Filed
Pursuant to Rule 424(b)(5)
Registration
No. 333-232935
Prospectus
Supplement
(To
Prospectus dated August 15, 2019)
AETERNA
ZENTARIS INC.
3,478,261
Common Shares
(and
Associated Common Share Purchase Rights)
Aeterna
Zentaris Inc. (“we,” “us,” “our” or the “Company”) are offering 3,478,261 common
shares, no par value, (“Common Shares”) pursuant to this prospectus supplement and the accompanying prospectus. The
Common Shares are being sold directly to certain institutional accredited investors pursuant to a securities purchase agreement
dated February 19, 2020. The 3,478,261 Common Shares are being sold at a purchase price of $1.29375 per share. Unless otherwise
stated, currency amounts in this prospectus supplement are presented in United States dollars, or “$” or “US$.”
Each Common Share offered under this prospectus supplement and the accompanying prospectus has associated with it one right to
purchase a Common Share under our Rights Plan (as defined herein). Please see the section entitled “Description of Securities
Offered Under This Prospectus Supplement — Shareholder Rights Plan” in this prospectus supplement and the accompanying
prospectus for a more detailed discussion.
In
a concurrent private placement, we are also selling to such investors warrants to purchase 0.75 shares of our Common Shares
for each share purchased for cash in this offering, exercisable at a price of $1.20 per warrant share (the “Warrants”).
Each Warrant will be exercisable immediately upon issuance and will have a term of five and one-half years from the date of
issuance. The Warrants issued in the private placement and our Common Shares issuable upon the exercise of the Warrants are
not being registered under the Securities Act of 1933, as amended (the “Securities Act”), at this time, are
not being offered pursuant to this prospectus supplement and the accompanying prospectus, and are being offered pursuant to the
exemption provided in Section 4(a)(2) under the Securities Act and Rule 506(b) promulgated thereunder. There is no established
public trading market for the Warrants and we do not expect a market to develop. In addition, we do not intend to list the Warrants
on the NASDAQ Capital Market (“NASDAQ”), the Toronto Stock Exchange (“TSX”), or any other national securities
exchange or any other nationally recognized trading system.
Our
Common Shares are listed on the NASDAQ and on the TSX under the symbol “AEZS”. On February 19, 2020, the last
reported sales price of our Common Shares on the NASDAQ was $1.36 per share and on the TSX was C$1.80 per share.
In
offering Common Shares by the means of this prospectus supplement and the accompanying prospectus, we are relying on General Instruction
I.B.5 of Form F-3, which limits the amount of Common Shares we can sell pursuant to the registration statement, of which this
prospectus supplement and the accompanying prospectus are a part, to one-third of the market value of our Common Shares held by
non-affiliates, or our public float, in any 12-month period. On the date of this prospectus supplement, our public float was $29,187,429.40,
which was calculated based on 19,991,390 of our Common Shares outstanding and held by non-affiliates and a price of $1.46 per
share, the closing price of our Common Shares on the NASDAQ on January 21, 2020. We sold
3,325,000 Common Shares pursuant to General Instruction I.B.5 of Form F-3 during the twelve calendar month period that ends on
and includes the date of this prospectus supplement and the aggregate value of the Common Shares sold was $4,987,500.
We
have engaged H.C. Wainwright & Co. (“Wainwright”) to act as our sole placement agent for this offering (the “Placement
Agent”). The Placement Agent is not purchasing or selling any Common Shares offered by this prospectus supplement and the
accompanying prospectus and is not required to arrange the purchase or sale of any specific number of shares or dollar amount,
but will use its reasonable best efforts to arrange for the sale of the Common Shares offered. Wainwright is entitled to a
cash fee and management fee equal to 7.25% and 1%, respectively, of gross proceeds raised in this offering of Common
Shares and the concurrent private offering of the Warrants. In addition, the Placement Agent is receiving warrants to purchase
243,478 Common Shares, exercisable at a price of $1.61719 per warrant share (the “Wainwright Warrants”). The Wainwright
Warrants will have substantially the same terms as the Warrants issued to investors, except that such Wainwright Warrants will
have an exercise price equal to $1.61719 and have a term of five years from the date of this prospectus supplement. We
refer you to the “Plan of Distribution” section on page S-29.
Investing
in our securities involves a high degree of risk. Before making any decision to invest in our securities, you should carefully
consider the information disclosed under “Risk Factors” beginning on page S-5 of this prospectus supplement,
as well as those risk factors contained or incorporated by reference to this prospectus supplement and the accompanying prospectus.
NEITHER
THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR
PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THE
SECURITIES OFFERED BY THIS PROSPECTUS SUPPLEMENT HAVE NOT BEEN QUALIFIED FOR SALE IN CANADA AND MAY NOT BE OFFERED OR SOLD IN
CANADA EXCEPT PURSUANT TO AN EXEMPTION FROM THE PROSPECTUS REQUIREMENTS UNDER APPLICABLE CANADIAN SECURITIES LAWS. THE COMPANY
HAS NOT FILED AND DOES NOT INTEND TO FILE A CANADIAN PROSPECTUS IN CONNECTION WITH THE SECURITIES OFFERED BY THIS PROSPECTUS SUPPLEMENT.
There
is no arrangement for funds to be received in escrow, trust or similar arrangement. The Company has applied to the TSX for conditional
approval for listing of the Common Shares offered for sale pursuant to this prospectus supplement. Listing on the TSX is subject
to us fulfilling all of the requirements of the TSX.
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Per Common Share
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Total
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Offering Price
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$
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1.29375
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$
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4,500,000.17
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Placement agent fees(1)
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$
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0.106734
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$
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371,250.00
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Proceeds, before expenses, to us
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$
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1.187016
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$
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4,128,750.17
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(1)
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Includes
management fee. In addition, we have agreed to reimburse
the Placement Agent for certain offering-related expenses, as discussed under “Plan of Distribution” on page S-29
in this prospectus supplement.
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The
delivery of our Common Shares to purchasers in this offering is expected to be made on or about February 21, 2020,
subject to customary closing conditions, without further notice to you.
Sole
Placement Agent
H.C.
WAINWRIGHT & CO.
The
date of this prospectus supplement is February 19, 2020.
TABLE
OF CONTENTS
You
should rely only on the information contained in or incorporated by reference in this prospectus supplement and the accompanying
prospectus. We have not, and the Placement Agent has not, authorized any other person to provide you with different information.
If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the Placement Agent
is not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume
that the information appearing in this prospectus supplement, the accompanying prospectus or in any documents incorporated by
reference herein or therein is accurate only as of the date of the applicable document. Our business, financial condition, results
of operations and prospects may have changed since that date.
This
prospectus supplement is not an offer to sell or a solicitation of an offer to buy securities in any jurisdiction in which such
offer or solicitation is illegal.
ABOUT
THIS PROSPECTUS SUPPLEMENT
All
references to the terms “Aeterna Zentaris,” the “Company,” “we,” “us” or “our”
in this prospectus supplement refer to Aeterna Zentaris Inc., a Canadian corporation, and its consolidated subsidiaries, unless
the context requires otherwise.
This
prospectus supplement and the accompanying prospectus are part of a registration statement on Form F-3 (File No. 333-232935) that
we filed with the Securities and Exchange Commission (“SEC”), utilizing the SEC’s “shelf” registration
rules, on August 1, 2019, and that was declared effective on August 15, 2019. This document consists of two parts. The first part
is this prospectus supplement, which describes the terms of this offering of our Common Shares and supplements information contained
in the accompanying prospectus and the documents incorporated by reference into the accompanying prospectus. The second part is
the accompanying prospectus, which gives more general information about us and the securities we may offer from time to time under
our shelf registration statement, some of which may not apply to this offering.
This
prospectus supplement and the documents incorporated herein may add, update or change information contained in the accompanying
prospectus. To the extent that any statement that we make in this prospectus supplement is inconsistent with statements made in
the accompanying prospectus, the statements in this prospectus supplement will be deemed to modify or supersede those made in
the accompanying prospectus. You should read carefully this prospectus supplement, the accompanying prospectus and the additional
detailed information described under the headings “Where You Can Find More Information” and “Incorporation of
Certain Documents by Reference” before making an investment decision.
You
should rely on only the information contained in or incorporated by reference to this prospectus supplement and the accompanying
prospectus relating to the offering described in this prospectus supplement. We have not authorized any person to provide you
with different or additional information. If anyone provides you with different or additional information, you should not rely
on it.
You
should not assume that the information in this prospectus supplement, the accompanying prospectus or any documents we incorporate
by reference herein or therein is accurate as of any date other than the respective dates on the front cover of those documents.
Our business, financial condition, results of operations and prospectus may have changed since those dates.
We
further note that the representations, warranties and covenants made by us in any agreement that is filed as an exhibit to any
document that is incorporated by reference into this prospectus supplement and the accompanying prospectus were made solely for
the benefit of the parties to such agreement, including, in some cases, for the purpose of allocating risk among the parties to
such agreements, and should not be deemed to be a representation, warranty or covenant to you. Moreover, such representations,
warranties or covenants were accurate only as of the date when made. Accordingly, such representations, warranties or covenants
should not be relied on as accurately representing the current state of our affairs.
The
financial statements included in or incorporated by reference into this prospectus supplement and the accompanying prospectus
have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards
Board. Our consolidated financial statements are subject to the standards of the Public Company Accounting Oversight Board (United
States) and the SEC independence standards. This may not be comparable to financial statements of United States (“U.S.”)
companies.
Except
as otherwise indicated, all historical share, warrant and option data, including number of securities issued and outstanding and
applicable exercise prices, in this prospectus supplement, in the accompanying prospectus and in the documents incorporated by
reference herein, have been retroactively adjusted to reflect and give effect to the share consolidation (reverse stock split)
we effected on November 17, 2015, on a 100-for-1 basis. Our Common Shares commenced trading on a consolidated and adjusted basis
on both the NASDAQ and the TSX on November 20, 2015.
We
are not offering or selling the Common Shares offered herby in any jurisdiction or to any person if such offer or sale is not
permitted by applicable law, rule or regulation. Our principal executive offices are located at 315 Sigma Drive, Summerville,
South Carolina 29486; our telephone number is (843) 900-3223.
SPECIAL
NOTE ON FORWARD-LOOKING STATEMENTS
This
prospectus supplement, the accompanying prospectus and the documents incorporated herein by reference contain “forward-looking
statements” made pursuant to the safe-harbor provision of the U.S. Private Securities Litigation Reform Act of 1995, which
reflect our current expectations regarding future events. All statements other than statements of historical facts included in
or incorporated by reference into this prospectus supplement that address activities, events or developments that we expect, believe
or anticipate will or may occur in the future are forward-looking statements. Our forward-looking statements generally include
statements about our plans, objectives, strategies and prospects regarding, among other things, our businesses, results of operations,
liquidity and financial condition. In some cases, we have identified these forward-looking statements with words like “believe,”
“may,” “could,” “might,” “possible,” “potential,” “project,”
“will,” “should,” “expect,” “intend,” “plan,” “predict,”
“anticipate,” “estimate,” “approximate,” “contemplate” or “continue,”
or the negative of these words or other words and terms of similar meaning. Known and unknown risks and uncertainties could cause
our actual results to differ materially from those in forward-looking statements. Such risks include, but are not limited to,
the following:
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our
ability to continue as a going concern is dependent, in part, on our ability to transfer cash from Aeterna Zentaris GmbH (“AEZS
Germany”) to the Canadian parent and U.S. subsidiary and secure additional financing;
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our ability to raise capital and obtain financing
to continue our currently planned operations;
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our
ability to continue to list our Common Shares on the NASDAQ;
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our now heavy dependence
on the success of Macrilen™ (macimorelin) and related out-licensing arrangements and the continued availability of funds
and resources to successfully commercialize the product, including our heavy reliance on the success of the license and assignment
agreement with Novo Nordisk A/S (“Novo”);
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our ability to enter
into out-licensing, development, manufacturing, marketing and distribution agreements with other pharmaceutical companies
and keep such agreements in effect;
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our reliance on
third parties for the manufacturing and commercialization of Macrilen™ (macimorelin);
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potential disputes
with third parties, leading to delays in or termination of the manufacturing, development, out-licensing or commercialization
of our product candidates, or resulting in significant litigation or arbitration;
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uncertainties related
to the regulatory process;
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our ability to efficiently
commercialize or out-license Macrilen™ (macimorelin);
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our reliance on
the success of the pediatric clinical trial in the European Union (“E.U.”) and U.S. for Macrilen™ (macimorelin);
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the degree of market
acceptance of Macrilen™ (macimorelin);
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our ability to obtain
necessary approvals from the relevant regulatory authorities to enable us to use the desired brand names for our product;
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our ability to successfully
negotiate pricing and reimbursement in key markets in the E.U. for Macrilen™ (macimorelin);
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the effect on the
Company’s operations, cash flow and financial position because of the impact of the securities class-action litigation;
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any evaluation of
potential strategic alternatives to maximize potential future growth and shareholder value may not result in any such alternative
being pursued, and even if pursued, may not result in the anticipated benefits;
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our ability to take
advantage of business opportunities in the pharmaceutical industry;
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our ability to protect
our intellectual property; and
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the potential of
liability arising from shareholder lawsuits and general changes in economic conditions.
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More
detailed information about these and other factors is included under “Risk Factors” in this prospectus
supplement, the accompanying prospectus and in other documents incorporated herein by reference. Many of these factors are
beyond our control. Future events may vary substantially from what we currently foresee. You should not place undue reliance
on such forward-looking statements. We disavow and are under no obligation to update or alter such forward-looking statements
whether as a result of new information, future results, events, developments or otherwise, unless required to do so by a
governmental authority or applicable law. We advise you, however, to review any further disclosures we make on related
subjects in our Form 20-F and reports on Form 6-K filed or furnished to the SEC.
PROSPECTUS
SUPPLEMENT SUMMARY
The
following summary highlights selected information contained elsewhere in or incorporated by reference into this prospectus supplement
and the accompanying prospectus. The summary may not contain all of the information that you should consider before investing
in our Common Shares. You should read this entire prospectus supplement and the accompanying prospectus carefully, including “Risk
Factors” contained in this prospectus supplement and the documents incorporated by reference into this prospectus supplement
and the accompanying prospectus, before making an investment decision. This prospectus supplement may add to, update or change
information in the accompanying prospectus. See the “Risk Factors” section of this prospectus supplement beginning
on page S-5 for a discussion of the risks involved in investing in our securities.
Our
Business
Overview.
We are a specialty biopharmaceutical company engaged in commercializing novel pharmaceutical therapies, principally through
out-licensing arrangements. On December 20, 2017, the United States Food and Drug Administration (the “FDA”) granted
marketing approval for Macrilen™ (macimorelin) to be used in the diagnosis of patients with adult growth hormone deficiency
(“AGHD”). On January 16, 2018, the Company, through AEZS Germany, entered into a license and assignment agreement
with Strongbridge Ireland Limited (“Strongbridge”) to carry out development, manufacturing, registration, regulatory
and supply chain services for the commercialization of Macrilen™ (macimorelin) in the U.S. and Canada (the “License
and Assignment Agreement”). Effective December 19, 2018, Strongbridge sold the U.S. and Canadian rights to Macrilen™
(macimorelin) under the License and Assignment Agreement to Novo.
Our
Strategy. Our primary business strategy is to finalize the development, manufacturing, registration and commercialization
of Macrilen™ (macimorelin) through the License and Assignment Agreement in the U.S. and Canada. We continue to explore various
alternatives to monetize our rights to Macrilen™ (macimorelin) in other countries, including whether to find other license
partners in these jurisdictions. Our vision is to become a growth-oriented specialty biopharmaceutical company.
Drug
Development Overview.
Our
drug development efforts are currently principally focused on Macrilen™ (macimorelin). Macrilen™ (macimorelin) is
a novel orally available peptidomimetic ghrelin receptor agonist that stimulates the secretion of growth hormone by binding to
the ghrelin receptor (GHSR-1a) and that has potential uses in both endocrinology and oncology indications. Macrilen™ (macimorelin)
was granted orphan-drug designation by the FDA for use in evaluating growth hormone deficiency (“GHD”).
License
and Assignment Agreement.
On
January 16, 2018, we entered into the License and Assignment Agreement which provides (i) for the “right to use” license
relating to the Adult Indication, (ii) for the right to acquire a license for the Pediatric Indication if and when the FDA approves
a pediatric indication, (iii) that the licensee is to fund 70% of the costs of a pediatric clinical trial submitted for approval
to the European Medicines Agency (“EMA”) under the Pediatric Investigation Plan (“PIP”) to be run by the
Company with customary oversight from a joint steering committee (the “JSC”) and (iv) an interim supply arrangement.
Strongbridge, effective December 19, 2018, sold the U.S. and Canadian rights to Macrilen™ (macimorelin) to Novo for a payment
plus tiered royalties on net sales. The service agreement under which Novo agreed to fund Strongbridge’s Macrilen™
(macimorelin) field organization as a contract field force to promote the product in the U.S. was terminated as of December 1,
2019.
(i)
Adult Indication
Under
the terms of the License and Assignment Agreement, and for as long as Macrilen™ (macimorelin) is patent-protected, we will
be entitled to a 15% royalty on annual net sales up to $75.0 million, and an 18% royalty on annual net sales above $75.0 million.
Following the end of patent protection in the U.S. or Canada for Macrilen™ (macimorelin), we will be entitled to a 5% royalty
on net sales in that country. In addition, we will receive one-time payments ranging from $4.0 million to $100.0 million upon
the achievement of commercial milestones going from $25.0 million annual net sales up to $500.0 million annual net sales.
In
January 2018, we received a cash payment of $24.0 million from Strongbridge and on July 23, 2018, Strongbridge launched product
sales of Macrilen™ (macimorelin) in the U.S. In 2018, we received royalty fees of $183,878 and in the first nine months
ended September 30, 2019 received royalty fees of $29,000 under the License and Assignment Agreement.
(ii)
Pediatric Indication
Upon
approval by the FDA of a pediatric indication for Macrilen™ (macimorelin), we will receive a one-time milestone payment
from Novo of $5.0 million.
(iii)
PIP study
We
have initiated an open label, single dose trial to investigate the pharmacokinetics, pharmacodynamics, safety and tolerability
of macimorelin in pediatric patients from two to less than 18 years of age with suspected growth hormone deficiency (“GHD”).
Under the terms of the License and Assignment Agreement, the licensee will pay 70% and we will pay the remaining 30% of the research
and development costs associated with the PIP. We invoiced $358,000 in 2018 and $809,000 in the first nine months ended September
30, 2019 as licensee’s share of the costs incurred by us under the PIP.
(iv)
Interim supply arrangement
We
have agreed to supply ingredients for the manufacture of Macrilen™ (macimorelin) during an interim period at a price that
is set ‘at cost’, without any profit margin. We invoiced $2,108,000 in 2018 and $1,094,000 in the first nine months
ended September 30, 2019 under an interim supply agreement.
Rest
of world commercialization of macimorelin
On
January 16, 2019, we announced that the EMA had granted marketing authorization for macimorelin for the diagnosis of AGHD. AGHD
may occur in an adult patient who has a history of childhood onset GHD or may occur during adulthood as an acquired condition.
Considering a population of 512 million for the E.U. and the United Kingdom (“UK”), research based on prevalence suggests
that about 35,000 adults could be afflicted with GHD. This milestone marks a key development in our European commercialization
strategy, and we are in discussions with a variety of companies regarding licensing and/or distribution opportunities in the rest
of the world.
Special
Committee
On
March 12, 2019, we announced that our board of directors (the “Board of Directors”) formed a special committee of
independent directors to review strategic options available to the Company (the “Special Committee”). The Special
Committee engaged a financial advisor to work with management to assist the Special Committee and the Board of Directors in considering
a wide range of transactions (including, but not limited to, opportunities for the license of Macrilen™ (macimorelin) outside
of the U.S. and Canada), or other monetization transactions relating to Macrilen™ (macimorelin). The Special Committee has
never recommended that we enter into any particular transaction, and, in October 2019, the Special Committee dissolved.
Restructuring
in Germany
On
June 6, 2019, we announced that the Company is reducing the size of its German workforce and operations to more closely reflect
our ongoing commercial activities in Frankfurt, Germany. This restructuring affected eight employees in Frankfurt, Germany. The
restructuring was completed by January 31, 2020, for approximately US$600,000 in severance costs.
Recent
Developments
Effective
August 20, 2019, Jonathan Pollack resigned as a director of the Aeterna Zentaris Inc. and Brian Garrison resigned as Senior Vice
President, Global Commercial Operations of Aeterna Zentaris Inc., effective September 13, 2019. In addition, Klaus Paulini, as
of July 26, 2019, assumed the role of managing director of Aeterna Zentaris GmbH, replacing Michael Ward.
Effective
October 4, 2019, Klaus Paulini replaced Michael Ward as President and Chief Executive Officer of Aeterna Zentaris Inc. and joined
the board of directors of Aeterna Zentaris Inc.
Effective
January 1, 2020, Gilles Gagnon joined the board of directors of Aeterna Zentaris Inc.
Effective
March 31, 2020, Gérard Limoges will resign from the board of directors of Aeterna Zentaris Inc., and upon his retirement
Pierre-Yves Desbiens will join the board and replace Mr. Limoges as Chair of the Audit Committee.
Securities
Class-Action Lawsuit
The
Company and certain of its current and former officers are defendants in a class-action lawsuit pending the U.S. District Court
for the District of New Jersey, brought on behalf of the shareholders of the Company. The lawsuit alleges violations of the Securities
Exchange Act of 1934 in connection with allegedly false and misleading statements made by the defendants between August 30,
2011, and November 6, 2014 (the “Class Period”), regarding the safety and efficacy of Macrilen™ (macimorelin),
and the prospects for the approval of our New Drug Application for the product by the FDA. In February 2018, the U.S. court granted
a motion for class certification in the case, and the U.S Third Circuit Court of Appeals dismissed an appeal of that certification
motion that had been brought by the Company. On May 30, 2019, the Third Circuit affirmed the decision of the Court to certify
the class. The plaintiffs represent a class comprised of purchasers of our New Drug Application for the product by the FDA. The
plaintiffs represent a class comprised of purchasers of our common shares during the Class Period and seek damages, costs and
expenses and such other relief as determined by the Court. The amount of damages claimed against the Company as stated in the
petition is unspecified. The parties are now in the process of conducting expert discovery. We consider the claims that heave
been asserted in the lawsuit to be without merit, and we are vigorously defending against them. We cannot, however, predict at
this time the outcome or potential losses, if any, with respect to this lawsuit.
NASDAQ Listing
On
January 8, 2020, we received a letter from the Listing Qualifications Staff of the NASDAQ, notifying us that for the last 30 consecutive
business days prior to the date of the letter, the closing bid price of our Common Shares was below $1.00 per share and, therefore,
we did not meet the requirement for continued listing on the NASDAQ as required by Nasdaq Listing Rule 5550(b)(2). On January
27, 2020, we received a letter from the Listing Qualifications Staff of the NASDAQ notifying us that we had regained compliance
with the minimum bid price requirement. There can be no assurance, however, that the market price of our Common Shares
will not again fall below $1.00 in the future or that, if it does, we will regain compliance with the minimum bid price requirement
for continued listing.
Corporate
Information
We
were incorporated on September 12, 1990, under the Canada Business Corporations Act (the “CBCA”), and continue to
be governed by the CBCA. Our registered address is located at 5300 Commerce Court West, 199 Bay Street, Toronto, Ontario, Canada
M5L 1B9 c/o Stikeman Elliott LLP. Our principal executive offices are located at 315 Sigma Drive, Summerville, South Carolina
29486; our telephone number is (843) 900-3223 and our website is www.zentaris.com. None of the documents or information found
on our website shall be deemed to be included in or incorporated by reference into this prospectus supplement and the accompanying
prospectus, unless such document is specifically incorporated herein by reference.
We
currently have three wholly owned direct and indirect subsidiaries, Aeterna Zentaris GmbH, based in Frankfurt am Main, Germany,
Zentaris IVF GmbH, a direct wholly owned subsidiary of AEZS Germany, based in Frankfurt, Germany, and Aeterna Zentaris, Inc.,
an entity incorporated in the State of Delaware with an office based in Summerville, South Carolina in the U.S. Our Common Shares
are currently listed for trading on the NASDAQ and on the TSX under the trading symbol “AEZS”.
THE
OFFERING
Issuer
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Aeterna
Zentaris Inc.
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Securities offered
by us pursuant to this prospectus supplement:
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3,478,261 Common
Shares, no par value, and associated Common Share purchase rights.
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Offering Price:
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$1.29375 per share
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Common Shares
outstanding before this offering:
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19,994,510 Common
Shares(1)
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Common Shares
outstanding after this offering
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23,472,771 Common
Shares, if all the Common Shares are purchased in the offering(1)
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Use of proceeds:
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We
intend to use the net proceeds from the sale of our Common Shares under this prospectus supplement for general corporate purposes,
which includes, among other purposes, the funding of a pediatric clinical trial in the E.U. and U.S. for Macrilen™ (macimorelin).
Please see the section entitled “Use of Proceeds” on page S-23 of this prospectus supplement for a more
detailed discussion.
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Concurrent Private
Placement
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In
a concurrent private placement, we are selling to purchasers of our Common Shares in this offering Warrants to purchase 0.75
Common Shares for each share purchased for cash in this offering. The Warrants will be immediately exercisable from the date
of issuance at an exercise price of $1.20 per share and will expire five-and-a-half (5.5) years from the date of issuance.
We will receive gross proceeds from the concurrent private placement transaction solely to the extent the Warrants are
exercised for cash. In addition, the Placement Agent will receive the Wainwright Warrants. The Wainwright Warrants will
have substantially the same terms as the Warrants issued to investors, except that such Wainwright Warrants will have an exercise
price equal to $1.61719 and a term of five years from the date of this prospectus supplement. The Warrants, Wainwright
Warrants and the Common Shares issuable upon the exercise of the Warrants and Wainwright Warrants are not being offered pursuant
to this prospectus supplement and the accompanying prospectus, and are not being offered pursuant to the exemption provided
in Section 4(a)(2) under the Securities Act and Rule 506(b) of Regulation D promulgated thereunder. There is no established
public trading market for the Warrants and we do not expect a market to develop. In addition, we do not intend to list the
Warrants on the NASDAQ, TSX, any other national securities exchange or any other nationally recognized trading system.
See “Private Placement of Warrants” beginning on page S-28 of this prospectus supplement.
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Risk factors:
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An
investment in our Common Shares involve a high degree of risk. Please see the section entitled “Risk Factors”
beginning on page S-5 of this prospectus supplement as well as the other information included in or incorporated by
reference into this prospectus supplement and the accompanying prospectus for a discussion of factors that you should consider
carefully before making an investment decision.
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Dividend policy:
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We have never declared or paid any cash dividends
on our Common Shares. We do not anticipate paying any cash dividends in the foreseeable future.
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NASDAQ Capital
Market and TSX symbol:
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AEZS
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(1)
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The number of Common Shares outstanding is based on
19,994,510 shares outstanding as of February 19, 2020, which excludes:
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6,629,144
Common Shares issuable upon the exercise of outstanding warrants at a weighted average exercise price of $4.00 per share;
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894,835 Common Shares
issuable upon the exercise of outstanding options at a weighted average exercise price of $4.41 per share;
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1,137,920 Common
Shares reserved for future issuance under our 2018 Long-Term Incentive Plan dated March 27, 2018;
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246,619
Common Shares reserved for future issuance under our Second Amended and Restated Stock Option Plan adopted by our Board of
Directors on March 29, 2016, and ratified by the shareholders on May 10, 2016;
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2,608,696
Common Shares issuable upon the exercise of Warrants, at an exercise price of $1.20 per
share, to be issued to purchasers in a private placement concurrent with this offering;
and
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243,478
Common Shares issuable upon the exercise of Wainwright Warrants, at an exercise price
of $1.61719 per share, to be issued to the Placement Agent in connection with this offering.
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RISK
FACTORS
Before
making an investment decision, you should carefully consider the risks described in this prospectus supplement, together with
all of the other information incorporated by reference into this prospectus supplement and the accompanying prospectus, including
the risks described in our most recent Annual Report on Form 20-F and subsequent reports on Form 6-K furnished to the SEC, including
our audited consolidated financial statements and corresponding management’s discussion and analysis. The risks mentioned
below are presented as of the date of this prospectus supplement and we expect that these will be updated from time to time in
our periodic and current reports filed with or furnished to the SEC, as applicable, which will be incorporated herein by reference.
Please refer to these subsequent reports for additional information relating to the risks associated with investing in our Common
Shares.
Our
business, financial condition or results of operations could be materially adversely affected by any of these risks. Additional
risks not presently known to us or that we currently deem immaterial may also impair our business operations. The trading price
of our Common Shares could decline due to any of these risks, and you may lose all or part of your investment. This prospectus
supplement, the accompanying prospectus and the incorporated documents also contain forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a
result of certain factors, including the risks mentioned below. Forward-looking statements included in this prospectus supplement
are based on information available to us on the date hereof, and all forward-looking statements in documents incorporated by reference
are based on information available to us as of the date of each such document. We disavow and are under no obligation to update
or alter such forward-looking statements whether as a result of new information, future events or otherwise, other than as required
by applicable securities legislation.
Risks
Relating to This Offering
Management
will have broad discretion as to the use of the net proceeds from this offering, and we may not use the proceeds effectively.
We
intend to use the net proceeds from the sale of Common Shares by us in this offering for general corporate purposes, which may
include, among other purposes, the funding of a pediatric clinical trial in the E.U. and U.S. for Macrilen™ (macimorelin).
Our management will have broad discretion as to the application of the net proceeds from this offering and could use them for
purposes other than those contemplated at the time of this offering, as described below in the section entitled “Use of
Proceeds,” or in ways that do not necessarily improve our operating results or enhance the value of our Common Shares. Our
shareholders may not agree with the manner in which our management chooses to allocate and spend the net proceeds. Our failure
to use these funds effectively could have a material adverse effect on our business and could cause the price of our securities
to decline.
Investors
in this offering will suffer immediate and substantial dilution in the net tangible book value per share of our Common Shares.
Because
the offering price for the Common Shares offered pursuant to this prospectus supplement is substantially higher than the net tangible
book value of each outstanding share of our Common Shares, purchasers of Common Shares in this offering will experience immediate
and substantial dilution on the book value basis. Based on the offering price of $1.29375 per share and our pro forma net
tangible book value as of September 30, 2019, of $(0.50) per share, if you purchase Common Shares in this offering you will suffer
immediate and substantial dilution of approximately $0.22 per share. In addition, we are issuing warrants to purchase 2,608,696
Common Shares in a concurrent private placement, and the Placement Agent will receive the Wainwright Warrants to purchase 243,478
shares of our Common Shares. If the holders of outstanding options, warrants, or other securities convertible into our Common
Shares exercise those options, warrants, or other such securities at prices below the offering price, you will incur further
dilution. Please see the section entitled “Dilution” for a more detailed discussion of the dilution you will incur
in this offering.
We
may require additional funding through further issuances of our Common Shares or other securities, which may negatively affect
the market price of our Common Shares.
To
operate our business, we may need to raise additional capital through sales of our Common Shares, securities exercisable for or
convertible into our Common Shares or debt securities pursuant to which interest and/or principal payments may be satisfied through
the issuance of our Common Shares. Future sales of such securities or our Common Shares could adversely affect the prevailing
market price of our Common Shares and our ability to raise capital in the future, and may cause you to incur additional dilution.
We
do not intend to pay dividends on our Common Shares so any returns will depend on appreciation in the price of our Common Shares.
We
have never declared or paid any cash dividends on our Common Shares. We currently anticipate that we will retain future earnings,
if any, for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends
for the foreseeable future. Any return to stockholders will, therefore, be limited to the appreciation of their respective shares.
There is no guarantee that our Common Shares will appreciate in value or in maintain the price at which you purchased them.
Risks
Relating to Us and Our Business
We
may not be able to continue as a going concern if we do not obtain cash from AEZS Germany to fund our North American operations,
and we do not obtain additional financing.
We
have incurred, and expect to continue to incur, substantial expenses in our efforts to develop Macrilen™ (macimorelin).
Consequently, we have incurred operating losses and negative cash flow from operations historically and in each of the last several
years except for the year ended December 31, 2018, when we earned revenue from the sale of a license for the adult indication
of Macrilen™ (macimorelin) in the U.S. and Canada.
The
ability to realize our assets and meet our obligations as they come due is dependent on earning sufficient revenues under the
License and Assignment Agreement, monetizing commercial opportunities for Macrilen™ (macimorelin) in the rest of the world,
realizing other monetizing transactions and raising additional sources of funding, the outcome of which cannot be predicted at
this time. The revenue provided under the License and Assignment Agreement was $29,000 for the nine months ended September 30,
2019 and as at September 30, 2019, the Company had cash of $10,862,000. In September 2019, the Company closed an equity financing
which provided approximately $4,202,000 in net cash proceeds.
Furthermore,
a significant portion of the Company’s cash is held in
Aeterna Zentaris GmbH (“AEZS Germany”), our wholly owned German subsidiary. AEZS Germany is also the counter-party
for revenue earned under the License and Assignment Agreement. If and when current and medium term liabilities of AEZS Germany
exceed the values ascribed to AEZS Germany’s assets, it may no longer be possible under applicable German solvency laws
for AEZS Germany’s operations to continue. The Company has some discretion to manage research and development costs, administrative
expenses and capital expenditures in order to maintain its cash liquidity; however, the Company will need to conclude agreement(s)
for licensing or selling the European or worldwide rights to Macrilen™ (macimorelin) and, if necessary, obtain further financing
in order to continue its currently planned operations. Management has assessed the Company’s ability to continue as a going
concern and concluded that additional capital will be required. There can be no assurance that the Company will be able to execute
license or purchase agreements or to obtain equity or debt financing, or on terms acceptable to it. Factors within and outside
the Company’s control could have a significant bearing on its ability to obtain additional financing. As a result, management
has determined that there are material uncertainties that may cast significant doubt upon the Company’s ability to continue
as a going concern. For additional discussion of risks related to licensing and selling of Macrilen™ (macimorelin), see
risk factor titled “If we are unable to successfully commercialize or out-license Macrilen™ (macimorelin), or if we
experience significant delays in doing so, our business would be materially harmed, and the future and viability of the Company
could be imperiled” below.
In the event we are
not able to transfer cash from AEZS Germany to fund our North American operations and/or secure additional funding, we may be
forced to curtail operations, cease operations altogether or file for bankruptcy.
Investments in biopharmaceutical
companies are generally considered to be speculative.
The prospects for companies
operating in the biopharmaceutical industry are uncertain, given the very nature of the industry, and, accordingly, investments
in biopharmaceutical companies should be considered to be speculative assets.
If we are unable to successfully
commercialize or out-license Macrilen™ (macimorelin), or if we experience significant delays in doing so, our business would
be materially harmed, and the future and viability of the Company could be imperiled.
Our principal focus is on the licensing
and development of Macrilen™ (macimorelin), and we currently do not have any other product. We are a party to the License
and Assignment Agreement to carry out development, manufacturing, registration and commercialization of Macrilen™ (macimorelin)
in the U.S. and Canada. Moreover, we continue to explore licensing opportunities worldwide.
The
commercial success of Macrilen™ (macimorelin) depends on several factors, including, but not limited to, the following:
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receipt
of approvals from foreign regulatory authorities;
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successfully negotiating
pricing and reimbursement in key markets in the E.U. for macimorelin;
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successfully contracting
with qualified third-party suppliers to manufacture macimorelin;
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developing appropriate
distribution and marketing infrastructure and arrangements for our product;
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launching and growing
commercial sales of the product;
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out-licensing macimorelin
to third parties; and
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acceptance of the product in the medical community, among patients and with third-party payers.
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If
we are unable to successfully achieve any of these factors, our business, financial condition and results of operations may be
materially, adversely affected.
Our
revenues and expenses may fluctuate significantly, and any failure to meet financial expectations may disappoint securities analysts
or investors and result in a decline in the price or the value of our Common Shares or other securities.
We
have a history of operating losses. Our revenues and expenses have fluctuated in the past and may continue to do so in the future.
These fluctuations could cause our share price of Common Shares or the value of our other securities to decline. Some of the factors
that could cause our revenues and expenses to fluctuate include, but are not limited to, the following:
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the
timing and willingness of any current or future collaborators to invest the resources necessary to commercialize Macrilen™
(macimorelin);
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not obtaining necessary
regulatory approvals from the FDA, EMA and other agencies that may delay or prevent us from obtaining approval of a pediatric
indication for Macrilen™ (macimorelin), which may affect the share price of our Common Shares;
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the timing of regulatory
submissions and approvals;
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the nature and timing
of licensing fee revenues;
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the outcome of litigation,
including the securities class-action litigation pending against us that is described elsewhere in this prospectus supplement
and the accompanying prospectus;
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foreign currency
fluctuations;
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the timing of the
achievement and the receipt of milestone payments from current or future licensing partners; and
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failure to enter
into new or the expiration or termination of current agreements with suppliers who manufacture Macrilen™ (macimorelin).
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Due
to fluctuations in our revenues and expenses, we believe that period-to-period comparisons of our results of operations are not
necessarily indicative of our future performance. It is possible that in some future periods, our revenues and expenses will be
above or below the expectations of securities analysts or investors. In this case, the share price of our Common Shares and the
value of our other securities could fluctuate significantly or decline.
If
we are unable to successfully complete the pediatric clinical trial program for Macrilen™ (macimorelin), or if such clinical
trial takes longer to complete than we project, our ability to execute any related business strategy will be adversely affected.
If
we experience delays in identifying and contracting with sites and/or in-patient enrollment in our pediatric clinical trial program
for Macrilen™ (macimorelin), we may incur additional costs and delays in our development programs, and may not be able to
complete our clinical trials on a cost-effective or timely basis. In addition, conducting multi-national studies adds another
level of complexity and risk as we are subject to events affecting countries other than the U.S. and Canada. Moreover, negative
or inconclusive results from the clinical trials we conduct or adverse medical events could cause us to have to repeat or terminate
the clinical trials. Furthermore, children have different metabolic issues than adults. Accordingly, we may not be able to complete
the pediatric clinical trial within an acceptable time-frame, if at all. If we or our contract research organization (a “CRO”)
have difficulty enrolling a sufficient number of patients to conduct our clinical trials as planned, we may need to delay or terminate
ongoing clinical trials.
Clinical
trials are subject to continuing oversight by governmental regulatory authorities and institutional review boards and, must, among
other requirements:
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meet
the requirements of these authorities from multiple countries and jurisdictions and their related statutes, regulations and
guidance;
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meet the requirements
for informed consent;
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meet the requirements
for institutional review boards; and
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meet the requirements
for good clinical practices.
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We
are currently dependent on certain strategic relationships with third parties for the development, manufacturing and licensing
of Macrilen™ (macimorelin) and we may enter into future collaborations for the development, manufacturing and licensing
of Macrilen™ (macimorelin).
We
are currently dependent on certain strategic relationships with third parties for the development, manufacturing and licensing
of Macrilen™ (macimorelin), and may enter into future collaborations for the development, manufacturing and licensing of
Macrilen™ (macimorelin). Our arrangements with these third parties may not provide us with the benefits we expect and may
expose us to a number of risks.
Currently,
we are dependent on Novo to commercialize Macrilen™ (macimorelin) in the U.S and Canada. Most of our potential revenue consists
of contingent payments, including regulatory milestones and royalties on the sale of Macrilen™ (macimorelin). The milestone
and royalty revenue that we may receive under this collaboration will depend upon Novo’s ability to successfully introduce,
market and sell Macrilen™ (macimorelin) in the U.S. If Novo does not devote sufficient time and resources to its collaboration
arrangement with us, we may not realize the potential commercial benefits of the arrangement, and our results of operations may
be materially adversely affected.
Our
reliance on relationships with Novo and other potential third parties poses a number of risks. We may not realize the contemplated
benefits of such agreements nor can we be certain that any of these parties will fulfill their obligations in a manner which maximizes
our revenue. These arrangements may also require us to transfer certain material rights to third parties. These agreements create
certain additional risks. The occurrence of any of the following or other events may delay or impair commercialization of Macrilen™
(macimorelin):
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in certain
circumstances, third parties may assign their rights and obligations under these agreements to other third parties without
our consent or approval;
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the third parties
may cease to conduct business for financial or other reasons;
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we may
not be able to renew such agreements;
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the third parties
may not properly maintain or defend certain intellectual property rights that may be important to the commercialization of
Macrilen™ (macimorelin);
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the third parties
may encounter conflicts of interest, changes in business strategy or other issues which could adversely affect their willingness
or ability to fulfill their obligations to us (for example, pharmaceutical companies historically have re-evaluated their
priorities following mergers and consolidations, which have been common in this industry);
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delays in, or failures
to achieve, scale-up to commercial quantities, or changes to current raw material suppliers or product manufacturers (whether
the change is attributable to us or the supplier or manufacturer) could delay clinical studies, regulatory submissions and
commercialization of Macrilen™ (macimorelin); and
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disputes may arise
between us and the third parties that could result in the delay or termination of the manufacturing or commercialization of
Macrilen™ (macimorelin), resulting in litigation or arbitration that could be time-consuming and expensive, or causing
the third parties to act in their own self-interest and not in our interest or those of our shareholders.
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In
addition, the third parties can terminate our agreements with them for a number of reasons based on the terms of the individual
agreements that we have entered into with them. If one or more of these agreements were to be terminated, we would be required
to devote additional resources to manufacturing and commercializing Macrilen™ (macimorelin), which would likely cause a
drop in share price of our Common Shares.
We
may be unsuccessful in consummating further out-licensing arrangements for MacrilenTM (macimorelin) on favorable terms
and conditions, or we may be significantly delayed in doing so.
As
part of our product development and commercialization strategy, we are evaluating out-licensing opportunities for MacrilenTM
(macimorelin) in addition to the License and Assignment Agreement. If we elect to collaborate with third parties in respect
of MacrilenTM (macimorelin), we may not be able to negotiate a collaborative arrangement for MacrilenTM
(macimorelin) on favorable terms and conditions, if at all. Should any partner fail to successfully commercialize MacrilenTM
(macimorelin), our business, financial condition and results of operations may be adversely affected.
We
may require significant additional financing, and we may not have access to sufficient capital.
We
may require significant additional capital to fund our commercial operations, and may require additional capital to pursue planned
clinical trials and regulatory approvals. Although we have capital from the License and Assignment Agreement, we do not anticipate
generating significant revenues from operations in the near future other than from the License and Assignment Agreement. Moreover,
we currently have no committed sources of capital. Please see the Risk Factor entitled “We may not be able to continue as
a going concern if we do not obtain cash from AEZS Germany to fund our North American operations and we do not obtain additional
financing.”
We
may attempt to raise additional funds through public or private financings, collaborations with other pharmaceutical companies
or from other sources, including, without limitation, through at-the-market offerings and issuances of securities. Additional
funding may not be available on terms that are acceptable to us. If adequate funding is not available to us on reasonable terms,
we may need to delay, reduce or eliminate one or more of our product development programs or obtain funds on terms less favorable
than we would otherwise accept. To the extent that additional capital is raised through the sale of equity securities or securities
convertible into or exchangeable or exercisable for equity securities, the issuance of those securities would result in dilution
to our shareholders. Moreover, the incurrence of debt financing or the issuance of dividend-paying preferred shares, could result
in a substantial portion of our future operating cash flow, if any, being dedicated to the payment of principal and interest on
such indebtedness or the payment of dividends on such preferred shares and could impose restrictions on our operations and on
our ability to make certain expenditures and/or to incur additional indebtedness, which could render us more vulnerable to competitive
pressures and economic downturns.
Our
future capital requirements are substantial and may increase beyond our current expectations depending on many factors, including,
but not limited to, the following:
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the
duration of changes to and results of our clinical trials for any future products going forward;
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unexpected delays
or developments in seeking regulatory approvals;
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the
time and cost involved in preparing, filing, prosecuting, maintaining and enforcing patent claims;
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unexpected developments
encountered in implementing our business development and commercialization strategies;
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the potential addition
of commercialized products to our portfolio;
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the outcome of current
and future litigation, including the securities class-action litigation pending against us that is described elsewhere in
this prospectus supplement and the accompanying prospectus; and
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further arrangements,
if any, with collaborators.
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In
addition, global economic and market conditions, as well as future developments in the credit and capital markets, may make it
even more difficult for us to raise additional financing in the future.
We
are and will be subject to stringent ongoing government regulation for our products and our product candidates, even if we obtain
regulatory approvals for the latter.
The
manufacturing, marketing and sale of Macrilen™ (macimorelin) are and will be subject to strict and ongoing regulation, even
with marketing approval by the FDA and EMA for Macrilen™ (macimorelin). Compliance with such regulation will be expensive
and consume substantial financial and management resources. For example, the EMA approval for macimorelin was conditioned on our
agreement to conduct post-marketing follow-up studies to monitor the safety or efficacy of the product. In addition, as clinical
experience with a drug expands after approval because the drug is used by a greater number and more diverse group of patients
than during clinical trials, side effects or other problems may be observed after approval that were not observed or anticipated
during pre-approval clinical trials. In such a case, a regulatory authority could restrict the indications for which the product
may be sold or revoke the product’s regulatory approval.
We
and our contract manufacturers will be required to comply with applicable Current Good Manufacturing Practice regulations for
the manufacture of our current or future products and other regulations. These regulations include requirements relating to quality
assurance, as well as the corresponding maintenance of rigorous records and documentation. Manufacturing facilities must be approved
before we can use them in the commercial manufacturing of a product and are subject to subsequent periodic inspection by regulatory
authorities. In addition, material changes in the methods of manufacturing or changes in the suppliers of raw materials are subject
to further regulatory review and approval.
If
we, or if any future marketing collaborators or contract manufacturers, fail to comply with applicable regulatory requirements,
we may be subject to sanctions including fines, product recalls or seizures and related publicity requirements, injunctions, total
or partial suspension of production, civil penalties, suspension or withdrawals of previously granted regulatory approvals, warning
or untitled letters, refusal to approve pending applications for marketing approval of new products or of supplements to approved
applications, complete withdrawal of a marketing application, exclusion from government healthcare programs, import or export
bans or restrictions, and/or criminal prosecution and penalties. Any of these penalties could delay or prevent the promotion,
marketing or sale of a product.
Even
with marketing approval for MacrilenTM (macimorelin), such product approval could be subject to restrictions or withdrawals.
Regulatory requirements are subject to change.
On
December 20, 2017, the FDA granted marketing approval in the U.S. for Macrilen™ (macimorelin) to be used in the diagnosis
of patients with AGHD, and on January 16, 2019, the EMA granted marketing approval in Europe for macimorelin for the diagnosis
of AGHD. Regulatory authorities generally approve products for specified indications. If an approval is for a limited indication,
this limitation reduces the size of the potential market for that product. Product approvals, once granted, are subject to continual
review and periodic inspections by regulatory authorities. Our operations and practices are subject to regulation and scrutiny
by the U.S. government, as well as governments of any other countries in which we do business or conduct activities. Later discovery
of previously unknown problems or safety issues and/or failure to comply with domestic or foreign laws, knowingly or unknowingly,
can result in various adverse consequences, including, among other things, a possible delay in the approval or refusal to approve
a product, warning or untitled letters, fines, injunctions, civil penalties, recalls or seizures of products and related publicity
requirements, total or partial suspension of production, import or export bans or restrictions, refusal of the government to renew
marketing applications, complete withdrawal of a marketing application, criminal prosecution and penalties, suspension or withdrawals
of previously granted regulatory approvals, withdrawal of an approved product from the market and/or exclusion from government
healthcare programs. Such regulatory enforcement could have a direct and negative impact on the product for which approval is
granted, but also could have a negative impact on the approval of any pending applications for marketing approval of new drugs
or supplements to approved applications.
Because
we operate in a highly regulated industry, regulatory authorities could take enforcement action against us in connection with
our licensees’ or collaborators’ businesses or marketing activities for various reasons.
From
time to time, new legislation is passed into law that could significantly change the statutory provisions governing the approval,
manufacturing and marketing of products regulated by the FDA, EMA and other health authorities. In addition, regulations and guidance
are often revised or reinterpreted by health agencies in ways that may significantly affect our business. It is impossible to
predict whether further legislative changes will be enacted, or whether regulations, guidance, or interpretations will change,
and what the impact of such changes, if any, may be.
Healthcare
reform measures could hinder or prevent the commercial success of a product and adversely affect our business.
The
business prospects and financial condition of pharmaceutical and biotechnology companies are affected by the efforts of governmental
and third-party payers to contain or reduce the costs of healthcare. The U.S. government and other governments have shown significant
interest in pursuing healthcare reform and reducing healthcare costs. Any government-adopted reform measures could cause significant
pressure on the pricing of healthcare products and services, including Macrilen™ (macimorelin), both in the U.S. and internationally,
as well as the amount of reimbursement available from governmental agencies and other third-party payers. If reimbursement for
Macrilen™ (macimorelin) is substantially less than we expect, our revenue prospects could be materially and adversely impacted.
In
the U.S. and in other jurisdictions there have been, and we expect that there will continue to be, a number of legislative and
regulatory proposals aimed at changing the healthcare system, such as proposals relating to the pricing of healthcare products
and services in the U.S. or internationally, the reimportation of drugs into the U.S. from other countries (where they are then
sold at a lower price), and the amount of reimbursement available from governmental agencies or other third-party payers. Furthermore,
the pricing of pharmaceutical products, in general, and specialty drugs, in particular, has been a topic of concern in the U.S.
Congress, where hearings on the topic have been held, and has been a topic of speeches given by political figures, including President
Donald Trump. Moreover, in the U.S., individual states have passed legislation and proposed bills that are aimed at drug pricing
transparency, which will likely impact drug pricing. There can be no assurance as to how this scrutiny on pricing of pharmaceutical
products will impact future pricing of Macrilen™ (macimorelin).
The
Patient Protection and Affordable Care Act and the Healthcare and Education Affordability Reconciliation Act of 2010 (collectively,
the “ACA”) has had far-reaching consequences for most healthcare companies, including specialty biopharmaceutical
companies like us. The future of the ACA is, however, uncertain. Since January 2017, the U.S. Congress has proposed various bills
to revise the ACA. Furthermore, President Donald Trump has suggested similar action and enacted Executive Orders to curtail the
ACA and its impact on healthcare in the U.S. We cannot predict the ultimate content, timing or effect of any healthcare reform
legislation, or potential legislation, regulation and orders, or their impact on us.
In
addition, the Food and Drug Administration Amendments Act of 2007 gives the FDA enhanced post-market authority, including
the authority to require post-marketing studies and clinical trials, labeling changes based on new safety information, and compliance
with risk evaluations and mitigation strategies approved by the FDA. The FDA’s exercise of this authority may result in
delays or increased costs during the period of product development, clinical trials and regulatory review and approval, which
may also increase costs related to complying with new post-approval regulatory requirements, and increase potential FDA restrictions
on the sale or distribution of approved products.
If
we or our licensees market products or interact with health care practitioners in a manner that violates healthcare fraud or abuse
laws, we or our licensees may be subject to civil or criminal penalties, including exclusion from participation in government
healthcare programs.
As
a pharmaceutical company, even though we do not provide healthcare services or receive payments directly from or bill directly
to Medicare, Medicaid or other national or third-party payers for our current product, U.S. federal and state healthcare laws
and regulations, as well as certain E.U. regulatory and government agencies, pertaining to fraud or abuse are and will be applicable
to our business. We and our licensees are subject to healthcare fraud and abuse regulation by E.U. regulatory and government agencies
in the countries where we may seek marketing access, and the U.S. federal government and the states in which we conduct our business.
The
laws that may affect our or that of our licensee’s ability to operate include the federal healthcare program anti-kickback
statute, which prohibits, among other things, knowingly and willfully offering, paying, soliciting, or receiving remuneration
to induce, or in return for, the purchase, lease or order, or arrangement for the purchase, lease or order of any healthcare item
or service reimbursable under Medicare, Medicaid or other federally financed healthcare programs. This statute applies to arrangements
between pharmaceutical manufacturers and prescribers, purchasers and formulary managers. Although there are a number of statutory
exceptions and regulatory safe harbors protecting certain common activities, the exceptions and safe harbors are drawn narrowly,
and practices that involve remuneration intended to induce prescribing, purchases or recommendations may be subject to scrutiny
if they do not qualify for an exception or a safe harbor.
Federal
false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the
federal government, or knowingly making, or causing to be made, a false statement to get a false claim paid. Pharmaceutical companies
have been prosecuted under these laws for a variety of alleged promotional and marketing activities, such as providing free product
to customers with the expectation that the customers would bill federal programs for the product, reporting to pricing services
inflated average wholesale prices that were then used by federal programs to set reimbursement rates, engaging in off-label promotion
that caused claims to be submitted to Medicaid for non-covered off-label uses and submitting inflated best price information to
the Medicaid Drug Rebate Program.
The
Health Insurance Portability and Accountability Act of 1996 also created prohibitions against healthcare fraud and false
statements relating to healthcare matters. The healthcare fraud statute prohibits knowingly and willfully executing a scheme to
defraud any healthcare benefit program, including private payers. The false statements statute immediately noted above prohibits
knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent
statement in connection with the delivery of or payment for healthcare benefits, items or services.
In
addition, there has been a recent trend of increased federal and state regulation of payments made to physicians. The ACA, through
the Physician Payment Sunshine Act of 2010, imposed new requirements on manufacturers of drugs, devices, biologics and
medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with
certain exceptions) to report annually to the Centers for Medicare and Medicaid Services (“CMS”) information related
to payments or other “transfers of value” made to physicians (defined to include doctors, dentists, optometrists,
podiatrists and chiropractors) and teaching hospitals, and applicable manufacturers and group purchasing organizations to report
annually to CMS ownership and investment interests held by physicians (as defined above) and their immediate family members and
payments or other “transfers of value” to such physician owners and their immediate family members. Manufacturers
are required to report such data to the government by the 90th calendar day of each year.
The
majority of states also have statutes or regulations similar to these federal laws, which apply to items and services reimbursed
under Medicaid and other state programs, or, in several states, apply regardless of the payer. In addition, some states have laws
that require pharmaceutical companies to adopt comprehensive compliance programs. For example, under California law, pharmaceutical
companies must comply with both the April 2003 Office of Inspector General Compliance Program Guidance for Pharmaceutical Manufacturers
and the PhRMA Code on Interactions with Healthcare Professionals, as amended. Moreover, certain states mandate the tracking and
reporting of gifts, compensation and other remuneration paid by us to physicians and other healthcare providers.
Although
compliance programs can mitigate the risk of investigation and prosecution for violations of these laws, the risks cannot be entirely
eliminated. Any action against us or our licensees for violation of these laws, even if we successfully defend against it, could
cause us to incur significant legal expenses, cause reputational harm and divert our management’s attention from the operation
of our business. Moreover, achieving and sustaining compliance with E.U. government and regulatory agencies and applicable U.S.
federal and state laws may prove costly.
Because
of the breadth of these laws and the narrowness of the safe harbors, it is possible that some of our business activities could
be subject to challenge under one or more of such laws. The ACA also made several important changes to the federal anti-kickback
statute, false claims laws and healthcare fraud statute by weakening the intent requirement under the anti-kickback and healthcare
fraud statutes that may make it easier for the government or whistleblowers to charge such fraud and abuse violations. A person
or entity no longer needs to have actual knowledge of this statute or specific intent to violate it. In addition, the ACA provides
that the government may assert that a claim including items or services resulting from a violation of the federal anti-kickback
statute constitutes a false or fraudulent claim for purposes of the false claims statutes. In addition, the ACA increases penalties
for fraud and abuse violations. If our past, present or future operations are found to be in violation of any of the laws described
above or other similar governmental regulations to which we are subject, we may be subject to significant civil, criminal and
administrative penalties, damages, fines, imprisonment, exclusion from government funded healthcare programs, such as Medicare
and Medicaid, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate
our business and negatively impact our financial results.
If
Macrilen™ (macimorelin) does not gain market acceptance, we may be unable to generate significant revenues.
Market
acceptance of Macrilen™ (macimorelin) depends on a number of factors, including, but not limited to, the following:
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demonstration
of clinical efficacy and safety;
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the prevalence and
severity of any adverse side effects;
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limitations
or warnings contained in the product’s approved labeling;
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availability of
alternative treatments or tests for the indications we target;
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the advantages and
disadvantages of Macrilen™ (macimorelin) relative to current or alternative treatments and tests;
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the availability
of acceptable pricing and adequate third-party reimbursement; and
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the effectiveness
of marketing and distribution methods for Macrilen™ (macimorelin).
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If
Macrilen™ (macimorelin) does not gain market acceptance among physicians, patients, healthcare payers and others in the
medical community, who may not accept or utilize Macrilen™ (macimorelin), our ability to generate significant revenues
from Macrilen™ (macimorelin) would be limited, and our financial condition could be materially, adversely affected. In
addition, if we fail to further penetrate our core markets and existing geographic markets or to successfully expand our
business into new markets, the growth in sales of Macrilen™ (macimorelin), along with our operating results, could be
negatively impacted.
Our
ability to further penetrate our core markets and existing geographic markets in which we compete or to successfully expand our
business into additional countries in Europe, Asia or elsewhere is subject to numerous factors, many of which are beyond our control.
Macrilen™ (macimorelin), if successfully commercialized, may compete with a number of drugs, therapies, products and tests
currently manufactured and marketed by major pharmaceutical and other biotechnology companies. Macrilen™ (macimorelin) may
also compete with new products currently under development by others or with products which may be less expensive than Macrilen™
(macimorelin). There can be no assurance that our efforts to increase market penetration in our core markets and existing geographic
markets will be successful. Our failure to do so could have an adverse effect on our operating results and would likely cause
a drop in the share price of our Common Shares.
We
may expend our limited resources to pursue a particular product or indication and fail to capitalize on other products or indications
for which there may be a greater likelihood of success.
Because
we have limited financial and managerial resources, we are currently focusing our efforts on Macrilen™ (macimorelin), and
we are doing so for specific indications. As a result, we may forego or delay pursuit of opportunities for other potential indications
for Macrilen™ (macimorelin), which there may be a greater likelihood of success or may prove to have greater commercial
potential. Research programs to identify new product candidates or pursue alternative indications for Macrilen™ (macimorelin)
require substantial technical, financial and human resources. These activities may initially show promise in identifying potential
product candidates or indications, yet fail to yield product candidates or indications for further clinical development.
We
may not achieve our projected development goals in the time-frames we announce and expect.
We
may set goals and make public statements regarding the timing of the accomplishment of objectives material to our success, such
as the commencement, enrollment and anticipated completion of clinical trials, anticipated regulatory submission and approval
dates and time of product launch. The actual timing of these events can vary dramatically due to factors such as delays or failures
in any clinical trials, the uncertainties inherent in the regulatory approval process and delays in achieving manufacturing or
marketing arrangements sufficient to commercialize Macrilen™ (macimorelin). There can be no assurance that we will make
regulatory submissions or receive regulatory approvals as planned or that we will be able to adhere to our schedule for launching
of Macrilen™ (macimorelin) outside of the U.S. If we fail to achieve one or more of these milestones as planned, the share
price of our Common Shares would likely decline.
If
we fail to obtain acceptable prices or adequate reimbursement for Macrilen™ (macimorelin), our ability to generate revenues
will be diminished.
Our
ability or that of our licensee(s) to successfully commercialize Macrilen™ (macimorelin) will depend significantly on our
or their ability to obtain acceptable prices and the availability of reimbursement to the patient from third-party payers, such
as governmental and private insurance plans. These third-party payers frequently require companies to provide predetermined discounts
from list prices, and they are increasingly challenging the prices charged for pharmaceuticals and other medical products. Macrilen™
(macimorelin) may not be considered cost-effective, and reimbursement to the patient may not be available or sufficient to allow
us or our licensee(s) to sell our products on a competitive basis. It may not be possible to negotiate favorable reimbursement
rates for Macrilen™ (macimorelin). Adverse pricing and reimbursement conditions would also likely diminish our ability to
induce third parties to in-license Macrilen™ (macimorelin).
In
addition, the continuing efforts of third-party payers to contain or reduce the costs of healthcare through various means may
limit our commercial opportunity and reduce any associated revenue and profits. We expect that proposals to implement similar
government controls will continue. The pricing of pharmaceutical products, in general, and specialty drugs, in particular, has
been a topic of concern in the U.S. Congress, where hearings on the topic have been held, and has been a topic of speeches given
by political figures, including President Donald Trump. Specifically, there have been several recent U.S. Congressional inquiries
and proposed bills designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing
and manufacturer patient programs, and reform government program reimbursement methodologies for drugs. Furthermore, there is
drug pricing reform taking place at the state level in the U.S., in the form of laws and bills, that will impact how pharmaceutical
companies can market and sell drug products and at what price. Moreover, third-party payers are increasingly challenging the price,
examining the medical necessity and reviewing the cost-effectiveness of medical drug products and medical services, in addition
to questioning their safety and efficacy. There can be no assurance as to how this scrutiny on pricing of pharmaceutical products
will impact future pricing of a product or orphan drugs or pharmaceutical products generally. Also, increasing emphasis on managed
care will continue to put pressure on the pricing of pharmaceutical and biopharmaceutical products. Cost control initiatives could
decrease the price that we or any current or potential collaborators could receive a product and could adversely affect our profitability.
In addition, in the U.S., Canada and many other countries, pricing and/or profitability of some or all prescription pharmaceuticals
and biopharmaceuticals are subject to government control.
If
we or our licensee(s) fail to obtain acceptable prices or an adequate level of reimbursement for Macrilen™ (macimorelin),
the sales of Macrilen™ (macimorelin) would be adversely affected or there may be no commercially viable market for Macrilen™
(macimorelin).
Competition
in our targeted markets is intense, and development by other companies could render Macrilen™ (macimorelin) non-competitive.
The
biopharmaceutical field is highly competitive. New products developed by other companies in the industry could render Macrilen™
(macimorelin) uncompetitive or significantly less competitive. Competitors are developing and testing products and technologies
that would compete with Macrilen™ (macimorelin). Some of these products may be more effective or have an entirely different
approach or means of accomplishing the desired effect than Macrilen™ (macimorelin). We expect competition from pharmaceutical
and biopharmaceutical companies and academic research institutions to continue to increase over time. Many of our competitors
and potential competitors have substantially greater product development capabilities and financial, scientific, marketing and
human resources than we do.
We
may not obtain adequate protection for Macrilen™ (macimorelin) through our intellectual property.
We
rely heavily on our proprietary information in developing and manufacturing Macrilen™ (macimorelin). Our success depends,
in large part, on our ability to protect our competitive position through patents, trade secrets, trademarks and other intellectual
property rights. We have filed and are pursuing applications for patents and trademarks in many countries. Pending patent applications
may not result in the issuance of patents, and we may not be able to obtain additional issued patents relating to Macrilen™
(macimorelin).
The
laws of some countries do not protect intellectual property rights to the same extent as the laws of the U.S. and Canada. Many
companies have encountered significant problems in protecting and defending such rights in foreign jurisdictions. Many countries,
including certain countries in Europe, have compulsory licensing laws under which a patent owner may be compelled to grant licenses
to third parties. In addition, many countries limit the enforceability of patents against government agencies or government contractors.
In these countries, the patent owner may have limited remedies, which could materially diminish the value of the patent. Moreover,
the legal systems of certain countries, particularly certain developing countries, do not favor the aggressive enforcement of
patent and other intellectual property protection, which makes it difficult to stop and prevent infringement.
Our
patents may be challenged, narrowed, invalidated, held to be unenforceable or circumvented, which could limit our ability to stop
competitors from marketing similar products or limit the length of term of patent protection we may have for Macrilen™ (macimorelin).
Changes in either patent laws or in interpretations of patent laws in the U.S. and other countries may diminish the value of our
intellectual property or narrow the scope of our patent protection for Macrilen™ (macimorelin). The patents issued or to
be issued to us for Macrilen™ (macimorelin) may not provide us with any competitive advantage or protect us against competitors
with similar technology. In addition, it is possible that third parties with products that are very similar to ours will circumvent
our patents by means of alternate designs or processes. We may have to rely on method-of-use, methods of manufacture and/or new-formulation
protection for our compounds in development, and any resulting products, which may not confer the same protection as claims to
compounds per se.
In addition, our patents may be challenged by third parties in patent
litigation, which is becoming widespread in the biopharmaceutical industry. There may be prior art of which we are not aware that
may affect the validity or enforceability of a patent claim. There may also
be prior art of which we are aware, but which we do not believe affects the validity or enforceability of a claim, which may,
nonetheless, ultimately be found to affect the validity or enforceability of a claim. No assurance can be given that our patents
would, if challenged, be held by a court to be valid or enforceable or that a competitor’s technology or product would be
found by a court to infringe our patents. Our granted patents could also be challenged and revoked in U.S. post-grant proceedings
as well as in opposition or nullity proceedings in certain countries outside the U.S. In addition, we may be required to disclaim
part of the term of certain patents. The costs of these proceedings could be substantial, and it is possible that our efforts
could be unsuccessful, resulting in a loss of our U.S. patent position.
We
also rely on trade secrets and proprietary know-how to protect our intellectual property. If we are unable to protect the confidentiality
of our proprietary information and know-how, the value of our technology and products could be adversely affected. We seek to
protect our unpatented proprietary information in part by requiring our employees, consultants, outside scientific collaborators
and sponsored researchers and other advisors to enter into confidentiality agreements. These agreements provide that all confidential
information developed or made known to the individual during the course of the individual’s relationship with us is to be
kept confidential and not disclosed to third parties except in specific circumstances. In the case of our employees, the agreements
provide that all of the technology that is conceived by the individual during the course of employment is our exclusive property.
These agreements may not provide meaningful protection or adequate remedies in the event of unauthorized use or disclosure of
our proprietary information. In addition, it is possible that third parties could independently develop proprietary information
and techniques substantially similar to ours or otherwise gain access to our trade secrets. If we are unable to protect the confidentiality
of our proprietary information and know-how, competitors may be able to use this information to develop products that compete
with our products and technologies, which could adversely impact our business.
We
currently have the right to use certain patents and technologies under license agreements with third parties. Our failure to comply
with the requirements of one or more of our license agreements could result in the termination of such agreements, which could
cause us to terminate the related development program and cause a complete loss of our investment in that program or given market.
Inventions claimed in certain in-licensed patents may have been made with funding from the U.S. government and may be subject
to the rights of the U.S. government and we may be subject to additional requirements in the event we seek to commercialize or
manufacture product candidates incorporating such in-licensed technology.
As
a result of the foregoing factors, we may not be able to rely on our intellectual property to protect Macrilen™ (macimorelin)
in the marketplace.
We
may infringe the intellectual property rights of others.
Our
commercial success depends significantly on our ability to operate without infringing the patents and other intellectual property
rights of third parties. There could be issued patents of which we are not aware that our products or methods may be found to
infringe, or patents of which we are aware and believe we do not infringe, but which we may ultimately be found to infringe. Moreover,
patent applications and their underlying discoveries are in some cases maintained in secrecy until patents are issued. Because
patents can take many years to issue, there may be currently pending applications of which we are unaware that may later result
in issued patents that our products or technologies are found to infringe. Moreover, there may be published pending applications
that do not currently include a claim covering our products or technologies, but, which nonetheless, provide support for a later
drafted claim that, if issued, our products or technologies could be found to infringe.
If
we infringe or are alleged to infringe intellectual property rights of third parties, it will adversely affect our business. Third
parties may own or control these patents or patent applications in the U.S. and abroad. These third parties could bring claims
against us or our collaborators that would cause us to incur substantial expenses and, if successful against us, could cause us
to pay substantial damages. Moreover, if a patent infringement suit were brought against us or our collaborators, we or they could
be forced to stop or delay research, development, manufacturing or sales of the product or product candidate that is the subject
of the suit.
The
biopharmaceutical industry has produced a proliferation of patents, and it is not always clear to industry participants, including
us, which patents cover various types of products. The coverage of patents is subject to interpretation by the courts, and the
interpretation is not always uniform. In the event of infringement or violation of another party’s patent or other intellectual
property rights, we may not be able to enter into licensing arrangements or make other arrangements at a reasonable cost. Any
inability to secure licenses or alternative technology could result in delays in the introduction of our products or lead to prohibition
of the manufacture or sale of products by us or our partners and collaborators.
Patent
litigation is costly and time consuming and may subject us to liabilities.
If
we become involved in any patent litigation, interference, opposition, re-examination or other administrative proceedings, we
will likely incur substantial expenses in connection therewith, and the efforts of our technical and management personnel will
be significantly diverted. In addition, an adverse determination in litigation could subject us to significant liabilities.
We
may not obtain trademark registrations for our current or future products.
We
have filed applications for trademark registrations, including Macrilen™ (macimorelin), in various jurisdictions, including
the U.S. We may file applications for other possible trademarks for macimorelin. No assurance can be given that any of our trademarks
will be registered elsewhere, or that the use of any registered or unregistered trademarks will confer a competitive advantage
in the marketplace.
We
rely on third parties to conduct, supervise and monitor our clinical trials, and those third parties may not perform satisfactorily.
We
rely on third parties such as contract research organizations, medical institutions and clinical investigators to enroll qualified
patients and to conduct, supervise and monitor our clinical trials. Our reliance on these third parties for clinical development
activities reduces our control over these activities. Our reliance on these third parties, however, does not relieve us of our
regulatory responsibilities, including ensuring that our clinical trials are conducted in accordance with Good Clinical Practice
guidelines and the investigational plan and protocols contained in an Investigational New Drug application to the FDA, or a comparable
foreign regulatory submission. Furthermore, these third parties may also have relationships with other entities, some of which
may be our competitors. In addition, they may not complete activities on schedule, or may not conduct our preclinical studies
or clinical trials in accordance with regulatory requirements or our trial design. If these third parties do not successfully
carry out their contractual duties or meet expected deadlines, our efforts to obtain regulatory approvals for, and to commercialize,
our products may be delayed or prevented.
We
are dependent on, and rely upon, third parties to perform various functions related to our business, including, but not limited
to, development of some of our product candidates. Our reliance on these relationships poses a number of risks.
In
carrying out our operations, we are dependent on a stable and consistent supply of ingredients and raw materials.
There
can be no assurance that we, our contract manufacturers or our licensees, will be able, in the future, to continue to purchase
products from our current suppliers or any other supplier on terms that are favorable or similar to current terms or at all. An
interruption in the availability of certain raw materials or ingredients, or significant increases in the prices we pay for them,
could have a material adverse effect on our business, financial condition, liquidity and operating results.
The
failure to perform satisfactorily by third parties upon which we expect to rely to manufacture and supply products may lead to
supply shortfalls.
We
rely on third parties to manufacture and supply Macrilen™ (macimorelin). We also have or may have certain supply obligations
vis-à-vis our existing and potential licensees, who are or will be responsible for the marketing of Macrilen™
(macimorelin). To be successful, Macrilen™ (macimorelin) has to be manufactured in commercial quantities in compliance with
quality controls and regulatory requirements. Even though it is our objective to minimize such risk by introducing alternative
suppliers to ensure a constant supply at all times, there are a limited number of contract manufacturers or suppliers that are
capable of manufacturing Macrilen™ (macimorelin) or the materials used in its manufacture. If we are unable to do so ourselves
or to arrange for third-party manufacturing or supply of Macrilen™ (macimorelin) or materials, or to do so on commercially
reasonable terms, we may not be able to commercialize Macrilen™ (macimorelin) through our licensees. Reliance on third-party
manufacturers entails risks to which we would not be subject if we manufactured products ourselves, including reliance on the
third party for regulatory compliance, the possibility of breach of the manufacturing agreement by the third party because of
factors beyond our control, and the possibility of termination or non-renewal of the agreement by the third party, based on its
own business priorities, at a time that is costly or inconvenient for us.
We
are subject to intense competition for our skilled personnel, and the loss of key personnel or the inability to attract additional
personnel could impair our ability to conduct our operations.
We
are highly dependent on our management and our clinical, regulatory and scientific staff, the loss of whose services might adversely
impact our ability to achieve our objectives. Recruiting and retaining qualified management and clinical, scientific and regulatory
personnel is critical to our success. Reductions in our staffing levels have eliminated redundancies in key capabilities and skill
sets among our full-time staff and required us to rely more heavily on outside consultants and third parties. We have been unable
to increase the compensation of our associates to the extent required to remain fully competitive for their services, which increased
our employee retention risk. The competition for qualified personnel in the biopharmaceutical field is intense, and if we are
not able to continue to retain qualified personnel and/or maintain positive relationships with our outside consultants, we may
not be able to achieve our strategic and operational objectives.
We
are currently subject to a securities class-action litigation matter and we may be subject to similar or other litigation in the
future.
The
Company and certain of our current and former officers are defendants in a class-action lawsuit pending in the U.S. District Court
for the District of New Jersey, brought on behalf of shareholders of the Company. The lawsuit alleges violations of the Securities
Exchange Act of 1934 in connection with allegedly false and misleading statements made by the defendants between August 30,
2011, and November 6, 2014 (the “Class Period”), regarding the safety and efficacy of Macrilen™ (macimorelin),
and the prospects for the approval of our New Drug Application for the product by the FDA. The plaintiffs represent a class comprised
of purchasers of our common shares during the Class Period and seek damages, costs and expenses and such other relief as determined
by the Court. We consider the claims that have been asserted in the lawsuit to be without merit, and we are vigorously defending
against them. We cannot, however, predict at this time the outcome or potential losses, if any, with respect to this lawsuit.
Furthermore,
we may, from time to time, be a party to other litigation in the normal course of business. Monitoring and defending against legal
actions, whether meritorious, is time-consuming for our management and detracts from our ability to fully focus our internal resources
on our business activities. In addition, legal fees and costs incurred in connection with such activities may be significant and
we could, in the future, be subject to judgments or enter into settlements of claims for significant monetary damages. A decision
adverse to our interests could result in the payment of substantial damages and could have a material adverse effect on our cash
flow, results of operations and financial position.
With
respect to any litigation, our insurance may not reimburse us or may not be sufficient to reimburse us for the expenses or losses
we may suffer in contesting and concluding such lawsuit. Substantial litigation costs, including the substantial self-insured
retention that we are required to satisfy before any insurance applies to a claim, unreimbursed legal fees or an adverse result
in any litigation may adversely impact our business, operating results or financial condition. We believe that our directors’
and officers’ liability insurance will cover our potential liability with respect to the securities class-action lawsuit;
however, the insurer has reserved its rights to contest the applicability of the insurance to such claims and the limits of the
insurance may be insufficient to cover our eventual liability.
We
are subject to the risk of product liability claims, for which we may not have or may not be able to obtain adequate insurance
coverage.
The
sale and use of Macrilen™ (macimorelin) will involve the risk of product liability claims and associated adverse publicity.
Product liability claims might be made against us directly by patients, healthcare providers or pharmaceutical companies or others
selling, buying or using our products. We attempt to manage our liability risks by means of insurance. We maintain insurance covering
our liability for our preclinical and clinical studies as well as products liability insurance. We may, however, not have or be
able to obtain or maintain sufficient and affordable insurance coverage, including coverage for potentially very significant legal
expenses, and without sufficient coverage any claim brought against us could have a materially adverse effect on our business,
financial condition or results of operations.
We
are a holding company, and claims of creditors of our subsidiaries will generally have priority as to the assets of such subsidiaries
over our claims and those of our creditors and shareholders. In addition, our principal operating subsidiary, AEZS Germany, may
become subject to insolvency proceedings if it is illiquid or “over-indebted” in accordance with German law.
Aeterna
Zentaris Inc. is a holding company and a substantial portion of our non-cash assets is the share capital of our subsidiaries.
AEZS Germany, our principal operating subsidiary, based in Frankfurt, Germany, holds most of our intellectual property rights.
Because Aeterna Zentaris Inc. is a holding company, our obligations to our creditors are structurally subordinated to all existing
and future liabilities of our subsidiaries, which may incur additional or other liabilities and/or obligations. As a result, our
rights and the rights of our creditors to participate in any distribution of the assets of any subsidiary in the event that such
subsidiary were to be liquidated or reorganized or in the event of any bankruptcy or insolvency proceeding relating to or involving
such subsidiary, and, therefore, the rights of the holders of our securities to participate in those assets, are subject to the
prior claims of such subsidiary’s creditors. To the extent that we may be a creditor with recognized claims against any
such subsidiary, our claims would still be subject to the prior claims of our subsidiary’s creditors to the extent that
they are secured or senior to those held by us.
Holders
of our securities are not creditors of our subsidiaries. Claims to the assets of our subsidiaries will derive from our own ownership
interest in those operating subsidiaries. Claims of our subsidiaries’ creditors will generally have priority as to the assets
of such subsidiaries over our own ownership interest claims and, therefore, will have priority over the holders of our securities.
Our subsidiaries’ creditors may from time to time include general creditors, trade creditors, employees, secured creditors,
taxing authorities and creditors holding guarantees. Accordingly, in the event of any foreclosure, dissolution, winding-up, liquidation
or reorganization, or a bankruptcy, insolvency or creditor protection proceeding relating to us or our property, or any subsidiary,
there can be no assurance as to the value, if any, that would be available to holders of our securities. In addition, any distributions
to us by our subsidiaries could be subject to monetary transfer restrictions in the jurisdictions in which our subsidiaries operate.
German
law, which governs our principal operating subsidiary AEZS Germany, imposes an obligation on the managing director of AEZS Germany
to institute insolvency proceedings of that subsidiary if the managing director concludes that AEZS Germany is insolvent because
it is either illiquid or “over-indebted” in accordance with the provisions of German law. Please see the Risk Factor
entitled “We may not be able to continue as a going concern if we do not obtain cash from AEZS Germany to fund our North
American operations and we do not obtain additional financing.”
It
may be difficult for U.S. investors to obtain and enforce judgments against us because of our Canadian incorporation and German
presence.
We
are a company existing under the laws of Canada. A number of our directors and officers are residents of Canada or otherwise reside
outside the U.S., and all or a substantial portion of their assets, and a substantial portion of our assets, are located outside
the U.S. Consequently, although we have appointed an agent for service of process in the U.S., it may be difficult for investors
in the U.S. to bring an action against such directors or officers or to enforce against those persons or us a judgment obtained
in a U.S. court predicated upon the civil liability provisions of federal securities laws or other laws of the U.S. Investors
should not assume that foreign courts (i) would enforce judgments of U.S. courts obtained in actions against us or such directors,
officers or experts predicated upon the civil liability provisions of the U.S. federal securities laws or the securities or “blue
sky” laws of any state within the U.S. or (ii) would enforce, in original actions, liabilities against us or such directors,
officers or experts predicated upon the U.S. federal securities laws or any such state securities or “blue sky” laws.
We
are subject to various internal control reporting requirements under applicable Canadian securities laws and the Sarbanes-Oxley
Act in the U.S. We can provide no assurance that we will at all times in the future be able to report that our internal controls
over financial reporting are effective.
As
a public company, we are required to comply with Section 404 of the U.S. Sarbanes-Oxley Act of 2002 (“Section 404”)
and National Instrument 52-109 - Certification of Disclosure in Issuers’ Annual and Interim Filings of the Canadian
securities administrators. In any given year, we cannot be certain as to the time of completion of our internal control evaluation,
testing and remediation actions or of their impact on our operations. Upon completion of this process, we may identify control
deficiencies of varying degrees of severity under applicable SEC and Public Company Accounting Oversight Board (U.S.) rules and
regulations. As a public company, we are required to report, among other things, control deficiencies that constitute material
weaknesses or changes in internal controls that, or that are reasonably likely to, materially affect internal controls over financial
reporting. A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial
reporting, such that there is a reasonable possibility that a material misstatement of our annual consolidated financial statements
will not be prevented or detected on a timely basis. If we fail to comply with the requirements of Section 404 or similar Canadian
requirements or if we report a material weakness, we might be subject to regulatory sanction and investors may lose confidence
in our consolidated financial statements, which may be inaccurate if we fail to remedy such material weakness.
It
is possible that we may be a passive foreign investment company, which could result in adverse tax consequences to U.S. investors.
Adverse
U.S. federal income tax rules apply to “U.S. Holders” (as defined in “Income Tax Considerations - Material
U.S. Federal Income Tax Considerations” in this prospectus supplement and the accompanying prospectus) who directly or indirectly
hold stock of a passive foreign investment company (“PFIC”). We will be classified as a PFIC for U.S. federal income
tax purposes for a taxable year if (i) at least 75% of our gross income is “passive income” or (ii) at least 50% of
the average value of our assets, including goodwill (based on annual quarterly average), is attributable to assets which produce
passive income or are held for the production of passive income.
We
believe that we were a PFIC for the 2015 taxable year, but were not a PFIC for the 2016, 2017, 2018 and 2019 taxable
years. The PFIC determination depends on the application of complex U.S. federal income tax rules concerning the classification
of our assets and income for this purpose, and these rules are uncertain in some respects. In addition, the fair market value
of our assets may be determined in large part by the market price of our Common Shares, which is likely to fluctuate, and the
composition of our income and assets will be affected by how, and how quickly, we spend any cash that is raised in any financing
transaction. No assurance can be provided that we will not be classified as a PFIC for the 2020 taxable year and for any
future taxable year.
If
we are a PFIC for any taxable year during which a U.S. Holder holds Common Shares, we generally would continue to be treated
as a PFIC with respect to that U.S. Holder for all succeeding years during which the U.S. Holder holds such Common Shares,
even if we ceased to meet the threshold requirements for PFIC status. PFIC characterization could result in adverse U.S.
federal income tax consequences to U.S. Holders. In particular, absent certain elections, a U.S. Holder would generally be
subject to U.S. federal
income tax at ordinary income tax rates, plus a possible interest charge, in respect of a gain derived from a disposition of our
Common Shares, as well as certain distributions by us. If we are treated as a PFIC for any taxable year, a U.S. Holder may be
able to make an election to “mark-to-market” Common Shares each taxable year and recognize ordinary income pursuant
to such election based upon increases in the value of the Common Shares.
In
addition, U.S. Holders may mitigate the adverse tax consequences of the PFIC rules by making a “qualified electing fund”
(“QEF”) election; however, there can be no assurance that we will satisfy the record keeping requirements applicable
to a QEF or that we will provide the information regarding our income that would be necessary for a U.S. Holder to make a QEF
election.
If
the Company is a PFIC, U.S. Holders will generally be required to file an annual information return with the Internal Revenue
Service (the “IRS”) (on IRS Form 8621, which PFIC shareholders will be required to file with their U.S. federal income
tax or information returns) relating to their ownership of Common Shares. This filing requirement is in addition to any pre-existing
reporting requirements that apply to a U.S. Holder’s interest in a PFIC (which this requirement does not affect).
For
a more detailed discussion of the potential tax impact of us being a PFIC, please see “Income Tax Considerations
- Material U.S. Federal Income Tax Considerations” in this prospectus supplement and the accompanying prospectus. The PFIC
rules are complex. U.S. Holders should consult their tax advisors regarding the potential application of the PFIC regime and any
reporting obligations to which they may be subject under that regime.
Our
net operating losses may be limited for U.S. federal income tax purposes under Section 382 of the Internal Revenue Code.
If
a corporation with net operating losses (“NOLs”) undergoes an “ownership change” within the meaning of
Section 382 of the United States Internal Revenue Code of 1986, as amended, then such corporation’s use of such “pre-change”
NOLs to offset income incurred following such ownership change may be limited. Such limitation also may apply to certain losses
or deductions that are “built-in” (i.e., attributable to periods prior to the ownership change, but not yet taken
into account for tax purposes) as of the date of the ownership change that are subsequently recognized. An ownership change generally
occurs when there is either (i) a shift in ownership involving one or more “5% shareholders,” or (ii) an “equity
structure shift” and, as a result, the percentage of stock of the corporation owned by one or more 5% shareholders (based
on value) has increased by more than 50 percentage points over the lowest percentage of stock of the corporation owned by such
shareholders during the “testing period” (generally the 3 years preceding the testing date). In general, if such change
occurs, the corporation’s ability to utilize its net operating loss carry-forwards and certain other tax attributes would
be subject to an annual limitation, as described below. The unused portion of any such net operating loss carry-forwards or tax
attributes each year is carried forward, subject to the same limitation in future years. The impact of an ownership change on
state NOL carryforwards may vary from state to state. Recent legislation added several limitations to the ability to claim deductions
for NOLs, including a deduction limit equal to 80% of taxable income and a restriction on NOL carryback deductions.
We
may incur losses associated with foreign currency fluctuations.
Our
operations are in many instances conducted in currencies other than our functional currency or the functional currencies of our
subsidiaries. Fluctuations in the value of currencies could cause us to incur currency exchange losses. We do not currently employ
a hedging strategy against exchange rate risk. We cannot assert with any assurance that we will not suffer losses as a result
of unfavorable fluctuations in the exchange rates between the U.S. dollar, the euro, the Canadian dollar and other currencies.
Legislative
actions, new accounting pronouncements and higher insurance costs may adversely impact our future financial position or results
of operations.
Changes
in financial accounting standards or implementation of accounting standards may cause adverse, unexpected revenue or expense fluctuations
and affect our financial position or results of operations. New pronouncements and varying interpretations of pronouncements have
occurred with greater frequency and are expected to occur in the future, and we may make or be required to make changes in our
accounting policies in the future. Compliance with changing regulations of corporate governance and public disclosure, notably
with respect to internal controls over financial reporting, may result in additional expenses. Changing laws, regulations and
standards relating to corporate governance and public disclosure are creating uncertainty for companies such as ours, and insurance
costs are increasing as a result of this uncertainty.
Data
security breaches may disrupt our operations and adversely affect our operating results.
Our
network security and data recovery measures and those of third parties with which we contract, may not be adequate to protect
against computer viruses, cyber-attacks, breaches, and similar disruptions from unauthorized tampering with our computer systems.
The misappropriation, theft, sabotage or any other type of security breach with respect to any of our proprietary and confidential
information that is electronically stored, including research or clinical data, could cause interruptions in our operations, could
result in a material disruption of our clinical activities and business operations and could expose us to third-party legal claims.
Furthermore, we could be required to make substantial expenditures of resources to remedy the cause of cyber-attacks or break-ins.
This disruption could have a material adverse impact on our business, operating results and financial condition. Additionally,
any break-in or trespass of our facilities that results in the misappropriation, theft, sabotage or any other type of security
breach with respect to our proprietary and confidential information, including research or clinical data, or that results in damage
to our R&D equipment and assets could have a material adverse impact on our business, operating results and financial condition.
Our
business processes personal information, both in connection with clinical activities and our employees. The use of this information
is critical to our operations and innovation, including the development of our products, as well as management of our employees.
New and evolving regulations, such as the European Union General Data Protection Regulation, could bring increased scrutiny of
our data management in the future. Any cyber-attacks or other failure to protect critical and sensitive systems and information
could damage our reputation, prompt litigation or lead to regulatory sanctions, all of which could materially affect our financial
condition and results of operation.
Risks
Relating to our Common Shares
Our
Common Shares may be delisted from the NASDAQ or the TSX, which could affect their market price and liquidity. If our Common Shares
were to be delisted, investors may have difficulty in disposing their Common Shares.
Our
Common Shares are currently listed on both the NASDAQ and the TSX under the symbol “AEZS”. We must meet continuing
listing requirements to maintain the listing of our Common Shares on the NASDAQ and the TSX. For continued listing, the NASDAQ
requires, among other things, that listed securities maintain a minimum closing bid price of not less than $1.00 per share. On
January 8, 2020, we received a letter from the Listing Qualifications Staff of the NASDAQ, notifying us that for the last 30 consecutive
business days prior to the date of the letter, the closing bid price of our Common Shares was below $1.00 per share and, therefore,
we did not meet the requirement for continued listing on the NASDAQ as required by Nasdaq Listing Rule 5550(b)(2). On January
27, 2020, we received a letter from the Listing Qualifications Staff of the NASDAQ notifying us that we had regained compliance
with the minimum bid price requirement. There can be no assurance, however, that the market price of our Common Shares
will not again fall below $1.00 in the future or that, if it does, we will regain compliance with the minimum bid price requirement
for continued listing.
In
addition to the minimum bid price requirement, the continued listing rules of the NASDAQ require us to meet at least one of the
following listing standards: (i) stockholders’ equity of at least $2.5 million, (ii) market value of listed securities (calculated
by multiplying the daily closing bid price of our securities by our total outstanding securities) of at least $35 million or (iii)
net income from continuing operations (in the latest fiscal year or in two of the last three fiscal years) of at least $500,000
(collectively, the “Additional Listing Standards”). If we fail to meet at least one of the Additional Listing Standards,
our Common Shares may be subject to delisting after the expiration of the period of time, if any, that we are allowed for regaining
compliance.
Based
on our anticipated financial results as at December 31, 2019, we do not believe we are in compliance with the continued listing
standards of NASDAQ. There is no assurance that we will obtain and then maintain compliance and therefore there can be no assurance
that our Common Shares will remain listed on the NASDAQ or the TSX. If we fail to meet any of the NASDAQ’s or the TSX’s
continued listing requirements, our Common Shares may be delisted. Any delisting of our Common Shares may adversely affect our
ability to raise additional financing through the public or private sale of equity securities, would significantly adversely affect
the ability of investors to trade our securities and would negatively affect the value and liquidity of our Common Shares. Delisting
could also have other negative results, including the potential loss of confidence by employees, the loss of institutional investor
interest and fewer business opportunities. If our Common Shares are delisted by the NASDAQ or the TSX, the price of our Common
Shares may decline, and a shareholder may find it more difficult to dispose, or obtain quotations as to the market value, of such
shares. Moreover, if we are delisted, we could incur additional costs under state blue sky laws in connection with any sales of
our securities. These requirements could severely limit the market liquidity of our Common Shares and the ability of our shareholders
to sell our Common Shares in the secondary market.
Our
share price is volatile, which may result from factors outside of our control.
Our
valuation and share price since the beginning of trading after our initial listings, first in Canada and then in the U.S., have
had no meaningful relationship to current or historical financial results, asset values, book value or many other criteria based
on conventional measures of the value of shares.
Between
January 1, 2019 and December 31, 2019, the closing price of our Common Shares ranged from
$0.90 to $4.65 per share on NASDAQ and from C$1.19 to C$6.25 per share on the TSX. Our share price may be affected by
developments directly affecting our business and by developments out of our control or unrelated to us. The stock market
generally, and the biopharmaceutical sector in particular, are vulnerable to abrupt changes in investor sentiment. Prices of
shares and trading volume of companies in the biopharmaceutical industry can swing dramatically in ways unrelated to,
or that bear a disproportionate relationship to, operating performance. Our share price and trading volume may fluctuate
based on a number of factors including, but not limited to, the following:
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developments
regarding current or future third-party suppliers and licensee(s);
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clinical
trial and regulatory developments regarding Macrilen™ (macimorelin);
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delays
in our anticipated clinical trial development or commercialization timelines;
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announcements
by us regarding technological, regulatory or other matters;
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arrivals
or departures of key personnel;
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governmental
or regulatory action affecting our product candidates and our competitors’ products
in the U.S., Canada and other countries;
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developments
or disputes concerning patent or proprietary rights;
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actual
or anticipated fluctuations in our revenues or expenses;
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general
market conditions and fluctuations for the emerging growth and biopharmaceutical market
sectors; and
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economic
conditions in the U.S. or abroad.
|
Our
listing on both the NASDAQ and the TSX may increase price volatility due to various factors, including different ability to buy
or sell our Common Shares, different market conditions in different capital markets and different trading volumes. In addition,
low trading volume may increase the price volatility of our Common Shares. A thin trading market could cause the share price of
our Common Shares to fluctuate significantly more than the stock market as a whole.
Future
issuances of securities and hedging activities may depress the trading price of our Common Shares.
Any
additional or future issuance of securities or convertible securities, including the issuance of securities upon the exercise
of stock options and upon the exercise of warrants or other convertible securities or securities pursuant to which Common Shares
are issuable, could dilute the interests of our existing shareholders, and could substantially decrease the trading share price
of our Common Shares.
We
may issue equity securities in the future for a number of reasons, including to finance our operations and business strategy,
to satisfy our obligations upon the exercise of options or warrants or for other reasons. Our stock option plans generally permit
us to have outstanding, at any given time, stock options that are exercisable for a maximum number of Common Shares equal to 11.4%
of all then issued and outstanding Common Shares. As at September 30, 2019, there were:
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19,994,510
Common Shares issued and outstanding;
|
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no
issued and outstanding Preferred Shares;
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28,144
Common Shares issuable upon exercise of warrants that we previously issued in March 2015,
which had a weighted average exercise price of $1.07 per Common Share, 2,331,000 Common
Shares issuable upon exercise of warrants that we previously issued in December 2015,
which had a weighted average exercise price of $7.10 per Common Share, 945,000 Common
Shares issuable upon exercise of warrants that we previously issued in November 2016,
which had a weighted average exercise price of $4.70 per Common Share and 3,325,000 Common
Shares issuable upon exercise of warrants that we previously issued in September 2019,
which had a weighted average exercise price of $1.65 per Common Share;
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893,966
Common Shares that underlie outstanding stock options and deferred share units granted
under our plans, having a weighted average exercise price of $3.69 per Common Share;
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869
Common Shares that underlie outstanding stock options and deferred share units granted
under our plans, having a weighted average exercise price of C$743.56 per Common Share;
and
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●
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246,619
additional Common Shares available for future grants under our Second Amended and Restated
Stock Option Plan, and 1,137,920 additional Common Shares available for future grants
under our 2018 Long-Term Incentive Plan. The maximum number of Common Shares issuable
under the plans may equal 11.4% of the issued and outstanding Common Shares at any given
time.
|
In
addition, the share price of our Common Shares could also be affected by possible sales of securities by investors who view other
investment vehicles as more attractive means of equity participation in us and by hedging or arbitrage trading activity that may
develop involving our securities. This hedging or arbitrage could, in turn, affect the trading share price of our Common Shares.
In
the event we were to lose our foreign private issuer status as of June 30 of a given financial year, we would be required to comply
with the Securities Exchange Act of 1934 domestic reporting regime, which could cause us to incur additional legal, accounting
and other expenses.
In
order to maintain our current status as a foreign private issuer, either (1) a majority of our Common Shares must not be either
directly or indirectly owned of record by residents of the U.S. or (2) (a) a majority of our executive officers and of our directors
must not be U.S. citizens or residents, (b) more than 50 percent of our assets cannot be located in the U.S. and (c) our business
must be administered principally outside the U.S.
In
2018, our management conducted its annual assessment of the various facts and circumstances underlying the determination of our
status as a foreign private issuer and, based on the foregoing, our management has determined that, as of the date of such
determination
and as of June 30, 2019, we continued to be a foreign private issuer.
There
can be no assurance, however, that we will remain a foreign private issuer either in future financial years.
If
we were to lose our foreign private issuer status as of June 30 of any given financial year, we would be required to comply with
the Securities Exchange Act of 1934 reporting and other requirements applicable to U.S. domestic issuers, which are more
detailed and extensive than the requirements for foreign private issuers. We may also be required to make changes in our corporate
governance practices in accordance with various SEC rules and the NASDAQ listing standards. The regulatory and compliance costs
to us of complying with the reporting requirements applicable to a U.S. domestic issuer under U.S. securities laws may be higher
than the cost we have historically incurred as a foreign private issuer. In addition, if we were to lose our foreign private issuer
status, we would no longer qualify under the Canada-U.S. multijurisdictional disclosure system to benefit from being able to file
registration statements on Form F-10 (even if we satisfy the other conditions to eligibility), which could make it longer and
more difficult to register our securities and raise funds by way of public, registered offerings in the U.S., and we would become
subject to “baby shelf” rules that place limitations on our ability to issue an amount of securities above a certain
threshold depending on our market capitalization and public float at a given point in time. As a result, we would expect that
a potential loss of foreign private issuer status at some future point in time could increase our legal, financial reporting and
accounting compliance costs, and it is difficult at this time to estimate by how much our legal, financial reporting and accounting
compliance costs may increase in such eventuality.
Our
articles of incorporation contain “blank check” preferred share provisions, which could delay or impede an acquisition
of our company.
Our
articles of incorporation, as amended, authorize the issuance of an unlimited number of “blank check” preferred shares,
which could be issued by our Board of Directors without shareholder approval and which may contain liquidation, dividend and other
rights equivalent or superior to our Common Shares. In addition, we have implemented in our contacting documents an advance notice
procedure for shareholder approvals to be brought before an annual meeting of our shareholders, including proposed nominations
of persons for election to our Board of Directors. These provisions, among others, whether alone or together, could delay or impede
hostile takeovers and changes in control or changes in our management. Any provision of our contracting documents that has the
effect of delaying or deterring a change in control could limit the opportunity for our shareholders to receive a premium for
their Common Shares and could also affect the price that some investors are willing to pay for our Common Shares.
Our
business could be negatively affected as a result of the actions of activist shareholders.
Proxy
contests have been waged against many companies in the biopharmaceutical industry over the last few years. If faced with a proxy
contest, we may not be able to successfully respond to the contest, which would be disruptive to our business. Even if we are
successful, our business could be adversely affected by a proxy contest because:
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responding
to proxy contests and other actions by activist shareholders may be costly and time-consuming,
and may disrupt our operations and divert the attention of management and our employees;
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perceived
uncertainties as to the potential outcome of any proxy contest may result in our inability
to consummate potential acquisitions, collaborations or in-licensing opportunities and
may make it more difficult to attract and retain qualified personnel and business partners;
and
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if
individuals that have a specific agenda different from that of our management or other
members of our Board of Directors are elected to our board as a result of any proxy contest,
such an election may adversely affect our ability to effectively and timely implement
our strategic plan and to create value for our shareholders.
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USE
OF PROCEEDS
We
estimate that the net proceeds from our sale of Common Shares in this offering,
after deducting Placement Agent fees and estimated offering expenses payable by us, will be approximately $3.9 million.
Except
as otherwise provided in any free writing prospectus that we may authorize to be provided to you, we will retain broad discretion
over the use of the net proceeds from the sale of the Common Shares offered by this prospectus supplement, and we may not use
these proceeds in a manner desired by our shareholders. Unless otherwise specified in this prospectus supplement, the accompanying
prospectus or any related free writing prospectus, we currently expect to use the net proceeds of our sale of Common Shares for
general corporate purposes.
General
corporate purposes may include, among other purposes, the funding of a pediatric clinical trial in the E.U. and U.S. for Macrilen™
(macimorelin). We may temporarily invest funds that we do not immediately need for these purposes in investment securities or
use them to make payments on our borrowings. All expenses relating to an offering of Common Shares and any compensation paid to
the Placement Agent, dealers or agents, as the case may be, will be paid out of our general funds or from the proceeds of any
offering under this prospectus supplement or the accompanying prospectus. The use of proceeds will be specified in this prospectus
supplement relating to a particular offering of Common Shares, as required by applicable securities legislation.
We
will not receive any proceeds from the sale of Common Shares issuable under exercise of the Warrants that we are offering in the
concurrent private placement unless and until such Warrants are exercised for cash. If the Warrants are fully exercised for cash,
we will receive additional proceeds of up to approximately $3.1 million.
DIVIDEND
POLICY
We
have never declared nor paid dividends on our securities. We currently expect to retain future earnings, if any, for use in the
operation and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future. Any future
determination to pay dividends on our securities is subject to the discretion of our Board of Directors and will depend upon various
factors, including, without limitation, our results of operations and financial condition.
PRICE
RANGE AND TRADING VOLUME
Our
Common Shares are listed on the NASDAQ and on the TSX under the symbol “AEZS”. The following table indicates the monthly
range of high and low closing prices of a Common Share and the average daily volumes traded on the NASDAQ and on the TSX during
the period beginning on July 1, 2018, and ending on February 19, 2020:
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|
NASDAQ
(US$)
|
|
|
TSX
(C$)
|
|
|
|
High
|
|
|
Low
|
|
|
Volume
|
|
|
High
|
|
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Low
|
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|
Volume
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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July
|
|
|
2.06
|
|
|
|
1.65
|
|
|
|
1,544,300
|
|
|
|
2.69
|
|
|
|
2.12
|
|
|
|
109,300
|
|
August
|
|
|
1.84
|
|
|
|
1.60
|
|
|
|
1,034,600
|
|
|
|
2.43
|
|
|
|
2.08
|
|
|
|
52,400
|
|
September
|
|
|
2.27
|
|
|
|
1.29
|
|
|
|
18,524,300
|
|
|
|
2.97
|
|
|
|
1.68
|
|
|
|
494,300
|
|
October
|
|
|
3.39
|
|
|
|
1.81
|
|
|
|
16,792,300
|
|
|
|
4.54
|
|
|
|
2.37
|
|
|
|
1,215,300
|
|
November
|
|
|
3.39
|
|
|
|
1.81
|
|
|
|
18,574,908
|
|
|
|
4.54
|
|
|
|
2.37
|
|
|
|
4,004,066
|
|
December
|
|
|
3.92
|
|
|
|
2.47
|
|
|
|
7,049,500
|
|
|
|
5.14
|
|
|
|
3.38
|
|
|
|
683,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January
|
|
|
4.14
|
|
|
|
2.85
|
|
|
|
9,727,000
|
|
|
|
5.47
|
|
|
|
3.90
|
|
|
|
918,900
|
|
February
|
|
|
4.39
|
|
|
|
3.83
|
|
|
|
4,801,700
|
|
|
|
5.71
|
|
|
|
4.96
|
|
|
|
545,700
|
|
March
|
|
|
5.57
|
|
|
|
3.82
|
|
|
|
6,536,500
|
|
|
|
6.28
|
|
|
|
4.70
|
|
|
|
702,300
|
|
April
|
|
|
3.97
|
|
|
|
2.90
|
|
|
|
3,091,400
|
|
|
|
5.31
|
|
|
|
3.82
|
|
|
|
371,600
|
|
May
|
|
|
3.11
|
|
|
|
1.96
|
|
|
|
3,359,100
|
|
|
|
4.18
|
|
|
|
2.64
|
|
|
|
374,300
|
|
June
|
|
|
3.06
|
|
|
|
2.29
|
|
|
|
1,515,700
|
|
|
|
3.93
|
|
|
|
3.04
|
|
|
|
146,600
|
|
July
|
|
|
2.57
|
|
|
|
1.93
|
|
|
|
1,896,000
|
|
|
|
3.35
|
|
|
|
2.57
|
|
|
|
189,300
|
|
August
|
|
|
2.30
|
|
|
|
0.97
|
|
|
|
4,591,100
|
|
|
|
3.02
|
|
|
|
1.30
|
|
|
|
321,590
|
|
September
|
|
|
1.19
|
|
|
|
0.81
|
|
|
|
3,347,600
|
|
|
|
1.52
|
|
|
|
1.13
|
|
|
|
189,900
|
|
October
|
|
|
1.10
|
|
|
|
0.86
|
|
|
|
2,440,000
|
|
|
|
1.45
|
|
|
|
1.15
|
|
|
|
110,500
|
|
November
|
|
|
1.08
|
|
|
|
0.87
|
|
|
|
2,585,275
|
|
|
|
1.45
|
|
|
|
1.15
|
|
|
|
140,734
|
|
December
|
|
|
0.96
|
|
|
|
0.76
|
|
|
|
2,963,400
|
|
|
|
1.29
|
|
|
|
1.01
|
|
|
|
119,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January
|
|
|
1.54
|
|
|
|
0.85
|
|
|
|
5,165,000
|
|
|
|
2.00
|
|
|
|
1.12
|
|
|
|
543,800
|
|
February
|
|
|
1.35
|
|
|
|
1.02
|
|
|
|
1,317,600
|
|
|
|
1.80
|
|
|
|
1.36
|
|
|
|
139,500
|
|
|
(1)
|
Up
to and including February 19, 2020.
|
CONSOLIDATED
CAPITALIZATION
The
following table presents the number of our issued and outstanding Common Shares and our consolidated cash and cash equivalents
and capitalization as at September 30, 2019, on an actual basis and on an as adjusted basis assuming that an aggregate of 3,478,261
Common Shares are sold at a price of $1.29375 for aggregate gross proceeds of approximately $4.5 million. The adjustments present
the expected impact on the number of our issued and outstanding Common Shares, our consolidated cash and cash equivalents and
our capitalization as at September 30, 2019, of the issuances described above and after the payment by us of Placement Agent fees
and our estimated transaction expenses. As at September 30, 2019, we had no outstanding long-term third-party debt.
The
information below has been derived from and should be read in conjunction with, and is qualified in its entirety by, our unaudited
consolidated financial statements as at September 30, 2019, and for the three-month and nine-month periods ended September 30,
2019 and 2018, and the Management’s Discussion and Analysis thereon, incorporated by reference into this prospectus supplement.
Figures are in thousands of U.S. dollars except share data.
|
|
As at September 30, 2019
|
|
|
|
Actual
|
|
|
As Adjusted(1)
|
|
Number of Common Shares issued and outstanding
|
|
|
19,994,510
|
(2)
|
|
|
23,472,771
|
(2)
|
Cash and cash equivalents
|
|
$
|
10,862
|
|
|
$
|
14,781
|
|
Shareholders’ equity:
|
|
|
|
|
|
|
|
|
Share capital
|
|
$
|
224,531
|
|
|
$
|
228,450
|
|
Other capital
|
|
$
|
89,758
|
|
|
$
|
89,758
|
|
Deficit
|
|
$
|
(316,844
|
)
|
|
$
|
(316,844
|
)
|
Accumulated other comprehensive income
|
|
$
|
362
|
|
|
$
|
362
|
|
Total shareholders’ equity and total capitalization
|
|
$
|
(2,193
|
)
|
|
$
|
1,726
|
|
|
(1)
|
As
adjusted column gives effect to: (i) the sale of 3,478,261 Common Shares in this
offering, at the offering price of $1.29375 per Common Share and (ii) the
deduction of estimated Placement Agent fees and estimated offering expenses payable by
us.
|
|
(2)
|
The
number of our Common Shares that will be outstanding both before and immediately after
this offering is based on shares outstanding as of September 30, 2019, and excludes as
of such date:
|
|
●
|
28,144
Common Shares issuable upon exercise of warrants that we previously issued in March 2015,
which had an average price of $1.07 per Common Share, 2,331,000 Common Shares issuable
upon exercise of warrants that we previously issued in December 2015, which had a weighted
average exercise price of $7.10 per Common Share, 945,000 Common Shares issuable upon
exercise of warrants that we previously issued in November 2016, which had a weighted
average exercise price of $4.70 per Common Share and 3,325,000 Common Shares issuable
upon exercise of warrants that we previously issued in September 2019, which had a weighted
average exercise price of $1.65 per Common Share;
|
|
|
|
|
●
|
894,835
Common Shares that underlie outstanding stock options and deferred share units granted
under our plans, having a weighted average price of $4.41 per Common Share;
|
|
|
|
|
●
|
246,619
additional Common Shares available for future grants under our Second Amended and Restated
Stock Option Plan, and 1,137,920 additional Common Shares available for future grants
under our 2018 Long-Term Incentive Plan. The maximum number of Common Shares issuable
under the plans may equal 11.4% of the issued and outstanding Common Shares at any given
time;
|
|
|
|
|
●
|
for
the adjusted column, 2,608,696 Common Shares issuable upon the exercise of Warrants,
at an exercise price of $1.20 per share, to be issued to purchasers in a private placement
concurrent with this offering; and
|
|
|
|
|
●
|
for
the adjusted column, 243,478 Common Shares issuable upon the exercise of Wainwright Warrants,
at an exercise price of $1.61719 per share, to be issued to the Placement Agent in connection
with this offering.
|
DILUTION
If
you purchase Common Shares in this offering, your interest will be diluted to the extent of the excess of the offering
price per Common Share over the as adjusted net tangible book value per Common Share after this offering. Net tangible book value
per share represents the amount of our total tangible assets (which include unrestricted and restricted cash and cash equivalents,
accounts receivable, prepaid property, plant and equipment, and other non-current assets) reduced by the amount of our total liabilities,
divided by the total number of Common Shares issued and outstanding.
As
at September 30, 2019, we had a net tangible book value of approximately $(10,086) million, or approximately $(0.50) per Common
Share. After giving effect to the sale of 3,478,261 Common Shares in this offering, at the offering price of $1.29375 per
Common Share, and after deducting estimated Placement Agent fees and estimated offering expenses payable by us, we would have
had an adjusted pro forma net tangible book value as at September 30, 2019, of approximately $(5,586) million, or approximately
$(0.28) per Common Share. This represents an immediate increase in the net tangible book value of $0.22 per share attributable
to this offering. The following table illustrates this per share dilution:
Offering price per share
|
|
|
|
|
|
$
|
1.29375
|
|
Net tangible book value per share as at September 30, 2019
|
|
$
|
(0.50
|
)
|
|
|
|
|
Increase in net tangible book value per share attributable to this offering
|
|
$
|
0.22
|
|
|
|
|
|
As-adjusted net tangible book value per share after this offering
|
|
|
|
|
|
$
|
0.28
|
|
Net dilution per share to new investors
|
|
|
|
|
|
$
|
1.01375
|
|
The
above calculations, discussion and table are based upon 19,994,510 Common Shares issued and outstanding as at September 30, 2019,
and exclude as of such date:
|
●
|
28,144
Common Shares issuable upon exercise of warrants that we previously issued in March 2015,
which had an average price as of $1.07 per Common Share, 2,331,000 Common Shares issuable
upon exercise of warrants that we previously issued in December 2015, which had a weighted
average exercise price of $7.10 per Common Share, 945,000 Common Shares issuable upon
exercise of warrants that we previously issued in November 2016, which had a weighted
average exercise price of $4.70 per Common Share and 3,325,000 Common Shares issuable
upon exercise of warrants that we previously issued in September 2019, which had a weighted
average exercise price of $1.65 per Common Share;
|
|
|
|
|
●
|
894,835
Common Shares that underlie outstanding stock options and deferred share units granted
under our plans, having a weighted average price of $4.41 per Common Share;
|
|
|
|
|
●
|
246,619
additional Common Shares available for future grants under our Second Amended and Restated
Stock Option Plan, and 1,137,920 additional Common Shares available for future grants
under our 2018 Long-Term Incentive Plan. The maximum number of Common Shares issuable
under the plans may equal 11.4% of the issued and outstanding Common Shares at any given
time;
|
|
|
|
|
●
|
2,608,696
Common Shares issuable upon the exercise of Warrants, at an exercise price of $1.20 per
share, to be issued to purchasers in a private placement concurrent with this offering;
and
|
|
|
|
|
●
|
243,478
Common Shares issuable upon the exercise of Wainwright Warrants, at an exercise price
of $1.61719 per share, to be issued to the Placement Agent in connection with this offering.
|
To
the extent that outstanding exercisable options or warrants are exercised, you may experience further dilution. In addition, we
may need to raise additional capital and to the extent that we raise additional capital by issuing equity or convertible debt
securities your ownership will be further diluted.
DESCRIPTION
OF SECURITIES OFFERED UNDER THIS PROSPECTUS SUPPLEMENT
We
are offering 3,478,261 Common Shares, no par value, and associated Common Share purchase rights, pursuant to this prospectus supplement
and the accompanying prospectus. The Common Shares are being sold directly to certain institutional accredited investors pursuant
to a securities purchase agreement dated February 19, 2020. The Common Shares are being sold at a purchase price of $1.29375 per
share.
Common
Shares
The
holders of the Common Shares are entitled to one vote for each Common Share held by them at all meetings of shareholders, except
meetings at which only shareholders of a specified class of shares are entitled to vote. In addition, the holders are entitled
to receive dividends if, and when, declared by the Board of Directors on the Common Shares. Finally, the holders of the Common
Shares are entitled to receive the remaining property of the Company upon any liquidation, dissolution or winding-up of the affairs
of the Company, whether voluntary or involuntary. Shareholders have no liability to further capital calls as all issued and outstanding
shares are fully paid and non-assessable. Additional information on our share capital is provided in “Item 10 - Additional
Information” in our Annual Report on Form 20-F for the financial year ended December 31, 2018, incorporated by reference
to this prospectus supplement.
Shareholder
Rights Plan
The
Board of Directors approved a shareholder rights plan of the Company on March 29, 2016, which was approved, ratified and confirmed
by the shareholders at the annual and special meeting of shareholders of the Company on May 10, 2016 (the “Existing Rights
Plan”). The Existing Rights Plan was implemented to ensure, to the extent possible, that all of our shareholders are treated
fairly in connection with any take-over bid or other acquisition of control of the Company.
The
Board of Directors reviewed the terms of the Existing Rights Plan for conformity with current Canadian securities laws, as well
as the evolving practices of public corporations in Canada, with respect to shareholder rights plan design and made some minor
amendments thereto as a result.
The
Board of Directors determined it appropriate and in the best interests of the shareholders to continue the Existing Rights Plan
and approved the amended and restated shareholder rights plan (the “Rights Plan”) on March 26, 2019. The Rights Plan
took effect immediately upon receipt of approval of the shareholders of the Company at the annual and special meeting of shareholders
held on May 8, 2019.
The
fundamental objectives of the Rights Plan are to provide adequate time for our Board of Directors and shareholders to assess an
unsolicited take-over bid for us, to provide the Board of Directors with sufficient time to explore and develop alternatives for
maximizing shareholder value if a take-over bid is made, and to provide shareholders with an equal opportunity to participate
in a take-over bid. The Rights Plan encourages a potential acquirer who makes a take-over bid to proceed either by way of a “Permitted
Bid,” which requires a take-over bid to satisfy certain minimum standards designed to promote fairness, or with the concurrence
of our Board of Directors. If a takeover bid fails to meet these minimum standards and the Rights Plan is not waived by the Board
of Directors, the Rights Plan provides that holders of Common Shares, other than the acquirer, will be able to purchase additional
Common Shares at a significant discount to market, thus exposing the person acquiring Common Shares to substantial dilution of
its holdings.
Pursuant
to the terms of the Rights Plan, one right was issued in respect of each common share outstanding at 5:01 p.m. on March 29, 2016
(the “Record Time”). In addition, we will issue one right for each additional Common Share issued after the Record
Time and prior to the earlier of the Separation Time (as defined in the Rights Plan) and the Expiration Time (as defined in the
Rights Plan). The rights have an initial exercise price equal to the Market Price (as defined in the Rights Plan) of the Common
Shares as determined at the Separation Time, multiplied by five, subject to certain anti-dilution adjustments (the “Exercise
Price”), and they are not exercisable until the Separation Time. Upon the occurrence of a Flip-in Event (as defined in the
Rights Plan), each right will entitle the holder thereof, other than an Acquiring Person (as defined in the Rights Plan) or any
other person whose rights are or become void pursuant to the provisions of the Rights Plan, to purchase from us, effective at
the close of business on the eighth trading day after the Stock Acquisition Date (as defined in the Rights Plan), upon payment
to us of the Exercise Price, Common Shares having an aggregate Market Price equal to twice the Exercise Price on the date of consummation
or occurrence of such Flip-in Event, subject to certain anti-dilution adjustments.
The
Rights Plan is described in detail in Section 9.2 of our management information circular dated March 26, 2019, included
as Exhibit 99.3 to a report on Form 6-K furnished to the SEC on April 1, 2019, incorporated by reference to this prospectus supplement.
Listing
Our
Common Shares are listed on the NASDAQ Capital Market and on the TSX under the symbol “AEZS”.
Transfer
Agent and Registrar
The
transfer agent and registrar for our Common Shares (and associated Common Share purchase rights) is Computershare Trust Company
of Canada, 1500 University Street, 7th Floor, Montreal, Quebec, H3A 358.
PRIVATE
PLACEMENT OF WARRANTS
In
a concurrent private placement, we are selling to each of the purchasers of our Common Shares in this offering the Warrants
to purchase 0.75 of a Common Share for each Common Share purchased in this offering by each such purchaser. The aggregate
number of Common Shares issuable upon the exercise of the Warrants is 2,608,696 Common Shares.
The
Warrants and our Common Shares issuable upon the exercise of the Warrants are not being registered under the Securities Act, are
not being offered pursuant to this prospectus supplement and the accompanying prospectus and are being offered pursuant to the
exemption provided in Section 4(a)(2) under the Securities Act of Rule 506(b) promulgated thereunder. Accordingly, purchasers
may only sell the Common Shares issued upon exercise of the Warrants pursuant to an effective registration statement under the
Securities Act covering the resale of those shares, an exemption under Rule 144 under the Securities Act or another applicable
exemption under the Securities Act.
Exercisability.
The Warrants are immediately exercisable at any time or times on or after the date of issuance and will expire five-and-a- half
years from the date of issuance, at which time any unexercised Warrants will expire and cease to be exercisable. The Warrants
will be exercisable, at the option of each holder, in whole or in part by delivering to us a duly executed exercise notice and,
at any time a registration statement registering the issuance of the Common Shares underlying the Warrants under the Securities
Act is effective and available for the issuance of such shares, or an exemption from the registration under the Securities Act
is available for the issuance of such shares, by payment in full in immediately available funds for the number of Common Shares
purchased upon such exercise. If a registration statement registering the issuance of the Common Shares underlying the Warrants
under the Securities Act is not effective or available or an exemption from registration under the Securities Act is not available
for the issuance of such shares, the holder may, in its sole discretion, elect to exercise the Warrant through a cashless exercise,
in which case the holder would receive upon such exercise the net number of Common Shares determined according to the formula
set forth in the Warrant. No fractional Common Shares will be issued in connection with the exercise of a Warrant. In lieu of
fractional shares, we will pay the holder an amount in cash equal to the fractional amount multiplied by the exercise price.
Exercise
Limitation. A holder of the Warrant will not have the right to exercise any portion of the Warrant if the holder (together
with its affiliates) would beneficially own in excess of 4.99% of our Common Shares outstanding immediately after
giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the Warrants. However,
any holder may increase or decrease such percentage not to exceed 9.99% of the common shares outstanding immediately after giving
effect to the exercise and, provided that any increase will not be effective until the 61st day after such election.
Exercise
Price. The Warrants will have an exercise price of $1.20 per share. The exercise price is subject to appropriate adjustment
in the event of certain share dividends and distributions, share splits, share combinations, reclassifications
or similar events affecting our Common Shares and also upon any distributions of assets, including cash, share or other
property to our shareholders.
Exchange
Listing. There is no established trading market for the Warrants and we do not expect a market to develop. In addition, we
do not intend to apply for the listing of the Warrants on any national securities exchange or other trading market. Without an
active trading market, the liquidity of the Warrants will be limited.
Rights
as a Shareholder. Except as otherwise provided in the Warrants or by virtue of such holder’s ownership of our Common
Shares, the holder of a Warrant does not have the rights or privileges of a holder of our Common Shares, including any voting
rights, until the holder exercises the Warrant.
Fundamental Transaction.
In certain circumstances, upon a fundamental transaction, the holder will have the right to require us or a successor entity to
repurchase its Warrants at the Black Scholes value; provided, however, that if the fundamental transaction is not within the Company’s
control, including not approved by the Company’s board of directors, then the holder shall only be entitled to receive the
same type or form of consideration (and in the same proportion), at the Black Scholes Value of the unexercised portion of the
Warrant, that is being offered and paid to the holders of our Common Shares in connection with the fundamental transaction.
Placement Agent
Warrants. The Placement Agent will receive Wainwright Warrants to purchase 243,478 Common Shares, exercisable at a price of
$1.61719 per warrant share. The Wainwright Warrants will have substantially the same terms as the Warrants issued to investors,
except that such Wainwright Warrants will have an exercise price equal to $1.61719 and have a term of five years from the date
of this prospectus supplement. The Wainwright Warrants are not being offered pursuant to this prospectus supplement and the accompanying
prospectus and are being offered pursuant to the exemption provided in Section 4(a)(2) under the Securities Act of Rule 506(b)
promulgated thereunder.
PLAN
OF DISTRIBUTION
Pursuant
to the placement agent engagement agreement (“Agreement”) dated February 18, 2020, we have engaged H.C. Wainwright
& Co., LLC, or the Placement Agent, to act as our exclusive placement agent in connection with this offering of our
Common Shares pursuant to this prospectus supplement and the accompanying prospectus. Under the terms of the Agreement, H.C. Wainwright
& Co., LLC, is not purchasing or selling any such Common Shares, nor is it required to arrange for the purchase
and sale of any specific number or dollar amount of such Common Shares, other than to use its reasonable best efforts to
arrange for the sale of such Common Shares in this offering. The terms of this offering were subject to market
conditions and negotiations between us, the Placement Agent and prospective investors. The Agreement does not give rise to any
commitment by the Placement Agent to purchase any of our Common Shares or the Warrants, and the Placement Agent will have no authority
to bind us by virtue of the Agreement. Furthermore, the Placement Agent does not guarantee that it will be able to raise new capital
in any prospective offering.
We
are entering into a securities purchase agreement, dated February 19, 2020, directly with certain institutional
investors in connection with this offering, and we will only sell to investors who have entered into the securities
purchase agreement.
The
Common Shares will be listed on the NASDAQ. We expect to deliver the Common Shares being offered pursuant to this prospectus supplement,
as well as the Warrants offered in the concurrent private placement, on or about February 21, 2020, subject to customary closing
conditions.
We
have agreed to pay the Placement Agent a total cash fee equal to 7.25% of the gross proceeds of this offering. We have also agreed
to pay the Placement Agent (a) a management fee equal to 1.0% of the gross proceeds raised in this offering and (b) the reimbursement
of certain expenses. We estimate our total expenses associated with the offering, excluding Placement Agent fees and expenses,
will be approximately $0.3 million.
The
following table shows per share and total cash placement agent’s fees we will pay to the Placement Agent in connection with
the sale our Common Shares pursuant to this prospectus supplement and the accompanying prospectus assuming the purchase of all
of the Common Shares offered hereby:
|
|
Per Common Share
|
|
|
Total
|
|
Offering Price
|
|
$
|
1.29375
|
|
|
$
|
4,500,000.17
|
|
Placement agent fees
|
|
$
|
0.106734
|
|
|
$
|
371,250.00
|
|
Proceeds, before expenses, to us
|
|
$
|
1.187016
|
|
|
$
|
4,128,750.17
|
|
After
deducting certain fees and expenses due to the Placement Agent and our estimated offering expenses, we expect the net proceeds
from this offering to be approximately $3.9 million.
In
addition, we have agreed to issue the Placement Agent warrants to purchase up to 243,478 Common Shares (equal to approximately
7% of the aggregate number of Common Shares sold in this offering) at an exercise price of $1.61719 per share, which represents
125% of the offering price per share. Neither the Wainwright Warrants nor the Common Shares issuable upon exercise of the Wainwright
Warrants are being registered hereby.
The
Wainwright Warrants will be exercisable immediately and for five years from the date of this prospectus supplement. Pursuant to
FINRA Rule 5110(g), the Wainwright Warrants and any shares issued upon exercise of the Wainwright Warrants shall not be sold,
transferred, assigned, pledged, or hypothecated, or be the subject of any hedging, short sale, derivative, put or call transaction
that would result in the effective economic disposition of the securities by any person for a period of 180 days immediately following
the date of effectiveness or commencement of sales of this offering, except the transfer of any security: (i) by operation of
law or by reason of our reorganization; (ii) to any FINRA member firm participating in the offering and the officers or partners
thereof, if all securities so transferred remain subject to the lock-up restriction set forth above for the remainder of the time
period; (iii) if the aggregate amount of our securities held by the Placement Agent or related persons do not exceed 1% of the
securities being offered; (iv) that is beneficially owned on a pro-rata basis by all equity owners of an investment fund, provided
that no participating member manages or otherwise directs investments by the fund and the participating members in the aggregate
do not own more than 10% of the equity in the fund; or (v) the exercise or conversion of any security, if all securities remain
subject to the lock-up restriction set forth above for the remainder of the time period.
Right
of First Refusal
We
have also granted H.C. Wainwright & Co., LLC a right of first refusal for a period of twelve months following the closing
of this offering to act as sole book-running manager, sole underwriter, sole placement agent or sole agent for each and every
future public or private offering or any other capital raising financing of equity or equity-linked securities by us or any of
our subsidiaries.
Tail
Financing Payments
To
the extent that this offering is not consummated, we have also agreed to pay H.C. Wainwright & Co., LLC a tail fee equal to
the cash and warrant compensation in this offering, if any investor, who was contacted or introduced to us by H.C. Wainwright
& Co., LLC during the term of its engagement, provides us with capital in any public or private offering or other financing
or capital raising transaction during the 12-month period following expiration or termination of our engagement of the Placement
Agent.
Lock-up
Restrictions
Pursuant
to the securities purchase agreement with the purchasers of the Common Shares and Warrants, we have agreed for a period of 30
days following the closing of this offering not to issue, enter into an agreement to issue or announce the issuance or proposed
issuance of our Common Shares or Common Share equivalents.
We
have also agreed for a period of 90 days following the closing date of this offering not to (i) issues or sells any debt or equity
securities that are convertible into, exchangeable or exercisable for, or include the right to receive, additional Common Shares
either (A) at a conversion price, exercise price or exchange rate or other price that is based upon, and/or varies with, the trading
prices of or quotations for the Common Shares at any time after the initial issuance of such debt or equity securities or (B)
with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of
such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business
of the Company or the market for the Common Shares or (ii) enters into, or effects a transaction under, any agreement, including,
but not limited to, an equity line of credit, whereby the Company may issue securities at a future determined price.
The
Placement Agent may be deemed to be an underwriter within the meaning of Section 2(a)(11) of the Securities Act, and any commissions
received by it, and any profit realized on the resale of the Common Shares and Warrants sold by it while acting as principal,
might be deemed to be underwriting discounts or commissions under the Securities Act. As an underwriter, the Placement Agent would
be required to comply with the Securities Act and the Securities Exchange Act of 1934, as amended, including without limitation,
Rule 415(a)(4) under the Securities Act, Rule 10b-5 and Regulation M under the Securities Exchange Act of 1934,
as amended. These rules and regulations may limit the timing of purchases and sales of the Common Shares and Warrants by the Placement
Agent acting as principal. Under these rules and regulations the Placement Agent:
|
●
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may
not engage in any stabilization activity in connection with our securities, and
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may
not bid for or purchase any of our securities, or attempt to induce any person to purchase
any of our securities, other than as permitted under the Securities Exchange Act of
1934, as amended, until it has completed its participation in the distribution in
the securities offered by this prospectus supplement and the accompanying prospectus.
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Indemnification
We
have agreed to indemnify the Placement Agent and each of its affiliates, directors, officers, members, shareholders, agents,
employees and controlling persons against all actions, suits, proceeding (including those of shareholders), claims,
damages, expenses and liabilities, as the same are incurred (including the reasonable fees and expenses of counsel), relating
to or arising out of its activities pursuant to the Agreement. Furthermore, we have agreed to contribute to payments that the
Placement Agent may be required to make in respect of such liabilities.
Determination
of Offering Price
The
offering price of the Common Shares we are offering was negotiated between us and the investors in the offering based on the trading
of our Common Shares prior to the offering, among other things.
Electronic
Offer, Sale and Distribution of Securities
A
prospectus in electronic format may be made available on the websites maintained by the Placement Agent, if any, participating
in this offering and the Placement Agent may distribute prospectuses electronically. Other than the prospectus in electronic format,
the information on these websites is not part of this prospectus supplement or the registration statement of which the accompanying
prospectus forms a part, has not been approved or endorsed by us or the Placement Agent, and should not be relied upon by investors.
Relationships
The
Placement Agent and its affiliates may have provided us and our affiliates in the past and my provide form time to time in the
future certain commercial banking, financial advisory, investment banking and other services for us and such affiliates in the
ordinary course of their business, for which they have received and may continue to receive customary fees and commissions. In
addition, from time to time, the Placement Agent and its affiliates may effect transactions for their own account or the account
of customers, and hold on behalf of themselves or their customers, long or short positions in our debt or equity securities or
loans, and may do so in the future. However, except as disclosed in this prospectus supplement and the accompanying prospectus,
we have no present arrangements with the Placement Agent for any further services.
INCOME
TAX CONSIDERATIONS
THE
FOLLOWING SUMMARY IS OF A GENERAL NATURE ONLY AND IS NOT INTENDED TO BE, NOR SHOULD IT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE
TO ANY PARTICULAR INVESTOR. CONSEQUENTLY, PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS FOR ADVICE AS TO THE
TAX CONSEQUENCES OF AN INVESTMENT IN THE SECURITIES OFFERED BY THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS HAVING
REGARD TO THEIR PARTICULAR CIRCUMSTANCES.
Material
U.S. Federal Income Tax Considerations
The
following discussion is a summary of the material U.S. federal income tax consequences applicable to the purchase, ownership and
disposition of Common Shares being offered by this prospectus supplement and the accompanying prospectus by a U.S. Holder (as
defined below), but does not purport to be a complete analysis of all potential U.S. federal income tax effects.
This
summary is based on the Internal Revenue Code of 1986, as amended (the “Code”), U.S. Treasury regulations promulgated
thereunder, IRS rulings and judicial decisions in effect on the date of this prospectus supplement. All of these are subject to
change, possibly with retroactive effect, or different interpretations. This summary does not discuss the potential effects, whether
adverse or beneficial, of any proposed legislation that, if enacted, could be applied on a retroactive basis. This summary is
not binding on the IRS, and the IRS is not precluded from taking a position that is different from, and contrary to, the positions
taken in this summary.
This
summary does not address all aspects of U.S. federal income taxation that may be relevant to particular U.S. Holders in light
of their specific circumstances (for example, U.S. Holders subject to the alternative minimum tax or the Medicare contribution
tax on net investment income under the Code) or to holders that may be subject to special rules under U.S. federal income tax
law, including:
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dealers in stocks, securities or currencies;
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securities traders that use a mark-to-market accounting
method;
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banks and financial institutions;
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insurance companies;
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regulated investment companies;
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real estate investment trusts;
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tax-exempt organizations;
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retirement plans, individual plans, individual retirement
accounts and tax-deferred accounts;
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partnerships or other pass-through entities for U.S.
federal income tax purposes and their partners or members;
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persons holding Common Shares as part of a hedging or
conversion transaction straddle or other integrated or risk reduction transaction;
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persons who or that are, or may become, subject to the
expatriation provisions of the Code;
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persons whose functional currency is not the U.S. dollar;
and
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direct, indirect or constructive owners of 10% or more
of the total combined voting power of all classes of our voting stock or 10% or more of the total value of shares of all classes
of our stock.
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This
summary also does not discuss any aspect of state, local or foreign law, or estate or gift tax law as applicable to U.S. Holders.
In addition, this discussion is limited to U.S. Holders purchasing Common Shares pursuant to this prospectus supplement and that
will hold such Common Shares as capital assets. For purposes of this summary, “U.S. Holder” means a beneficial holder
of Common Shares who or that for U.S. federal income tax purposes is:
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an individual citizen or resident of the U.S.;
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a corporation or other entity classified as a corporation
for U.S. federal income tax purposes created or organized in or under the laws of the U.S., any state thereof or the District
of Columbia;
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an estate, the income of which is subject to U.S. federal
income taxation regardless of its source; or
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a trust, if (a) a court within the U.S. is able to exercise
primary supervision over the administration of such trust and one or more “U.S. persons” (within the meaning of the
Code) have the authority to control all substantial decisions of the trust, or (b) a valid election is in effect to be treated
as a U.S. person for U.S. federal income tax purposes.
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If
a partnership or other entity or arrangement classified as a partnership for U.S. federal income tax purposes holds Common Shares,
the U.S. federal income tax treatment of a partner generally will depend on the status of the partner and the activities of the
partnership. This summary does not address the tax consequences to any such partner. Such a partner should consult its own tax
advisor as to the tax consequences of the partnership purchasing, owning and disposing of Common Shares.
PROSPECTIVE
INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH REGARD TO THE APPLICATION OF THE TAX CONSEQUENCES DESCRIBED BELOW TO THEIR
PARTICULAR SITUATIONS AS WELL AS THE APPLICATION OF ANY STATE, LOCAL, FOREIGN OR OTHER TAX LAWS, INCLUDING GIFT AND ESTATE TAX
LAWS.
Tax
Consequences if we are a Passive Foreign Investment Company
A
foreign corporation will be classified as a PFIC for any taxable year in which, after taking into account the income and assets
of the corporation and certain subsidiaries pursuant to applicable “look-through rules,” either (i) at least 75% of
its gross income is “passive income” or (ii) at least 50% of the average quarterly value of its assets is attributable
to assets which produce passive income or are held for the production of passive income. Passive income generally includes dividends,
interest, rents and royalties (other than certain rents and royalties derived in the active conduct of a trade or business), annuities
and gains from assets that produce passive income. If a non-U.S. corporation owns at least 25% by value of the stock of another
corporation, the non-U.S. corporation is treated for purposes of the PFIC tests as owning its proportionate share of the assets
of the other corporation and as receiving directly its proportionate share of the other corporation’s income.
We
believe that we were a PFIC for the 2015 taxable year, but not for the 2016, 2017, 2018, and 2019 taxable years. The fair
market value of the Company’s assets, however, may be determined in large part by the market price of the Common Shares,
which is likely to fluctuate, and the composition of the Company’s income and assets will be affected by how, and how quickly,
the Company spends any cash that is raised in any financing transaction. Thus, no assurance can be provided that we will not be
classified as a PFIC for the 2020 taxable year or any future taxable year. Prospective investors should consult their tax
advisors regarding the Company’s PFIC status.
If
the Company is classified as a PFIC for any taxable year during which a U.S. Holder owns Common Shares, the U.S. Holder, absent
certain elections (including the mark-to-market and QEF elections described below), will generally be subject to adverse rules
(regardless of whether the Company continues to be classified as a PFIC) with respect to (i) any “excess distributions”
(generally, any distributions received by the U.S. Holder on the Common Shares in a taxable year that are greater than 125% of
the average annual distributions received by the U.S. Holder in the three preceding taxable years or, if shorter, the U.S. Holder’s
holding period for the Common Shares) and (ii) any gain realized on the sale or other disposition of the Common Shares.
Under
these adverse rules (a) the excess distribution or gain will be allocated ratably over the U.S. Holder’s holding period,
(b) the amount allocated to the current taxable year and any taxable year prior to the first taxable year in which the Company
is classified as a PFIC will be taxed as ordinary income and (c) the amount allocated to each of the other taxable years during
which the Company was classified as a PFIC will be subject to tax at the highest rate of tax in effect for the applicable category
of taxpayer for that year and an interest charge will be imposed with respect to the resulting tax attributable to each such other
taxable year. A U.S. Holder that is not a corporation will be required to treat any such interest paid as “personal interest,”
which is not deductible.
U.S.
Holders can avoid the adverse rules described above in part by making a mark-to-market election with respect to the Common Shares,
provided that the Common Shares are “marketable.” The Common Shares will be marketable if they are “regularly
traded” on a “qualified exchange” or other market within the meaning of applicable U.S. Treasury regulations.
For this purpose, the Common Shares generally will be considered to be regularly traded during any calendar year during which
they are traded, other than in de minimis quantities, on at least 15 days during each calendar quarter. The Common Shares
are currently listed on the NASDAQ, which constitutes a qualified exchange; however, there can be no assurance that the Common
Shares will be treated as regularly traded for purposes of the mark-to-market election on a qualified exchange. If the Common
Shares were not regularly traded on the NASDAQ or were delisted from the NASDAQ and were not traded on another qualified exchange
for the requisite time period described above, the mark-to-market election would not be available.
A
U.S. Holder that makes a mark-to-market election must include in gross income, as ordinary income, for each taxable year an amount
equal to the excess, if any, of the fair market value of the U.S. Holder’s Common Shares at the close of the taxable year
over the U.S. Holder’s adjusted tax basis in the Common Shares. An electing U.S. Holder may also claim an ordinary loss
deduction for the excess, if any, of the U.S. Holder’s adjusted tax basis in the Common Shares over the fair market value
of the Common Shares at the close of the taxable year, but this deduction is allowable only to the extent of any net mark-to-market
gains previously included in income. A U.S. Holder that makes a mark-to-market election generally will adjust such U.S. Holder’s
tax basis in the Common Shares to reflect the amount included in gross income or allowed as a deduction because of such mark-to-market
election. Gains from an actual sale or other disposition of the Common Shares will be treated as ordinary income, and any losses
incurred on a sale or other disposition of the Common Shares will be treated as ordinary losses to the extent of any net mark-to-market
gains previously included in income.
If
we are classified as a PFIC for any taxable year in which a U.S. Holder owns Common Shares, but before a mark-to-market election
is made, the adverse PFIC rules described above will apply to any mark-to-market gain recognized in the year the election is made.
Otherwise, a mark-to-market election will be effective for the taxable year for which the election is made and all subsequent
taxable years. The election cannot be revoked without the consent of the IRS unless the Common Shares cease to be marketable,
in which case the election is automatically terminated.
If
the Company is classified as a PFIC, a U.S. Holder of Common Shares will generally be treated as owning stock owned by the Company
in any direct or indirect subsidiaries that are also PFICs and will be subject to similar adverse rules with respect to distributions
to the Company by, and dispositions by the Company of, the stock of such subsidiaries. A mark-to-market election is not permitted
for the shares of any subsidiary of the Company that is also classified as a PFIC. Prospective investors should consult their
tax advisors regarding the availability of, and procedure for making, a mark-to-market election.
In
some cases, a shareholder of a PFIC can avoid the interest charge and the other adverse PFIC consequences described above by making
a QEF election to be taxed currently on its share of the PFIC’s undistributed income. We will endeavor to satisfy the record
keeping requirements that apply to a QEF and to supply requesting U.S. Holders with the information that such U.S. Holders are
required to report under the QEF rules. There can be no assurance, however, that we will satisfy the record keeping requirements
or provide the information required to be reported by U.S. Holders.
A
U.S. Holder that makes a timely and effective QEF election for the first tax year in which its holding period of its Common Shares
begins generally will not be subject to the adverse PFIC consequences described above with respect to its Common Shares. Rather,
a U.S. Holder that makes a timely and effective QEF election will be subject to U.S. federal income tax on such U.S. Holder’s
pro rata share of (a) the Company’s net capital gain, which will be taxed as long-term capital gain to such U.S. Holder,
and (b) the Company’s ordinary earnings, which will be taxed as ordinary income to such U.S. Holder, in each case regardless
of which such amounts are actually distributed to the U.S. Holder by the Company. Generally, “net capital gain” is
the excess of (i) net long-term capital gain over (ii) net short-term capital loss, and “ordinary earnings” are the
excess of (A) “earnings and profits” over (B) net capital gain.
A
U.S. Holder that makes a timely and effective QEF election with respect to the Company generally (a) may receive a tax-free
distribution from us to the extent that such distribution represents “earnings and profits” that were previously
included in income by the U.S. Holder because of such QEF election and (b) will adjust such U.S. Holder’s tax basis in the Common Shares to
reflect the amount included in income or allowed as a tax-free distribution because of such QEF election. In addition, a U.S.
Holder that makes a QEF election generally will recognize capital gain or loss on the sale or other taxable disposition of Common
Shares.
The
QEF election is made on a shareholder-by-shareholder basis. Once made, a QEF election will apply to the tax year for which the
QEF election is made and to all subsequent tax years, unless the QEF election is invalidated or terminated or the IRS consents
to revocation of the QEF election. In addition, if a U.S. Holder makes a QEF election, the QEF election will remain in effect
(although it will not be applicable) during those tax years in which we are not a PFIC.
If
the Company is classified as a PFIC and then ceases to be so classified, a U.S. Holder may make an election (a “deemed sale
election”) to be treated for U.S. federal income tax purposes as having sold such U.S. Holder’s Common Shares on the
last day of the taxable year of the Company during which it was a PFIC. A U.S. Holder that made a deemed sale election would then
cease to be treated as owning stock in a PFIC by reason of ownership of Common Shares in the Company. Any gain recognized, however,
as a result of making the deemed sale election would be subject to the adverse rules described above and loss would not be recognized.
If
the Company is a PFIC in any year with respect to a U.S. Holder, the U.S. Holder will be required to file an annual information
return on IRS Form 8621 regarding distributions received on Common Shares and any gain realized on the disposition of Common Shares.
In
addition, if the Company is a PFIC, U.S. Holders will generally be required to file an annual information return with the IRS
(also on IRS Form 8621, which PFIC shareholders are required to file with their U.S. federal income tax or information returns)
relating to their ownership of Common Shares.
Prospective
investors should consult their tax advisors regarding the potential application of the PFIC regime and any reporting obligations
to which they may be subject under that regime.
Dividends
Subject
to the PFIC rules discussed above, any distributions paid by us out of current or accumulated earnings and profits (as determined
for U.S. federal income tax purposes), before reduction for any Canadian withholding tax paid with respect thereto, will generally
be taxable to a U.S. Holder as foreign source dividend income, and generally will not be eligible for the dividends received deduction
generally allowed to corporations.
Distributions
in excess of current and accumulated earnings and profits will be treated as a non-taxable return of capital to the extent of
the U.S. Holder’s adjusted tax basis in the Common Shares and, thereafter, as capital gain. We do not, however, intend to
calculate our earnings and profits under U.S. federal income tax principles. Therefore, U.S. Holders should expect that any distribution
from us generally will be treated for U.S. federal income tax purposes as a dividend. Prospective investors should consult their
own tax advisors with respect to the appropriate U.S. federal income tax treatment of any distribution received from us.
Dividends
paid to non-corporate U.S. Holders by us in a taxable year in which we are treated as a PFIC, or in the immediately following
taxable year, will not be eligible for the special reduced rates normally applicable to long-term capital gains. In all other
taxable years, dividends paid by us should be taxable to a non-corporate U.S. Holder at the special reduced rates normally applicable
to long-term capital gains, provided that certain conditions are satisfied (including a minimum holding period requirement). We
believe we were not a PFIC for the 2019 taxable year. However, no assurance can be provided that we will not be classified
as a PFIC for 2020 and, therefore, no assurance can be provided that a U.S. Holder will be able to claim a reduced rate
for dividends paid in 2020 or 2021 (if any). Please see the subsection above entitled “Material U.S. Federal Income
Tax Considerations — “Tax Consequences if we are a Passive Foreign Investment Company” for a more detailed discussion.
Under
current law, payments of dividends by us to non-Canadian investors are generally subject to a 25% Canadian withholding tax. The
rate of withholding tax applicable to U.S. Holders that are eligible for benefits under the Canada-United States Tax Convention
(the “Convention”) is reduced to a maximum of 15%. This reduced rate of withholding will not apply if the dividends
received by a U.S. Holder are effectively connected with a permanent establishment of the U.S. Holder in Canada. For U.S. federal
income tax purposes, U.S. Holders will be treated as having received the amount of Canadian taxes withheld by the Company, and
as then having paid over the withheld taxes to the Canadian taxing authorities. As a result of this rule, the amount of dividend
income included in gross income for U.S. federal income tax purposes by a U.S. Holder with respect to a payment of dividends may
be greater than the amount of cash actually received (or receivable) by the U.S. Holder from the Company with respect to the payment.
Subject
to certain limitations, a U.S. Holder will generally be entitled, at the election of the U.S. Holder, to a credit against its
U.S. federal income tax liability, or a deduction in computing its U.S. federal taxable income, for Canadian income taxes withheld
by us. This election is made on a year-by-year basis and applies to all foreign taxes paid (whether directly or through withholding)
by a U.S. Holder during a year. For purposes of the foreign tax credit limitation, dividends paid by us generally will constitute
foreign source income in the “passive category income” basket. The foreign tax credit rules are complex and prospective
investors should consult their tax advisors concerning the availability of the foreign tax credit in their particular circumstances.
Dividends
paid in Canadian dollars will be included in the gross income of a U.S. Holder in a U.S. dollar amount calculated by reference
to the exchange rate in effect on the date the U.S. Holder (actually or constructively) receives the dividend, regardless of whether
such Canadian dollars are actually converted into U.S. dollars at that time. If the Canadian dollars received are not converted
into U.S. dollars on the date of receipt, a U.S. Holder will have a tax basis in the Canadian dollars equal to their U.S. dollar
value on the date of receipt. Gain or loss, if any, realized on a sale or other disposition of the Canadian dollars will generally
be U.S. source ordinary income or loss to a U.S. Holder.
We
generally do not pay any dividends and do not anticipate paying any dividends in the foreseeable future.
Sale,
Exchange or Other Taxable Disposition of Common Shares
Subject
to the PFIC rules discussed above, upon a sale, exchange or other taxable disposition of Common Shares, a U.S. Holder generally
will recognize capital gain or loss for U.S. federal income tax purposes equal to the difference, if any, between the amount realized
on the sale, exchange or other taxable disposition and the U.S. Holder’s adjusted tax basis in the Common Shares.
This
capital gain or loss will be long-term capital gain or loss if the U.S. Holder’s holding period in the Common Shares exceeds
one year. The deductibility of capital losses is subject to limitations. Any gain or loss will generally be U.S. source for U.S.
foreign tax credit purposes.
Information
Reporting and Backup Withholding
Payments
made within the U.S., or by a U.S. payor or U.S. middleman, of dividends on, and proceeds arising from sales or other dispositions
of Common Shares, generally will be reported to the IRS and to the U.S. Holder as required under applicable regulations. Backup
withholding tax may apply to these payments if the U.S. Holder fails to timely provide in the appropriate manner an accurate taxpayer
identification number or otherwise fails to comply with, or establish an exemption from, such backup withholding tax requirements.
Certain U.S. Holders are not subject to the information reporting or backup withholding tax requirements described herein. U.S.
Holders should consult their tax advisors as to their qualification for exemption from backup withholding tax and the procedure
for establishing an exemption.
Backup
withholding tax is not an additional tax. U.S. Holders generally will be allowed a refund or credit against their U.S. federal
income tax liability for amounts withheld, provided the required information is timely furnished to the IRS.
Subject
to certain exceptions and future guidance, a U.S. Holder that is a “specified individual” or a “specified domestic
entity” (as defined in the instructions to IRS Form 8938) must report annually to the IRS on IRS Form 8938 such U.S. Holder’s
interests in stock or securities issued by a non-U.S. person (such as the Company). U.S. Holders should consult their tax advisors
regarding the information reporting obligations that may arise from their acquisition, ownership or disposition of Common Shares.
Canadian
Federal Income Tax Considerations for U.S. Shareholders
The
following is a general summary, as of the date hereof, of the principal Canadian federal income tax considerations generally applicable
to the holding and disposition of Common Shares acquired pursuant to this prospectus supplement by a holder who, at all relevant
times, (a) for the purposes of the Income Tax Act (Canada) (the “Tax Act”), (i) is not resident, or deemed
to be resident, in Canada, (ii) deals at arm’s length with, and is not affiliated with, the Company, (iii) beneficially
owns securities as capital property, (iv) does not use or hold the securities in the course of carrying on, or otherwise in connection
with, a business or a part of a business carried on or deemed to be carried on in Canada and (v) is not a “registered non-resident
insurer” or “authorized foreign bank” within the meaning of the Tax Act, and (b) for the purposes of the Convention,
is a resident of the U.S., has never been a resident of Canada, does not have and has not had, at any time, a permanent establishment
or fixed base in Canada, and is a qualifying person or otherwise qualifies for the full benefits of the Convention. Securities
will generally be considered to be capital property to a holder unless such securities are held in the course of carrying on a
business of buying or selling securities, or an adventure or concern in the nature of trade. Holders who meet all the criteria
in clauses (a) and (b) are referred to herein as a “U.S. Shareholder” or “U.S. Shareholders.” This summary
does not deal with special situations, such as the particular circumstances of traders or dealers, holders an interest in which
is a “tax shelter investment” as defined in the Tax Act, tax exempt entities, insurers, financial institutions, holders
who have made a “functional currency” reporting election under section 261 of the Tax Act or holders who have entered
or will enter into a “derivative forward agreement” (as defined in the Tax Act) in respect of Common Shares.
Such holders and other holders who do not meet the criteria in clauses (a) and (b) should consult their own tax advisors.
This
summary is based upon the current provisions of the Tax Act and the regulations thereunder (the “Regulations”) and
the Company’s understanding of the current administrative policies and assessing practices of the Canada Revenue Agency
(“CRA”) made publicly available prior to the date hereof. It also takes into account all proposed amendments to the
Tax Act and the Regulations publicly released by the Minister of Finance (Canada) (“Tax Proposals”) prior to the date
hereof, and assumes that all such Tax Proposals will be enacted as currently proposed. No assurance can be given that the Tax
Proposals will be enacted in the form proposed or at all. This summary does not otherwise take into account or anticipate any
changes in law, whether by way of legislative, judicial or administrative action or interpretation, nor does it take into account
tax laws of any province or territory of Canada or of any other jurisdiction outside Canada.
This
summary is of a general nature only and is not intended to be, nor should it be construed to be, legal or tax advice to any particular
U.S. Shareholder and no representation with respect to the federal income tax consequences to any particular U.S. Shareholder
or prospective U.S. Shareholder is made. The tax consequences to a U.S. Shareholder will depend on the holder’s particular
circumstances. Accordingly, U.S. Shareholders should consult with their own tax advisors for advice with respect to their own
particular circumstances.
For
purposes of the Tax Act, all amounts, including dividends, adjusted cost base and proceeds of disposition, must generally be determined
in Canadian dollars using the applicable exchange rate quoted by the Bank of Canada for the relevant day or such other rate of
exchange that is acceptable to the CRA.
Dividends
Amounts
paid or credited or deemed to be paid or credited as, on account or in lieu of payment, or in satisfaction of, dividends on our
Common Shares to a U.S. Shareholder will be subject to Canadian withholding tax. Under the Convention, the rate of Canadian withholding
tax on dividends paid or credited by us to a U.S. Shareholder that beneficially owns such dividends is generally 15% unless the
beneficial owner is a company that owns at least 10% of our voting stock at that time, in which case the rate of Canadian withholding
tax is reduced to 5%.
Dispositions
A
U.S. Shareholder will generally not be subject to tax under the Tax Act on any capital gain realized on a disposition or deemed
disposition of Common Shares, unless the Common Shares constitute “taxable Canadian property” to the U.S. Shareholder
at the time of disposition and the U.S. Shareholder is not entitled to relief under the Convention. Generally, Common Shares will
not constitute taxable Canadian property to a U.S. Shareholder provided Common Shares are listed on a designated stock exchange
(which currently includes the NASDAQ and the TSX) at the time of the disposition, unless (1) at any time during the 60-month period
immediately preceding the disposition, (a) one or any combination of (A) the U.S. Shareholder, (B) persons with whom the U.S.
Shareholder did not deal at arm’s length and (C) partnerships in which the U.S. Shareholder or a person described in (B)
holds a membership interest directly or indirectly through one or more partnerships, owned 25% or more of the issued shares of
any series or class of our capital stock and (b) more than 50% of the fair market value of Common Shares was derived directly
or indirectly from one or any combination of (i) real or immovable property situated in Canada, (ii) “Canadian resource
properties” (as defined in the Tax Act), (iii) “timber resource properties” (as defined in the Tax Act) and
(iv) options in respect of, or interests in, or for civil law rights in property described in (i) to (iii), whether or not the
property exists, or (2) Common Shares are otherwise deemed to be taxable Canadian property to the U.S. Shareholder.
If
the Common Shares constitute taxable Canadian property to a particular U.S. Shareholder, any capital gain arising on their disposition
may be exempt from Canadian tax under the Convention if, at the time of disposition, the Common Shares do not derive their value
principally from real property situated in Canada as defined in the Convention.
As
long as the Common Shares are listed at the time of their disposition on the NASDAQ, the TSX or another “recognized stock
exchange” (as defined in the Tax Act), a U.S. Shareholder who disposes of the Common Shares that are taxable Canadian property
will not be required to apply for and obtain a certificate of compliance and will not be subject to withholding by a purchaser
under section 116 of the Tax Act. An exemption from such obligations may also be available in respect of such a disposition if
the Common Shares are “treaty-protected property” (as defined in the Tax Act) of the disposing U.S. Shareholder.
LEGAL
MATTERS
Certain
legal matters relating to the offering of Common Shares under this prospectus supplement will be passed upon for us by Stikeman
Elliott LLP with respect to matters of Canadian law and by Barnes & Thornburg LLP with respect to matters of U.S. law. Certain
legal matters in connection with this offering will be passed upon for the Placement Agent by Haynes and Boone, LLP with
respect to U.S. law.
EXPERTS
The
consolidated financial statements incorporated into this prospectus supplement and the accompanying prospectus by reference to
our Annual Report on Form 20-F/A for the financial year ended December 31, 2018, have been so incorporated in reliance on the
report of PricewaterhouseCoopers LLP, independent auditors, given on the authority of said firm as experts in auditing and accounting.
WHERE
YOU CAN FIND MORE INFORMATION
We
file annual reports on Form 20-F with the SEC, and we furnish other documents, such as quarterly and current reports, proxy statements
and other information and documents that we file with the Canadian securities regulatory authorities, to the SEC, as required.
The materials we file with or furnish to the SEC are available to the public on the SEC’s Internet website at www.sec.gov.
Those filings are also available to the public on our corporate website at www.zentaris.com. Information contained
on our website is not a part of this prospectus supplement and the inclusion of our website address in this prospectus supplement
is an inactive textual reference only. As we are a Canadian issuer, we also file continuous disclosure documents with the Canadian
securities regulatory authorities, which documents are available on the System for Electronic Document Analysis and Retrieval
(“SEDAR”) website maintained by the Canadian Securities Administrators at www.sedar.com.
This
prospectus supplement and the accompany prospectus forms part of a registration statement that we filed with the SEC. The registration
statement contains more information than this prospectus supplement and the accompanying prospectus regarding us and our securities,
including certain exhibits and schedules. You can obtain a copy of the registration statement from the SEC at www.sec.gov.
INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE
This
prospectus supplement and the accompanying prospectus are part of a registration statement on Form F-3 filed by us with the SEC.
This prospectus supplement and the accompanying prospectus do not contain all of the information set forth in the registration
statement, certain parts of which are omitted in accordance with the rules and regulations of the SEC. Statements contained in
this prospectus supplement, the accompanying prospectus or the documents incorporated by reference into this prospectus supplement
or the accompanying prospectus as to the contents of any contract or other document referred to are not necessarily complete and
in each instance reference is made to the copy of that contract or other document filed with or furnished to the SEC. For further
information about us and the securities offered by this prospectus supplement, we refer you to the registration statement and
its exhibits and schedules which may be obtained as described herein.
The
SEC allows us to “incorporate by reference” the information contained in documents that we file with or furnish to
it, which means that we can disclose important information to you by referring you to those documents. The information incorporated
by reference is considered to be part of this prospectus supplement and the accompanying prospectus, and information in documents
that we subsequently file with or furnish to the SEC and the Canadian securities regulatory authorities will automatically update
and supersede information in this prospectus supplement and the accompanying prospectus. We incorporate by reference the documents
listed below into this prospectus supplement, and any future filings made by us with the SEC under Section 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934 until the offering of all the securities by this prospectus supplement is
completed, including all filings made after the date of this prospectus supplement. We hereby incorporate by reference the documents
listed below:
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our
2018 Annual Report on Form 20-F for the year ended December 31, 2018, which includes,
among other items, (i) our consolidated statements of financial position as at December
31, 2018, and December 31, 2017, and our consolidated statements of changes in shareholders’
(deficiency) equity, comprehensive income (loss) and cash flows for the years ended December
31, 2018, 2017 and 2016 and the report of independent registered public accounting firm
dated March 29, 2019, thereon included in Item 18; (ii) management’s annual report
on internal control over financial reporting included in Item 15, and (iii) Management’s
Discussion and Analysis included in “Item 5.—Operating and Financial Review
and Prospects”;
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a
management information circular dated March 26, 2019, in connection with an annual and
special meeting of shareholders held on May 8, 2019, included as Exhibit 99.3 to a Report
on Form 6-K furnished to the SEC on April 1, 2019;
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unaudited
condensed interim consolidated financial statements as at March 31, 2019, and for the
three-month periods ended March 31, 2019 and 2018, included as Exhibit 99.1 to a Report
on 6-K furnished to the SEC on May 7, 2019;
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a
Form8-A12B/A filed with the SEC on May 5, 2019, to amend our previously filed Form 8-A12B
filed on April 14, 2017;
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a
management’s discussion and analysis for the first quarter of 2019, included as
Exhibit 99.2 to a Report on 6-K furnished to the SEC on May 7, 2019;
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the
results of the annual and special shareholders’ meeting held on May 8, 2019, included
as Exhibit 99.1 to a Report on 6-K furnished to the SEC on May 9, 2019;
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the
Amended and Restated Shareholder Rights Plan Agreement (amending and restating the Shareholder
Rights Plan dated March 29, 2016) between the Company and Computershare Trust Company
of Canada dated as of May 8, 2019, included as Exhibit 99.2 to a Report on 6-K furnished
to the SEC on May 9, 2019;
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a
material change report dated June 7, 2019, in connection with the reduction of our German
workforces and operations, included as Exhibit 99.1 to a Report on Form 6-K furnished
to the SEC on June 10, 2019;
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the
Annual Report on Form 20-F/A filed with the SEC on July 26, 2019, to amend our previously
filed Annual Report on Form 20-F filed on April 1, 2019;
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unaudited
condensed interim consolidated statements as at June 30, 2019 and for the three-month
periods ended June 30, 2019 and 2018, included as Exhibit 99.1, 101.IV, 101.SCH, 101.CAL,
101.DEF, 101.LAB and 101.PRE to a Report on 6-K furnished to the SEC on August 13, 2019;
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a
management’s discussion and analysis for the second quarter of 2019, included as
Exhibit 99.2 to a Report on 6-K furnished to the SEC on August 13, 2019;
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a
press release announcing a director resignation on August 20, 2019, included as Exhibit
99.1 to a Report on 6-K furnished to the SEC on August 21, 2019;
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copies
of the form Warrant Agreement, the Placement Agency Agreement, the form of Securities
Agreement, and the opinion of Stikeman Elliot LLP dated as of September 20, 2019, included
as Exhibits 99.1, 99.2, 99.3, and 99.4, respectively, to a Report on 6-K furnished to
the SEC on September 20, 2019;
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a
material change report dated September 25, 2019, in connection with the approximately
$5.0 million registered direct offering on September 20, 2019, included as Exhibit 99.1
to a Report on 6-K furnished to the SEC on September 25, 2019;
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a
material change report dated October 4, 2019, in connection with the appointment of Klaus
Paulini as President and Chief Executive Officer of Aeterna Zentaris Inc., included as
Exhibit 99.1 to a Report on 6-K furnished to the SEC on October 8, 2019;
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unaudited
condensed interim consolidated statements as at September 30, 2019 and for the three-month
periods ended September 30, 2019 and 2018, included as Exhibit 99.1, 101.INS, 101.SCH,
101.CAL, 101.DEF, 101.LAB and 101.PRE to a Report on 6-K furnished to the SEC on November
7, 2019;
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a
management’s discussion and analysis for the third quarter of 2019, included as
Exhibit 99.2 to a Report on 6-K furnished to the SEC on November 7, 2019;
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a
press release announcing Gilles Gagnon joining the board of directors of Aeterna Zentaris
Inc. on January 1, 2020, and Gérard Limoge planning to retire from the board of
directors of Aeterna Zentaris on March 31, 2020 and upon Mr. Limoge’s retirement
Pierre-Yves Desbiens will join the board and replace Mr. Limoges as Chair of the Audit
Committee, included as Exhibit 99.1 to a Report on 6-K furnished to the SEC on December
16, 2019;
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a
press release announcing the publication of the GHD management guidelines on December
18, 2019, included as Exhibit 99.1 to a Report on 6-K furnished to the SEC on December
18, 2019;
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a
press release announcing that Aeterna Zentaris Inc. received a NASDAQ notification regarding
the minimum bid price requirement on January 8, 2020, included as Exhibit 99.1 to a Report
on 6-K furnished to the SEC on January 8, 2020;
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a
press release announcing that Aeterna Zentaris Inc. regained compliance with the NASDAQ
minimum bid price requirement for continued listing on January 27, 2020, included as
Exhibit 99.1 to a Report on 6-K furnished to the SEC on January 27, 2020;
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a
press release announcing the completion of patient recruitment in does-finding pediatric
study of Macimorelin on January 28, 2020, included as Exhibit 99.1 to a Report on 6-K
furnished to the SEC on January 28, 2020; and
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to
the extent permitted by applicable securities law, any other documents which we elect
to incorporate by reference into this prospectus supplement.
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All
subsequent annual reports on Form 20-F filed by us and all subsequent reports on Form 6-K filed by us that are identified by us
as being incorporated by reference shall be deemed to be incorporated by reference into this prospectus supplement and deemed
to be a part hereof after the date of this prospectus supplement, but before the termination of the offering by this prospectus
supplement.
We
will provide each person to whom this prospectus supplement is delivered a copy of all of the information that has been incorporated
by reference into this prospectus supplement or the accompanying prospectus, but not delivered with this prospectus supplement
and the accompanying prospectus. You may obtain copies of these filings, at no cost, by writing or telephoning us at:
Aeterna
Zentaris Inc.
Attention:
Investor Relations
315
Sigma Drive,
Summerville,
South Carolina
USA,
29486
Tel.
(843) 900-3223
You
should rely only on the information contained in this prospectus supplement, including information incorporated by reference as
described above. We have not authorized anyone else to provide you with different information. You should not assume the information
in this prospectus supplement or the accompanying prospectus is accurate as of any date other than the date on the front of those
documents or that any document incorporated by reference is accurate as of any date other than its filing date. You should not
consider this prospectus to be an offer or solicitation relating to the securities in any jurisdiction in which such an offer
or solicitation relating to the securities is not authorized. Furthermore, you should not consider this prospectus supplement
to be an offer or solicitation relating to the securities if the person making the offer or solicitation is not qualified to do
so, or if it is unlawful for you to receive such an offer or solicitation.
PROSPECTUS
US$45,000,000
Common
Shares
Common
Share Purchase Rights
Preferred
Shares
Warrants
Units
Aeterna
Zentaris Inc. (“Aeterna Zentaris”, “we”, “us” or the “Company”) may from time
to time during the period that this prospectus (the “Prospectus”), including any amendments hereto, remains valid,
offer, sell, and issue under this Prospectus, together or separately, in one or more offerings, any combination of the securities
listed above (the “Securities”). The maximum aggregate initial public offering price of the Securities offered through
this Prospectus is US$45,000,000.
This
Prospectus describes the general terms that may apply to the Securities offered. The specific terms of any offering of Securities
will be set out in the applicable supplement to this Prospectus (each, a “Prospectus Supplement”), including, where
applicable, the type and number of Securities offered, the manner of determination of the public offering price, the currency
in which the Securities will be issued and any other specific terms applicable thereto.
NEITHER
THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR
PASSED UPON THE ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Investing
in the Securities involves a high degree of risk. Before making any decision to invest in our Securities, you should carefully
consider the information disclosed under “Risk Factors” beginning on page 2 of this Prospectus, as well as those
risk factors contained or incorporated by reference into this Prospectus and in the applicable prospectus supplements.
Our
common shares (“Common Shares”) are listed on both the NASDAQ Capital Market (“NASDAQ”) and on the Toronto
Stock Exchange (“TSX”) under the symbol “AEZS”. On July 30, 2019, the last reported sales price of our
Common Shares on NASDAQ was $2.51 per share and on TSX was C$3.31 per share. None of the other Securities that we may offer through
this Prospectus are currently traded on any securities exchange.
We
may offer and sell the Securities on a continuous or delayed basis, through agents, dealers, or underwriters, or directly to purchasers
in the U.S. without the involvement of agents, underwriters or dealers. We may also sell the securities directly to institutional
investors or others in the U.S. who may be deemed to be underwriters within the meaning of the Securities Act with respect to
any sale of those securities. The applicable Prospectus Supplement will set out the names of any agents, dealers, or underwriters,
or any such direct institutional investors in or purchasers of our Securities involved in the sale or re-sale of our Securities
and the plan of distribution for such Securities, including the manner of determination of the public offering price and the compensation
of any such agents and/or such other amounts payable to any direct institutional investors in and purchasers of our Securities.
Net proceeds from the sale of securities will be set forth in the applicable prospectus supplement. See “Plan of Distribution”.
The Securities offered by this Prospectus have not been qualified in Canada and may not be offered or sold in Canada except pursuant
to a Canadian prospectus or prospectus exemption.
The
aggregate market value of our Common Shares held by non-affiliates pursuant to General Instruction I.B.5 of Form F-3 is $42,072,103
which was calculated based on 16,629,290 of our Common Shares outstanding and held by non-affiliates as of the date of this Prospectus
and a price of $2.53 per share, the closing price of our Common Shares on NASDAQ on July 22, 2019. We have not sold any Securities
of the types listed above pursuant to General Instruction I.B.5 of Form F-3 during the prior 12 calendar month period that ends
on, and includes the date of this Prospectus.
The
date of this Prospectus is August 15, 2019
TABLE
OF CONTENTS
ABOUT
THIS PROSPECTUS
This
Prospectus is a part of a registration statement on Form F-3 that we have filed with the Securities and Exchange Commission (“SEC”)
utilizing a shelf registration process. Under this shelf registration process, we may sell any combination of the Securities described
in this prospectus as being offered, from time to time in one or more offerings, up to a total dollar amount of $45,000,000.
This
Prospectus provides you with a general description of the Securities that we may offer. Each time we sell Securities, we will
provide a Prospectus Supplement that will contain specific information about the terms of that offering. We may also authorize
one or more free writing prospectuses to be provided to you that may contain material information relating to that offering. The
applicable Prospectus Supplement (and any related free writing prospectus that we may authorize to be provided to you) may also
add, update or change information contained in this Prospectus or in the documents that we have incorporated by reference. This
Prospectus does not contain all of the information set forth in the registration statement and the exhibits to the registration
statement. If there is any inconsistency between the information in this Prospectus and the applicable Prospectus Supplement,
you should rely on the information in the Prospectus Supplement. Before investing in our Securities, you should read both this
Prospectus and any applicable Prospectus Supplement together with the additional information described under the heading “Where
You Can Find More Information.”
The
financial statements included in or incorporated by reference into this Prospectus have been prepared in accordance with International
Financial Reporting Standards as issued by the International Accounting Standards Board. Our consolidated financial statements
are subject to the standards of the Public Company Accounting Oversight Board (United States) and the SEC independence standards,
and thus may not be comparable to financial statements of United States (“U.S.”) companies.
You
should rely only on the information provided or incorporated by reference in this Prospectus, any free writing prospectus and
any Prospectus Supplement, if applicable. We have not authorized anyone to provide you with different information. The information
contained in this Prospectus is accurate only as of the date of this Prospectus, regardless of the time of delivery of this Prospectus
or of any sale of our Securities.
Unless
otherwise stated, currency amounts in this Prospectus are stated in United States dollars, or “$” or “US$”.
In
this Prospectus and in any Prospectus Supplement, unless otherwise indicated, references to “we”, “us”,
“our”, “Aeterna Zentaris” or the “Company” are to Aeterna Zentaris Inc., a Canadian corporation,
and its consolidated subsidiaries, unless it is clear that such terms refer only to Aeterna Zentaris Inc. excluding its subsidiaries.
SPECIAL
NOTE ON FORWARD-LOOKING STATEMENTS
This
Prospectus, the accompanying Prospectus Supplement and the documents incorporated herein by reference contain forward-looking
statements made pursuant to the safe-harbor provision of the U.S. Securities Litigation Reform Act of 1995, which reflect our
current expectations regarding future events. Forward-looking statements may include, but are not limited to statements preceded
by, followed by, or that include the words “will,” “expects,” “believes,” “intends,”
“would,” “could,” “may,” “anticipates,” and similar terms that relate to future
events, performance, or our results. Forward-looking statements involve known risks and uncertainties, including those discussed
in the Annual Report on Form 20-F, under the caption “Key Information - Risk Factors” filed with the relevant Canadian
securities regulatory authorities in lieu of an annual information form and with the SEC. Known and unknown risks and uncertainties
could cause our actual results to differ materially from those in forward-looking statements. Such risks include but are not limited
to:
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our
now heavy dependence on the success of Macrilen™ (macimorelin) and related out-licensing arrangements and the continued
availability of funds and resources to successfully launch the product;
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the
ability of Aeterna Zentaris to enter into out-licensing, development, manufacturing and marketing and distribution agreements
with other pharmaceutical companies and keep such agreements in effect;
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reliance
on third parties for the manufacturing and commercialization of our product candidates;
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potential
disputes with third parties, leading to delays in or termination of the manufacturing, development, out-licensing or commercialization
of our product candidates, or resulting in significant litigation or arbitration, and, more generally, uncertainties related
to the regulatory process;
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the
ability of the Company to efficiently commercialize or out-license Macrilen™ (macimorelin);
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the
degree of market acceptance of Macrilen™ (macimorelin);
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our
ability to obtain necessary approvals from the relevant regulatory authorities to enable us to use the desired brand names
for our products;
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the
effect on the Company’s operations, cash flow and financial position because of the impact of the securities class action
litigation;
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any
evaluation of potential strategic alternatives to maximize potential future growth and stakeholder value may not result in
any such alternative being pursued, and even if pursued, may not result in the anticipated benefits;
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our
ability to take advantage of business opportunities in the pharmaceutical industry;
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our
ability to protect our intellectual property;
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the
potential of liability arising from shareholder lawsuits and general changes in economic conditions.
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More
detailed information about these and other factors is included under “Risk Factors” in this Prospectus, the accompanying
Prospectus Supplement and in other documents incorporated herein by reference. Investors should consult the Company’s quarterly
and annual filings with the Canadian and U.S. securities commissions for additional information on risks and uncertainties. Many
of these factors are beyond our control. Future events may vary substantially from what we currently foresee. You should not place
undue reliance on such forward-looking statements. The Company disavows and is under no obligation to update or alter such forward-looking
statements whether as a result of new information, future results, events, developments or otherwise, unless required to do so
by a governmental authority or applicable law.
RISK
FACTORS
Investing
in our Securities involves a high degree of risk. Before making an investment decision, you should carefully consider the risks
described in the applicable Prospectus Supplement and any related free writing prospectus and under the captions “Risk Factors”
in any of our filings with the SEC, including the item captioned “Risk Factors” in our most recent Annual Report on
Form 20-F and subsequent consolidated financial statements and corresponding management’s discussion and analysis filed
with the Canadian securities regulatory authorities and our Reports on Form 6-K furnished to the SEC including our unaudited interim
consolidated financial statements and corresponding management’s discussion and analysis. For additional information, please
see the sources described in “Where You Can Find More Information.”
These
risks are not the only risks we face. Additional risks not presently known to us, or that we currently view as immaterial, may
also impair our business, if any of the risks described in our SEC filings or any Prospectus Supplement or any additional risks
actually occur, our business, financial condition, results of operations and cash flows could be materially and adversely affected.
In that case, the value of our securities could decline substantially and you could lose all or part of your investment.
OUR
BUSINESS
Overview.
We are a specialty biopharmaceutical company engaged in commercializing novel pharmaceutical therapies, principally through
out-licensing arrangements. We are a party to a license and assignment agreement with Novo Nordisk A/S (“Novo”) to
carry out development, manufacturing, registration, regulatory and supply chain for the commercialization of Macrilen™ (macimorelin),
which is to be used in the diagnosis of patients with adult growth hormone deficiency (“AGHD”), in the United States
and Canada (the “License and Assignment Agreement”). In addition, we are actively pursuing business development opportunities
for macimorelin in the rest of the world and to monetize the value of our non-strategic assets.
Our
Strategy. Our primary business strategy is to finalize the development, manufacturing, registration and commercialization
of Macrilen™ (macimorelin) through the License and Assignment Agreement in the United States and Canada. We continue to
explore various alternatives to monetize our rights to Macrilen™ (macimorelin) in other countries around the globe, including
whether to find other license partners in these jurisdictions. Our vision is to become a growth-oriented specialty biopharmaceutical
company.
Drug
Development.
Macrilen™
(macimorelin)
Macrilen™
(macimorelin) is a novel orally available peptidomimetic ghrelin receptor agonist that stimulates the secretion of growth hormone
by binding to the ghrelin receptor (GHSR-1a) and that has potential uses in both endocrinology and oncology indications. Macrilen™
(macimorelin) was granted orphan-drug designation by the U.S. Food and Drug Administration (the “FDA”) for use in
evaluating growth hormone deficiency (“GHD”).
Competitors
for Macrilen™ (macimorelin) as a product for the evaluation of AGHD are principally the diagnostic tests currently performed
by endocrinologists, although none of these tests are approved by the FDA for this purpose. The most commonly used diagnostic
tests for GHD are:
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Measurement
of blood levels of Insulin Growth Factor (“IGF”)-1, which is typically used as the first test when GHD is suspected.
However, this test is not used to definitively diagnose GHD because many growth hormone deficient patients show normal IGF-1
levels.
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The
Insulin Tolerance Test (“ITT”), which has historically been considered the gold standard for the evaluation of
AGHD because of its high sensitivity and specificity. However, the ITT is inconvenient to both patients and physicians, administered
intravenously (IV), and contra-indicated in certain patients, such as patients with coronary heart disease or seizure disorder,
because it requires the patient to experience hypoglycemia to obtain an accurate result. Some physicians will not induce full
hypoglycemia, intentionally compromising accuracy to increase safety and comfort for the patient. Furthermore, administration
of the ITT includes additional costs associated with the patient being closely monitored by a physician for the two- to four-hour
duration of the test and the test must be administered in a setting where emergency equipment is available and where the patient
may be quickly hospitalized. The ITT is not used for patients with co-morbidities, such as cardiovascular disease, seizure
disorder or a history of brain cancer or for patients who are elderly and frail, due to safety concerns.
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The
Glucagon Stimulation Test (“GST”) is considered relatively safe by endocrinologists. The mechanism of action for
this test is unclear. Also, this test takes up to three to four hours. It produces side effects in up to one-third of the
patients with the most common being nausea during and after the test. This test is administered intramuscularly (IM).
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The
GHRH + ARG test (growth hormone releasing hormone-arginine stimulation) which is an easier test to perform in an office setting
and has a good safety profile but is considered to be costly to administer compared to the ITT and the GST. GHRH + ARG is
approved in the EU and has been proposed to be the best alternative to ITT, but GHRH is no longer available in the United
States. This test is administered intravenously (IV).
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Oral
administration of Macrilen™ (macimorelin) offers convenience and simplicity over the current GHD tests used, all of which
require either intravenous or intramuscular administration. Additionally, Macrilen™ (macimorelin) may demonstrate a more
favorable safety profile than existing diagnostic tests, some of which may be inappropriate for certain patient populations, e.g.
diabetes mellitus or coronary heart disease, and have demonstrated a variety of side effects, which Macrilen™ (macimorelin)
has not thus far. These factors may be limiting the use of GHD testing and may potentially enable Macrilen™ (macimorelin)
to become the product of choice in evaluating AGHD. We believe that Macrilen™ (macimorelin) is likely to displace the ITT
as the preferred means by endocrinologists of evaluating AGHD for the following reasons:
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it
is safer and more convenient than the ITT because it does not require the patient to become hypoglycemic;
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Macrilen™
(macimorelin) is administered orally, while the ITT requires an intravenous injection of insulin;
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Macrilen™
(macimorelin) is a more robust test than the ITT leading to evaluable test results;
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Macrilen™
(macimorelin) results are highly reproducible;
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the
evaluation of AGHD using Macrilen™ (macimorelin) is less time-consuming and labor-intensive than the ITT; and
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the
evaluation can be conducted in the physician’s office rather than in a hospital-like setting.
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We
believe that approximately 15,000 AGHD tests will be conducted annually, in the U.S., after full market introduction of Macrilen™
(macimorelin). In addition, based on published information from the U.S. Centers for Disease Control and Prevention, different
scientific publications and Huron and Navigant Research, we estimate that the total potential U.S. market for AGHD evaluation
is approximately 65,000 tests per year, including the evaluation of patients who have suffered traumatic brain injury (“TBI”).
In patients with TBI, GHD is frequent and may contribute to cognitive sequelae and reduction in quality of life. GHD may develop
in approximately 28% of TBI victims according to a recent 5 year prospective study.
Development
History
The
following is a summary of the history of our development of Macrilen™ (macimorelin):
2004
- 2014
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We
out-licensed the development compound macimorelin acetate to Ardana Bioscience in 2004. Ardana Bioscience subsequently initiated
the clinical development program of macimorelin acetate as an orally active compound intended to be used in the diagnosis
of AGHD, however in 2008 Ardana Bioscience filed for bankruptcy so we terminated the license and regained rights to the compound.
On October 19th, 2009, we announced that we would continue the macimorelin clinical development program for use in evaluating
the AGHD and assumed the sponsorship of the Investigational New Drug Application (IND). On December 20, 2010, we announced
we had reached agreement with the FDA on a Special Protocol Assessment (“SPA”) for Macrilen™ (macimorelin),
enabling us to complete the ongoing registration study required to gain approval for use in evaluating AGHD. On July 26, 2011,
we announced the completion of the Phase 3 study of Macrilen™ (macimorelin) as a first oral product for use in evaluating
AGHD and the decision to meet with the FDA for the future filing of an NDA for the registration of Macrilen™ (macimorelin)
in the United States. On June 26, 2012, we announced that the final results from a Phase 3 trial for Macrilen™ (macimorelin)
showed that the drug is safe and effective in evaluating AGHD. In November 2013, we filed an NDA for Macrilen™ (macimorelin)
for the evaluation of AGHD by evaluating the pituitary gland secretion of growth hormone in response to an oral dose of the
product. The FDA accepted the NDA for substantive review in January 2014. On November 6, 2014, the FDA informed us, by issuing
a Complete Response Letter (“CRL”), that it had determined that our NDA could not be approved in its then present
form. The CRL stated that the planned analysis of our pivotal trial did not meet its stated primary efficacy objective as
agreed to in the SPA. The CRL further mentioned issues related to the lack of complete and verifiable source data for determining
whether patients were accurately diagnosed with AGHD. The FDA concluded that, “in light of the failed primary analysis
and data deficiencies noted, the clinical trial does not by itself support the indication.” To address the deficiencies
identified above, the CRL stated that we needed to demonstrate the efficacy of Macrilen™ (macimorelin) as a diagnostic
test for GHD in a new, confirmatory clinical study. The CRL also stated that a serious event of electrocardiogram QT interval
prolongation occurred for which attribution to drug could not be excluded. Therefore, a dedicated thorough QT study to evaluate
the effect of macimorelin on the QT interval would be necessary for FDA clearance and approval.
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2015
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Following
receipt of the CRL, we assembled a panel of experts in the field of growth-hormone deficiency, including experts in the field
from both the United States and the EU. The panel met on January 8, 2015, during which we discussed our conclusions from the
CRL, as well as the potential design of a new pivotal study. The panel advised us to continue to seek approval for Macrilen™
(macimorelin) because of their confidence in its efficacy and because there currently is no FDA-approved diagnostic test for
AGHD. In parallel, we collected information on timelines and costs for such a study.
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During
an end-of-review meeting with the FDA on March 6, 2015, we agreed with the FDA on the general design of the confirmatory Phase
3 study of Macrilen™ (macimorelin) for the evaluation of AGHD, as well as evaluation criteria. We agreed with the FDA
that the confirmatory study will be conducted as a two-way crossover with the ITT as the benchmark comparator.
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On
April 13, 2015, we announced plans to conduct a new, confirmatory Phase 3 clinical study to demonstrate the efficacy of Macrilen™
(macimorelin) for the evaluation of AGHD, as well as a dedicated thorough QT study to evaluate the effect of Macrilen™
(macimorelin) on myocardial repolarization. The confirmatory Phase 3 clinical study of Macrilen™ (macimorelin), entitled
“Confirmatory validation of oral macimorelin as a growth hormone (GH) stimulation test (ST) for the diagnosis of AGHD
in comparison with the insulin tolerance test (ITT),” was designed as a two-way crossover study with the ITT as the
benchmark comparator and involved 31 sites in the United States and Europe. The study population was planned to include at
least 110 subjects (at least 55 ITT-positive and 55 ITT-negative) with a medical history documenting risk factors for AGHD,
and was planned to include a spectrum of subjects from those with a low risk of having AGHD to those with a high risk of having
the condition.
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On
May 26, 2015, we announced that we had received written scientific advice from the EMA regarding the further development plan,
including the study design, for the new confirmatory Phase 3 clinical study of Macrilen™ (macimorelin) for use in evaluating
AGHD. As a result of the advice, we believe that the confirmatory Phase 3 study that was agreed with the FDA meets the EMA’s
study-design expectations as well, allowing for U.S. and European approval, if the study is successful.
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On
November 19, 2015, we announced the enrollment of the first patient in the confirmatory Phase 3 clinical study of Macrilen™
(macimorelin).
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On
October 26, 2016, we announced completion of patient recruitment for the confirmatory Phase 3 clinical trial of Macrilen™
(macimorelin) as a growth hormone stimulation test for the evaluation of AGHD. In addition, we completed
the dedicated QT study as requested by the FDA in the CRL to evaluate the effect of Macrilen™ (macimorelin) on the QT
interval.
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On
January 4, 2017, we announced that, based on an analysis of top-line data, the confirmatory Phase 3 clinical trial of Macrilen™
(macimorelin) failed to achieve one of its co-primary endpoints. Under the study protocol, the evaluation of AGHD with Macrilen™
(macimorelin) would be considered successful, if the lower bound of the two-sided 95% confidence interval for the primary
efficacy variables was 75% or higher for “percent negative agreement” with the ITT, and 70% or higher for the
“percent positive agreement” with the ITT. While the estimated percent negative agreement met the success criteria,
the estimated percent positive agreement did not reach the criteria for a successful outcome. Therefore, the results did not
meet the pre-defined equivalence criteria which required success for both the percent negative agreement and the percent positive
agreement.
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On
February 13, 2017, we announced that, after reviewing the raw data on which the top-line data were based, we had concluded
that Macrilen™ (macimorelin) had demonstrated performance supportive of achieving FDA registration and that we intended
to pursue registration. The announcement set forth the facts on which our conclusion was based. The Company met with the FDA
at the end of March 2017 to discuss this position.
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On
March 7, 2017, we announced that the Pediatric Committee (“PDCO”) EMA agreed to the Company’s Pediatric
Investigation Plan (“PIP”) for Macrilen™ (macimorelin) and agreed that the Company may defer conducting
the PIP until after it files a Marketing Authorization Application (“MAA”) seeking marketing authorization for
the use of Macrilen™ (macimorelin) for the evaluation of AGHD.
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On
July 18, 2017, we were provided a PDUFA date of December 30, 2017 by the FDA.
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On
November 27, 2017, the EMA accepted our MMA submission for Macrilen™ (macimorelin).
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On
December 20, 2017, the FDA approved the market authorization for Macrilen™ (macimorelin), to be used in the diagnosis
of patients with adult growth hormone deficiency (AGHD).
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On
January 16, 2018, the Company, through AEZS Germany, entered into a License and Assignment Agreement to carry out development,
manufacturing, registration, regulatory and supply chain services for the commercialization of Macrilen™ (macimorelin)
in the U.S. and Canada as further described below.
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In
the August 2018, Volume 103, Issue 8 edition of The Journal of Clinical Endocrinology and Metabolism, the pivotal Phase 3
data from the macimorelin confirmatory trial was published by Jose M. Garcia, MD, PhD, et al., titled ‘Macimorelin as
a Diagnostic Test for Adult GH Deficiency’.
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On
November 19, 2018, we announced the Committee for Medicinal Products for Human Use (CHMP) of the European Medicines Agency
(EMA) adopted a positive opinion recommending a marketing authorization for macimorelin.
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On
January 16, 2019, the Company announced that the EMA granted marketing authorization for macimorelin.
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Macrilen™
(macimorelin) License and Assignment Agreement
On
January 16, 2018, the Company, through AEZS Germany, entered into a License and Assignment Agreement with Strongbridge Ireland
Limited (“Strongbridge”) to carry out development, manufacturing, registration, regulatory and supply chain services
for the commercialization of Macrilen™ (macimorelin) in the U.S. and Canada. This agreement provides (i) for the “right
to use” license relating to the Adult Indication; (ii) for the right to acquire a license for the Pediatric Indication if
and when the FDA approves a pediatric indication; (iii) that the licensee is to fund 70% of the costs of a pediatric clinical
trial submitted for approval to the EMA and FDA (the “PIP”) to be run by the Company with customary oversight from
a joint steering committee (the “JSC”); and (iv) the Interim Supply Arrangement.
Effective
December 19, 2018, Strongbridge sold the United States and Canadian rights to Macrilen™ (macimorelin) under the License
and Assignment Agreement to Novo for a payment plus tiered royalties on net sales and Novo will fund Strongbridge’s Macrilen™
(macimorelin) field organization as a contract field force to promote the product in the United States for up to three years.
Under
the terms of the License and Assignment Agreement, and for as long as Macrilen™ (macimorelin) is patent-protected, the
Company will be entitled to a 15% royalty on annual net sales up to $75.0 million and an 18% royalty on annual net sales
above $75.0 million. Following the end of patent protection in the United States or Canada for Macrilen™ (macimorelin),
the Company will be
entitled to a 5% royalty on net sales in that country. In addition, the Company will receive one-time payments ranging from $4.0
million to $100.0 million upon the achievement of commercial milestones going from $25.0 million annual net sales up to $500.0
million annual net sales.
In
January 2018, the Company received a cash payment of $24.0 million from Strongbridge and on July 23, 2018, Strongbridge launched
product sales of Macrilen™ (macimorelin) in the United States. In 2018, the Company received royalty fees of $183,878 and
in the first quarter of 2019 received royalty fees of $12,872 under the License and Assignment Agreement.
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(ii)
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Pediatric
Indication
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Upon
approval by the FDA of a pediatric indication for Macrilen™ (macimorelin), the Company will receive a one-time milestone
payment from Novo of $5.0 million.
We
have initiated an open label, single dose trial to investigate the pharmacokinetics, pharmacodynamics, safety and tolerability
of macimorelin in pediatric patients from two to less than 18 years of age with suspected growth hormone deficiency (“GHD”).
Under the terms of the License and Assignment Agreement, the licensee will pay 70% and the Company will pay the remaining 30%
of the research and development costs associated with the PIP. The Company invoiced $358,000 in 2018 and $307,705 in the first
quarter of 2019 as licensee’s share of the costs incurred by the Company under the PIP.
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(iv)
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Interim
supply arrangement
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The
Company has agreed to supply ingredients for the manufacture of Macrilen™ (macimorelin) during an interim period at a price
that is set ‘at cost’, without any profit margin. The Company invoiced $2,108,000 in 2018 and no amounts in the first
quarter of 2019 under an interim supply agreement.
Rest
of world commercialization of macimorelin
On
January 16, 2019, we announced that the EMA had granted marketing authorization for macimorelin for the diagnosis of AGHD. AGHD
may occur in an adult patient who has a history of childhood onset GHD or may occur during adulthood as an acquired condition.
Considering a population of 512 million for the European Union and the UK, research based on prevalence suggests that at least
35,000 adults could be afflicted with GHD. This milestone marks a key development in our European commercialization strategy and
we are in discussions with a variety of companies regarding licensing and/or distribution opportunities in the rest of the world.
Special
Committee
On
March 12, 2019, we announced that our board of directors (the “Board of Directors”) formed a special committee of
independent directors (the “Special Committee”) to review strategic options available to the Company. The Special
Committee has approved the engagement by the Company of a financial advisor that is working with management to assist the Special
Committee and the Board of Directors in considering a wide range of transactions (including opportunities for the license of Macrilen™
(macimorelin) outside of the United States and Canada), or other monetization transactions relating to Macrilen™ (macimorelin).
As of the date hereof, the Special Committee continues to evaluate strategic options, but has not recommended that we enter into
any particular transaction at this time.
Restructuring
in Germany
On
June 7, 2019, we announced that the Company is reducing the size of its German workforce and operations to more closely reflect
the Company’s ongoing commercial activities in Frankfurt. This restructuring will affect eight employees in Frankfurt, Germany
and is expected to result in US$773,000 of severance costs that is expected to be paid by January 31, 2020.
Securities
Class-action lawsuit
The
Company and certain of its current and former officers are defendants in a class-action lawsuit pending the U.S. District Court
for the District of New Jersey, brought on behalf of the shareholders of the Company. The lawsuit alleges violations of the Securities
Exchange Act of 1934 in connection with allegedly false and misleading statements made by the defendants between August 30, 2011
and November 6, 2014 (the “Class Period”), regarding the safety and efficacy of Macrilen™ (macimorelin) and
the prospects for the approval of the Company’s New Drug Application for the product by the FDA. The Plaintiffs represent
a class comprised of purchasers of the Company’s New Drug Application for the product by the FDA. The Plaintiffs represent
a class comprised of purchasers of the Company’s common shares during the Class Period and seek damages, costs and expenses
and such other relief as determined by the Court. We consider the claims that have been asserted in the lawsuit to be without
merit and are vigorously
defending against them. We cannot, however, predict at this time the outcome or potential losses, if any, with respect to this
lawsuit.
Corporate
Information
We
were incorporated on September 12, 1990 under the Canada Business Corporations Act (the “CBCA”) and continue to be
governed by the CBCA. Our registered address is located at 5300 Commerce Court West, 199 Bay Street, Toronto, Ontario, Canada
M5L 1B9 c/o Stikeman Elliott, LLP. Our principal executive offices are located at 315 Sigma Drive, Summerville, South Carolina
29486; our telephone number is (843) 900-3223 and our website is www.zentaris.com. None of the documents or information found
on our website shall be deemed to be included in or incorporated by reference into this Annual Report on Form 20-F, unless such
document is specifically incorporated herein by reference. The SEC also maintains a website at www.sec.gov that contains reports,
proxy statements and other information regarding registrants that file electronically with the SEC.
We
currently have three wholly owned direct and indirect subsidiaries, Aeterna Zentaris GmbH (“AEZS Germany”), based
in Frankfurt, Germany, Zentaris IVF GmbH, a direct wholly owned subsidiary of AEZS Germany, based in Frankfurt, Germany, and Aeterna
Zentaris, Inc., an entity incorporated in the State of Delaware with an office based in Summerville, South Carolina in the U.S.
SECURITIES
WE MAY OFFER
The
Securities that may be offered from time to time through this Prospectus are:
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Common
Shares;
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Preferred
Shares, which we may issue in one or more series;
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Rights
to purchase Common Shares;
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Warrants
entitling the holders to purchase Common or Preferred Shares; and
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Units.
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We
will describe the terms of particular Securities that we may offer in the accompanying Prospectus Supplement we will deliver with
this Prospectus. This Prospectus may not be used to offer or sell any securities unless accompanied by a Prospectus Supplement.
In each Prospectus Supplement we will include, if relevant and material, the following information:
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Type
and amount of Securities which we propose to sell;
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Initial
public offering price of the Securities;
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Rates
and times of payment of interest, dividends, or other payments, if any;
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Redemption,
conversion, exercise, exchange, settlement, or sinking fund terms, if any;
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Ranking;
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Voting
or other rights, if any;
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Conversion,
exchange, or settlement prices or rates, if any, and, if applicable, any provisions for changes to or adjustments in the conversion,
exchange, or settlement prices or rates in the Securities or other property receivable upon conversion, exchange, or settlement;
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Names
of the underwriters, agents, or dealers, if any, through or to which we or any selling securityholder will sell the Securities;
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Compensation,
if any, of those underwriters, agents, or dealers;
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Details
regarding over-allotment options, if any;
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Net
proceeds to us;
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Information
about any securities exchange or automated quotation system on which the Securities will be listed or traded;
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Material
Canadian and United States federal income tax considerations applicable to the Securities;
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Any
material risk factors associated with the Securities; and
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Any
other material information about the offer and sale of the Securities.
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In
addition, the applicable Prospectus Supplement and any related free writing prospectus may add, update or change the information
contained in this Prospectus or in the documents we have incorporated by reference.
DESCRIPTION
OF SHARE CAPITAL
Our
authorized share capital structure consists of an unlimited number of shares of the following classes (all classes are without
nominal or par value): Common Shares; and first preferred shares (the “First Preferred Shares”) and second preferred
shares (the “Second Preferred Shares” and, together with the First Preferred Shares, the “Preferred Shares”),
each issuable in series. As of the date of this Prospectus, there are 16,440,760 Common Shares issued and outstanding. No Preferred
Shares have been issued to date.
Common
Shares
The
holders of the Common Shares are entitled to one vote for each Common Share held by them at all meetings of shareholders, except
meetings at which only shareholders of a specified class of shares are entitled to vote. In addition, the holders are entitled
to receive dividends if, as and when declared by the Board of Directors on the Common Shares. Finally, the holders of the Common
Shares are entitled to receive the remaining property of the Company upon any liquidation, dissolution or winding-up of the affairs
of the Company, whether voluntary or involuntary. Shareholders have no liability to further capital calls as all issued and outstanding
shares are fully paid and non-assessable.
Shareholder
Rights Plan
The
Board of Directors approved a shareholder rights plan of the Company on March 29, 2016, which was approved, ratified and confirmed
by the shareholders at the annual and special meeting of shareholders of the Company on May 10, 2016 (the “Existing Rights
Plan”). The Existing Rights Plan was implemented to ensure, to the extent possible, that all shareholders of the Company
are treated fairly in connection with any take-over bid or other acquisition of control of the Company.
The
Board of Directors reviewed the terms of the Existing Rights Plan for conformity with current Canadian securities laws, as well
as the evolving practices of public corporations in Canada, with respect to shareholder rights plan design and made some minor
amendments thereto as a result.
The
Board of Directors determined it appropriate and in the best interests of the shareholders to continue the Existing Rights Plan
and approved the amended and restated shareholder rights plan (the “Rights Plan”) on March 26, 2019. The Rights Plan
took effect immediately upon receipt of approval of the shareholders of the Company at the annual and special meeting of shareholders
held on May 8, 2019.
The
fundamental objectives of the Rights Plan are to provide adequate time for our Board of Directors and shareholders to assess an
unsolicited take-over bid for us, to provide the Board of Directors with sufficient time to explore and develop alternatives for
maximizing shareholder value if a take-over bid is made, and to provide shareholders with an equal opportunity to participate
in a take-over bid. The Rights Plan encourages a potential acquirer who makes a take-over bid to proceed either by way of a “Permitted
Bid,” which requires a take-over bid to satisfy certain minimum standards designed to promote fairness, or with the concurrence
of our Board of Directors. If a takeover bid fails to meet these minimum standards and the Rights Plan is not waived by the Board
of Directors, the Rights Plan provides that holders of Common Shares, other than the acquirer, will be able to purchase additional
Common Shares at a significant discount to market, thus exposing the person acquiring Common Shares to substantial dilution of
its holdings.
Pursuant
to the terms of the Rights Plan, one right was issued in respect of each common share outstanding at 5:01 p.m. on March 29, 2016
(the “Record Time”). In addition, we will issue one right for each additional Common Share issued after the Record
Time and prior to the earlier of the Separation Time (as defined in the Rights Plan) and the Expiration Time (as defined in the
Rights Plan). The rights have an initial exercise price equal to the Market Price (as defined in the Rights Plan) of the Common
Shares as determined at the Separation Time, multiplied by five, subject to certain anti-dilution adjustments (the “Exercise
Price”), and they are not exercisable until the Separation Time. Upon the occurrence of a Flip-in Event (as defined in the
Rights Plan), each right will entitle the holder thereof, other than an Acquiring Person (as defined in the Rights Plan) or any
other person whose rights are or become
void pursuant to the provisions of the Rights Plan, to purchase from us, effective at the close of business on the eighth trading
day after the Stock Acquisition Date (as defined in the Rights Plan), upon payment to us of the Exercise Price, Common Shares
having an aggregate Market Price equal to twice the Exercise Price on the date of consummation or occurrence of such Flip-in Event,
subject to certain anti-dilution adjustments.
The
Rights Plan is described in detail in Item 10.B. of our most recent Annual Report on Form 20-F.
Preferred
Shares
The
Preferred Shares are issuable in series with rights and privileges specific to each class. The holders of Preferred Shares are
not entitled to receive notice of or to attend or vote at meetings of shareholders. The holders of First Preferred Shares are
entitled to preference and priority to any participation of holders of Second Preferred Shares, Common Shares or shares of any
other class of shares of the share capital of the Company ranking junior to the First Preferred Shares with respect to dividends
and, in the event of the liquidation of the Company, the distribution of its property upon its dissolution or winding-up, or the
distribution of all or part of its assets among the shareholders, to an amount equal to the value of the consideration paid in
respect of such shares outstanding, as credited to the issued and paid-up share capital of the Company, on an equal basis, in
proportion to the amount of their respective claims in regard to such shares held by them. The holders of Second Preferred Shares
are entitled to preference and priority to any participation of holders of Common Shares or shares of any other class of shares
of the share capital of the Company ranking junior to the Second Preferred Shares with respect to dividends and, in the event
of the liquidation of the Company, the distribution of its property upon its dissolution or winding-up, or the distribution of
all or part of its assets among the shareholders, to an amount equal to the value of the consideration paid in respect of such
shares outstanding, as credited to the issued and paid-up share capital of the Company, on an equal basis, in proportion to the
amount of their respective claims in regard to such shares held by them.
Our
Board of Directors may, from time to time, provide for additional series of Preferred Shares to be created and issued, but the
issuance of any Preferred Shares is subject to the general duties of the directors under the CBCA to act honestly and in good
faith with a view to the best interests of the Company and to exercise the care, diligence and skill that a reasonably prudent
person would exercise in comparable circumstances.
DESCRIPTION
OF WARRANTS
The
complete terms of the warrants will be contained in the applicable warrant agreement and warrant. These documents have been or
will be included or incorporated by reference as exhibits to the registration statement of which this Prospectus is a part. You
should read the warrant and warrant agreement. You should also read the Prospectus Supplement, which will contain additional information
and which may update or change some of the information below.
Warrants
We May Offer
We
may issue warrants for the purchase of Common Shares or Preferred Shares in one or more series. If we offer warrants, we will
describe the terms in a Prospectus Supplement (and any free writing prospectus). Warrants may be offered independently, together
with other Securities offered by any Prospectus Supplement, or through a dividend or other distribution to shareholders and may
be attached to or separate from other Securities. Warrants may be issued under a written warrant agreement to be entered into
between us and the holder or beneficial owner, or under a written warrant agreement with a warrant agent specified in a Prospectus
Supplement. A warrant agent would act solely as our agent in connection with the warrants of a particular series and would not
assume any obligation or relationship of agency or trust for or with any holders or beneficial owners of those warrants.
The
following are some of the terms relating to a series of warrants that could be described in a Prospectus Supplement:
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of the warrants;
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Aggregate
number of warrants;
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Price
or prices at which the warrants will be offered;
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Designation,
number, aggregate principal amount, denominations, and terms of the Securities that may be purchased on exercise of the warrants;
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Date,
if any, on and after which the warrants and the related Securities will be separately transferable;
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Purchase
price for each security purchasable on exercise of the warrants;
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Dates
on which the right to purchase certain Securities upon exercise of the warrants will begin and expire;
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Minimum
or maximum number of Securities that may be purchased at any one time upon exercise of the warrants;
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Anti-dilution
provisions or other adjustments to the exercise price of the warrants;
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Terms
of any rights that we may have to redeem or call the warrants;
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Effect
of any merger, consolidation, sale, or other transfer of our business on the warrants and the applicable warrant agreement;
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Name
and address of the warrant agent, if any;
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Information
with respect to book-entry procedures;
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A
discussion of material Canadian and/or U.S. federal income tax considerations; and
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Other
material terms, including terms relating to transferability, exchange, exercise, or amendments of the warrants.
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Until
any warrants to purchase our Securities are exercised, holders of the warrants will not have any rights of holders of the underlying
Securities.
DESCRIPTION
OF UNITS
The
complete terms of the units will be contained in the unit agreement and any related documents applicable to any units. These documents
have been or will be included or incorporated by reference as exhibits to the registration statement of which this Prospectus
is a part. You should read the unit agreement and any related documents. You also should read the Prospectus Supplement, which
will contain additional information and which may update or change some of the information below.
We
may issue units, in one or more series, consisting of any combination of one or more of the other Securities described in this
prospectus. If we offer units, we will describe the terms in a Prospectus Supplement (and any free writing prospectus). Units
may be issued under a written unit agreement to be entered into between us and the holder or beneficial owner, or we could issue
units under a written unit agreement with a unit agent specified in a Prospectus Supplement. A unit agent would act solely as
our agent in connection with the units of a particular series and would not assume any obligation or relationship of agency or
trust for or with any holders or beneficial owners of those units.
Each
unit will be issued so that the holder of the unit is also the holder of each security included in the unit. Thus, the holder
of a unit will have the rights and obligations of a holder of each included security.
The
following are some of the unit terms that could be described in a Prospectus Supplement:
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of the units;
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number of units;
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Price
or prices at which the units will be offered;
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Currency
or currency unit in which the units are denominated;
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Designation
and terms of the units and of the Securities comprising the units, including whether and under what circumstances those Securities
may be held or transferred separately;
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Effect
of any merger, consolidation, sale, or other transfer of our business on the units and the applicable unit agreement;
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Name
and address of the unit agent, if any;
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Information
with respect to book-entry procedures;
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A
discussion of material Canadian and/or U.S. federal income tax considerations; and
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Other
material terms, including terms relating to transferability, exchange, exercise, or amendments of the units.
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The
provisions described in this section, as well as those described under “Description of Share Capital” and “Description
of Warrants” will apply to each unit and to any Common Shares, Preferred Shares, or warrant included in each unit, respectively.
The
unit agreement under which a unit is issued may provide that the securities included in the unit may not be held or transferred
separately, at any time or at any time before a specified date. We will file as an exhibit to a filing with the SEC that is incorporated
by reference into this Prospectus the forms of the unit agreements containing the terms of the units being offered. The description
of units in any Prospectus Supplement will not necessarily describe all of the terms of the units in detail. You should read the
applicable unit agreements for a complete description of all of the terms.
USE
OF PROCEEDS
We
will retain broad discretion over the use of the net proceeds from the sale of the Securities offered by this Prospectus. Unless
otherwise specified in the applicable Prospectus Supplement or any related free writing prospectus, we currently expect to use
the net proceeds of our sale of Securities for general corporate purposes.
General
corporate purposes may include, among other purposes, the funding of a pediatric clinical trial in the E.U. and U.S. for Marcelin™
(macimorelin). We may temporarily invest funds that we do not immediately need for these purposes in investment securities or
use them to make payments on our borrowings. All expenses relating to an offering of Securities and any compensation paid to underwriters,
dealers or agents, as the case may be, will be paid out of our general funds or from the proceeds of any offering under this Prospectus
or a Prospectus Supplement. The use of proceeds will be specified in the Prospectus Supplement relating to a particular offering
of Securities, as required by applicable securities legislation.
PLAN
OF DISTRIBUTION
We
may sell the Securities from time to time pursuant to public offerings, negotiated transactions, block trades, sales “at-the-market”
to or through a market maker or into an existing trading market, on an exchange or otherwise,
or a combination of these methods. We may sell the Securities to or through an underwriter or group of underwriters managed or
co-managed by one or more underwriters, or to or through dealers, through agents, directly to one or more investors or through
a combination of such methods of sale.
We
may distribute Securities from time to time in one or more transactions:
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at
a fixed price or prices which may be changed;
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at
market prices prevailing at the time of sale;
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at
prices related to such prevailing market prices; or
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at
negotiated prices.
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Each
time we sell Securities a Prospectus Supplement will describe the method of distribution of the Securities and any applicable
restrictions.
The
Prospectus Supplement or supplements will describe the terms of the offering of the Securities, including:
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the
name or names of the underwriters, placement agents or dealers, if any;
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the
purchase price of the Securities and the proceeds we will receive from the sale;
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any
over-allotment options under which underwriters may purchase additional Securities from us;
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any
agency fees or underwriting discounts and other items constituting agents’ or underwriters’ compensation;
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any
discounts or concessions allowed or reallowed to be paid to dealers (which may be changed at anytime); and
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any
securities exchange or market on which the Securities may be listed or quoted.
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In
addition, we may enter into derivative transactions with third parties, or sell securities not covered by this Prospectus to third
parties in privately negotiated transactions. In connection with such a transaction, the third parties may sell securities covered
by and pursuant to this Prospectus and an applicable Prospectus Supplement. If so, the third party may use securities borrowed
from us or others to settle such sales and may use securities received from us to close out any related short positions.
We
may determine the price or other terms of the Securities offered under this Prospectus by use of an electronic auction. We will
describe in the applicable Prospectus Supplement how any auction will be conducted to determine the price or any other terms of
the Securities, how potential investors may participate in the auction and, where applicable, the nature of the underwriters’
obligations with respect to the auction.
Unless
stated otherwise in the applicable Prospectus Supplement, the obligations of any underwriters to purchase Securities will be subject
to certain conditions set forth in the applicable underwriting agreement, and generally the underwriters will be obligated to
purchase all of the Securities if they purchase any of the securities. If underwriters are used in the sale of any Securities,
the Securities will be acquired by the underwriters for their own account and may be resold from time to time in one or more transactions
described above. The Securities may be either offered to the public through underwriting syndicates represented by managing underwriters,
or directly by underwriters. Generally, the underwriters’ obligations to purchase the Securities will be subject to certain
conditions precedent. If a dealer is used in a sale, we may sell the Securities to the dealer as principal. The dealer may then
resell the Securities to the public at varying prices to be determined by the dealer at the time of resale.
We
or our agents may solicit offers to purchase Securities from time to time. Unless stated otherwise in the applicable Prospectus
Supplement, any agent will be acting on a best efforts basis for the period of its appointment.
In
connection with the sale of Securities, underwriters or agents may receive compensation (in the form of fees, discounts, concessions
or commissions) from us or from purchasers of Securities for whom they may act as agents. Underwriters may sell Securities to
or through dealers, and such dealers may receive compensation in the form of discounts, concessions or commissions from the underwriters
and/or commissions from the purchasers for whom they may act as agents. Underwriters, dealers and agents that participate in the
distribution of Securities may be deemed to be “underwriters,
“ as that term is defined in the Securities Act, and any discounts or commissions
received by them from us and any profits on the resale of the Securities by them may be deemed to be underwriting discounts and
commissions under the Securities Act. We will identify any such underwriter or agent, and we will describe any compensation paid
to them, in the related Prospectus Supplement.
Underwriters,
dealers and agents may be entitled under agreements with us to indemnification against and contribution toward certain civil liabilities,
including liabilities under the Securities Act, or contribution with respect to payments that the underwriters, dealers or agents
may make with respect to these liabilities.
If
stated in the applicable Prospectus Supplement, we may authorize underwriters, dealers or agents to solicit offers by certain
investors to purchase Securities from us at the public offering price set forth in the Prospectus Supplement under delayed delivery
contracts providing for payment and delivery on a specified date in the future. These contracts will be subject only to those
conditions set forth in the applicable Prospectus Supplement, and the applicable Prospectus Supplement will set forth the commission
payable for solicitation of these contracts.
The
Securities we may offer, other than Common Shares, may be new issues of securities with no established trading market. No assurance
can be given as to the liquidity of the trading market for any of our Securities. Any underwriter may make a market in these Securities.
However, no underwriter will be obligated to do so, and any underwriter may discontinue any market making at any time, without
prior notice. Therefore, we cannot give any assurances to you concerning the liquidity of any Security offered by this Prospectus.
In
connection with an offering of Securities, underwriters may purchase and sell these Securities in the open market. Any underwriter
may engage in over-allotment, stabilizing transactions, short-covering transactions and penalty bids in accordance with Regulation
M under the Exchange Act. Over-allotment involves sales in excess of the offering size, which creates a short position. Stabilizing
transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum
price. Syndicate-covering or other short-covering transactions involve purchases of the securities, either through the exercise
of the over-allotment option or in the open market after the distribution is completed, to cover short positions. Penalty bids
permit the underwriters to reclaim a selling concession from a dealer when the securities originally sold by the dealer are purchased
in a stabilizing or covering transaction to cover short positions. Those activities may cause the price of the securities to be
higher than it would otherwise be. If commenced, the underwriters may discontinue any of the activities at any time.
Any
underwriters who are qualified market makers on the NASDAQ Stock Market LLC may engage in passive market making transactions in
our Common Shares, Preferred Shares, and warrants, as applicable, on the NASDAQ Stock Market LLC in accordance with Rule 103 of
Regulation M, during the business day prior to the pricing of the offering, before the commencement of offers or sales of the
securities. Passive market makers must comply with applicable volume and price limitations and must be identified
as passive market makers. In general, a passive market maker must display its bid at a price not in excess of the highest independent
bid for such security; if all independent bids are lowered below the passive market maker’s bid, however, the passive market
maker’s bid must then be lowered when certain purchase limits are exceeded. Passive market making may stabilize the market
price of the securities at a level above that which might otherwise prevail in the open market and, if commenced, may be discontinued
at any time.
Underwriters,
dealers and agents and their affiliates may be customers of, engage in transactions with, or perform services for us or our subsidiaries
in the ordinary course of their businesses. In connection with the distribution of the Securities offered under this Prospectus,
we may enter into swaps or other hedging transactions with, or arranged by, underwriters or agents or their affiliates. These
underwriters or agents or their affiliates may receive compensation, trading gain or other benefits from these transactions.
In
compliance with guidelines of the Financial Industry Regulatory Authority, Inc., or FINRA, the maximum consideration or discount
to be received by any FINRA member or independent broker dealer must be fair and reasonable, considering all relevant risks, factors
and circumstances.
CERTAIN
INCOME TAX CONSIDERATIONS
The
applicable Prospectus Supplement will describe certain Canadian federal income tax consequences to an investor acquiring any Securities
offered thereunder, including, for investors who are non-residents of Canada, whether the payments of dividends (or any other
amounts) on the Securities, if any, will be subject to Canadian non-resident withholding tax.
The
applicable Prospectus Supplement may also describe certain U.S. federal income tax consequences of the acquisition, ownership
and disposition of any Securities offered thereunder by an initial investor who is a U. S. person (within the meaning of the U.S.
Internal Revenue Code of 1986, as amended).
LEGAL
MATTERS
Unless
otherwise specified in the Prospectus Supplement relating to any offering of Securities, certain legal matters relating to the
offering of the Securities under this Prospectus will be passed upon for us by Stikeman Elliott LLP with respect to matters of
Canadian law and by Barnes & Thornburg LLP with respect to matters of U.S. law. In addition, certain legal matters in connection
with any offering of Securities under this Prospectus will be passed upon for any underwriters, dealers or agents by counsel to
be designated at the time of the offering by such underwriters, dealers or agents with respect to matters of applicable law.
EXPERTS
The
consolidated financial statements incorporated into this Prospectus by reference to the Annual Report on Form 20-F for the year
ended December 31, 2018 have been so incorporated in reliance on the report of PricewaterhouseCoopers LLP, an independent registered
public accounting firm, given on the authority of said firm as experts in auditing and accounting.
ENFORCEABILITY
OF CIVIL LIABILITIES
We
are a corporation incorporated under and governed by the CBCA. Many of our officers and directors, and some of the experts named
in this Prospectus, are residents of Canada or elsewhere outside of the U.S., and a substantial portion of our assets and the
assets of such persons are located outside the U.S. As a result, it may be difficult for investors in the U.S. to effect service
of process within the U.S. upon such directors, officers and representatives of experts who are not residents of the U.S. or to
enforce against them judgments of a U.S. court predicated solely upon civil liability under U.S. federal securities laws or the
securities laws of any state within the U.S. We have been advised by our legal counsel, Stikeman Elliott LLP, that a judgment
of a U.S. court predicated solely upon civil liability under U.S. federal securities laws would probably be enforceable in Canada
if the U.S. court in which the judgment was obtained has a basis for jurisdiction in the matter that would be recognized by a
Canadian court for the same purposes. We have also been advised by Stikeman Elliott LLP, however, that there is substantial doubt
as to whether an action could be brought in Canada in the first instance on the basis of liability predicated solely upon U.S.
federal securities laws.
WHERE
YOU CAN FIND MORE INFORMATION
We
file annual reports on Form 20-F with the SEC, and we furnish other documents, such as quarterly and current reports, proxy statements
and other information and documents that we file with the Canadian securities regulatory authorities, to the SEC, as required.
The materials we file with or furnish to the SEC are available to the public on the SEC’s Internet website at www.sec.gov.
Those filings are also available to the public on our corporate website at www.zentaris.com. Information contained on our
website is not a part of this Prospectus and the inclusion of our website address in this Prospectus is an inactive textual reference
only. As we are a Canadian issuer, we also file continuous disclosure documents with the Canadian securities regulatory authorities,
which documents are available on the System for Electronic Document Analysis and Retrieval (“SEDAR”) website maintained
by the Canadian Securities Administrators at www.sedar.com.
This
Prospectus Forms part of a registration statement that we filed with the SEC. The registration statement contains more information
than this Prospectus regarding us and our Securities, including certain exhibits and schedules. You can obtain a copy of the registration
statement from the SEC at the address listed above or electronically at www.sec.gov.
The
following documents have been filed with the various securities commissions or similar securities regulatory authorities in Canada
and are specifically incorporated by reference into, and form an integral part of, this Prospectus:
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our
2018 Annual Report on Form 20-F for the year ended December 31, 2018, which includes, among other items, (i) our consolidated
statements of financial position as at December 31, 2018 and December 31, 2017 and our consolidated statements of changes
in shareholders’ (deficiency) equity, comprehensive income (loss) and cash flows for the years ended December 31, 2018,
2017 and 2016 and the report of independent registered public accounting firm dated March 29, 2019 thereon included in Item
18; (ii) management’s annual report on internal control over financial reporting included in Item 15, and (iii) Management’s
Discussion and Analysis included in “Item 5.—Operating and Financial Review and Prospects”;
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a
management information circular dated March 26, 2019 in connection with an annual and special meeting of shareholders held
on May 8, 2019, included as Exhibit 99.3 to a Report on Form 6-K furnished to the SEC on April 1, 2019;
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unaudited
condensed interim consolidated financial statements as at March 31, 2019 and for the three-month periods ended March 31, 2019
and March 2018, included as Exhibit 99.1 to a Report on 6-K furnished to the SEC on May 7, 2019;
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a
Form8-A12B/A filed with the SEC on May 5, 2019 to amend our previously filed Form 8-A12B filed on April 14, 2017;
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management’s
discussion and analysis for the first quarter of 2019, included as Exhibit 99.2 to a Report on 6-K furnished to the SEC on
May 7, 2019;
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the
results of the annual and special shareholders’ meeting held on May 8, 2019, included as Exhibit 99.1 to a Report on
6-K furnished to the SEC on May 9, 2019;
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the
Amended and Restated Shareholder Rights Plan Agreement (amending and restating the Shareholder Rights Plan dated March 29,
2016) between the Company and Computershare Trust Company of Canada dated as of May 8, 2019, included as Exhibit 99.2 to a
Report on 6-K furnished to the SEC on May 9, 2019;
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a
material change report dated June 7, 2019 in connection with the reduction of our German workforces and operations, included
as Exhibit 99.1 to a Report on Form 6-K furnished to the SEC on June 10, 2019;
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Annual
Report on Form 20-F/A filed with the SEC on July 26, 2019, to amend our previously filed Annual Report on Form 20-F filed
on April 1, 2019;
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Unaudited
condensed interim consolidated statements as at June 30, 2019 and for the three-month periods ended June 30, 2019 and June
2018, included as Exhibit 99.1, 101.IV, 101.SCH, 101.CAL, 101.DEF, 101.LAB and 101.PRE to a Report on 6-K furnished to the
SEC on August 13, 2019;
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A
management’s discussion and analysis for the second quarter of 2019, included as Exhibit 99.2 to a Report on 6-K furnished
to the SEC on August 13, 2019; and
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to
the extent permitted by applicable securities law, any other documents which we elect to incorporate by reference into this
Prospectus.
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All
subsequent annual reports on Form 20-F filed by us and all subsequent reports on Form 6-K furnished by us that are identified
by us as being incorporated by reference shall be deemed to be incorporated by reference into this Prospectus and deemed to be
a part hereof after the date of this Prospectus but before the termination of the offering by this Prospectus.
We
will provide each person to whom this Prospectus is delivered a copy of the information that has been incorporated into this Prospectus
by reference but not delivered with the Prospectus (except exhibits, unless they are specifically incorporated into this Prospectus
by reference). You may obtain copies of these documents, at no cost, by writing or telephoning us at:
Aeterna
Zentaris Inc.
Attention: Investor Relations
315 Sigma Drive
Summerville, South Carolina
USA, 29486
Tel. (843) 900-3223
Any
statement contained in this Prospectus or in a document incorporated or deemed to be incorporated herein by reference shall be
deemed to be modified or superseded, for the purposes of this Prospectus, to the extent that a statement contained herein or in
any other subsequently filed document which also is or is deemed to be incorporated herein by reference modifies or supersedes
such statement. The modifying or superseding statement need not state that it has modified or superseded a prior statement or
include any other information set forth in the document that it modifies or supersedes. The making of a modifying or superseding
statement shall not be deemed an admission for any purposes that the modified or superseded statement, when made, constituted
a misrepresentation, an untrue statement of a material fact or an omission to state a material fact that is required to be stated
or that is necessary to make a statement not misleading in light of the circumstances in which it was made. Any statement so modified
or superseded shall not constitute a part of this Prospectus, except as so modified or superseded.
Upon
a new annual information form or annual report on Form 20-F and the related audited annual consolidated financial statements together
with the auditors’ report thereon and management’s discussion and analysis related thereto being filed by us with
the applicable securities regulatory authorities during the currency of this Prospectus, the previous annual information form
or annual report on Form 20-F, the previous audited annual consolidated financial statements and all interim financial statements,
annual and quarterly management’s discussion and analyses, material change reports and business acquisition reports filed
by us prior to the commencement of our financial year in which the new annual information form or annual report on Form 20-F was
filed, no longer shall be deemed to be incorporated by reference into this Prospectus for the purpose of future offers and sales
of Securities hereunder.
One
or more Prospectus Supplements containing the terms of an offering of Securities and other information in relation to such Securities
will be delivered to purchasers of such Securities together with this Prospectus and shall be deemed to be incorporated by reference
into this Prospectus as of the date of such Prospectus Supplement solely for the purposes of the offering of the Securities covered
by any such Prospectus Supplement. A Prospectus Supplement containing any additional or updated information that we elect to include
therein will be delivered with this Prospectus to purchasers of Securities who purchase such Securities after the filing of this
Prospectus and shall be deemed to be incorporated into this Prospectus as of the date of such Prospectus Supplement.
3,478,261
Common Shares
(and
Associated Common Share Purchase Rights)
PROSPECTUS
SUPPLEMENT
H.C.
WAINWRIGHT & CO.
February
19, 2020
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