Aeterna Zentaris(US:AEZS)2024-03-27 12:00markdown Audit Reports [Report of Independent Registered Public Accounting Firm (PCAOB ID:1208)](index=2&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm%20%28PCAOB%20ID%3A1208%29) Deloitte LLP provided an unqualified opinion on Aeterna Zentaris Inc.'s financial statements for the year ended December 31, 2023, stating they are presented fairly in all material respects in accordance with International Financial Reporting Standards (IFRS) A critical audit matter identified was the estimation of research and development (R&D) accruals due to the significant judgment required by management - Deloitte LLP issued an **unqualified opinion** on the Company's financial statements for the year ended December 31, 2023, confirming fair presentation in accordance with IFRS[3](index=3&type=chunk) - The estimation of **R&D accruals** was identified as a **critical audit matter** due to the **significant judgment** made by management in reviewing open contracts, identifying services performed, and estimating associated costs when not yet invoiced[9](index=9&type=chunk)[10](index=10&type=chunk) [Report of Predecessor Independent Registered Public Accounting Firm (PCAOB ID:1263)](index=4&type=section&id=Report%20of%20Predecessor%20Independent%20Registered%20Public%20Accounting%20Firm%20%28PCAOB%20ID%3A1263%29) Ernst & Young LLP, the predecessor independent registered public accounting firm, provided an unqualified opinion on Aeterna Zentaris Inc.'s consolidated financial statements for the two years ended December 31, 2022, confirming their fair presentation in conformity with International Financial Reporting Standards (IFRS) - Ernst & Young LLP issued an **unqualified opinion** on the Company's consolidated financial statements for the two years ended December 31, 2022, in conformity with IFRS[15](index=15&type=chunk) Consolidated Financial Statements [Consolidated Statements of Financial Position](index=5&type=section&id=Consolidated%20Statements%20of%20Financial%20Position) The Company's **total assets** significantly decreased from **$56,026 thousand** in 2022 to **$37,016 thousand** in 2023, primarily driven by a substantial reduction in **cash and cash equivalents** Total liabilities also decreased, while **shareholders' equity** saw a considerable reduction from **$35,776 thousand** to **$18,196 thousand** Consolidated Statements of Financial Position (in thousands of US dollars) | Metric | 2023 | 2022 | | :--------------------------------- | :--- | :--- | | **ASSETS** | | | | Cash and cash equivalents | 34,016 | 50,611 | | Trade and other receivables | 222 | 732 | | Inventory | 66 | 229 | | Income taxes receivable | 121 | 1,428 | | Prepaid expenses and other current assets | 1,942 | 2,488 | | Total current assets | 36,367 | 55,488 | | Restricted cash equivalents | 332 | 322 | | Property and equipment | 317 | 216 | | Total non-current assets | 649 | 538 | | **Total assets** | **37,016** | **56,026** | | **LIABILITIES** | | | | Payables and accrued liabilities | 3,622 | 3,828 | | Provisions | 429 | 45 | | Income taxes payable | 111 | 108 | | Deferred revenues | 218 | 2,949 | | Lease liabilities | 160 | 114 | | Total current liabilities | 4,540 | 7,044 | | Deferred revenues (non-current) | 1,544 | 1,684 | | Deferred gain | - | 110 | | Lease liabilities (non-current) | 119 | 65 | | Employee future benefits | 12,617 | 11,159 | | Provisions (non-current) | - | 188 | | **Total liabilities** | **18,820** | **20,250** | | **SHAREHOLDERS' EQUITY** | | | | Share capital | 293,410 | 293,410 | | Warrants | 5,085 | 5,085 | | Contributed surplus | 90,710 | 90,332 | | Deficit | (369,831) | (352,084) | | Accumulated other comprehensive loss | (1,178) | (967) | | **Total Shareholders' equity** | **18,196** | **35,776** | | **Total liabilities and shareholders' equity** | **37,016** | **56,026** | - **Cash and cash equivalents decreased by $16,595 thousand**, from **$50,611 thousand** in 2022 to **$34,016 thousand** in 2023[20](index=20&type=chunk) [Consolidated Statements of Changes in Shareholders' Equity](index=6&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Shareholders%27%20Equity) **Total shareholders' equity decreased** from **$35,776 thousand** at December 31, 2022, to **$18,196 thousand** at December 31, 2023 This decline was primarily driven by a **net loss of $16,552 thousand** and other comprehensive losses, partially offset by share-based compensation costs Consolidated Statements of Changes in Shareholders' Equity (in thousands of US dollars) | Metric | Balance - January 1, 2021 | Balance - December 31, 2021 | Balance - December 31, 2022 | Balance - December 31, 2023 | | :--------------------------------- | :------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | | Share capital | 235,008 | 293,410 | 293,410 | 293,410 | | Warrants | 12,402 | 5,085 | 5,085 | 5,085 | | Contributed Surplus | 89,505 | 89,788 | 90,332 | 90,710 | | Deficit | (322,659) | (334,619) | (352,084) | (369,831) | | Accumulated other comprehensive income (loss) | (1,045) | (678) | (967) | (1,178) | | **Total** | **13,211** | **52,986** | **35,776** | **18,196** | | Net loss | (8,368) | (22,727) | (16,552) | | | Comprehensive loss | (11,593) | (17,754) | (17,958) | | - The Company reported a **net loss of $16,552 thousand** in 2023, contributing to the **decrease in shareholders' equity**[22](index=22&type=chunk)[23](index=23&type=chunk) [Consolidated Statements of Loss and Comprehensive Loss](index=7&type=section&id=Consolidated%20Statements%20of%20Loss%20and%20Comprehensive%20Loss) The Company reported a **net loss of $16,552 thousand** in 2023, an improvement from **$22,727 thousand** in 2022 This was primarily due to lower total expenses, as the significant impairment charges recognized in 2022 were absent in 2023, despite a decrease in revenues Basic and diluted loss per share improved from **$(4.68)** in 2022 to **$(3.41)** in 2023 Consolidated Statements of Loss and Comprehensive Loss (in thousands of US dollars, except share and per share data) | Metric | 2023 | 2022 | 2021 | | :--------------------------------- | :--- | :--- | :--- | | Revenues | 4,498 | 5,640 | 5,260 | | Cost of sales | 222 | 157 | 90 | | Research and development | 13,560 | 12,506 | 6,574 | | Selling, general and administrative | 8,724 | 8,230 | 7,267 | | Impairment of intangible assets | - | 584 | - | | Impairment of goodwill | - | 7,642 | - | | Impairment of other assets | - | 124 | - | | Total expenses | 22,506 | 29,243 | 13,931 | | Loss from operations | (18,008) | (23,603) | (8,671) | | Net other income (costs) | 1,456 | 876 | 194 | | Loss before income taxes | (16,552) | (22,727) | (8,477) | | Income tax recovery | - | - | 109 | | **Net loss** | **(16,552)** | **(22,727)** | **(8,368)** | | Comprehensive loss | (17,958) | (17,754) | (11,593) | | Basic and diluted loss per share | (3.41) | (4.68) | (1.82) | - **Research and development expenses increased** to **$13,560 thousand** in 2023 from **$12,506 thousand** in 2022[23](index=23&type=chunk) - The absence of **impairment charges** for intangible assets (**$584 thousand** in 2022) and **goodwill** (**$7,642 thousand** in 2022) significantly contributed to the lower total expenses and improved **net loss** in 2023[23](index=23&type=chunk) [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) **Net cash used in operating activities increased** to **$17,118 thousand** in 2023 from **$13,680 thousand** in 2022 The Company experienced a **net decrease in cash and cash equivalents of $16,595 thousand** in 2023, ending the year with **$34,016 thousand** Investing activities provided cash in 2023, primarily due to the **sale of an intangible asset** Consolidated Statements of Cash Flows (in thousands of US dollars) | Metric | 2023 | 2022 | 2021 | | :--------------------------------- | :--- | :--- | :--- | | Net loss | (16,552) | (22,727) | (8,368) | | Amortization of deferred revenues | (1,607) | (1,704) | (1,670) | | Share-based compensation costs | 378 | 544 | 311 | | Depreciation and amortization | 169 | 135 | 145 | | Gain on sale of intangible asset | (549) | - | - | | Impairment of goodwill | - | 7,642 | - | | Impairment of intangible assets | - | 584 | - | | Changes in operating assets and liabilities | (1,036) | 604 | 2,500 | | **Net cash (used in) provided by operating activities** | **(17,118)** | **(13,680)** | **(8,581)** | | Net cash (used in) provided by financing activities | (151) | (118) | 51,037 | | Net cash provided by (used in) investing activities | 528 | (12) | (658) | | Net change in cash and cash equivalents | (16,595) | (14,689) | 41,029 | | Cash and cash equivalents – end of year | 34,016 | 50,611 | 65,300 | - Proceeds from the **sale of an intangible asset** contributed **$549 thousand** to cash flows from investing activities in 2023[24](index=24&type=chunk) Notes to Consolidated Financial Statements [1. Business overview](index=9&type=section&id=1.%20Business%20overview) Aeterna Zentaris is a specialty biopharmaceutical company focused on commercializing and developing therapeutics and diagnostic tests Its flagship product, **Macrilen® (macimorelin)**, is the sole FDA and EMA approved oral test for adult growth hormone deficiency (AGHD), with ongoing global commercialization efforts The Company is also actively building a **pre-clinical pipeline** to address unmet medical needs, particularly in rare or orphan indications The financial statements are prepared in accordance with IFRS - Aeterna Zentaris's lead product is **Macrilen® (macimorelin)**, the **first and only FDA and EMA approved oral test** for the diagnosis of adult growth hormone deficiency (AGHD)[25](index=25&type=chunk) - **Macimorelin** is marketed as **Ghryvelin™** in the European Economic Area and the United Kingdom through an exclusive licensing agreement with Pharmanovia, with efforts to seek approval in other regions globally[25](index=25&type=chunk) - The Company is establishing a **pre-clinical pipeline** focused on rare or orphan indications to address unmet medical needs[26](index=26&type=chunk) [2. Summary of material accounting policies](index=10&type=section&id=2.%20Summary%20of%20material%20accounting%20policies) This section details the Company's consistent application of accounting policies across all presented years, covering areas such as **cash and cash equivalents**, **goodwill**, **impairment of long-lived assets**, post-employment benefits, share-based compensation, and **revenue recognition** It specifically outlines the **five-step framework under IFRS 15** for recognizing revenue from various sources, including license fees, development services, milestone payments, royalties, and product sales - **Goodwill** is tested for **impairment** annually or more frequently if indications arise, by comparing the carrying value of cash-generating units (CGUs) to their recoverable amount (higher of fair value less costs of disposal and value in use)[42](index=42&type=chunk) - **Revenue** is recognized following the **IFRS 15 five-step framework**, which involves identifying performance obligations, allocating transaction price, and recognizing revenue as control of goods or services is transferred to the customer[49](index=49&type=chunk) - Research costs are expensed as incurred, and development costs are also expensed as incurred unless they meet specific criteria for capitalization, which has not occurred in the periods presented[60](index=60&type=chunk) [3. Critical accounting estimates and judgments](index=14&type=section&id=3.%20Critical%20accounting%20estimates%20and%20judgments) The preparation of consolidated financial statements requires management to make **significant judgments**, estimates, and assumptions that can materially impact reported amounts Key areas of judgment include accounting for contract modifications (such as the Novo termination), multi-element license and collaboration arrangements, annual **impairment assessments of goodwill**, actuarial determinations for employee future benefits, and the estimation of research and development accruals - Accounting for the **Novo notice of termination** as a contract modification under IFRS 15 required **significant judgment**, impacting revenue and deferred revenue recognition[67](index=67&type=chunk) - The annual **impairment assessment of goodwill** involves estimating the recoverable amount, which is the higher of fair value less costs of disposal and value in use, leading to a **significant impairment** in 2022[70](index=70&type=chunk) - Estimating **research and development accruals** involves reviewing open contracts, identifying services performed, and estimating costs for unbilled services, with potential for actual costs to differ from estimates[72](index=72&type=chunk) [4. Recent accounting pronouncements](index=16&type=section&id=4.%20Recent%20accounting%20pronouncements) The Company adopted several new accounting standards and amendments effective January 1, 2023 Amendments to IAS 1 (Disclosure of Accounting Policies) impacted the Company's disclosures by requiring '**material**' rather than 'significant' accounting policies, but did not affect financial statement measurement or presentation Amendments to IAS 8 (Definition of Accounting Estimates) and IAS 12 (Deferred Tax) had no impact on the consolidated financial statements No other new standards are expected to have a material impact - Amendments to IAS 1 (Disclosure of Accounting Policies) changed the requirement to disclose 'significant' accounting policies to '**material accounting policies**', impacting disclosures but not financial statement measurement, recognition, or presentation[75](index=75&type=chunk) - Amendments to IAS 8 (Definition of Accounting Estimates) clarified the distinction between changes in accounting estimates, policies, and error corrections, but had no impact on the Company's consolidated financial statements[76](index=76&type=chunk) [5. Revenue](index=17&type=section&id=5.%20Revenue) **Total revenue decreased** from **$5,640 thousand** in 2022 to **$4,498 thousand** in 2023, with development services and license fees remaining the primary sources The termination of the **Novo Nordisk agreement** in May 2023 significantly impacted deferred revenue, which shifted from Novo Nordisk to **Pharmanovia** and **NK Meditech Limited** by December 31, 2023 Revenue Disaggregation (in thousands of US dollars) | Revenue Type | 2023 | 2022 | 2021 | | :--------------------------------------- | :--- | :--- | :--- | | License fees | 1,607 | 1,704 | 1,670 | | Development services | 2,741 | 3,617 | 3,337 | | Product sales | 66 | 57 | - | | Royalties | 31 | 101 | 68 | | Supply chain | 53 | 161 | 185 | | **Total Revenues** | **4,498** | **5,640** | **5,260** | - **Novo Nordisk** provided a notice of termination of its agreement, effective May 23, 2023, resulting in the return of Macrilen™ rights to Aeterna and continued funding of DETECT-trial costs during the notice period[86](index=86&type=chunk) Deferred Revenue Balances (in thousands of US dollars) | Customer | December 31, 2023 (Total) | December 31, 2022 (Total) | | :--------------------------------- | :------------------------ | :------------------------ | | Novo Nordisk Health Care | - | 2,914 | | Pharmanovia (Consilient Healthcare) | 1,629 | 1,591 | | NK Meditech Limited | 133 | 128 | | **Total** | **1,762** | **4,633** | [6. Cash and cash equivalents](index=21&type=section&id=6.%20Cash%20and%20cash%20equivalents) **Cash and cash equivalents decreased significantly** from **$50,611 thousand** in 2022 to **$34,016 thousand** in 2023 **Restricted cash equivalents**, held as collateral for corporate credit cards and leases, remained relatively stable at **$332 thousand** Cash and Cash Equivalents (in thousands of US dollars) | Metric | December 31, 2023 | December 31, 2022 | | :--------------------------------- | :---------------- | :---------------- | | Cash on hand and balances with banks | 34,016 | 50,611 | | Restricted cash equivalents | 332 | 322 | [7. Trade and other receivables](index=21&type=section&id=7.%20Trade%20and%20other%20receivables) **Total trade and other receivables decreased** from **$732 thousand** in 2022 to **$222 thousand** in 2023 Trade accounts receivable remained the largest component, and no write-downs were recorded in 2023, compared to **$124 thousand** in 2022 Trade and Other Receivables (in thousands of US dollars) | Metric | December 31, 2023 | December 31, 2022 | | :--------------------------------- | :---------------- | :---------------- | | Trade accounts receivable | 67 | 403 | | Value added tax | 103 | 275 | | Other receivables | 52 | 54 | | **Total** | **222** | **732** | - No write-down within other receivables was recorded in 2023, compared to **$124 thousand** in 2022[100](index=100&type=chunk) [8. Prepaid expenses and other current assets](index=21&type=section&id=8.%20Prepaid%20expenses%20and%20other%20current%20assets) **Prepaid expenses and other current assets decreased** from **$2,488 thousand** in 2022 to **$1,942 thousand** in 2023, primarily due to a reduction in **prepaid research and development costs** Prepaid Expenses and Other Current Assets (in thousands of US dollars) | Metric | December 31, 2023 | December 31, 2022 | | :--------------------------------- | :---------------- | :---------------- | | Prepaid insurance | 250 | 428 | | Prepaid research and development | 1,633 | 1,998 | | Other | 59 | 62 | | **Total** | **1,942** | **2,488** | [9. Property and equipment](index=22&type=section&id=9.%20Property%20and%20equipment) The carrying amount of **property and equipment increased** from **$216 thousand** in 2022 to **$317 thousand** in 2023 This increase was mainly driven by additions and remeasurements, particularly for **right-of-use vehicles and buildings**, including a **lease extension** for the German subsidiary's building Carrying Amount of Property and Equipment (in thousands of US dollars) | Metric | December 31, 2023 | December 31, 2022 | | :--------------------------------- | :---------------- | :---------------- | | Computer Equipment | 18 | 15 | | Right of use building | 134 | 129 | | Right of use vehicles | 139 | 47 | | **Total** | **317** | **216** | - A one-year plus 6 months' notice **extension to the existing building lease agreement** for the German subsidiary resulted in a remeasurement of the building right-of-use asset by **$103 thousand** in 2023[104](index=104&type=chunk) [10. Intangible assets](index=23&type=section&id=10.%20Intangible%20assets) In 2023, the Company sold its **Cetrotide® trademarks** to Merck for **$549 thousand** In 2022, the Company recognized a total **impairment of $584 thousand** on intangible assets, which included capitalized upfront payments for ceased COVID-19 and Chlamydia vaccine trials, and an additional impairment identified during the annual assessment - The Company sold **Cetrotide® trademarks** to Merck for **$549 thousand** in 2023, transferring all ownership and obligations[105](index=105&type=chunk) - In 2022, the Company recognized an **impairment of $584 thousand** on intangible assets, including **$212 thousand** for ceased COVID-19 and Chlamydia vaccine trials, and an additional **$372 thousand** from the annual impairment assessment[106](index=106&type=chunk) [11. Goodwill](index=23&type=section&id=11.%20Goodwill) **Goodwill** was **fully impaired** in 2022, with a charge of **$7,642 thousand**, due to the Company's **market capitalization** falling below the carrying value of its shareholders' equity As a result, the goodwill balance was zero as of December 31, 2023 Goodwill (in thousands of US dollars) | Metric | December 31, 2023 | December 31, 2022 | | :--------------------------------- | :---------------- | :---------------- | | Balance – Beginning of year | - | 8,130 | | Impairment of goodwill | - | (7,642) | | Impact of foreign exchange rate changes | - | (488) | | **Balance – End of year** | **-** | **-** | - A **goodwill impairment charge of $7,642 thousand** was recorded in 2022 because the Company's **market capitalization** was below the carrying value of its shareholders' equity[107](index=107&type=chunk) [12. Payables and accrued liabilities](index=24&type=section&id=12.%20Payables%20and%20accrued%20liabilities) **Total payables and accrued liabilities decreased** slightly from **$3,828 thousand** in 2022 to **$3,622 thousand** in 2023 Trade accounts payable remained the largest component, while **accrued research and development costs** saw a minor increase Payables and Accrued Liabilities (in thousands of US dollars) | Metric | December 31, 2023 | December 31, 2022 | | :--------------------------------- | :---------------- | :---------------- | | Trade accounts payable | 1,866 | 2,038 | | Accrued research and development costs | 804 | 751 | | Accrued employee benefits | 343 | 325 | | Payroll tax and other statutory liabilities | 78 | 74 | | Other accrued liabilities | 531 | 640 | | **Total** | **3,622** | **3,828** | [13. Provisions](index=24&type=section&id=13.%20Provisions) **Total provisions increased** from **$233 thousand** in 2022 to **$429 thousand** in 2023 This increase was primarily due to a **new provision of $404 thousand** recognized for estimated exit costs related to certain contracts with suppliers, which are anticipated to be incurred in the next financial year Provisions (in thousands of US dollars) | Metric | December 31, 2023 | December 31, 2022 | | :--------------------------------- | :---------------- | :---------------- | | Balance – Beginning of year | 233 | 277 | | Provision recognized | 404 | - | | Utilization of provision | (40) | (28) | | Change in the provision | (174) | - | | Unwinding of discount and impact of foreign exchange rate changes | 6 | (16) | | **Balances – End of the year** | **429** | **233** | | Current liabilities | 429 | 45 | | Non-current liabilities | - | 188 | - A **new provision of $404 thousand** was recognized in 2023 for estimated exit costs related to certain supplier contracts, expected to be incurred in the next financial year[110](index=110&type=chunk) [14. Lease liabilities](index=25&type=section&id=14.%20Lease%20liabilities) **Lease liabilities increased** from **$179 thousand** in 2022 to **$279 thousand** in 2023 This increase was mainly attributable to additions and a remeasurement of **$108 thousand** resulting from a **lease extension** for the German subsidiary's building until March 31, 2025 Lease Liabilities (in thousands of US dollars) | Metric | December 31, 2023 | December 31, 2022 | | :--------------------------------- | :---------------- | :---------------- | | Balance – Beginning of year | 179 | 161 | | Additions | 134 | 38 | | Interest paid as charged to net loss as other finance costs | (13) | (4) | | Payment against lease liabilities | (151) | (134) | | Modification of lease liability | 108 | 114 | | Impact of foreign exchange rate changes | 22 | 4 | | **Balances – End of the year** | **279** | **179** | | Current lease liabilities | 160 | 114 | | Non-current lease liabilities | 119 | 65 | - A one-year plus 6 months' notice **extension to the German subsidiary's building lease agreement**, continuing until March 31, 2025, resulted in a remeasurement of the lease liability by **$103 thousand** in 2023[112](index=112&type=chunk) [15. Employee future benefits](index=25&type=section&id=15.%20Employee%20future%20benefits) The **net liability for employee future benefits increased** from **$11,159 thousand** in 2022 to **$12,617 thousand** in 2023 This increase was primarily driven by **actuarial losses** from changes in financial assumptions and interest costs, partially offset by benefits paid and employer contributions The Company's pension plans are exposed to inflation, interest rate, equity market, and property market risks Net Employee Future Benefits Liability (in thousands of US dollars) | Metric | December 31, 2023 | December 31, 2022 | | :--------------------------------- | :---------------- | :---------------- | | Net liability of the unfunded plans | 11,682 | 10,787 | | Net liability of the funded plans | 935 | 372 | | **Net amount recognized as Employee future benefits** | **12,617** | **11,159** | - **Actuarial loss arising from changes in financial assumptions** was **$1,213 thousand** in 2023, a significant shift from an actuarial gain of **$(5,915) thousand** in 2022[117](index=117&type=chunk) Significant Actuarial Assumptions for Pension Benefit Plans | Actuarial assumptions | 2023 (%) | 2022 (%) | | :--------------------------------- | :------- | :------- | | Discount rate | 3.30 | 3.75 | | Pension benefits increase | 2.00 | 2.00 | | Rate of compensation increase | 2.50 | 2.50 | [16. Share Capital](index=28&type=section&id=16.%20Share%20Capital) The Company's issued and outstanding common shares remained at **4,855,876** with a capital amount of **$293,410 thousand** for both 2022 and 2023, following a **1-for-25 reverse stock split** in July 2022 In 2021, the Company completed a public offering and warrant exercises, which significantly increased its share capital Issued and Outstanding Common Shares (in thousands of US dollars, except share count) | Metric | December 31, 2021 | December 31, 2022 | December 31, 2023 | | :--------------------------------- | :------------------ | :------------------ | :------------------ | | Common shares () | 4,855,876 | 4,855,876 | 4,855,876 | | Amount ($) | 293,410 | 293,410 | 293,410 | - A **1-for-25 share consolidation (reverse split)** was effected on July 21, 2022, and all common shares and per share amounts have been retroactively adjusted[123](index=123&type=chunk) - In 2021, the Company completed a public offering generating **$34,200 thousand** in gross proceeds and received **$20,087 thousand** from the exercise of warrants[24](index=24&type=chunk)[125](index=125&type=chunk) [17. Warrants](index=30&type=section&id=17.%20Warrants) The number of outstanding warrants remained at **457,648** with a value of **$5,085 thousand** in 2022 and 2023, with a weighted average exercise price of **$21.76** In 2021, the Company granted **66,041 warrants** and **1,404,443 warrants** were exercised Warrant Activity (in thousands of US dollars, except warrant count) | Metric | December 31, 2020 | December 31, 2021 | December 31, 2022 | December 31, 2023 | | :--------------------------------- | :------------------ | :------------------ | :------------------ | :------------------ | | Number () | 1,796,050 | 457,648 | 457,648 | 457,648 | | Weighted average exercise price ($) | 17.79 | 21.76 | 21.76 | 21.76 | | Amount ($) | 12,402 | 5,085 | 5,085 | 5,085 | - As of December 31, 2023, **457,648 warrants** were outstanding with a weighted average remaining contractual life of **1.61 years** and a weighted average exercise price of **$21.76**[128](index=128&type=chunk) [18. Contributed Surplus](index=31&type=section&id=18.%20Contributed%20Surplus) **Contributed surplus increased** from **$90,332 thousand** in 2022 to **$90,710 thousand** in 2023, primarily due to share-based compensation costs The Company operates a **Long-Term Incentive Plan (LTIP)** for equity-settled awards, including **stock options** and **deferred share units (DSUs)** - **Contributed surplus increased by $378 thousand** in 2023, primarily from share-based compensation costs[22](index=22&type=chunk)[135](index=135&type=chunk) - The Company granted **14,000 stock options** under the **LTIP** on January 17, 2023, exercisable at **$3.75 per share** with a seven-year term and three-year vesting period[130](index=130&type=chunk) - **100,000 Deferred Share Units (DSUs)** were granted in 2023, increasing the total outstanding DSUs to **196,920**[134](index=134&type=chunk) [19. Expenses by nature](index=33&type=section&id=19.%20Expenses%20by%20nature) **Total expenses decreased** from **$29,243 thousand** in 2022 to **$22,506 thousand** in 2023 This reduction was primarily due to the absence of significant **goodwill** and intangible asset **impairment charges** in 2023 **Third-party research and development costs** remained the largest expense category, increasing to **$11,664 thousand** Expenses by Nature (in thousands of US dollars) | Expense Type | 2023 | 2022 | 2021 | | :--------------------------------------- | :--- | :--- | :--- | | Inventory expensed during the year | 45 | 54 | - | | Provision for obsolete inventory | 133 | 32 | - | | Third-party research and development | 11,664 | 11,244 | 5,534 | | Salaries, wages and benefits | 4,260 | 3,563 | 3,037 | | Professional and consulting fees | 3,504 | 2,475 | 2,570 | | Insurance | 1,184 | 1,687 | 1,077 | | Stock-based compensation | 378 | 544 | 311 | | Software and IT services | 523 | 386 | 387 | | Depreciation and amortization | 170 | 135 | 144 | | Marketing, communications and investor relations | 274 | 317 | 289 | | Travel, meals and entertainment | 276 | 225 | 111 | | Office, rent and telecommunications | 171 | 120 | 162 | | License fees | 10 | 19 | 139 | | Other | (86) | 92 | 170 | | Impairment of goodwill | - | 7,642 | - | | Impairment of other assets | - | 124 | - | | Impairment of intangible assets | - | 584 | - | | **Total** | **22,506** | **29,243** | **13,931** | - The absence of **goodwill impairment** (**$7,642 thousand** in 2022) and intangible asset **impairment** (**$584 thousand** in 2022) was the primary reason for the **decrease in total expenses** in 2023[135](index=135&type=chunk) [20. Supplemental disclosure of cash flow information](index=33&type=section&id=20.%20Supplemental%20disclosure%20of%20cash%20flow%20information) Changes in operating assets and liabilities resulted in a net cash outflow of **$1,036 thousand** in 2023, a shift from a net inflow of **$604 thousand** in 2022 This change was largely influenced by a significant decrease in deferred revenues and employee future benefits Changes in Operating Assets and Liabilities (in thousands of US dollars) | Metric | 2023 | 2022 | 2021 | | :--------------------------------- | :--- | :--- | :--- | | Trade and other receivables | 147 | 592 | 120 | | Inventory | 162 | (161) | (56) | | Prepaid expenses and other current assets | 589 | (783) | (750) | | Payables and accrued liabilities | 76 | 1,076 | 634 | | Income taxes payable | - | - | (109) | | Deferred revenues | (1,313) | 441 | 3,010 | | Deferred gain | (110) | - | - | | Provisions | (14) | (2) | - | | Employee future benefits | (573) | (559) | (349) | | **Total** | **(1,036)** | **604** | **2,500** | [21. Income taxes](index=34&type=section&id=21.%20Income%20taxes) The Company reported no income tax recovery in 2023 or 2022, compared to **$109 thousand** in 2021 It has significant **unrecognized deferred tax assets**, totaling **$111,768 thousand** in 2023, primarily from **operating losses carried forward** and R&D investment tax credits, due to the uncertainty of generating sufficient future taxable income to utilize these benefits Total Income Tax Recovery (in thousands of US dollars) | Metric | 2023 | 2022 | 2021 | | :--------------------------------- | :--- | :--- | :--- | | Current income tax recovery | - | - | 109 | | Deferred tax | - | - | - | | **Total income tax recovery** | **-** | **-** | **109** | - The Company has **unrecognized deferred tax assets** totaling **$111,768 thousand** as of December 31, 2023, primarily due to **operating losses carried forward** (**$96,866 thousand**) and SR&ED Pool (**$9,138 thousand**), as it does not believe it will have sufficient future taxable profits to offset them[139](index=139&type=chunk)[140](index=140&type=chunk) - As of December 31, 2023, the Company has accumulated non-capital losses of **$90,436 thousand** federally and **$89,114 thousand** provincially in Canada, expiring between 2028 and 2043, and federal tax losses of **$225,296 thousand** in Germany (no expiry) and **$5,342 thousand** in the US[141](index=141&type=chunk)[142](index=142&type=chunk) [22. Capital management](index=37&type=section&id=22.%20Capital%20management) The Company's capital management objective is to ensure **sufficient liquidity** to fund research and development, selling, general and administrative expenses, and working capital requirements Historically, capital has been raised through public and private equity offerings The Company's policy is to retain cash to finance product development and commercial opportunities, and it is not subject to any external capital requirements - The Company's capital management objective is to ensure **sufficient liquidity** for R&D costs, selling expenses, general and administrative expenses, and working capital requirements[143](index=143&type=chunk) - Historically, the Company has raised capital primarily through **public and private equity offerings** and issuances[143](index=143&type=chunk) - The policy on dividends is to retain cash to finance product development and commercial opportunities[143](index=143&type=chunk) [23. Financial instruments and financial risk management](index=38&type=section&id=23.%20Financial%20instruments%20and%20financial%20risk%20management) The Company's financial instruments primarily include **cash and cash equivalents**, **trade and other receivables**, payables, and lease liabilities It manages credit risk by monitoring counterparties and liquidity risk through rolling cash flow forecasts The Company is exposed to **foreign exchange risk**, particularly from its Euro-functional foreign operations, where a **10% change in the US dollar against the Euro** could significantly impact **net loss** Financial Assets and Liabilities at Amortized Cost (in thousands of US dollars) | Metric | 2023 (Assets) | 2023 (Liabilities) | 2022 (Assets) | 2022 (Liabilities) | | :--------------------------------- | :------------ | :----------------- | :------------ | :----------------- | | Cash and cash equivalents | 34,016 | - | 50,611 | - | | Trade and other receivables | 67 | - | 457 | - | | Restricted cash equivalents | 332 | - | 322 | - | | Payables and accrued liabilities | - | 3,544 | - | 3,752 | | Lease liability | - | 160 | - | 179 | | **Total** | **34,415** | **3,704** | **51,390** | **3,931** | - Management believes the Company has **sufficient cash on hand** to meet its obligations for the next 12 months, but acknowledges an ongoing need for additional capital for product development and commercialization[154](index=154&type=chunk) - A **10% increase or decrease in the US dollar against the Euro** would impact the **net loss** for the year ended December 31, 2023, by approximately **$1,055 thousand**[156](index=156&type=chunk) [24. Segment information](index=40&type=section&id=24.%20Segment%20information) The Company operates as a **single operating segment**, the **biopharmaceutical segment** Geographically, **Switzerland remains the largest source of revenue**, although revenues from this region decreased in 2023 The majority of the Company's non-current assets are located in Germany - The Company operates in a **single operating segment**: biopharmaceutical[158](index=158&type=chunk) Revenues by Geographical Area (in thousands of US dollars) | Geographical Area | 2023 | 2022 | 2021 | | :--------------------------------- | :--- | :--- | :--- | | Switzerland | 4,317 | 5,395 | 5,075 | | Ireland | 122 | 82 | - | | Denmark | 11 | 160 | 185 | | Other | 48 | 3 | - | | **Total** | **4,498** | **5,640** | **5,260** | - Non-current assets are primarily located in Germany, totaling **$575 thousand** in 2023[159](index=159&type=chunk) [25. Net loss per share](index=41&type=section&id=25.%20Net%20loss%20per%20share) **Basic and diluted loss per share improved** to **$(3.41)** in 2023 from **$(4.68)** in 2022, reflecting a lower **net loss** Stock options, **deferred share units (DSUs)**, and warrants were considered **anti-dilutive** due to the Company's loss position and were thus excluded from the diluted loss per share calculation Net Loss Per Share (in thousands of US dollars, except share and per share data) | Metric | 2023 | 2022 | 2021 | | :--------------------------------------------------- | :--- | :--- | :--- | | Net loss | (16,552) | (22,727) | (8,368) | | Basic and diluted weighted-average number of shares outstanding | 4,855,876 | 4,855,876 | 4,596,980 | | **Basic and diluted loss per share** | **(3.41)** | **(4.68)** | **(1.82)** | - **Stock options** and **DSUs** (**250,320**) and share purchase warrants (**457,648**) were excluded from the calculation of diluted net loss per share due to their **anti-dilutive effect**, as the Company was in a loss position[161](index=161&type=chunk) [26. Commitments](index=41&type=section&id=26.%20Commitments) The Company has significant **contracted expenditures** totaling **$5,705 thousand** as of December 31, 2023, with the majority (**$5,634 thousand**) due within one year Additionally, the Company may be required to make **future payments of up to $39,373 thousand** upon achieving certain sales volumes, regulatory approvals, or other milestones related to specific products, although it generally retains the right to terminate these agreements without penalty Significant Contracted Expenditures (in thousands of US dollars) | Period | Amount | | :----------------- | :----- | | Less than 1 year | 5,634 | | 1 – 5 years | 71 | | **Total** | **5,705** | - The Company may have to pay up to **$39,373 thousand** upon achieving certain sales volumes, regulatory, or other milestones related to specific products, with the general right to terminate these agreements at no penalty[162](index=162&type=chunk) [27. Related party disclosures](index=42&type=section&id=27.%20Related%20party%20disclosures) **Compensation awarded to key management**, including Directors and executive officers, totaled **$2,346 thousand** in 2023, a slight decrease from **$2,388 thousand** in 2022 This compensation package includes salaries, short-term benefits, post-retirement benefits, and stock-based compensation Employment agreements for executive officers typically include termination provisions for benefits in cases of termination without cause or following a change of control Compensation of Key Management (in thousands of US dollars) | Metric | 2023 | 2022 | 2021 | | :--------------------------------- | :--- | :--- | :--- | | Salaries and short-term benefits | 2,025 | 1,848 | 1,646 | | Consultant's fees | - | 17 | 163 | | Post-retirement benefits | 37 | 63 | 70 | | Stock-based compensation | 284 | 460 | 295 | | **Total** | **2,346** | **2,388** | **2,174** | - Executive officers' employment agreements include termination provisions entitling them to benefits if employment is terminated without cause or following a change of control[164](index=164&type=chunk) [28. Subsequent event](index=42&type=section&id=28.%20Subsequent%20event) On December 14, 2023, Aeterna Zentaris and **Ceapro Inc.** announced a definitive agreement for an **all-stock merger of equals**, where Ceapro will become a wholly-owned subsidiary of Aeterna The transaction, approved by shareholders on March 12, 2024, is expected to close in the second quarter of 2024, with former Ceapro shareholders owning **50%** of the combined entity post-closing - On December 14, 2023, Aeterna Zentaris and **Ceapro Inc.** announced an **all-stock merger of equals**, with Ceapro becoming a wholly-owned subsidiary of Aeterna[165](index=165&type=chunk) - Upon closing, each outstanding Ceapro common share will be exchanged for **0.09439** of an Aeterna common share, and former Ceapro shareholders will own **50%** of the combined entity[165](index=165&type=chunk) - The transaction received **shareholder approval** on March 12, 2024, and is anticipated to close in the second quarter of 2024[165](index=165&type=chunk)