,676
10,958
(10,947)
15,053
—
15,053
4,106
(111)
3,995
158
4,153
—
—
—
—
5,345
2,627
7,972
(7,972)
65
(2,689)
(2,624)
(10,596)
—
(10,596)
2,353
(8,243)
—
11
11
—
23,716
13,690
37,406
(37,395)
20,319
—
20,319
(17,076)
(111)
(17,187)
623
(16,564)
96
6,079
6,175
834
1,219
2,053
51
591
21,284
12,316
33,651
20,592
10,606
31,789
(27,476)
(29,736)
1,748
(1,512)
236
6,974
(382)
6,592
(27,240)
(23,144)
—
(27,240)
34,055
6,815
—
(23,144)
2,732
(20,412)
Foreign currency translation adjustments
(677)
424
(1,158)
1,073
(504)
Items that will not be reclassified to profit or loss:
Actuarial gain (loss) on defined benefit plans
Comprehensive income (loss)
Net income (loss) per share (basic and diluted) from
continuing operations
Net income (basic and diluted) from discontinued
operations
Net income (loss) (basic and diluted) per share
Weighted average number of shares outstanding:
Basic
Diluted
1,336
4,812
0.06
—
0.06
2,346
(5,473)
(0.28)
0.06
(0.22)
(1,833)
(19,555)
2,346
10,234
(3,705)
(24,621)
(0.29)
(0.92)
0.01
(0.28)
1.16
0.24
(1.17)
0.14
(1.03)
65,383,290
37,274,129
59,024,730
29,476,455
19,775,073
65,383,290
37,274,129
59,024,730
29,476,455
19,806,687
41
2014 compared to 2013
Revenues
Revenues are derived predominantly from license fees, which include the amortization of upfront payments received from our licensees and R&D contract
service fees.
Sales revenues are derived from the sale of active pharmaceutical ingredients, or raw materials, to licensees. Periodic variations of sales, and, consequently, of
cost of sales, are attributable to the R&D needs of the requesting licensee.
Revenues recorded during the year ended December 31, 2013 resulted predominantly from the non-recurring, accelerated recognition of remaining
unamortized deferred revenue associated with an upfront payment received from a licensee following the termination of related R&D activities.
We expect revenues during the year ended December 31, 2015 to be higher than those recorded during the year ended December 31, 2014 due to the initial
recognition of the Transfer Fee and due to sales commission revenue that we expect to begin generating in connection with our sales efforts related to
EstroGel®, provided that we are able to begin to exceed the pre-established baselines outlined in the Co-promotion Agreement.
Operating Expenses
R&D costs, net of refundable tax credits and grants, were $6.3 million and $23.7 million for the three-month period and the year ended December 31,
2014, respectively, compared to $5.3 million and $21.3 million for the same periods in 2013.
The increase for the year ended December 31, 2014, as compared to the same period in 2013, is attributable to higher comparative employee compensation
and benefits costs, which in turn are mainly due to the recording of R&D restructuring costs. Following the approval of the Resource Optimization Program,
discussed above, we recorded a provision for restructuring costs, amounting to approximately $2.5 million, for severance payments, onerous lease provision
and other directly related costs associated with the Resource Optimization Program. This increase is partly offset by lower comparative salaries and short-
term employee benefits and share-based compensation costs.
The following table summarizes our net R&D costs by nature of expense:
(in thousands)
Third-party costs
Employee compensation and benefits
Facilities rent and maintenance
Other costs*
R&D tax credits and grants
Three-month periods ended
December 31,
Years ended December 31,
2014
$
2013
$
2014
$
2013
$
2012
$
3,967
2,828
11,356
10,049
1,231
1,629
8,430
7,864
887
197
—
6,282
466
540
(118)
5,345
2,160
1,758
1,901
2,130
(131)
23,716
(517)
21,284
(868)
20,592
8,679
8,590
1,661
2,530
_________________________
* Includes depreciation, amortization, impairment charges and onerous lease provision recognized.
The following table summarizes primary third-party R&D costs, by product candidate, incurred by the Company during the three-month periods ended
December 31, 2014 and 2013.
(in thousands, except percentages)
Product Candidate
Zoptarelin doxorubicin
Macrilen™, macimorelin
Erk inhibitors
LHRH - Disorazol Z
Other
Three-month periods ended December 31,
2014
2013
$
%
$
%
3,609
91.0
1,667
192
112
54
—
4.8
2.8
1.4
—
284
312
139
426
58.9
10.0
11.0
4.9
15.2
3,967
100.0
2,828
100.0
42
The following table summarizes primary third-party R&D costs, by product candidate, incurred by the Company during the years ended December 31, 2014,
2013 and 2012.
(in thousands, except percentages)
Product Candidate
Zoptarelin doxorubicin
Erk inhibitors
Macrilen™, macimorelin
LHRH - Disorazol Z
Perifosine
Other
Years ended December 31,
2014
2013
2012
$
%
$
%
$
%
9,668
488
404
257
196
343
85.1
4.3
3.6
2.3
1.7
3.0
4,934
1,128
1,238
659
1,134
956
49.1
11.2
12.3
6.6
11.3
9.5
11,356
100.0
10,049
100.0
2,133
1,727
112
331
3,801
575
8,679
24.6
19.9
1.3
3.8
43.8
6.6
100.0
As shown above, a substantial portion of the increase in 2013-to-2014 quarter-to-date and year-to-date third-party R&D costs relates to development
initiatives associated with zoptarelin doxorubicin, and in particular with our Phase 3 ZoptEC trial initiated in 2013 with Ergomed Clinical Research Ltd.
("Ergomed"), the contract clinical development organization with which, in April 2013, we entered into a co-development and profit sharing agreement. This
increase is partially offset by the lower comparative development costs associated with most of our other product candidates.
During the year ended December 31, 2014, ongoing services provided by Ergomed included the conducting of initiation and monitoring visits at various
clinical sites, screening and enrolment initiatives, investigation-related management and analysis and regulatory support. ZoptEC-related efforts are
progressing in accordance with pre-established timelines. As we continue to closely monitor all initiatives supported by Ergomed, we may decide to revise
some of the trial's parameters or expand the scope of work performed by Ergomed, and consequently, total estimated costs in connection with the co-
development and revenue sharing agreement may be adjusted. To date, our arrangement with Ergomed has been revised following our decision to open
additional clinical sites and to perform additional sub-studies, resulting in estimated cost increases of approximately $1.8 million, as compared to our original
estimate.
Excluding the impact of foreign exchange rate fluctuations, we expect net R&D costs for 2015 to slightly decrease, as compared to 2014, due to the
realization of cost savings in connection with the Resource Optimization Program, offset partially by slightly higher third-party R&D costs in connection with
our Phase 3 ZoptEC trial. Based on currently available information and forecasts, we expect that we will incur net R&D costs of between $21 million and $23
million for the year ended December 31, 2015.
Selling, general and administrative ("SG&A") expenses were $4.7 million and $13.7 million for the three-month period and the year ended December 31,
2014, respectively, compared to $2.6 million and $12.3 million for the same periods in 2013.
For the three-month period ended December 31, 2014, the increase in SG&A expenses, as compared to the same period in 2013, is mainly related to the
deployment of our contracted sales force, which is currently detailing EstroGel®, and higher comparative operating foreign exchange losses.
For the year ended December 31, 2014, the increase in SG&A expenses, as compared to the same period in 2013, is mainly related to higher comparative
operating foreign exchange losses, the ramping up of our pre-commercialization activities, the deployment of our contracted sales force related to our co-
promotion activities and the recording of restructuring costs related to administrative staff redundancies resulting from the Resource Optimization Program.
During 2015, excluding the impact of foreign exchange rate fluctuations and the recording of transaction costs related to potential financing activities (not
currently known or estimable), we expect SG&A expenses to remain broadly in line with expenditures incurred during the year ended December 31, 2014,
despite the fact that our contracted sales force is expected to detail EstroGel® during the full year 2015, as compared to less than two months in 2014. This
year-over-year increase, associated with our co-promotion activities, is expected to be offset by lower marketing and other pre-commercialization expenses
related to Macrilen™ and by lower termination benefit expenses.
43
Net finance income (costs) are comprised predominantly of the change in fair value of warrant liability and of gains and losses recorded due to changes in
foreign currency exchange rates, as presented below.
Finance income
Change in fair value of warrant liability
Gains due to changes in foreign currency exchange rates
Interest income
Finance costs
Change in fair value of warrant liability
Losses due to changes in foreign currency exchange rates
Three-month periods ended
December 31,
2014
$
2013
$
Years ended December 31,
2014
$
2013
$
2012
$
14,079
924
50
15,053
—
—
—
15,053
—
—
65
65
(1,884)
(805)
(2,689)
(2,624)
18,272
1,879
168
20,319
—
—
—
20,319
1,563
—
185
1,748
—
(1,512)
(1,512)
236
6,746
—
228
6,974
—
(382)
(382)
6,592
The change in fair value of our warrant liability results from the periodic "mark-to-market" revaluation, via the application of the Black-Scholes option
pricing model, of currently outstanding share purchase warrants. The Black-Scholes "mark-to-market" warrant valuation most notably has been impacted by
the issuance of 8.8 million additional share purchase warrants and by the closing price of our common shares, which, on the NASDAQ, has fluctuated from
$0.52 to $1.50 during the year ended December 31, 2014 and from $1.03 to $3.23 for the same period in 2013.
With specific reference to 2014, we recorded substantial fair value gains on our warrant liability, resulting from the significant reduction in our share price
following our announcement, in November, that the FDA had issued a CRL in connection with our NDA for Macrilen™. The lower closing price of our
shares following our announcement of the CRL has resulted in a lower Black-Scholes valuation of our outstanding share purchase warrants during the fourth
quarter of 2014.
Gains or losses due to changes in foreign currency exchange rates are mainly related to the US dollar, which strengthened against the euro ("EUR") by
approximately 4.2% and 12.2%, during the three-month and twelve-month periods ended December 31, 2014, respectively. During the three-month and
twelve-month periods ended December 31, 2013, however, the US dollar weakened against the EUR by approximately 2.0% and 4.5%, respectively.
Net income (loss) from continuing operations for the three-month period and the year ended December 31, 2014 was $4.0 million and $(17.2) million, or
$0.06 and $(0.29) per basic and diluted share, respectively, compared to $(10.6) million and $(27.2) million, or $(0.28) and $(0.92) per basic and diluted share
for the same periods in 2013.
The increase in net income from continuing operations for the three-month period ended December 31, 2014, as compared to the same period in 2013, is due
to the higher comparative net finance income, partly offset by higher comparative R&D and SG&A expenses, as presented above.
The decrease in net loss from continuing operations for the year ended December 31, 2014, as compared to the same period in 2013, is due largely to higher
comparative net finance income, partly offset by lower comparative license fee revenues and by higher comparative net R&D costs and SG&A expenses, as
presented above.
Discontinued Operations
Following a strategic review of our risk and prospects with respect to the manufacturing of Cetrotide® and related activities (collectively, the "Cetrotide®
Business"), and, in particular, having taken into account, as discussed below, the previous monetization of the corresponding royalty stream, we decided to
transfer all manufacturing rights of Cetrotide® and to discontinue our involvement with the Cetrotide® Business. On April 3, 2013 (the "Effective Date"), we
entered into a transfer and service agreement ("TSA") and concurrent agreements with various partners and licensees with respect to our manufacturing rights
for Cetrotide®, marketed for therapeutic use as part of in vitro fertilization programs. The principal effect of these agreements was to transfer, effective
October 1, 2013 (the "Closing Date"), our manufacturing rights for Cetrotide® to Merck Serono in all territories. Also per the TSA, we agreed to provide
certain transition services to Merck Serono over a
44
period of 36 months from the Effective Date in order to assist Merck Serono in managing overall responsibility for the Cetrotide® Business.
Under the TSA, during the period commencing on the Effective Date and ending on the Closing Date (the "Interim Period"), we were obligated to continue to
conduct the Cetrotide® Business in the ordinary course in a manner consistent with past practices, subject to certain conditions. Per the TSA, we received a
non-refundable, one-time payment of €2.5 million (approximately $3.3 million) in consideration for the transfer of our manufacturing rights referred to above,
as well as other payments in exchange for the transfer, also on the Closing Date, of certain assets, such as inventory and equipment used solely for the
manufacture of Cetrotide®. We recognized the non-refundable, one-time payment on the Closing Date, as we no longer had managerial involvement or
effective control over the manufacturing of goods sold through the Cetrotide® Business. We provide the aforementioned transition services to Merck Serono
in exchange for a monthly service fee.
As a result of the transfer of substantially all of the risks and rewards associated with the Cetrotide® Business on the Closing Date, the Cetrotide® Business
has been classified as a discontinued operation in the consolidated financial statements. As such, relevant amounts in our consolidated statements of
comprehensive (loss) income have been retroactively reclassified to reflect the Cetrotide® Business as a discontinued operation.
(in thousands)
Revenues
Sales and royalties
License fees and other*
Operating expenses
Cost of sales
Research and development costs, net of tax credits and
grants
Selling, general and administrative expenses
Net income from discontinued operations
Three-month periods ended
December 31,
2014
$
2013
$
Years ended December 31,
2014
$
2013
$
2012
$
—
118
118
3,057
3,717
6,774
—
1,037
1,037
63,755
4,589
68,344
30,704
908
31,612
—
3,071
—
30,002
26,229
8
(48)
(40)
158
—
1,350
4,421
2,353
25
389
414
623
8
4,279
34,289
34,055
12
2,639
28,880
2,732
_________________________
*
Includes the non-refundable, one-time payment made by Merck Serono in exchange for the manufacturing rights for Cetrotide®and revenues from certain transition
services provided pursuant to the aforementioned agreement.
The decrease in sales and royalties from discontinued operations, in cost of sales from discontinued operations and in SG&A expenses from
discontinued operations during the three-month period and the year ended December 31, 2014, as compared to the same periods in 2013, reflects the fact
that we recorded no sales of Cetrotide® and royalties during the three-month period and the year ended December 31, 2014, as compared to the corresponding
period of 2013, given that the transfer of the Cetrotide® Business was effective on October 1, 2013.
Net income (loss)
Net income (loss) for the three-month period and the year ended December 31, 2014 was $4.2 million and $(16.6) million, or $0.06 and $(0.28) per basic and
diluted share, respectively, compared to $(8.2) million and $6.8 million, or $(0.22) and $0.24 per basic and diluted share, for the same periods in 2013.
The increase in net income for the three-month period ended December 31, 2014, as compared to the same period in 2013, is due largely to higher
comparative net finance income, offset partially by higher comparative operating expenses and by lower net income from discontinued operations.
The decrease in net income for the year ended December 31, 2014, as compared to the same period in 2013, is due largely to higher loss from operations and
to lower net income from discontinued operations, partially offset by higher comparative net finance income.
45
2013 compared to 2012
Revenues
License fees and other revenues were $6.1 million for the year ended December 31, 2013, as compared to $1.2 million for the same period in 2012.
In March 2011, we entered into an agreement with Yakult for the development, manufacture and commercialization of perifosine in all human uses, excluding
leishmaniasis, in Japan. Under the terms of this agreement, Yakult had made an initial, non-refundable gross upfront payment to the Company of
approximately $8.4 million. We recorded this upfront payment as deferred revenues and commenced amortizing the underlying proceeds on a straight-line
basis over the estimated life cycle of perifosine in colorectal cancer ("CRC") and multiple myeloma ("MM").
On April 1, 2012, following negative results of a Phase 3 study of perifosine in CRC, we discontinued the perifosine program in that indication. Furthermore,
in March 2013, following an analysis of interim results of the Phase 3 study of perifosine in MM, we also discontinued the development of perifosine in the
MM indication. Given these results and the termination of these studies, we determined that we no longer had significant obligations under the agreement
with Yakult to continue with the development of perifosine, and we recognized, in March 2013, the remaining unamortized amount of deferred revenue of
$5.9 million related to the above licensing agreement.
On a year-over-year basis, the increase in license fees and other revenues is therefore attributable to the earlier-than-expected recognition of the previously
deferred upfront license payment received from Yakult, following the discontinuance of our development of perifosine and given that the earnings process
associated with this compound as pertaining to the upfront proceeds received was deemed to be complete.
Operating Expenses
R&D costs, net of refundable tax credits and grants, were $21.3 million for the year ended December 31, 2013, compared to $20.6 million for the same
period in 2012.
Third-party R&D costs were $10.0 million for the year ended December 31, 2013, as compared to $8.7 million for the same period in 2012. This increase
mainly results from the higher development costs associated with zoptarelin doxorubicin, and in particular with our Phase 3 ZoptEC trial initiated in 2013
with Ergomed, as discussed above. Additionally, we incurred higher development costs in 2013 related to Macrilen™ and macimorelin, primarily consisting
of the purchase of active pharmaceutical ingredients. These increases were partly offset by the lower comparative development costs associated with
perifosine, given that we have decided not to make any further investment in this product candidate, as discussed above, and by the lower preclinical study-
related costs associated with our Erk/PI3K inhibitors program.
Third-party R&D costs also increased during the year ended December 31, 2013 due to higher expenditures associated with our disorazol Z product
candidates, pursuant to a variety of collaboration agreements with various universities and institutes, and to the purchase of active pharmaceutical ingredients.
Selling, general and administrative ("SG&A") expenses were $12.3 million for the year ended December 31, 2013, compared to $10.6 million for the
same period in 2012. This increase is mainly related to the recognition in the second quarter of 2013 of non-recurring termination benefits (approximately
$1.4 million) paid to our former Chief Executive Officer and to the recording of related non-cash share-based compensation costs, amounting to
approximately $0.7 million.
Net finance income totaled $0.2 million for the year ended December 31, 2013, as compared to $6.6 million for the same period in 2012. This decrease is
mainly due to the decrease in net gain related to the change in fair value of our warrant liability and the increase in losses due to changes in foreign currency
exchange rates.
The change in fair value of our warrant liability results from the "mark-to-market" revaluation, via the application of the Black-Scholes option pricing model,
of currently outstanding share purchase warrants. The Black-Scholes "mark-to-market" warrant valuation most notably has been impacted by the closing price
of our common shares, which, on the NASDAQ, fluctuated between $1.03 and $3.23 during the year ended December 31, 2013.
Gains or losses due to changes in foreign currency exchange rates are mainly related to the US dollar, which weakened against the EUR by approximately
3.3% from 2012 to 2013.
46
Net loss from continuing operations for the year ended December 31, 2013 was $27.2 million, or $0.92 per basic and diluted share, compared to $23.1
million or $1.17 per basic and diluted share for the same period in 2012.
The increase in net loss from continuing operations for the year ended December 31, 2013, as compared to 2012, is due largely to the recording of non-
recurring termination benefits and related non-cash share-based compensation costs, lower comparative net finance income and higher comparative net R&D
costs, partially offset by higher comparative license fee revenues, largely associated with the accelerated recognition of remaining net unamortized amount of
deferred revenues related to the licensing agreement entered into with Yakult, as discussed above.
Discontinued Operations
Sales and royalties related to discontinued operations were comprised of both net sales of Cetrotide® and royalties, which represented the amortization,
under the units-of-revenue method, of the proceeds received pursuant to a transaction with Healthcare Royalty Partners L.P. (formerly Cowen Healthcare
Royalty Partners L.P.) ("HRP"), in which we monetized our royalty stream related to Cetrotide®. In this transaction, we had received a payment of $52.5
million, less certain transaction costs, from HRP in exchange for our rights to royalties on future net sales of Cetrotide® generated by Merck Serono.
We had initially recorded the proceeds received from HRP as deferred revenue due to our then significant continuing involvement with the Cetrotide®
Business. However, as of the Closing Date, there was no basis to continue amortizing the deferred revenue associated with HRP, primarily due to the fact that
we no longer had significant continuing involvement in the Cetrotide® Business. As such, commencing on the Effective Date, we accelerated the amortization
of the remaining deferred revenues of approximately $31.9 million over the Interim Period, by continuing to apply the units-of-revenue method, which is
consistent with past practice. The remaining deferred revenues were fully amortized through the end of September 2013.
Sales and royalties from discontinued operations were $63.8 million for the year ended December 31, 2013, as compared to $30.7 million for the same
period in 2012. This increase is primarily due to the accelerated amortization of deferred revenues mentioned above.
The substantial license fees and other revenues from discontinued operations recorded during the year ended December 31, 2013, and as compared to the
years ended December 31, 2012 and 2014, are primarily attributable to the recognition, on the Closing Date, of the non-refundable, one-time payment made
by Merck Serono, as discussed above.
Cost of sales from discontinued operations were $30.0 million for the year ended December 31, 2013, as compared to $26.2 million for the same period in
2012. Cost of sales from discontinued operations increased in 2013, as compared to 2012, as a result of the higher comparative volume of Cetrotide® product
sales, including the sale of inventory assets to Merck Serono, as mentioned above.
For the year ended December 31, 2013, cost of sales as a percentage of sales and royalties decreased to approximately 47.1%, as compared to 85.4% for the
same period in 2012, predominantly due to the accelerated recognition of royalties as mentioned above.
SG&A expenses from discontinued operations amounted to $4.3 million for the year ended December 31, 2013, as compared to $2.6 million for the same
period in 2012. The year-over-year increase is largely attributable to the recording of a provision for certain non-cancellable contracts related to the
Cetrotide® Business that were deemed onerous due to the fact that management expected no economic benefits to flow to the Company following the transfer
of the Cetrotide® Business on the Closing Date. The provisions for onerous contracts recognized total $1.3 million and represent the present value of
estimated unavoidable future royalty and patent costs associated with the intellectual property underlying Cetrotide®.
Net income from discontinued operations was $34.1 million for the year ended December 31, 2013, as compared to $2.7 million for the same period in
2012. The comparative increase reflects the net impact of items discussed above, and in particular, are influenced in large part by the inclusion of the
accelerated recognition of previously deferred remaining HRP-related revenues as discontinued operations.
Net income (loss) for the year ended December 31, 2013 was $6.8 million, or $0.24 per basic and diluted share, compared to $(20.4) million, or $(1.03) per
basic and diluted share for the same period in 2012.
The comparative year-over-year decrease in net loss is mainly due to higher net income from discontinued operations and higher revenues, partially
compensated by higher operating costs and lower finance income.
47
Quarterly Consolidated Results of Operations Information
(in thousands, except for per share data)
Three-month periods ended
December 31, 2014
September 30,
2014
$
$
June 30,
2014
$
March 31, 2014
$
Revenues
Loss from operations
Net income (loss) from continuing operations
Net income (loss)
Net income (loss) per share from continuing operations (basic
and diluted)*
Net income (loss) per share (basic and diluted)*
11
(10,947)
3,995
4,153
0.06
0.06
—
(9,843)
(11,629)
(11,337)
(0.20)
(0.20)
—
(8,410)
(5,249)
(5,024)
(0.09)
(0.09)
—
(8,195)
(4,304)
(4,356)
(0.08)
(0.08)
(in thousands, except for per share data)
Three-month periods ended
December 31, 2013 September 30, 2013
$
$
June 30,
2013
$
March 31, 2013
$
Revenues
Loss from operations
Net (loss) income from continuing operations
Net (loss) income
Net (loss) income per share from continuing operations (basic
and diluted)*
—
(7,972)
(10,596)
(8,243)
17
(8,648)
(7,799)
3,842
96
(9,693)
(9,848)
9,330
(0.28)
(0.26)
(0.39)
6,062
(1,163)
1,003
1,886
0.04
Net (loss) income per share (basic and diluted)*
_________________________
* Net income (loss) per share is based on the weighted average number of shares outstanding during each reporting period, which may differ on a quarter-to-quarter basis. As
(0.22)
0.13
0.37
0.07
such, the sum of the quarterly net income (loss) per share amounts may not equal year-to-date net (loss) income per share.
Historical quarterly results of operations and net income (loss) from continuing operations cannot be taken as reflective of recurring revenue or expenditure
patterns or of predictable trends, largely given the non-recurring nature of certain components of our historical revenues due most notably to the accelerated
recognition of upfront payments and to unpredictable quarterly variations attributable to our net finance income (costs), which in turn are comprised of the
impact of the periodic "mark-to-market" revaluation of our warrant liability and of foreign exchange gains and losses. Additionally, our net R&D costs
historically have varied on a quarter-over-quarter basis due to the ramping up or winding down of potential product candidate activities, which in turn are
dependent upon a number of factors that often do not occur on a linear or predictable basis.
More recently, our SG&A expenses have increased on a quarter-over-quarter basis due to the ramping up of pre-commercialization activities associated with
Macrilen™ (prior to the receipt of the CRL from the FDA) and to the deployment of our contracted sales force related to our co-promotion activities
associated with EstroGel®.
In addition to the items referred to above, our net income (loss) also has been impacted by net variations attributable to the Cetrotide® Business, which, as
discussed above, has been presented on a retrospective basis within discontinued operations.
48
Consolidated Statement of Financial Position Information
(in thousands)
Cash and cash equivalents1
Trade and other receivables and other current assets
Restricted cash equivalents
Property, plant and equipment
Other non-current assets
Total assets
Payables and other current liabilities2
Current portion of deferred revenues
Warrant liability
Non-financial non-current liabilities3
Total liabilities
Shareholders' equity
Total liabilities and shareholders' equity
As at December 31,
2014
$
2013
$
34,931
1,286
760
797
9,661
47,435
7,304
270
8,225
17,152
32,951
14,484
47,435
43,202
2,453
865
1,351
11,325
59,196
7,242
—
18,010
16,880
42,132
17,064
59,196
_________________________
1 Of which approximately $3.6 million was denominated in EUR as at December 31, 2014.
2 Of which approximately $1.5 million is related to a provision for restructuring costs.
3 Comprised mainly of employee future benefits, provisions for onerous contracts and non-current portion of deferred revenues.
The decrease in cash and cash equivalents as at December 31, 2014, as compared to December 31, 2013, is due to variations in components of our working
capital and to recurring disbursements, as well as to the effect of exchange rate fluctuations, partially offset by the receipt of net proceeds of $12.2 million in
connection with the January 2014 Offering, of $11.9 million pursuant to drawdowns made under the May 2014 ATM Program and of $0.3 million pursuant to
drawdowns made under a previous ATM sales agreement program, entered into in May 2013 and discontinued in connection with the implementation of the
May 2014 ATM Program.
The decrease in trade and other receivables and other current assets as at December 31, 2014, as compared to December 31, 2013, is mainly due to lower
trade accounts receivable related to discontinued operations.
The decrease in other non-current assets as at December 31, 2014, as compared to December 31, 2013, is primarily due to the lower comparative exchange
rate of the EUR against the US dollar, which weakened from December 31, 2013 to December 31, 2014. The decrease is also due to the net reduction in the
carrying value of our identifiable intangible assets, for which we recognized an impairment loss of approximately $0.2 million, pursuant to the
implementation of the Resource Optimization Program, discussed above.
The increase in payables and other current liabilities as at December 31, 2014, as compared to December 31, 2013, is due to the recording of a provision for
restructuring costs related to the Resource Optimization Program, discussed above, to the higher comparative trade accounts payable balances due to the
increased number of patients that have been entered into our ZoptEC Phase 3 program and to costs incurred in connection with the deployment of our
contracted sales force, partially offset by lower comparative trade accounts payable balances related to the Cetrotide® Business as well as by the lower
comparative exchange rate of the EUR against the US dollar.
Our warrant liability decreased from December 31, 2013 to December 31, 2014. The decrease is due to net fair value revaluation gains of $18.3 million,
which were recorded pursuant to our periodic "mark-to-market" revaluation of the underlying outstanding share purchase warrants, as discussed above and
was partly offset by the issuance of 8.8 million additional share purchase warrants in connection with the January 2014 Offering, which initially had increased
our warrant liability by $8.5 million.
The decrease in shareholders' equity as at December 31, 2014, as compared to December 31, 2013, is mainly attributable to the increase in our deficit due to
the recording of net loss and actuarial loss on pension-related employee benefit obligation and to the increase in our accumulated other comprehensive loss
due to foreign currency translation adjustments, partly offset by the increase in our share capital following the issuance of common shares discussed above.
49
Financial Liabilities, Obligations and Commitments
We have certain contractual lease obligation commitments as well as other long-term obligations related to unfunded benefit pension plans and unfunded
post-employment benefit plans. The following tables summarize future cash requirements with respect to these obligations.
Expected future minimum lease payments and future minimum sublease receipts under non-cancellable operating leases (subleases) as well as future
payments in connection with utility service agreements are as follows:
(in thousands)
Less than 1 year
1 – 3 years
4 – 5 years
Total
As at December 31, 2014
Minimum lease payments
Sublease income
$
$
1,678
1,352
325
3,355
(392)
(493)
(19)
(904)
With regard to our lease arrangement in Germany for laboratory, office and storage space, we do not expect to renew the agreement beyond the end of its
original term (expiry of March 2016), and we are examining options for alternative space to accommodate remaining German-based staff. As such, the
minimum lease payments presented above exclude any lease payments for our German subsidiary beyond March 2016.
In accordance with the assumptions used in our employee future benefits obligation calculation as at December 31, 2014, undiscounted benefits expected to
be paid are as follows:
(in thousands)
Less than 1 year
1 – 3 years
4 – 5 years
More than 5 years
Total
Outstanding Share Data
$
495
1,014
1,084
19,867
22,460
As at March 16, 2015, we had 90,557,142 common shares issued and outstanding, as well as 3,885,200 stock options outstanding. Warrants outstanding as at
March 16, 2015 represented a total of 116,887,987 equivalent common shares.
Capital Disclosures
Our objective in managing capital, consisting of shareholders' equity, with cash and cash equivalents and restricted cash equivalents being its primary
components, is to ensure sufficient liquidity to fund R&D activities, selling, general and administrative expenses, working capital and capital expenditures.
Over the past several years, we have increasingly raised capital via public equity offerings and drawdowns under various ATM sales programs as our primary
source of liquidity.
Our capital management objective remains the same as that in previous periods. The policy on dividends is to retain cash to keep funds available to finance
the activities required to advance our product development portfolio and to pursue appropriate commercial opportunities as they may arise.
We are not subject to any capital requirements imposed by any regulators or by any other external source.
Liquidity, Cash Flows and Capital Resources
Our operations and capital expenditures have been financed through certain transactions impacting our cash flows from operating activities, public equity
offerings, as well as from the drawdowns under various ATM programs.
50
Based on our assessment, which took into account current cash levels, as well as our strategic plan and corresponding budgets and forecasts, we believe that
we have sufficient liquidity and financial resources to fund planned expenditures and other working capital needs for at least, but not limited to, the 12-month
period following the statement of financial position date of December 31, 2014.
We may endeavour to secure additional financing, as required, through strategic alliance arrangements or through other activities, as well as via the issuance
of new share capital or other securities.
The variations in our cash and cash equivalents by activity are explained below.
(in thousands)
Three-month periods ended
December 31,
2014
$
2013
$
Years ended December 31,
2014
$
2013
$
2012
$
Cash and cash equivalents - Beginning of period
41,952
24,829
43,202
39,521
46,881
Cash flows from operating activities:
Cash used in operating activities from continuing
operations
Cash provided by (used in) operating activities from
discontinued operations
Cash flows from financing activities:
Net proceeds from issuance of common shares and
warrants
Net proceeds from the exercise of share purchase warrants
and other
Cash flows from investing activities:
Net cash used in provided by investing activities from
continuing operations
Net cash provided by investing activities from
discontinued operations
(8,676)
(6,184)
(30,787)
(30,131)
(25,681)
93
(8,583)
9,622
3,438
(295)
(31,082)
10,147
(19,984)
(5,134)
(30,815)
2,075
14,795
24,358
23,708
23,619
—
2,075
—
14,795
—
—
24,358
23,708
589
24,208
(4)
—
(4)
(21)
113
92
(61)
—
(61)
(85)
113
28
(272)
—
(272)
Effect of exchange rate changes on cash and cash
equivalents
Cash and cash equivalents - End of period
(509)
34,931
48
43,202
(1,486)
34,931
(71)
43,202
(481)
39,521
Operating Activities
2014 compared to 2013
Cash flows (used in) provided by operating activities were $(8.6) million and $(31.1) million for the three-month period and the year ended December 31,
2014, respectively, compared to $3.4 million and $(20.0) million for the same periods in 2013. The significant increase in cash flows used in operating
activities for the three-month period ended December 31, 2014 as compared to the same period in 2013 is due to severance payments made in connection with
the Resource Optimization Program, the comparative increase in R&D expenditures, mainly related to our ZoptEC trial and in SG&A expenditures, mainly
related to the deployment of our contract sales force and other commercial activities. Additionally, the overall increase in cash used in operating activities was
due to variations associated with our discontinued operations, following the transfer of the Cetrotide® Business in the fourth quarter of 2013, as discussed
above. This increase is partly offset by the receipt of the Transfer Fee in connection with the agreements entered into with Sinopharm, as discussed above.
The significant increase in cash used in operating activities for the year ended December 31, 2014 as compared to the same period in 2013 is mainly due to
the variations associated with our discontinued operations, following the transfer of the Cetrotide® Business in the fourth quarter of 2013, as discussed above.
51
We expect net cash used in operating activities to range from $33 million to $35 million for the year ended December 31, 2015, mainly as we continue to
invest in our ZoptEC Phase 3 program and related substudies, as we carry out initiatives related to the co-promotion of EstroGel® and as we continue making
severance payments in connection with the Resource Optimization Program. This guidance may vary significantly in future periods, most notably in light of
ongoing business development initiatives, as discussed further below.
2013 compared to 2012
Cash flows used in operating activities were $20.0 million and $30.8 million for the years ended December 31, 2013 and 2012, respectively. The significant
decrease in cash flows used in operating activities is mainly due to the cash provided by operating activities from discontinued operations as a result of the
change in operating assets and liabilities and to the receipt in 2013, of the non-refundable, one-time payment from Merck Serono pursuant to the transfer of
the Cetrotide® Business, as discussed above. This decrease is partly offset by the increase in cash used in operating activities from continuing operations,
which is explained by the comparable increase in R&D and SG&A expenditures, mainly related to the zoptarelin doxorubicin and Macrilen™ projects, as
well as by lower cash flows provided by license fee revenues.
Financing Activities
2014 compared to 2013
Cash flows provided by financing activities were $2.1 million and $24.4 million for the three-month period and the year ended December 31, 2014,
respectively, compared to $14.8 million and $23.7 million for the same periods in 2013. The decrease for the three-month period ended December 31, 2014,
as compared to the same period in 2013 is due to lower net proceeds received from the issuance of common shares and warrants.
Critical Accounting Policies, Estimates and Judgments
Our consolidated financial statements as at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012 have
been prepared in accordance with IFRS as issued by the IASB.
The preparation of consolidated financial statements in accordance with IFRS requires management to make judgments, estimates and assumptions that affect
the reported amounts of our assets, liabilities, revenues, expenses and related disclosures. Judgments, estimates and assumptions are based on historical
experience, expectations, current trends and other factors that management believes to be relevant at the time at which our consolidated financial statements
are prepared.
Management reviews, on a regular basis, the Company's accounting policies, assumptions, estimates and judgments in order to ensure that the consolidated
financial statements are presented fairly and in accordance with IFRS. Revisions to accounting estimates are recognized in the period in which the estimates
are revised and in any future periods affected.
A summary of those critical accounting estimates and assumptions, as well as critical judgments used in applying accounting policies in the preparation of our
consolidated financial statements, can be found in note 3 to our consolidated financial statements as at December 31, 2014 and December 31, 2013 and for the
years ended December 31, 2014, 2013 and 2012.
Recent Accounting Pronouncements
Adopted in 2014
The following new standards and amendments to standards are effective for the first time for interim periods beginning on or after January 1, 2014 and have
been applied in preparing our consolidated financial statements. The accounting policies have been applied consistently by all subsidiaries of the Company.
In May 2013, the IASB made amendments to the disclosure requirements of IAS 36, Impairment of Assets, requiring disclosure, in certain instances, of the
recoverable amount of an asset or cash-generating unit, and the basis for the determination of fair value less costs of disposal, when an impairment loss is
recognized or when an impairment loss is subsequently reversed.
In May 2013, the IFRS Interpretations Committee ("IFRIC") issued International Financial Reporting Standard Interpretation 21, Levies ("IFRIC 21"), an
interpretation on the accounting for levies imposed by governments. IFRIC 21 is an interpretation of IAS 37, Provisions, Contingent Liabilities and
Contingent Assets ("IAS 37"). IAS 37 sets out criteria for the recognition of a liability, one of which is the requirement for the entity to have a present
obligation as a result of a past event (known as an obligating event). IFRIC 21 clarifies that the obligating event that gives rise to a liability to pay a levy is the
activity described in the relevant legislation that triggers the payment of the levy.
52
The adoption of these standards and amendments did not have a significant impact on our consolidated financial statements.
Not yet adopted
The final version of IFRS 9, Financial instruments ("IFRS 9"), was issued by the IASB in July 2014 and will replace IAS 39 Financial Instruments:
Recognition and Measurement. IFRS 9 introduces a model for classification and measurement, a single, forward-looking expected loss impairment model and
a substantially reformed approach to hedge accounting. The new single, principle-based approach for determining the classification of financial assets is
driven by cash flow characteristics and the business model in which an asset is held. The new model also results in a single impairment model being applied
to all financial instruments, which will require more timely recognition of expected credit losses. It also includes changes in respect of an entity's own credit
risk in measuring liabilities elected to be measured at fair value, so that gains caused by the deterioration of an entity's own credit risk on such liabilities are
no longer recognized in profit or loss. IFRS 9, which is to be applied retrospectively, is effective for annual periods beginning on or after January 1, 2018 and
is available for early adoption. In addition, an entity's own credit risk changes can be applied early in isolation without otherwise changing the accounting for
financial instruments. We are currently assessing the impact, if any, that this new standard will have on our consolidated financial statements.
In May 2014, the IASB issued IFRS 15, Revenue from Contracts with Customers. The objective of this new standard is to provide a single, comprehensive
revenue recognition framework for all contracts with customers to improve comparability of financial statements of companies globally. This new standard
contains principles that an entity will apply to determine the measurement of revenue and timing of when it is recognized. The underlying principle is that an
entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to receive in exchange
for those goods or services. This new standard is effective for annual periods beginning on or after January 1, 2017. We are currently assessing the impact that
this new standard may have on our consolidated financial statements.
Outlook for 2015
Commercial Development
With our focus to become a growth-oriented, commercially operating specialty biopharmaceutical organization, and in addition to our commitment to
developing key product candidates in our existing pipeline, we expect to continue to evaluate potential in-licensing and/or acquisition opportunities, as well as
additional co-promotional arrangements related to targeted commercial products.
Zoptarelin doxorubicin
With regard to our ZoptEC Phase 3 study in collaboration with Ergomed, we will continue to monitor patient enrollment in North America, Europe and Israel,
such that we are able to secure a first interim analysis during the first half of 2015. We also expect to complete patient recruitment for this trial before year-
end 2015.
Macrilen™
We intend to make a decision regarding the future development of Macrilen™ in the near term, taking into account various considerations, including our prior
and upcoming discussions with the FDA.
Erk Inhibitors Development Program
For this program, we expect to select an optimized molecule for development in the first half of 2015.
Summary of key expectations for revenues, operating expenditures and cash flows
Having entered into the Co-promotion Agreement with ASCEND, we expect to generate sales commission revenue in 2015 pursuant to the initiation of sales
coverage in the agreed-upon territories and as we begin to exceed certain minimum agreed-upon thresholds. Further, having entered into the master
collaboration agreement, TTA and LA with Sinopharm, we will commence recognition of the amortization of deferred revenues related to the Transfer Fee.
For the year ended December 31, 2015, we expect that R&D costs will range between $21 million and $23 million. Our R&D costs are expected to decrease
in 2015, as compared to 2014, mainly as a result of the implementation of our Resource Optimization Program, as discussed above.
Our main focus for R&D efforts will continue to be on our later-stage compound, zoptarelin doxorubicin and its Phase 3 ZoptEC study, as discussed above,
where we anticipate substantial investment to fund ongoing development initiatives.
53
Excluding the impact of foreign exchange rate fluctuations, our SG&A expenses are expected to remain consistent in 2015, as compared to 2014.
Excluding any foreign exchange impacts, as well as income from new business development initiatives, we expect that our overall operating burn in 2015 will
range from $33 million to $35 million as we continue to fund operating activities and working capital requirements.
Financial Risk Factors and Other Instruments
Fair value risk
As noted above, the change in our warrant liability, which is measured at fair value through profit or loss, results from the periodic "mark-to-market"
revaluation, via the application of the Black-Scholes option pricing model, of currently outstanding share purchase warrants. The Black-Scholes valuation is
impacted, among other inputs, by the market price of our common shares. As a result, the change in fair value of the warrant liability, which is reported as
finance income (cost) in our consolidated statements of comprehensive income (loss), has been and may continue in future periods to be materially affected
by changes in our common share closing price, which has ranged from $0.52 to $1.50 on the NASDAQ during the year ended December 31, 2014.
If variations in the market price of our common shares of -10% and +10% were to occur, the impact on our net loss for the warrant liability held at December
31, 2014 would be as follows:
(in thousands)
Warrant liability
Total impact on net loss – decrease / (increase)
Foreign currency risk
Carrying
amount
$
8,225
-10%
$
1,117
1,117
+10%
$
(1,147)
(1,147)
Since we operate internationally, we are exposed to currency risks as a result of potential exchange rate fluctuations related to non-intragroup transactions. In
particular, fluctuations in the US dollar exchange rates against the EUR could have a significant impact on our results of operations.
If foreign exchange rate variations of -5% (depreciation of the EUR) and +5% (appreciation of the EUR) against the US$, from period-end rates of EUR1 =
US$1.2101 were to occur, the impact on our net loss for each category of financial instruments held at December 31, 2014 would be as follows:
(in thousands)
Cash and cash equivalents
Warrant liability
Total impact on net loss – decrease / (increase)
Liquidity risk
Carrying
amount
$
25,184
8,225
Balances denominated in US$
-5%
$
+5%
$
1,259
(411)
848
(1,259)
411
(848)
Liquidity risk is the risk that we will not be able to meet our financial obligations as they become due. We manage this risk through the management of our
capital structure and by continuously monitoring actual and projected cash flows. Our Board of Directors reviews and approves our operating and capital
budgets, as well as any material transactions out of the ordinary course of business. We have adopted an investment policy in respect of the safety and
preservation of our capital to ensure our liquidity needs are met. The instruments are selected with regard to the expected timing of expenditures and
prevailing interest rates.
54
We believe that we have sufficient funds to pay our ongoing general and administrative expenses, to pursue our R&D activities and to meet our obligations
and existing commitments as they fall due at least through December 31, 2015. In making this assessment, we took into account all available information
about the future, which is at least, but not limited to, twelve months from the end of the most recent reporting period. We expect to continue to incur operating
losses and may require significant capital to fulfill our future obligations. Our ability to continue future operations beyond December 31, 2015 and to fund our
activities is dependent on our ability to secure additional funding, which may be completed in a number of ways, including but not limited to licensing
arrangements, partnerships, share and other security issuances and other financing activities. We will pursue such additional sources of financing when
required, and while we have been successful in securing financing in the past, there can be no assurance we will be able to do so in the future or that these
sources of funding or initiatives will be available for the Company or that they will be available on terms which are acceptable to us.
Credit risk
Credit risk is the risk of an unexpected loss if a customer or counterparty to a financial instrument fails to meet its contractual obligations. We regularly
monitor credit risk exposure and take steps to mitigate the likelihood of this exposure resulting in losses. Our exposure to credit risk currently relates to cash
and cash equivalents, to trade and other receivables and to restricted cash equivalents. We invest our available cash in amounts that are readily convertible to
known amounts of cash and deposit our cash balances with financial institutions that are rated the equivalent of "Baa1" and above. This information is
supplied by independent rating agencies where available and, if not available, we use publicly available financial information to ensure that we invest our
cash in creditworthy and reputable financial institutions.
As at December 31, 2014, trade accounts receivable for an amount of approximately $0.3 million were with three counterparties.
As at December 31, 2014, no trade accounts receivable were past due or impaired.
Generally, we do not require collateral or other security from customers for trade accounts receivable; however, credit is extended following an evaluation of
creditworthiness. In addition, we perform ongoing credit reviews of all our customers and establish an allowance for doubtful accounts when accounts are
determined to be uncollectible.
The maximum exposure to credit risk approximates the amount recognized on our condensed interim consolidated statement of financial position.
Related Party Transactions and Off-Balance Sheet Arrangements
In addition to recurring payments made to members of our key management team, during the years ended December 31, 2014 and 2013, we incurred $38,000
and $76,800, respectively, in professional fees for services rendered by one of the members of the Company's Board of Directors in connection with special
tasks mandated by our Nominating, Corporate Governance and Compensation Committee.
As at December 31, 2014, we did not have any interests in special purpose entities or any other off-balance sheet arrangements.
55
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 17, 2015.
Name and Place of Residence
Position with Aeterna Zentaris
Aubut, Marcel
Quebec, Canada
Dodd, David A.
South Carolina, United States
Dinges, Jude
Georgia, United States
Dorais, José P.
Quebec, Canada
Egbert, Carolyn
Texas, United States
Ernst, Juergen
Brussels, Belgium
Guenther, Eckhard
Franfurt, Germany
Lapalme, Pierre
Quebec, Canada
Limoges, Gérard
Quebec, Canada
Sachse, Richard
Mittelbiberach, Germany
Santorelli, Keith
Boston, Massachusetts
Teifel, Michael
Frankfurt, Germany
Theodore, Philip A.
South Carolina, United States
Turpin, Dennis
Quebec, Canada
Director
Chairman, President and Chief Executive Officer
Senior Vice President and Chief Commercial Officer
Director
Director
Lead Independent Director
Vice President, Business Development
Director
Director
Senior Vice President, Chief Scientific Officer/Chief Medical Officer
Vice President, Finance
Vice President, Pre-Clinical Development
Senior Vice President, Chief Administrative Officer and General Counsel
Senior Vice President and Chief Financial Officer
There are no family relationships among any of our directors or executive officers. The following is a brief biography of each of our directors and executive
officers.
Marcel Aubut has served as a director on our Board since 1996. Mr. Aubut is a partner and Vice-Chairmain of the Board of BCF 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.
56
Jude Dinges was appointed our Senior Vice President and Chief Commercial Officer in November 2013. He began his career nearly 30 years ago as a
professional sales representative at Bristol Laboratories and later at Merck & Co., where he was promoted to positions with increased responsibilities in
training, sales, management, marketing, and market development. While at Merck, Mr. Dinges won multiple awards, including the President's Achievement
Award in 2001, awarded to one of 32 Business Directors each year. He received the Change Agent Award for his market development prelaunch business
planning and contributions to sales force execution, while launching the blockbuster brands Cozaar®, Fosamax®, Singulair®, Maxalt®, Vioxx®, and Vytorin®.
He was recognized with a Career Achievement Award for his consistent top performance as a Senior/Executive Business Director. Mr. Dinges joined Novartis
Pharmaceuticals in 2006 and led his region to top performance in the launch of Tekturna® while balancing a broad antihypertensive portfolio across several
Novartis divisions. His region also led the nation in market share for Exelon® and Exelon Patch®. In 2008, Mr. Dinges became the Respiratory & Infectious
Disease Specialty Medicines Director. In 2009, Mr. Dinges joined Amgen Inc. as Executive Director of Region Sales, Bone Health Business Unit. Mr. Dinges
led his region team to a highly successful launch of monoclonal antibody, Prolia®, across southeastern United States and Puerto Rico.
David A. Dodd was appointed our President and CEO in April 2013 and was elected as Chairman of the Board in May 2014. Mr. Dodd's executive
management experience in the pharmaceutical and biotechnology industries spans more than 35 years. Prior to joining Aeterna Zentaris, Mr. Dodd was
President and CEO of Solvay Pharmaceuticals, Inc. During his six-year tenure as President, CEO and Director of Serologicals Corporation, the market value
of the company increased from $85 million in June 2000 to an all-cash sale to Millipore Corporation in July 2006 for $1.5 billion. He also was President,
CEO and Chairman of BioReliance Corporation, a leading provider of biological safety and related testing services. Prior to that, Mr. Dodd held various
senior management positions at Wyeth-Ayerst Laboratories, the Mead Johnson Laboratories Division at Bristol-Myers Squibb, and Abbott Laboratories. Mr.
Dodd holds a Master degree from Georgia State University, and completed the Harvard Business School Advanced Management Program.
José P. Dorais has served as a director on our Board since 2006. Mr. Dorais is a partner of Miller Thomson LLP, a law firm, 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, Armand-Frappier Institute,
Biochem Pharma and St-Luc Hospital in Montreal. He was, until recently, a member of the Board of Directors of Alliance Films Inc. and 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.
Carolyn Egbert has served as a director on our Board since August 2012. After enjoying the private practice of law as a defense litigator in Michigan and
Washington, D.C., she joined Solvay America, Inc. ("Solvay") (a chemical and pharmaceutical company) in Houston, Texas. Over the course of a twenty-year
career with Solvay, she held the positions of Vice President, Human Resources, President of Solvay Management Services, Global Head of Human Resources
and Senior Executive Vice President of Global Ethics and Compliance. During her tenure with Solvay, she served as a director on the Board of Directors of
seven subsidiary companies. After retiring in 2010, she established a consulting business providing expertise in corporate governance, ethics and compliance,
organizational development and strategic human resources. She holds a Bachelor of Sciences degree in Biological Sciences from George Washington
University, Washington D.C. and a Juris Doctor degree from Seattle University, Seattle, Washington. She also was a Ph.D. candidate in Pharmacology at both
Georgetown University Medical School at Washington, D.C. and Northwestern University Medical School at Chicago, Illinois. She remains an active
member of both the Michigan State Bar and the District of Columbia Bar, Washington, D.C.
Juergen Ernst has served as a director on our Board since 2005. As the former General Manager of the Pharmaceutical Sector of Solvay S.A. (international
chemical and pharmaceutical group), Mr. Ernst has had extensive senior management experience, where, among other functions, he oversaw the human
resources department. Mr. Ernst is also a member of the Board of Directors of Pharming Group N.V., a biotechnology company based in the Netherlands.
Eckhard Günther was appointed as our Vice President, Business Development in October 2014. He serves as one of our executive officers. From 2008
through 2014, he was our Vice President, Alliance Management and Intellectual Property and from 2006 through 2008, he was our Vice President, Head of
Drug Discovery and Preclinical Development. Dr. Günther, who is based in the Frankfurt, Germany, office of our German subsidiary, began his career in the
pharmaceutical industry in 1985. He joined ASTA Medica AG, a predecessor of our Company, in 1990, assuming roles of increasing responsibility in areas of
medicinal chemistry and drug discovery during his career. He possesses numerous scientific and business skills and has a long record of successful innovation
and alliance building and management. Dr. Günther obtained a diploma in Chemistry from the Martin-Luther-University of Halle-Wittenberg in 1979 and was
awarded his doctorate diploma in synthetic organic chemistry by the University of Halle-Wittenberg in 1985.
57
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 Directors
of the National Pharmaceutical Council USA and was a member of the Board of Directors of the Pharmaceutical Manufacturers Association of Canada, where
he played a leading role in reinstituting patent protection for pharmaceuticals. Until recently, he was a member of the Board 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 Pharmaceutical Inc.,
Chairman of the Board of Pediapharm Inc., Chairman of the Board of GlyPharma Therapeutics and a member of the Board of Directors of Algorithme
Pharma Inc. and of Insy's Therapeutics Inc., a Phoenix-Arizona based specialty pharma company. 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 the 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 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
Université de Montréal and affiliate schools (2000-2003). Mr. Limoges, at the request of the Board of Directors of the Université de Montréal, participated in
the selection of the Dean of the Faculty of Medicine in 2011. Mr. Limoges is also a board member or trustee and chairman of the Audit Committees of the
following public companies: Hartco Inc. (TSX) and PROREIT (TSX). He is also a board member of various private companies and charities. Mr. Limoges
became an FCPA, FCA (Fellow) in 1984 and received the Order of Canada in 2002.
Richard Sachse was appointed our Senior Vice President and Chief Scientific Officer in January 2014. In March 2014, he was also appointed Chief Medical
Officer. Dr. Sachse holds a degree in medicine from the Friedrich-Alexander-University Erlangen, in Germany, and a board certification in Clinical
Pharmacology. With more than 20 years experience as a physician and scientist, he has extensive expertise in a variety of different therapeutic areas,
including endocrinology and oncology. In addition to registration studies, he is especially experienced in the design and implementation of translational
programs to bridge research programs to the clinic, as well as in the design and implementation of clinical pharmacology programs, including all required
profiling studies and activities, enabling successful registration of products at the international level. From 1996 to 2000, he was International Project Leader
at the Bayer AG Institute for Clinical Pharmacology, and Principal Investigator at the Bayer Clinical Pharmacology Unit, implementing innovative
exploratory development tools, including biomarkers to demonstrate early Proof of Concept. From 2001 to 2006, Dr. Sachse held a variety of different
management positions within early and late phase clinical development programs, including responsibilities for completed Phase 3 programs leading to
successful NDA/MAA submissions. In 2007, after a merger, he became Senior Director, Head of Experimental Medicine, at UCB in Belgium, where he
managed the implementation of novel biomarkers in clinical development to provide data supporting identification of appropriate target indication and target
population. In 2010, Dr. Sachse became Vice President, Head of Global Translational Medicine at Boehringer Ingelheim.
Keith Santorelli was appointed our Vice President, Finance in November 2013. Mr. Santorelli, who is based in Boston, Massachusetts and is an employee of
our U.S. subsidiary, had previously been employed at the Registrant's Quebec City headquarters from December 2008 until November 2011. Mr. Santorelli re-
joins us from Alderon Iron Ore Corp., a development-stage mining company in Montreal, Canada, where he was Chief Financial Officer from November
2011 until June 2013. Mr. Santorelli is a Certified Public Accountant, licensed in the State of Massachusetts, and holds a Bachelor's degree in Accountancy
from the University of Massachusetts, as well as an M.A. from McGill University.
Michael Teifel became our Vice President, Non-Clinical Sciences in October 2014. He joined our German subsidiary, which is based in Frankfurt, in 2004,
where he has been involved in a number of roles focused on the design and implementation of non-clinical development programs for small molecule drugs,
targeted therapies and biologics. He serves as one of our executive officers. Prior to joining us, Dr. Teifel co-founded Munich Biotech AG, which developed
anti-tumor diagnostics and therapeutics, from 1998 through August 2004. Prior to founding Munich Biotech AG, Dr. Teifel was employed by Boehringer
58
Mannheim GmbH/Roche Diagnostics GmbH where his focus was on gene therapy. He received his diploma in biology from the Technical University
Darmstadt in 1992 and his doctorate from the same institution in 1996.
Philip Theodore was appointed our Senior Vice President, Chief Administrative Officer and General Counsel in October 2014. Prior to joining us, he was the
Vice President, General Counsel and Corporate Secretary of Zep Inc., a consumable chemical packaged goods company based in Atlanta, Georgia, from July
2010 through September 2014; the Vice President of Corporate Development, Compliance, and Legal for BioReliance, Inc., a provider of biologics-safety-
testing services based in Rockville, Maryland, from September 2008 to April 2009; the Senior Vice President and General Counsel of John H. Harland
Company, a financial services company based in Atlanta, Georgia, from September 2006 to September 2007; and the Vice President, General Counsel and
Corporate Secretary of Serologicals Corporation, a life-sciences tools company based in Atlanta, Georgia, from 2004 through August 2006. Mr. Theodore
also served as a partner in the corporate practice of King & Spalding, LLP, an Atlanta-based law firm, from 1986 through 2003.
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 (i.e. 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, 2014: €1.000 = US$1.329 and CAN$1.000 = US$0.905; for the financial year ended December 31, 2013: €1.000 =
US$1.329 and CAN$1.000 = US$0.971; and for the financial year ended December 31, 2012: €1.000 = US$1.286 and CAN$1.000 = US$1.001.
1. Compensation of Outside Directors
The compensation paid to members of our Board of Directors who are not our employees (our "Outside 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 Outside Directors with those of our shareholders, and (iii)
provide appropriate compensation for the risks and responsibilities related to being an effective Outside Director. This compensation is recommended to the
Board by the Nominating, Governance and Compensation Committee ("Governance Committee"). The Governance Committee is composed of three Outside
Directors, each of whom is independent, namely Ms. Carolyn Egbert (Chair), Mr. Juergen Ernst and Mr. José P. Dorais.
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, among other matters, assisting the Board in developing our approach to corporate governance
issues, proposing new Board nominees, overseeing the assessment of 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 and generally playing a leadership role in our corporate
governance practices.
In 2013, the Governance Committee retained James F. Reda and Associates ("Reda"), a division of Gallagher Benefit Services, Inc., as a compensation
consultant. Reda was retained to assist the Governance Committee with (i) a review of our compensation programs, particularly our executive short-term and
long-term incentive programs and (ii) a review and benchmarking of the remuneration of our Outside Directors. Reda analyzed our past practices and defined
a peer group of companies in order to understand the competitive compensation practices and to propose a program designed to deliver both cash and equity
compensation components to our Outside Directors and executive officers that was competitive with the peer group of companies. Our existing Outside
Director compensation structure was benchmarked against market compensation data gathered from North American biopharmaceutical companies of
comparable size. See the section below titled "Compensation Consultant" and "Benchmarking" for more information.
Based on the results of the benchmarking study and in light of the substantial responsibilities inherent to the position of director, Reda proposed that we
increase Outside Director compensation, including both cash and equity components. Upon recommendation of the Governance Committee, the Board
determined in 2013 not to implement any increase to the remuneration payable to Outside Directors and deferred further consideration of various elements of
Outside Directors' compensation to a later point in time in 2014. During 2014, Mr. David A. Dodd, our President and Chief Executive Officer, was
59
appointed Chairman of our Board of Directors. Following his appointment, our Board established the position of "Lead Independent Director" or Lead
Director and fixed the compensation of the Lead Director at 40,000, payable in the Lead Director's home country currency.
Annual Retainers and Attendance Fees
Annual retainers and attendance fees are paid on a quarterly basis to our Outside Directors on the following basis:
Type of Compensation
Annual Compensation for the year
2014
(in units of home country currency)
Lead Director Retainer
Board Member 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
40,000
15,000
1,000 per meeting
15,000
4,000
1,000 per meeting
12,000
2,000
1,000 per meeting
All amounts in the above table are paid to Board and committee members in their home country currency.
The Chairman, President and Chief Executive Officer is the only member of the Board who is not an Outside Director and as such is not compensated in his
capacity as a director. Outside Directors are reimbursed for travel and other out-of-pocket expenses incurred in attending Board or committee meetings.
60
Outstanding Option-Based Awards and Share-Based Awards
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, 2014:
Name
Issuance Date
Number of
Securities
Underlying
Unexercised
Options(1)
Option-based Awards
Option
Exercise Price
Option
Expiration Date
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
(mm-dd-yyyy)
(#)
(CAN$ or US$)
(mm-dd-yyyy)
(CAN$ or US$)
(mm-dd-yyyy)
(#)
($)
Aubut, Marcel
Dorais, José P.
Egbert, Carolyn
Ernst, Juergen
Lapalme, Pierre
Limoges, Gérard
12/13/2005
01/04/2007
12/11/2007
12/08/2008
12/09/2009
12/08/2010
12/07/2011
05/09/2012
05/08/2013
11/27/2013
05/09/2014
12/08/2010
12/07/2011
05/09/2012
05/08/2013
11/27/2013
05/09/2014
12/06/2012
05/08/2013
11/27/2013
05/09/2014
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
05/09/2012
05/08/2013
11/27/2013
05/09/2014
12/09/2009
12/08/2010
12/07/2011
05/09/2012
05/08/2013
11/27/2013
05/09/2014
12/13/2005
01/04/2007
12/11/2007
12/08/2008
12/09/2009
12/08/2010
12/07/2011
2,500
833
4,166
2,500
3,333
5,000
8,333
10,000
5,000
25,000
60,000
5,000
8,333
10,000
5,000
25,000
60,000
7,500
5,000
25,000
60,000
2,500
2,500
833
4,166
16,666
2,500
3,333
5,000
8,333
10,000
5,000
25,000
60,000
3,333
5,000
8,333
10,000
5,000
25,000
60,000
2,500
833
4,166
2,500
3,333
5,000
8,333
CAN$21.18
CAN$27.90
CAN$10.92
CAN$3.30
CAN$5.70
CAN$9.12
US$10.44
US$3.54
US$1.86
US$1.12
US$1.07
CAN$9.12
US$10.44
US$3.54
US$1.86
US$1.12
US$1.07
US$2.17
US$1.86
US$1.12
US$1.07
CAN$30.54
CAN$21.18
CAN$27.90
CAN$10.92
CAN$3.90
CAN$3.30
CAN$5.70
CAN$9.12
US$10.44
US$3.54
US$1.86
US$1.12
US$1.07
CAN$5.70
CAN$9.12
US$10.44
US$3.54
US$1.86
US$1.12
US$1.07
CAN$21.18
CAN$27.90
CAN$10.92
CAN$3.30
CAN$5.70
CAN$9.12
US$10.44
12/12/2015
01/03/2017
12/10/2017
12/08/2018
12/08/2019
12/07/2020
12/06/2021
05/08/2022
05/07/2023
11/26/2023
05/08/2021
12/07/2020
12/06/2021
05/08/2022
05/07/2023
11/26/2023
05/08/2021
12/05/2022
05/07/2023
11/26/2023
05/08/2021
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
05/08/2022
05/07/2023
11/26/2023
05/08/2021
12/08/2019
12/07/2020
12/06/2021
05/08/2022
05/07/2023
11/26/2023
05/08/2021
12/12/2015
01/03/2017
12/10/2017
12/08/2018
12/08/2019
12/07/2020
12/06/2021
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05/09/2012
05/08/2013
11/27/2013
05/09/2014
10,000
5,000
25,000
60,000
US$3.54
US$1.86
US$1.12
US$1.07
05/08/2022
05/07/2023
11/26/2023
05/08/2021
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_________________________
(1) The number of securities underlying unexercised options represents all awards outstanding as at December 31, 2014.
(2)
"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
the NASDAQ, as applicable, on the last trading day of the fiscal year (December 31, 2014) of CAN$0.69 and US$0.60, respectively, and the exercise price of the options,
multiplied by the number of unexercised options.
61
See "Summary of the Stock Option Plan" for more details on the Stock Option Plan (as defined below).
Total Compensation of Outside Directors
The table below summarizes the total compensation earned by the Outside Directors during the financial year ended December 31, 2014 (all amounts are in
US dollars):
Name
Fees earned
($)
Share-based
Awards
Option-based
Awards(2)
Non-Equity
Incentive Plan
Compensation
Pension
Value
All Other
Compensation(3)
Total
Retainer(1)
Attendance(1)
($)
($)
($)
($)
($)
Aubut, Marcel
Dorais, José P.
Egbert, Carolyn
Ernst, Juergen
Lapalme, Pierre
13,582
22,261
23,429
63,913
17,203
4,539
14,877
12,500
17,445
6,324
—
—
—
—
—
—
51,294
51,294
51,294
51,294
51,294
—
—
—
—
—
—
—
—
—
—
—
—
($)
69,415
88,432
112,473
136,131
74,822
—
—
25,250
3,479
—
—
Limoges, Gérard
_________________________
(1) These amounts represent the portion paid in cash to the Outside Directors and are paid in each director's home country currency.
(2) The value of option-based awards represents the closing price of the Common Shares on the NASDAQ on the last trading day preceding the date of grant (US$1.07 for
51,294
27,163
9,922
88,379
options granted on May 9, 2014) multiplied by the Black-Scholes factor as at such date (79.90% for options granted on May 9, 2014) and the number of stock options
granted on such date.
(3) These amounts represent fees paid in cash for special tasks or overseas travelling and are also paid in each director's home country currency.
During the financial year ended December 31, 2014, we paid an aggregate amount of $261,887 to all of our 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 2014.
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, regulatory and competitive environment in which we operate requires a balanced level of risk-taking
to promote and achieve the performance expectations of executives of a specialty biopharmaceutical company that is also seeking to acquire or in-license new
commercial products. The Governance Committee is of the view that our executive compensation program should not encourage senior executives to take
excessive risk. In this regard, the Governance Committee recommends the implementation of compensation methods that tie a portion of senior executive
compensation to our short-term and longer-term performance, as well as that of each individual 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 our short-term and longer-term performance and that of each executive officer.
62
Compensation Consultant
The Governance Committee may, from time to time, engage its own independent consultant to advise it with respect to executive compensation matters.
During the financial year ended December 31, 2013, the Governance Committee retained Reda to provide advice on the competitiveness and appropriateness
of compensation programs for the Chief Executive Officer and our other senior executive officers, as well as with respect to the level and form of
compensation payable to Outside Directors.
The fees paid to Reda for compensation consulting services during the financial year ended December 31, 2013 were $54,134. The Governance Committee
did not engage a compensation consultant during the financial year ended December 31, 2014.
While the Governance Committee may rely on external information and advice, all of the decisions with respect to executive compensation are made by the
Board upon the recommendation of the Governance Committee and may reflect factors and considerations other than, or that may differ from, the information
and recommendations provided by any external compensation consultants that may be retained from time to time.
Compensation Discussion & Analysis
Compensation Philosophy and Objectives
Our 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 the opportunity for executives to participate in 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 our
short-term and longer-term performance and that 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 our short-term and longer-term performance and that of each executive officer.
The Governance Committee has considered in general terms the concept of risk as it relates to our 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, operational, commercial or clinical metrics or milestones. The variable compensation elements (annual
bonuses and stock options) are designed to reward each of short-term, mid-term and long-term performance. For short-term performance, a discretionary
annual bonus may be awarded based on the timing and 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. While our bonus payments are generally based on annual
performance, a maximum bonus payment is pre-fixed for each senior executive officer and represents only a portion of each individual's overall total
compensation opportunities. In exceptional circumstances, a particular executive officer may be awarded a bonus that exceeds his or her maximum pre-fixed
or target bonus amount. Finally, a significant portion of executive compensation is provided in the form of stock options, which is intended to further align the
interests of executives 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 our share price, and in the case of grants under the long-term incentive compensation plan, are
generally subject to mid-term and 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 our executive officers to produce superior short-term, mid-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 they
may determine to be appropriate in the circumstances. 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.
63
Based on the foregoing, the Governance Committee has not identified any specific risks associated with our executive compensation program that are
reasonably likely to have a material adverse effect on us. The Governance Committee believes that our executive compensation program does not encourage
or reward any unnecessary or excessive risk-taking behaviour.
The Board of Directors, based on the Governance Committee's recommendation, set our corporate goals at the end of 2013, which constituted the 2014
performance objectives for the Chief Executive Officer and our other executive officers. The performance objectives are not established for individual
executive officers but rather by functional area(s), many of which are carried out by or fall within the responsibility of our Chairman, President and Chief
Executive Officer, Chief Financial Officer and our other executive officers, including our Named Executive Officers.
Objectives for 2014
Financing
MACRILEN™ (macimorelin)
Secure a minimum of $20 million additional cash
$25 million raised over the first ten months of the year.
Complete the preparations for the commercial launch of
MACRILEN™ (macimorelin)
The commercial launch preparations were completed on
schedule.
Results for 2014
Zoptarelin doxorubicin
ZoptEC (Zoptarelin doxorubicin in Endometrial
Cancer) Phase 3 program
Enroll 173 patients in the Phase 3 clinical trial by the end of
the first half of 2014 and a total of 345 patients by the end
of the year
The targeted enrollment of patients was achieved on
schedule.
AEZS-120
Finalize recommendation regarding a Phase 1 trial
Product acquisitions
(acquisitions; in-licensing; promotion)
Global Resource Optimization
Close deal on product acquisition of existing approved
products with minimum current revenues of $5 million and
with a three-year revenue outlook of a minimum of $30
million
Develop a recommendation for the reorganization of the
organization and work structure of the R&D team to
increase productivity and output, with a goal of reducing the
annual burn-rate by a minimum of 25%
The reorganization plans were finalized and approved and
the implementation process was started, with the result
that staffing will be reduced by approximately 33% by the
end of the first calendar quarter of 2015.
As a result of additional scientific evaluation, the decision
was made to place this project on hold.
Agreement reached with Ascend Therapeutics USA LLC
for the co-promotion of EstroGel®; our sales force started
selling EstroGel® on November 20, 2014.
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 our success.
While we have not formally adopted a policy prohibiting or restricting our 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 our equity securities granted as executive compensation or directors' remuneration, our executive officers and directors have not historically
engaged in such financial instruments or transactions. In addition, our disclosure and trading policy requires that all "reporting insiders", including executive
officers and directors, pre-clear with our Corporate Secretary each trade of our securities, which would include the entering into of any such financial
instrument or transaction, hedge, swap or forward contract.
Benchmarking
In 2013, we benchmarked our executive compensation plan in an effort to determine whether we were achieving our objective of providing market
competitive compensation opportunities. We did not repeat or update the benchmarking process in 2014 because we concluded that doing so would not
provide additional meaningful data. We may repeat or update the process in the future, if changes to our circumstances suggest that embarking on the process
is warranted. Information regarding the 2013 benchmarking process is presented below because we think it is useful in understanding our compensation
policies and philosophy in 2014.
64
Reda performed the benchmarking study for us. Reda gathered data from organizations of comparable size and/or stage of development or other companies
with which we compete for executive talent (the "Reference Group"). An overview of the characteristics of the Reference Group is provided in the following
table:
(In millions of US$)
Location
Industries
Revenues
For fiscal year ended in 2012
Market Capitalization
As at April 30, 2013
Aeterna Zentaris
North America and Europe
Biopharmaceutical
33.7(1)
46.1
Reference Group
North America
Biopharmaceutical
17.5(2)
155.0
Net Loss
For fiscal year ended in 2012
_________________________
(1) For the year ended December 31, 2012, as presented in our 2012 audited consolidated financial statements, which were presented in conformity with International
17.4(2)
20.4(1)
Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB").
(2) The Reference Group for the financial year ended December 31, 2013 was selected in June 2013, 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, 2013 was composed of the following companies within the biopharmaceutical
sector: Affymax Inc., Agenus Inc., Arqule Inc., Astex Pharmaceuticals Inc., Aveo Pharmaceuticals Inc., Cancer Genetics Inc., Cell Therapeutics Inc.,
Cleveland Biolabs Inc., Curis Inc., Galena Biopharma Inc., Helix Biopharma Corp., Immunomedics Inc., Insys Therapeutics Inc., Isoray Inc., Maxigen Inc.,
Merrimack Pharmaceuticals Inc., Oncogenex Pharmaceuticals Inc., Peregrine Pharmaceuticals Inc., Pharmathene Inc., Progenics Pharmaceutical Inc.,
Repligen Corp., Savient Pharmaceuticals Inc., Targacept Inc., Verastem Inc. and Vical Inc.
Positioning
Our compensation policy is for executive compensation to be generally aligned with the 50th percentile, or the mid-point, 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. For 2014, the total cash target payment (base salary and, if applicable or awarded in cash, annual bonus) for our executive officers
was set at approximately the 50th percentile competitive range of 2013 data of the Reference Group, however, in light of the fact that a cash bonus in an
amount significantly less than maximum target payout was paid to only four of our "Named Executive Officers" (defined as the Chief Executive Officer, the
Chief Financial Officer and our three other most highly compensated executive officers, namely Messrs. Dodd, Turpin, Sachse, Dinges and Santorelli, the
total cash compensation (base salary and annual cash bonus) paid to our executive officers with respect to 2014 fell below the 50th percentile competitive
range of 2013 data of the Reference Group and, more specifically, fell at approximately the 27th percentile range of the Reference Group.
Compensation Elements
An executive compensation policy has been established to acknowledge and reward the contributions of our executive officers to our success and to ensure
competitive compensation, so 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 corporate
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 an annual bonus linked to both individual and corporate performance;
65
(iii) long-term equity incentives - consisting solely of stock options granted under our stock option plan established for the benefit of our directors, certain
executive officers and other participants as may be designated from time to time by either the Board or the Governance Committee (the "Stock Option
Plan"); and
(iv) other elements of compensation - consisting of benefits, perquisites and retirement benefits.
Base Salary
Salaries of our executive officers are 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 Incentive Compensation
The short-term incentive compensation plan sets out the allocation of incentive awards based on the advancement of our product pipeline, the success of our
commercial efforts, our financial position and the extent to which we achieved our 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, commercial 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 our performance. 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, 2014, the Governance Committee recommended, and the Board approved the payment of bonuses to certain of our
executive officers in respect of the 2014 year, as indicated below. The Governance Committee recommended, and the Board approved, the grant of long-term
incentive stock options to our executive officers in respect of the 2014 year in the amounts described below.
In making decisions related to the short-term incentive compensation for the Named Executive Officers during the most recently completed financial year, the
conclusions of the Governance Committee were based, in part, on the goals and results for 2014, as described in the Section captioned "Risk Assessment of
Executive Compensation Program".
Mr. Turpin's 2014 goals were aligned with our overall objectives, with an emphasis on securing financing for our continued operations. In respect of the 2014
year, the Governance Committee determined that Mr. Turpin's individual performance surpassed his pre-fixed objectives. Under Mr. Turpin's financial
direction, we raised approximately $25 million of equity financing, which enabled us to end the year with cash and cash equivalents that significantly
exceeded the budgeted amount. In light of the foregoing, the Governance Committee determined that Mr. Turpin's contributions to the achievement of our
goals merited a cash bonus in the amount of CAN$25,000, representing 21% of his maximum target bonus amount.
Dr. Sachse's 2014 goals were aligned with our overall objectives, with an emphasis on reorganizing and strengthening the research and development team in
our Frankfurt, Germany office. He also played a key role in eliminating deficiencies in the performance schedule for our Phase 3 clinical trial of zoptarelin
doxorubicin. In light of his contributions, the Governance Committee determined that Dr. Sachse should receive a cash bonus in the amount of €50,000,
representing 50% of his maximum target bonus amount.
Mr. Dinges' 2014 goals were aligned with our overall objectives, with an emphasis on establishing our commercial operation so that we could begin selling
products that we develop, in-license or co-promote. Under Mr. Dinges' leadership, we established a sales force and began co-promoting our first product in
the fourth quarter of 2014. In light of the foregoing, the Governance Committee determined that Mr. Dinges' contributions to the achievement of our goals
merited a cash bonus in the amount of US$25,000, representing 26% of his maximum target bonus amount.
The Governance Committee did not award bonuses to any of our other Named Executive Officers, other than Mr. Dodd, whose compensation is described
below in the section captioned "Compensation of the Chief Executive Officer".
66
Long-Term Equity Compensation Plan of Executive Officers
The long-term component of the compensation of our 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 our continuing growth strategy, stock options have historically vested over a period of three years, with the first third vesting on the first
anniversary of the date of grant. However, the vesting schedule for certain stock options granted to senior executives in the financial years ended December
2012, 2011, 2010 and 2009 was accelerated from three years to eighteen months since a portion of these grants was intended to serve as a partial or total
replacement for cash bonuses. In December 2013, the Governance Committee and the Board determined that going forward, all stock options would vest over
a period of three years with the first third vesting on the first anniversary of the date of grant. Stock options are usually granted to executive officers in
December of each year.
Summary of the Stock Option Plan
We established the Stock Option Plan in order to attract and retain directors, officers, employees and suppliers of ongoing services, who will be motivated to
work towards ensuring our success. 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.
The Stock Option Plan provides that the sole persons eligible to receive grants under the Stock Option Plan (each, a "Participant") shall be: (i) our most senior
executive officers, including the persons occupying the positions of Chief Executive Officer, Chief Financial Officer, Chief Scientific Officer, Chief
Commercial Officer, Chief Administrative Officer and Chief Compliance Officer; (ii) such other of our executive officers or executive officers of our
subsidiaries that may, from time to time, report directly to the Chief Executive Officer; (iii) the non-employee, independent members of the Board; and (iv)
such other of our officers or employees or the officers or employees of any of our subsidiaries, as the case may be, or suppliers of ongoing services, as may be
expressly designated by resolution of the Board or the Governance Committee.
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 of March 16, 2015, represented 10,323,514 Common Shares. There were 3,885,200 options outstanding under the Stock Option Plan
representing approximately 4.3% of all issued and outstanding Common Shares on March 16, 2015.
Under the Stock Option Plan, (i) the number of securities issuable to insiders, at any time, or issued within any one-year period, under all of our security-
based compensation arrangements, cannot exceed 10% of our issued and outstanding securities and (ii) no single Participant may hold options to purchase,
from time to time, more than 5% of our issued and outstanding Common Shares. In addition: (i) the aggregate fair value of options granted under all of our
security-based compensation arrangements to any one of our Outside Directors entitled to receive a benefit under the Stock Option Plan, within any one-year
period, cannot exceed US$100,000 valued on a Black-Scholes basis and as determined by the Governance Committee; and (ii) the aggregate number of
securities issuable to all of our Outside Directors entitled to receive a benefit under the Stock Option Plan, within any one-year period, under all of our
security-based compensation arrangements, cannot exceed 1% of its issued and outstanding securities.
Options granted under the Stock Option Plan may be exercised at any time within a maximum period of seven or ten years following the date of their grant
(the "Outside Expiry Date"), depending on the date of grant. The Board or the Governance Committee, as the case may be, designates, at its discretion, the
specific Participants 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 Outside Expiry Date 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 the NASDAQ, as applicable, on the last trading day preceding the date of grant of the option.
Options granted under the Stock Option Plan shall 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.
Unless the Board or the Governance Committee decides otherwise, Participants cease to be entitled to exercise their options under the Stock Option Plan: (i)
immediately, in the event a Participant who is an officer or employee resigns or voluntarily leaves his or her employment or his or her employment is
terminated with cause and, in the case of a Participant who is a non-employee director of us or one of our subsidiaries, the date on which such Participant
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 a
Participant who is an officer or employee and, in the case of a Participant who is an Outside Director, six months following the
67
date on which such Participant ceases to be a member of the Board of Directors by reason of death; (iii) 90 days following the date on which a Participant's
employment 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 Participant; and (iv) where the Participant is a service supplier, 30 days following the date on which such Participant
ceases to act as such, for any cause or reason (each, an "Early Expiry Date").
The Stock Option Plan also provides that, if the expiry date of one or more options (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 us, 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 our securities is restricted in accordance with our corporate policies.
Participants may not assign their options (nor any interest therein) other than by will or in accordance with the applicable laws of estates and succession.
If (i) we accept an offer to amalgamate, merge or consolidate with any other entity (other than one of our wholly-owned subsidiaries) or to sell or license all
or substantially all of our assets to any other entity (other than one of our wholly-owned subsidiaries); (ii) we sign a support agreement in customary form
pursuant to which the Board agrees to support a takeover bid and recommends that our shareholders tender their Common Shares to such takeover bid; or (iii)
holders of greater than 50% of our then outstanding Common Shares tender all of their Common Shares to a takeover bid made to all of the holders of the
Common Shares to purchase all of the then issued and outstanding Common Shares, then, in each case, all of the outstanding options shall, without any
further action required to be taken by us, immediately vest. Each Participant shall thereafter be entitled to exercise all of such options at any time up to and
including, but not after the close of business on that date which is ten days following the Closing Date (as defined below). Upon the expiration of such ten-
day period, all rights of the Participant to such options or to the exercise of same (to the extent not already exercised) shall automatically terminate and have
no further force or effect whatsoever. "Closing Date" is defined to mean (x) the closing date of the amalgamation, merger, consolidation, sale or license
transaction in the case of clause (i) above; (y) the first expiry date of the takeover bid on which each of the offeror's conditions are either satisfied or waived
in the case of clause (ii) above; or (z) the date on which it is publicly announced that holders of greater than 50% of our then outstanding Common Shares
have tendered their Common Shares to a takeover bid in the case of clause (iii) above.
The Stock Option Plan 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 us;
with respect to any Participant whether or not such Participant 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, or
any extension to the term of an option beyond its Outside Expiry Date to a Participant 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;
68
•
•
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.
The Stock Option Plan further 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 Participant, or the extension of an option beyond the
Outside Expiry Date in respect of any Participant who is a "non-insider";
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.
69
Outstanding Option-Based Awards and Share-Based Awards
The following table shows all awards outstanding to our Named Executive Officers as of December 31, 2014:
Name
Issuance Date
Number of
Securities
Underlying
Unexercised
Options(1)
Option-based Awards
Option
Exercise Price
Option
Expiration Date
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(3)
(mm-dd-yyyy)
(#)
(CAN$ or US$)
(mm-dd-yyyy)
(CAN$ or US$)
(#)
($)
Dodd, David A.
Turpin, Dennis
Sachse, Richard
Dinges, Jude
Santorelli, Keith
04/15/2013
04/15/2013
12/04/2014
12/13/2005
01/04/2007
12/11/2007
12/09/2009
12/08/2010
12/07/2011
12/06/2012
12/04/2014
01/16/2014
12/04/2014
11/27/2013
12/04/2014
05/09/2014
12/04/2014
300,000
(4)
—
475,000
8,333
8,333
8,333
19,166
9,475
17,353
84,000
175,000
150,000
(6)
130,000
150,000
(7)
166,000
75,000
30,000
US$1.98
04/14/2023
—
—
US$0.76
12/04/2021
CAN$21.18
12/12/2015
CAN$27.90
01/03/2017
CAN$10.92
12/10/2017
CAN$5.70
12/08/2019
CAN$9.12
12/07/2020
US$10.44
12/06/2021
US$2.17
US$0.76
US$1.29
US$0.76
US$1.12
US$0.76
US$1.07
US$0.76
12/05/2022
12/04/2021
01/15/2021
12/04/2021
11/26/2023
12/04/2021
05/08/2021
12/04/2021
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
04/15/2013
200,000(5)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
_________________________
(1) The number of securities underlying unexercised options represents all awards outstanding at December 31, 2014.
(2)
"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
the NASDAQ, as applicable, on the last trading day of the year (December 31, 2014) of CAN$0.69 and US$0.60, respectively, and the exercise price of the options,
multiplied by the number of unexercised options.
"Market or Payout Value of Share-based Awards that have Not Vested" at financial year-end is calculated based on the excess, if any, of the closing price of a Common
Share on the last trading day of the year (December 31, 2014) over $1.98, being the closing price of a Common Share on the NASDAQ on the last trading day preceding
the effective date of Mr. Dodd's appointment multiplied by 200,000. See also note (5) below.
(3)
(4) David A. Dodd was appointed President and Chief Executive Officer effective April 15, 2013 and was granted 300,000 stock options in connection with such
appointment.
(5) Pursuant to Mr. Dodd's Employment Agreement, we agreed to pay Mr. Dodd a retention bonus if he remains employed through December 31, 2015 equal to (a) the
excess, if any, of the closing price of a Common Share on the last regular trading day in 2015 over $1.98, being the closing price of a Common Share on the NASDAQ on
the last trading day preceding the effective date of Mr. Dodd's appointment multiplied by (b) 200,000. The share-based retention bonus will be paid in US dollars no later
than March 15, 2016.
(6) Richard Sachse was appointed Senior Vice President and Chief Scientific Officer effective January 1, 2014 and was granted 150,000 stock options in connection with such
(7)
appointment.
Jude Dinges was appointed Senior Vice President and Chief Commercial Officer effective November 1, 2013 and was granted 150,000 stock options in connection with
such appointment.
There are no vested share-based awards that have not yet been paid out or distributed.
70
Incentive Plan Awards — Value Vested or Earned During the Year
The following table shows the incentive plan awards value vested or earned for each Named Executive Officer for the financial year ended December 31,
2014.
Name
Option-based awards — Value
vested during the year(1)
Share-based awards —
Value
vested during the year
Dodd, David A.
Turpin, Dennis
Sachse, Richard
Dinges, Jude
($)
—
—
—
—
($)
—
—
—
—
Non-equity incentive
plan
compensation — Value
earned
during the year
($)
100,000
22,013
62,463
25,000
Santorelli, Keith
_________________________
(1) 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 NASDAQ 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. Several of our executive officers also receive a car
allowance as a perquisite. These benefits and perquisites are designed to be competitive overall with equivalent positions in comparable North American
organizations in the life sciences industry.
Employer Contribution to Employees' Retirement Plan
In 2008, the Board approved a plan whereby we would contribute to our Canadian and United States employees' retirement plans to the extent of 50% of the
employee's contribution up to a maximum of $7,750 annually for Canadian employees under 50 years old and $8,750 for those in the United States. The plan
also includes a contribution for employees over 50 years old up to a maximum of $10,250 for Canadian employees and $11,500 for those in the United States.
The contribution amounts for our United States employees are subject to limitations imposed by the United States Internal Revenue Service on contributions
to our most highly compensated employees. Employees based in Frankfurt, Germany also benefit from certain employer contributions into the employees'
pension funds. Our executive officers, including the Named Executive Officers, are eligible to participate in such employer-contribution plans to the same
extent and in the same manner as all other employees.
71
Summary Compensation Table
The Summary Compensation Table set forth below shows compensation information for each of the Named Executive Officers for services rendered in all
capacities during each of the financial years ended December 31, 2014, 2013 and 2012.
SUMMARY COMPENSATION TABLE
Name and principal position
Years
Salary
Share
based
awards
($)
—
Option
based
awards(1)
($)
291,914
($)
475,000
328,846
(3)
414,048
(4 )
474,606
—
309,299
331,652
341,605
265,752
—
—
320,000
121,988
(6)
—
240,000
27,692
(7)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
107,547
—
149,787
235,017
—
—
102,016
135,542
—
82,554
—
—
Non-equity incentive plan
compensation
Annual
incentive
plan
Long-term
incentive
plans
Pension
Value
All other
compensation(2)
Total
compensation
($)
100,000
50,000
—
22,013
66,677
—
62,463
—
—
25,000
—
—
—
—
—
($)
($)
($)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
11,500 (5)
11,500 (5)
—
4,403 (5)
4,763 (5)
—
27,239 (5)
—
—
11,500 (5)
2,354 (5)
—
8,750 (5)
1,108 (5)
—
($)
878,414
1,279,000
—
443,262
403,092
491,392
590,471
—
—
458,516
259,884
—
331,304
28,800
—
Dodd, David A.
Chairman, President and Chief
Executive Officer
Turpin, Dennis
Senior Vice President and Chief
Financial Officer
Sachse, Richard
Senior Vice President, Chief Scientific
Officer and Chief Medical Officer
Dinges, Jude
Senior Vice President and Chief
Commercial Officer
Santorelli, Keith
Vice President, Finance
2014
2013
2012
2014
2013
2012
2014
2013
2012
2014
2013
2012
2014
2013
2012
_________________________
(1) The value of option-based awards represents the closing price of the Common Shares on the NASDAQ on the last trading day preceding the date of grant (US$1.29 for
options granted on January 16, 2014, US$1.07 for options granted on May 9, 2014 and US$0.76 for options granted on December 4, 2014) multiplied by the Black-
Scholes factor as at such date (80.17% for options granted on January 16, 2014, 79.90% for options granted on May 9, 2014 and 80.86% for options granted on December
4, 2014) and the number of stock options granted on such date.
"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, 2014. 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.
(2)
(3) Represents the salary earned by and paid to Mr. Dodd following his appointment as President and Chief Executive Officer on April 15, 2013.
(4) The value of Mr. Dodd's share-based awards represents the closing price of the Common Shares on the NASDAQ on the last trading day preceding the date of grant
(US$1.98 for share appreciation rights ("SARS") granted on April 15, 2013) multiplied by the Black-Scholes factor as at such date (175,000 SARS at a factor of 54% and
200,000 SARS at a factor of 58%) and the number of SARS granted on such date.
(5) Represents employer contributions to the executive's retirement savings plan.
(6) Represents consultant fees paid to Mr. Dinges between May 12, 2013 and October 31, 2013 combined with the salary paid to him following his appointment as Senior
Vice President and Chief Commercial Officer on November 1, 2013.
(7) Represents the salary earned by and paid to Mr. Santorelli following his appointment as Vice President, Finance on November 11, 2013.
Compensation of the Chief Executive Officer
The compensation of our Chairman, President and Chief Executive Officer is governed by our executive compensation policy described in the section titled
"Compensation of Executive Officers", and the Chairman, President and Chief Executive Officer participates, together with the other Named Executive
Officers, in all of the Company's incentive plans.
Mr. Dodd's total earned salary during the financial year ended December 31, 2014 was $475,000, which places him at approximately 6% below the 50th
percentile in the Reference Group.
72
Having considered Mr. Dodd's performance during the 2014 year, his significant operational and commercial experience and the fact that he is key to our
continued operation and transformation, the Governance Committee recommended, and the Board approved that a cash bonus in the amount of US$100,000
be awarded to Mr. Dodd in respect of the 2014 year.
For the financial year ended December 31, 2014, the Governance Committee recommended that 475,000 stock options be granted to the Mr. Dodd under the
long-term equity compensation plan. The grant to Mr. Dodd is included in the table above captioned "Grants of Plan Based Awards". See "Long-Term Equity
Compensation Plan of Executive Officers – Summary of the Stock Option Plan", for a complete description of the Stock Option Plan.
C.
Board Practices
Our Articles provide that our Board shall be composed of a minimum of five and a maximum of 15 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 Mr. Dodd's employment agreement with us, 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 us 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 our 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 our 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 our financial statements are complete, accurate and in
accordance with generally accepted accounting principles, nor to maintain internal controls and procedures.
The current members of the Audit Committee are José P. Dorais, Pierre Lapalme and Gérard Limoges.
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 we can attract,
motivate and retain the quality of personnel 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 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 Carolyn Egbert.
73
D.
Employees
As at March 16, 2015, we had a total of 56 full time equivalents ("FTE"), of which 39 are based in Frankfurt, Germany, 6 in Charleston, South Carolina,
United States, and 7 in Quebec City, Canada. Of these, 27 are involved in discovery, preclinical, clinical and pharmaceutical development, 3 are involved in
regulatory affairs, quality assurance and intellectual property, and 26 are involved in business operations, communications, finance, information technology,
human resources, project management and legal affairs. We have agreements with our employees covering confidentiality, loyalty, non-competition, and
assignment to us of all intellectual property rights developed during the employment period.
E.
Share ownership
The information in the table below is provided as at December 31, 2014:
Name
No. of Common Shares owned
or held
Percent(1)
No. of stock options held(2)
No. of currently
exercisable options
Aubut, Marcel
Dinges, Jude
Dodd, David A.
Dorais, José P.
Egbert, Carolyn
Ernst, Juergen
Guenther, Eckhard
Lapalme, Pierre
Limoges, Gérard
Sachse, Richard
Santorelli, Keith
Teifel, Michael
Theodore, Philip A.
Turpin, Dennis
Total
_________________________
* Less than 1%
18,750
3,391
270,333
—
192,000
134,808
—
—
1,499
—
—
—
—
3,541
624,322
*
*
*
*
*
*
*
*
*
*
*
*
*
*
126,665
316,000
775,000
113,333
97,500
145,831
68,310
116,666
126,665
280,000
105,000
52,699
200,000
329,996
0.95
2,853,665
43,333
50,000
100,000
30,001
17,501
62,499
44,977
33,334
43,333
—
—
32,699
—
154,993
612,670
(1) Based on 65,509,077 Common Shares outstanding as at December 31, 2014.
(2) For information regarding option expiration dates and exercise price refer to the tables included under the caption "Outstanding Option-Based Awards and Share-Based
Awards".
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 16, 2014, the only entity that 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 was Capital Ventures International, a fund managed by
Heights Capital Management Inc., which beneficially owned 5,112,903 of our Common shares, representing approximately 5.6% of our out-standing
Common Shares.
United States Shareholders
As at March 16, 2015, there were 90,557,142 holders of record of our Common Shares, of which two were registered with addresses in the United States
holding in the aggregate approximately 96.6% 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 the overwhelming majority of our Common Shares are held in broker "street names".
B.
Related party transactions
None.
74
C.
Interests of experts and counsel
Not applicable.
Item 8.
Financial Information
A.
Consolidated statements and other financial information
The consolidated financial statements filed as part of this Annual Report on Form 20-F 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 on Form 20-F.
Item 9.
The Offering and Listing
A.
Offer and listing details
Not Applicable, except for Item 9A(4).
Our Common Shares are listed 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
Low
High
Low
2014
2013
2012
2011
2010
2013
Fourth quarter
Third quarter
Second quarter
First quarter
2014
Fourth quarter
Third quarter
Second quarter
First quarter
Most recent 6 months
March 2015(1)
February 2015
January 2015
December 2014
November 2014
October 2014
September 2014
_________________________
(1) Up to and including March 16, 2015
0.52
1.03
1.87
8.58
4.74
1.03
1.37
1.73
1.88
0.52
1.14
1.05
1.17
0.51
0.51
0.52
0.57
0.52
0.97
1.32
1.66
3.27
12.84
15.06
12.84
1.71
2.09
2.18
3.27
1.51
1.64
1.35
1.66
1.04
0.83
0.72
0.88
1.46
1.51
1.64
0.57
1.08
1.87
8.46
4.80
1.08
1.41
1.74
1.90
0.57
1.23
1.13
1.29
0.64
0.64
0.65
0.66
0.57
1.11
1.47
1.50
3.23
12.90
15.48
12.54
1.65
1.98
2.10
3.23
1.34
1.50
1.23
1.49
0.84
0.67
0.61
0.78
1.29
1.34
1.45
75
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.
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
We are governed by our restated articles of incorporation (the "Restated Articles of Incorporation") under the CBCA and by articles of amendment dated
October 2, 2012 (together with the Restated Articles of Incorporation, the "Articles") and by our bylaws (the "bylaws"). Our Articles are on file with the
Corporations Directorate of Industry Canada under Corporation Number 264271-9. The Articles do not include a stated purpose and do not place any
restrictions on the business that we may carry on.
Inspection Rights of Shareholders
Under the CBCA, shareholders are entitled to be provided with a copy of the list of our registered shareholders. In order to obtain the shareholder list, a
shareholder must provide to us 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 our shareholders, an offer to acquire our securities and any other matter relating to our
affairs. We are 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 have the right to inspect certain corporate records, including the Corporation's Articles and bylaws and minutes of meetings
and resolutions of the shareholders. Shareholders have no statutory right to inspect minutes of meetings and resolutions of our directors. Our shareholders
have the right to certain financial information respecting us. In addition to the annual and quarterly financial statements required to be filed under applicable
securities laws, under the CBCA, we are required to place before every annual meeting of shareholders our 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 our financial statements.
Directors
The minimum number of directors we must have is five and the maximum number is 15. In accordance with the CBCA, at least 25% of our 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. None of the Articles, the bylaws and the CBCA imposes any mandatory retirement requirements
for directors.
76
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 our 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 our bylaws or Articles that requires that a director 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 our 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 us must disclose to us 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 our
normal business activity, 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 our director, officer, employee or agent or an affiliate;
is for indemnity or insurance for director's liability as permitted by the CBCA; or
is with our affiliate.
The CBCA provides that the Board may, on our behalf and without authorization of our shareholders:
borrow money upon our credit;
issue, reissue, sell or pledge our debt obligations;
give a guarantee on our behalf to secure performance of an obligation of any person; and
•
•
•
• mortgage, hypothecate, pledge or otherwise create a security interest in all or any of our property, owned or subsequently acquired, to secure any of our
obligations.
The shareholders have the ability to restrict such powers through our Articles 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 of our shareholders, directors, officers or employees 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 us or our affiliates,
where there are reasonable grounds for believing that we are or, after giving the guarantee, would be unable to pay our liabilities as they become due, or the
realizable value of our assets in the form of assets pledged or encumbered to secure a guarantee, after giving the guarantee, would be less than the aggregate
of our liabilities and stated capital of all classes. These borrowing powers may be varied by our bylaws or Articles. However, our bylaws and Articles do not
contain any restrictions on or variations of these borrowing powers.
Pursuant to the CBCA, our directors manage and administer our business and affairs and exercise all such powers and authority as we are authorized to
exercise pursuant to the CBCA, the Articles and the bylaws. The general duties of our directors and officers under the CBCA are to act honestly and in good
faith with a view to our best interests 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 us and our 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 us for any amounts improperly paid or distributed.
Our 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, our bylaws provide that we shall, to the full extent provided by law, indemnify a director or an officer, a
former director or officer or a person who acts or acted at our request as a director or officer of a body corporate of which we are or were 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 our director or officer or such body corporate, provided:
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(a) he or she acted in good faith in our best interests; 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.
Our directors 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 us or for any corporation controlled by us and to secure such director or other person against any loss by the pledge of all or part of
our movable or immovable property 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 16, 2015, there were 90,557,142 Common Shares outstanding. No
Preferred Shares have been issued to date. We have 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 our
Board of Directors on the Common Shares. Finally, the holders of the Common Shares are entitled to receive our remaining property upon any liquidation,
dissolution or winding-up of our affairs, whether voluntary or involuntary. Shareholders have no liability to further capital calls as all shares issued and
outstanding are fully paid and non-assessable.
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 our share capital ranking junior to the First
Preferred Shares with respect to dividends and, in the event of our liquidation, the distribution of our property upon our dissolution or winding-up, or the
distribution of all or part of our assets among the shareholders, to an amount equal to the value of the consideration paid in respect of such shares outstanding,
as credited to our issued and paid-up share capital, 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 our share capital ranking junior to the Second Preferred Shares with respect to dividends and, in the event of our liquidation, the distribution
of our property upon our dissolution or winding-up, or the distribution of all or part of our assets among the shareholders, to an amount equal to the value of
the consideration paid in respect of such shares outstanding, as credited to our issued and paid-up share capital, 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 our best interests and to exercise the
care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.
Shareholder Actions
The CBCA provides that our shareholders may, with leave of a court, bring an action in our name and on our behalf for the purpose of prosecuting, defending
or discontinuing an action on our behalf. In order to grant leave to permit such an action, the CBCA provides that the court must be satisfied that our directors
were given adequate notice of the application, the shareholder is acting in good faith and that it appears to be in our best interests that the action be brought.
Shareholder Rights Plan
Our Board of Directors adopted a shareholder rights plan on March 23, 2010, which was initially confirmed and ratified by our shareholders on May 13, 2010
(the "Rights Plan").
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Under the terms of the Rights Plan, its continued existence was reconfirmed by our shareholders at our annual meeting of shareholders held on May 8, 2013.
Objectives and Background of the Shareholder Rights Plan
The fundamental objectives of the Rights Plan are to provide adequate time for our Board and shareholders to assess an unsolicited take-over bid for us, 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.
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, we issued one right in respect of each common share outstanding at 5:01 p.m. on March 29, 2010 (the "Effective
Date"). In addition, we will issue one right 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 (as defined below), 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 us, effective at the
close of business on the eighth trading day after the Stock Acquisition Date, upon payment to us 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 our 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 us or any of our subsidiaries) to commence a
take-over bid or a share exchange bid for more than 20% of our outstanding Common Shares
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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.
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 of
the Exercise Price to us.
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 us, 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 our 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 us 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) 2.5% 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.
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
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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 our employees or the employees of any of our 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 our Common Shares. 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").
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 we 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, we 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. We 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.
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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 our best interests and the best interests of
our shareholders. The Board will continue to have the duty and power to take such actions and make such recommendations to our 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 our shareholders following March 29, 2016, being the sixth
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.
Action Necessary to Change Rights of Shareholders
In order to change the rights of our shareholders, we would need to amend our Articles 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, a shareholder is entitled under the
CBCA to dissent in respect of such a resolution amending the Articles and, if the resolution is adopted and we implement 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 directly or indirectly exercises control or
direction over 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. Our 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, our Chief Executive Officer or our President has the power to call a meeting of shareholders.
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The CBCA provides that the holders of not less than 5% of our outstanding voting shares may requisition our directors 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 us or our directors, officers or
shareholders, our directors, 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, we 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.
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(s) of shares representing at least 10% of the outstanding voting shares at such meeting are present in person or represented in accordance with our
bylaws. In the case where the CBCA, our Articles or our bylaws require or permit the vote by class of holders of a given class of shares of our share capital,
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 our books, 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 our register, 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.
On March 21, 2013, the Board of Directors approved an amendment to our bylaws in order to include an advance notice provision (the "Advance Notice
Requirement") and concurrently approved an amendment to and restatement of our bylaws giving effect to the Advance Notice Requirement (the "Amended
and Restated Bylaws"). The Amended and Restated Bylaws giving effect to the Advance Notice Requirement were subsequently ratified and approved by our
shareholders on May 8, 2013. The Advance Notice Requirement applies in certain circumstances where nominations of persons for election to the Board of
Directors are made by our shareholders other than pursuant to: (a) a requisition of a meeting made pursuant to the provisions of the CBCA; or (b) a
shareholder proposal made pursuant to the provisions of the CBCA.
Among other things, the Advance Notice Requirement fixes a deadline by which shareholders must submit a notice of director nominations to us prior to any
annual or special meeting of shareholders where directors are to be elected and sets forth the information that a shareholder must include in the notice for it to
be valid. In the case of an annual meeting of shareholders, we must be given not less than 30 nor more than 65 days' notice prior to the date of the annual
meeting; provided, however, that in the event that the annual meeting is to be held on a date that is less than 50 days after the date on which the first public
announcement of the date of the annual meeting was made, notice may be made not later than the close of business on the 10th day following such public
announcement. In the case of a special meeting of shareholders (which is not also an annual meeting), we must be given notice not later than the close of
business on the 15th day following the day on which the first public announcement of the date of the special meeting was made.
The Board of Directors may, in its sole discretion, waive any requirement of the Advance Notice Requirement.
Limitations on Right to Own Securities
Neither Canadian law nor our 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 our Common Shares 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 us, and the book value of our assets were CAN$5 million or more (provided that
immediately prior to the implementation of the investment we were not controlled by WTO Investors). Subject to the Amendments (as defined below), an
investment in our Common Shares by a WTO Investor would be reviewable under the Investment Act if it were an investment to acquire direct control of us
and
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the value of our assets equalled or exceeded CAN$369 million (for 2015). A non-Canadian, whether a WTO Investor or otherwise, would be deemed to
acquire control of us for purposes of the Investment Act if he or she acquired a majority of our Common Shares. 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 us, unless it could be established that we were 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 us 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 us by reason of an amalgamation, merger, consolidation or corporate reorganization, following which the ultimate direct or
indirect control in fact of us, 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 be injurious 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$369 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.
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 we or any of our subsidiaries is a party.
Employment Agreements
We have, or one of our subsidiaries has, entered into an employment agreement or a service contract (collectively, the "Employment Agreements") with
Messrs. Dodd, Turpin, Dinges, Santorelli and Dr. Sachse. The Employment Agreements provide that the Company will pay the executive a base salary and an
annual bonus, if our economic results justify payment of a bonus and subject to the determination and approval of the Governance Committee and our Board,
and that such executives will be eligible to receive long-term incentive grants in the form of stock options, which will be reviewed annually in accordance
with our policies. The Employment Agreements have an indefinite term; provided, however, Dr. Sachse's Employment Agreement will end without the need
to give notice not later than the expiry of the month during which Dr. Sachse attains the minimum age of legal retirement in Germany.
The Employment Agreements of Messrs. Dodd, Turpin, Dinges and Santorelli provide that if we terminate their employment without "Cause" (or, in the case
of Messrs. Dodd and Dinges, there is a "separation from service" within the meaning of §409A of the U.S. Internal Revenue Code of 1986, as amended (a
"Separation from Service") or a resignation for "Good Reason"), then the executive will be entitled to receive, in the case of Mr. Dodd, a lump-sum payment
(less applicable tax withholdings) in an amount equal to twice the sum of his then base salary, his then annual bonus, the amount of his then car allowance,
plus any earned retention bonus and eighteen months of the value of the other benefits to which he is entitled (through the purchase by us of eighteen months
of the coverage required under the Consolidated Omnibus Budget Reconciliation Act of 1986 ("COBRA")). In the case of Mr. Turpin, the lump-sum payment
will be equivalent to eighteen months of his then applicable base salary, 1.5 times the annual bonus of the preceding year and eighteen months of the value of
the other benefits to which he is entitled. In the case of Messrs. Dinges and Santorelli, the executive is entitled to receive a lump-sum payment (less applicable
tax withholdings) in an amount equal to one times the sum of his then base salary, his then annual bonus, pro-rated as applicable, any earned retention bonus,
if applicable, the amount of his then car allowance, if applicable, and eighteen months of the value of the other benefits to which he is entitled (through our
purchase of eighteen months of the coverage required under COBRA). In addition, in the case of Messrs. Dodd, Dinges and Santorelli, if the executive has a
Separation of Service, then the executive's right to exercise all then outstanding stock options granted to him shall fully and immediately vest on the effective
date of the Separation from Service.
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Dr. Sachse's Employment Agreement provides that we are entitled to terminate his agreement without cause by giving him six months' prior notice effective
to the end of any calendar month. During the six-month notice period, Dr. Sachse is entitled only to his salary and he has no right to receive a cash bonus or
any other form of remuneration.
Furthermore, each of Messrs. Dodd, Turpin and Dinges shall not, for a period equal to one year following such executive's termination of employment with
us, directly or indirectly, compete with us; solicit any of our clients or do anything whatsoever to induce or to lead any person to end, in whole or in part, its
business relations with us; induce, attempt to induce or otherwise interfere in the relations which we have with our distributors, suppliers, representatives,
agents and other parties with whom we deal; or induce, attempt to induce or otherwise solicit our personnel to leave their employment with us or hire our
personnel for any enterprise in which the executive has an interest.
Dr. Sachse's Employment Agreement also contains a non-competition provision. Dr. Sachse is prohibited from competing with us, or any of our subsidiaries,
during the term of his Employment Agreement and for a period of one year following the date of termination of his Employment Agreement. The non-
competition provision prohibits Dr. Sachse from participating in any capacity whatsoever, and from having any interest whatsoever, in a business that would
directly or indirectly compete with us, or with any of our subsidiaries, including a business involved in the development and commercialization of the specific
endocrine therapies and oncology treatments that we, or any of our subsidiaries, are actively developing. The territory covered by Dr. Sachse's non-
competition provision is the geographical areas in which a specific product had been actively exploited by us or one of our subsidiaries during the two years
preceding the date of termination of his employment. The non-competition provision prohibits Dr. Sachse from performing duties for the competing business
that are identical or substantially similar to those duties he performed or carried on for us during the 24 months preceding the termination of his Employment
Agreement. If Dr. Sachse is unable to find a new employment because of the existence of the non-competition provision, we will pay him his base salary
during a period ending on the first to occur of (i) the date on which he starts a new employment and (ii) the date on which the non-competition provision
expires.
Pursuant to his Employment Agreement, Mr. Dodd is also entitled to receive 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 we terminate his employment without "Cause" (or there is
a Separation from Service), or he terminates his employment for "Good Reason" during such period. The Change of Control Payment will equal the sum of
the following amounts: (i) the equivalent of thirty-six months of his then annual base salary, (ii) an amount equivalent to twice the annual bonus, if any, which
he would have been entitled to receive in the year during which the Change of Control occurred, (iii) any earned retention bonus, and (iv) an amount
equivalent to 12 months of the then annual cost to provide the other benefits to which he is entitled, or the cost to purchase coverage by the Company under
COBRA for such benefits, whichever is applicable. The Change of Control Payment is subject to applicable statutory withholdings. Any outstanding stock
options held by Mr. Dodd shall, in such circumstances, fully and immediately vest on the date of his Separation from Service.
For the purposes of the applicable Employment Agreements (including the annexes and schedules thereto):
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•
•
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 our securities
representing in any circumstance 50% or more of the voting rights attaching to our then outstanding securities; (ii) upon a sale or other disposition of all
or substantially all of our assets; (iii) upon a plan of liquidation or dissolution of us; or (iv) if, for any reason, including our amalgamation, merger or
consolidation 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 our 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 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,
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in the case of Mr. Dodd, the occurrence, without his express written consent, of any of the following acts: (i) a material reduction of his total
compensation (including annual base salary plus annual bonus, benefits and number of stock options) as in effect on the date of his Employment
Agreement or as same may be increased from time to time, provided such reduction is not warranted and due to our performance; (ii) any change in
his direct reporting relationship to the Board; (iii) any reduction in his duties and responsibilities as our President and Chief Executive Officer; or
(iv) a physical change of one hundred miles of more in his principal place of business;
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in the case of Mr. Turpin, the occurrence, without his express written consent, of any of the following acts: (i) a material reduction of his total
compensation (including annual base salary plus annual bonus, benefits and number of stock options) as in effect on the date of his Employment
Agreement or as same may be increased from time to time; (ii) a material reduction or change in his duties, authority, responsibilities, accountability
or a change in our business or corporate structure which materially affects his 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 his Employment Agreement that are not otherwise contemplated by his Employment
Agreement; and
in the case of Mr. Dinges, the occurrence, without his express written consent, of any of the following acts: (i) a more than 25% reduction of his base
annual salary as in effect on the date of his Employment Agreement or as the same may be increased from time to time, provided such reduction is
not warranted and due to either our performance or failure of Mr. Dinges to achieve performance standards or objectives as determined by our
President in his sole and absolute discretion and judgment; or (ii) a material reduction in his duties and responsibilities as our Chief Commercial
Officer.
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.
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 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, (iv) that has
made a functional currency reporting election for purposes of the Tax Act or (v) that has entered into a "derivative forward agreement", as defined in the Tax
Act, in respect of Common Shares. Such holders should consult their own tax advisors.
Additional considerations, not discussed herein, may be applicable to a holder that is a corporation resident in Canada, and is, or becomes, controlled by a
non-resident corporation for the purposes of the "foreign affiliate dumping" rules in section 212.3 of the Tax Act. Such holders should consult their tax
advisors with respect to the consequences of acquiring Common Shares.
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.
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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 (a) at any time during the 60-month period
immediately preceding the disposition (i) one or any combination of (A) the Non-Resident holder, (B) persons with whom the Non-Resident holder did not
deal at arm's length, and (C) partnerships in which the Non-Resident holder or a person described in (B) holds a membership interest directly or indirectly
through one or more partnerships, 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, any such property whether or not such property exists or (b) our Common Shares are otherwise deemed to be taxable
Canadian property to the Non-Resident holder.
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 in 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" (as defined in the Tax Act), 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, unless
the Common Shares are "treaty-protected property" (as defined in the Tax Act) of the disposing Non-Resident holder.
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.
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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 1/3% 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.
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.
Alternative Minimum Tax
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.
Certain Material U.S. Federal Income Tax Considerations
The following discussion is a summary of certain 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 discuss the
potential effects, whether adverse or beneficial, of any proposed legislation that, if enacted, could be applied on a retroactive basis. This summary is not
binding on the IRS, and the IRS is not precluded from taking a position that is different from, and contrary to, the positions taken in this summary.
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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 or the Medicare contribution tax on net investment income under the Code)
or to holders that may be subject to special rules under U.S. federal income tax law, including:
•
•
•
•
•
•
•
•
•
•
•
•
•
dealers in stocks, securities or currencies;
securities traders that use a mark-to-market accounting method;
banks and financial institutions;
insurance companies;
regulated investment companies;
real estate investment trusts;
tax-exempt organizations;
retirement plans, individual plans, individual retirement accounts and tax-deferred accounts;
partnerships or other pass-through entities for U.S. federal income tax purposes and their partners or members;
persons holding Common Shares as part of a hedging or conversion transaction straddle or other integrated or risk reduction transaction;
persons who or that are, or may become, subject to the expatriation provisions of the Code;
persons whose functional currency is not the U.S. dollar; and
direct, indirect or constructive owners of 10% or more of the total combined voting power of all classes of our voting stock.
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
described 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.
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. 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) 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 (b) a valid election is in effect 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.
U.S. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH REGARD TO THE APPLICATION OF THE TAX CONSEQUENCES
DESCRIBED BELOW TO THEIR PARTICULAR SITUATIONS AS WELL AS THE APPLICATION OF ANY STATE, LOCAL, FOREIGN OR OTHER
TAX LAWS, INCLUDING GIFT AND ESTATE TAX LAWS.
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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.
Dividends paid by the Company should be taxable to a non-corporate U.S. Holder at the special reduced rates normally applicable to long-term capital gains,
provided that certain conditions are satisfied. A U.S. Holder will not be able to claim a 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% 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%. 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.
Subject to certain limitations, a U.S. Holder will generally be entitled, at the election of the U.S. Holder, 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. This election is made on a year-
by-year basis and applies to all foreign taxes paid (whether directly or through withholding) by a U.S. Holder during a year. 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 U.S. Holders should consult their tax advisors concerning the availability of the foreign tax credit in their particular
circumstances.
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 (actually or constructively) receives the dividend, regardless of whether such Canadian dollars are actually converted into
U.S. dollars at that time. If the Canadian dollars received are not converted into U.S. dollars on the date of receipt, a U.S. Holder will have a tax basis in the
Canadian dollars equal to their U.S. dollar value on the date of receipt. 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, Exchange or Other Taxable Disposition of Common Shares
Subject to the PFIC rules discussed below, upon a sale, exchange 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, exchange 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. 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. Passive income generally includes
dividends, interest, rents and royalties (other than certain rents and royalties derived in the active conduct of a trade or business), annuities and gains from
assets that produce passive income. If a non-U.S. corporation owns at least 25% by value of the stock of another corporation,
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the non-U.S. corporation is treated for purposes of the PFIC tests as owning its proportionate share of the assets of the other corporation and as receiving
directly its proportionate share of the other corporation's income.
The Company believes it was not a PFIC for the 2014 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 2015 taxable year and for any future taxable year. U.S. Holders should consult their tax advisors regarding the Company's PFIC
status.
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 and QEF elections 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 category 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. A U.S. Holder that is not a corporation will be required to treat any such interest paid as "personal interest", which is not deductible.
U.S. Holders can avoid the adverse rules described above in part by making a mark-to-market election with respect to the Common Shares, provided that the
Common Shares are "marketable". The Common Shares will be marketable if they are "regularly traded" on a "qualified exchange" or other market within the
meaning of applicable U.S. Treasury regulations. 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 on NASDAQ, which constitutes a qualified exchange; however, there can be no assurance that the Common Shares will be treated as regularly
traded for purposes of the mark-to-market election on a qualified exchange. If the Common Shares were not regularly traded on NASDAQ or 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 previously included in income. 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 previously included in income.
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
adverse PFIC rules described above will apply to any mark-to-market gain recognized in the year the election is made. Otherwise, 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, 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. U.S. Holders should consult their tax advisors regarding the availability of, and procedure for making, a mark-to-market election.
91
In some cases, a shareholder of a PFIC can avoid the interest charge and the other adverse PFIC consequences described above by making a 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.
A U.S. Holder that makes a timely and effective QEF election for the first tax year in which its holding period of its Common Shares begins generally will not
be subject to the adverse PFIC consequences described above with respect to its Common Shares. Rather, a U.S. Holder that makes a timely and effective
QEF election will be subject to U.S. federal income tax on such U.S. Holder's pro rata share of (a) the Company's net capital gain, which will be taxed as
long-term capital gain to such U.S. Holder, and (b) the Company's ordinary earnings, which will be taxed as ordinary income to such U.S. Holder, in each
case regardless of which such amounts are actually distributed to the U.S. Holder by the Company. Generally, "net capital gain" is the excess of (a) net long-
term capital gain over (b) net short-term capital loss, and "ordinary earnings" are the excess of (a) "earnings and profits" over (b) net capital gain.
A U.S. Holder that makes a timely and effective QEF election with respect to the Company generally (a) may receive a tax-free distribution from us to the
extent that such distribution represents "earnings and profits" that were previously included in income by the U.S. Holder because of such QEF election and
(b) will adjust such U.S. Holder's tax basis in the Common Shares to reflect the amount included in income or allowed as a tax-free distribution because of
such QEF election. In addition, a U.S. Holder that makes a QEF election generally will recognize capital gain or loss on the sale or other taxable disposition
of Common Shares.
The QEF election is made on a shareholder-by-shareholder basis. Once made, a QEF election will apply to the tax year for which the QEF election is made
and to all subsequent tax years, unless the QEF election is invalidated or terminated or the IRS consents to revocation of the QEF election. In addition, if a
U.S. Holder makes a QEF election, the QEF election will remain in effect (although it will not be applicable) during those tax years in which the Company is
not 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 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 and loss
would not be recognized.
If the Company is a PFIC in any year with respect to a U.S. Holder, the U.S. Holder will be required to file an annual information return on IRS Form 8621
regarding distributions received on Common Shares and any gain realized on the disposition of Common Shares.
In addition, if the Company is a PFIC, U.S. Holders will generally be required to file an annual information return with the IRS (also on IRS Form 8621,
which PFIC shareholders are required to file with their U.S. federal income tax or information returns) relating to their ownership of Common Shares. This
new filing requirement is in addition to the preexisting reporting requirements described above that apply to a U.S. Holder's interest in a PFIC (which this
requirement does 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
Payments made within the United States, or by a U.S. payor or U.S. middleman, of dividends on, and proceeds arising from sales or other dispositions of
Common Shares, 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 certain exceptions and future guidance, U.S. tax legislation generally requires a U.S. Holder that is a specified individual or, to the extent provided
in future guidance, a domestic entity, to report annually 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). Pursuant to IRS Notice 2013-10, reporting under this legislation will not be required by domestic entities any earlier than
taxable years beginning after
92
December 31, 2012. 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 hereto, 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. Our annual reports and some of the other information we
submitted to the SEC may be accessed through this website. In addition, material we filed can be inspected on the Canadian Securities Administrators'
electronic filing system, SEDAR, accessible at the website www.sedar.com. This material includes our Management Information Circular for our annual
meeting of shareholders to be held on May 8, 2015 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, 2014 and our MD&A relating to these statements included elsewhere in this Annual Report on Form 20-F. These documents are
also accessible on SEDAR (www.sedar.com) and on EDGAR (www.sec.gov).
I.
Subsidiary information
Our subsidiaries 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".
•
•
•
The Company's loans and receivables are comprised of cash and cash equivalents, trade and other receivables and restricted cash equivalents.
Financial liabilities at FVTPL are currently comprised of the Company's warrant liability.
Other financial liabilities include trade accounts payable and accrued liabilities, provision for restructuring costs and other non-current liabilities.
The carrying values of all of the aforementioned financial instruments, excluding cash and cash equivalents, restricted cash equivalents 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.
93
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 equivalents. The Company holds its available cash in
amounts that are readily convertible to known amounts of cash and deposits its cash balances with financial institutions that are rated the equivalent of "Baa1"
and above. This information is supplied by independent rating agencies where available and, if not available, the Company uses publicly available financial
information to ensure it invests its cash in creditworthy and reputable financial institutions.
As at December 31, 2014, trade accounts receivable for an amount of approximately $0.3 million were with three counterparties.
As at December 31, 2014, no trade accounts receivable were past due or impaired.
Generally, 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 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) income, has been and may continue in future periods to be materially
affected most notably by changes in the Company's common share closing price, which on the NASDAQ, has ranged from $0.52 to $1.50 during the year
ended December 31, 2014.
If variations in the market price of our Common Shares of -10% and +10% were to occur, the impact on the Company's net (loss) income for warrant liability
held at December 31, 2014 would be as follows:
(in thousands)
Warrant liability
Total impact on net income – decrease / (increase)
Carrying
amount
$
8,225
-10%
$
+10%
$
1,117
1,117
(1,147)
(1,147)
94
Foreign currency risk
Since the Company operates internationally, it is exposed to currency risks as a result of potential exchange rate fluctuations related to non-intragroup
transactions. In particular, fluctuations in the US dollar exchange rates against the EUR could have a potentially significant impact on the Company's results
of operations.
If foreign exchange rate variations of -5% (depreciation of the EUR) and +5% (appreciation of the EUR) against the US$, from period-end rates of EUR1 =
US$1.2101 were to occur, the impact on the Company's net (loss) income for each category of financial instruments held at December 31, 2014 would be as
follows:
(in thousands)
Cash and cash equivalents
Warrant liability
Total impact on net income – decrease / (increase)
Item 12.
Description of Securities Other than Equity Securities
Carrying
amount
$
25,184
8,225
Balances denominated in US$
-5%
$
+5%
$
1,259
(411)
848
(1,259)
411
(848)
A.
Debt securities
Not applicable.
B.
Warrants and rights
Not applicable.
C.
Other securities
Not applicable.
D.
American depositary shares
Not applicable.
95
PART II
Item 13.
Defaults, Dividend Arrearages and Delinquencies
None.
Item 14.
Material Modification to the Rights of Security Holders and Use of Proceeds
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, 2014. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have
concluded that these disclosure controls and procedures were effective as at December 31, 2014.
Management's Annual Report on Internal Control over Financial Reporting
The 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 as issued by IASB.
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: 2013 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, 2014.
Attestation Report of the Independent Auditors
The effectiveness of the Registrant's internal control over financial reporting as of December 31, 2014, has been audited by PricewaterhouseCoopers LLP,
independent auditors, as stated in their report which is included under "Item 18. – Financial Statements".
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the year ended December 31, 2014 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
96
Item 16A. Audit Committee Financial Expert
Our Board has determined that we have 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 is Mr. Gérard Limoges, FCPA, FCA, the Audit Committee's Chairman. The Commission has indicated that the designation
of Mr. Limoges as our audit committee financial expert 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. José P.
Dorais, 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.
We selected an independent third party supplier to provide a confidential and anonymous communication channel for reporting concerns about possible
violations to the our 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 on Form 20-F and is also available on our 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 our employees, directors and officers, including our 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. On December 4, 2014, our Board of Directors adopted a "Code of Business Conduct and Ethics for
Members of the Board of Directors", which is included as Exhibit 11.2 to this Annual Report on Form 20-F. We will provide these documents without charge
to any person or company upon request to our Chief Financial Officer, at our 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, 2014 and 2013, the Registrant's principal accountant, PricewaterhouseCoopers LLP, billed $458,248 and
$422,613, 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.
B. Audit-related Fees
During the financial years ended December 31, 2014 and 2013, the Registrant's principal accountant, PricewaterhouseCoopers LLP, billed $92,241 and
$218,857, 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.
C. Tax Fees
During the financial years ended December 31, 2014 and 2013, the Registrant's principal accountant, PricewaterhouseCoopers LLP, billed $27,661 and
$36,332, respectively, for services related to tax compliance, tax planning and tax advice.
D. All Other Fees
During the financial years ended December 31, 2014 and 2013, the Registrant's principal accountant, PricewaterhouseCoopers LLP, billed $4,018 and $8,928,
respectively, for services not included in audit fees, audit-related fees and tax fees.
97
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 11.3 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, 2014 and 2013, 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.
F. Work performed by Full-time, Permanent Employees of Principal Accountant
During the financial year ended on December 31, 2014, 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.
Item 16G. Corporate Governance
We are generally in compliance with the corporate governance requirements of NASDAQ except as described below. We are not in compliance with the
NASDAQ requirement that a quorum for a meeting of the holders of our common stock be no less than 33 1/3% of such outstanding shares. Our by-laws
provide that a quorum for purposes of any meeting of our shareholders consists of at least 10% of the outstanding voting shares. We benefit from an
exemption from NASDAQ from this quorum requirement because the quorum provided for in our by-laws complies with the requirements of the CBCA, our
governing corporate statute, and with the rules of TSX, the home country exchange on which our voting shares are traded. In accordance with applicable
current NASDAQ requirements, we have in the past, and upon request, provided to NASDAQ letters from outside counsel certifying that these practices are
not prohibited by our home country law.
Item 16H. Mine Safety Disclosure
None.
98
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 100 through 148.
PART III
99
Aeterna Zentaris Inc.
Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended
December 31, 2014, 2013 and 2012
(presented in thousands of US dollars)
100
Independent Auditor's Report
To the Shareholders of
Aeterna Zentaris Inc.
We have completed integrated audits of Aeterna Zentaris Inc. and its subsidiaries' 2014, 2013 and 2012 consolidated financial statements and their
internal control over financial reporting as at December 31, 2014. Our opinions, based on our audits, are presented below.
Report on the consolidated financial statements
We have audited the accompanying consolidated financial statements of Aeterna Zentaris Inc. and its subsidiaries, which comprise the consolidated
statements of financial position as at December 31, 2014 and December 31, 2013 and the consolidated statements of changes in shareholders' equity
(deficiency), comprehensive (loss) income and cash flows for each of the three years in the period ended December 31, 2014, and the related notes,
which comprise a summary of significant accounting policies and other explanatory information.
Management's responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial
Reporting Standards as issued by the International Accounting Standards Board and for such internal control as management determines is necessary to
enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor's responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with
Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material
misstatement. Canadian generally accepted auditing standards also require that we comply with ethical requirements.
An audit involves performing procedures to obtain audit evidence, on a test basis, about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated
financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company's
preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances. An
audit also includes evaluating the appropriateness of accounting principles and policies used and the reasonableness of accounting estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion on the consolidated
financial statements.
............................................................................................................................................................................................................
PricewaterhouseCoopers LLP
1250 René-Lévesque Boulevard West, Suite 2800, Montréal, Quebec, Canada H3B 2G4
T: +1 514 205-5000, F: +1 514 876-1502
"PwC" refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
101
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Aeterna Zentaris Inc. and its subsidiaries
as at December 31, 2014 and December 31, 2013 and their financial performance and their cash flows for each of the three years in the period ended
December 31, 2014 in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Report on internal control over financial reporting
We have also audited Aeterna Zentaris Inc. and its subsidiaries' internal control over financial reporting as at December 31, 2014, based on criteria established
in Internal Control - Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Management's responsibility for internal control over financial reporting
Management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control
over financial reporting included in the section entitled "Management's Annual Report on Internal Control over Financial Reporting" appearing on page 96 of
the Annual Report on Form 20-F.
Auditor's responsibility
Our responsibility is to express an opinion on the company's internal control over financial reporting based on our audit. We conducted our audit of internal
control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects.
An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, testing and evaluating the design and operating effectiveness of internal control, based on the assessed risk, and performing such
other procedures as we consider necessary in the circumstances.
We believe that our audit provides a reasonable basis for our audit opinion on the company's internal control over financial reporting.
Definition of internal control over financial reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Inherent limitations
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance
with the policies or procedures may deteriorate.
Opinion
In our opinion, Aeterna Zentaris Inc. and its subsidiaries maintained, in all material respects, effective internal control over financial reporting as at December
31, 2014, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
Montréal, Quebec, Canada
March 17, 2015
1 CPA auditor, CA, public accountancy permit No. A123498
102
December 31, 2014
December 31, 2013
$
$
34,931
867
419
36,217
760
797
622
352
8,687
47,435
5,799
1,505
270
7,574
809
8,225
15,053
1,290
32,951
150,544
86,639
(222,322)
(377)
14,484
47,435
43,202
1,953
500
45,655
865
1,351
725
708
9,892
59,196
7,242
—
—
7,242
—
18,010
15,407
1,473
42,132
134,101
86,107
(203,925)
781
17,064
59,196
Aeterna Zentaris Inc.
Consolidated Statements of Financial Position
(in thousands of US dollars)
ASSETS
Current assets
Cash and cash equivalents (note 7)
Trade and other receivables (note 8)
Prepaid expenses and other current assets
Restricted cash equivalents (note 9)
Property, plant and equipment (note 10)
Other non-current assets
Identifiable intangible assets (note 11)
Goodwill (note 12)
LIABILITIES
Current liabilities
Payables and accrued liabilities (note 13)
Provision for restructuring costs (note 14)
Deferred revenues (note 5)
Deferred revenues (note 5)
Warrant liability (note 15)
Employee future benefits (note 19)
Provisions and other non-current liabilities (note 16)
SHAREHOLDERS' EQUITY
Share capital (note 17)
Other capital
Deficit
Accumulated other comprehensive (loss) income
Commitments and contingencies (note 25)
Subsequent events (note 28)
The accompanying notes are an integral part of these consolidated financial statements.
Approved by the Board of Directors
David A. Dodd
Chairman of the Board
Gérard Limoges
Director
103
Aeterna Zentaris Inc.
Consolidated Statements of Changes in Shareholders' Equity (Deficiency)
For the years ended December 31, 2014, 2013 and 2012
(in thousands of US dollars, except share data)
Balance - January 1, 2014
Net loss
Other comprehensive income:
Foreign currency translation adjustments
Actuarial loss on defined benefit plans
(note 19)
Comprehensive loss
Share issuance in connection with a public
offering (note 17)
Share issuances in connection with "At-the-
Market" drawdowns (note 17)
Share-based compensation costs
Balance - December 31, 2014
Balance - January 1, 2013
Net income
Other comprehensive income:
Foreign currency translation adjustments
Actuarial gain on defined benefit plans
(note 19)
Comprehensive income
Share issuance in connection with registered
direct and public offerings (note 17)
Share issuances in connection with "At-the-
Market" drawdowns (note 17)
Share-based compensation costs
Balance - December 31, 2013
Common shares
(number of)1, 2
Share capital
Other capital
$
$
Deficit
$
Accumulated other
comprehensive
income (loss)
$
Total
$
45,312,009
134,101
86,107
(203,925)
781
17,064
—
(16,564)
—
(16,564)
—
—
—
—
11,000,000
4,340
9,197,068
12,103
—
(1,158)
(1,158)
(1,833)
—
(1,833)
(18,397)
(1,158)
(19,555)
—
—
—
—
4,340
—
—
12,103
532
—
532
65,509,077
150,544
86,639
(222,322)
(377)
14,484
Common shares
(number of)1, 2
Share capital
Other capital
$
$
Deficit
$
Accumulated other
comprehensive (loss)
income
$
Total
$
25,329,288
122,791
83,892
(213,086)
(292)
(6,695)
—
6,815
—
6,815
—
—
—
—
18,300,000
8,573
1,682,721
2,737
—
—
2,215
—
1,073
1,073
2,346
9,161
—
—
—
—
2,346
1,073
10,234
—
8,573
—
—
2,737
2,215
—
—
—
—
—
—
—
—
—
45,312,009
134,101
86,107
(203,925)
781
17,064
_________________________
1 Issued and paid in full.
2 Adjusted to reflect the October 2, 2012 six-to-one share consolidation (see note 1 – Summary of business, liquidity risk, reporting entity, share consolidation and basis of
preparation and note 17 – Share capital).
The accompanying notes are an integral part of these consolidated financial statements.
104
Aeterna Zentaris Inc.
Consolidated Statements of Changes in Shareholders' Equity (Deficiency)
For the years ended December 31, 2014, 2013 and 2012
(in thousands of US dollars, except share data)
Balance - January 1, 2012
Net loss
Other comprehensive loss:
Foreign currency translation adjustments
Actuarial loss on defined benefit plans (note 19)
Comprehensive loss
Share issuance in connection with a public offering
Share issuances in connection with "At-the-
Market" drawdowns, net of transaction costs
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, 2012
Common shares
(number of)1, 2
Share capital
Other capital
$
$
Deficit
$
Accumulated other
comprehensive
income (loss)
$
Total
$
17,460,349
101,884
82,327
(188,969)
212
(4,546)
—
—
(20,412)
—
(20,412)
—
—
—
6,600,000
11,265
1,190,973
8,382
52,383
819
—
—
—
—
—
—
25,583
441
(232)
—
1,797
—
(3,705)
(24,117)
—
—
—
—
—
(504)
—
(504)
(3,705)
(504)
(24,621)
—
11,265
—
8,382
—
—
—
819
209
1,797
(6,695)
25,329,288
122,791
83,892
(213,086)
(292)
_________________________
1 Issued and paid in full.
2 Adjusted to reflect the October 2, 2012 six-to-one share consolidation (see note 1 – Summary of business, liquidity risk, reporting entity, share consolidation and basis of
preparation and note 17 – Share capital).
The accompanying notes are an integral part of these consolidated financial statements.
105
Aeterna Zentaris Inc.
Consolidated Statements of Comprehensive (Loss) Income
For the years ended December 31, 2014, 2013 and 2012
(in thousands of US dollars, except share and per share data)
Revenues
Sales
License fees (note 5)
Operating expenses (note 18)
Cost of sales
Research and development costs, net of refundable tax credits and
grants (notes 11 and 14)
Selling, general and administrative expenses
(notes 10 and 14)
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 from continuing operations
Net income from discontinued operations (note 6)
Net (loss) income
Other comprehensive (loss) income:
Items that may be reclassified subsequently to profit or loss:
Foreign currency translation adjustments
Items that will not be reclassified to profit or loss:
Actuarial (loss) gain on defined benefit plans
Comprehensive (loss) income
Net loss per share (basic and diluted) from continuing operations
(note 26)
Net income (basic and diluted) from discontinued operations (notes
6 and 26)
Net (loss) income (basic and diluted) per share
Weighted average number of shares outstanding
(notes 17 and 26):
Basic
Diluted
Years ended December 31,
2014
$
2013
$
2012
$
—
11
11
—
23,716
13,690
37,406
(37,395)
20,319
—
20,319
(17,076)
(111)
(17,187)
623
(16,564)
96
6,079
6,175
51
21,284
12,316
33,651
(27,476)
1,748
(1,512)
236
(27,240)
—
(27,240)
34,055
6,815
834
1,219
2,053
591
20,592
10,606
31,789
(29,736)
6,974
(382)
6,592
(23,144)
—
(23,144)
2,732
(20,412)
(1,158)
1,073
(504)
(1,833)
(19,555)
(0.29)
0.01
(0.28)
2,346
10,234
(0.92)
1.16
0.24
(3,705)
(24,621)
(1.17)
0.14
(1.03)
59,024,730
59,024,730
29,476,455
29,476,455
19,775,073
19,806,687
The accompanying notes are an integral part of these consolidated financial statements.
106
Aeterna Zentaris Inc.
Consolidated Statements of Cash Flows
For the years ended December 31, 2014, 2013 and 2012
(in thousands of US dollars)
Cash flows from operating activities
Net loss from continuing operations
Items not affecting cash and cash equivalents:
Change in fair value of warrant liability (note 15)
Provision for restructuring costs (note 14)
Depreciation, amortization and impairment (notes 10 and 11)
Share-based compensation costs (note 17)
Employee future benefits (note 19)
Amortization of deferred revenues (note 5)
Foreign exchange (gain) loss on items denominated in foreign currencies
Gain on disposal of property, plant and equipment
Amortization of prepaid expenses and other non-cash items
Transaction cost allocated to warrants issued (note 17)
Changes in operating assets and liabilities (note 21)
Net cash (used in) provided by operating activities of discontinued operations
(note 6)
Net cash used in operating activities
Cash flows from financing activities
Years ended December 31,
2014
$
2013
$
2012
$
(17,187)
(27,240)
(23,144)
(18,272)
2,489
878
497
605
—
(1,164)
(66)
2,640
666
(1,873)
(295)
(31,082)
(1,563)
—
949
2,215
470
(6,046)
1,078
—
6,831
1,165
(7,990)
10,147
(19,984)
(6,746)
—
1,234
1,797
889
(1,077)
614
—
4,756
370
(4,374)
(5,134)
(30,815)
Proceeds from issuances of common shares and warrants, net of cash transaction
costs of $1,348 in 2014, $2,119 in 2013 and $1,665 in 2012 (note 17)
24,358
23,708
23,619
Proceeds from the exercise of share purchase warrants (note 15)
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
Purchase of property, plant and equipment (note 10)
Disposals of property, plant and equipment (note 10)
Net cash provided by investing activities of discontinued operations
Net cash (used in) provided by 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 (note 7)
Cash and cash equivalents – End of the year (note 7)
—
—
—
—
—
—
437
209
(57)
24,358
23,708
24,208
(127)
66
—
(61)
(1,486)
(8,271)
43,202
34,931
(85)
—
113
28
(71)
3,681
39,521
43,202
(272)
—
—
(272)
(481)
(7,360)
46,881
39,521
The accompanying notes are an integral part of these consolidated financial statements.
107
Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
1
Summary of business, liquidity risk, reporting entity, share consolidation and basis of preparation
Summary of business
Aeterna Zentaris Inc. (the "Company") is a specialty biopharmaceutical company engaged in developing and commercializing novel treatments in
oncology, endocrinology and women's health.
Liquidity risk
The Company has a history of operating losses, due largely to significant research and development ("R&D") investment, as well as to the incurrence
of substantial selling, general and administrative ("SG&A") expenses. The Company has financed its operations through different sources, including
the issuance of common shares and the conclusion of strategic alliances with licensee partners and other collaborators. The Company expects to
continue to incur operating expenses and may require significant capital to fulfill its future obligations in absence of sufficient corresponding revenues.
See note 23 – Capital disclosures and note 24(b) – Financial instruments and financial risk management – Liquidity risk.
Reporting entity
The accompanying consolidated financial statements include the accounts of Aeterna Zentaris Inc., an entity incorporated under the Canada Business
Corporations Act, and its wholly owned subsidiaries (collectively referred to as the "Group"). Aeterna Zentaris Inc. is the ultimate parent company of
the Group.
The Company currently has three wholly owned direct and indirect subsidiaries, Aeterna Zentaris GmbH ("AEZS Germany"), based in Frankfurt,
Germany, Zentaris IVF GmbH, a wholly owned subsidiary of AEZS Germany, based in Frankfurt, Germany, and Aeterna Zentaris, Inc., an entity
incorporated in the state of Delaware and with offices in Summerville, South Carolina, in the United States.
The address of the Company is 1405 du Parc-Technologique Blvd., Quebec City, Canada, G1P 4P5.
The Company's common shares are listed both on the Toronto Stock Exchange and on the NASDAQ Capital Market (the "NASDAQ").
Share consolidation (reverse stock split)
On October 2, 2012, the Company effected a consolidation of its issued and outstanding common shares on a six-to-one basis (the "Share
Consolidation"). The Share Consolidation affected all shareholders, optionholders and warrantholders uniformly and thus did not materially affect any
securityholder's percentage of ownership interest. All references in these consolidated financial statements to common shares, options and share
purchase warrants have been retroactively adjusted to reflect the Share Consolidation.
Basis of preparation
(a) Statement of compliance
The consolidated financial statements as at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and
2012 have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting
Standards Board ("IASB").
These consolidated financial statements were approved by the Company's Board of Directors on March 17, 2015.
The accompanying consolidated financial statements were prepared on a going concern basis, under the historical cost convention, except for the
warrant liability, which is measured at fair value through profit or loss ("FVTPL").
The preparation of financial statements in accordance with IFRS requires the use of certain critical accounting estimates and the exercise of
management's judgment in applying the Company's accounting policies. Areas
108
Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
involving a high degree of judgment or complexity and areas where assumptions and estimates are significant to the Company's consolidated
financial statements are discussed in note 3 – Critical accounting estimates and judgments.
(b) Principles of consolidation
These consolidated financial statements include any entity in which the Company directly or indirectly holds more than 50% of the voting rights or
over which the Company exercises control. The Company controls an entity when the Company is exposed to, or has rights to, variable returns
from its involvement with the entity and has the ability to affect those returns through its power over the entity. An entity is included in the
consolidation from the date that control is transferred to the Company, while any entities that are sold are excluded from the consolidation from the
date that control ceases. All intercompany balances and transactions are eliminated on consolidation.
(c) Foreign currency
The accompanying consolidated financial statements are presented in thousands of US dollars, which is the Company's presentation currency.
Assets and liabilities of Group entities are translated from euro ("EUR") balances at the period-end exchange rates, and the results of operations
are translated from EUR amounts at average rates of exchange for the period. The resulting translation adjustments are included in accumulated
other comprehensive (loss) income within shareholders' equity.
Items included in the financial statements of the Group's entities are measured using the currency of the primary economic environment in which
the entities operate (the "functional currency"), which, for all Group entities, was the EUR through December 31, 2014. Foreign currency
transactions are translated into the functional currency using the exchange rates prevailing at the dates of the underlying transaction. Foreign
exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities not
denominated in EUR are recognized in the consolidated statement of comprehensive (loss) income.
Foreign exchange gains and losses that relate to cash and cash equivalents and the warrant liability are presented within finance income or finance
costs in the consolidated statement of comprehensive (loss) income. All other foreign exchange gains and losses are presented in the consolidated
statement of comprehensive (loss) income within operating expenses.
2
Summary of significant accounting policies
The accounting policies set out below have been applied consistently to all years presented in these consolidated financial statements, and have been
applied consistently by all Group entities.
Cash and cash equivalents
Cash and cash equivalents consist of unrestricted cash on hand and balances with banks, as well as short-term interest-bearing deposits, such as money
market accounts, that are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value, with a maturity of
three months or less from the date of acquisition.
Restricted cash equivalents
Restricted cash equivalents are comprised of a bank deposit, related to a guarantee for a long-term operating lease obligation, that cannot be used for
current purposes.
109
Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
Property, plant and equipment and depreciation
Items of property, plant and equipment are recorded at cost, net of related government grants and accumulated depreciation and impairment charges.
Depreciation is calculated using the following methods, annual rates and period:
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 331/3%
Remaining lease term
Depreciation expense, which is recorded in the consolidated statement of comprehensive (loss) income, is allocated to the appropriate functional
expense categories to which the underlying items of property, plant and equipment relate.
Identifiable intangible assets
Identifiable intangible assets with finite useful lives consist of in-process R&D acquired in business combinations, patents and trademarks, technology
and other assets. In-process R&D acquired in business combinations is recognized at fair value at the acquisition date. Patents and trademarks are
comprised of costs, including professional fees incurred in connection with the filing of patents and the registration of trademarks for product
marketing and manufacturing purposes, net of related government grants, impairment losses, where applicable, and accumulated amortization.
Identifiable intangible assets with finite useful lives are amortized, from the time at which the assets are available for use, on a straight-line basis over
their estimated useful lives of eight to fifteen years for in-process R&D and patents and ten years for trademarks. Amortization expense, which is
recorded in the consolidated statement of comprehensive (loss) income, is allocated to the appropriate functional expense categories to which the
underlying identifiable intangible assets relate.
Goodwill
Goodwill represents the excess of the purchase price over the fair values of the net assets of entities acquired at their respective dates of acquisition.
Goodwill is carried at cost less accumulated impairment losses. Goodwill is allocated to each cash-generating unit ("CGU") or group of CGUs that are
expected to benefit from the related business combination.
Impairment of assets
Items of property, plant and equipment and identifiable intangible assets with finite lives subject to depreciation or amortization, respectively, are
reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be recoverable.
Management is required to assess at each reporting date whether there is any indication that an asset may be impaired. Where such an indication exists,
the asset's recoverable amount is compared to its carrying value, and an impairment loss is recognized for the amount by which the asset's carrying
amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purpose
of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows, or CGU. In determining value in
use of a given asset or CGU, estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset. Impairment losses are allocated to the appropriate functional expense
categories to which the underlying identifiable intangible assets relate, and are recorded in the consolidated statement of comprehensive (loss) income.
Items of property, plant and equipment and amortizable identifiable intangible assets with finite lives that suffered impairment are reviewed for
possible reversal of the impairment if there has been a change, since the date of the most recent impairment test, in the estimates used to determine the
impaired asset's recoverable amount. However, an asset's carrying amount, increased due to the reversal of a prior impairment loss, must not exceed the
carrying amount that would have been determined, net of depreciation or amortization, had the original impairment not occurred.
110
Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
Goodwill is not subject to amortization and instead is tested for impairment annually or more often if there is an indication that the CGU to which the
goodwill has been allocated may be impaired. Impairment is determined for goodwill by assessing whether the carrying value of a CGU, including the
allocated goodwill, exceeds its recoverable amount, which is the higher of fair value less costs to sell and value in use. In the event that the carrying
amount of goodwill exceeds its recoverable amount, an impairment loss is recognized in an amount equal to the excess. Impairment losses related to
goodwill are not subsequently reversed.
Share purchase warrants
Share purchase warrants are classified as liabilities, since the Company does not have the unconditional right to avoid delivering cash to the holders in
the future. Each of the Company's share purchase warrants contains a written put option, arising upon the occurrence of a Fundamental Transaction, as
that term is defined in the share purchase warrant agreement, and also upon a change of control. As a result of the existence of these put options, and
despite the fact that the repurchase feature is conditional on a defined contingency, the share purchase warrants are required to be classified as a
financial liability, since such contingency could ultimately result in the transfer of assets by the Company.
The warrant liability is initially measured at fair value, and any subsequent changes in fair value are recognized as gains or losses through profit or
loss. Any transaction costs related to the share purchase warrants are expensed as incurred.
The warrant liability is classified as non-current, unless the underlying share purchase warrants are expected to expire or be settled within 12 months
from the end of a given reporting period.
Employee benefits
Salaries and other short-term benefits
Salaries and other short-term benefit obligations are measured on an undiscounted basis and are recognized in the consolidated statement of
comprehensive (loss) income over the related service period or when the Company has a present legal or constructive obligation to make payments as a
result of past events and when the amount payable can be estimated reliably.
Post-employment benefits
The Company's subsidiary in Germany maintains defined contribution and unfunded defined benefit plans, as well as other benefit plans for its
employees. For defined benefit pension plans and other post-employment benefits, net periodic pension expense is actuarially determined on a
quarterly basis using the projected unit credit method. The cost of pension and other benefits earned by employees is determined by applying certain
assumptions, including discount rates, the projected age of employees upon retirement, the expected rate of future compensation and employee
turnover.
The employee future benefits liability is recognized at its present value, which is determined by discounting the estimated future cash outflows using
interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity
approximating the terms of the related future benefit liability. Actuarial gains and losses that arise in calculating the present value of the defined benefit
obligation are recognized in other comprehensive (loss) income, net of tax, and simultaneously reclassified in the deficit in the consolidated statement
of financial position in the year in which the actuarial gains and losses arise and without recycling to the consolidated statement of comprehensive
(loss) income in subsequent periods.
For defined contribution plans, expenses are recorded in the consolidated statement of comprehensive (loss) income as incurred–namely, over the
period that the related employee service is rendered.
Termination benefits
Termination benefits are recognized in the consolidated statement of comprehensive (loss) income when the Company is demonstrably committed,
without the realistic possibility of withdrawal, to a formal detailed plan to terminate employment earlier than originally expected. Termination benefit
liabilities expected to be settled after 12 months from the end of a given reporting period are discounted to their present value, where material.
111
Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
Financial instruments
The Company classifies its financial instruments in the following categories: "Financial assets at FVTPL"; "Loans and receivables"; "Financial
liabilities at FVTPL"; and "Other financial liabilities".
Financial assets and liabilities are offset, and the net amount is reported in the consolidated statement of financial position, when there is a legally
enforceable right to offset the recognized amounts and there is an intention to settle on a net basis or realize the asset and settle the liability
simultaneously.
(a) Classification
Financial assets at fair value through profit or loss
Financial assets at FVTPL are financial assets held for trading. Fair value is defined as the amount at which the financial assets could be
exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. A financial asset is classified as at FVTPL if
the instrument is acquired or received as consideration principally for the purpose of selling in the short-term. Financial assets at FVTPL are
classified as current assets if expected to be settled within 12 months from the end of a given reporting period; otherwise, the assets are classified
as non-current.
As at December 31, 2014 and 2013, the Company held no assets classified as financial assets at FVTPL.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and
receivables are included in current assets, except for instruments with maturities greater than 12 months after the end of a given reporting period or
where restrictions apply that limit the Company from using the instrument for current purposes, which are classified as non-current assets.
The Company's loans and receivables are comprised of cash and cash equivalents, trade and other receivables and restricted cash equivalents.
Financial liabilities at fair value through profit or loss
Financial liabilities at FVTPL are financial liabilities held for trading. A financial liability is classified as at FVTPL if the instrument is acquired or
incurred principally for the purpose of selling or repurchasing in the short-term or where the Company does not have the unconditional right to
avoid delivering cash or another financial asset to the holders in certain circumstances. Financial liabilities at FVTPL are classified as current
liabilities if expected or potentially required to be settled within 12 months from the end of a given reporting period; otherwise, the liabilities are
classified as non-current.
Financial liabilities at FVTPL are currently comprised of the Company's warrant liability.
Other financial liabilities
Other financial liabilities include trade accounts payable and accrued liabilities, provision for restructuring costs and other non-current liabilities.
(b) Recognition and measurement
Financial assets at fair value through profit or loss
Financial assets at FVTPL are recognized on the settlement date, which is the date on which the asset is delivered to the Company. Financial assets
at FVTPL are initially recognized at fair value, and transaction costs are expensed immediately in the consolidated statement of comprehensive
(loss) income. Financial assets at FVTPL are derecognized when the right to receive cash flows from the underlying investment have expired or
have been transferred and when the Group has transferred substantially all risks and rewards of ownership. Gains and losses
112
Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
arising from changes in the fair value of financial assets at FVTPL are presented in the consolidated statement of comprehensive (loss) income
within finance income or finance costs in the period in which they arise.
Loans and receivables
Loans and receivables are recognized on the settlement date and are measured initially at fair value and subsequently at amortized cost using the
effective interest rate method.
Financial liabilities at fair value through profit or loss
Financial liabilities at FVTPL are recognized on the settlement date. Financial liabilities at FVTPL are initially recognized at fair value, and
transaction costs are expensed immediately in the consolidated statement of comprehensive (loss) income. Gains and losses arising from changes
in the fair value of financial liabilities at FVTPL are presented in the consolidated statement of comprehensive (loss) income within finance
income or finance costs in the period in which they arise.
Other financial liabilities
Financial instruments classified as "Other financial liabilities" are measured initially at fair value and subsequently at amortized cost using the
effective interest rate method.
(c)
Impairment
Financial assets measured at amortized cost are reviewed for impairment at each reporting date. Where there is objective evidence that impairment
exists for a financial asset measured at amortized cost, an impairment charge equivalent to the difference between the asset's carrying amount and
the present value of estimated future cash flows is recorded in the consolidated statement of comprehensive (loss) income. The expected cash
flows exclude future credit losses that have not been incurred and are discounted at the financial asset's original effective interest rate.
Impairment charges related to financial assets carried at amortized cost are reversed if, in a subsequent period, the amount of the impairment loss
decreases and the decrease can be related objectively to an event occurring after the impairment was recognized. However, the reversal cannot
result in a carrying amount of the financial asset that exceeds what the amortized cost would have been had the impairment not been recognized at
the date the impairment is reversed.
Share capital
Common shares are classified as equity. Incremental costs that are directly attributable to the issue of common shares and stock options are recognized
as a deduction from equity, net of any tax effects.
Where offerings result in the issuance of units (where each unit is comprised of a common share of the Company and a share purchase warrant,
exercisable in order to purchase a common share or fraction thereof), proceeds received in connection with those offerings are allocated between Share
capital and Share purchase warrants based on the residual method. Proceeds are allocated to warrant liability based on the share purchase warrants fair
value, and the residual amount of proceeds is allocated to Share capital. Transaction costs in connection with such offerings are allocated to the liability
and equity units components in proportion to the allocation of proceeds.
Provisions
Provisions represent liabilities to the Company for which the amount or timing is uncertain. Provisions are recognized when the Company has a present
legal or constructive obligation as a result of past events, such as organizational restructuring, when it is probable that an outflow of resources will be
required to settle the obligation and where the amount can be reliably estimated. Provisions are not recognized for future operating losses.
Provisions are made for any contracts which are deemed onerous. A contract is onerous if the unavoidable costs of meeting the obligations under the
contract exceed the economic benefits expected to be received under it. Provisions for onerous contracts are measured at the present value of the lower
of the expected cost of terminating the contract and the
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Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
expected net cost of continuing with the contract. Present value is determined based on expected future cash flows that are discounted at a pre-tax rate
that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognized
in finance costs.
Revenue recognition
Sales of products
Revenues from the sale of goods are recognized when the Company has transferred to the buyer the significant risks and rewards of ownership of the
goods (which is at the time the goods are shipped), when the Company retains neither continuing managerial involvement to the degree usually
associated with ownership nor effective control over the goods sold, when the amount of revenues can be measured reliably, when it is probable that
the economic benefits associated with the transaction will flow to the Company and when the costs incurred or to be incurred in respect of the
transaction can be measured reliably.
Royalty revenues
The Company had deferred recognition of proceeds received in December 2008 from Healthcare Royalty Partners L.P. (formerly Cowen Healthcare
Royalty Partners L.P. ) ("HRP") relating to the Company's rights to royalties on future sales of Cetrotide® covered by a license agreement with ARES
Trading S.A. ("Merck Serono") in which the latter had been granted worldwide marketing, distribution and selling rights, except in Japan, for
Cetrotide®, a compound used for in vitro fertilization.
The Company recognized the proceeds received from HRP as royalty revenues over the life of the underlying royalty sale arrangement, pursuant to the
"units-of-revenue" method. Under that method, periodic royalty revenues are calculated as the ratio of the remaining deferred revenue amount to the
total estimated remaining royalties that Merck Serono expected to pay to HRP over the term of the underlying arrangement multiplied by the royalty
payments due to HRP for the period.
As mentioned in note 6 – Discontinued operations, from April 3, 2013 to October 1, 2013, the Company accelerated the amortization of the remaining
deferred revenues.
Licensing revenues and multiple element arrangements
The Company is currently in a phase in which certain potential products are being further developed or marketed jointly with partners and licensees.
Existing licensing agreements usually foresee one-time payments (upfront payments), payments for R&D services in the form of cost reimbursements,
milestone payments and royalty receipts for licensing and marketing product candidates. Revenues associated with those multiple-element
arrangements are allocated to the various elements based on their relative fair value.
Agreements containing multiple elements are divided into separate units of accounting if certain criteria are met, including whether the delivered
element has stand-alone value to the customer and whether there is objective and reliable evidence of the fair value of the undelivered obligation(s).
The consideration received is allocated among the separate units based on each unit's fair value, and the applicable revenue recognition criteria are
applied to each of the separate units.
License fees representing non-refundable payments received at the time of signature of license agreements are recognized as revenue upon signature of
the license agreements when the Company has no significant future performance obligations and collectibility of the fees is probable. Upfront
payments received at the beginning of licensing agreements are deferred and recognized as revenue on a systematic basis over the period during which
the related services are rendered and all obligations are performed.
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Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
Milestone payments
Milestone payments, which are generally based on developmental or regulatory events, are recognized as revenue when the milestones are achieved,
collectibility is assured, and when the Company has no significant future performance obligations in connection with the milestones.
Share-based compensation costs
The Company operates an equity-settled share-based compensation plan under which the Company receives services from directors, senior executives,
employees and other collaborators as consideration for equity instruments of the Company.
The Company accounts for all forms of share-based compensation using the fair value-based method. Fair value of stock options is determined at the
date of grant using the Black-Scholes option pricing model, which includes estimates of the number of awards that are expected to vest over the vesting
period. Where granted share options vest in installments over the vesting period (defined as graded vesting), the Company treats each installment as a
separate share option grant. Share-based compensation expense is recognized over the vesting period, or as specified vesting conditions are satisfied,
and credited to Other Capital.
Any consideration received by the Company in connection with the exercise of stock options is credited to Share Capital. Any Other Capital
component of the share-based compensation is transferred to Share Capital upon the issuance of shares.
Current and deferred income tax
Income tax on profit or loss comprises current and deferred tax. Tax is recognized in profit or loss, except that a change attributable to an item of
income or expense recognized as other comprehensive (loss) income or directly in equity (deficit) is also recognized directly in other comprehensive
(loss) income or directly in equity (deficit). Management periodically evaluates positions taken in tax returns with respect to situations in which
applicable tax regulation is subject to interpretation and establishes provisions where appropriate on the basis of amounts expected to be paid to the tax
authorities.
The current income tax charge is calculated in accordance with tax rates and laws that have been enacted or substantively enacted by the reporting date
in the countries where the Company's subsidiaries operate and generate taxable income.
Deferred income tax is recognized on temporary differences (other than, where applicable, temporary differences associated with unremitted earnings
from foreign subsidiaries and associates to the extent that the investment is essentially permanent in duration, and temporary differences associated
with the initial recognition of goodwill) arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial
statements and on unused tax losses or R&D non-refundable tax credits in the Group. Deferred income tax is determined using tax rates and laws that
have been enacted or substantively enacted by the reporting date.
Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary
differences can be utilized.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities
and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity
or different taxable entities where there is an intention to settle the balances on a net basis.
Research and development costs
Research costs are expensed as incurred. Development costs are expensed as incurred, except for those that meet generally accepted criteria for
deferral, in which case, the costs are capitalized and amortized to operations over the estimated period of benefit. No development costs have been
capitalized during any of the periods presented.
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Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
Research and development refundable tax credits and grants
The Company's German subsidiary is entitled to receive research grants from the German Federal Ministry of Education and Research. Funding is
earned on qualified projects, and corresponding expenses are reimbursed at a certain rate of eligible base amounts.
Refundable R&D tax credits and grants are accounted for using the cost reduction method. Accordingly, refundable R&D tax credits and grants are
recorded as a reduction of the related expenses or capital expenditures in the period the expenses are incurred, provided that the Company has
reasonable assurance the refundable R&D tax credits or grants will be realized.
Discontinued operations
A discontinued operation is a component of the Company that has been disposed of, or is classified as held for sale, and represents a separate major
line of business or geographical area of operations and/or is part of a single co-ordinated plan to dispose of a separate major line of business or
geographical area of operations. Classification as a discontinued operation occurs upon the earlier of the disposal of the operation (or disposal group)
or the date at which the operation meets the criteria for classification as held for sale. When an operation is classified as discontinued, comparative
statements of comprehensive (loss) income and cash flows are presented as if the operations had been discontinued at the beginning of the earliest
comparative period presented.
Net (loss) income per share
Basic net (loss) income per share is calculated using the weighted average number of common shares outstanding during the year.
Diluted net (loss) income per share is calculated based on the weighted average number of common shares outstanding during the year, plus the effects
of dilutive common share equivalents, such as stock options and share purchase warrants. This method requires that diluted net (loss) income per share
be calculated using the treasury stock method, as if all common share equivalents had been exercised at the beginning of the reporting period, or period
of issuance, as the case may be, and that the funds obtained thereby were used to purchase common shares of the Company at the average trading price
of the common shares during the period.
3
Critical accounting estimates and judgments
The preparation of consolidated financial statements in accordance with IFRS requires management to make judgments, estimates and assumptions that
affect the reported amounts of the Company's assets, liabilities, revenues, expenses and related disclosures. Judgments, estimates and assumptions are
based on historical experience, expectations, current trends and other factors that management believes to be relevant at the time at which the
Company's consolidated financial statements are prepared.
Management reviews, on a regular basis, the Company's accounting policies, assumptions, estimates and judgments in order to ensure that the
consolidated financial statements are presented fairly and in accordance with IFRS. Revisions to accounting estimates are recognized in the period in
which the estimates are revised and in any future periods affected.
(a) Critical accounting estimates and assumptions
Critical accounting estimates and assumptions are those that have a significant risk of causing material adjustment and are often applied to matters
or outcomes that are inherently uncertain and subject to change. As such, management cautions that future events often vary from forecasts and
expectations and that estimates routinely require adjustment.
The following discusses the most significant accounting estimates and assumptions that the Company has made in the preparation of the
consolidated financial statements.
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Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
Fair value of the warrant liability and stock options
Determining the fair value of the warrant liability and stock options requires judgment related to the choice of a pricing model, the estimation of
stock price volatility and the expected term of the underlying instruments. Any changes in the estimates or inputs utilized to determine fair value
could result in a significant impact on the Company's future operating results, liabilities or other components of shareholders' equity (deficiency).
Fair value assumptions used are described in notes 15 – Warrant liability and 17 – Share capital.
Goodwill impairment
The annual impairment assessment related to goodwill is based on estimates that are derived from current market capitalization and on other
factors, including assumptions related to relevant industry-specific market analyses. Future events, including a significant reduction in the
Company's share price, could cause the assumptions utilized in the impairment tests to change, resulting in a potentially adverse effect on the
Company's future results due to increased impairment charges.
Employee future benefits
The determination of expenses and obligations associated with employee future benefits requires the use of assumptions, such as the discount rate
to measure obligations, the projected age of employees upon retirement, the expected rate of future compensation and estimated employee
turnover. Because the determination of the cost and obligations associated with employee future benefits requires the use of various assumptions,
there is measurement uncertainty inherent in the actuarial valuation process. Actual results will differ from results that are estimated based on the
aforementioned assumptions. Additional information is included in note 19 – Employee future benefits.
Income taxes
The estimation of income taxes includes evaluating the recoverability of deferred tax assets based on an assessment of Group entities' ability to
utilize the underlying future tax deductions against future taxable income prior to expiry of those deductions. Management assesses whether it is
probable that some or all of the deferred income tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon
the generation of future taxable income, which in turn is dependent upon the successful commercialization of the Company's products. To the
extent that management's assessment of any Group entity's ability to utilize future tax deductions changes, the Company would be required to
recognize more or fewer deferred tax assets, and future income tax provisions or recoveries could be affected. Additional information is included
in note 22 – Income taxes.
(b) Critical judgments in applying the Company's accounting policies
Revenue recognition
Management's assessments related to the recognition of revenues related to arrangements containing multiple elements are based on judgment.
Judgment is necessary to identify separate units of accounting and to allocate related consideration to each separate unit of accounting. Where
deferral of upfront payments or license fees is deemed appropriate, subsequent revenue recognition is often determined based upon the assessment
of the Company's continuing involvement in the arrangement, the benefits expected to be derived by the customer and, where applicable, expected
patent lives. Additional information is included in note 5 – Development, commercialization and licensing arrangements.
4
Recent accounting pronouncements
Adopted in 2014
The following new standards and amendments to standards are effective for the first time for interim periods beginning on or after January 1, 2014 and
have been applied in preparing these consolidated financial statements. The accounting policies have been applied consistently by all subsidiaries of
the Company.
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Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
In May 2013, the IASB made amendments to the disclosure requirements of IAS 36, Impairment of Assets, requiring disclosure, in certain instances, of
the recoverable amount of an asset or CGU, and the basis for the determination of fair value less costs of disposal, when an impairment loss is
recognized or when an impairment loss is subsequently reversed.
In May 2013, the IFRS Interpretations Committee ("IFRIC") issued International Financial Reporting Standard Interpretation 21, Levies ("IFRIC 21"),
an interpretation on the accounting for levies imposed by governments. IFRIC 21 is an interpretation of IAS 37, Provisions, Contingent Liabilities and
Contingent Assets ("IAS 37"). IAS 37 sets out criteria for the recognition of a liability, one of which is the requirement for the entity to have a present
obligation as a result of a past event (known as an obligating event). IFRIC 21 clarifies that the obligating event that gives rise to a liability to pay a
levy is the activity described in the relevant legislation that triggers the payment of the levy.
The adoption of these standards and amendments did not have a significant impact on the Company's consolidated financial statements.
Not yet adopted
The final version of IFRS 9, Financial Instruments ("IFRS 9"), was issued by the IASB in July 2014 and will replace IAS 39, Financial Instruments:
Recognition and Measurement. IFRS 9 introduces a model for classification and measurement, a single, forward-looking expected loss impairment
model and a substantially reformed approach to hedge accounting. The new single, principle-based approach for determining the classification of
financial assets is driven by cash flow characteristics and the business model in which an asset is held. The new model also results in a single
impairment model being applied to all financial instruments, which will require more timely recognition of expected credit losses. It also includes
changes in respect of an entity's own credit risk in measuring liabilities elected to be measured at fair value, so that gains caused by the deterioration of
an entity's own credit risk on such liabilities are no longer recognized in profit or loss. IFRS 9, which is to be applied retrospectively, is effective for
annual periods beginning on or after January 1, 2018 and is available for early adoption. In addition, an entity's own credit risk changes can be applied
early in isolation without otherwise changing the accounting for financial instruments. The Company is currently assessing the impact, if any, that this
new standard will have on the Company's consolidated financial statements.
In May 2014, the IASB issued IFRS 15, Revenue from Contracts with Customers. The objective of this new standard is to provide a single,
comprehensive revenue recognition framework for all contracts with customers to improve comparability of financial statements of companies
globally. This new standard contains principles that an entity will apply to determine the measurement of revenue and timing of when it is recognized.
The underlying principle is that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity
expects to be entitled to receive in exchange for those goods or services. This new standard is effective for annual periods beginning on or after January
1, 2017. The Company is currently assessing the impact that this new standard may have on the Company's consolidated financial statements.
5
Development, commercialization and licensing arrangements
Sinopharm arrangement
On December 1, 2014, the Company entered into a master collaboration agreement, a Technology Transfer and Technical Assistance Agreement
("TTA") and a License Agreement ("LA") with Sinopharm A-Think Pharmaceuticals Co., Ltd. ("Sinopharm") for the development, manufacture and
commercialization of zoptarelin doxorubicin ("the Product") in all human uses, in the People's Republic of China, including Hong Kong and Macau
(collectively, "the Territory"). Under the terms of the TTA, Sinopharm made a one-time, non-refundable payment of $1,101,000 ("Transfer Fee") to the
Company for the transfer of technical documentation and materials, know-how and technical assistance services. Additionally, per the LA, the
Company will be entitled to receive additional consideration upon achieving certain milestones, including the occurrence of certain regulatory and
commercial events in the Territory. Furthermore, the Company will be entitled to royalties on future net sales of the Product in the Territory.
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Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
The Company has substantial continuing involvement in the aforementioned arrangements, including the transfer of documentation, know-how and
materials, as well as the provision of technical assistance, such as quality systems implementation, analytical and stability testing, territory-specific
development initiatives, and other services.
The Company has applied the provisions of IAS 18, Revenue, and has determined that all deliverables and performance obligations contemplated by
the agreements with Sinopharm should be accounted for as a single unit of accounting, limited to amounts that are not contingent upon the delivery of
additional items or the meeting of other specified performance conditions which are not known, probable or estimable at the time at which the
agreements with Sinopharm were entered into.
The Company has deferred the non-refundable Transfer Fee and is amortizing the related payment as revenue on a straight-line basis over the period
during which the aforementioned services are rendered and obligations are performed.
In determining the period over which Transfer Fee revenues are to be recognized, the Company concluded that its significant continuing involvement
in the aforementioned agreements will span approximately four years, commencing in late December 2014. However, the Company may adjust the
amortization period based on appropriate facts and circumstances not yet known, that would significantly change the duration of the Company's
continuing involvement and performance obligations or benefits expected to be derived by Sinopharm.
Future milestones will be recognized as revenue individually and in full upon the actual achievement of the related milestone, given the substantive
nature of each milestone. Lastly, upon initial commercialization and sale of the developed product, the Company will recognize royalty revenues as
earned, based on the contractual percentage applied to the actual net sales achieved by Sinopharm, as per the LA.
Pursuant to the aforementioned agreements, the Company was required to remit to the Chinese tax authorities $101,000 of the gross proceeds received
from Sinopharm. This amount, which was withheld at the source, was recognized as income tax expense in the consolidated statement of
comprehensive (loss) income in accordance with the provision of IAS 12, Income Taxes.
Ergomed agreement
On April 10, 2013, the Company entered into a co-development and revenue-sharing agreement ("CDRSA") with Ergomed Clinical Research Limited
("Ergomed"), pursuant to which Ergomed has agreed to assist the Company in the clinical development program for zoptarelin doxorubicin (the
"Product") for the purpose of maximizing the commercialization potential of the Product with the ultimate aim of selling or licensing the Product.
Concurrently with the execution of the CDRSA, the Company entered into a master services agreement ("MSA") with Ergomed for a clinical Phase 3
trial of the Product in endometrial cancer, pursuant to which Ergomed will provide clinical development services with respect to the co-development
initiative referred to above.
Under the CDRSA, Ergomed will not charge the Company for 30% of the total costs up to a maximum of $10,000,000. While Ergomed will not
directly contribute any cash proceeds towards the completion of the activities contemplated by the CDRSA, Ergomed, as primary supplier of a
substantial portion of the Product-related clinical and regulatory activities, will contribute to the overall funding of the initiative via the application of a
30% discount from the costs set forth in the MSA until the cumulative total of such reductions reaches a maximum of $10,000,000. Ergomed will be
entitled to receive an agreed upon single-digit percentage of any future net income (as defined in the CDRSA) or other proceeds related to the licensing
of received zoptarelin doxorubicin in endometrial cancer indication, up to a specified maximum amount.
The Company recognizes R&D costs associated with the CDRSA and MSA net of the 30% discount, as services are rendered by Ergomed in the
consolidated statement of comprehensive (loss) income. During the years ended December 31, 2013 and 2014, the Company expensed a total of
$3,560,000 and $7,195,000, respectively, pursuant to the CDRSA and MSA.
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Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
Yakult agreement
On March 8, 2011, the Company had entered into an agreement with Yakult Honsha Co., Ltd. ("Yakult") for the development, manufacture and
commercialization of perifosine in all human uses, excluding leishmaniasis, in Japan. Under the terms of this agreement, Yakult had made an initial,
non-refundable gross upfront payment to the Company of €6,000,000 (approximately $8,412,000). The Company applied the provisions of IAS 18,
Revenue ("IAS 18"), and recognized deferred revenue, which was being amortized on a straight-line basis through the estimated end of the estimated
life cycle of perifosine in colorectal cancer ("CRC") and multiple myeloma ("MM"), which was assumed to be the estimated expiry date of the
applicable valid patent considering a five-year extension, or until July 2018.
On April 1, 2012, following disclosure of the results of the Phase 3 study of perifosine in CRC, the Company discontinued the perifosine program in
that indication. Furthermore, in March 2013, following an analysis of interim results of the Phase 3 study of perifosine in MM, the Company also
discontinued the development of perifosine in the MM indication.
Based on these events, the Company determined that it no longer had significant obligations under the agreement with Yakult to continue with the
development of perifosine. Accordingly, the Company recognized, in March 2013, the remaining amount of deferred revenue of $5,860,000 related to
the above licensing agreement within License fees in the consolidated statement of comprehensive (loss) income.
6
Discontinued operations
On April 3, 2013 (the "Effective Date"), the Company entered into a transfer and service agreement ("TSA") and concurrent agreements with various
partners and licensees with respect to the manufacturing rights for Cetrotide®, marketed for therapeutic use as part of in vitro fertilization programs.
The principal effect of these agreements was to transfer, effective October 1, 2013 (the "Closing Date"), the manufacturing rights for Cetrotide® and to
grant a license to Merck Serono for the manufacture, testing, assembling, packaging, storage and release of Cetrotide® in all territories. Also per the
TSA, the Company has agreed to provide certain transition services to Merck Serono over a period of 36 months from the Effective Date in order to
assist Merck Serono in managing overall responsibility for the manufacturing of Cetrotide® and related activities (collectively, the "Cetrotide®
Business").
Under the TSA, during the period commencing on the Effective Date and ending on the Closing Date (the "Interim Period"), the Company was
obligated to continue to conduct the Cetrotide® Business in the ordinary course in a manner consistent with past practices, subject to certain conditions.
Per the TSA, the Company received a non-refundable, one-time payment of €2,500,000 (approximately $3,300,000) in consideration for the transfer of
the manufacturing rights referred to above, as well as other payments in exchange for the transfer, also on the Closing Date, of certain assets and
equipment (see note 10 – Property, plant and equipment) used solely for the manufacture of Cetrotide®.
The Company has agreed to provide the aforementioned transition services in exchange for a monthly service fee, which is payable by Merck Serono.
The related transition services revenues are recognized as License fees and other within net income from discontinued operations in the Company's
consolidated statement of comprehensive (loss) income as the transition services are provided over the corresponding term of the transition services
contract.
Impact of the TSA on previously deferred revenues
In 2008, the Company had monetized its royalty stream related to Cetrotide® via a transaction with HRP, which resulted, among other elements, in the
payment by HRP to the Company of $52,500,000, less certain transaction costs, in exchange for the Company's rights to royalties on future net sales of
Cetrotide® generated by Merck Serono. The Company had initially recorded the proceeds received from HRP as deferred revenue due to the
Company's significant continuing involvement with the Cetrotide® Business. Since then, the Company has amortized the deferred revenue into income
(as Sales and royalties within net income from discontinued operations in the Company's consolidated statement of comprehensive (loss) income) over
the life of the underlying license agreement, based on the "units-of-revenue" method. Under that method, periodic royalty revenues were calculated by
multiplying the ratio of the unamortized
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Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
deferred revenue amount to the total estimated remaining royalties that Merck Serono expected to pay to HRP over the term of the underlying
arrangement by the royalty payments due to HRP for the period.
Management has determined that, as of the Closing Date, there is no basis to continue amortizing the deferred revenue associated with HRP, primarily
due to the fact that the Company no longer has significant continuing involvement in the Cetrotide® Business, as discussed above. As such,
commencing on the Effective Date, the Company accelerated the amortization of the remaining deferred revenues of approximately $31,875,000 over
the Interim Period, by continuing to apply the units-of-revenue method, which is consistent with past practice. The remaining deferred revenues were
fully amortized through the end of the Interim Period and were recorded as Sales and royalties within net income from discontinued operations in the
Company's consolidated statement of comprehensive (loss) income.
Presentation of Cetrotide® Business subsequent to the Closing Date
In accordance with the provisions of IFRS 5, Non-current Assets Held for Sale and Discontinued Operations, upon the transfer of substantially all of
the risks and rewards associated with the Cetrotide® Business on the Closing Date, the Cetrotide® Business was classified as a discontinued operation.
As such, relevant amounts in the consolidated statements of comprehensive (loss) income and cash flows have been retroactively reclassified to reflect
the Cetrotide® Business as a discontinued operation.
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Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
Components of the Company's net income from discontinued operations are summarized below.
Revenues*
Sales and royalties
License fees and other
Operating expenses
Cost of sales
Research and development costs, net of tax credits and grants
Selling, general and administrative expenses
Net income from discontinued operations
Components of operating expenses presented as discontinued
include the following:
Subcontractor fees
Raw material purchases
Change in inventory
Impairment of equipment
Depreciation of equipment
Cost of sales
Goods and services**
Royalty and patent expenses related to onerous contracts
Years ended December 31,
2014
$
2013
$
2012
$
—
1,037
1,037
—
25
389
414
623
—
—
—
—
—
—
191
223
414
63,755
4,589
68,344
30,002
8
4,279
34,289
34,055
24,930
579
4,173
268
52
30,002
2,987
1,300
34,289
30,704
908
31,612
26,229
12
2,639
28,880
2,732
25,515
1,189
(560)
—
85
26,229
2,651
—
28,880
_________________________
*
In addition to recurring sales of Cetrotide®, the revenues presented above include the aforementioned non-refundable, one-time payment of €2,500,000
(approximately $3,300,000), as well as royalty revenues of $33,631,000 in 2013 ($4,175,000 in 2012), which represent the amortization of proceeds received in
connection with the Company's transaction with HRP.
** Goods and services include professional fees, marketing services, insurance, travel and representation costs.
The SG&A expenses presented above for the year ended December 31, 2013 also include $1,300,000 associated with the initial recognition of a
provision for certain non-cancellable contracts related to the Cetrotide® Business that were deemed onerous due to the fact that management expects no
economic benefits to flow to the Company following the transfer of the Cetrotide® Business on the Closing Date. The provisions for onerous contracts
represent the present value of estimated unavoidable future royalty and patent costs associated with the intellectual property underlying Cetrotide®. The
estimate may vary as a result of changes in estimated future royalty and patent costs. The unexpired term of these contracts is eight years as at
December 31, 2014. See also note 16 – Provisions and other non-current liabilities.
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Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
Components of the Company's net cash (used in) provided by operating activities of discontinued operations are summarized below.
Years ended December 31,
2014
$
2013
$
2012
$
34,055
2,732
Cash flows from operating activities
Net income from discontinued operations
Items not affecting cash and cash equivalents:
Provision for onerous contracts
Depreciation, amortization and impairment
Amortization of deferred revenues
Other non-cash items
Changes in operating assets and liabilities:
Trade and other receivables
Inventory
Prepaid expenses and other current assets
Payables and accrued liabilities
Provisions and other non-current liabilities
Net cash (used in) provided by operating activities
of discontinued operations
7
Cash and cash equivalents
Cash on hand and balances with banks
Interest-bearing deposits with maturities of three months or less
8
Trade and other receivables
Trade accounts receivable
Value added tax
Other
9
Restricted cash equivalents
623
223
—
—
96
1,460
—
—
(2,300)
(397)
1,300
320
(33,631)
—
6,212
4,061
882
(2,996)
(56)
(295)
10,147
—
85
(4,175)
—
(2,397)
(1,230)
(760)
611
—
(5,134)
2014
$
2014
$
As at December 31,
2013
$
27,877
15,325
43,202
10,803
24,128
34,931
As at December 31,
2013
$
583
47
237
867
1,709
2
242
1,953
In support of the Company's long-term operating lease obligation in Germany and in replacement of a related bank guarantee, the Company transferred
approximately $760,000 ($865,000 in 2013) to a restricted cash account. The fixed amount, including any interest earned thereon, is restricted for as
long as the underlying lease arrangement (note 25 – Commitments and contingencies) has not expired and therefore cannot be utilized for current
purposes as at December 31, 2014.
123
Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
10
Property, plant and equipment
Components of the Company's property, plant and equipment are summarized below.
At January 1, 2013
Additions
Disposals / Retirements
Impact of foreign exchange rate changes
At December 31, 2013
Additions
Disposals / Retirements
Impact of foreign exchange rate changes
At December 31, 2014
At January 1, 2013
Disposals / Retirements
Impairment loss*
Recurring depreciation expense
Impact of foreign exchange rate changes
At December 31, 2013
Disposals / Retirements
Impairment loss**
Recurring depreciation expense
Impact of foreign exchange rate changes
At December 31, 2014
Equipment
$
Furniture and
fixtures
$
Cost
Computer
equipment
$
Leasehold
improvements
$
Total
$
9,444
44
(853)
419
9,054
16
(1,212)
(1,046)
6,812
1,615
15
(452)
59
1,237
20
—
(151)
1,106
1,754
1,144
26
(8)
80
1,852
86
(182)
(222)
1,534
—
—
52
1,196
5
—
(146)
1,055
13,957
85
(1,313)
610
13,339
127
(1,394)
(1,565)
10,507
Accumulated depreciation
Equipment
$
Furniture and
fixtures
$
Computer
equipment
$
Leasehold
improvements
$
Total
$
7,739
(822)
268
461
370
8,016
(1,212)
206
282
(979)
6,313
1,511
(352)
—
6
57
1,222
—
—
17
(152)
1,087
1,721
(8)
—
30
78
1,821
(182)
—
21
(212)
1,448
839
—
—
50
40
929
—
—
51
(118)
862
11,810
(1,182)
268
547
545
11,988
(1,394)
206
371
(1,461)
9,710
_________________________
* Related to equipment transferred to Merck Serono pursuant to the TSA (note 6 – Discontinued operations).
** Related to R&D equipment impaired as a result of a restructuring (note 14 – Restructuring).
At December 31, 2013
At December 31, 2014
Carrying amount
Equipment
$
Furniture and
fixtures
$
Computer
equipment
$
Leasehold
improvements
$
1,038
499
15
19
31
86
267
193
Total
$
1,351
797
124
Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
Depreciation of $577,000 ($495,000 in 2013) is presented in the consolidated statement of comprehensive (loss) income as follows: $530,000
($480,000 in 2013) in net R&D costs and $47,000 ($15,000 in 2013) in SG&A expenses. See also note 6 – Discontinued operations for depreciation
expense related to discontinued operations.
11
Identifiable intangible assets
Identifiable intangible assets with finite useful lives consist entirely of in-process R&D costs, patents and trademarks. Changes in the carrying value of
the Company's identifiable intangible assets with finite useful lives are summarized below.
Year ended December 31, 2014
Year ended December 31, 2013
Cost
$
Accumulated
amortization
Carrying value
$
$
Cost
$
Accumulated
amortization
Carrying value
$
$
Balances – Beginning of the year
39,890
(39,182)
Impairment loss*
Recurring amortization expense*
Impact of foreign exchange rate
changes
Balances – End of the year
—
—
(4,858)
35,032
(184)
(117)
4,803
(34,680)
708
(184)
(117)
(55)
352
38,172
(37,044)
—
—
1,718
39,890
—
(454)
(1,684)
(39,182)
1,128
—
(454)
34
708
_________________________
* Recorded as R&D costs in the consolidated statements of comprehensive (loss) income.
12
Goodwill
Goodwill has not been allocated to any specific CGU of the Group.
The change in carrying value is as follows:
Cost
$
Accumulated
impairment loss
$
Carrying amount
$
Balance as at January 1, 2013
Impact of foreign exchange rate changes
Balance as at December 31, 2013
Impact of foreign exchange rate changes
Balance as at December 31, 2014
13
Payables and accrued liabilities
9,466
426
9,892
(1,205)
8,687
—
—
—
—
—
Trade accounts payable
Accrued research and development costs
Salaries, employment taxes and benefits
Current portion of onerous contract provisions (note 16)
Other accrued liabilities
125
As at December 31,
2014
$
2013
$
3,153
1,073
560
322
691
5,799
9,466
426
9,892
(1,205)
8,687
4,802
666
402
441
931
7,242
Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
14
Restructuring
On August 7, 2014, the Company's Nominating, Governance and Compensation Committee approved the Company's global resources optimization
program (the "Resource Optimization Program"), which has been rolled out as part of a strategy to transition Aeterna Zentaris into a commercially
operating specialty biopharmaceutical organization. The Resource Optimization Program, the goal of which is to streamline R&D activities and
increase commercial operations and flexibility, is expected to result in the ultimate termination of 30 employees at the Company. As at December 31,
2014, management estimates that remaining staff departures will occur through August 31, 2015.
Restructuring costs are recognized in the consolidated statement of comprehensive (loss) income when the Company has a detailed formal plan for the
restructuring and has raised a valid expectation in those affected that it will carry out the restructuring by starting to implement that plan or announcing
the plan's main features to those affected by it.
Upon approval of the Resource Optimization Program, a provision for restructuring costs was recorded. Total restructuring costs associated with the
Resource Optimization Program include severance payments, onerous lease provision and other directly related costs, and have been recorded as
follows in the accompanying consolidated statement of comprehensive (loss) income: $2,201,000 in R&D costs, and $288,000 in SG&A expenses.
This estimate may vary as a result of changes in the underlying assumptions applied thereto, including, but not limited to, the number of employees
that will ultimately depart from the Company.
The change in the Company's provision for restructuring costs can be summarized as follows:
Year ended
December 31,
2014
$
Balance – Beginning of the year
Provision recognized
Utilization of provision
Impact of foreign exchange rate changes
Balance – End of the year
Less: non-current portion
15 Warrant liability
The change in the Company's warrant liability can be summarized as follows:
Balance – Beginning of the year
Share purchase warrants issued during the year (note 17)
Share purchase warrants exercised during the year
Change in fair value of share purchase warrants
Years ended December 31,
2014
$
2013
$
2012
$
18,010
8,487
—
(18,272)
8,225
6,176
13,397
—
(1,563)
18,010
126
—
2,489
(687)
(151)
1,651
(146)
1,505
9,204
4,100
(382)
(6,746)
6,176
Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
A summary of the activity related to the Company's share purchase warrants is provided below.
2014
2013
2012
Years ended December 31,
Weighted
average
exercise price
(US$)
Weighted
average
exercise price
(US$)
Number
Number
5.14
1.55
—
—
Number
1,511,179
2,970,000
(52,383)
(21,386)
Weighted
average
exercise price
(US$)
8.62
3.45
8.24
9.00
5.14
20,107,410
2.34
4,407,410
Balance – Beginning of the year
20,107,410
2.34
4,407,410
Issued
Exercised
Expired
Balance – End of the year
_________________________
* As adjusted (note 17 – Share capital)
8,800,000
1.25 *
15,700,000
—
(122,221)
28,785,189
—
7.50
1.87
—
—
The following table summarizes the share purchase warrants outstanding and exercisable as at December 31, 2014:
Exercise price
1.20
1.25
1.85
3.45
8.24
9.00
10.29
Warrants outstanding and exercisable
Number
Weighted average
remaining contractual
life (years)
1,605,000
20,295,000
2,600,000
2,970,000
530,424
740,737
44,028
28,785,189
3.90
3.96
3.58
2.80
0.47
0.80
0.46
3.65
127
Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
The table presented below shows the inputs and assumptions applied to the Black-Scholes option pricing model in order to determine the fair value of
warrants outstanding as at December 31, 2014.
April 2010
Investor Warrants
June 2010
Investor Warrants
June 2010
Compensation Warrants
October 2012
Investor Warrants
July 2013
Warrants
November 2013
Warrants
Number of
equivalent
shares
Market-value
per share
price ($)
Weighted
average
exercise price
($)
Risk-free
annual
interest rate
(a)
Expected
volatility
(b)
Expected life
(years) (c)
Expected
dividend
yield
(d)
740,737
0.60
9.00
0.25%
98.72%
0.80
0.00%
530,424
0.60
8.24
0.25%
125.73%
0.47
0.00%
44,028
0.60
10.29
0.25%
127.70%
0.46
0.00%
2,970,000
0.60
3.45
1.01%
106.74%
2.80
0.00%
2,600,000
0.60
1.85
1.26%
98.57%
3.58
0.00%
13,100,000
0.60
1.24 *
1.34%
95.78%
3.90
0.00%
January 2014
Investor Warrants
_________________________
(a) Based on United States Treasury Government Bond interest rates with a term that is consistent with the expected life of the warrants.
(b) Based on the historical volatility of the Company's stock price over the most recent period consistent with the expected life of the warrants, as well as on future
8,800,000
94.51%
1.38%
4.03
0.60
1.25 *
0.00%
expectations.
(c) Based upon time to expiry from the reporting period date.
(d) The Company has not paid dividends nor intends to pay dividends in the foreseeable future.
* Subject to adjustment (see note 17 – Share capital and note 28 – Subsequent events).
The Black-Scholes valuation methodology uses "Level 2" inputs in calculating fair value, as defined in IFRS 7, Financial Instruments: Disclosures and
as discussed in note 24 – Financial instruments and financial risk management.
16
Provisions and other non-current liabilities
Onerous contract provisions (detailed below)
Non-current portion of provision for restructuring costs (note 14)
Other
128
As at December 31,
2014
$
2013
$
1,014
146
130
1,290
1,291
—
182
1,473
Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
Onerous contract provisions
Balance at January 1, 2014
Additional provision recognized
Utilization of provision
Unwinding of discount and effect of change in the
discount rate
Balance at December 31, 2014
Less: current portion
Cetrotide® onerous
contracts*
$
Onerous lease**
$
Total
$
1,296
223
(397)
(124)
998
(218)
780
436
—
(102)
4
338
(104)
234
1,732
223
(499)
(120)
1,336
(322)
1,014
Recorded following the transfer of the Cetrotide® Business, as discussed in note 6 – Discontinued operations.
_________________________
*
** Represents the present value of the future lease payments that the Company is obligated to make pursuant to a non-cancellable operating lease in the United States,
net of estimated future sublease income. The estimate may vary as a result of changes in the utilization of the leased premises and of the sublease arrangement. The
remaining term of the lease is three years as at December 31, 2014.
17
Share capital
The Company has an unlimited number of authorized common shares (being voting and participating shares) with no par value, as well as an unlimited
number of preferred, first and second ranking shares, issuable in series, with rights and privileges specific to each class, with no par value.
Share consolidation
The 112,375,726 common shares issued and outstanding immediately prior to the Share Consolidation were consolidated into 18,729,288 common
shares. The Company's outstanding stock options and share purchase warrants were adjusted on the same basis with proportionate adjustments being
made to each stock option and share purchase warrant exercise price.
All share, option and share purchase warrant and per share, option and share purchase warrant data have been retroactively adjusted to reflect and give
effect to the Share Consolidation as if it occurred at the beginning of the earliest period presented.
Common shares issued in connection with "At-the-Market" ("ATM") drawdowns
May 2013 ATM Program
On May 22, 2013, the Company entered into an ATM sales agreement (the "May 2013 ATM Program"), under which the Company was able, at its
discretion and from time to time, to sell up to 2,500,000 of its common shares through ATM issuances on the NASDAQ for aggregate gross proceeds
not to exceed $4,600,000. The May 2013 ATM Program provided that common shares were to be sold at market prices prevailing at the time of sale
and, as a result, prices may have varied.
Between January 1, 2014 and March 31, 2014, the Company issued a total of 201,960 common shares under the May 2013 ATM Program at an
average price of approximately $1.43 per share, resulting in aggregate gross proceeds of $288,114, less cash transaction costs of $8,600 and previously
deferred transaction costs of $17,000. The May 2013 ATM Program was subsequently discontinued in connection with the implementation of the May
2014 ATM Program described below.
129
Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
May 2014 ATM Program
On May 9, 2014, the Company entered into an ATM sales agreement (the "May 2014 ATM Program"), under which the Company is able, at its
discretion and from time to time, to sell up to 14,018,692 of its common shares through ATM issuances on the NASDAQ for aggregate gross proceeds
not to exceed $15,000,000. The May 2014 ATM Program provides that common shares are to be sold at market prices prevailing at the time of sale
and, as a result, prices may vary.
Between July 1, 2014 and December 31, 2014, the Company issued a total of 8,995,108 common shares under the May 2014 ATM Program at an
average price of approximately $1.36 per share for aggregate gross proceeds of $12,218,000 less cash transaction costs of $305,430 and previously
deferred transaction costs of $71,575.
Public offering
On January 14, 2014, the Company completed a public offering (the "January 2014 Offering") of 11,000,000 units, at a purchase price of $1.20 per
unit, with each unit consisting of one common share and 0.8 of a warrant to purchase a common share. The related warrants (the "January 2014
Warrants") represent the right to acquire an aggregate of 8,800,000 common shares, as discussed below.
Total cash proceeds raised through the January 2014 Offering amounted to $13,200,000, less cash transaction costs of approximately $1,034,000 and
previously deferred transaction costs of $5,000.
The Company issued the January 2014 Warrants to the investors who participated in the January 2014 Offering at an exercise price of $1.25 per share,
with the January 2014 Warrants containing certain anti-dilution provisions. These warrants are exercisable at any time during their five-year term and,
upon complete exercise, would result in the issuance of an aggregate of 8,800,000 common shares that would generate additional proceeds for an
amount that would be determined based on the then adjusted exercise price.
The Company estimated the fair value attributable to the January 2014 Warrants as of the date of grant by applying the Black-Scholes pricing model, to
which the following additional assumptions were applied: a risk-free annual interest rate of 1.64%, an expected volatility of 102.31%, an expected life
of 5 years and a dividend yield of 0.0%. As a result, the fair value of the share purchase warrants was estimated at $8,487,000.
Total gross proceeds of the January 2014 Offering were allocated as follows: $8,487,000 was allocated to Warrant liability, and the balance of
$4,713,000 was allocated to Share capital. Transaction costs were allocated to the liability and equity components in proportion to the allocation of
proceeds. As such, an amount of $666,000 was allocated to the share purchase warrants and immediately recognized in general and administrative
expenses in the consolidated statement of comprehensive (loss) income, and an amount of $373,000 was allocated to Share capital.
In connection with the January 2014 Offering, the holders of the November 2013 Warrants (see note 8 – Warrant liability) who participated in the
January 2014 Offering agreed to waive certain anti-dilution provisions of such warrants solely in connection with the January 2014 Offering, and
agreed to an adjustment of exercise price of such warrants following the closing of the January 2014 Offering from their original exercise price of
$1.60 per share to an exercise price equal to $1.25 per share. For holders of the warrants issued in the November 2013 Offering who did not participate
in the January 2014 Offering, the exercise price of the corresponding November 2013 Warrants held by the sole non-participating holder was further
reduced by $0.05 per share. See also note 28 – Subsequent events.
Shareholder rights plan
The Company has a shareholder rights plan (the "Rights Plan") that provides the Board of Directors and the Company's shareholders with additional
time to assess any unsolicited take-over bid for the Company and, where appropriate, to pursue other alternatives for maximizing shareholder value.
Under the Rights Plan, one right has been issued for each currently issued common share, and one right will be issued with each additional common
share to be issued. The Rights Plan was most recently re-confirmed and approved by the Company's shareholders at its annual meeting of shareholders
held on May 8, 2013.
130
Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
Stock options
In December 1995, the Company's Board of Directors adopted a stock option plan (the "Stock Option Plan") for its directors, senior executives,
employees and other collaborators who provide services to the Company. The total number of common shares that may be issued under the Stock
Option Plan cannot exceed 11.4% of the total number of issued and outstanding common shares at any given time. The Company's Board of Directors
amended the Stock Option Plan on March 20, 2014 and the Company's shareholders ratified the amendment on May 9, 2014.
Options granted under the Stock Option Plan prior to the 2014 amendment expire after a maximum period of ten years following the date of grant.
Options granted after the 2014 amendment expire after a maximum period of seven years following the date of grant.
The following tables summarize the activity under the Stock Option Plan.
US dollar-denominated options
Balance – Beginning of the year
Granted
Forfeited
Balance – End of the year
2014
2013
2012
Years ended December 31,
Weighted
average
exercise
price
(US$)
3.40
0.93
4.55
1.88
Weighted
average
exercise
price
(US$)
4.27
1.56
3.37
3.40
Weighted
average
exercise
price
(US$)
11.59
2.40
10.44
4.27
Number
287,950
1,060,445 *
(19,903)
1,328,492
Number
1,328,492
630,000
(198,698) *
1,759,794
Number
1,759,794
1,951,500
(314,263)
3,397,031
_________________________
* In addition to the stock options granted to employees, the Company granted during the year 2012, 125,000 stock options to a financial advisor and 66,666 stock
options to an investor relations advisor. The 125,000 stock options were to vest upon the achievement of a certain strategic alliance transaction, which did not occur.
Of the 66,666 stock options, 33,333 vested upon signature of the service agreement, and the remainder vested 90 days later. Both grants described herein were
forfeited during the year 2013 upon termination of the service agreements.
Years ended December 31,
2014
2013
2012
Canadian dollar-denominated options
Number
Balance – Beginning of the year
Exercised*
Forfeited
Expired
Balance – End of the year
652,779
—
(81,679)
(76,994)
494,106
Weighted
average
exercise
price
(CAN$)
12.91
—
7.50
36.62
10.11
Weighted
average
exercise
price
(CAN$)
12.71
—
12.61
10.77
12.91
Number
727,875
—
(9,932)
(65,164)
652,779
Weighted
average
exercise
price
(CAN$)
14.99
8.51
15.07
23.22
12.71
Number
1,031,328
(25,582)
(57,437)
(220,434)
727,875
_________________________
* The weighted average share price at time of exercise was CAN$11.25 for the year ended December 31, 2012.
131
Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
Exercise price
(US$)
0.76
1.07 to 1.11
1.12 to 2.15
2.16 to 2.92
2.93 to 10.17
10.18 to 21.78
Exercise price
(US$)
1.12 to 2.15
2.16 to 2.92
2.93 to 10.17
10.18 to 21.78
Exercise price
(CAN$)
3.30 to 4.80
4.81 to 7.02
7.03 to 9.78
9.79 to 21.21
21.22 to 30.54
US$ options outstanding as at December 31, 2014
Number
Weighted average remaining
contractual life (years)
Weighted average exercise
price
(US$)
1,136,500
450,000
995,000
520,520
119,166
175,845
3,397,031
6.93
6.35
8.25
7.93
4.74
6.43
7.29
0.76
1.07
1.46
2.17
3.47
11.56
1.88
US$ options exercisable as at December 31, 2014
Number
Weighted average remaining
contractual life (years)
Weighted average exercise
price
(US$)
210,006
520,520
102,501
175,845
1,008,872
8.58
7.93
4.32
6.43
7.44
1.56
2.17
3.46
11.56
3.81
CAN$ options outstanding and exercisable as at December 31, 2014
Number
Weighted average remaining
contractual life (years)
Weighted average exercise
price
(CAN$)
89,223
127,705
134,164
99,992
43,022
494,106
3.89
4.94
4.90
2.11
1.65
3.88
3.64
5.70
8.96
15.72
27.14
10.11
As at December 31, 2014, the total compensation cost related to unvested US Dollar stock options not yet recognized amounted to $1,126,261
($533,206 in 2013). This amount is expected to be recognized over a weighted average period of 1.70 years (1.15 years in 2013).
The Company settles stock options exercised through the issuance of common shares from treasury.
132
Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
Fair value input assumptions for US dollar-denominated options granted
The table below shows the assumptions, or weighted average parameters, applied to the Black-Scholes option pricing model in order to determine
share-based compensation costs over the life of the awards.
Expected dividend yield
Expected volatility
Risk-free annual interest rate
Expected life (years)
Weighted average share price
Weighted average exercise price
(a)
(b)
(c)
(d)
Years ended December 31,
2014
2013
0.0%
101.6%
1.87%
6.16
US$0.93
US$0.93
0.0%
98.1%
1.46%
6.63
US$1.56
US$1.56
Weighted average grant date fair value
_________________________
(a) The Company has not paid dividends nor intends to pay dividends in the foreseeable future.
(b) Based on the historical volatility of the Company's stock price over the most recent period consistent with the expected life of the stock options, as well as on
US$0.75
US$1.26
future expectations.
(c) Based on United States Treasury Government Bond interest rates with a term that is consistent with the expected life of the stock options.
(d) Based upon historical data related to the exercise of stock options, on post-vesting employment terminations and on future expectations related to exercise
behaviour.
The Black-Scholes pricing models referred above use "Level 2" inputs in calculating fair value, as defined by IFRS 7, and as discussed in note 24 –
Financial instruments and financial risk management.
133
Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
18
Operating expenses
Components of the Company's operating expenses from continuing operations include the following:
Subcontractor fees
Raw material purchases
Cost of sales
Key management personnel compensation(1)
Salaries and short-term employee benefits
Termination benefits
Post-employment benefits
Share-based compensation costs
Other employees compensation:
Salaries and short-term employee benefits
Termination benefits (note 14)
Post-employment benefits
Share-based compensation costs
Goods and services(2)
Leasing costs, net of sublease receipts of $344,000 in 2014, $226,000
in 2013 and $226,000 in 2012(3)
Refundable tax credits and grants
Onerous contract expenses resulting from the Resource Optimization
Program (note 14)
Share-based compensation costs related to collaborators
Transaction costs related to share purchase warrants
Depreciation and amortization
Impairment losses
Operating foreign exchange losses (gains)
Years ended December 31,
2014
$
2013
$
2012
$
—
—
—
2,405
439
77
392
3,313
7,663
1,984
832
105
10,584
19,016
1,802
(131)
563
—
666
488
390
715
23,509
37,406
51
—
51
2,280
1,438
58
1,795
5,571
7,955
7
626
572
9,160
15,954
1,879
(517)
—
(148)
1,165
949
—
(413)
18,869
33,651
—
591
591
2,354
—
957
941
4,252
8,473
189
75
514
9,251
14,663
1,751
(868)
—
342
370
1,050
184
203
17,695
31,789
_________________________
(1) Key management includes the Company's directors and members of the executive management team.
(2) Goods and services include third-party R&D costs, laboratory supplies, professional fees, contracted sales force costs, marketing services, insurance and travel
expenses.
(3) Leasing costs also include changes in the onerous lease provision (note 16 – Provisions and other non-current liabilities), other than attributable to the unwinding of
the discount.
134
Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
On April 15, 2013, the Company appointed a new President and Chief Executive Officer ("CEO"), who also was appointed to the Company's Board of
Directors. In accordance with his employment agreement, the Company's new President and CEO was granted, as a retention bonus, 375,000 share
appreciation rights ("SARs"), pursuant to which he will be entitled to receive a future cash payment if he remains employed through a certain date. The
retention bonus will be based on the increase, if any, in the company's share price from $1.98 over a specified period of time. 175,000 SARs vested
(and expired) on December 31, 2014, and the remaining 200,000 SARs will vest on December 31, 2015.
The Company's former President and CEO received, upon termination of his employment, benefits of approximately $1,438,000. Additionally, the
Company's former President and CEO was permitted to retain all of his stock options, which, pursuant to IFRS 2, Share-based Payment, constitutes a
modification to the terms of the existing stock options granted in a share-based payment transaction, by allowing such stock options to expire at the
original expiry date, based on the original date of grant, despite the termination of employment. As a result of this modification, an amount of
$682,000, which corresponds to the compensation cost related to unvested stock options not yet recognized immediately before the modification and to
the incremental fair value of the stock options, measured by comparing the stock options immediately before and immediately after the modification
date, was recognized during the year ended December 31, 2013 within SG&A expenses in the consolidated statement of comprehensive (loss) income.
Most of the employment agreements entered into between the Company and its executive officers include termination provisions, whereby the
executive officers would be entitled to receive benefits that would be payable if the Company were to terminate the executive officers' employment
without cause or if their employment is terminated following a change of control. Separation benefits generally are calculated based on an agreed-upon
multiple of applicable base salary and incentive compensation and, in certain cases, other benefit amounts.
In addition to payments made to members of our key management team, during the years ended December 31, 2013 and 2014, the Company paid
$76,800 and $38,000, respectively, in professional fees to one of the members of the Company's Board of Directors for special tasks mandated by the
Company's Nominating, Corporate Governance and Compensation Committee.
19
Employee future benefits
The Company's subsidiary in Germany provides unfunded defined benefit pension plans and unfunded post-employment benefit plans for certain
groups of employees. Provisions for pension obligations are established for benefits payable in the form of retirement, disability and surviving
dependent pensions.
The unfunded defined benefit pension plans are final salary pension plans, which provide benefits to members (or to their surviving dependents) in the
form of a guaranteed level of pension payable for life. The level of benefits provided depends on the members' length of service and on their base
salary in the final years leading up to retirement. Current pensions vary in accordance to applicable statutory requirements, which foresee an
adjustment, every three years on an individual basis, that is based on inflationary increases or in relation to salaries of comparable groups of active
employees in the Company. An adjustment may be denied by the Company if the Company's financial situation does not allow for an increase in
pensions. These plans are unfunded, and the Company meets benefit payment obligations as they fall due.
135
Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
The following table presents the changes in the aforementioned plans' accrued benefit obligations:
Pension benefit plans
Years ended December 31,
Other benefit plans
Years ended December 31,
2014
$
2013
$
2012
$
2014
$
2013
$
2012
$
Balance – Beginning of year
14,646
16,062
11,769
Current service cost
Interest cost
Actuarial loss (gain) arising from
changes in financial assumptions
Benefits paid
Impact of foreign exchange rate
changes
Balance – End of year
Amounts recognized:
176
476
1,833
(411)
(2,101)
14,619
219
421
(2,346)
(357)
647
14,646
139
491
3,705
(337)
295
16,062
In comprehensive (loss) income
In other comprehensive income(loss)
(652)
268
(640)
1,699
(630)
(4,000)
762
24
25
(96)
(210)
(72)
433
47
72
1,169
57
31
(258)
(274)
36
761
170
(36)
1,111
134
46
79
(219)
18
1,169
(259)
(18)
The cumulative amount of actuarial losses recognized in other comprehensive (loss) income as at December 31, 2014 is approximately $4,336,000
(approximately $2,503,000 as at December 31, 2013 and approximately $4,849,000 as at December 31, 2012).
The significant actuarial assumptions applied to determine the Company's accrued benefit obligations are as follows:
Actuarial assumptions
Discount rate
Pension benefits increase
Rate of compensation increase
Pension benefit plans
Years ended December 31,
Other benefit plans
Years ended December 31,
2014
%
2.00
1.80
2.00
2013
%
3.37
2.00
2012
%
2.60
2.00
2.75 to 3.75
2.75 to 3.75
2014
%
2.00
1.80
2.00
2013
%
3.37
2.00
2.75
2012
%
2.60
2.00
2.75
Assumptions regarding future mortality are set based on actuarial advice in accordance with published statistics and experience in Germany. These
assumptions translate into an average remaining life expectancy in years for a pensioner retiring at age 65:
Retiring at the end of the reporting period:
Male
Female
Retiring 20 years after the end of the reporting period:
Male
Female
2014
2013
2012
19
23
22
26
19
23
22
26
19
23
22
26
136
Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
The most recent actuarial reports give effect to the pension and post-employment benefit obligations as at December 31, 2014. The next actuarial
reports are planned for December 31, 2015.
The calculation of the pension benefit obligation is sensitive to the discount rate assumption set out above. From December 31, 2012 to December 31,
2014, management determined that the discount rate assumption should be adjusted as a result of relevant changes in the European economic
environment.
Additionally, given recent developments in the European economic environment, an increase of 0.25% in the discount rate shown above is considered
reasonably possible over the next financial year. Were such a fluctuation to occur, the effect of this change on the pension benefit obligation presented
as at December 31, 2014 would be a decrease of approximately $600,000.
In accordance with the assumptions used as at December 31, 2014, undiscounted defined pension benefits expected to be paid are as follows:
2015
2016
2017
2018
2019
Thereafter
$
495
502
512
531
553
19,867
22,460
The weighted average duration of the defined benefit obligation is 17.3 years.
Total expenses for the Company's defined contribution plan in its German subsidiary amounted to approximately $232,954 for the year ended
December 31, 2014 ($228,771 for 2013 and $331,287 for 2012).
20
Finance income and finance costs
Components of the Company's finance income and finance costs can be summarized as follows:
Finance income
Change in fair value of warrant liability
Gains due to changes in foreign currency exchange
rates
Interest income
Finance costs
Losses due to changes in foreign currency exchange
rates
Years ended December 31,
2014
$
2013
$
2012
$
18,272
1,879
168
20,319
—
20,319
137
1,563
—
185
1,748
(1,512)
236
6,746
—
228
6,974
(382)
6,592
Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
21
Supplemental disclosure of cash flow information
Changes in operating assets and liabilities:
Trade and other receivables
Inventory
Prepaid expenses and other current assets
Payables and accrued liabilities
Other non-current assets
Deferred revenues
Provision for restructuring costs (note 14)
Employee future benefits (note 19)
Provisions and other non-current liabilities
Years ended December 31,
2014
$
2013
$
2012
$
(578)
—
(2,453)
1,732
(204)
1,101
(687)
(621)
(163)
(1,873)
(3)
112
(6,454)
(900)
(124)
—
—
(631)
10
(7,990)
2,526
670
(4,154)
(2,447)
(364)
—
—
(556)
(49)
(4,374)
During the year ended December 31, 2012, the Company paid approximately $259,000 in income taxes in the form of foreign jurisdiction withholding
tax on payments received pursuant to the licensing agreement entered into with Yakult, as discussed in note 5 – Development, commercialization and
license arrangements.
During the year ended December 31, 2014, the Company paid approximately $101,000 in income taxes in the form of foreign jurisdiction withholding
tax on payments received pursuant to the agreements entered into with Sinopharm, as discussed in note 5 – Development, commercialization and
license arrangements.
22
Income taxes
Significant components of current and deferred income tax expense:
Current tax expense
Deferred tax:
Origination and reversal of temporary differences
Adjustments in respect of prior years
Change in unrecognized tax assets
Income tax expense
Years ended December 31,
2014
$
2013
$
2012
$
111
10,246
5
(10,251)
111
—
(4,253)
418
3,835
—
—
7,282
44
(7,326)
—
138
Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
The reconciliation of the combined Canadian federal and provincial income tax rate to the income tax expense is provided below:
Combined Canadian federal and provincial statutory
income tax rate
26.9%
26.9%
26.9%
Years ended December 31,
2014
2013
2012
Income tax (expense) recovery based on combined statutory
income tax rate
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
Share-based compensation costs
Difference in statutory income tax rate of foreign
subsidiaries
Permanent difference attributable to unrealized foreign
exchange gain/loss
Foreign witholding tax
Adjustments in respect of prior years
Other
Years ended December 31,
2014
$
2013
$
2012
$
4,426
(10,251)
(1,833)
3,835
145
4,408
(133)
1,398
18
(111)
5
(16)
(111)
(892)
(217)
(596)
(809)
131
—
418
(37)
—
5,494
(7,326)
14
1,182
(421)
997
(22)
—
44
38
—
Income tax expense of $111,000 for the year ended December 31, 2014 represents current taxation in the form of foreign jurisdiction tax withholdings
on payments pursuant to the licensing agreement entered into with Sinopharm (note 5 – Development, commercialization and licensing arrangements).
Deferred income tax assets are recognized to the extent that the realization of the related tax benefit through reversal of temporary differences and
future taxable profits is probable.
Income (loss) before income taxes
Income (loss) before income taxes is attributable to the Company's tax jurisdictions as follows:
Germany
Canada
United States
Years ended December 31,
2014
$
2013
$
2012
$
(29,672)
12,867
(271)
(17,076)
(19,784)
(7,639)
183
(27,240)
(23,690)
322
224
(23,144)
139
Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
Significant components of deferred tax assets and liabilities:
Deferred tax assets
Non-current:
Operating losses carried forward
Intangible assets
Deferred tax liabilities
Current:
Deferred revenues
Non-current:
Property, plant and equipment
Deferred revenues
Warrant liability
Other
Deferred tax assets (liabilities), net
Significant components of unrecognized deferred tax assets are as follows:
Deferred tax assets
Current:
Onerous contract and other provisions
Non-current:
Operating losses carried forward
Research and development costs
Unused tax credits
Employee future benefits
Property, plant and equipment
Share issue expenses
Onerous contract provisions
Intangible assets
Other
Unrecognized deferred tax assets
140
As at December 31,
2014
$
2013
$
2,139
7,918
10,057
941
941
17
7,979
1,116
4
9,116
10,057
—
As at December 31,
2014
$
2013
$
102
102
62,094
10,987
9,517
2,455
1,175
817
198
227
296
87,766
87,868
2,465
10,080
12,545
1,262
1,262
50
10,157
1,076
—
11,283
12,545
—
87
87
59,813
11,988
10,386
2,135
1,260
712
435
248
—
86,977
87,064
Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
As at December 31, 2014, amounts and expiry dates of tax attributes to be deferred for which no deferred tax asset was recognized were as follows:
2028
2029
2030
2031
2032
2033
2034
Canada
Federal
$
Provincial
$
9,582
5,716
4,897
2,091
5,071
4,439
5,074
36,870
3,790
5,694
4,879
2,073
5,071
4,439
5,074
31,020
The Company has estimated non-refundable R&D tax credits of approximately $9,517,000 which can be carried forward to reduce Canadian federal
income taxes payable and which expire at dates ranging from 2018 to 2033. Furthermore, the Company has unrecognized tax assets in respect of
operating losses to be carried forward in Germany and in the United States. The losses amount to approximately $167,837,000 in Germany, for which
there is no expiry date and to $698,000 in the United States, which expire as follows:
2028
2029
2034
United States
$
369
178
151
698
The operating loss carryforwards and the tax credits claimed are subject to review, and potential adjustment, by tax authorities.
Other deductible temporary differences for which tax assets have not been booked are not subject to a time limit, except for share issue expenses which
are amortizable over five years.
23
Capital disclosures
The Company's objective in managing capital, consisting of shareholders' equity, with cash and cash equivalents and restricted cash equivalents being
its primary components, is to ensure sufficient liquidity to fund R&D activities, SG&A expenses, working capital and capital expenditures.
Over the past several years, the Company has increasingly raised capital via public equity offerings and drawdowns under various ATM sales programs
as our primary source of liquidity, as discussed in note 17 – Share capital.
The capital management objective of the Company remains the same as that in previous periods. The policy on dividends is to retain cash to keep
funds available to finance the activities required to advance the Company's product development portfolio and to pursue appropriate commercial
opportunities as they may arise.
The Company is not subject to any capital requirements imposed by any regulators or by any other external source.
141
Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
24
Financial instruments and financial risk management
Financial assets (liabilities) as at December 31, 2014 and December 31, 2013 are presented below.
December 31, 2014
Cash and cash equivalents (note 7)
Trade and other receivables (note 8)
Restricted cash equivalents (note 9)
Payables and accrued liabilities (note 13)
Provision for restructuring costs (note 14)
Warrant liability (note 15)
Other non-current liabilities (note 16)
December 31, 2013
Cash and cash equivalents (note 7)
Trade and other receivables (note 8)
Restricted cash equivalents (note 9)
Payables and accrued liabilities (note 13)
Warrant liability (note 15)
Other non-current liabilities (note 16)
Fair value
Loans and
receivables
$
34,931
796
760
—
—
—
—
36,487
Financial
liabilities at
FVTPL
$
Other
financial
liabilities
$
—
—
—
—
—
(8,225)
—
(8,225)
—
—
—
(5,256)
(1,105)
—
(130)
(6,491)
Loans and
receivables
$
Financial
liabilities at
FVTPL
$
Other
financial
liabilities
$
43,202
1,899
865
—
—
—
45,966
—
—
—
—
(18,010)
—
(18,010)
—
—
—
(6,687)
—
(140)
(6,827)
Total
$
34,931
796
760
(5,256)
(1,105)
(8,225)
(130)
21,771
Total
$
43,202
1,899
865
(6,687)
(18,010)
(140)
21,129
The Black-Scholes valuation methodology uses "Level 2" inputs in calculating fair value, as defined in IFRS 7, which establishes a hierarchy that
prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical
assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The input levels discussed in IFRS 7
are:
Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 – Inputs other than quoted prices included within Level 1 that are observable for an asset or liability, either directly (i.e. prices) or indirectly
(i.e. derived from prices).
Level 3 – Inputs for an asset or liability that are not based on observable market data (unobservable inputs).
The carrying values of the Company's cash and cash equivalents, trade and other receivables, restricted cash equivalents, payables and accrued
liabilities, provision for restructuring costs and other non-current liabilities approximate their fair values due to their short-term maturities or to the
prevailing interest rates of the related instruments, which are comparable to those of the market.
142
Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
Financial risk factors
The following provides disclosures relating to the nature and extent of the Company's exposure to risks arising from financial instruments, including
credit risk, liquidity risk and market risk (share price risk and currency risk), and how the Company manages those risks.
(a)
Credit risk
Credit risk is the risk of an unexpected loss if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The
Company regularly monitors credit risk exposure and takes steps to mitigate the likelihood of this exposure resulting in losses. The Company's
exposure to credit risk currently relates to cash and cash equivalents, trade and other receivables and restricted cash equivalents. The Company
holds its available cash in amounts that are readily convertible to known amounts of cash and deposits its cash balances with financial
institutions that are rated the equivalent of "Baa1" and above. This information is supplied by independent rating agencies where available and,
if not available, the Company uses publicly available financial information to ensure that it invests its cash in creditworthy and reputable
financial institutions.
As at December 31, 2014, trade accounts receivable for an amount of approximately $289,000 were with three counterparties.
As at December 31, 2014, no trade accounts receivable were past due or impaired.
Generally, the Company does not require collateral or other security from customers for trade accounts receivable; however, credit is extended
following an evaluation of creditworthiness. In addition, the Company performs ongoing credit reviews of all of its customers and establishes an
allowance for doubtful accounts when accounts are determined to be uncollectible.
The maximum exposure to credit risk approximates the amount recognized in the Company's consolidated statement of financial position.
(b)
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. As indicated in note 23 –
Capital disclosures, the Company manages this risk through the management of its capital structure. It also manages liquidity risk by
continuously monitoring actual and projected cash flows. The Board of Directors reviews and approves the Company's operating and capital
budgets, as well as any material transactions occurring outside of the ordinary course of business. The Company has adopted an investment
policy in respect of the safety and preservation of its capital to ensure the Company's liquidity needs are met. The instruments are selected with
regard to the expected timing of expenditures and prevailing interest rates.
The Company expects to continue to incur operating expenses and may require significant capital to fulfill its future obligations in absence of
sufficient corresponding revenues. The Company's ability to continue future operations beyond December 31, 2015 and to fund its activities is
dependent on its ability to secure additional financings, which may be completed in a number of ways, including but not limited to licensing
arrangements, partnerships, promotional arrangements, the issuance of securities and other financing activities. Management will pursue such
additional sources of financing when required, and while the Company has been successful in securing financing in the past, there can be no
assurance it will be able to do so in the future or that these sources of funding or initiatives will be available or on terms acceptable to the
Company.
(c) Market risk
Share price risk
The change in fair value of the Company's warrant liability, which is measured at FVTPL, results from the periodic "mark-to-market"
revaluation, via the application of the Black-Scholes option pricing model, of currently outstanding share purchase warrants. The Black-Scholes
valuation is impacted, among other inputs, by the market
143
Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
price of the Company's common shares. As a result, the change in fair value of the warrant liability, which is reported as finance income (costs)
in the accompanying consolidated statements of comprehensive (loss) income, has been and may continue in future periods to be materially
affected most notably by changes in the Company's common share closing price, which on the NASDAQ, has ranged from $0.52 to $1.50
during the year ended December 31, 2014.
If variations in the market price of our common shares of -10% and +10% were to occur, the impact on the Company's net (loss) income related
to the warrant liability held at December 31, 2014 would be as follows:
Warrant liability
Total impact on net loss – decrease / (increase)
Foreign currency risk
Carrying
amount
$
8,225
-10%
$
+10%
$
1,117
1,117
(1,147)
(1,147)
Since the Company operates internationally, it is exposed to currency risks as a result of potential exchange rate fluctuations related to non-
intragroup transactions. In particular, fluctuations in the US dollar exchange rates against the EUR could have a potentially significant impact on
the Company's results of operations.
If foreign exchange rate variations of -5% (depreciation of the EUR) and +5% (appreciation of the EUR) against the US$, from period-end rates
of EUR1 = US$1.2101 were to occur, the impact on the Company's net (loss) income for each significant category of financial instruments held
at December 31, 2014 would be as follows:
Cash and cash equivalents
Warrant liability
Total impact on net loss – decrease / (increase)
25
Commitments and contingencies
Carrying
amount
$
25,184
8,225
Balances denominated in US$
-5%
$
1,259
(411)
848
+5%
$
(1,259)
411
(848)
The Company is committed to various operating leases for its premises. Expected future minimum lease payments and future minimum sublease
receipts under non-cancellable operating leases (subleases), as well as future payments in connection with utility service agreements, as at December
31, 2014 are as follows:
Less than 1 year
1 - 3 years
4 - 5 years
Total
Minimum lease payments
Minimum sublease
receipts
$
$
1,678
1,352
325
3,355
(392)
(493)
(19)
(904)
The Company is party to a lease arrangement in Germany for laboratory, office and storage space. The original term of the lease is ten years, expiring
in March 2016, and the lease has an automatic renewal provision if not terminated by the Company at least 12 months prior to expiry. Over the lease
term, minimum lease payments may be increased or decreased based on fluctuations in the German consumer price index. The Company does not
expect to allow the lease arrangement to automatically renew and is examining options for alternative space to accommodate remaining German-
144
Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
based staff. As such, the minimum lease payments presented above exclude any lease payments for the Company's German subsidiary beyond March
2016.
As discussed in note 9 – Restricted cash equivalents, the Company transferred approximately $760,000 to a restricted cash account in support of the
aforementioned lease arrangement. Upon expiry of the underlying arrangement, the restricted funds will be released and made available for current
operating purposes.
In October 2007, the Company entered into a $100,000 letter of credit agreement in favour of a landlord in the United States with respect to the
Company's long-term lease obligation. In August 2009 and November 2011, the amount of the letter of credit was reduced to $75,000 and $50,000,
respectively, as per the original landlord-tenant agreement, and is payable to the landlord in the event that the Company fails to perform any of its
obligations under the related lease agreement.
Contingencies
In the normal course of operations, the Company may become involved in various claims and legal proceedings related to, for example, contract
terminations and employee-related and other matters. No contingent liabilities have been accrued as at December 31, 2014 or 2013.
Class Action Lawsuit
The Company and certain of its current and former officers are defendants in a purported class-action lawsuit pending in the United States District
Court for the District of New Jersey, brought on behalf of stockholders of the Company. The lawsuit, which was filed on November 11, 2014, alleges
violations of the Securities Exchange Act of 1934 in connection with allegedly false and misleading statements made by the defendants between April
2, 2012 and November 6, 2014, or the Class Period, regarding the safety and efficacy of Macrilen™, a product that the Company developed for use in
the diagnosis of adult growth hormone deficiency, and the prospects for the approval of the Company's new drug application for the product by the
U.S. Food and Drug Administration. The plaintiffs seek to represent a class comprised of purchasers of the Company's common shares during the Class
Period and seek damages, costs and expenses and such other relief as determined by the court.
The Company's directors' and officers' insurance policies ("D&O Insurance") provide for reimbursement of costs and expenses incurred in connection
with this lawsuit, including legal and professional fees, as well as potential damages awarded, if any, subject to certain policy restrictions, limits and
deductibles. The Company believes that the D&O Insurance covers the lawsuit; however, the insurers have reserved their rights to raise all of the
rights, entitlements and defences available to them under the D&O Insurance. If the D&O Insurance does cover the lawsuit, the Company will be
required to pay legal and professional fees, as well as potential damages awarded in an amount equal to a substantial self-insured retention. Legal and
professional fees are expensed as incurred and no reserve is established for them.
While the Company believes that it has meritorious defenses and intends to defend this lawsuit vigorously, it cannot predict the outcome. Accordingly,
the Company has not recorded any liability related to the lawsuit. No assurance can be given with respect to the ultimate outcome of such proceedings,
and the amount of any damages awarded in such lawsuit could be substantial.
145
Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
26
Net (loss) income per share
The following table sets forth pertinent data relating to the computation of basic and diluted net (loss) income per share attributable to common
shareholders.
Net loss from continuing operations
Net income from discontinued operations
Net (loss) income
Basic weighted average number of shares outstanding
Dilutive effect of stock options
Diluted weighted average number of shares outstanding
Items excluded from the calculation of diluted net (loss)
income per share because the exercise price was greater
than the average market price of the common shares or
due to their anti-dilutive effect
Stock options
Warrants (number of equivalent shares)
Years ended December 31,
2014
$
(17,187)
623
(16,564)
59,024,730
—
59,024,730
2013
$
(27,240)
34,055
6,815
29,476,455
—
29,476,455
2012
$
(23,144)
2,732
(20,412)
19,775,073
31,614
19,806,687
2,324,175
28,785,189
2,115,453
7,141,879
1,183,388
1,803,730
For the year ended December 31, 2012, the diluted net loss per share was the same as the basic net loss per share, since the effect of the assumed
exercise of stock options and warrants to purchase common shares is anti-dilutive. Accordingly, the diluted net loss per share for this period was
calculated using the basic weighted average number of shares outstanding.
The weighted average number of shares is influenced most notably by share issuances made in connection with financing activities, such as registered
direct and public offerings and ATM drawdowns, which resulted in the issuance of a total of 20,197,068 (see note 17 – Share capital), 19,982,721 and
7,790,973 common shares during the years ended December 31, 2014, 2013 and 2012, respectively. See also note 28 – Subsequent events.
27
Segment information
The Company operates in a single operating segment, being the biopharmaceutical segment.
Geographical information
The Company is domiciled in Canada and, for the three years ended December 31, 2014, has derived all of its revenues from its operating subsidiaries
domiciled in Germany.
146
Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
Revenues by geographical area are detailed as follows:
United States
Switzerland
Japan
Other
Amounts presented:
Within discontinued operations
Within continuing operations
Years ended December 31,
2014
$
2013
$
2012
$
6
956
61
25
1,048
1,037
11
1,048
33,640
34,081
6,586
212
74,519
68,344
6,175
74,519
5,158
24,406
4,062
39
33,665
31,612
2,053
33,665
Revenues have been allocated to geographic regions based on the country of residence of the Company's external customers or partners.
Non-current assets* by geographical area are detailed as follows:
Germany
United States
Canada
As at December 31,
2014
$
2013
$
9,778
—
58
9,836
11,928
16
7
11,951
_________________________
* Non-current assets include property, plant and equipment, identifiable intangible assets and goodwill.
Major customers representing 10% or more of the Company's revenues in each of the last three years are as follows:
Years ended December 31,
2014
$
2013
$
2012
$
956
—
—
34,081
33,640
5,952
24,406
4,175
1,040
Company 1*
Company 2*
Company 3
_________________________
* Related to the Cetrotide® Business (see note 6 – Discontinued operations).
147
Aeterna Zentaris Inc.
Notes to Consolidated Financial Statements
As at December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014, 2013 and 2012
(tabular amounts in thousands of US dollars, except share/option/warrant and per share/option/warrant data and as otherwise noted)
28
Subsequent events
On March 11, 2015, the Company completed a public offering of 59,677,420 units (the "Units"), generating net proceeds of approximately $34.5
million, with each Unit consisting of either one common share or one warrant to purchase one common share ("Series C Warrant"), 0.75 of a warrant to
purchase one common share ("Series A Warrant") and 0.50 of a warrant to purchase one common share ("Series B Warrant"), at a purchase price of
$0.62 per Unit (the "March 2015 Offering"). The Series A Warrants are exercisable for a period of five years at an exercise price of $0.81 per share,
and the Series B Warrants are exercisable for a period of 18 months at an exercise price of $0.81 per share. Both the Series A and Series B warrants are
subject to certain anti-dilution provisions. The Series C Warrants are exercisable for a period of five years at an exercise price of $0.62 per share. Total
gross proceeds payable to the Company in connection with the exercise of the Series C Warrants have been pre-paid by investors and therefore are
included in the aforementioned proceeds.
In connection with the March 2015 Offering, the holders of 21,123,332 of the 21,900,000 outstanding warrants issued by the Company in connection
with the November 2013 Offering and the January 2014 Offering entered into an amendment agreement that caused such previously issued warrants to
expire and terminate in exchange of a cash payment made by the Company in the aggregate amount of approximately $5.7 million.
148
Item 19.
Exhibits
Exhibit Index
1.1
1.2
1.3
2.1
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
8.1
11.1
11.2
11.3
12.1
12.2
13.1
13.2
15.1
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)
Certificate of Amendment and Articles of Amendment of the Registrant (incorporated by reference to Exhibit 99.2 to the Registrant's report on Form 6-K
furnished to the Commission on October 3, 2012)
Amended and Restated By-Law One of the Registrant (incorporated by reference to Exhibit 1.3 of the Registrant's Annual Report on Form 20-F for the financial
year ended December 31, 2012 filed with the Commission on March 21, 2013)
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)
Second Amended and Restated 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, 2013 filed with the Commission on March 21, 2014)
Employment Agreement dated November 1, 2013 between Jude Dinges and a subsidiary of the Registrant (incorporated by reference to Exhibit 4.4 of the
Registrant's Annual Report on Form 20-F for the financial year ended December 31, 2013 filed with the Commission on March 21, 2014)
Employment Agreement dated April 15, 2013 between David A. Dodd and a subsidiary of the Registrant (incorporated by reference to Exhibit 4.5 of the
Registrant's Annual Report on Form 20-F for the financial year ended December 31, 2013 filed with the Commission on March 21, 2014)
Service Contract dated January 1, 2014 between Richard Sachse, MD and Aeterna Zentaris GmbH, a subsidiary of the Registrant (incorporated by reference to
Exhibit 4.8 of the Registrant's Annual Report on Form 20-F for the financial year ended December 31, 2013 filed with the Commission on March 21, 2014)
Employment agreement dated November 11, 2013 between Keith Santorelli and a subsidiary of the Registrant
Amendment #1 to employment agreement dated May 29, 2014 between a subsidiary of the Registrant and Keith Santorelli
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)
Termination of the Change of Control Program letter dated June 14, 2013 from the Registrant to Dennis Turpin (incorporated by reference to Exhibit 4.10 of the
Registrant's Annual Report on Form 20-F for the financial year ended December 31, 2013 filed with the Commission on March 21, 2014)
Master Collaboration Agreement by and between Aeterna Zentaris GmbH, a subsidiary of the Registrant, and Sinopharm A-think Pharmaceuticals Co., Ltd, dated
as of December 1, 2014 (incorporated by reference to Exhibit 99.2 of the Registrant's report on Form 6-K furnished to the Commission on December 11, 2014).
License Agreement by and between Aeterna Zentaris GmbH, a subsidiary of the Registrant, and Sinopharm A-think Pharmaceuticals Co., Ltd, dated as of
December 1, 2014 (incorporated by reference to Exhibit 99.3 of the Registrant's report on Form 6-K furnished to the Commission on December 11, 2014).
Technology Transfer and Technical Assistance, Agreement by and between Aeterna Zentaris GmbH, a subsidiary of the Registrant, and Sinopharm A-think
Pharmaceuticals Co., Ltd, dated as of December 1, 2014 (incorporated by reference to Exhibit 99.4 of the Registrant's report on Form 6-K furnished to the
Commission on December 11, 2014).
Subsidiaires 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)
Code of Business Conduct and Ethics for Members of the Board of Directors
Audit Committee Charter of the Registrant
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
149
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.
AETERNA ZENTARIS INC.
/s/ Dennis Turpin
Dennis Turpin, CPA, CA
Senior Vice President and Chief Financial
Officer
Date: March 17, 2015
150
Exhibit 4.5
EMPLOYMENT AGREEMENT AETERNA ZENTARIS, INC.
Dated November 11, 2013
AETERNA ZENTARIS, INC., a Corporation duly incorporated, having
its head office at 100 Market Place, Suite 203, 25 Mountainview Blvd.
Basking Ridge, NJ 07920
(hereinafter the "Corporation")
Keith Santorelli, CPA, domiciled at:
18 Mountain Avenue, Wakefield, MA 01880
(hereinafter the "Executive")
BETWEEN:
AND:
SECTION 1 – PURPOSE
1.1
The Corporation wishes to employ the Executive as its Vice President, Finance, starting on November 11, 2013 (the "Commencement Date"). The
Executive is willing to be employed by the Corporation, on the terms and conditions set forth herein in this Employment Agreement
(the "Agreement"). The Executive shall report to the Senior Vice President and Chief Financial Officer of the Corporation.
SECTION 2 – DUTIES
2.1
2.2
The Executive agrees to devote his full business time to the Corporation, to make every effort necessary to perform adequately the duties that are
assigned to him and to act in the best interests of the Corporation at all times. The Executive shall refrain from any activity that could be prejudicial
to the Corporation's interests. In performing his duties with the Corporation, the Executive shall act faithfully and honestly at all times.
The Executive shall carry out his duties primarily in Massachusetts (Greater Boston area); however, the Executive agrees to attend to business at
other locations as required to meet the needs of the Corporation or to perform his duties.
2.3
The Executive agrees to comply with all the instructions, policies and/or rules that are established verbally or in writing by the Corporation.
2.4
The Executive shall be entitled to sit on a board of directors of another corporation, solely with the prior written authorization of the Board.
1
SECTION 3 – COMPENSATION
3.1
Salary
The Corporation shall pay the Executive, for the duration of this Agreement, a base annual salary (the "Base Salary") of TWO HUNDRED
AND FORTY THOUSAND US DOLLARS (US$240,000.00), payable in accordance with the Corporation's standard payroll practices. Such Base
Salary shall be reviewed annually and may be increased in accordance with the Corporation's policy.
3.2
Bonus
The Executive shall be eligible to earn an annual cash bonus (the "Annual Bonus"), which shall be computed in the target range of 30% of
the Executive's Base Salary. Such Annual Bonus will be calculated upon the achievement of performance objectives pre-established by the Senior
Vice President and Chief Financial Officer. The granting of an Annual Bonus is also based on the business performance of the Corporation and the
Group and shall be subject to the full discretion and approval of the Parent's Board of Directors and/or its Governance Committee. The Annual
Bonus, if any, payable for any calendar year shall be paid no later than March 15 of the following calendar year.
3.3
Business Expenses
The Corporation shall reimburse the Executive, upon presentation of vouchers, for reasonable entertainment, traveling and other expenses
incurred by him on behalf of the Corporation, in accordance with the Corporation's policies and rules.
3.4
Stock Options
The Corporation will negotiate the grant of stock options in good faith during the first year of employment.
SECTION 4 – VACATION
The Executive shall be entitled to paid annual vacation of four (4) weeks, in accordance with the Corporation's policy, which vacation is to be taken at times
prearranged with the Corporation. Vacation must be taken during the year and shall not be cumulative.
SECTION 5 – GROUP INSURANCE
5.1
The Executive is eligible to participate in the Aeterna Zentaris, Inc. health and dental benefits plan and to receive other benefits routinely offered by
the Corporation (i.e. 401k matching), beginning on the Commencement Date.
SECTION 6 – DURATION AND TERMINATION
6.1 Duration
This contract is for an indeterminate term.
6.2 Automatic termination
The Executive's employment shall terminate automatically, without the Corporation being
2
bound to pay any compensation whatsoever, upon the death of the Executive or the date upon which his resignation becomes effective.
The Executive's employment may also be terminated by the Corporation for cause upon simple notice in writing transmitted to the Executive,
without the Corporation being bound to pay any compensation whatsoever, in the following cases, hereinafter referred to as "Cause":
(a)
(b)
If the Executive is declared bankrupt or insolvent or makes an assignment of his property or is placed under protective supervision, which
situations the Executive acknowledges to be incompatible with the continuation of his employment.
If the Executive becomes physically or mentally disabled to such an extent as to make him unable to perform his duties normally and
adequately for an aggregate of six (6) months during a period of twelve (12) consecutive months. In such a case, the Executive may continue
to benefit under short-term and long-term disability insurance plans, subject to the terms of such plans, if any.
(c)
If the Executive breaches the terms of this Agreement.
(d)
If the Executive commits any fraud, theft, embezzlement or other criminal act of a similar nature.
(e)
If the Executive has committed serious misconduct or willful negligence in the performance of his duties.
(f)
If the Executive refuses or fails to follow reasonable directives of the Corporation.
(g)
If the Executive's demonstrates willful or reckless conduct causing material damage to the Corporation or the Corporation's business.
(h)
If the Executive misuses or abuses alcohol, drugs or controlled substances.
6.3 Termination without Cause
Either the Executive or the Corporation may terminate the Executive's employment at any time, without cause, by providing 30 days' written notice
to the other party. Notice to terminate the Executive's employment or termination itself will not give rise to the payment of severance.
6.4 Resignation
In the event that the Executive wishes to terminate his employment, he shall give the Corporation prior written notice of at least 30 days.
SECTION 7 – THIS ITEM IS INTENTIONALLY LEFT BLANK
SECTION 8 – NO COMPETITION, NO SOLICITATION AND LOYALTY
8.1
The Executive shall not compete with the Corporation, directly nor indirectly. He shall not participate in any capacity whatsoever in a business that
would directly or indirectly compete with the Corporation, namely one involved in the development and commercialization of the specific endocrine
therapies and oncology treatments which the Corporation is actively developing, including, without limitation, as an executive, director, officer,
employer, principal, agent, fiduciary, administrator of another's property, associate, independent contractor,
3
franchisor, franchisee, distributor or consultant unless such participation is fully disclosed to the Corporation and approved in writing in
advance by the Board. In addition, the Executive shall not have any interest whatsoever in such an enterprise, including, without limitation, as owner,
shareholder, partner, limited partner, lender or silent partner. This no competition covenant is limited as follows:
8.1.1
As to the time period, to the duration of the Executive's employment and for a period of one (1) year as of the date of termination of his
employment;
8.1.2
As to the geographical area, the territory in which a specific product had been actively exploited by the Corporation during the two years
preceding the termination date. For purposes of this clause, the Corporation is deemed to have actively exploited such territory for such
product if, during the two (2) years immediately preceding the termination date:
(i)
(ii)
Distribution rights for this product were granted to a distributor of the Corporation, pursuant to a distribution agreement (exclusive or
non-exclusive) except if such distribution agreement ceased to have effect, prior to the termination date, with the Corporation's
consent and provided that the Corporation did not actively search for other distributors for the territory covered by this Agreement; or
if
The Corporation has completed phase II clinical development work for this product in this territory, or searched for commercial
partners or applied to protect its intellectual property rights in relation to the product and its use, including patent applications in
relation to the product or its use, which applications referred to these territories.
8.1.3
As to the nature of the activities, to duties or activities which are identical or substantially similar to those performed or carried on by the
Executive during the twenty-four (24) months preceding the termination of his employment.
The foregoing stipulation shall nevertheless not prevent the Executive from buying or holding shares or other securities of a Corporation whose
securities are publicly traded on a recognized stock exchange where the securities so held by the Executive do not represent more than five percent
(5%) of the voting shares of such Corporation and do not allow for its control.
The Executive also undertakes, for the same period and in respect of the same territory referred to hereinabove in sub-sections 8.1.1 and 8.1.2, not to
solicit clients of the Corporation, directly or indirectly, not to permit the use of his name in order to solicit said clients or do anything whatsoever to
induce or to lead any person to decide to put an end, in whole or in part, to his business relations with the Corporation.
The Executive also undertakes, for the same period and in respect of the same territory referred to hereinabove in sub-sections 8.1.1 and 8.1.2, not to
induce, attempt to induce or otherwise interfere in the relations which the Corporation has with its distributors, suppliers, representatives, agents and
other parties with whom the Corporation deals.
The Executive also undertakes, for the same period and in respect of the same territory referred to hereinabove in sub-sections 8.1.1 and 8.1.2 not to
induce, attempt to induce or otherwise solicit the personnel of the Corporation to leave their employment with the Corporation nor to hire the
personnel of the Corporation for any enterprise in which the Executive has an interest.
8.2
8.3
8.4
8.5
4
8.6
8.7
The Executive acknowledges that the provisions of this section 8 are limited as to the time period, the geographic area and the nature of the activities
to what the parties deem necessary to protect the legitimate interests of the Corporation, while allowing the Executive to earn his living.
Nothing in this section shall operate to reduce nor to extinguish the obligations of the Executive arising at law or under this contract which survive at
the termination of the contract in reason of their nature and, in particular, without limiting the foregoing, the Executive's duty of loyalty and
obligation to act faithfully and honestly.
SECTION 9 – CONFIDENTIALITY
9.1
The Executive acknowledges that he has received and will receive or conceive, in carrying on or in the course of his work during his employment
with the Corporation, confidential information pertaining to the activities, the technologies, the operations and the business, past, present and future,
of the Corporation or its subsidiaries or related or associated companies which information is not in the public domain. The Executive acknowledges
that such confidential information belongs to the Corporation and that its disclosure or unauthorized use could be prejudicial to the Corporation and
contrary to its interests.
Accordingly, the Executive agrees to respect the confidentiality of such information and not to make use of or disclose or discuss it to or
with any person, other than in the course of his duties with the Corporation, without the explicit prior written authorization of the Corporation.
This undertaking to respect the confidentiality of such information and not to make use of or disclose or discuss it to or with any person
shall continue to have full effect notwithstanding the termination of the Executive's employment with the Corporation, so long as such confidential
information does not become public as a result of an act by the Corporation or a third party which act does not involve the fault of one its Executives.
9.2
The term "confidential information" includes among other things:
9.2.1
products, formulae, processes and composition of products, as well as raw materials and ingredients, of whatever kind, that are used in their
manufacture;
9.2.2
technical knowledge and methods, quality control processes, inspection methods, laboratory and testing methods, information processing
programs and systems; manufacturing processes, plans, drawings, tests, test reports and software;
9.2.3
equipment, machinery, devices, tools, instruments and accessories;
9.2.4
financial information, production cost data, marketing strategies, raw materials supplies, suppliers, staff and client lists and related
information, marketing plans, sales techniques and policies, including pricing policies, sales and distribution data and present and future
expansion plans; and
9.2.5
research, experiments, inventions, discoveries, developments, improvements, ideas, industrial secrets and "know-how".
9.3 The Executive undertakes to keep the terms of this Agreement confidential.
5
SECTION 10 – OWNERSHIP OF INTELLECTUAL PROPERTY
10.1
The Executive hereby assigns and agrees to assign to the Corporation all his intellectual property rights as of their creation and to make full and
prompt disclosure to the Corporation of all information relating to anything made or designed by him or that may be made or designed by him during
the period of his employment, whether alone or jointly with other persons, or within a period of two (2) years following the termination of his
employment and resulting from or arising out of any work performed by the Executive on behalf of the Corporation or connected with any matter
relating or possibly relating to any business in which the Corporation or any of its subsidiaries or related or associated companies is involved unless
specifically released from such obligation in writing by the Board.
In addition, the Executive renounces all moral rights in any document or work realized during the period of his employment. The Executive
acknowledges that the Corporation has the right to use, modify or reproduce any document or work realized by the Executive, at its entire discretion,
without the Executive's authorization and without his name being mentioned.
10.2
At any time during the period of his employment or after the termination of his employment, the Executive shall sign, acknowledge and deliver, at
the Corporation's expense, but without compensation other than a reasonable sum for his time devoted thereto if his employment has then
terminated, any document required by the Corporation to give effect to section 10.1, including patent applications and documents evidencing the
assignment of ownership. The Executive shall also provide such other assistance as the Corporation may require with respect to any proceeding or
litigation relating to the protection or defense of intellectual property rights belonging to the Corporation.
10.3
This section shall be binding on the Executive's heirs, assignees and legal representatives.
SECTION 11 – OWNERSHIP OF FILES AND OTHER PROPERTY
11.1
Any file, sketch, drawing, letter, report, memo or other document, any equipment, machinery, tool, instrument or other device, any diskette,
recording tape, compact disc or software or any other property which comes into the Executive's possession during his employment with the
Corporation, in the performance or in the course of his duties, regardless of whether he has participated in its preparation or design, how it may have
come into his possession and whether or not it is an original or a copy, shall at all times remain the property of the Corporation and, upon the
termination of the Executive's employment, shall be returned to the Corporation or its designated representative before the Executive leaves his place
of work. The Executive may not keep a copy or give one to a third party.
SECTION 12 – TERMINATION OF PRIOR CONTRACTS
12.1
As of the effective date hereof, this Agreement supersedes and cancels any prior agreement, verbal or written, with respect to the Executive's
employment with the Corporation.
SECTION 13 – AMENDMENT OF THE AGREEMENT
13.1
To be valid, any amendment to this Agreement must be confirmed in writing by the Corporation and by the Executive.
6
SECTION 14 – NOTICES
14.1
Any notice given hereunder shall be given in writing and sent by registered or certified mail or hand delivered. If such notice is sent by registered or
certified mail, it shall be deemed to have been received five (5) business days following the date of its mailing if the postal services are working
normally. If such is not the case, the notice must be hand delivered or served by bailiff, at the discretion of the sender. In the case of hand delivery or
service, the notice shall be deemed to have been received the same day. It is agreed that if the delivery date is a non- business day, the notice shall be
deemed to have been received on the following business day.
SECTION 15 – ELECTION OF DOMICILE
15.1
For the purposes of the exercise of any rights flowing from this Agreement and the institution of legal proceedings, the parties elect domicile in the
judicial district of Massachusetts.
SECTION 16 – SUCCESSORS
16.1
This Agreement shall be binding on the successors, heirs, assignees and legal representatives of the parties.
SECTION 17 – INTERPRETATION
17.1
This Agreement shall be governed by and interpreted in accordance with the laws of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF the parties hereto have duly signed this Agreement on this ____ day of November, 2013.
AETERNA ZENTARIS, INC. (CORPORATION)
By:
DENNIS TURPIN
Senior Vice President and Chief Financial officer
Signed Name
Date:
11 Nov. 2013
and
KEITH SANTORELLI (EXECUTIVE)
Signed Name
Date:
11/11/2013
7
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
DATED NOVEMBER 11, 2013 (the "AMENDMENT")
Exhibit 4.6
BETWEEN:
AND:
AETERNA ZENTARIS, INC., a Corporation duly incorporated, having an
office at 100 Market Place, Suite 203, 25 Mountainview Blvd. Basking Ridge,
NJ 07920
(hereinafter the "Corporation")
KEITH SANTORELLI, CPA, domiciled at
18 Mountain Avenue, Wakefield, MA 01880
(hereinafter the "Executive")
WHEREAS, the Corporation and the Executive wish to continue the Executive's employment with the Corporation; and
WHEREAS, in consideration of the Executive's continued employment, the parties wish to modify certain provisions of the Executive's employment
agreement dated November 11, 2013 (the "AGREEMENT"),
NOW THEREFORE, in consideration of the terms herein contained and for other good and valuable consideration, the parties hereby agree as follows:
SECTION 1
1.1
Sections 6.3 and 6.4 of the Agreement are hereby deleted and replaced by the following:
6.3 Good Reason. The Executive shall have the right to resign at any time for any of the following reasons, each of which shall constitute Good
Reason:
(a) A more than 25% reduction of the Executive's Base Salary, as increased from time to time, provided such reduction is not warranted and due
to either company performance or the Executive's failure to achieve performance standards or objectives as determined by the Senior Vice
President and Chief Financial Officer in his sole and absolute discretion and judgment;
(b) A material reduction (absent the Executive's consent) in the Executive's duties and responsibilities as the Corporation's Vice President,
Finance.
Provided, however, no reason set forth in this Section 6.3 shall constitute Good Reason unless the Corporation upon express written notice is given
a reasonable period to effect a cure or a correction.
6.4
6.5
Voluntary Termination. In the event the Executive wishes to resign for any reason other than for Good Reason, the Executive shall give the
Corporation at least sixty (60) days' prior written notice of such resignation. Any such notice properly given shall not relieve either the Executive
or the Corporation of their mutual obligations to perform under this Agreement or to relieve the Corporation to compensate the Executive during
such notice period for any earned but unpaid salary and bonus and reimburse business expenses incurred but not reimbursed as of his date of
termination.
Termination by Separation of Service or Resignation for Good Reason. In the event that the Executive has a "Separation from Service" within
the meaning of a §409A of the US Internal Revenue Code of 1986, as amended (the "Code"), or the Executive resigns for Good Reason: (1) the
Executive's right to exercise all then outstanding stock options granted to him shall fully and immediately vest on the effective date of his
Separation from Service; (2) the Corporation shall pay to the Executive in a lump sum (less applicable tax withholdings) an amount equal to (1)
one times (1X) the sum of his then Base Salary and his then Annual Bonus, pro-rated as applicable; and (3) the Corporation shall provide the
benefits then provided to the Executive under Section 5 above by purchasing up to eighteen (18) months of the coverage required under the
Consolidated Omnibus Budget Reconciliation Act of 1986 (COBRA). All payments due under this Section shall be paid in US dollars by the
Corporation no later than twenty (20) business days after the date of the Executive's Separation from Service unless there is a requirement to delay
the payments under this Section 6.6 for six (6) months to avoid a tax on the Executive under §409A of the Code, in which event, the payment shall
be so delayed by six (6) months and one day.
In all other respects, the Agreement shall remain in full force and effect and unaltered.
IN WITNESS WHEREOF the parties hereto have duly signed this Amendment on this 29 day of May, 2014.
AETERNA ZENTARIS, INC. (CORPORATION)
By:
DENNIS TURPIN
Senior Vice President and Chief Financial officer
Signed Name
29-05-2014
Date
And:
KEITH SANTORELLI (EXECUTIVE)
Signed Name
29 May 2014
Date
Exhibit 8.1
SUBSIDIARIES OF THE REGISTRANT
AETERNA ZENTARIS INC.
Aeterna Zentaris Inc.
(Canada)
100%
Aeterna Zentaris GmbH
(Germany)
100%
Zentaris IVF GmbH
(Germany)
100%
Aeterna Zentaris, Inc.
(Delaware)
CODE OF BUSINESS CONDUCT AND ETHICS
FOR MEMBERS OF THE BOARD OF DIRECTORS
Exhibit 11.2
The Board of Directors (the "Board") of Aeterna Zentaris Inc. (the "Corporation") has adopted the following Code of Business Conduct and Ethics (the
"Code") for directors of the Corporation. This Code is intended to focus the Board and each director on areas of ethical risk; provide guidance to directors to
help them recognize and deal with ethical issues; provide mechanisms to report unethical conduct; and help foster a culture of honesty and accountability.
Each director must comply with the letter and spirit of this Code.
No code or policy can anticipate every situation that may arise, or replace the thoughtful behavior of an ethical director. Directors are encouraged to bring
questions about particular circumstances that may implicate one or more of the provisions of this Code to the attention of the Chair of the Nominating,
Governance and Compensation Committee (the "NGC").
Directors who also serve as officers of the Corporation should read this Code in conjunction with the Corporation's Code of Ethical Conduct.
A. CONFLICT OF INTEREST:
Generally, a conflict of interest exists when one has divided loyalties; that is, when one has a direct or indirect personal interest in a transaction or matter that
affects, or reasonably appears to affect, the judgment that one exercises on behalf of the Corporation or in the discharge of director duties.
Directors must avoid any conflicts of interest, or the appearance thereof, between the director and the Corporation. Any situation that involves, or may
reasonably be expected to involve, a conflict of interest with the Corporation, should be disclosed promptly to the Chair of the NGC. A "conflict of interest"
can occur when a director's personal interest is adverse to, or may appear to be adverse to, the interests of the Corporation as a whole. A director, or member
of his/her immediate family as defined by the National Association of Securities Dealers Automated Quotations (the "NASDAQ")1, who receives improper
personal benefits as a result of his/her position as director of the Corporation is deemed to be in a conflict of interest.
More common conflicts which directors should avoid include:
a. Relationship of Corporation with Third Parties. Directors may not receive a personal benefit from a person or a firm that is seeking to do
business or to retain business with the Corporation. A director shall recuse him/herself from any Corporate Board decision involving another firm or
company with which the director is affiliated.
b. Compensation from Non-Corporate Sources. Directors may not accept compensation in any form for services performed for the Corporation from
any source other than the Corporation.
c. Gifts. Directors may not offer, give or receive gifts or other items of value from persons or entities who deal or seek to deal with the Corporation in
those cases where any such gift has the purpose or effect of influencing (or could be perceived as influencing) the directors' actions as members of
the Board, or where acceptance of the gifts could create the appearance of a conflict of interest.
d. Personal Use of Corporate Assets. Directors may not use corporate assets, labor or information for personal use unless approved by the Chair of
the NGC or as part of a compensation or expense reimbursement program available to all directors.
B. CORPORATE OPPORTUNITIES:
Directors are prohibited from:
a. Personal Advantage from Corporate Opportunities. Taking for themselves or companies with which they are affiliated opportunities that are
discovered through the use of corporate property, corporate information or position as a director;
_______________________
1 NASDAQ Rules of Fair Practice defines immediate family to include one's spouses, parents, brothers, sisters, children, relatives supported financially, father-in-law, mother-
in-law, sister-in-law and brother-in-law.
1
b. Use of Corporate Property. Using the Corporation's property or information for personal gain; or
c. Competing with the Corporation. Competing with the Corporation for business opportunities. However, if the Corporation's disinterested directors
determine that the Corporation will not pursue an opportunity that relates to the Corporation's business, a director may then do so.
C. CONFIDENTIALITY:
Directors must maintain the confidentiality of information entrusted to them by the Corporation and any other confidential information about the Corporation
that comes to them, from whatever source, in their capacity as a director, or otherwise, except when disclosure is authorized or legally mandated. For
purposes of this Code, "confidential information" shall include all non-public information relating to the Corporation.
D. COMPLIANCE WITH LAWS, RULES AND REGULATIONS: FAIR DEALING:
Directors must comply, and oversee compliance by employees, officers and other directors, with laws, rules and regulations applicable to the Corporation,
including insider trading laws.
Directors must deal fairly, and must oversee fair dealing by employees and officers, with the Corporation's customers, suppliers, competitors and employees.
E. ENCOURAGE REPORTING OF ANY ILLEGAL OR UNETHICAL BEHAVIOR:
Directors should promote ethical behavior and take steps to ensure that the Corporation:
a. Encourages employees to speak with supervisors, managers and other appropriate personnel when in doubt about the best course of action in a
particular situation;
b. Encourages employees to report good faith belief of, or observed, ethical misconduct, violations of laws, rules, regulations or the Corporation's Code
of Ethical Conduct to appropriate personnel or through the Corporation's external reporting structure; and
c.
Informs employees that the Corporation will not permit, and will protect employees from, retaliation for reporting concerns.
F. COMPLIANCE STANDARDS:
Directors should communicate any good-faith beliefs of violations of this Code promptly to either the Board Chair, the Lead Director, if any, the Chair of the
Audit Committee or the Chair of the Nominating, Governance and Compensation Committee.
If a Board member faces a potential or actual conflict of interest relating to a matter before the Board, that member should alert the Board Chair, or depending
on when the matter becomes known, the Board as a whole. If the Board Chair faces a potential or actual conflict of interest, the Board Chair should advise the
Chair of the Audit Committee. If the Board Chair, or the Chair of the Audit Committee, as the case may be, concurs that a potential or actual conflict of
interest exists, the member faced with such conflict should disclose to the Board the member's interest and should not participate in consideration of the
matter and should not vote on the matter. The Corporate Secretary should maintain a written record of any disclosure of conflict by a Board member either in
the minutes of the Board or otherwise.
Reports of suspected violations will be investigated by the Board or by persons designated by the Board and appropriate action will be taken in the event of
any violations of the Code.
G. WAIVER OF CODE OF BUSINESS CONDUCT AND ETHICS:
Any waiver of this Code may be made only by the Board or a Committee of the Board.
Adopted and approved by the Board of Directors on August 7, 2014 and amended by the Board of Directors on December 4, 2014.
2
Exhibit 11.3
AUDIT COMMITTEE CHARTER
1. MISSION STATEMENT
The Audit Committee (the "Committee") of Aeterna Zentaris Inc. (the "Corporation") will assist the Board of Directors in fulfilling its oversight
responsibilities. The Committee will review the financial reporting process, the system of internal control, the audit process, and the Corporation's process
for monitoring compliance with laws and regulations and with the Code of Ethical Conduct. In performing its duties, the Committee will maintain effective
working relationships with the Board of Directors, 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 Corporation's business, operations, and risks.
The function of the Committee is oversight and while it has the responsibilities and powers set forth in this charter, it is neither the duty of the Committee to
plan or to conduct audits or to determine that the Corporation's financial statements are complete, accurate and in accordance with generally accepted
accounting principles, nor to maintain internal controls and procedures.
2. POWERS
The Board authorizes the Committee, within the scope of its responsibilities, to:
• Perform activities within the scope of its charter.
• Engage independent counsel and other advisers as it deems necessary to carry out its duties.
• Set and pay the compensation for any advisors it employs.
• Ensure the attendance of officers and/or other key employees having a finance or accounting function at meetings as appropriate.
• Have unrestricted access to members of management, employees and relevant information.
• Communicate directly with the internal and external auditors.
3. COMPOSITION
• The Committee shall be formed of at least three members, each of which shall qualify as an independent director, as determined by the Board in
accordance with applicable securities laws and standards of the stock exchanges on which the Corporation's securities are listed.
• Each member shall provide a useful contribution to the Committee.
• All members must be financially literate as defined in accordance with applicable securities laws and standards of the stock exchanges on which
the Corporation's securities are listed.
• In addition, for as long as the Corporation's securities are listed on the Nasdaq Stock Market, at least one member of the Committee must have past
employment experience in finance or accounting, requisite professional certification in accounting, or any other comparable experience or
background which results in the individual's financial sophistication.
• The chairperson of the Committee shall be appointed by the Board from time to time.
• The term of the mandate of each member shall be one year.
1
• The quorum requirement for any meeting shall be two members.
• The secretary of the Committee shall be the secretary of the Corporation or any other individual appointed by the Board.
4. MEETINGS
• If deemed necessary, the Committee may invite other individuals.
• External auditors shall be invited, if needed, to make presentations to the Committee.
• The Committee shall meet at least four times a year. Special meetings may be held if needed. If deemed necessary, external auditors may invite
members to attend any meeting.
• The Committee will meet with the external auditors at least once a year without management presence.
• The minutes of each meeting shall be recorded.
5. ROLE AND RESPONSIBILITIES
A.
Financial Information
i.
Review significant accounting and reporting issues, including recent professional and regulatory pronouncements, and understand their
impact on the financial statements.
ii.
Ask management and external auditors about significant risks and exposures and the plans to minimize such risks.
iii.
iv.
v.
vi.
Review the unaudited interim financial statements, the audited annual financial statements in addition to any documents which
accompany such financial statements, such as the report of the external auditors, and obtain an explanation from management of all
material variances between comparative reporting periods, prior to filing or disclosure. Without restricting the generality of the
foregoing, the Committee shall discuss with management and the external auditors to the extent required, any issues and disclosure
requirements regarding (a) the use of "pro forma" or "adjusted" non-GAAP/non-IFRS information, (b) any off balance sheet
arrangements, and (c) any going concern qualification. Determine whether they are complete and consistent with the information
known to Committee members, and assess whether the financial statements reflect appropriate accounting principles and recommend
their approval to the Board of Directors.
Review and recommend for approval by the Board, all public disclosure documents containing audited or unaudited financial
information, including Management's Discussion and Analysis of financial condition and results of operations, all sections of the
Annual Report on Form 20-F, quarterly reports and press releases concerning annual and interim financial results, and consider whether
the information is adequate and consistent with members' knowledge about the Corporation and its operations and financial position.
Be satisfied that adequate procedures are in place for the review of the Corporation's public disclosure of financial information
extracted or derived from the Corporation's financial statements, other than the public disclosure referred to in the two preceding
paragraphs, and periodically assess the adequacy of those procedures.
Review the compliance of the President and Chief Executive Officer and of the Chief Financial Officer certification letter on the
Corporation's controls and procedures disclosure of information and the attestation by management of the financial reports.
vii.
Pay particular attention to complex and/or unusual transactions such as restructuring charges and derivative disclosures.
viii.
Focus on judgmental areas such as those involving valuation of assets and liabilities including, for example, the accounting for and
disclosure of: obsolete or slow-moving inventory; loan losses; warranty, product, and environmental liability; litigation reserves and
other commitments and contingencies.
2
ix. Meet with management and the external auditors to review the financial statements and the results of the audit.
x.
Consider management's handling of proposed audit adjustments identified by the external auditors.
xi.
Ensure that the external auditors communicate certain required matters to the Committee.
xii.
Be briefed on how management develops and summarizes quarterly financial information, the extent to which the external auditors
review quarterly financial information, and whether that review is performed on a pre- or post-issuance basis.
xiii. Meet with management and, if a pre-issuance review was completed, with the external auditors, either by telephone or in person, to
review the interim financial statements and the results of the review.
xiv.
To gain insight into the fairness of the interim financial statements and disclosures, obtain explanations from management on whether.
• Actual financial results for the quarter or interim period varied significantly from budgeted or projected results;
• Changes in financial ratios and relationships in the interim financial statements are consistent with changes in the Corporation's
operations and financing practices;
• International Financial Reporting Standards (Generally accepted accounting principles) have been (consistently) applied;
• There are any actual or proposed changes in accounting or financial reporting practices;
• There are any significant or unusual events or transactions;
• The Corporation's financial and operating controls are functioning effectively;
• The Corporation has complied with the terms and conditions of loan agreements or security indentures; and
• The interim financial statements contain adequate and appropriate disclosures.
xv.
Ensure that the external auditors communicate certain required matters to the Committee.
B.
External Audit
i.
ii.
iii.
Review the professional qualification of the auditors (including background and experience of partner and auditing personnel).
Consider and make any necessary determinations with respect to the independence of the external auditor and any potential conflicts of
interest.
Review on an annual basis the performance of the external auditors and make recommendations to the Board for their compensation,
their appointment, retention and termination of their appointment.
iv.
Perform a comprehensive review of the external auditors at least once every five years.
v.
Oversee the work of the external auditors, including the resolution of disagreements between management and the external auditors
regarding financial reporting.
vi.
Require the external auditors to report directly to the Committee and make sure to receive periodic reports from the external auditors.
vii.
Review and approve the external auditors' scope and plan of the annual audit, as well as the approach for the current year in light of the
Corporation's present circumstances and changes in regulatory and other requirements.
3
viii. Annually, or more frequently as may be required, consult with the external auditors, without the presence of management, as to internal
controls, the fullness and accuracy of the financial statements, any significant difficulties encountered during the course of the audit or
access to required information, the quality of financial personnel, the level of co-operation received from management any unresolved
material differences of opinion or disputes.
ix.
x.
xi.
Discuss with the external auditor the appropriateness of the accounting policies applied in the Corporation's financial reports and
whether they are considered as aggressive, balanced or conservative.
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.
Pre-approve all audit, audit-related and non-audit services to be provided to the Corporation or any of its subsidiaries, by the external
auditors (and its affiliates), in accordance with applicable securities laws (or delegate such pre-approval if and to the extent permitted
by law), and consider the potential impact of such services on the independence of the external auditors, provided that the external
auditors may not be retained by the Corporation to perform specifically listed categories of non-audit services as set forth by the SEC.
xii.
Review and approve the Corporation's hiring policies regarding partners, employees and former partners and employees of the present
and former external auditor of the Corporation.
xiii. Review post-audit or management letters, containing recommendations of the external auditors and management's response, including
the evaluation by the external auditors of the adequacy and effectiveness of management's internal control systems and procedures for
financial reporting, and management's responses to any identified weaknesses.
xiv. Review any other material written communication provided by the external auditors to the Corporation's management and submitted to
the Committee.
C.
Internal Control
i.
ii.
iii.
Evaluate whether management is setting the appropriate tone at the top by communicating the importance of internal controls and
ensuring that all individuals possess an understanding of their roles and responsibilities.
Understand the controls and processes implemented by management to ensure that the financial statements derive from the underlying
financial systems, comply with relevant standards and requirements, and are subject to appropriate management review.
Discuss with the external auditors and management, the adequacy and effectiveness in the design and operation of the disclosure
controls and internal controls of the Corporation and make recommendations for the improvement of such controls or particular areas
where new or more detailed controls or procedures are desirable.
iv.
Satisfy itself as to the adequacy of the Corporation's review procedures regarding disclosure of other financial information.
v.
Gain an understanding of the current areas of financial risk and how these are being handled by the management.
vi.
Focus on the extent to which management reviews computer systems and applications, the security of such systems and applications,
and the contingency plan for processing financial information in the event of a systems breakdown.
vii. Gain an understanding of whether internal control recommendations made by external auditors have been implemented by
management.
viii. Ensure that the external auditors keep the Committee informed about fraud, illegal acts, deficiencies in internal control, and any other
matter deemed appropriate.
4
ix. Monitor and supervise procedures for (1) the receipt, retention and treatment of complaints received by the Corporation regarding
accounting, internal accounting controls or auditing matters, and (2) for the confidential, anonymous submission by employees of
concerns regarding questionable accounting or auditing matters.
D.
Corporate governance
i.
Review the effectiveness of the system for monitoring compliance with laws and regulations and the results of management's
investigation and follow-up (including disciplinary action) on any fraudulent acts or accounting irregularities.
ii.
Periodically obtain updates from management, general counsel, and tax director regarding compliance.
iii.
Be satisfied that all regulatory compliance matters have been considered in the preparation of the financial statements.
iv.
Review the findings of any examinations by regulatory agencies.
v.
Ensure that a Code of Ethical Conduct is formalized in writing and that all employees are aware of it.
vi.
vii.
Review periodically, in consultation with the Nominating, Governance and Compensation Committee and the Board of Directors, the
content of the Code of Ethical Conduct and make sure employees are informed of amendments.
Evaluate whether management is setting the appropriate tone at the top by communicating the importance of the Code of Ethical
Conduct and the guidelines for acceptable business practices.
viii. Review the program for monitoring compliance with the Code of Ethical Conduct.
ix.
Periodically obtain updates from management and general counsel regarding compliance.
E.
Other Responsibilities
i.
Meet with the external auditors and management in separate executive sessions to discuss any matters that the Committee or these
groups believe should be discussed privately.
ii.
Ensure that significant findings and recommendations made by the external auditors are received and discussed on a timely basis.
iii.
Review, with the Corporation's counsel, any legal matters that could have a significant impact on the Corporation's financial statements.
iv.
Review the policies and procedures in effect for considering officers' expenses and perquisites.
v.
If necessary, institute special investigations and, if appropriate, hire special counsel or experts to assist.
vi.
Perform other oversight functions as requested by the full Board.
vii.
Regularly update the Board of Directors about Committee activities and make appropriate recommendations.
viii. Ensure the Board is aware of matters that may significantly impact on the financial condition or affairs of the business.
ix.
x.
Prepare any reports required by law or standards of the stock exchanges on which the Corporation's securities are listed or requested by
the Board, for example a report on the Committee's activities and duties to be included in the section on corporate governance in the
Annual Report on Form 20-F.
Prepare and review with the Board, in the manner the Committee deems appropriate, an annual performance evaluation of the
Committee and its members, comparing its performance with the requirements of this charter.
5
xi.
Review and update the Committee charter annually.
xii. Discuss any changes required to be made to this charter with the Board and ensure the charter and any such changes are approved by
the Board.
Adopted and approved by the Board of Directors on May 5, 2000, and amended by the Board of Directors on each of February 26, 2004, February 28, 2006,
March 4, 2008, March 10, 2009, March 23, 2010 and amended and restated on November 4, 2014.
6
Certification of the Principal Executive Officer pursuant to §302 of the Sarbanes-Oxley Act of 2002
Certification
Exhibit 12.1
I, David A. Dodd, certify that:
1.
I have reviewed this annual report on Form 20-F of Aeterna Zentaris Inc.;
2. 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;
3. 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;
4. 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 17, 2015
/s/ David A. Dodd
David A. Dodd
Chairman, 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.
I have reviewed this annual report on Form 20-F of Aeterna Zentaris Inc.;
2. 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;
3. 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;
4. 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 17, 2015
/s/ Dennis Turpin
Dennis Turpin
Senior Vice President and Chief Financial Officer
(principal financial officer)
Exhibit 13.1
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 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, 2014 as filed with the
Securities and Exchange Commission on the date hereof (the “Report”), I, David A. Dodd, Chairman, 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 17, 2015
/s/ David A. Dodd
David A. Dodd
Chairman, President and Chief Executive Officer
Exhibit 13.2
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.
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, 2014 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 17, 2015
/s/ Dennis Turpin
Dennis Turpin
Senior Vice President and Chief Financial Officer
Exhibit 15.1
CONSENT OF INDEPENDENT AUDITOR
We hereby consent to the incorporation by reference in the registration statements on Form F-3 (No. 333-194547), Form F-10/A (No. 333-194080) and Form
S-8 (No. 333-200834) of Aeterna Zentaris Inc. of our report dated March 17, 2015 relating to the consolidated financial statements and the effectiveness of
internal control over financial reporting, which appears in this Form 20-F.
Montreal, Quebec, Canada
March 17, 2015
1 CPA auditor, CA, public accountancy permit No. A123498