ProMetic Life Sciences Inc. Annual Report 2005

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FY2005 Annual Report · ProMetic Life Sciences Inc.

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www.prometic.com

Straight
to the

2005 Annual Report

Pierre Laurin
Chairman, President and
Chief Executive Officer

Message to Shareholders

Message to
Shareholders
from Pierre Laurin

Validating our promises
In the year past, ProMetic Lifes Sciences Inc. and its subsidiaries (“ProMetic” or the
“Company”) have delivered on their scientific milestones. With an impressive performance in Phase I and its mecha-
nism of action unraveled, our potential blockbuster drug to treat anemia, PBI-1402, is entering Phase Ib/II clinical trial.

The investments we have made in
the research and development of our
enabling technologies have borne fruit
and we are now in the process of
advancing into the commercialization
phase. With the development risk
behind us, our mission is to execute
and turn our scientific achievements
into product sales.

Setback and opportunity The commercial implementation of our plasma protein extraction process experi-
enced some setback in 2005 with the insolvency of our client and partner Hemosol. However, we are deter-
mined not to let this delay the evolution of our technology. The relationship with Hemosol demonstrated the
value of this process for ProMetic. We showed that this proprietary process performs to the full extent of our
expectations, and results in significant yield advantages over current industry standards. With a global market
for plasma-derived therapeutics exceeding US$7 billion, this process is well positioned to become a major value
driver for ProMetic. The endogenous infectivity study for Pathogen Removal and Diagnostic Technologies Inc.’s
(PRDT) prion filters was successfully completed, and is now the first to demonstrate the reduction of
Transmissible Spongiform Encephalopathy (TSE) prions from whole blood beyond detectable levels, leading
towards CE Mark approval and launch in 2006 of the prion reduction filter by our partner MacoPharma.

2005 Annual Report

Message to Shareholders

Structuring our momentum During the past year, significant progress in our development programs created
a scale of opportunity that exceeded what ProMetic could finance and commercialize on its own. Our various
steps forward require a reorganization of the Company. Accordingly, to ensure the increased value and growing
maturity of our proven technologies is reflected in the shareholder value of ProMetic, we are implementing a
major structural change. We established four distinct, pure-play operating units.

Maximizing opportunity and potential With many scientific milestones reached (and, in the case of our
enabling technology, with an established revenue stream in place), each unit can now develop its own partner-
ships and funding sources consistent with its particular stage of development. Different investors prefer differ-
ent risk/reward profiles. ProMetic’s realignment provides distinct options in this regard, with increased growth
potential from pure-plays. Most significantly, the Company’s division into four operating units promises to opti-
mize the potential of our various applications. With dedicated management focusing on core competencies,
our expectation is that ProMetic’s wide range of commercial opportunities will be more comprehensively
identified and resourcefully engaged.

Rationalization and capitalization As parent of the four units, ProMetic now directs overall strategy and has
assumed responsibility for finance, legal matters and compliance. Going forward as primary stakeholder in all
four enterprises, ProMetic paramount objectives will be to stimulate value creation, fully leverage the units’
achievements, and thus steadily enhance shareholder reward.

ProMetic BioSciences Ltd (PBL)
Bioseparations Unit

Marketing worldwide and expanding capacity With operations in the Isle of Man and in the United Kingdom
and serving a comprehensive range of clients in the pharmaceutical and biotechnology industries, PBL devel-
ops and markets our core proprietary Mimetic LigandTM technology. As a result of investments and technolog-
ical achievements in 2005, 2006 should prove to be a pivotal year for this operating unit with:

• An anticipated increase of its chromatography product sales;

• Utilization of the new plant capacity added during 2005;

• Planned product launches such as new MAbsorbent® materials for the capture and purification of mono-

clonal antibodies, which represent more than 40% of all biotechnology products in development;

• An anticipated 2006 market launch of PRDT’s prion reduction filter with partner MacoPharma. This new
device is set to improve the safety of blood and blood products; the completely new and open marketplace
for the technology is estimated at US$500 million.

As PBL approaches positive cash flow and widens its client base, the unit is an imminent candidate for equity
financing in the United Kingdom and we expect to raise financing for PBL’s further growth in 2006.

ProMetic

Message to Shareholders

ProMetic BioSciences Inc.
Therapeutic Unit

ProMetic’s therapeutic pipeline, targeting cancer and autoimmune disease, made the following clinical
and preclinical progress in 2005:

PBI-1402 Our novel therapeutic to treat patients with anemia, PBI-1402, successfully completed a Phase I
trial, proving the safety of the molecule in healthy volunteers. The Phase Ib/II trial scheduled to commence in
Q1 2006 will target chemotherapy and/or cancer-induced anemia. In addition, scientists have made significant
progress towards the elucidation of the mechanism of action of PBI-1402. The orally active synthetic drug PBI-
1402 addresses a significant portion of the anemia market which is expected to reach US$15 billion in the
United States alone by the end of this decade.

PBI-1393 Ready to enter offshore clinical trials, PBI-1393 targets selected cancers in combination with
chemotherapy. In the year ahead, with the goal of attracting partnership and long-term development financ-
ing for the compound, we anticipate demonstrating PBI-1393’s efficacy in humans. This drug potentially tar-
gets five different cancers: breast, pancreas, colorectal, cervical cancers and metastatic melanoma. The value cre-
ation prospects of PBI-1393 encompass a cancer therapy market which exceeds US$14 billion.

Autoimmune disease Our therapeutic unit is targeting autoimmune indications. With promising results in
animal models, we have produced exciting low molecular weight synthetics that mimic proteins for the treat-
ment of autoimmune diseases such as psoriasis, lupus and arthritis. In 2007, we anticipate selecting our first
candidate drug to enter into clinical trials.

ProMetic BioTherapeutics, Inc.
Plasma Proteins

Technology poised for commercialization One of the most significant events concerning ProMetic in 2005
was the insolvency of our client and development partner, Hemosol. Naturally, the marketplace reacted
adversely to an event that removed significant cash flow from ProMetic’s revenues. This was a serious reversal,
but we expect this setback to be short-term; Hemosol’s difficulties had no bearing on the quality of the plasma
protein purification process (PPPS) licensed to Hemosol or ProMetic’s technology. Hemosol was just one of the
many potential users of our technology. And this PPPS process is only one of the numerous applications of our
technology which can in turn be used in many operating units worldwide. Prior to Hemosol’s insolvency, we
had developed the capability of this proprietary process. The process had proved its worth. We are now show-
casing it to a number of parties from a variety of countries, many of which do not yet have their own plasma
fractionation facilities, and these discussions show promise. With the plasma protein purification process
increasingly recognized as a less expensive, less wasteful, more effective improvement on existing processes,
we expect 2006 to be a turning point toward high value creation and sustained long-term profit for this busi-
ness unit.

2005 Annual Report

Message to Shareholders

ProMetic Animal Care (a division of ProMetic Life Sciences Inc.)

Developing a diagnostic tool to detect mad cow disease in live cattle This newly formed division of
ProMetic will use the PRDT technology to develop and launch a BSE prion testing system. One of our ultimate
objectives is to establish our and PRDT’s validated enabling technology as the first ante-mortem test for mad
cow disease. Technologically, several milestones have already been reached, with the confirmed ability of PRDT’s
filters to capture 99.99% of prions contained in blood or other biological fluids. The main competitive advan-
tage we seek is to provide a unique solution to detect infinitesimal quantities of infectious prions in animal
body fluid, ideally before the animals enter the food chain. The potential revenue stream is considerable, given
that the beef industry in North America and Europe alone processes approximately 100 million cattle every
year. Initial clients for the diagnostic would include stock breeders, food chain operators and government
regulators. Assuming a $20 cost per test, the potential market amounts to $2 billion annually. Furthermore,
considerable future diversification is seen for the technology in reference to variants of BSE and diagnostic use
among sheep and other animals.

The Year Ahead

Increasing ProMetic’s visibility Given the current adverse financial environment for the life sciences
industry in Canada – there has been an exodus of financial institutions from the biotechnology and small cap
sectors – ProMetic will increase its visibility in equity markets in the U.S. and Europe. Such a strategy comple-
ments our intention to obtain equity financing for PBL and the United Kingdom subsidiary in that jurisdic-
tion, and to create a U.S. subsidiary for our plasma business. This will bring us closer to financial centres that are
most interested in financing projects such as our own.

Executing in the four verticals We thank our shareholders for their continued support and patience through-
out this difficult year. Looking ahead, the parent company ProMetic Life Sciences will provide an overall strate-
gic service, pinpointing the most suitable audiences, both from an investment and strategic point of view, for
each of our four units. We regard the immediate future for each of them with great confidence, having built a
Company that generated proven technologies, widely awaited products, and diversified profit-making poten-
tial. We are rapidly approaching profitability with our enabling technologies, and positioned to begin reaping
major revenues with our other products. Numerous discussions are ongoing, with realistic expectations of com-
mercial transactions in the short-term. All conceivable steps have been taken to ensure positive outcomes. We
have made the right decisions about what technologies to invest in, and now we will make the right moves to
ensure that we capitalize on those decisions. We know that we cannot do that on our own. Therefore, in the
very same way that we have entered co-development agreements in the past, we aim in the period ahead to
begin entering a number of commercialization partnerships.

Signed (Pierre Laurin)

Pierre Laurin
Chairman, President and
Chief Executive Officer

ProMetic

Unlock the Value

using our four leverage points

2005 Annual Report

Unlock the Value

extract

{ ProMetic BioTherapeutics, Inc. }

ProMetic’s protein extraction technology
offers exceptional yield advantages

• While global demand is growing and supply lack-
ing for high value proteins, the plasma protein
purification system developed with the American
National Red Cross (the “American Red Cross”)
provides a validated technological solution, with
commercial applicability demonstrated at the
pilot scale.

• In developed countries seeking to fulfill unmet
patient needs, and in emerging markets where
therapeutic proteins are expensively imported,
ProMetic’s solution is increasingly compelling.

A waiting market Plasma proteins, extracted from
human blood, are extremely valuable specialty products.
They constitute a global market of approximately
US$7 billion. Plasma proteins are produced by a very
few “fractionators” and marketed principally to hospi-
tals for use in the treatment of a variety of medical con-
ditions. The legacy manufacturing process commonly in
use has not been fundamentally improved in decades.
Accordingly, the cost of plasma proteins remains high
and, in large parts of the world, prohibitively expensive.
An urgent need exists for an alternative.

A unique new process Over the last few years,
ProMetic and the American Red Cross, developed a new
and more efficient manufacturing method for plasma
fractionation. The process represents an application of
ProMetic’s core Mimetic Ligand™ technology, incorpo-
rating a series of affinity capture steps, where each step
in the process involves an adsorbent specific to an indi-
vidual plasma protein. The technology begins with
whole human plasma, passes it through a series of
cascade affinity chromatography columns in succession,
and at each step binds and removes a valuable therapeu-
tic protein. Importantly, this process can be economi-
cally applied to the recovery of proteins that have estab-
lished therapeutic value but which cannot be extracted
effectively via current manufacturing practices.

A persuasive quantitative analysis The proof of prin-
ciple stage of the technology’s development is complete.
Over the last two years, we brought it forward to the
point of commercialization with Hemosol in Canada
(a country without a fractionation facility of its own).
We showed that the technology can increase, at lower
cost, the amount of therapeutic proteins produced pro-
teins per unit of plasma by 30% to 375%, depending on
the protein. Not only is the yield increased, this protein
extraction technology decreases the amount of plasma
required to produce an equivalent amount of final prod-
uct. In countries without sophisticated plasma collec-
tion structures, that is a forceful argument in favor of our
solution.

ProMetic

Unlock the Value

Leaving setback behind Hemosol’s insolvency in 2005
dealt a serious blow to the timetable of the plasma
protein purification process (PPPS) technology and
immediate cash prospects, but manifestly not to the
technology itself or its mid and long-term potential.
Numerous discussions are now ongoing with parties
throughout the world who are evaluating the many
benefits of ProMetic’s solution.

Outlook

• Distinct commercial opportunities
• Ongoing development
• License negotiations

Going forward, ProMetic BioTherapeutics, Inc. will
pursue contracts and alliances around the world as a
separate entrepreneurial subsidiary of ProMetic. We
shall intensify our work with research groups, engineer-
ing firms, and equipment manufacturers to establish a
long-term strategic collaboration. We shall continue our
aggressive targeting of transactions within three well-
defined markets:

Meeting huge unmet medical needs In large popula-
tion countries such as India, Brazil and China, where the
middle class is growing, we are in discussions aimed at
licensing to companies and other parties interested in
implementing the total extraction and purification solu-
tion offered by the technology.

Adding value to existing fractionators The PPPS
process is not only an overall system for capturing
multiple proteins. It can also function within existing
facilities for those who do not want to transform their
infrastructure and disrupt their already FDA-approved
processes. In addition to this process, we are also in
dialogue with existing fractionators to provide ProMetic’s
technology and affinity resins for single protein capture.
Through the unique capture ability of our resins,
fractionators could very profitably improve the yields for
specific proteins.

Transforming plasma into therapeutics Our technol-
ogy can be applied to the recovery of certain proteins
that have established therapeutic value but cannot be
extracted effectively via current manufacturing prac-
tices, or that are not the focus of large plasma fraction-
ators. Potential clients are being attracted to our tech-
nology platform as we demonstrate processes that lead
to the capture of these proteins for therapeutic uses.

In 2006, as we ally with partners and collaborators
around the world, we expect the initial stages of com-
mercialization activities to commence. Significant
potential exists for immediate milestone payments
and long-term revenue generation.

2005 Annual Report

Unlock the Value

purify

{ ProMetic BioSciences Ltd }

Marketing unique solutions in two rapidly
growing sectors

• With our proprietary Mimetic Ligand™ purifica-
tion technology, we are enabling drug companies
to produce better, less costly drugs.

• PRDT’s unique prion reduction filter to equip
public agencies worldwide to improve the safety
of donated blood.

Throughout 2005 our subsidiary based in the Isle of
Man, ProMetic BioSciences Ltd (PBL), steadily strength-
ened its reputation as an important provider to the life
sciences industry of innovative bio-separation technolo-
gies. During the same period, our joint venture with the
American Red Cross, PRDT, and partner MacoPharma
were preparing to market a vital tool for blood supply
organizations.

Core technology winning markets ProMetic is the
clear world leader with respect to the development and
implementation of affinity ligand technology, a highly
efficient means of purifying or removing a target biomol-
ecule. Since cost-effective purification is often a prere-
quisite to the commercial feasibility of a candidate drug,
our proprietary bio-separation tools and manufacturing
processes for recombinant biologic products are now
used by over forty of the most prestigious companies in
the pharmaceutical and biotech industries. Our clients
employ ProMetic’s technology to purify proteins, reduce
manufacturing costs, and increase the yield of therapeu-
tic products.

First generation prion reduction filter Everywhere in
the world, the safety of blood and blood products is of
prime concern. PRDT addresses this vital issue by devel-
oping products for the detection and reduction of
pathogens. In 2005, a major study confirmed the abil-
ity of PRDT’s ligand technology to remove all detectable
blood-borne TSE (transmissible spongiform encepha-
lopathy) infectivity from whole blood. In collaboration
with MacoPharma, PRDT advanced the manufacturing
scale-up of a filter system to adsorb abnormal prion pro-
teins from collected blood.

ProMetic

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Support matrix (bead)

Ligands immobilized on
support matrix (bead)

Targeted
protein

Custom
ligand

Outlook

• Self-reliance
• Increased innovation
• Widening markets
• Next generation devices

Building on our success, addressing diverse oppor-
tunities PBL is positioned to be cash flow positive in
the near term. In recognition of the unit’s steady progress
and expectation of major growth in sales and revenues,
PBL will seek equity financing in the United Kingdom
in the coming year. The capital raised would permit PBL
to accelerate the development of services in relation to
affinity adsorbents and their use in the commercial man-
ufacture of biotherapeutic protein products. In addition,
PBL will pursue specific opportunities in relation to the
development of manufacturing processes for follow-on
biologics. In short, by becoming independent PBL can
enhance its already established professional and physi-
cal infrastructure, and provide greater scope for innova-
tion. The market for bio-separation materials now
exceeds US$700 million, and it is growing by at least
10% per annum.

Reaching the revenue stage, launching new value
creators
In the year ahead, we expect the prion cap-
ture device to reach the major milestone of CE Mark
approval in Europe, through commercial and manufac-
turing partner MacoPharma, a European industry leader
in blood collection systems and transfusion solutions.
That will signal the start of marketing and revenue gen-
eration. With a ramp-up in associated resin sales in
2007, PBL is expected to become profitable within eight-
een months after the first commercial sale of the prions
filters. The device is addressing an estimated market of
US$500 million. Moreover, we anticipate that the filter
will be the initial product of a projected family of prod-
ucts. Research would then target employing the platform
technology for the removal of viruses from blood.
Though screening techniques already exist to look at
donated blood for HIV, hepatitis and other viruses,
PRDT’s technology potentially offers the blood services
a technique whereby viruses could be significantly
reduced from blood. Additionally, discussions are
underway with companies in the plasma fractionation
industry toward collaborating on the development of a
prion reduction technology at industrial scale.

2005 Annual Report

Unlock the Value

detect

{ ProMetic Animal Care }

Bringing to market a diagnostic for
“mad cow” disease

• A cost-efficient solution to meet an urgent com-

mercial need.

• Using PRDT technology to detect pathogens in
animal blood, specifically BSE (bovine spongi-
form encephalopathy) in live cattle.

Mid-term and short-term revenue generation The
ultimate goal of this business unit is to bring to market a
BSE test for live cattle. This application has huge poten-
tial for our validated science. In the shorter term, the
technology which concentrates prions could be licensed
to manufacturers of existing post-mortem diagnostic tests
to increase the sensitivity of current tests. As prion
research evolves, the aim of ProMetic Animal Care is to
remain a leader in this important emerging field.

At present, no diagnostic on the market certifies live
cattle as BSE-tested. As a result, whole herds have been
destroyed after the detection of “mad cow” in one
infected animal. The beef industry in Canada, for exam-
ple, recently suffered catastrophic damage when exports
to the U.S. were halted after a single cow was found post-
mortem with the condition. Accordingly, herd owners
and government regulators are showing critical interest
in the technology.

Technological milestones An extensive study con-
ducted by PRDT has demonstrated that the ligand tech-
nology binds abnormal prions and concentrates them,
thus facilitating their detection. Currently “mad cow”
diagnosis requires brain tissue samples from dead ani-
mals. Our first generation products aim to surpass the
sensitivity of current diagnostic methods. We foresee the
possibility of detecting the disease in the blood of live
animals even before they have developed clinical signs.

Powerful partnership In 2005, leveraging our core
Mimetic Ligand™ technology and the expertise devel-
oped by PRDT, ProMetic agreed to form a joint venture
with Top Meadow Life Sciences Inc. Top Meadow adds
broad industry knowledge and specific market experi-
ence to our own dedicated senior management.

Major benefit to industry Since our test could be
performed on cattle long before they enter the human
food chain, the discovery of one infected animal need
not lead to the slaughter of an entire herd. The poten-
tial savings to the meat-growing industry is enormous.

ProMetic

Unlock the Value

Competitive advantage First and foremost, the posi-
tioning of our products puts us a step ahead in the mar-
ketplace. Our technology could be adapted to the full
range of diagnostic systems, given that they all face the
same challenge: making extremely low concentration of
rogue prions more detectable. Another major competi-
tive advantage is afforded by the unit’s strong relation-
ship with PRDT, which gives it access to the top TSE
scientists in the world.

Outlook

• The standard diagnostic
• Potentially huge recurring revenue
• Growth through diversification

Rapid commercialization We anticipate a sequential
introduction of products addressing the different needs
and opportunities of herd owners and government reg-
ulatory agencies. Our aim is to develop the test that will
become the diagnostic standard by which live cattle can
be certified as fit for sale and consumption.

High demand The beef industry in North America and
Europe alone processes over 100 million animals every
year. Assuming even a small testing fee per head of cat-
tle, our BSE diagnostic could yield potentially very large
annual revenue.

Market imperatives Meat producers increasingly wish
to offer a “BSE-tested” label on their products. Such a
stamp would positively impact their sales and, where
ante-mortem test is not made mandatory, it would allow
producers to charge premium prices for certified beef.

Branching out With investment expected from govern-
ment and other sources, our animal care venture will
extend its technology into related but novel applica-
tions. We expect to develop, for example, a diagnostic
for scrapie in sheep, and tests for diseases in a variety of
animals.

2005 Annual Report

Unlock the Value

heal

{ ProMetic BioSciences Inc. }

Two potential blockbuster drugs
in clinical trials

• ProMetic is developing less toxic, less expensive

drugs to fight cancer and anemia.

• ProMetic’s novel compounds address unmet needs

in multi-billion dollar therapeutic markets.

The therapeutics subsidiary of ProMetic has advanced
the progress of its two lead compounds: PBI-1402, an
orally active drug targeting anemia and PBI-1393, a drug
which stimulates the immune system and thereby
potentially increases the efficacy of chemotherapy
against cancer.

PBI-1402
Safety confirmed The results of the Phase I clinical tri-
als demonstrated the compound’s safety in healthy vol-
unteers. The drug was administered orally at increasing
doses and consistently showed an excellent safety profile
without any significant adverse effects.

Efficacy on reticulocytes This positive data came in
addition to the encouraging safety data that showed
PBI-1402’s effect on increasing the absolute and relative
number of reticulocytes in blood.

Dose range selected With the promising data that was
obtained, a dose range was subsequently selected for the
oral administration of PBI-1402 in anemic cancer patients.

Reticulocyte Count

n
u
o
C

e
v
i
t

a
e
R

Placebo

Cohort 2

Cohort 3

Cohort 4

Cohort 5

* P<0,0001

First in class In terms of its mechanism of action,
PBI-1402 is distinct. To the best of our knowledge, it bears
no similarity to any other molecule which stimulates
red blood cell formation. The drug exerts its effect by a
different mechanism of action than erythropoietin
(EPO), the current drug of choice for the treatment of
anemia. This is an important finding vis-à-vis the poten-
tial use of PBI-1402 alone or in combination with EPO
for the treatment of anemia.

Huge market The overall anti-anemia market in the
United States alone is projected to approach US$15 billion
by the end of this decade.

ProMetic

Unlock the Value

PBI-1393
Targeting five different indications ProMetic’s second
lead compound is a promising treatment for breast, pan-
creatic, colorectal, cervical cancers and metastatic
melanoma. PBI-1393 is a novel chemical entity.

PBI-1402 In 2006, we shall move ahead with a Phase
Ib/II clinical trial targeting chemotherapy and/or cancer-
induced anemia. Given the biological activity observed
in healthy subjects, we believe patients will respond
favorably to PBI-1402.

Poised to enter clinical trials To take forward the
process of validating PBI-1393, a contract research
organization has been engaged, the trial protocol pre-
pared, and the clinical material produced to execute the
study, an important milestone in itself confirming the
drug’s production viability.

Exciting revenue prospects PBI-1393 aims at earning
an impressive share of the cancer therapy market which
today exceeds US$14 billion.

Outlook

• Dedicated funding
• Anticipated Phase Ib/II trial for PBI-1402
• Anticipated Phase Ib trial for PBI-1393
• First drug candidate targeting autoimmune

diseases

The benefits of a pure-play With ProMetic’s therapeu-
tic arm evolving into a self-sufficient enterprise, the
risk/reward profile of the unit, offers investors a tremen-
dously attractive upside potential.

PBI-1393 In 2006, we expect to initiate a Phase Ib
clinical trial of PBI-1393 to demonstrate safety and proof
of concept of the drug.

Toward partnerships and alliances By the end of 2006
we aim to be well underway to demonstrate the efficacy
of both PBI-1402 and PBI-1393. We aim as well to
understand the two drugs’ respective mechanisms of
action. Such advancements would result in substantial
value creation. Demonstrating efficacy and mode of
action are the important factors involved in procuring
partners and alliances, which in turn provide initial
milestone payments and funding to accelerate further
clinical development of these drugs.

Autoimmune compounds We have developed novel
molecules for the treatment of autoimmune diseases such
as psoriasis, lupus and arthritis. Promising results have
been produced in animal models. In 2007, we anticipate
selecting our first candidate drug to enter the clinical
trials.

2005 Annual Report

Unlock the Value

Scientific Review

Enabling Technology – How it works

ProMetic has pioneered the design, development and
manufacture of affinity separation products and technol-
ogy which enable the manufacture of biopharmaceutical
and biomedical products. ProMetic’s Enabling Tech-
nology is built upon unique and proprietary synthetic
organic ligands. These compounds can be thought of as
highly-stable chemical hooks that selectively recognize
and bind to target biomolecules. The Mimetic Ligand™
technology can be used in a variety of applications where
a target biomolecule needs to be purified or removed.
Unlike traditional (chemically synthesized) pharmaceu-
ticals, biopharmaceuticals are derived from a biological
source and consequently they present new and different
manufacturing challenges, especially separation and
purification of the target therapeutic protein from other
very similar but unwanted host cell proteins.

What makes ProMetic’s Mimetic Ligand™
technology better than other approaches to
affinity chromatography?

Mimetic Ligand™ technology is highly robust: products
can be cleaned effectively using standard processing pro-
cedures, and do not leak by-products into the process
stream.

Mimetic Ligand™ technology is safe: we have confirmed
safety and toxicity data, and the ligands are not of biolog-
ical origin so there is no risk of biological contamination.

Mimetic Ligand™ technology is economical: associated
costs are significantly less than those of competing tech-
nologies – additionally, due to its robust nature, overall
process economic benefits may be even more favorable.

Mimetic Ligand™ technology is proven: many cus-
tomers use ProMetic’s ligands in processes that form inte-
gral parts of regulatory dossiers in Europe and in North
America.

Plasma Protein Purification and
Extraction Technology

Plasma is the residual liquid that remains once the red cells,
white cells and platelets have been removed from blood
and is the source of multiple therapeutic products for
many medical applications such as hemophilia, shock
trauma, burns and immune disorders. Plasma protein frac-
tionation plants around the world process more than 25
million litres of plasma annually. Plasma-derived proteins
are used to manufacture over 20 therapeutic products.

The more important proteins isolated from plasma
include human serum albumin (HSA), gamma globulin
(IVIG) and Factor VIII (a clotting factor).

Developed during the Second World War, the current
plasma fractionation process, “the Cohn process”, was
first created to extract only one protein: albumin. The
Cohn process offers low recovery yields that are by far
insufficient to meet the worldwide demand. The plasma
fractionation industry is thus faced with a major chal-
lenge: increase the output of existing facilities and
building new, more efficient ones.

ProMetic and the American Red Cross have used
ProMetic’s proven technology to develop a sequence of
isolation steps for each plasma protein. This process
increases the recovery yield of plasma proteins and allows
for the recovery of additional new proteins, creating
therefore a significant worldwide business opportunity.

Novel Technology – Improved Returns
Technology produces a 30% – 375% improvement over current industry (Cohn method) yields

Yield Benefit

Net Yields

Products

Units/Litre

Cohn

PPPS Runs*

% Improvement

IGIV

A1PI***

Grams

vWF/FVIII

Intl. Units

4.00

0.20

200

5.30

0.95

450

33%

375%

125%

US Wholesale
ASP**

57.00

250.00

0.70

* Actual yields through intermediate, with estimates to final net yields ** ASP Average selling price

Increased Revenue per Litre (US$)

*** Alpha 1-antitrypsin

ProMetic

Revenue per Liter ($)

Cohn

PPPS

228

140

418

302

315

855

104%

Unlock the Value

Therapeutics

ProMetic has the ability to develop synthetic drug-like
protein mimetics as alternatives to marketed recombi-
nant proteins.

Protein mimetics are under development as drugs for two
important therapeutic areas: cancer and autoimmune
diseases.

ProMetic’s investments in the cancer field has led to two
significant advances:

• PBI-1402 has been demonstrated to promote the for-
mation of red blood cells. As demonstrated in the fig-
ure below, increasing concentrations of EPO enhance
the number of colonies of red blood cell precursors,
called CFU-E. The addition of PBI-1402 with EPO
induces the formation of a higher number of CFU-E
colonies. This additive effect suggests that PBI-1402
exerts its activity by a different mechanism of action
than the current standard drug, EPO. This confirms
a potential use of PBI-1402 for anemia caused by
chemotherapy and/or cancer.

• PBI-1393 has been demonstrated to stimulate human

cancer-fighting cytotoxic T-lymphocytes (CTL).

• Autoimmune disease refers to a group of disorders
which arise from unwanted immune responses lead-
ing to chronic inflammations. Unwanted immune
responses may affect joints (arthritis), skin (psoriasis),
the nervous system (multiple sclerosis), the kidneys
(glomerulonephritis), the thyroid (Hashimoto's dis-
ease), and the pancreas (type I diabetes). In fact,
autoimmune diseases encompass more than eighty
disorders. Perhaps the most well known of these is
arthritis. Most autoimmune diseases are debilitating,
often progressive with time and may eventually be
fatal.

ProMetic offers a novel approach. We have developed a
new class of orally active compounds which exert potent
anti-inflammatory activity. This unique mechanism of
action offers possibilities and alternatives for conditions
such as psoriasis, arthritis, lupus and glomerulonephritis.

Preclinical Results
Effect of PBI-1402 on CFU-E from human mobilized blood

s
e
i

n
o

o
c

r
e
b
m
u
N

0.01

0.1

EPO (U/ml)

Control PBI-1402

2005 Annual Report

MD&A

The Management’s Discussion and Analysis of Operating Results and

Financial Position, prepared February 28, 2006, aims at helping the

reader to better understand the business of the Company and the key

elements of its financial results. It explains the trends of the financial

situation and the operating results of the Company for the 2005

financial year compared to the 2004 operating results. This manage-

ment’s discussion and analysis was prepared in accordance with

Regulation 51-102 respecting continuous disclosure obligations and

should be read in conjunction with the 2005 consolidated financial

statements and the accompanying notes included in this annual report.

These financial statements were prepared in accordance with

Canadian generally accepted accounting principles (“Canadian

GAAP”). Unless otherwise indicated, all figures are expressed in

Canadian dollars.

ProMetic

Management’s Discussion and Analysis of Operating Results and Financial Position

Reorganization of the Company

ProMetic Life Sciences Inc. is a leading biopharmaceutical company. In a move to increase shareholder value, ProMetic has started
the implementation of a reorganization plan approved by its Board of Directors in November 2005 under which the business will
be structured as a parent company with four pure-play operating units. Within the new structure, each distinct unit will function
independently in terms of management, funding of operations, and development of specific products and services. The Company
believes that the establishment of four distinct operating units will better align the organization for success and unlock the value
of its various applications by focusing each operating unit on its core competencies and market opportunities. The following chart
describes the new organization of the Company:

{ ProMetic Life Sciences Inc. }

ProMetic
BioSciences Ltd
(Isle of Man)

ProMetic
BioSciences Inc.
(Therapeutics)
(Canada)

ProMetic
BioTherapeutics, Inc.
(US)

ProMetic
Animal Care
(a division of ProMetic
Life Sciences Inc.)

ProMetic BioSciences Ltd

Based in the Isle of Man, British Isles, with a research and development centre in Cambridge, United Kingdom, ProMetic
BioSciences Ltd is involved in the development of bioseparation products based on applications of its proprietary Mimetic LigandTM
technology. Mimetic LigandTM technologies are both commercially viable and much sought after by the life sciences industry. Under
the reorganization, certain assets of the Company will be transferred to ProMetic BioSciences Ltd in the first quarter of 2006,
including the Company’s 26% proportionate share in Pathogen Removal and Diagnostic Technologies Inc. (“PRDT”), a joint
venture established by ProMetic and the American Red Cross. The Company expects that PRDT’s prion filter will be launched
commercially in 2006 as the first product of a family of pathogen removal devices under development that will be marketed by
its partners.

ProMetic BioSciences Inc.

ProMetic’s therapeutic unit, headquartered in Montreal, Canada, is focused on the discovery and development of proprietary drugs
in the fields of cancer and autoimmune diseases. The mission of the therapeutic unit is to develop innovative, less toxic, and lower
cost alternatives to currently marketed but expensive recombinant protein drugs.

2005 Annual Report

Management’s Discussion and Analysis of Operating Results and Financial Position

This business unit is actively looking for partners to co-develop and eventually market its two lead compounds:

• PBI-1402, which has potential applications in the anemia market and is progressing to a Phase Ib/II clinical trial in 2006;
• PBI-1393, in-licensed from BioChem Pharma/Shire, which is ready to enter clinical trials.

ProMetic BioTherapeutics, Inc.

ProMetic BioTherapeutics is a therapeutic protein company based in Wilmington, Delaware. This unit exploits the proprietary
Plasma Protein Purification System (“PPPS”). This platform technology, developed in collaboration with the American Red Cross,
represents the next generation in plasma fractionation technology. The platform is a specific sequence of capture steps based on
ProMetic BioSciences Ltd’s Mimetic Ligand™ technology. Through this affinity capture approach, the technology increases the
recovery yield of plasma proteins. ProMetic estimates that its technology produces a 30% – 375% yield improvement (depending
on the protein) over current industry (Cohn fractionation process) yields based on the work to date at 30 litre scale.

ProMetic’s technology can be employed by fractionators seeking to harvest single proteins more efficiently. There is a growing
demand and shortage of supply for high value proteins commonly used to treat a variety of medical conditions. These technolo-
gies can also be applied to the recovery of certain proteins that have established therapeutic value, but cannot be extracted effec-
tively via current manufacturing practices, or that simply do not constitute the focus of large plasma fractionators. These proteins
have the potential to receive “orphan” drug status and, if so, could be rapidly advanced to commercial status with the support of
regulatory authorities and patient associations. The PPPS process can also be used by companies that believe the initial invest-
ment for new fractionation capacity will be more than offset by the return in each of the above areas.

ProMetic Animal Care

This division will form the basis of a joint venture between ProMetic and Top Meadow Life Sciences Inc. It will be responsible for
the product development and commercialization of a diagnostic test using PRDT’s technology to detect mad cow disease (Bovine
Spongiform Encephalopathy or “BSE”) in live cattle. Development of the prion diagnostic system, as well as new systems, will be
carried out through this new unit, which ProMetic intends to finance by government grants and new sources of financing.

Except for the therapeutic unit (operating under ProMetic BioSciences Inc.) for which products are still in clinical development,
ProMetic’s research and development efforts have led to economically viable applications. The reorganization under four distinct
operating units will allow a potentially more attractive valuation by enabling each business to be more nimble, opportunistic, and
ultimately profitable.

Significant Events

The following is a description of events in 2005 and up to the date of this MD&A:

ProMetic Life Sciences Inc. (Corporate)

• $15 million equity financing (gross amount) completed in June 2005;
• US$11.2 million (gross amount) secured convertible debt financing completed in January 2006;
• ProMetic was a finalist in the “Deloitte Fast 50” program;
• Strengthening of the Management team in the areas of corporate and business development;
• Initiation of a reorganization program to operate and finance the company as four distinct operating units.

ProMetic

Management’s Discussion and Analysis of Operating Results and Financial Position

ProMetic BioSciences Ltd

• Positive results of a major study showing that PRDT’s proprietary process removes all detectable blood-borne TSE (Transmissible
Spongiform Encephalopathy) infectivity from whole blood. TSEs are fatal brain diseases that include BSE or “mad cow disease”
in cattle, variant Creutzfeldt-Jakob disease (vCJD) in humans, and “scrapie” in sheep. The completion of this study advances
PRDT’s prion filter towards commercialization;

• A sum of approximately $3 million was invested over two years in the expansion of ProMetic’s manufacturing facility located
in the Isle of Man, to accommodate production requirements of mimetic ligands in view of increasing customer orders in the
field of bioseparation and purification. ProMetic expects that this expansion plan will triple its manufacturing capacity.

ProMetic BioSciences Inc.

• The Company completed Phase I clinical trials for PBI-1402 conducted in healthy volunteers with no serious adverse events
reported. A significant increase of reticulocytes was observed with statistically significant results. An additive effect was observed
with PBI-1402 in combination with EPO in vitro. These trials enable the Company to initiate a Phase Ib/II clinical trial to be
targeting chemotherapy and/or cancer-induced anemia. The Company intends to initiate this trial during the first half of 2006;

• Three first-in-class series of low molecular weight synthetic molecules have been tested in preclinical development for the treat-

ment of autoimmune diseases such as psoriasis, lupus and rheumatoid arthritis;

• The Company relocated its therapeutic research team to a new laboratory facility leased at the Laval Biotechnology Development
Centre, north of Montreal, with access to animal facilities at the adjacent Institut Armand-Frappier. The relocation allows the
scientific group to be in the same facility, thereby improving efficiency.

ProMetic BioTherapeutics, Inc.

• We have demonstrated the tremendous yield advantages that the PPPS process provides at a 30 litre scale over current indus-

try standards at Hemosol’s facility. This demonstration proved the value of this process for ProMetic;

• On November 24th 2005, Hemosol LP (Hemosol) and its general partner Hemosol Corp announced their insolvency and filed
Notices of Intention to Make a Proposal to their creditors. Given the difficult financial situation at Hemosol since the beginning
of the year, the Company had already accepted in March 2005 partial payment of a milestone amount of $4 million of which
$3 million was paid in shares of Hemosol. While this significantly impacted our financial results and share price in the short
term we felt at the time that those were the right decisions to complete the development of the PPPS process and maximize its
potential;

• There is no doubt that the current financial situation of Hemosol will have an impact on the Company’s revenues. The Company
will analyze all its options under the terms of its licensing agreement for the PPPS process with Hemosol to protect its interests
and ensure that the process continues to be further developed and marketed for the North American market. The Company is
also promoting to existing fractionators the use of its technology and affinity resins for single protein capture.

ProMetic Animal Care

• A joint venture was agreed in April 2005 between ProMetic and Top Meadow Life Sciences Inc. to develop and commercialize

diagnostic tools derived from PRDT’s technology to detect mad cow disease in live cattle;

• Christian Frayssignes was appointed CEO of this operating unit.

2005 Annual Report

Management’s Discussion and Analysis of Operating Results and Financial Position

Selected Annual Information

The following selected annual information is derived from the consolidated financial statement of the Company for each of the
three most recently completed financial years. The financial statements are prepared in accordance with Canadian GAAP.

(in thousands of Canadian dollars, except for per share amounts)

2005

2004

2003

December 31

Revenues
Net loss
Net loss per share
Total assets
Long-term debt
Convertible term note

8,052
22,932
0.20
29,796
412
4,014

8,183
17,152
0.17
29,705
847
–

1,319
20,298
0.23
42,620
1,337
–

Annual Results
year ended December 31, 2005 compared to year ended December 31, 2004

Revenues

Total revenues for 2005 were $8.1 million compared with $8.2 million in 2004. The lack of growth in revenues during 2005 com-
pared to 2004 is explained by the cancellation and the delay of certain research and development programs in the ProMetic
BioSciences Ltd unit and lower product sales to Hemosol.

Research and development programs with clients including Serono were successfully completed in 2005 and the program with
Octapharma is on-going. Further development programs are being negotiated with current and other important clients.
Nevertheless sales associated with these development programs were lower in 2005 compared to 2004 by 15%.

Product sales, on the other hand, improved significantly in 2005 by 24%. This is third party acknowledgment of the quality of our
products. We believe this will improve in the coming years as our clients advance their development programs. This includes Halozyme
which recently gained FDA approval for a new recombinant biopharmaceutical drug, Hylenex. As part of its manufacturing process,
Hylenex is purified using a proprietary synthetic-ligand affinity adsorbent manufactured by ProMetic BioSciences Ltd.

The Company estimates that product sales in 2005 could have been higher by 5% had Hemosol’s financial situation been healthier.
License fees derived from the license agreement with Hemosol totalled $4.0 million in 2005. Our efforts are focused on working with
new partners to license the PPPS technology.

In 2005, revenues derived from PRDT’s strategic alliance with MacoPharma for the first generation of human blood prion filters
totalled $0.4 million. We expect similar revenues to continue in the future as new generations of filters are developed with
MacoPharma. Additionally, ProMetic expects to start benefiting in 2006 from royalties on finished products sales by MacoPharma
through its 26% stake in PRDT. Finally, revenues derived from the sale of resins by ProMetic to MacoPharma for the manufacture
of the prion device are also expected to start in 2006.

ProMetic

Management’s Discussion and Analysis of Operating Results and Financial Position

Research and development expenses

Research and development expenses decreased slightly to $13.3 million for the year ended December 31, 2005 from $14.3 million
for the same period in 2004. The major research and development expenditures were related to:

• The PBI-1402 program as the Company completed Phase I clinical trials in healthy volunteers;

• The PRDT prions filter program, for which results obtained in 2005 indicate that infectious blood-borne prion can be reduced

dramatically;

• The advancement of the PPPS technology to a 30 litre scale-up successfully completed at Hemosol’s facility;

• The completion of a development program with Serono and the commencement of the Octapharma program.

Tax credits of $1.7 million available under provincial tax programs have been recorded in 2005.

General and administrative expenses

General and administrative expenses increased to $6.7 million for the year ended December 31, 2005 from $5.3 million for the
year ended December 31, 2004. This increase of $1.4 million was the result of additional expenses incurred to strengthen the
Company’s management team ($0.15 million), expensed stock options costs ($0.1 million), and higher accounting and legal fees
related to financing activities ($0.3 million). Finally, 2004 figures included a reversal of an accrual for legal fees in relation to a law-
suit with the Bank of Montreal. This resulted in a $0.5 million reduction of general and administrative expenses in 2004.

Depreciation

Depreciation for the year ended December 31, 2005 was slightly higher at $2.9 million compared to December 31, 2004.

Net results

The Company incurred a net loss of $22.9 million, or $0.20 per share, for the year ended December 31, 2005 as compared to a
net loss of $17.2 million, or $0.17 per share, for the year ended December 31, 2004. This significant increase in net loss is mainly
due to the following:

• An increase of $0.4 million in operating expenses as explained in the Research and development and General and administra-

tive expenses sections;

• In March 2005, ProMetic received a milestone payment of $3.0 million from Hemosol in shares of the company and $1.0 million
in cash. Subsequently due to Hemosol’s current financial difficulties which resulted in a write-off of $5.1 million, we decided
to sell our entire holding in Hemosol;

• ProMetic owns 750,000 convertible preferred shares worth $2.3 million in Arriva Pharmaceuticals, Inc. (Arriva), which were
issued in 1999. Given the uncertainty surrounding the future of Arriva following recent U.S. federal jury awards against Arriva,
we decided to write-off our investment in Arriva worth $2.3 million.

2005 Annual Report

Management’s Discussion and Analysis of Operating Results and Financial Position

Liquidity and Financial Position

Current assets totalled $15.9 million as at December 31, 2005 compared to $13.6 million on December 31, 2004.

Short-term investment decreased to zero as at December 31, 2005 compared to $2.3 million in the previous year as all Hemosol
shares were sold when it was put in receivership in November 2005.

Account receivables reached $2.9 million for the year ended December 31, 2005, including mostly research and development tax
credits receivables, compared to $2.8 million for the year ended December 31, 2004.

Net capital assets increased slightly to $5.3 million from $5.2 million in 2004 as a final capital investment totalling $3.0 million
over two years was completed for the expansion of ProMetic BioSciences Ltd’s Isle of Man facilities to expand manufacturing capac-
ity and adapt the site to current environmental regulations. This capital investment increased the manufacturing capacity of the
site and allows ProMetic BioSciences Ltd to sustain forecasted growth in customer orders. In fact, we are now in a position to
increase our production by a factor of three as a consequence of the investment. Other asset additions in 2005 included labora-
tory equipment and computer hardware and software needed to accelerate research and development.

Cash Flows

Cash flows used in operating activities amounted to $15.4 million for the year ended December 31, 2005, compared to
$16.7 million in 2004.

Cash flows from financing activities amounted to $21.6 million for the year ended December 31, 2005 compared to
$3.2 million in 2004. During 2005, the Company sold 30 million subordinate voting shares and granted agent warrants to pur-
chase up to 1.7 million subordinate voting shares at $0.575 per share for a period of one year through a public equity offering,
which raised gross proceeds of $15 million. In late December 2005 and January 2006, the Company issued senior secured con-
vertible notes in the aggregate gross principal amount of US$11.2 million (approximately $13.0 million Canadian) for aggregate
gross proceeds of US$8.9 million (approximately $10.3 million Canadian). The Company also issued to the investors warrants to
purchase up to 20,507,379 subordinate voting shares at a price of US$0.30 per share, for a term of five years and agent warrants to
purchase up to 3,076,107 subordinate voting shares also at a price of US$0.30 per subordinate voting share for a term of five years.

During the first eight months following the closing of the last financing, only one half of the principal amount of the notes will
be convertible by their respective holders into subordinate voting shares at the conversion price of US$0.27. After that period,
the full outstanding principal amount of the notes will be convertible at the same conversion price. The term of the notes is
36 months and monthly reimbursements are due for payment from the ninth month. The Company may repay the notes in part
or in full at any time.

Cash flows used in investing activities amounted to $2.4 million compared to $3.8 million for 2004. Investments in intellectual
property represented $0.5 million and investments in capital assets were $1.9 million. The expansion of the Isle of Man manu-
facturing facility constituted the principal asset acquisition in 2005.

ProMetic

Management’s Discussion and Analysis of Operating Results and Financial Position

Off-Balance Sheet Arrangements

In the normal course of business, the Company finances certain of its activities off-balance sheet through leases. On an ongoing
basis, we enter into operating leases for buildings and equipment. Minimum future rental payments under these operating leases,
determined as at December 31, 2005, are included in the contractual obligations table below.

Contractual obligations

In the normal course of operations, the Company has entered into several contracts providing for the following payments over
the next years:

(in thousands of Canadian dollars)

Total

Less than 1 year

1–2 years

3–4 years

After 4 Years

Payments due by period

Bank loan
Long-term debt
Convertible term notes(1)
Operating leases

1,029
412
5,749
7,186

Total contractual obligations

14,375

(1) Payments include capitalized interests

Critical Accounting Estimates

1,029
366
524
1,548

3,467

–
46
1,972
2,819

4,837

–
–
3,253
2,245

5,498

–
–
–
574

574

The preparation of financial statements in accordance with Canadian GAAP requires management to make estimates and assump-
tions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses during the
reporting periods. We have identified the following accounting policies that we believe require application of management’s most
subjective judgments, often requiring the need to make estimates about the effect of matters that are inherently uncertain and may
change in subsequent periods. Our actual results could differ from these estimates and such difference could be material.

Impairment of long-lived assets

Management reviews the valuation and amortization of licenses and patents on an ongoing basis, taking into consideration any
events and circumstances which may impair value. The Company assesses impairment in a two-step process for first determin-
ing when an impairment loss is recognized and then measuring that loss.

2005 Annual Report

Management’s Discussion and Analysis of Operating Results and Financial Position

Research and development and tax credits

Research expenditures (net of related tax credits) are expensed as incurred and include reasonable allocation of overhead expenses.
Development expenditures (net of related tax credits) are deferred when they meet the criteria for capitalization in accordance
with Canadian GAAP, and the future benefits could be regarded as being reasonably certain. Related tax credits are accounted for
as a reduction to research and development expenditures on condition that the Company is reasonably certain that these credits
will materialize. During 2005 and 2004, no development costs were deferred.

Stock-based compensation

When the Company issues stock options to its employees, directors and officers, a fair value is derived for the stock options using
the Black-Scholes pricing model. The application of this pricing model requires management to make assumptions regarding
several variables, including the expected life of the options, the price volatility of the Company’s stock over a relevant timeframe,
the determination of a relevant risk-free interest rate and an assumption regarding the Company’s dividend policy in the future.
For the year ended December 31, 2005, the Company expensed $159,000 for stock-based compensation compared to $55,000
for the same period in 2004.

CAPITAL STOCK INFORMATION

Authorized

The authorized share capital of the Company consists of an unlimited number of subordinate voting shares, twenty million
(20,000,000) multiple voting shares, and an unlimited number of preferred shares that can be issued in series.

Issued and outstanding

The following details the issued and outstanding equity securities of the Company:

Subordinated Voting Shares and Multiple Voting Shares

As at December 31, 2005 the capital stock issued and outstanding consisted of 116,501,784 participating subordinate voting
shares (86,486,784 as at December 31, 2004) and 13,026,375 participating multiple voting shares (same number as at
December 31, 2004).

ProMetic

Management’s Discussion and Analysis of Operating Results and Financial Position

Share purchase warrants

The following is a summary of the share purchase warrants outstanding as at December 31, 2005:

Issue Date

Expiry Date

Number outstanding

Exercise Price

June 2005
December 2005

June 2006
December 2010

1,710,000
20,584,092

$0.575
US$0.30

Stock options

As at December 31, 2005, the Company has 2,997,375 stock options outstanding with exercise prices ranging from $0.46 to
$3.00. At December 31, 2005, on an if-converted basis, these stock options would result in the issuance of 2,368,835 subordi-
nate voting shares at an average exercise price of $1.33.

OUTLOOK

In 2006, the Company will implement the planned restructuring of its four operating units so that they will function independ-
ently in terms of attracting investment and developing specific products and services.

Each operating unit has a different risk/reward profile.

The ProMetic BioSciences Ltd unit has established products and a broad client base. This business unit will increase its revenues by
the introduction of new products during the year including new materials for antibody purification and the PRDT prion reduction
filter via PRDT’s commercial and manufacturing partner MacoPharma. An expansion of sales and marketing activities is also
planned. Dr Steve Burton has been appointed CEO of ProMetic BioSciences Ltd and will lead the company forward including
possible financing in the UK.

The ProMetic BioSciences Inc. (Therapeutic) unit faces higher risk factors but offers potentially substantial rewards from drug
discovery and clinical trial development. Risk factors include the time necessary to bring a human therapy to market, the costs
associated with its development, and the regulatory environment. To minimize these risks, the Company is actively looking for
co-development strategic alliances with larger pharmaceutical companies offering expertise and the financial strength to under-
take advanced clinical trials and commercial launch of ProMetic’s promising compounds PBI-1402 and PBI-1393.

The ProMetic BioTherapeutics, Inc. unit has completed a significant scale-up milestone to 30 litres showing its potential for com-
mercialization by prospective licensees of the PPPS process in the plasma fractionation industry. The foundation for the technol-
ogy is solid, its commercial applicability has been validated, and it has gained considerable attention within the plasma and blood
industry. ProMetic BioTherapeutics will promote its technology platforms to license them along two principle lines: use of the com-
plete plasma protein purification system (PPPS) for fractionators, as well as the use of platforms adaptable for plasma fractiona-
tors seeking to harvest single proteins more efficiently. Moreover, these process and platforms can be applied to the recovery of
certain proteins that have established therapeutic value, but cannot be extracted effectively via current manufacturing
practices. These proteins have the potential to receive “orphan” drug status and, if so, could be rapidly advance to commercial
status with the support of regulatory authorities and patient associations.

2005 Annual Report

Management’s Discussion and Analysis of Operating Results and Financial Position

The ProMetic Animal Care operating unit is working on diagnostic tools for the detection of BSE or Mad Cow Disease in live
cattle based on a technology licensed to ProMetic by PRDT. We aim initially at improving the sensitivity of current post mortem
diagnostic tests available on the market but which can detect the disease only in animals of a certain age or after a certain
incubation period. The Company believes that revenues from the use of the technology to improve these tests could generate
revenues in a relatively short period of time. In the longer term, a full BSE ante mortem diagnostic kit could be developed by the
Company alone or in partnership with other actors in the animal diagnostic market.

Risks and Uncertainties

Until each of the units is self sustaining or independently financed, the success of the Company is dependent on its ability to
support the development of its four operating units and its ability to bring its products to market, obtain the necessary regulatory
approvals and achieve future profitable operations. This is dependent on the Company’s ability to obtain adequate financing
through a combination of financing activities and operations. It is not possible to predict either the outcome of future research
and development programs nor the Company’s ability, nor its operating units’ ability, to fund these programs going forward.

Disclosure Controls and Procedures

Based on an evaluation of the effectiveness of ProMetic’s disclosure controls and procedures, the President and Chief Executive
Officer and the Vice-President, Finance have concluded that disclosure controls and procedures were effective as of December 31,
2005 and that their design provides reasonable assurance that material information relating to ProMetic, including its consolidated
subsidiaries, is made known to them by others within those entities, particularly during the period in which the annual filings are
being prepared.

Forward-Looking Statements

The information contained in Management’s Discussion and Analysis of Operating Results and Financial Position contains state-
ments regarding future financial and operating results. It also contains forward-looking statements with regards to partnerships,
joint ventures and agreements and future opportunities based on these. There are also statements related to the discovery and
development of intellectual property as well as other statements about future expectations, goals and plans. We have attempted
to identify these statements by use of words such as “expect”, “believe”, “anticipate”, “intend”, and other words that denote future
events. These forward-looking statements are subject to material risks and uncertainties that could cause actual results to differ
materially from those in the forward-looking statements. These risks and uncertainties include but are not limited to the Company’s
ability to develop and successfully manufacture pharmaceutical products, and to obtain contracts for its products and services
and commercial acceptance of advanced affinity separation technology. Additional information on risk factors can be found in the
Company Annual Information Form for the year ended December 31, 2005. Shareholders are cautioned that these statements are
predictions and actual events or results may differ materially from those anticipated in these forward-looking statements.

Any forward-looking statements we may make as at the date hereof are based on assumptions that we believe to be reasonable as
at this date and we undertake no obligation to update these statements as a result of future events.

ProMetic

Management’s Discussion and Analysis of Operating Results and Financial Position

SUMMARY OF QUARTERLY RESULTS

The following unaudited quarterly information is presented in millions of Canadian dollars except for per share amounts.

December 31 September 30

June 30

March 31

December 31

September 30

June 30

March 31

Revenues
Net loss
Net loss per share
Weighted average
number of
outstanding shares

2005

1.2
7.8
0.06

0.5
5.6
0.04

1.1
7.4
0.07

5.2
2.0
0.02

2004

0.8
6.1
0.06

2004

1.6
4.6
0.05

2004

5.2
1.4
0.01

2004

0.5
5.1
0.05

130

129

104

FOURTH QUARTER

The following information is a summary of selected unaudited consolidated financial information of the Company for the three-
month periods ended December 31, 2005 and 2004.

(in thousands of Canadian dollars)

Revenues
Operating expenses
Operating loss
Provision related to a lawsuit
Write-down of investments
Net interest income (expenses)
Net loss

2005

1,217
5,167
3,950
(34)
(3,833)
(17)
7,834

2004

848
4,216
3,368
(2,715)
–
9
6,074

Revenue increases during the fourth quarter were caused by higher shipment of products from the ProMetic BioSciences Ltd unit.

Operating expenses are higher in 2005 mainly due to the annual recording of research and development tax credits in the fourth
quarter in 2004. In 2005, research and development tax credits were recorded every quarter.

The net loss increased significantly because of the write-down of our investments.

2005 Annual Report

Management’s and Auditors’ Report

Management’s Report

The accompanying consolidated financial statements for ProMetic Life Sciences Inc. are management’s responsibility and have
been approved by the Board of Directors. These financial statements were prepared in accordance with Canadian generally accepted
accounting principles. They include some amounts that are based on estimates and judgments. The financial information
contained elsewhere in the annual report is consistent with that obtained in the financial statements.

To ensure the accuracy and the objectivity of the information contained in the financial statements, the management of ProMetic
Life Sciences Inc. maintains a system of internal accounting controls. Management believes that this system gives a reasonable
degree of assurance that the financial documents are reliable and provide an adequate basis for the financial statements, and that
the Company’s assets are properly accounted for and safe-guarded.

The Board of Directors upholds its responsibility for the financial statements in this annual report primarily through its audit com-
mittee. The audit committee is made up of outside directors who review the Company’s annual consolidated statements, as well
as management’s discussion and analysis of operating results and financial position, and recommend their approval by the Board.
Raymond Chabot Grant Thornton, LLP, Chartered Accountants, the external auditors designated by the shareholders, periodi-
cally meet with the audit committee to discuss auditing, the reporting of financial information and other related subjects.

Signed (Pierre Laurin)

Signed (Stéphane Archambault)

Pierre Laurin
Chairman, President
and Chief Executive Officer

Stéphane Archambault
Vice-President, Finance

Montréal, Canada
February 28, 2006

Auditors’ Report to the Shareholders

We have audited the consolidated balance sheets of ProMetic Life Sciences Inc. as at December 31, 2005 and 2004 and the
consolidated statements of operations, deficit, contributed surplus and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we
plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the
overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company
as at December 31, 2005 and 2004, and the results of its operations and its cash flows for the years then ended in accordance
with Canadian generally accepted accounting principles.

Signed (Raymond Chabot Grant Thornton LLP)

Raymond Chabot Grant Thornton LLP
Chartered accountants

ProMetic

Montréal, Canada
February 28, 2006

Consolidated Financial Statements. Financial Year Ended December 31, 2005 and 2004

CONSOLIDATED BALANCE SHEETS

(In thousands of Canadian dollars)

ASSETS
Current assets

Cash and cash equivalents
Short-term investment in shares of a public company
Accounts receivable (note 4)
Inventories (note 5)
Prepaid expenses

Investments (note 6)
Capital assets (note 7)
Licenses and patents (note 8)
Deferred financing expenses
Deferred development costs

LIABILITIES
Current liabilities

Bank loan (note 9)
Accounts payable and accrued liabilities (note 10)
Deferred revenues
Current portion of long-term debt
Current portion of liability component of the convertible term notes

Liability component of the convertible term notes (note 11)
Long-term debt (note 12)
Provision related to a lawsuit (note 16)
Preferred shares, retractable at the holder’s option (note 6 b))

SHAREHOLDERS’ EQUITY
Share capital (note 13)
Contributed surplus
Deficit

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

On behalf of the Board:

Signed (Pierre Laurin)

Pierre Laurin
Director

Signed (Claude Lemire)

Claude Lemire
Director

December 31

2005

December 31

2004

$ 10,525
–
2,914
1,935
518
15,892

2,876
5,324
5,098
563
43
$ 29,796

$ 1,029
5,319
–
366
524
7,238

3,490
46
2,921
2,248
15,943

150,697
5,929
(142,773)
13,853
$ 29,796

$ 6,770
2,340
2,796
921
789
13,616

4,479
5,190
5,430
–
990
$ 29,705

$ 1,029
7,714
243
440
–
9,426

–
407
–
1,586
11,419

135,682
99
(117,495)
18,286
$ 29,705

2005 Annual Report

Consolidated Financial Statements. Financial Year Ended December 31, 2005 and 2004

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands of Canadian dollars except for per share amounts)

Years ended December 31,

REVENUES
Sales and contract
Licensing

CHARGES
Research and development expenses
Administration, marketing and other expenses
Amortization

LOSS BEFORE THE FOLLOWING ITEMS
Provision related to a lawsuit (note 16)
Write-down of short-term investment
Write-down of long term investments
Net interest income (expenses)
NET LOSS
Net loss per share (basic and diluted)

2005

2004

4,028
4,024
8,052

13,338
6,742
2,892
22,972

(14,920)
(206)
(5,085)
(2,558)
(163)
$ (22,932)
(0.20)

3,813
4,370
8,183

14,271
5,274
2,740
22,285

(14,102)
(2,715)
(530)
–
195
$ (17,152)
(0.17)

Weighted average number of outstanding shares (in thousands)

115,717

99,429

For supplemental operations infomation see note 14
The accompanying notes are an integral part of the consolidated financial statements.

CONSOLIDATED STATEMENTS OF DEFICIT

(In thousands of Canadian dollars)

Years ended December 31,

DEFICIT, BEGINNING OF THE YEAR
Adjustment for change in stock-based compensation (note 13d))
DEFICIT, BEGINNING OF THE YEAR AS RESTATED

Net Loss
Share issue expenses
DEFICIT, END OF YEAR

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

ProMetic

2005

2004

$ 117,495
–
117,495

22,932
2,346
$ 142,773

$ 100,117
44
100,161

17,152
182
$ 117,495

Consolidated Financial Statements. Financial Year Ended December 31, 2005 and 2004

CONSOLIDATED STATEMENTS OF CONTRIBUTED SURPLUS

(In thousands of Canadian dollars)

Years ended December 31, 2005 and 2004

compensation

option on

term notes

Stock-based

Conversion

Warrants

ADJUSTMENT FOR CHANGE IN STOCK-BASED

COMPENSATION (NOTE 13d))

Total

contributed

surplus

159
2,505

2,342
824

–

–
2,505

–
–

–

–
–

2,342
824

159
–

–
–

Stock-based compensation
CONTRIBUTED SURPLUS

AS AT DECEMBER 31, 2004

Stock-based compensation
Conversion option on term notes (note 11)
Issuance of warrants related to the
convertible term notes (note 11)

Issuance of warrants as financing expenses

CONTRIBUTED SURPLUS

AS AT DECEMBER 31, 2005

258

$ 2,505

$ 3,166

$ 5,929

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

2005 Annual Report

Consolidated Financial Statements. Financial Year Ended December 31, 2005 and 2004

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of Canadian dollars)

Years ended December 31,

CASH FLOWS USED IN OPERATING ACTIVITIES
Net loss
Adjustments to reconcile net loss to cash flows used in operating activities

2005

2004

$ (22,932)

$ (17,152)

Write-down of short term investment
Revenues received in shares
Stock-based compensation
Write-down of long term investments
Amortization of capital assets
Amortization of deferred development costs
Amortization of licenses and patents

Change in working capital items (note 20)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from share issues
Share issue expenses
Deferred financing expenses
Issuance of convertible term notes
Long-term debt
Repayment of long-term debt

CASH FLOWS USED IN INVESTING ACTIVITIES
Disposal of short-term investment
Acquisition of an investment
Additions to capital assets
Grants received
Additions to licenses and patents

Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year

5,085
(3,000)
159
2,558
1,110
947
835
(15,238)

(131)
(15,369)

15,015
(1,514)
(373)
8,861
1,080
(1,515)
21,554

255
(293)
(3,020)
1,091
(463)
(2,430)

3,755
6,770

530
(3,052)
55
–
872
1,037
831
(16,879)

199
(16,680)

3,065
(397)
–
–
1,029
(490)
3,207

–
(254)
(2,405)
203
(1,353)
(3,809)

(17,282)
24,052

CASH AND CASH EQUIVALENTS, END OF YEAR

10,525

6,770

For supplemental cash flow information, see note 20
The accompanying notes are an integral part of the consolidated financial statements.

ProMetic

Notes to Consolidated Financial Statements. Years ended December 31, 2005 and 2004

(in thousands of Canadian dollars except for number of shares or as otherwise specified)

1 Governing statutes, nature of operations and going concern

ProMetic Life Sciences Inc. (“ProMetic” or the “Company”), incorporated under the Canada Business Corporations Act, is an
international biopharmaceutical company engaged in the research, development, manufacturing and marketing of a variety of
applications developed from its own exclusive technology platform. The Company owns proprietary technology essential for
use in the large-scale purification of drugs, genomics and proteomics products as well as medical and therapeutic applications.

These financial statements have been prepared on a going concern basis which assumes that the Company will continue in
operation for the foreseeable future and accordingly will be able to realize its assets and discharge its liabilities in the normal
course of operations. Since inception, the Company has concentrated its resources on research and development. It has had no
net earnings, minimal revenues, negative operating cash flows and has financed its activities through the issuance of shares. The
Company’s ability to continue as a going concern is dependent on obtaining additional investment capital, the achievement of
profitable operations and meeting the covenants related to the convertible term notes (note 11). There can be no assurance that
the Company will be successful in increasing revenue or raising additional investment capital to generate sufficient cash flows
to continue as a going concern. These financial statements do not reflect the adjustments that might be necessary to the carrying
amount of reported assets, liabilities and revenues and expenses and the balance sheet classification used if the Company were
unable to continue operations in accordance with this assumption.

2 Changes in accounting policies

Standards applicable for the year ended December 31, 2005

No new standards were applicable for the year ended December 31, 2005.

Standards applicable for the year ended December 31, 2004

Generally accepted accounting principles and financial statement presentation:
On January 1, 2004, the Company adopted the new recommendations of the Canadian Institute of Chartered Accountants’
(“CICA”) Handbook Section 1100, Generally Accepted Accounting Principles, and Section 1400, General Standards of Financial
Statement Presentation. Section 1100 describes what constitutes Canadian generally accepted accounting principles (“GAAP”)
and its sources. It also provides guidance on sources to consult when selecting accounting policies and determining
appropriate disclosures when a matter is not dealt with explicitly in the primary sources of Canadian GAAP. The new standard
eliminates “industry practice” as a possible source of consultation. Section 1400 provides general guidance on financial
statement presentation and further clarifies what constitutes fair presentation in accordance with Canadian GAAP. The
adoption of these recommendations has had no significant impact on the financial statements for the year ended
December 31, 2004.

Impairment of long-lived assets:
The CICA issued Section 3063 of the Handbook, Impairment of Long-lived Assets and revised Section 3475 Disposal of Long-
Lived Assets and Discontinued Operations. These two sections provide guidance on how assets are grouped when testing for
and measuring impairment and propose a two-step process for first determining when an impairment loss is recognized and
then measuring that loss. The Company adopted these recommendations as of January 1, 2004. The adoption of these
recommendations had no impact on the financial statements of the Company.

Stock-based compensation:
Effective January 1, 2004, Canadian GAAP requires the fair value of options granted to employees to be expensed over their
vesting period. Prior to January 1, 2004, the Company did not recognize any compensation expense for stock options granted
to employees as the granting and exercising of options were accounted for as equity transactions (see note 13 d)).

2005 Annual Report

Notes to Consolidated Financial Statements. Years ended December 31, 2005 and 2004

(in thousands of Canadian dollars except for number of shares or as otherwise specified)

Revenue recognition:
Effective January 1, 2004, the Company adopted the recommendations of the Emerging Issues Committee (“EIC”) of the
CICA in abstracts EIC-141, Revenue Recognition and EIC-142, Revenue Arrangements with Multiple Deliverables. EIC-141
provides interpretative guidance on the application of Section 3400 of the CICA Handbook, Revenue. More specifically, the
abstract presents the criteria to be met so that revenue recognition can be considered as having been achieved. EIC-142
addresses not only when and how an arrangement involving multiple deliverables should be divided into separate elements
of accounting, but also how the arrangement’s consideration should be allocated among separate units. Adoption of these
recommendations did not affect the financial position or results of operations in the consolidated financial statements.

Consolidation of variable interest entities:
Effective January 1, 2004, the CICA issued AcG-15, Consolidation of Variable Interest Entities. AcG-15 requires certain variable
interest entities, or VIE’s, to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do
not have the characteristics of a controlling financial interest defined in the accounting guideline or do not have sufficient
equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The
Company currently has no contractual relationship or other business relationship with a variable interest entity and therefore
the adoption of AcG-15 did not have an effect on the Company’s consolidated financial statements.

Standards applicable for the year ended December 31, 2006.

Non-monetary transactions:
In June 2005, the CICA published chapter 3831 “Non-monetary transactions” replacing chapter 3830 entitled under the
same name. The new chapter applies to all non-monetary transactions initiated in periods beginning on or after
January 1, 2006. The main feature of this chapter is the general obligation, unchanged from the previous chapter 3830, to
measure an asset or a liability exchanged or transferred in a non-monetary transaction at fair value. However, an asset
exchanged or transferred in a non-monetary transaction is valued at book value when the transaction has no commercial
substance, when the transaction is an exchange of a product or property held for sale in the ordinary course of business for
a product or property to be sold in the same line of business to facilitate sales to customers other than the parties to the
exchange, when neither the fair value of the asset received nor the fair value of the asset given up is reliably measurable or
when the transaction is recognized as a non-monetary non reciprocal transfer to the benefit to owners. This represents a spin-
off or other form of restructuring or liquidation. The criteria of “commercial substance” replace the one called culmination
of the earnings process in the previous chapter 3830.

The provisions of this new chapter will apply to all non-monetary transactions prospectively in periods beginning on or after
January 1, 2006. The Company is pursuing the evaluation of the impact of this new chapter on its financial statements.

3 Significant accounting policies

These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting
principles (“GAAP”). Significant accounting polices are described below.

Use of estimates:

a)
The preparation of financial statements in accordance with Canadian GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and expenses during the year. Significant items for
which management must make estimates relate to the valuation and assessment of recoverability of the investments, licenses
and patents, tax credits and deferred development costs. Reported amounts and note disclosure reflect the overall economic
conditions that are most likely to occur and anticipated measures to be taken by management. Actual results could differ
from those estimates.

ProMetic

Notes to Consolidated Financial Statements. Years ended December 31, 2005 and 2004

(in thousands of Canadian dollars except for number of shares or as otherwise specified)

Basis of consolidation:

b)
The consolidated financial statements include the accounts of ProMetic Life Sciences Inc., of its subsidiaries ProMetic
BioSciences Inc., ProMetic BioSciences (USA), Inc. and ProMetic BioSciences Ltd as well as those of the two joint ventures
Arriva-Prometic Inc. and Pathogen Removal and Diagnostic Technologies Inc. (hereinafter referred to as “A-P” and “PRDT”),
which are accounted for on a proportionate consolidation basis whereby the Company’s proportionate share of its joint
ventures’ revenues, expenses, assets and liabilities are consolidated. All significant intercompany transactions and balances
have been eliminated.

Cash and cash equivalents:

c)
Cash and cash equivalents are bank deposits and highly liquid investments purchased with a maturity of three months or less.

Short-term investment:

d)
The short-term investment is carried at the lower of cost and market value.

Inventories:

e)
Inventories of work in progress and finished goods are valued at the lower of cost and net realizable value, whereas inventories
of raw materials are valued at the lower of cost and replacement cost. Cost is determined on a first in, first out basis.

Investments:

f)
The investments are recorded at acquisition cost. When, in management’s opinion, there has been a loss in value of an
investment that is other than a temporary decline, the investment is written down to recognize the loss. In determining the
estimated realizable value of its investment, management relies on its judgment and knowledge of each investment as well
as on assumptions about general business and economic conditions that prevail or are expected to prevail. These assumptions
are limited due to the uncertainty of projected future events.

g) Capital assets:
Capital assets are recorded at cost. Amortization is provided over the useful lives of capital assets using the following methods:

Asset
Leasehold improvements
Equipment and tools
Office equipment and furniture
Computer equipment

Method
Straight-line
Declining balance
Declining balance
Declining balance

Rate/period
Lease term
10% to 30%
20%
30%

h) Government grants:
Government grants on capital expenditures are credited to capital assets and are amortized over the expected life of the
relevant assets by equal annual amounts. Grants receivable in connection with operating expenditures are credited to the
consolidated statement of operations in the period in which the expenditures take place.

Licenses and patents:

i)
Licenses and patents include vested rights as well as licensing fees for product manufacturing and marketing. Amortization
is provided over the useful lives of the licenses and patents acquired using the straight-line method ranging up to 20 years.
Management reviews the valuation and amortization of licenses and patents on an ongoing basis, taking into consideration
any events and circumstances which may impair its value. The Company assesses impairment in a two-step process for first
determining when an impairment loss is recognized and then measuring that loss.

2005 Annual Report

Notes to Consolidated Financial Statements. Years ended December 31, 2005 and 2004

(in thousands of Canadian dollars except for number of shares or as otherwise specified)

Research and development:

j)
Research expenditures (net of related tax credits) are expensed as incurred and include a reasonable allocation of overhead
expenses. Development expenditures (net of related tax credits) are deferred when they meet the criteria for capitalization in
accordance with Canadian GAAP, and the future benefits could be regarded as being reasonably certain. Related tax credits
are accounted for as a reduction to research and development expenditures on condition that the company is reasonably
certain that these credits will materialize. During fiscal years ended December 31, 2005 and 2004, no development costs
were deferred.

Deferred financing expenses:

k)
Deferred financing expenses are amortized using the straight line method over the term of convertible term notes.

Revenue recognition:

l)
The Company earns revenue from research and development collaboration services, licensing fees and products sales.
Payments received under collaborative research and development agreements, which are non-refundable, are recorded as
revenue as services are performed and the related expenditures incurred pursuant to the terms of the agreement and provided
collectibility is reasonably assured. Non-refundable up-front license fees from collaborative licensing and development
arrangements are recognized as the Company fulfills its obligations related to the various elements within the agreements, in
accordance with the contractual arrangements with third parties and the term over which the underlying benefit has been
conferred.

Revenues associated with multiple element arrangements are attributed to the various elements based on their relative fair
value. Any up-front license payments received under an agreement whereby the Company also provides research and
development services are recognized as revenue over the term of the research and development period. Revenue earned under
contractual arrangements upon the occurrence of specified milestone is recognized as the milestones are achieved and
collection of payment is reasonably assured.

Revenue from product sales is recognized when products are shipped. Cash or other compensation received in advance of
meeting the revenue recognition criteria is recorded as deferred revenue on the consolidated balance sheet.

Foreign currency translation:

m)
The Company’s foreign subsidiaries are considered as integrated foreign operations. Foreign denominated monetary assets
and liabilities of Canadian and foreign operations are translated into Canadian dollars using the temporal method. Under this
method, monetary assets and liabilities are translated at year-end exchange rates while non-monetary items are translated at
historical exchange rates. Expense items are translated at the exchange rates on the transaction date or at average exchange
rates prevailing during the year. Exchange gains or losses are included in the consolidated statement of operations.

Income taxes:

n)
The Company uses the liability method of accounting for income taxes. Future income tax assets and liabilities are recognized
in the balance sheet for the future tax consequences attributable to differences between the financial statement carrying values
of existing assets and liabilities and their respective income tax bases. Future income tax assets and liabilities are measured
using income tax rates expected to apply when the assets are realized or the liabilities are settled. The effect of a change in
income tax rates is recognized in the year during which these rates change. Future income tax assets are recognized and a
valuation allowance is provided if realization is not considered “more likely than not”.

ProMetic

Notes to Consolidated Financial Statements. Years ended December 31, 2005 and 2004

(in thousands of Canadian dollars except for number of shares or as otherwise specified)

Stock-based compensation:

o)
The Company maintains a stock option plan as described in note 13 c). The Company uses the fair value method to account
for all stock-based payments to non-employees that have been awarded on or after January 1, 2002.

Since January 2004, the Company has adopted the new accounting policy for stock-based compensation to employees. Under
this method, compensation cost is measured at the grant date based on the fair value of the award and is recognized over the
related service period.

Earnings per share:

p)
Basic earnings per share are calculated using the weighted average number of common shares outstanding during the year.
Diluted earnings per share are calculated using the treasury stock method giving effect to the exercise of options and warrants.
The treasury stock method assumes that any proceeds that could be obtained upon the exercise of options and warrants
would be used to repurchase common shares at the average market price during the year.

Share issue expenses:

q)
The company record share issue expenses in the consolidated statement of deficit.

4 Accounts receivable

Trade*
Sales taxes receivable
Tax credits receivable (note 9)
Advance to an officer, without interest
Accrued interest and other

2005

2004

374
164
2,225
22
129
$ 2,914

673
277
1,298
360
188
$ 2,796

* The trade accounts include amounts receivable from two customers, which represent approximately 70% of the Company’s total trade

accounts receivable in 2005 and two customers representing 72% of total trade receivable in 2004.

5 Inventories

Raw materials
Work in progress and finished goods

2005

2004

389
1,546
$ 1,935

317
604
921

2005 Annual Report

Notes to Consolidated Financial Statements. Years ended December 31, 2005 and 2004

(in thousands of Canadian dollars except for number of shares or as otherwise specified)

6 Investments

Convertible preferred shares of Arriva Pharmaceuticals, Inc.

–

$ 2,281

Convertible preferred shares of AM-Pharma Holding B.V.

358

2005

2004

Guaranteed Investment Certificate, 1.75%, expiring in June 2006
pledged as security of a letter of credit to a supplier expiring in
November 2010

Cash subject to certain limitations

Excess of the interest in the joint venture Pathogen
Removal and Diagnostic Technologies Inc. over
proportionate share in consolidated net assets

200

–

254

2,248
$ 2,876

1,586
$ 4,479

The consolidated financial statements include the Company’s proportionate share of the revenues, expenses, assets and
liabilities of Pathogen Removal and Diagnostic Technologies Inc. (“PRDT”) and of Arriva-Prometic Inc. (“A-P”) as follows:

Current assets
Long-term assets
Total liabilities
Total revenues
Total expenses

Net loss

Cash flows from:
Operations
Investing

PRDT(a)

A-P(note 8c)

1
2,247
2,248(b)
424
2,048

1,624

–
1,809
6
–
294

294

2005
Total

1
4,056
2,254
424
2,342

1,918

2004
Total

49
3,663
1,651
–
3,229

3,229

–
–

(16)
(19)

(138)
(266)

The Company has a joint venture with the American Red Cross and two other partners under the legal name Pathogen
Removal and Diagnostic Technologies Inc. (“PRDT”) in which the Company owns 26% of the voting shares. PRDT is
engaged in the research, development and commercialization of pathogen diagnostic and removal systems.

Under the terms of the joint venture agreement, ProMetic and the American Red Cross will each contribute intellectual
property and technical expertise to develop pathogen diagnostic and removal systems. They both equally assume the
direct costs of the joint venture. Preferred shares including a 14% cumulative dividend will be issued by PRDT to the
Company and to the American Red Cross in consideration of their proportionate shares in direct and indirect costs.

ProMetic

Notes to Consolidated Financial Statements. Years ended December 31, 2005 and 2004

(in thousands of Canadian dollars except for number of shares or as otherwise specified)

(b) The PRDT joint venture has issued preferred shares in consideration of the proportionate share of each partner in direct
and indirect costs. These preferred shares are retractable at the holder’s option, provided that PRDT has sufficient cash
flows, and include a 14% cumulative dividend effective January 1, 2003. Since the shares issued by the joint venture
are retractable at the holder’s option, they are considered as debt rather than share capital. Thus, as part of the
proportionate consolidation, the Company must acknowledge 26% of the shares issued to the American Red Cross as
a debt to a third party.

7 Capital assets

Leasehold improvements
Equipment and tools
Office equipment and furniture
Computer equipment

Accumulated amortization
Net book value

2005
Accumulated
amortization

845
3,909
346
611
5,711

Cost

$ 3,252
6,092
675
1,016
11,035
5,711
$ 5,324

2004
Accumulated
amortization

506
3,394
275
440
4,615

Cost

$ 2,163
6,185
594
863
9,805
4,615
$ 5,190

Deferred capital grants for a total of $1,091 in 2005 and of $203 in 2004 received from the Isle of Man government are
credited to the cost of capital assets (see note 22).

8 Licenses and patents

Licenses
Patents

Accumulated amortization
Net book value

2005
Accumulated
amortization

$ 2,527
312
2,839

Cost

$ 6,700
1,237
7,937
2,839
$ 5,098

2004
Accumulated
amortization

$ 1,968
244
2,212

Cost

$ 6,672
970
7,642
2,212
$ 5,430

The Company owns the rights, title and interest in and to the know-how, information, technology and patents relating
to its Mimetic Ligand™ technology. A portion of these rights, title and interest were assigned to the Company by
Cambridge University’s Institute of Biotechnology in consideration of the payment of continuing royalties; the others
having been developed by the Company.

Effective November 9, 1995, the Company has the right to a patented technology permitting the link of ligands to a
matrix of perfluorocarbon such as Perfluosorb™ beads. This technology is useful in chromatographic applications and
for medical devices. This license is subject to the payment of a royalty to Arkion Life Sciences, Inc. on net sales with
respect to any products covered by the patents.

2005 Annual Report

Notes to Consolidated Financial Statements. Years ended December 31, 2005 and 2004

(in thousands of Canadian dollars except for number of shares or as otherwise specified)

As of April 13, 1999, through its subsidiary, ProMetic Biosciences Inc., the Company entered into a 50-50 joint venture,
Arriva-Prometic Inc., with Arriva Pharmaceuticals, Inc. (“Arriva”) for the development of applications relating to serine
protease inhibitors as a platform for various pharmaceutical products for dermatological (eczema, psoriasis, genital
herpes) and gastrointestinal (Crohn’s disease, irritable bowel syndrome) treatments and urinary tract indications. The
first serine protease inhibitor pursued is recombinant alpha 1-antitrypsin (“rAAT”), a compound produced in
genetically-engineered yeast cells.

Arriva has granted Arriva-Prometic an exclusive, perpetual license to develop, manufacture and commercialize these
serine protease inhibitors, and the Company has granted Arriva-Prometic an exclusive, perpetual license for the use
of its Mimetic Ligand™ purification technology for the indications within the scope of the joint venture. The Company
has also undertaken to fund the joint venture to a maximum of US $4 million of which US $31,000 has been contributed
in 2005 for a total of US $3,871,000 and US $3,840,000 in 2004. The Company will progressively record 50% of its
US $4 million contribution as intellectual property. In 2005, the Company recorded an amount of $19 as intellectual
property, $267 in 2004 for a total of $2,899 in 2005 and of $2,880 in 2004.

On June 6, 2002, the Company acquired for $400 a worldwide exclusive license to patents, pre-clinical data and
know-how pertaining to three therapeutic compounds (immunomodulators and adjuvants) for human applications.
The Company will make further improvements to the compounds and milestone payments are to be made if positive
results are achieved upon completion of the main development phases. Furthermore, the Company will pay royalties
on the sales of compound-based products.

The purpose of the strategic alliance between the Company and the American Red Cross signed in January 2003 is to
co-develop the Cascade process and license to third parties proprietary technology for the recovery and purification
of valuable therapeutic proteins from human blood plasma. The Cascade process integrates novel technologies in a
sequence that is expected to significantly improve both the yield and range of valuable proteins capable of being
isolated from human plasma. On October 1st, 2003, the Company paid the American Red Cross $642 for an exclusive
license for access to and use of intellectual property rights for the Plasma Protein Purification Scheme (“PPPS”) project.
ProMetic will be collecting revenues deriving from any licensing activities, such as royalties on net sales, lump sum
amounts and/or milestone payments. ProMetic will pay 25% after having recouped its stage 1 development costs that
the Company is committed to support. The American Red Cross will pay ProMetic 2% on any net sales of licensed
products.

An officer and some directors are entitled to receive royalties based on the sales of certain products submitted to
ProMetic before joining the Company. These royalties vary between 0.1% and 0.3% of net sales or between 1% and
3% of revenues received by the Company. These employees also have the exclusive right to commercialize these
products should ProMetic decide to stop developing and (or) commercializing them, subject to mutually acceptable
terms and conditions.

In the normal course of business, the Company enters into license agreements for the market launching or
commercialization of intellectual property. Under these licenses, including those mentioned above, the Company has
committed to pay royalties ranging generally between 0.5% and 10% of net sales from products it commercializes.

ProMetic

Notes to Consolidated Financial Statements. Years ended December 31, 2005 and 2004

(in thousands of Canadian dollars except for number of shares or as otherwise specified)

9 Bank loan

Bank loan of ProMetic BioSciences Inc, a wholly-owned subsidiary of the
Company, related to research and development tax credits and secured
by a hypothec in the amount of $1.3 million on all present and future assets
of the subsidiary (other than intellectual property and certain investments)
guaranteed by the Company, bearing interest at prime plus 1.75%
(6.75% as at December 31, 2005 and 6% as at December 31, 2004),
payable upon receipt of the corresponding tax credits.

10 Accounts payable and accrued liabilities

Accounts payable to an officer
Provision related to a lawsuit (note 16)
Other

11 Convertible Term Notes

2005

2004

$ 1,029

2005

2004

–
–
5,319
$ 5,319

236
2,715
4,763
$ 7,714

On December 30, 2005, the Company issued Secured Convertible Term Notes with a principal amount to be paid of
US $9.538 million ($11,120) for a total cash consideration of US $7.6 million ($8,861). Subsequent to this event, additional
notes with a principal amount of US $1.634 million for a total cash consideration of US $1.302 million were issued in January
2006. The notes issued in December 2005 are repayable in 28 instalments of US $399,000 ($396) per instalment, in the
aggregate. Notes issued in December 2005 are repayable starting in September 2006 until December 2008. The notes were
issued at an original issue discount of 20.32% and have an effective interest rate of 63.19%. Since no instalments are payable
in the first eight months, interest for those months will be capitalized to the outstanding debt.

To secure the Company’s obligations under the notes, ProMetic Life Sciences Inc. and its subsidiaries, ProMetic BioSciences Inc.,
ProMetic BioSciences (USA), Inc. and ProMetic BioSciences Ltd granted a hypothec, mortgage or other security interests on
substantially all of their assets and each subsidiary guaranteed the obligations of ProMetic Life Sciences Inc. under the notes.

For the eight month period following issuance of a note, half of its principal amount is convertible at the holder’s option into
subordinate voting shares at a conversion price of US $0.27. After this period, the full outstanding principal amount shall be
convertible at holder’s option until maturity provided the holder of the note would not own more than 9,99% of outstanding
shares.

In total, warrants to purchase 20,507,379 subordinate voting shares of the Company were issued to the note holders at an
exercise price of US $0.30 per share and are exercisable for a period of five years. As at December 31, 2005, 17,507,985
warrants were issued with the remainder being issued in January 2006. In addition, 3,076,107 warrants with an exercise
price of US $0.30 per share were issued as compensation warrants to the Company’s agent. The estimated fair value of the
warrants to the agent is accounted for as deferred financing cost for the portion attributable to the liability component ($190),
and as share issue expenses for the portion of the equity component ($225).

2005 Annual Report

Notes to Consolidated Financial Statements. Years ended December 31, 2005 and 2004

(in thousands of Canadian dollars except for number of shares or as otherwise specified)

For accounting purposes, the notes contain both a liability component and an equity component (the holders’ conversion
option and the warrants). The value of the liability component has been determined by discounting the future repayments
at discount rate which represents the estimated borrowing rate available to the Company for similar notes having no warrants
and no conversion rights. The fair values of the warrants and the holder’s conversion option were determined using the Black
Scholes option pricing model using the following assumptions:

Risk-free interest rate
Dividend yield
Expected volatility of share price
Expected life

Conversion option

Warrants

4.37-4.41%
0%
70-80%

9 - 36 months

4.35%
0%
70-80%
5 years

The estimated fair value was adjusted on a prorata basis, to ensure that the fair value assigned to the components equals the
total cash consideration received for the issuance of the term notes.

The equity component of shareholder’s equity is recorded separately. The other issuance costs incurred related to the Note
have been accounted for as deferred financing cost for the portion attributable to the liability component and as share issue
expenses for the portion attributable to the equity component.

Instalments due within the next three years amount to $524 in 2006, $1,972 in 2007 and $ 3,253 in 2008.

The Company agreed to meet certain covenants. As at December 31, 2005, there can be no assurance that the Company will
meet all the conditions set out in the term notes agreements. If the covenants are not met, the complete principal amount of
the notes shall be payable at the holders’ option.

As at December 31, 2005, the following warrants related to the convertible term notes were outstanding:

Warrants
20,584,092

Expiry date
December 2010

Exercise price
US $0.30

12 Long-term debt

Loan of ProMetic BioSciences Inc, a wholly-owned
subsidiary, secured by the Company and a first mortgage
on the subsidiary’s capital assets financed by such loan,
bearing interest at 9.5%, payable with monthly
instalments of $37,845, due June 2007

Capital lease obligation, 9.42%

Current portion of long term debt

ProMetic

2005

2004

412

802

–
412
366
46

45
847
440
407

Notes to Consolidated Financial Statements. Years ended December 31, 2005 and 2004

(in thousands of Canadian dollars except for number of shares or as otherwise specified)

The payments on the long-term debt for each of the next two years are as follows:

Year ending December 31:

2006
2007
Total payments

13 Share capital

Authorized and without par value:

366
46
412

Unlimited number of subordinate voting shares, participating, carrying one vote per share.

20,000,000 multiple voting shares, participating, carrying ten votes per share, convertible at the option of the holder or
automatically converted upon their sale to a third party by the holder into an equal number of subordinate voting shares.

Unlimited number of preferred shares, no par value, issuable in one or several series.

1,050,000 preferred shares, series A, non-participating, non-voting, convertible at the option of the holder into subordinate
voting shares at $0.50 per share except for unpaid dividends, convertible at a rate equal to the trading average of the
subordinate voting shares on the Toronto Stock Exchange during the 20 business days prior to the conversion, preferential
cumulative dividend of 12% per year, payable quarterly.

950,000 preferred shares, series B, non-participating, non-voting, convertible at the option of the holder into subordinate
voting shares at $0.60 per share except for unpaid dividends, convertible at a rate equal to the trading average of the
subordinate voting shares on the Toronto Stock Exchange during the 20 business days prior to the conversion, preferential
cumulative dividend of 12% per year, payable quarterly.

Number

2005
Amount

Number

2004
Amount

Issued and fully paid:

Subordinate voting shares
Multiple voting shares
Share purchase loan to an officer,
without interest and due no later than 2009

116,501,784
13,026,375

Balance, at end of year

$ 149,584
1,563

86,486,784
13,026,375

$134,569
1,563

(450)
$ 150,697

(450)
$135,682

2005 Annual Report

Notes to Consolidated Financial Statements. Years ended December 31, 2005 and 2004

(in thousands of Canadian dollars except for number of shares or as otherwise specified)

Share issue:

a)
Changes in the issued and outstanding subordinate voting shares were as follows:

Number

2005
Amount

Number

2004
Amount

Balance, at beginning of year
Shares issued pursuant to:

Public offerings
Exercise of warrants and options

Balance, end of year

86,486,784

$ 134,569

84,842,937

$131,504

30,000,000
15,000
116,501,784

15,000
15
$ 149,584

1,578,947
64,900
86,486,784

3,000
65
$134,569

During financial year 2005, all subordinate voting shares were issued for cash consideration.

b) Warrants:

As part of the issue of subordinate voting shares pursuant to public offerings, the Company also issued warrants for the
purchase of 1,710,000 subordinate voting shares with an exercise price of $ 0.575 per share expiring in June 2006. The fair
value of the warrants was determined using the Black and Scholes options-pricing model with the following assumptions:
expected dividend yield 0%, expected volatility 80%, risk-free interest rate of 3.20% and expected life of one year. The
estimated fair value of a warrant at the date of grant is $0.24. The value of the warrants of $406 is accounted as a share issue
expense.

As at December 31, 2005, the following warrants related to the share capital were outstanding:

Warrants
1,710,000

Expiry date
June 2006

Exercise price
$0.575

Stock options:

c)
The Company has established a stock option plan for its directors, officers and employees or service providers. The plan
provides that the aggregate number of shares reserved for issuance at any time under the plan and any other employee incentive
plans may not exceed 6,000,000 subordinate voting shares. Some options may be exercised in a period not exceeding 10
years from the date they were granted. Since September 10, 2001, the new options issued may be exercised over a period
not exceeding 5 years and 1 month from the date they were granted (options vest 20% per annum).

Year of grant
1997
1998
1999
2000
2001
2002
2003
2004
2005

ProMetic

Exercise price
$1.49 to $1.75
$2.00 to $3.00
$1.00 to $2.00
$1.35
$1.00 to $2.00
$2.50 to $2.70
$2.70
$2.70
$0.46 to $1.00

Number of options outstanding
2004
165,502
64,000
1,537,500
300,000
815,000
223,000
95,000
415,700
–
3,615,702

2005
75,000
51,000
1,386,500
200,000
572,500
19,000
63,800
279,575
350,000
2,997,375

Notes to Consolidated Financial Statements. Years ended December 31, 2005 and 2004

(in thousands of Canadian dollars except for number of shares or as otherwise specified)

The following table summarizes the changes in the number of stock options outstanding over the last two years:

Number of options as at December 31, 2003
2004 Granted

Exercised
Cancelled

Number of options as at December 31, 2004
2005 Granted

Exercised
Cancelled

Number of options as at December 31, 2005

Weighted average
exercise price
per share

$ 1.51
2.70
1.00
1.76
1.62
1.07
1.00
1.98
$ 1.43

Options

4,293,002
567,450
(64,900)
(1,179,850)
3,615,702
397,500
(15,000)
(1,000,827)
2,997,375

A compensation expense of $159 in 2005 and $55 in 2004 was recorded as a result of stock options granted to directors,
officers, employees and consultants.

The following table summarizes information about stock options outstanding as at December 31, 2005:

Range of
exercise prices

$0.46 to $0.51
$1.00 to $1.49
$1.50 to $1.75
$2.00 to $3.00

Weighted
average
remaining
contractual
life (in years)

0.92
3.69
1.48
3.28

Weighted
average
exercise
price

$ 0.49
1.08
1.56
2.46

Number
outstanding

100,000
1,822,000
410,000
665,375
2,997,375

Weighted
average
exercise
price

$ 0.49
1.09
1.56
2.29

Number
exercisable

100,000
1,530,000
343,000
395,835
2,368,835

As at December 31, 2004, 2,646,202 stock options were exercisable.

Stock-based compensation and other stock-based payments:

d)
Effective January 1, 2004, Canadian GAAP requires the fair value of options granted to employees to be expensed over their
vesting period. Prior to January 1, 2004, the Company did not recognize any compensation for stock options granted to
employees as the granting and exercising of options were accounted for as equity transactions.

The Company adopted the new accounting policy on a retroactive basis with no restatement of prior periods. Accordingly, on
January 1, 2004, retained earnings was reduced and contributed surplus was increased by $44 to account for the stock option
expense that would have been charged to loss in 2002 and 2003 with respect to all options granted since January 1, 2002.

2005 Annual Report

Notes to Consolidated Financial Statements. Years ended December 31, 2005 and 2004

(in thousands of Canadian dollars except for number of shares or as otherwise specified)

The Company uses the Black-Scholes option valuation model to calculate the fair value of options at the date of grant, using
the following assumptions:

Risk-free interest rate
Dividend yield
Expected volatility of share price
Expected life

2005

2004

3.56%
0%
73.7%

4.61%
0%
58.7%

5 years

The estimated fair value of options granted during the year ended December 31, 2005 is $0.44. In 2004, it was $0.67.

14 Information included in the consolidated statements of operations

Amortization of capital assets
Amortization of deferred development costs
Amortization of licenses and patents
Gross research and development expenses
Research and development tax credits
Interest on long-term debt
Interest on short-term debt
Interest income

15 Commitments

2005

2004

1,110
947
835
15,082
1,744
136
75
101

872
1,037
831
15,569
1,298
92
12
340

The Company has commitments under various operating leases for the rental of office and laboratories space and office
equipments. The minimum annual payments for the coming years are as follows:

$ 1,548
1,445
1,374
1,268
977
574
$ 7,186

2006
2007
2008
2009
2010
2011 and thereafter

ProMetic

Notes to Consolidated Financial Statements. Years ended December 31, 2005 and 2004

(in thousands of Canadian dollars except for number of shares or as otherwise specified)

16 Provision related to a lawsuit

Following the judgment in favor of Bank of Montreal issued in December 2004, a non-recurring expense of $2,900 has been
recorded in the consolidated statement of operations and in the accrued liabilities. In January 2005, the Company appealed
the judgment and at year end was awaiting the audition date of the appeal court.

Furthermore a legal hypothec in the amount of $2,762 (with interests and additional indemnity as provided by law) resulting
from a judgment, was registered on December 23, 2004 in favor of Bank of Montreal and charging certain movable assets of
ProMetic Life Sciences Inc. (“PLI”), including shares held by it in the capital of its subsidiaries, Pathogen Removal and
Diagnostic Technologies Inc., and any sums lent to them by PLI.

17 Financial instruments

Fair value:

a)
The carrying value of cash and cash equivalents, accounts receivable, guaranteed investment certificate, cash subject to certain
limitations, bank loan, accounts payable and accrued liabilities approximates their fair value because of the near-term maturity
of these instruments. The carrying value of the long-term debt approximates its fair value because the implicit interest rate
approximates market rates available for similar instruments.

The fair value of the short-term investment of $3,030 in 2004 is based on the closing sale price of the Toronto Stock Exchange.

The fair value of the investments in Arriva Pharmaceuticals, Inc. and in AM-Pharma Holding B.V. was not readily determinable
because they are private companies.

The fair value of the excess of the interest in the joint venture PRDT over proportionate share in consolidated net asset and
preferred shares retractable at the holder’s option cannot be determined because these are shares of a private joint venture
company at the pre-commercial stage and because it is not possible to determine in which period these shares may be
redeemed.

The fair value of the convertible term notes was estimated at its issuance as described in note 11.

b) Credit risk:
The Company reviews a new customer’s credit history before extending credit and conducts regular reviews of its existing
customers’ credit performance.

Foreign exchange risk:

c)
The Company derives a substantial part of its revenues in pounds sterling and the majority of its expenses that are not
denominated in Canadian dollars are incurred in pounds sterling.

Financial assets, consisting principally of cash and cash equivalents, short-term investment and accounts receivable,
denominated in pounds sterling totaled £413,651 in 2005 and £1,337,121 in 2004 and financial liabilities denominated in
pounds sterling totaled £1,178,712 in 2005 and £1,022,066 in 2004.

Financial assets, consisting principally of cash and cash equivalents in United States dollars totaled US $7 million in 2005
and US $37,000 in 2004. Financial liabilities denominated in United States dollars totaled US $3,8 million in 2005 and
US $179,000 in 2004.

The Company does not possess nor issue financial derivative instruments.

2005 Annual Report

Notes to Consolidated Financial Statements. Years ended December 31, 2005 and 2004

(in thousands of Canadian dollars except for number of shares or as otherwise specified)

18 Related party transactions

During the year, the Company entered into the following transactions with some of its directors or companies which it controls:

Fees to directors

These transactions were measured at the exchange amount.

19 Income taxes

2005
395

2004
367

The following table reconciles the differences between the domestic statutory tax rate and the effective tax rate used by the
Company in the determination of the income tax expenses:

Net loss
Basic income tax rate
Computed income tax provision

Decrease (increase) in income taxes resulting from:

Unrecorded potential tax benefit arising from current period losses
Effect of tax rate differences in foreign subsidiaries
Non-taxable items
Change in tax rate

2005

2004

$(22,932)
31%
(7,109)

$(17,152)
31%
(5,317)

4,876
990
2,275
(1,032)
–

2,544
1,285
1,488
–
–

ProMetic

Notes to Consolidated Financial Statements. Years ended December 31, 2005 and 2004

(in thousands of Canadian dollars except for number of shares or as otherwise specified)

Significant components of the Company’s net future income tax balances are as follows:

Future income tax assets:
Losses carried forward
Share issue expenses
Unused research and development expenses
Accounts payable and accrued liabilities
Deferred revenue
Capital assets

Less: valuation allowance

Net future income tax assets

Future income tax liabilities:

Capital assets
Licenses and patents
Deferred development costs
Net future income tax assets

2005

2004

$ 14,963
1,056
4,691
1,035
9
122
21,876
(21,127)

$ 12,920
712
3,106
18
24
40
16,820
(15,537)

749

1,283

(76)
(673)
–
–

(406)
(784)
(93)
–

An amount of future income tax assets of $714 related to share issue costs engaged in the year has not been recognized.

2005 Annual Report

Notes to Consolidated Financial Statements. Years ended December 31, 2005 and 2004

(in thousands of Canadian dollars except for number of shares or as otherwise specified)

As at December 31, 2005, the Company had available the following deductions, losses and credits:

Canada

Federal

Provincial

Foreign
countries

Research and development expenses, without time limit

$ 11,973

$ 18,726

Losses carried forward expiring in:

2005
2006
2007
2008
2009
2010
2011
2012
2014
2015
2018
2020
2021
2023
2024
2025
Without expiry date
Share issue expenses

550
2,416
2,091
3,933
5,332
5,315
–
–
2,472
3,288
–
–
–
–
–
–

3,104

–
2,020
2,333
4,058
4,788
5,029
–
–
2,079
2,767
–
–
–
–
–
–

3,104

–

–
–
–
–
–
–
457
1,164
–
–
434
14
594
939
1,370
935
40,464
–

As at December 31, 2005, the Company also had unused federal tax credit available to reduce future Canadian taxable income
in the amount of $3,240 and expiring between 2009 and 2015. Those tax credits have not been recorded and no future
income tax liability has been recorded with respect to those tax credits.

$ 28,501

$ 26,178

$ 46,371

ProMetic

Notes to Consolidated Financial Statements. Years ended December 31, 2005 and 2004

(in thousands of Canadian dollars except for number of shares or as otherwise specified)

20 Additional information on the consolidated statement of cash flows

a) Change in working capital items:

Accounts receivable
Inventories
Prepaid expenses
Accounts payable and accrued liabilities
Deferred revenue

b) Non-cash transactions:

2005

2004

(118)
(1,014)
271
973
(243)
(131)

$ (2,112)
(335)
169
2,234
243
199

Unpaid additions to capital assets and licenses and patents

193

837

Excess of the interest in the joint venture Pathogen

Removal and Diagnostic Technologies Inc. over the
proportionate share in the consolidated net assets

Preferred shares retractable at the holder’s option

Unpaid share issue expenses

Shares of AM-Pharma Holding B.V received as consideration of

research and development service rendered

662

205

–

672

182

Shares of Hemosol Corp received as consideration of

3,000

3,052

acceptance of milestone.

c) Other cash flow information:

Interest paid
Interest earned

412
101

127
316

2005 Annual Report

Notes to Consolidated Financial Statements. Years ended December 31, 2005 and 2004

(in thousands of Canadian dollars except for number of shares or as otherwise specified)

21 Segmented information

The Company operates in one reporting segment consisting in research, development, manufacturing and commercialization
of a variety of commercial applications from its technology platform.

Revenues by geographic segment (1):

Canada
United States
United Kingdom
Europe (excluding United Kingdom)
Other countries

2005

2004

$ 4,340
1,028
491
2,171
22
$ 8,052

$ 4,380
836
1,065
1,850
52
$ 8,183

(1) Revenues are attributed to countries based on location of customer and not on location of subsidiaries.

The Company derives significant revenue from certain customers. In 2005 there were two customers which individually
accounted for 52% and 12% of revenues respectively. In 2004, two customers represented 53% and 16% respectively.

b) Assets by geographic segment:

2005

2004

$ 21,344
147
8,305
$ 29,796

$ 18,928
288
10,489
$ 29,705

2005
$ 4,558
114
5,750
$ 10,422

2004
$ 5,076
87
5,457
$ 10,620

Canada
United States
United Kingdom

Capital assets and licenses and patents by geographic segment:

Canada
United States
United Kingdom

ProMetic

Notes to Consolidated Financial Statements. Years ended December 31, 2005 and 2004

(in thousands of Canadian dollars except for number of shares or as otherwise specified)

22 Government grants

The Company has received government grants from Isle of Man Government for operating and capital expenditures.

For grants received prior to 2004, the Isle of Man government reserves the right to reclaim $1,003 in part or all of the grants
should the Company leave the Isle of Man within five year of receipt or should certain events occur within five years of receipt.

The terms for the grants received which amounted to $1,108 in 2005 and $203 in 2004, are fully repayable if ProMetic
BioSciences Ltd leaves the Isle of Man within five years of receipt of the grant and thereafter repayable on a sliding scale for
up to a period of ten years.

No provision has been made in these financial statements for any future repayment to the Isle of Man government relating
to the above agreement.

23 Contingencies

Following the introduction in September 2000 of a claim for damages at the Superior Court by ProMetic Life Sciences Inc.
(“PLI”) and ProMetic BioSciences Inc. (“PBI”), a subsidiary of PLI, against a supplier for an amount of $7,726 the supplier
has introduced in April 2004 a cross demand against PLI and PBI claiming for payment as damages of all profits realized from
the sale of agarose beads between October 18, 1999 and October 18, 2004.

After obtaining representation from their legal advisers, management is of the opinion that it has valid grounds for defense
and no provision related to this matter has been recorded in these consolidated financial statements in that respect.
Settlements, if any will be charged to the statement of operations in the period in which the settlements occurs.

24 Comparative figures

Certain 2004 comparative figures have been reclassified to conform to the financial statement presentation adopted for 2005.

2005 Annual Report

Board of directors

Board of Directors

G.F. Kym Anthony(3)
President and Chief Executive Officer
Dundees Securities Corporation

Robert Lacroix(1) (3)
Senior Vice-President
CTI Capital Inc.

(1) Audit Committee
(2) Compensation Committee
(3) Corporate Governance Committee

John Bienenstock
Distinguished University Professor
Departments of Medicine,
Pathology and Molecular Medicine
McMaster University
Director, Brain-Body Institute
St. Joseph's Healthcare Hamilton

Pierre Laurin
Chairman of the Board,
President and Chief Executive Officer,
ProMetic Life Sciences Inc.

Claude Lemire(1) (3)
Independent Consultant

Andrew J.M. Clark
Biotechnology Consultant

John J. R. Noble(2)
Radiologist

Roger D. Garon(1) (2)
Chairman of the Board
Multivet Ltd

Barry H. Gibson
Independent Consultant

Hans W. Schmid(2)
Chairman of the Board
ASAT AG Applied Science
& Technology

ProMetic

Management

Pierre Laurin
Chairman, President & CEO
ProMetic Life Sciences Inc.

Steven J. Burton
Chief Executive Officer
ProMetic BioSciences Ltd

Lucie Morin
Vice-President, Human Resources
ProMetic Life Sciences Inc.

Stéphane Archambault
Vice-President, Finance and
Administration
ProMetic Life Sciences Inc.

Janis Peleshok
Director, Business Development
ProMetic Life Sciences Inc.

Christopher L. Penney
Vice-President & Chief Scientific
Officer, Therapeutics
ProMetic BioSciences Inc.

Vincent Taillefer
Vice-President,
Corporate Development
ProMetic Life Sciences Inc.

2005 Annual Report

Scientific Advisors

In 2005, the Company relied on a network of well-recognized scientists with expertise in different areas such as biotechnology,
bioprocessing and biopharmaceuticals:

Enabling Technology

ProMetic BioTherapeutics, Inc.

Therapeutics

Steven J. Burton, PhD
CEO, ProMetic BioSciences Ltd

John C. Curling, PhD
Independent Consultant

Barry L. Haymore, MD, PhD
Consultant,
Microbe Inotech Laboratories Inc

David J. Stewart, PhD
Director of Meetings and Courses,
Cold Spring Harbor Laboratory

Pathogen Removal and
Diagnostic Technologies Inc.

Ruben G. Carbonnell
Director of the William R. Kenan Junior
Institute for Engineering
Technology and Science,
North Carolina University

David J. Hammond, PhD
Executive Director, R&D,
Plasma Derivatives,
American Red Cross

Robert G. Rohwer, PhD
Director, Molecular Neurovirology
Laboratory, VA Maryland
Health Care System International
authority in the field of the TSE

Steven J Burton, PhD
CEO, ProMetic BioSciences Ltd

ProMetic

Christopher Bryant, PhD
Project Manager,
Plasma Protein Purification System
(PPPS) development project

Ruben G. Carbonnell, PhD
Director of the William R. Kenan Junior
Institute for Engineering
Technology and Science,
North Carolina University

Tom Chen, PhD
Director of Process Development,
Plasma Derivatives,
American Red Cross

John C. Curling, PhD
Independent Consultant

David J. Hammond, PhD
Executive Director, R&D,
Plasma Derivatives,
American Red Cross

Timothy K. Hayes, PhD
Director of Analytical Chemistry,
Plasma Derivatives Department,
American Red Cross

John Bienenstock, CM, MD (Hon),
FRCP, FRPC, FRSC
Distinguished University Professor.
Departments of Medicine, Pathology
and Molecular Medicine
McMaster University
Director, Brain-Body Institute
St. Joseph's Healthcare Hamilton

Julie Beaudet, MD
Oncologist,
Maisonneuve-Rosemont Hospital

Martine Garreau, MD, M.Sc.
Managing Director
GMG Life Sciences

Volker Helrich, MD, PhD
Registered Pharmacist,
CEO of ASAT AG Applied Science
& Technology
(Zug, Switzerland)

Jean Marsac, MD, PhD
President
H2I SA

Christopher Penney, PhD
Vice-President & Chief Scientific
Officer
ProMetic BioSciences Inc.

Roger A. Perrault, MD, PhD, FRCPC
President, R.A. Perrault Consultants Inc.

Denis Claude Roy, MD
Hematologist, Associate Professor of
Medicine at the University of Montréal
Director, Cellular Therapy Laboratory
at Maisonneuve-Rosemont Hospital

Hans W. Schmid, PhD
Chairman of the Board, ASAT AG
Applied Science & Technology

Pierre Laurin
Chairman, President and
Chief Executive Officer

Additional Information

ProMetic Life Sciences Inc.

Auditors

Annual Information Form

Head Office
8168 Montview Road
Mont-Royal, Québec H4P 2L7
Canada
Tel.: (514) 341-2115
Fax: (514) 341-6227
info@prometic.com
www.prometic.com

On peut se procurer la version
française du présent rapport annuel
en s’adressant au Service des
communications de ProMetic
Sciences de la Vie inc. :
8168, chemin Montview
Mont-Royal, Québec H4P 2L7
Canada

Vous le trouverez aussi sur notre
site Internet à l’adresse :
www.prometic.com

Raymond Chabot Grant Thornton
600 de La Gauchetière Street West
Suite 1900
Montréal, Québec H3B 4L8
Canada

Transfer Agent and Registrar

National Bank Trust
1100 University Street
Suite 900
Montréal, Québec H3B 2G7
Canada

Listings

Toronto Stock Exchange (PLI.SV)
Outstanding subordinate voting
shares as at December 31, 2005:
116,501,784

Investor Relations

For more information, please contact:
Nicole Blanchard
Tel.: (450) 627-6600
Fax: (514) 961-0219
nicole.blanchard@isuncomm.com
investor@prometic.com

Annual Meeting of Shareholders

Wednesday, May 3, 2006
at 10:30 a.m. (EDT)
Montreal Museum of Fine Arts
1379, Sherbrooke Street West
Montréal, Québec H3G 2T9
Canada

The 2005 Annual Information Form
of ProMetic Life Sciences Inc. is
available upon request from the
Company’s head office.

ProMetic BioSciences Inc.
Laval, Quebec
R&D Group – Therapeutic
Tel.: (450) 781-1394
info@prometic.com

ProMetic BioSciences Ltd
Isle of Man, British Isles
Scale-up and manufacturing
Tel.: 44 1624 823 519

Cambridge, UK
R&D Group – Enabling technology
Tel.: 44 1223 420 300

ProMetic BioSciences (USA), Inc.
Wayne, New Jersey
Sales and marketing
Tel.: (973) 812-9880
sales@prometic.com

ProMetic BioTherapeutics, Inc.
Bourbonnais, Illinois
Plasma proteins therapeutics
Tel.: (815) 928-9668

We would like to thank all
the ProMetic employees who
contributed to this annual report.

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www.prometic.com

Straight
to the

2005 Annual Report