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Aeterna Zentaris Reports Fourth Quarter and Full-Year 2016 Financial and Operating Results

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Aeterna Zentaris Inc. (NASDAQ:AEZS) (TSX:AEZS) (the "Company"), a
specialty biopharmaceutical company engaged in developing and
commercializing novel treatments in oncology and endocrinology, today
reported financial and operating results for the fourth quarter and year
ended December 31, 2016.

Commenting on recent key developments, David A. Dodd, President and
Chief Executive Officer of the Company, stated, "During the fourth
quarter and the first few weeks of 2017, we made substantial progress
with our development programs. On January 30, 2017, we announced the
conclusion of the clinical phase of our development of Zoptrex.
The following day we had a successful pre-NDA meeting with the FDA. We
anticipate reporting top-line results in April. This is a very exciting
and anxious time for us, as we approach the culmination of highly
dedicated and successful work by many throughout our Company. I would
like to thank our R&D team for their hard work in bringing Zoptrex
to this point."

Mr. Dodd continued his commentary with an update on the development of
Macrilen™. "On January 4, 2017, we reported the top-line
results from our confirmatory Phase 3 study of Macrilen for
the evaluation of adult growth hormone deficiency ("AGHD"). We reported
that the top-line results indicated that macimorelin did not meet one of
the pre-defined criteria required to demonstrate equivalence to the
Insulin Tolerance Test ("ITT") as a means of diagnosing AGHD. Following
this announcement, we conducted a thorough evaluation of the study data,
including external statistical expertise and independent review by
leading endocrinologists in both the U.S. and Europe. We were highly
encouraged by the results and input received from these experts. As we
announced on February 13, 2017, we concluded that Macrilendemonstrated
performance supportive of achieving registration with the U.S. Food and
Drug Administration, despite its failure to meet one of the pre-defined
equivalence criteria. We explained the reasons for our conclusion in our
February 13 release. Briefly, we concluded that Macrilen
demonstrated more consistent and reproducible results than the ITT.
Moreover, Macrilen stimulated the pituitary gland more
powerfully than the ITT and demonstrated good specificity and
sensitivity in this study, thus reproducing the results of our previous
study. We demonstrated that Macrilen achieves a high degree
of correlation with the ITT, which could be further optimized when a
higher cut-off point, such as the ITT cut-off point, is used for the
Macrilen test. We believe that such an increased cut-off
point would be justified by the more powerful stimulation of Macrilen™
as compared to the ITT. We are scheduled to meet with the FDA at the end
of Q1 to discuss our rationale for proceeding with Macrilen."

Fourth Quarter and Full Year Financial Highlights

Revenues

Sales commission and other were $94,000 and $414,000 for the three and
twelve months ended December 31, 2016, respectively, and $41,000 and
$297,000, for the same periods in 2015, respectively. The
quarter-over-quarter and year-over-year increases were attributable to
our sales team exceeding pre-established unit sales baseline thresholds
under our co-promotion agreements to sell Saizen® and to our
promotion of APIFINY®, which did not begin until the first
quarter of 2016. In the corresponding periods of 2015, sales commission
and other revenues were mainly related to EstroGel®, which we
no longer promote.

License fees were $210,000 and $497,000 for the three and twelve months
ended December 31, 2016, respectively, as compared to $61,000 and
$248,000 for the same periods in 2015. The increase is explained by the
out-licensing agreements that we entered into in 2016 for Zoptrex
with respect to certain territories outside our core areas of interest.

Research and Development ("R&D") costs

R&D costs were $4.6 million and $16.5 million for the three and twelve
months ended December 31, 2016, respectively, compared to $4.2 million
and $17.2 million for the same periods in 2015. The increase in our R&D
costs for the three months ended December 31, 2016, as compared to the
same period in 2015, was mainly attributable to higher comparative
third-party costs in connection with the confirmatory Phase 3 clinical
trial of Macrilen, which was initiated late in 2015 with the
enrollment of the first patient in the fourth quarter of 2015. Patient
recruitment was completed in the fourth quarter of 2016. The decrease in
our R&D costs for the twelve months ended December 31, 2016, as compared
to the same period in 2015, was mainly attributable to the realization
of cost savings in connection with our ongoing efforts to streamline our
R&D activities and to increase our commercial operations and flexibility
by reducing our R&D staff, which was started in 2014.

General and Administrative ("G&A") Expenses

G&A expenses were $1.8 million and $7.1 million for the three and twelve
months ended December 31, 2016, respectively, as compared to $4.0
million and $11.3 million for the same periods in 2015. The decrease in
our G&A expenses for the three months and twelve months ended December
31, 2016, as compared to the same periods in 2015, is mainly due to the
recording in the fourth quarter of 2015 of a provision related to the
restructuring of our finance and accounting function and the closure of
our office in Quebec City, as well as the realization of cost savings in
connection with the restructuring. The comparative decrease for the
twelve-month period is also explained by certain transaction costs
allocated to warrants in connection with the completion of share
issuances in March and December 2015.

Selling Expenses

Selling expenses were $1.5 million and $6.7 million for the three and
twelve months ended December 31, 2016, respectively, as compared to $1.8
million and $6.9 million for the same periods in 2015. Selling expenses
for the three and twelve months ended December 31, 2016 and 2015
represent mainly the costs of our contracted sales force related to our
co-promotion activities as well as our internal sales management team.
Selling expenses remained relatively stable during 2016.

Net Finance (Costs) Income

Net finance (costs) income were $(622,000) and $4.5 million for the
three and twelve months ended December 31, 2016, as compared to
$(185,000) and $(15.3) million, for the same periods in 2015. The
increases in finance income or decreases in finance costs were mainly
attributable to the change in fair value recorded in connection with our
warrant liability. Such change in fair value results from the periodic
"mark-to-market" revaluation, via the application of option pricing
models, of outstanding share purchase warrants. During 2016, the
"mark-to-market" warrant valuation was impacted by the expiration of the
remaining Series B Warrants. During 2015, the change in assumptions that
were applied to determine the fair value of the alternate cashless
feature included in the Series B Warrants significantly impacted the
"mark-to-market" valuation. Furthermore, the closing price of our common
shares, which, on the NASDAQ, fluctuated from $3.25 to $4.94 during the
three-month period and $2.67 to $4.94 during the twelve-month period
ended December 31, 2016, respectively, compared to $4.00 to $11.43 and
$4.00 to $84.20 during the same periods in 2015, also had a direct
impact on the change in fair value of warrant liability. In addition,
with specific reference to 2015, finance costs were also impacted by the
warrant exercise inducement fee paid to certain holders of the Series B
Warrants.

Net Loss

Net loss for the three and twelve months ended December 31, 2016 was
$(8.2) million and $(25.0) million, or $(0.71) and $(2.41) per basic and
diluted share, as compared to a net loss of $(10.0) million and $(50.1)
million, or $(1.46) and $(18.14) per basic and diluted share, for the
same periods in 2015. The decrease in net loss for the three months
ended December 31, 2016, as compared to the same period in 2015, is due
largely to lower G&A expenses, as presented above. The decrease in net
loss for the twelve months ended December 31, 2016, as compared to the
same period in 2015, is due largely to lower operating expenses and
higher comparative net finance income, as presented above.

Liquidity

Cash and cash equivalents were $22.0 million as at December 31, 2016, as
compared to $41.5 million as at December 31, 2015. The decrease in cash
and cash equivalents as at December 31, 2016, as compared to December
31, 2015, is mainly due to the net cash used in operating activities.
The decrease was partially offset by the net proceeds generated by the
sale and issuance of common shares and warrants during 2016.

Conference Call & Webcast

The Company will host a conference call and live webcast to discuss
these results on Thursday, March 16, 2017, at 8:30 a.m., Eastern Time.
Participants may access the live webcast via the Company's website at www.aezsinc.com
or by telephone using the following dial-in number: 201-689-8029 and
Confirmation number 13653427. A replay of the webcast will also be
available on the Company's website for a period of 30 days.

For reference, the Management's Discussion and Analysis of Financial
Condition and Results of Operations for the fourth quarter and full year
2016, as well as the Company's audited consolidated financial statements
as at December 31, 2016, 2015 and 2014, can be found at www.aezsinc.com
in the "Investors" section.

About Aeterna Zentaris Inc.

Aeterna Zentaris is a specialty biopharmaceutical company engaged in
developing and commercializing novel treatments in oncology,
endocrinology and women's health. We are engaged in drug development
activities and in the promotion of products for others. We recently
completed Phase 3 studies of two internally developed compounds. The
focus of our business development efforts is the acquisition of licenses
to products that are relevant to our therapeutic areas of focus. We also
intend to license out certain commercial rights of internally developed
products to licensees in non-U.S. territories where such out-licensing
would enable us to ensure development, registration and launch of our
product candidates. Our goal is to become a growth-oriented specialty
biopharmaceutical company by pursuing successful development and
commercialization of our product portfolio, achieving successful
commercial presence and growth, while consistently delivering value to
our shareholders, employees and the medical providers and patients who
will benefit from our products. For more information, visit www.aezsinc.com.

Forward-Looking Statements

This press release contains 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
"expects," "believes," "intends," "anticipates," and similar terms that
relate to future events, performance, or our results. Forward-looking
statements involve known risks and uncertainties, many of which are
discussed under the caption "Key Information - Risk Factors" in our most
recent Annual Report on Form 20-F filed with the relevant Canadian
securities regulatory authorities in lieu of an annual information form
and with the U.S. Securities and Exchange Commission ("SEC"). Such
statements include, but are not limited to, statements about the
progress of our research, development and clinical trials and the timing
of, and prospects for, regulatory approval and commercialization of our
product candidates, the timing of expected results of our studies,
anticipated results of these studies, statements about the status of our
efforts to establish a commercial operation and to obtain the right to
promote or sell products that we did not develop and estimates regarding
our capital requirements and our needs for, and our ability to obtain,
additional financing. Known and unknown risks and uncertainties could
cause our actual results to differ materially from those in
forward-looking statements. Such risks and uncertainties include, among
others, the availability of funds and resources to pursue our research
and development projects and clinical trials, the successful and timely
completion of clinical studies, the risk that safety and efficacy data
from any of our Phase 3 trials may not coincide with the data analyses
from previously reported Phase 1 and/or Phase 2 clinical trials, the
rejection or non-acceptance of any new drug application by one or more
regulatory authorities and, more generally, uncertainties related to the
regulatory process (including whether or not the regulatory authorities
will accept the Company's conclusions regarding Macrilen™ following its
comprehensive review of the Phase 3 study data described elsewhere in
this press release), the ability of the Company to efficiently
commercialize one or more of its products or product candidates, the
degree of market acceptance once our products are approved for
commercialization, our ability to take advantage of business
opportunities in the pharmaceutical industry, our ability to protect our
intellectual property, the potential of liability arising from
shareholder lawsuits and general changes in economic conditions.
Investors should consult the Company's quarterly and annual filings with
the Canadian and U.S. securities commissions for additional information
on risks and uncertainties. Given these uncertainties and risk factors,
readers are cautioned not to place undue reliance on these
forward-looking statements. We disclaim any obligation to update any
such factors or to publicly announce any revisions to any of the
forward-looking statements contained herein to reflect future results,
events or developments, unless required to do so by a governmental
authority or applicable law.

       

Consolidated Statements of Comprehensive Loss Information

(unaudited)

 
Three months ended December 31, Years ended December 31,
(in thousands, except share and per share data) 2016     2015 2016     2015     2014
$ $ $ $ $
Revenues
Sales commission and other 94 41 414 297
License fees 210   61   497   248   11  
304   102   911   545   11  
Operating expenses
Research and development costs 4,619 4,243 16,495 17,234 23,716
General and administrative expenses 1,757 3,953 7,147 11,308 9,840
Selling expenses 1,526   1,764   6,745   6,887   3,850  
7,902   9,960   30,387   35,429   37,406  
Loss from operations (7,598 ) (9,858 ) (29,476 ) (34,884 ) (37,395 )
(Loss) gain due to changes in foreign currency exchange rates (396 ) (315 ) (70 ) (1,767 ) 1,879
Change in fair value of warrant liability (245 ) 3,030 4,437 (10,956 ) 18,272
Warrant exercise inducement fee (2,926 ) (2,926 )
Other finance income 19   26   150   305   168  
Net finance (costs) income (622 ) (185 ) 4,517   (15,344 ) 20,319  
Loss before income taxes (8,220 ) (10,043 ) (24,959 ) (50,228 ) (17,076 )
Income tax expense         (111 )
Net loss from continuing operations (8,220 ) (10,043 ) (24,959 ) (50,228 ) (17,187 )
Net income from discontinued operations   25     85   623  
Net loss (8,220 ) (10,018 ) (24,959 ) (50,143 ) (16,564 )
Other Comprehensive Loss:
Items that may be reclassified subsequently to profit or loss:
Foreign currency translation adjustments 870 249 569 1,509 (1,158 )
Items that will not be reclassified to profit or loss:
Actuarial gain (loss) on defined benefit plans 1,143   (116 ) (1,479 ) 844   (1,833 )
Comprehensive loss (6,207 ) (9,885 ) (25,869 ) (47,790 ) (19,555 )
Net loss per share (basic and diluted) from continuing operations (0.71 ) (1.46 ) (2.41 ) (18.17 ) (29.12 )
Net income purchase per share (basic and diluted) from
discontinued operations
      0.03   1.06  
Net loss per share (basic and diluted) (0.71 ) (1.46 ) (2.41 ) (18.14 ) (28.06 )
Weighted average number of shares outstanding:
Basic 11,565,210   6,874,460   10,348,879   2,763,603   590,247  
Diluted 11,614,234   7,302,816   10,665,149   3,424,336   590,247  
 
   

Consolidated Statement of Financial Position Information

(unaudited)

 
December 31,
(in thousands) 2016     2015
$ $
Cash and cash equivalents1 21,999 41,450
Trade and other receivables and other current assets 744 944
Restricted cash equivalents 496 255
Property, plant and equipment 204 256
Other non-current assets 8,216   8,593
Total assets 31,659   51,498
Payables and other current liabilities2 3,778 4,770
Current portion of deferred revenues 426 244
Warrant liability 6,854 10,891
Non-financial non-current liabilities3 14,389   13,978
Total liabilities 25,447 29,883
Shareholders' equity 6,212   21,615
Total liabilities and shareholders' equity 31,659   51,498
 
_________________________
1. Approximately $1.5 million was denominated in EUR as at December 31,
2016 and December 31, 2015, and approximately $3.7 and $4.4 million
were denominated in Canadian dollars as at December 31, 2016 and
December 31, 2015, respectively.
2. Approximately $0.6 million was related to our provision for
restructuring as at December 31, 2015.
3. Comprised mainly of employee future benefits, provisions for onerous
contracts and non-current portion of deferred revenues.

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