e424b5
Filed pursuant to Rule 424(b)(5)
Registration No.
333-165037
This prospectus supplement,
together with the accompanying short form base shelf prospectus
dated March 12, 2010 to which it relates, as amended or
supplemented and each document incorporated or deemed to be
incorporated by reference in this prospectus supplement and the
accompanying prospectus, constitutes a public offering of these
securities only in those jurisdictions where such securities may
be lawfully offered for sale and therein only by persons
permitted to sell such securities. No securities regulatory
authority has expressed an opinion about these securities and it
is an offense to claim otherwise.
PROSPECTUS SUPPLEMENT NO. 2
(TO SHORT FORM BASE SHELF PROSPECTUS DATED MARCH 12,
2010)
8,805,964 Units
Units Consisting of
One Common Share and
a Warrant to Purchase 0.50 of a Common Share
US$1.3725 per Unit
Æterna Zentaris Inc. (we,
Æterna or the Company) is offering
8,805,964 units (the units), with each unit being
comprised of one common share of our capital and a warrant to
purchase 0.50 of a common share (each, a purchaser
warrant), pursuant to this prospectus supplement and to
the accompanying short form base shelf prospectus dated
March 12, 2010. The purchase price for each unit is
US$1.3725. Each purchaser warrant has an exercise price of
US$1.3725 per common share. It is immediately exercisable and
expires five years from its date of issuance. The common shares
and the purchaser warrants will be issued separately but will be
purchased together in this offering. All of the units are being
offered for sale solely in the United States of America. In
addition to the placement agents fee described below, we
have also agreed to issue to the placement agent compensation
warrants (the compensation warrants and, together
with the purchaser warrants, the warrants) to
purchase up to an aggregate of 264,178 common shares under this
prospectus supplement at an exercise price of US$1.7156 per
share. The distribution of the warrants and the common shares
issuable upon the exercise of the warrants is qualified and
registered by this prospectus supplement. See Plan of
Distribution beginning on
page S-16
of this prospectus supplement for more information regarding
these arrangements.
Unless otherwise hereinafter stated, currency amounts in this
prospectus supplement are presented in United States dollars, or
$ or US$.
Our common shares are listed on the NASDAQ Global Market
(NASDAQ) under the symbol AEZS and on
the Toronto Stock Exchange (TSX) under the symbol
AEZ. On June 15, 2010, the last reported sale
price of our common shares on the NASDAQ was $1.31 per share,
and the last reported sale price of our common shares on the TSX
was C$1.36 per share.
We have filed an application with the TSX to have the common
shares being offered for sale pursuant to this prospectus
supplement (and the common shares of our capital issuable from
time to time upon exercise of the offered warrants) listed (or
reserved for listing) on the TSX. Listing will be subject to our
fulfilling all of the listing requirements of the TSX. The
common shares, including common shares issuable upon exercise of
the warrants, will be listed on the NASDAQ. The warrants will
not be listed on any national or foreign trading market.
Investing in our common shares and warrants involves risks.
There is no market through which the warrants may be sold and
purchasers may not be able to resell warrants purchased under
this prospectus supplement. This may affect the pricing of the
warrants in the secondary market, the transparency and
availability of trading prices, the liquidity of the warrants,
and the extent of issuer regulation. For a discussion of risk
factors that you should consider in investing in our common
shares and warrants, see the sections entitled Risk
Factors beginning on
page S-9
of this prospectus supplement and page 8 of the
accompanying prospectus, as well as in the documents
incorporated by reference herein and therein.
No underwriter, as defined under applicable securities
legislation, has been involved in the preparation of, or has
performed any review of, the contents of this prospectus
supplement or the accompanying prospectus.
Rodman & Renshaw, LLC acted as the placement agent for
this offering. The placement agent is not purchasing or selling
any of these securities nor is it required to place any specific
number or dollar amount of securities, but it has agreed to use
its reasonable best efforts to place the securities offered by
this prospectus supplement. There is no requirement that any
minimum number of units or dollar amount of units be sold in
this offering and there can be no assurance that we will sell
all of the units being offered. We have agreed to pay
the placement agent, in addition to compensation warrants
described above and under Plan of Distribution
beginning on
page S-16,
the placement agents fees set forth in the table below:
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Per Unit
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Aggregate Amount
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Public Offering
Price(1)
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$
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1.3725
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$
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12,086,185
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Placement Agents Fees
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$
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0.0686
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$
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604,309
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Proceeds, Before Expenses, to
us(2)
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$
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1.3039
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$
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11,481,876
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(1)
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The proceeds shown exclude proceeds that we may receive upon
exercise of the warrants.
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(2)
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We estimate the total expenses of this offering, excluding the
placement agents fees and expenses, will be approximately
$160,000.
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This document is in two parts. The first part is this prospectus
supplement, which describes the terms of the offering and adds
to and updates information contained in the accompanying
prospectus and the documents incorporated by reference. The
second part is the accompanying base shelf prospectus, which
gives more general information, some of which may not apply to
this offering. This prospectus supplement is deemed to be
incorporated by reference into the accompanying prospectus
solely for the purpose of this offering.
This prospectus supplement and the accompanying prospectus
contain forward-looking statements, within the
meaning of the United States (U.S.) Private
Securities Litigation Reform Act of 1995 and of applicable
Canadian securities laws, that involve risks and uncertainties.
Cautionary details concerning forward-looking statements are set
out under the captions Cautionary Statement Regarding
Forward-Looking Statements beginning on
page S-3
of this prospectus supplement and Forward-Looking
Statements beginning on page 3 of the accompanying
prospectus.
We are a foreign private issuer under U.S. securities
laws. We have prepared our financial statements in accordance
with Canadian generally accepted accounting principles
(GAAP), and they are subject to Canadian auditing
and auditor independence standards. Thus, they may not be
comparable to the financial statements of U.S. companies.
Information regarding the impact upon our financial statements
of significant differences between Canadian and U.S. GAAP is
contained in Note 26 entitled Differences between
Canadian and US GAAP to our audited consolidated balance
sheets as at December 31, 2009 and 2008 and our audited
consolidated statements of operations, comprehensive loss,
accumulated other comprehensive income and deficit, changes in
shareholders equity and cash flows for each of the years
in the three-year period ended December 31, 2009 included
in our annual report on
Form 20-F
(filed in Canada with the Canadian securities regulatory
authorities in lieu of an annual information form), which was
filed with the United States Securities and Exchange Commission
(SEC) on March 30, 2010 (available
electronically at www.sec.gov), and in Note 11 entitled
Differences between Canadian and US GAAP to our
unaudited consolidated balance sheets as at March 31, 2010
and our unaudited consolidated statements of operations and
comprehensive loss, changes in shareholders equity and
cash flows for each of the three-month periods ended
March 31, 2010 and 2009, which were furnished to the SEC on
May 13, 2010, each of which is incorporated by reference
into this prospectus supplement and the accompanying
prospectus.
Your ability to enforce civil liabilities under U.S. federal
securities laws may be affected adversely by the fact that we
are incorporated under the laws of Canada, many of our officers
and directors and some of the experts named in this prospectus
supplement and the accompanying 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.
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
SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
If the description of our common shares and the warrants
offered under this prospectus supplement varies between this
prospectus supplement and the accompanying prospectus, you
should rely on the information in this prospectus supplement.
You should rely only on the information contained in or
incorporated by reference into this prospectus supplement and
the accompanying prospectus and on the other information
included in the registration statement of which this prospectus
supplement and the accompanying prospectus forms a part. We have
not authorized anyone to provide you with different or
additional information. If anyone provides you with different or
additional information, you should not rely on it. Information
in this prospectus supplement updates and modifies the
information in the accompanying prospectus and information
incorporated by reference therein. We are not making an offer to
sell or seeking an offer to buy these securities in any
jurisdiction where the offer or sale is not permitted. The
information contained in this prospectus supplement and in the
accompanying prospectus and information contained in any
documents incorporated by reference therein, as well as
information previously filed by us with, or furnished by us to,
the SEC and the securities regulatory authorities in each of the
provinces of Canada, is accurate only as of the respective dates
of each of those documents, regardless of the time of delivery
of this prospectus supplement and of the accompanying prospectus
or of any sale of our common shares. Our business, financial
condition, results of operations and prospects may have changed
since those dates.
Placement Agent
Rodman & Renshaw,
LLC
The date of this prospectus supplement is June 15, 2010
TABLE OF
CONTENTS
Prospectus
Supplement
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S-2
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S-3
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S-3
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S-3
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S-4
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S-8
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S-9
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S-12
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S-12
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S-12
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S-13
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S-15
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S-16
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S-18
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S-24
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S-24
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ABOUT
THIS PROSPECTUS SUPPLEMENT
This prospectus supplement relates to (i) a short form base
shelf prospectus dated March 12, 2010 that we filed with
the Canadian securities regulatory authorities of each of the
provinces of Canada and (ii) a registration statement that
we filed with the SEC, utilizing a shelf prospectus and
registration process. Under this shelf prospectus and
registration process, we may, from time to time, offer, sell and
issue any of the securities or any combination of the securities
described in the accompanying base shelf prospectus in one or
more offerings. The accompanying base shelf prospectus provides
you with a general description of the securities we may offer.
This prospectus supplement contains specific information about
the terms of this offering of units, which are comprised of
common shares and purchaser warrants, by the Company. You should
read both this prospectus supplement and the accompanying base
shelf prospectus together with the information described under
the sections entitled Where to Find Additional
Information and Incorporation of Certain Information
by Reference in this prospectus supplement and the section
entitled Documents Incorporated by Reference in the
accompanying base shelf prospectus, and any additional
information you may need to make your investment decision.
Prospective investors should be aware that the acquisition of
the securities described herein may have tax consequences both
in the United States and Canada, as applicable. Such
consequences for investors who are resident in, or citizens of,
Canada or the United States may not be described fully in this
prospectus supplement or the accompanying base shelf prospectus.
In this prospectus supplement, unless otherwise specified or the
context otherwise dictates, the terms Æterna
Zentaris, the Company, we,
us or our mean Æterna Zentaris Inc.
and its consolidated subsidiaries, unless it is clear that such
terms refer only to Æterna Zentaris Inc. excluding its
subsidiaries. Unless otherwise stated, currency amounts in this
prospectus supplement are stated in United States dollars, or
$ or US$.
The registration statement that contains the accompanying base
shelf prospectus, as amended (SEC File
No. 333-165037)
(including the exhibits filed with and the information
incorporated by reference into the registration statement)
contains additional important business and financial information
about us and our securities that is not presented or delivered
with this prospectus supplement. That registration statement,
including the exhibits filed with the registration statement and
the information incorporated by reference into the registration
statement, can be read at the SEC website or at the SEC office
mentioned under the section of this prospectus supplement
entitled Where to Find Additional Information below.
S-2
WHERE TO
FIND ADDITIONAL INFORMATION
We file annual reports with, and we furnish other reports on
Form 6-K
to, the SEC. You may read and copy materials we have filed with
or furnished to the SEC at the SECs public reference room
at 100 F Street, N.E., Washington, DC 20549. Please call
the SEC at
1-800-SEC-0330
for further information on the operation of its public reference
room. Our SEC filings are also available to the public on the
SECs Internet site at www.sec.gov. 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 at
www.sedar.com. In addition, we maintain a website that
contains information about us, including our SEC and Canadian
securities filings, at www.aezsinc.com. The information
contained on our website does not constitute a part of this
prospectus supplement, the accompanying base shelf prospectus or
any other report or documents we file with or furnish to the SEC
or with the securities regulatory authorities in Canada.
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This prospectus supplement, the accompanying prospectus and the
information incorporated by reference herein and therein contain
certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, or
the Securities Act, and Section 21E of the Securities
Exchange Act of 1934, as amended, or the Exchange Act. Such
statements are based on assumptions and expectations which may
not be realized and are inherently subject to risks,
uncertainties and other factors, many of which cannot be
predicted with accuracy and some of which might not even be
anticipated. Future events and actual results, performance,
transactions or achievements, financial and otherwise, may
differ materially from the results, performance, transactions or
achievements expressed or implied by the forward-looking
statements.
The risks and uncertainties of our business, including those
discussed under the sections entitled Risk Factors
beginning on page 8 of the accompanying prospectus and in
our annual report on
Form 20-F
for the financial year ended December 31, 2009 filed in
Canada with the Canadian securities regulatory authorities in
lieu of an annual information form and incorporated by reference
herein, could cause our actual results and experience to differ
materially from the anticipated results or other expectations
expressed.
Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee
future results, levels of activity, performance or achievements.
These forward-looking statements involve risks, uncertainties
and other factors that may cause our actual results in future
periods to differ materially from forecasted results. We do not
undertake to publicly update or revise these forward-looking
statements, whether as a result of new information, future
events or otherwise, other than to reflect a material change in
the information previously disclosed, as required by applicable
law. You should review our subsequent reports filed with or
furnished to from time to time the SEC and the Canadian
securities regulatory authorities and any amendments thereto. We
qualify all of our forward-looking statements by these
cautionary statements.
INCORPORATION
OF CERTAIN INFORMATION BY REFERENCE
The SEC and the Canadian securities regulatory authorities allow
us to incorporate by reference into this prospectus
supplement and the accompanying prospectus certain information
we file with or furnish to the SEC and the Canadian securities
regulatory authorities, which means that we may disclose
important information in this prospectus supplement and the
accompanying prospectus by referring you to the document that
contains the information. The information incorporated by
reference is considered to be a part of this prospectus
supplement and the accompanying prospectus, and the information
we file with or furnish to the SEC (and the Canadian securities
regulatory authorities) later will automatically update and
supersede the information filed or furnished earlier. We
incorporate by reference the documents listed below and any
filings we make with the SEC under Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act after the initial filing of the
registration statement that contains the accompanying prospectus
and until the offering of the securities covered thereby is
completed or withdrawn; provided, however, that we are not
incorporating by reference any additional documents or
information furnished and not filed with the SEC or the Canadian
securities regulatory authorities unless specifically otherwise
provided:
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our annual report on
Form 20-F
for the financial year ended December 31, 2009 (filed in
Canada with the Canadian securities regulatory authorities in
lieu of an annual information form), which was filed with the
SEC on March 30, 2010 and which includes our audited
consolidated balance sheets as at December 31, 2009 and
2008 and our audited consolidated statements of operations,
comprehensive loss, accumulated other comprehensive income and
deficit, changes in shareholders equity and cash flows for
each of the years in
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S-3
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the three-year period ended December 31, 2009, the
financial statement schedules and managements annual
report on internal control over financial reporting set out on
page 116 of our 2009 annual report on
Form 20-F,
together with the auditors report thereon dated
March 23, 2010 on our consolidated financial statements and
on the effectiveness of internal control over financial
reporting and our Managements Discussion and Analysis
included as Item 5. Operating and
Financial Review and Prospects in our annual report on
Form 20-F;
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our unaudited interim consolidated financial statements as at
March 31, 2010 and for the three-month periods ended
March 31, 2010 and 2009 and Managements Discussion
and Analysis thereon, included as Exhibit 99.1 to our
report on
Form 6-K
furnished to the SEC on May 13, 2010;
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our management information circular dated March 23, 2010 in
connection with our annual and special meeting of shareholders
held on May 13, 2010, which was included as
Exhibit 99.1 to our report on
Form 6-K
furnished to the SEC on March 31, 2010; and
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to the extent permitted by applicable securities law, any other
documents which we elect to incorporate by reference into the
accompanying base shelf prospectus.
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You may obtain copies of any of these filings by contacting us
at the address and telephone number indicated below or via the
SEDAR website or the SECs Internet site or by contacting
the SEC as described above under Where to Find Additional
Information. You may request a copy of these filings, and
any exhibits we have specifically incorporated by reference as
an exhibit into this prospectus supplement, at no cost, by
writing to or telephoning:
Æterna Zentaris Inc.
1405 du Parc-Technologique Boulevard, Quebec City, Canada G1P 4P5
Attn: Investor Relations
Tel.
(418) 652-8525
Readers should rely only on the information provided or
incorporated by reference into this prospectus supplement and
the accompanying prospectus. Readers should not assume that the
information in this prospectus supplement, the accompanying
prospectus, or any free writing prospectus, is accurate as of
any date other than the date of the applicable document.
ABOUT
ÆTERNA ZENTARIS
Our
Business
We are a late-stage drug development company specialized in
oncology and endocrine therapy. Our pipeline encompasses
compounds at all stages of development, from drug discovery
through marketed products. The highest priorities in oncology
are our Phase 3 program with perifosine in multiple myeloma and
colorectal cancer, combined with our Phase 2 program in multiple
cancers, as well as our Phase 2 program with AEZS-108 in
advanced endometrial and advanced ovarian cancer combined with
potential developments in other cancer indications. In
endocrinology, our lead program is our Phase 3 trial with
AEZS-130
(SolorelTM)
as a growth hormone stimulation test for the diagnosis of growth
hormone deficiency in adults.
S-4
The following table summarizes the development status of our
principal products and product candidates:
Status of
our drug pipeline as at June 15, 2010
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Discovery
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Preclinical
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Phase 1
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Phase 2
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Phase 3
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Commercial
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120,000
compound
library
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AEZS-120 Prostate cancer vaccine (oncology)
AEZS-129, 131 and 132 Erk & P13K Inhibitors (oncology)
AEZS-127 ErPC (oncology)
AEZS-123 Ghrelin receptor antagonist (endocrinology)
AEZS-115 Non-peptide LHRH antagonists (endometriosis & urology)
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AEZS-112
(oncology)
AEZS-130
Therapeutic in
tumor induced
cachexia and other
(endocrinology)
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Perifosine
Multiple cancers
AEZS-108
Ovarian cancer
Endometrial cancer
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Perifosine
Multiple myeloma
Colorectal cancer
AEZS-130
(Solorel(tm))
Diagnostic
in adult
growth hormone deficiency
(endocrinology)
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Cetrotide®
(in vitro
fertilization)
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Partners
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Perifosine:
Keryx
North America
Handok
Korea (oncology)
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Perifosine:
Keryx
North America
Handok
Korea (oncology)
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Cetrotide(®):
Merck Serono
(World ex-Japan)
Nippon Kayaku/
Shionogi
Japan
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We were incorporated on September 12, 1990 under the laws
of Canada. Our registered office is located at 1405 du
Parc-Technologique Blvd., Quebec City, Canada G1P 4P5, our
telephone number is
(418) 652-8525
and our website is www.aezsinc.com. None of the documents
or information found on our website shall be deemed to be
included in or incorporated into this prospectus supplement or
the accompanying base shelf prospectus.
Recent
Developments
Perifosine
On May 17, 2010, we announced the publication of an article
in the May 12, 2010 edition of the Journal of the National
Cancer Institute entitled In Vitro and In Vivo
Inhibition of Neuroblastoma Tumor Cell Growth by AKT Inhibitor
Perifosine, demonstrating the single agent activity of
perifosine in neuroblastoma tumor preclinical models.
Neuroblastoma is the most common pediatric solid tumor.
Perifosine, our novel, potentially
first-in-class,
oral anti-cancer agent that inhibits Akt activation in the
phosphoinositide
3-kinase
(PI3K) pathway, is currently being investigated in a Phase 1
study as a single agent treatment for recurrent solid tumors,
including neuroblastoma, in pediatric patients. The article
states that activated Akt is a marker of decreased event-free or
overall survival in neuroblastoma patients, and that the aim of
this study was to investigate the effect of perifosine, an Akt
inhibitor, as a single agent on neuroblastoma cell growth in
vitro and in vivo. The preclinical study investigated
the activity of perifosine on four human neuroblastoma cell
lines, as well as on the survival, tumor growth, and activation
status of Akt in mice bearing human neuroblastoma xenograft
tumors. Perifosine showed a statistically significant reduction
in neuroblastoma cell survival, slowed or regressed tumor
growth, and increased survival in mice bearing neuroblastoma
tumors. A decreased level of activated Akt was also observed in
perifosine-treated neuroblastoma cells and xenograft tumors. The
investigators concluded that perifosine inhibited the activation
of Akt and was an effective cytotoxic agent in neuroblastoma
cells in vitro and in vivo, and that this data
supports the future clinical evaluation of perifosine for the
treatment of neuroblastoma tumors.
S-5
On June 7, 2010, we announced that Phase 1 data of
perifosine in recurrent pediatric solid tumors was presented in
the pediatric solid tumor poster discussion session held at the
46th Annual Meeting of the American Society of Clinical Oncology
(ASCO) taking place in Chicago. This study, conducted by the
Memorial Sloan-Kettering Cancer Center pediatric group, marks
the first time that perifosine has been administered in a
pediatric patient setting.
This Phase 1 Study of perifosine for Recurrent Pediatric Solid
Tumors is a single center, open-label, dose-escalating study to
assess safety, tolerability, pharmacokinetics (PK), and to
identify any dose limiting toxicity (DLT) of single agent
perifosine in pediatric patients with any solid tumor that has
failed standard therapy. Eleven patients (4 males, 7 females),
at a median age of 13 years (5-18) were treated in this
study to date. The following tumor types were treated thus far:
high-grade glioma (5), medulloblastoma (2), neuroblastoma (3),
and ependymoma (1). Most patients were heavily pretreated, with
a median of three prior lines of therapy. Cohorts of three
patients were treated at three dose levels:
25mg/m2/day,
50mg/m2/day
and
75mg/m2/day
using 50mg tablets of perifosine after a loading dose on day 1,
and taking into account the drugs long half-life
(>100hrs). No DLTs were observed at any of the three dose
levels; dose level 4 is currently open for accrual. PK data
thus far suggests similar drug absorption by pediatric patients
relative to adult patients treated with single agent perifosine.
Of particular interest are the early signs of clinical activity
observed in two of the three patients with Stage 4 refractory
neuroblastoma. Both patients were refractory to prior treatments
upon entering the study and achieved stable disease for
48 weeks and 55+ weeks (ongoing). The investigators
concluded that perifosine is well-tolerated in children with
recurrent solid tumors and that these early signals of activity
warrant further investigation in patients with advanced
neuroblastoma and select brain tumors. Previously, perifosine
has been shown to target activation of Akt in neuroblastoma
cells and xenografts and to significantly inhibit tumor growth
in vivo and improve the survival of mice bearing
neuroblastoma tumors.
AEZS-108
On May 6, 2010, we announced that we had received
orphan-drug designation from the U.S. Food and Drug
Administration (FDA) for AEZS-108, our doxorubicin
targeted conjugate compound, for the treatment of ovarian
cancer. AEZS-108 is currently in a Phase 2 trial in advanced
ovarian and advanced endometrial cancer in Europe. Orphan-drug
designation is granted by the FDA Office of Orphan Products
Development to novel drugs or biologics that treat a rare
disease or condition affecting fewer than 200,000 patients in
the U.S. The designation provides a drug developer with a
seven-year period of marketing exclusivity if the drug is the
first of its type approved for the specified indication or if it
demonstrates superior safety, efficacy or a major contribution
to patient care versus another drug of its type previously
granted the designation for the same indication.
On May 12, 2010, we announced that the FDA had approved our
Investigational New Drug (IND) application for
AEZS-108 in luteinizing hormone releasing hormone
(LHRH) receptor positive urothelial (bladder)
cancer. Following this approval from the FDA, we expect to
initiate a Phase 2 clinical trial in this indication in the
second half of 2010. This trial will be conducted at the
Sylvester Comprehensive Cancer Center at the University of Miami
Miller School of Medicine, and will include up to 64 patients,
male and female, with advanced LHRH-receptor positive urothelial
(bladder) cancer. The study will be conducted in two parts:
first, a dose-finding part in up to 12 patients; subsequently, a
selected dose will be studied for its effect on progression-free
survival.
On May 17, 2010, we also announced that we had received a
positive opinion for orphan medicinal product designation from
the Committee for Orphan Medicinal Products (COMP)
of the European Medicines Agency for AEZS-108 for the treatment
of ovarian cancer. Orphan medicinal product designation is
granted by the European Commission, following a positive opinion
from the COMP, to a medicinal product that is intended for the
diagnosis, prevention or treatment of a life-threatening or a
chronically debilitating condition affecting not more than five
in 10,000 persons in the European Community when the application
for designation is submitted. Orphan medicinal product
designation provides the sponsor with access to the Centralized
Procedure for the application for marketing authorization,
protocol assistance, up to a 100% reduction in fees related to a
marketing authorization application, pre-authorization
inspection and post-authorization activities, and could provide
ten years of market exclusivity in the European Union for
AEZ-108 once approved for the treatment of ovarian cancer.
On June 7, 2010, Prof. Günter Emons,
Chairman, Department of Obstetrics & Gynaecology
Georg-August University Göttingen, Germany, presented
positive efficacy and safety data for our doxorubicin targeted
conjugate compound, AEZS-108, in ovarian cancer, at the American
Society of Clinical Oncology (ASCO) Annual Meeting.
AEZS-108 is
currently in a Phase 2 trial conducted in Europe by the German
AGO Study Group (Study AGO-GYN5), in
S-6
advanced ovarian and endometrial cancer, with final results
expected by year-end. The poster (abstract #5035) entitled,
Phase 2 study of AEZS-108, a targeted cytotoxic LHRH
analog, in patients with LHRH receptor positive platinum
resistant ovarian cancer, G. Emons, S. Tomov, P.
Harter, J. Sehouli, P. Wimberger, A. Staehle, L. C. Hanker, F.
Hilpert, P. Dall, and C. Gruendker, for the AGO Study
Group, details the use of AEZS-108, a targeted cytotoxic drug in
which doxorubicin is linked to [D-Lys(6)]-luteinizing
hormone-releasing hormone (LHRH), in women with histologically
confirmed taxane-pretreated platinum-resistant/refractory LHRH-R
positive advanced (FIGO III or IV) or recurrent ovarian
cancer. Patients received a recommended dose of 267
mg/m2 by
intravenous infusion over 2 hours, with retreatment every
3 weeks, for up to 6 courses. Response rate (RECIST and/or
GCIG criteria) was defined as primary endpoint. Secondary
endpoints were safety,
time-to-progression
(TTP) and overall survival (OS).
42 patients with platinum-resistant ovarian cancer entered the
study. Efficacy included partial response in 5 patients (11.9%)
and stable disease for more than 12 weeks in 11 patients
(26.2%). Based on those data, a Clinical Benefit Rate (CBR) of
38% can be estimated. Median time to progression (TTP) and
overall survival (OS) were 3.5 months (104 days) and
15.6 months (475 days), respectively.
In all, tolerability of AEZS-108 was good and commonly allowed
retreatment as scheduled. Only one patient (2.4%) had a dose
reduction, and overall, 25 of 170 (14.7%) courses were given
with a delay, including also cases in which delay was not
related to toxicity. Severe (Grade 3 or 4) toxicity was
mainly restricted to rapidly reversible hematologic toxicity
(leukopenia/neutropenia) associated with fever in 3 cases. Good
tolerability of AEZS-108 was also reflected with only a few
patients with non-hematological toxicities of grade 3 (none with
grade 4), including single cases (2.4%) each of nausea,
constipation, poor general condition, and an enzyme elevation.
No cardiac toxicity was reported.
S-7
THE
OFFERING
|
|
|
Issuer |
|
Æterna Zentaris Inc. |
|
Securities we are offering |
|
8,805,964 units. Each unit is comprised of one common share of
our capital and a purchaser warrant to purchase 0.50 of a common
share of our capital. |
|
Price per Unit |
|
$1.3725 |
|
Common shares to be outstanding after this offering |
|
83,138,663 common shares without giving effect to the exercise
of warrants, and 87,805,823 common shares assuming and after
giving effect to the exercise of all warrants offered under this
prospectus supplement (including both the purchaser warrants and
the compensation warrants). The number of common shares to be
issued and outstanding after this offering is based on
74,332,699 common shares issued and outstanding as at
June 15, 2010, and excludes: |
|
|
|
5,914,121 common shares
issuable upon the exercise of outstanding stock options at a
weighted average exercise price of C$2.73 per common share and
293,334 common shares issuable upon the exercise of outstanding
stock options at a weighted average exercise price of $2.83 per
common share;
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|
8,438,380 common shares
issuable upon the exercise of outstanding warrants at a weighted
average exercise price of $1.60 per common share; and
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|
an aggregate of 2,266,473
common shares reserved for future issuance under our equity
incentive plans.
|
|
Warrants to be outstanding after this offering |
|
Warrants to acquire an aggregate of 13,105,540 common shares
will be outstanding after this offering (including the purchaser
warrants and the compensation warrants offered hereby).
Purchaser warrants to acquire 4,402,982 common shares at a price
of $1.3725 per share, and compensation warrants to acquire
264,178 common shares at a price of $1.7156 per share, will be
issued pursuant to this offering. |
|
Use of Proceeds |
|
We expect the net proceeds from this offering to be up to
approximately $11.3 million after deducting the placement
agents fees and expenses as described in the section of
this prospectus supplement entitled Plan of
Distribution and other estimated offering expenses payable
by us, which include legal and filing fees, printing costs and
various other fees associated with registering the securities
and listing the common shares, and excluding the proceeds, if
any, from the exercise of the warrants issued pursuant to this
offering. We intend to use the net proceeds from the sale of the
securities under this prospectus supplement to fund our
AEZS-108, AEZS-112 and AEZS-130 programs and for other general
corporate and working capital purposes. |
|
NASDAQ Symbol |
|
AEZS |
|
TSX Symbol |
|
AEZ |
|
Risk Factors |
|
This investment involves a high degree of risk. Please see the
sections entitled Risk Factors beginning on
page S-9
of this prospectus supplement and page 8 of the
accompanying prospectus, as well as in the documents
incorporated by reference herein and therein. |
S-8
RISK
FACTORS
Investing in our securities involves a high degree of risk. You
should carefully consider the risks described below before
making an investment decision. You should also refer to the
other information in this prospectus supplement, including
information incorporated or deemed to be incorporated by
reference herein, including our consolidated financial
statements and related notes, and in the accompanying
prospectus. The risks and uncertainties described in the
accompanying prospectus and incorporated by reference herein are
those that we currently believe may materially affect us.
Additional risks and uncertainties that we are unaware of or
that we currently deem immaterial also may become important
factors that affect us. If any of the following risks actually
occurs, our business, financial condition, and results of
operations could be materially adversely affected, the trading
price of our common shares could decline and you could lose all
or part of your investment.
Risks
relating to this Offering
Our
share price is volatile, which may result from factors outside
of our control. If we experience low trading volume or if our
common shares are delisted from the TSX or NASDAQ, you may have
difficulty selling your common shares.
Our common shares are currently listed and traded only on the
TSX and NASDAQ. Our valuation and share price since the
beginning of trading after our initial listings, first in Canada
and then in the United States, have had no demonstrable or
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.
During the year ended December 31, 2009, the closing price
of our common shares ranged from C$0.46 to C$3.11 per share on
the TSX, and from $0.46 to $2.83 on the NASDAQ, and during the
five months ended May 31, 2010, the closing price of our
common shares ranged from C$0.80 to C$2.14 per share on the TSX
and from $0.79 to $2.09 on the NASDAQ. 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:
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clinical and regulatory developments regarding our product
candidates;
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delays in our anticipated development or commercialization
timelines;
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developments regarding current or future third-party
collaborators;
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other announcements by us regarding technological, product
development 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
United States, 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 United States, Canada or abroad.
|
Our listing on both the TSX and NASDAQ may increase price
volatility due to various factors including: different ability
to buy or sell our common shares; different market conditions in
different capital markets; and different trading volumes. In
addition, low trading volume may increase the price volatility
of our common shares. A thin trading market could cause the
price of our common shares to fluctuate significantly more than
the stock market as a whole.
In the past, following periods of large price declines in the
public market price of a companys securities, securities
class action litigation has often been initiated against that
company. Litigation of this type could result in substantial
costs and diversion of managements attention and
resources, which would adversely affect our business. Any
adverse determination in litigation could also subject us to
significant liabilities.
We must meet continuing listing requirements to maintain the
listing of our common shares on the TSX and NASDAQ. For
continued listing, NASDAQ requires, among other things, that
listed securities maintain a minimum closing bid price of not
less than $1.00 per share. On January 22, 2010, we
announced that we had received a letter from
S-9
the NASDAQ Listing Qualifications Department indicating that the
minimum closing bid price of the common shares had fallen below
$1.00 for 30 consecutive trading days, and therefore,
Æterna Zentaris was not in compliance with NASDAQ Listing
Rule 5450(a)(1) (the Rule). In accordance with
NASDAQ Listing Rule 5810(C)(3)(a), we were provided a grace
period of 180 calendar days, or until July 20, 2010, to
regain compliance with this requirement. On April 27, 2010,
we announced that we had received a letter from NASDAQ notifying
us that the closing bid price of our common shares was above
U.S.$1.00 for ten consecutive trading days and that, as a
result, we had regained compliance with the Rule as of
April 23, 2010.
If we are unsuccessful in maintaining the minimum bid
requirements set forth in the Rule in the future and are unable
to subsequently regain compliance within the applicable grace
period, our common shares will be subject to delisting from the
NASDAQ Global Market. Should we receive a delisting
notification, we may appeal to the Listing Qualifications Panel
or apply to transfer the listing of our common shares to the
NASDAQ Capital Market if we satisfy at such time all of the
initial listing standards on the NASDAQ Capital Market, other
than compliance with the minimum closing bid price requirement.
If the application to the NASDAQ Capital Market is approved,
then we will have an additional
180-day
grace period in order to regain compliance with the minimum bid
price requirement while listed on the NASDAQ Capital Market.
There can be no assurance that we will meet the requirements for
continued listing on the NASDAQ Global Market or whether our
application to the NASDAQ Capital Market would be approved or
that any appeal would be granted by the Listing Qualifications
Panel.
An
active market may not develop for the warrants, which may hinder
your ability to liquidate your investment.
The issuance of warrants under this prospectus supplement is a
new issue of securities with no established trading market, and
we do not currently intend to list them on any securities
exchange. A dealer may intend to make a market in the warrants
after their issuance pursuant to this prospectus supplement;
however, a dealer may not be obligated to do so and may
discontinue such market-making at any time. As a result, we
cannot assure you that an active trading market will develop for
any series of the warrants. In addition, subsequent to their
initial issuance, the warrants may trade at a discount to their
initial offering price, depending upon the value of the
underlying common shares and upon our prospects or the prospects
for companies in our industry generally and other factors,
including those described herein.
A
large number of common shares may be issued and subsequently
sold upon the exercise of the warrants. The sale or availability
for sale of these warrants may depress the price of our common
shares.
An aggregate of 4,667,160 common shares are issuable upon the
exercise of the warrants. To the extent that purchasers of
warrants sell common shares issued upon the exercise of the
warrants, the market price of our common shares may decrease due
to the additional selling pressure in the market. The risk of
dilution from issuances of common shares underlying the warrants
may cause shareholders to sell their common shares, which could
further contribute to any decline in the common share price.
You
will incur immediate and substantial dilution.
The public offering price is substantially higher than the pro
forma and pro forma as adjusted negative net tangible book value
per share of our outstanding common shares immediately after the
offering. As a result, investors purchasing common shares in the
offering will incur immediate and substantial dilution in the
amount of $1.62 per common share. See Consolidated
Capitalization and Dilution.
The
sale of common shares issued upon exercise of the warrants could
encourage short sales by third parties which could further
depress the price of the common shares.
Any downward pressure on the price of common shares caused by
the sale of common shares issued upon the exercise of the
warrants could encourage short sales by third parties. In a
short sale, a prospective seller borrows common shares from a
shareholder or broker and sells the borrowed common shares. The
prospective seller hopes that the common share price will
decline, at which time the seller can purchase common shares at
a lower price for delivery back to the lender. The seller
profits when the common share price declines because it is
purchasing common shares at a price lower than the sale price of
the borrowed common shares. Such sales could place downward
pressure on the price of our common shares by increasing the
number of common shares being sold, which could further
contribute to any decline in the market price of our common
shares.
S-10
Future
issuances of securities and hedging activities may depress the
trading price of our common shares.
Any issuance of equity securities or securities convertible into
or exchangeable for equity securities after the offering of
units under this prospectus supplement, including the issuance
of common shares upon the exercise of stock options and upon
exercise of the warrants, could dilute the interests of our
existing equity securityholders, and could substantially
decrease the trading price of our common shares. We may issue
equity securities in the future for a number of reasons,
including to finance our operations and business strategy, to
satisfy our obligations upon the exercise of options or for
other reasons. Our stock option plan generally permits us to
have outstanding, at any given time, stock options that are
exercisable for a maximum number of common shares equal to 11.4%
of all then issued and outstanding common shares. As at
June 15, 2010, there were:
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74,332,699 common shares issued and outstanding;
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No issued and outstanding Preferred Shares;
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8,438,380 common shares issuable upon exercise of outstanding
warrants; and
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6,207,455 stock options outstanding.
|
In addition, the price of common shares could also be affected
by possible sales of common shares by investors who view other
investment vehicles as more attractive means of equity
participation in us and by hedging or arbitrage trading activity
that may develop involving our common shares. This hedging or
arbitrage could, in turn, affect the trading price of our common
shares.
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 Certain Income Tax Considerations
United States Federal Income Taxation) that directly or
indirectly hold common shares or warrants 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 percent of our gross income is
passive income or (ii) at least 50 percent
of the average value of our assets, including goodwill (based on
annual quarterly average), is attributable to assets which
produce passive income or are held for the production of passive
income.
We believe that we were not a PFIC for the 2009 taxable year.
However, since 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 2010 taxable year and for any future taxable year.
PFIC characterization could result in adverse U.S. federal
income tax consequences to U.S. Holders. In particular, absent
certain elections, a U.S. Holder would 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 common shares or warrants, 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. However, a
mark-to-market
election is not available to be made in respect of warrants.
Under recently enacted U.S. tax legislation and subject to
future guidance, if the Company is a PFIC, U.S. Holders will be
required to file, for returns due after March 18, 2010, an
annual information return with the IRS relating to their
ownership of common shares and, potentially, warrants. This new
filing requirement is in addition to any pre-existing reporting
requirements that applied to a U.S. Holders interest in a
PFIC (which the recently enacted tax legislation does not
affect). Pursuant to IRS Notice
2010-34, the
new filing requirement will not apply for taxable years
beginning before March 18, 2010. No additional guidance has
yet been issued about the annual information return required
under the recently enacted legislation, including on the
information required to be reported on such return, the form of
the return, or the due date for the return.
For a more detailed discussion of the potential tax impact of us
being a PFIC, see the section entitled Certain Income Tax
Considerations United States Federal Income
Taxation.
S-11
USE OF
PROCEEDS
We expect the net proceeds from this offering to be up to
approximately $11.3 million after deducting the placement
agents fees and expenses as described in the section of
this prospectus supplement entitled Plan of
Distribution and other estimated offering expenses payable
by us, which include legal and filing fees, printing costs and
various other fees associated with registering the securities
and listing the common shares, and excluding the proceeds, if
any, from the exercise of the warrants issued pursuant to this
offering. We intend to use the net proceeds from the sale of the
securities under this prospectus supplement to fund our
AEZS-108, AEZS-112 and AEZS-130 programs and for other general
corporate and working capital purposes.
PRICE
RANGE AND TRADING VOLUMES
Our common shares are listed and posted for trading on the
NASDAQ under the symbol AEZS and on the TSX under
the symbol AEZ. The following table indicates, for
the relevant periods, the high and low closing prices and the
average daily trading volume of our common shares on NASDAQ and
on the TSX:
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NASDAQ (US$)
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TSX (C$)
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High
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Low
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Volume
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High
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Low
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Volume
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June-10(1)
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1.78
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1.24
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2,754,440
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1.88
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1.31
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277,659
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May-10
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2.09
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1.21
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7,920,290
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2.14
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1.23
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884,790
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Apr-10
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1.65
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0.80
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4,816,695
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1.66
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0.80
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877,252
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Mar-10
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0.85
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0.79
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217,325
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0.87
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0.81
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77,730
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Feb-10
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0.87
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0.81
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102,265
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0.91
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0.86
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38,021
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Jan-10
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|
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0.93
|
|
|
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0.80
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|
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489,389
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|
0.99
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|
|
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0.83
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109,245
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Dec-09
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1.12
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0.80
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341,716
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1.17
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0.83
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140,062
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Nov-09
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1.10
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0.98
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191,089
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1.17
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1.05
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97,410
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Oct-09
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1.25
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0.99
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408,270
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1.40
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1.07
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96,648
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Sept-09
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1.38
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0.89
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1,240,716
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1.46
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0.98
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259,348
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Aug-09
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2.83
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0.89
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1,567,974
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3.11
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0.97
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704,210
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Jul-09
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2.62
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1.67
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391,576
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2.80
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1.95
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188,891
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Jun-09
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2.35
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1.73
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257,401
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2.63
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1.97
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185,032
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(1) |
Up to and including June 15, 2010.
|
PRIOR
SALES
On June 23, 2009, we completed a registered direct offering
pursuant to which we issued 5,319,149 units, each unit being
comprised of one common share and one warrant to purchase 0.35
of a common share, for a price of $1.88 per unit. Each such
warrant has an exercise price of $2.06 per share. We also issued
compensation warrants to purchase up to an aggregate of 287,234
common shares to Rodman & Renshaw, LLC (and certain of
its representatives), who acted as placement agent for this
offering, which warrants have an exercise price of $2.35 per
share.
In addition, on October 23, 2009, we completed a second
registered direct offering pursuant to which we issued 4,583,335
units, each unit being comprised of one common share and one
warrant to purchase 0.40 of a common share, for a purchase price
of $1.20 per unit. Each such warrant has an exercise price of
$1.25 per common share. We also issued compensation warrants to
purchase up to an aggregate of 128,333 common shares to
Rodman & Renshaw, LLC, who acted as placement agent
for this offering, which warrants have an exercise price of
$1.50 per common share.
On December 9, 2009, we granted an aggregate of 1,448,422
stock options to acquire common shares at an exercise price of
C$0.95 to certain directors, executive officers and employees of
the Company pursuant to our stock option plan.
On April 20, 2010, we completed a registered direct
offering pursuant to which we issued 11,111,111 units, each unit
being comprised of one common share and one warrant to purchase
0.40 of a common share, for a price of $1.35 per unit (the
April 2010 Offering). Each such warrant has an
exercise price of $1.50 per share.
There were no material changes in our share capital structure
during the financial years ended December 31, 2008 and
2009, except as disclosed and described in our annual audited
and interim unaudited financial statements incorporated by
reference herein.
S-12
CONSOLIDATED
CAPITALIZATION AND DILUTION
The following table presents the number of our issued and
outstanding common shares and our consolidated cash and cash
equivalents and capitalization as at March 31, 2010 on an
actual basis and as adjusted to give effect to (i) the
issuance and sale of the 8,805,964 common shares offered under
this prospectus supplement at a public offering price of $1.3725
per share, and (ii) the issuance and sale of both the
8,805,964 common shares offered under this prospectus supplement
at a public offering price of $1.3725 per share as well as the
issuance and sale of all 4,402,982 common shares issuable upon
exercise of the purchaser warrants offered under this prospectus
supplement at a price per share of $1.3725 and of all 264,178
common shares issuable upon exercise of the compensation
warrants offered under this prospectus supplement at a price per
share of $1.7156. The adjustments present the expected impact on
the number of our issued and outstanding shares, our
consolidated cash and cash equivalents and our capitalization as
at March 31, 2010 of the issuances described above and
after the payment by us of the placement agents fees and
estimated transaction expenses. There has been no material
change to our share capital since March 31, 2010 except for
the issuance and sale of 11,111,111 common shares and warrants
to acquire 4,444,444 common shares pursuant to the April 2010
Offering as described in Note 10 to our unaudited interim
consolidated financial statements as at March 31, 2010 and
for the three-month periods ended March 31, 2010 and 2009.
In addition, as at March 31, 2010, we had no outstanding
long-term debt.
The information below should be read in conjunction with, and is
qualified in its entirety by, the audited consolidated financial
statements and schedules and notes thereto included in our
annual report on
Form 20-F
for the financial year ended December 31, 2009 filed in
Canada with the Canadian securities regulatory authorities in
lieu of an annual information form, and our unaudited interim
consolidated financial statements as at March 31, 2010 and
for the three-month periods ended March 31, 2010 and 2009
and Managements Discussion and Analysis thereon, each as
incorporated by reference into this prospectus supplement.
Figures are in thousands of U.S. dollars except share data.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
As Further
|
|
|
|
|
|
|
Actual(1)
|
|
|
As
Adjusted(2)
|
|
|
Adjusted(3)
|
|
|
Number of common shares issued and outstanding
|
|
|
|
|
|
|
63,089,954
|
(4)
|
|
|
71,895,918
|
(4)
|
|
|
76,563,078
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
$
|
26,947
|
|
|
$
|
38,239
|
|
|
$
|
44,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share capital and warrants
|
|
|
|
|
|
$
|
44,102
|
|
|
$
|
55,394
|
|
|
$
|
61,890
|
|
Other capital
|
|
|
|
|
|
|
80,086
|
|
|
|
80,086
|
|
|
|
80,086
|
|
Deficit
|
|
|
|
|
|
|
(133,418
|
)
|
|
|
(133,418
|
)
|
|
|
(133,418
|
)
|
Accumulated other comprehensive income
|
|
|
|
|
|
|
12,400
|
|
|
|
12,400
|
|
|
|
12,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity and total capitalization
|
|
|
|
|
|
$
|
3,170
|
|
|
$
|
14,462
|
|
|
$
|
20,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Each of the above Actual, As Adjusted
and As Further Adjusted columns excludes and does
not reflect the issuance and sale by us of 11,111,111 common
shares and warrants to acquire 4,444,444 common shares pursuant
to the April 2010 Offering as described in Note 10 to our
unaudited interim consolidated financial statements as at and
for the three-month periods ended March 31, 2010 and 2009.
|
|
(2)
|
As adjusted assumes and gives effect to the issuance and sale of
8,805,964 common shares offered under this prospectus supplement
at a price of $1.3725 per share and the payment by us of the
placement agents fee and the expenses of the offering.
|
|
(3)
|
As further adjusted assumes and gives effect to the issuance and
sale of 8,805,964 common shares offered under this prospectus
supplement at a price of $1.3725 per share, to the issuance of
4,402,982 common shares issuable upon exercise of the purchaser
warrants offered under this prospectus supplement at a price of
$1.3725 per share, to the issuance of 264,178 common shares
issuable upon exercise of the compensation warrants offered
under this prospectus supplement at a price of $1.7156 per
share, and to the payment by us of the placement agents
fee and the expenses of the offering.
|
|
(4)
|
In addition, (i) 2,148,936 common shares are currently
issuable upon exercise of warrants that we previously issued in
June 2009, of which 1,861,702 are issuable at a price of $2.06
per share and 287,234 are issuable at a price of $2.35 per
share, (ii) 1,845,000 common shares are currently issuable
upon exercise of warrants that we previously issued in October
2009, of which 1,716,667 are issuable at $1.25 per share and
128,333 are issuable at $1.50 per share, and
(iii) 4,444,444 common shares are currently issuable upon
the exercise of warrants that we previously issued in April
2010, all of which are issuable at $1.50 per share. There are
also currently 6,207,455 common shares that underlie outstanding
stock options granted under our stock option plan.
|
If you purchase units in this offering, your interest will be
diluted to the extent of the excess of the public offering price
per common share over the as adjusted negative net tangible book
value per common share after this offering. Negative 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, income taxes,
inventory, and property, plant and equipment)
S-13
reduced by the amount of our total liabilities, divided by the
total number of common shares issued and outstanding. For
purposes of the dilution computation and the following tables,
we have allocated the full purchase price of a Unit to the
common shares included in the Unit and none to the warrants.
At March 31, 2010, we had a negative net tangible book
value of approximately $29.0 million, or approximately
$0.46 per share based on 63,089,954 common shares issued and
outstanding. After taking into account the estimated net
proceeds from this offering of $11.3 million, and the
issuance of 8,805,964 common shares in this offering (but
excluding the net proceeds received from the April 2010 Offering
and the issuance of 11,111,111 common shares thereunder), our
pro forma negative net tangible book value at March 31,
2010 would have been approximately $17.7 million, or
$0.25 per common share. This represents an immediate
increase in net tangible book value of $0.21 per common
share to existing shareholders and an immediate dilution of
$1.62 per common share to the new investors who purchase
units in this offering. The following table illustrates this per
share
dilution:(1)
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|
|
|
|
|
|
|
|
Public offering price per Unit
|
|
|
|
|
|
$
|
1.3725
|
|
Net tangible book value per common share as at March 31,
2010(1)
|
|
$
|
(0.46
|
)
|
|
|
|
|
Increase in net tangible book value per common share
attributable to this offering
|
|
$
|
0.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net tangible book value per common share as at
March 31, 2010, after giving effect to this offering
|
|
|
|
|
|
$
|
(0.25
|
)
|
|
|
|
|
|
|
|
|
|
Dilution in net tangible book value per common share to new
investors in this offering
|
|
|
|
|
|
$
|
1.62
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
All figures in the above table exclude the April 2010 Offering.
|
The above table is based on 63,089,954 common shares outstanding
as at March 31, 2010 and excludes, as at March 31,
2010:
|
|
|
|
|
8,805,964 common shares to be issued, 4,402,982 common shares
issuable upon the exercise of purchaser warrants to be issued to
purchasers in this offering and 264,178 common shares issuable
upon the exercise of compensation warrants to be issued to the
agent in connection with this offering;
|
|
|
|
11,111,111 common shares issued at a price of $1.35 per share
and 4,444,444 issuable upon exercise of warrants exercisable at
a price of $1.50 per share issued pursuant to the April 2010
Offering;
|
|
|
|
5,914,121 common shares issuable upon the exercise of
outstanding stock options at a weighted average exercise price
of C$2.73 per common share and 293,334 common shares issuable
upon the exercise of outstanding stock options at a weighted
average exercise price of $2.83 per common share;
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|
|
|
an aggregate of 2,266,473 common shares reserved for future
issuance under our stock option plan; and
|
|
|
|
8,438,380 common shares issuable upon the exercise of previously
issued and outstanding warrants at a weighted average exercise
price of $1.60 per common share.
|
To the extent that any of these options or warrants are
exercised or new options are issued under our stock option plan,
or we otherwise issue additional common shares in the future,
there will be further dilution to the new investors.
S-14
DESCRIPTION
OF SECURITIES OFFERED UNDER THIS PROSPECTUS SUPPLEMENT
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), both issuable in series. As at
June 15, 2010, there were 74,332,699 common shares issued
and outstanding. No Preferred Shares of the Company 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
Companys 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.
Preferred
Shares
The First and Second Preferred Shares are issuable in series
with rights and privileges specific to each class. The holders
of Preferred Shares are generally not entitled to receive notice
of or to attend or vote at meetings of shareholders. The holders
of First Preferred Shares are entitled to preference and
priority to any participation of holders of Second Preferred
Shares, common shares or shares of any other class of shares of
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 Canada Business
Corporations Act 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.
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, 2009 filed in
Canada with the Canadian securities regulatory authorities in
lieu of an annual information form and incorporated by reference
into this Prospectus Supplement.
Purchaser
Warrants
The material terms and provisions of the purchaser warrants
being offered under this prospectus supplement and the
accompanying prospectus are summarized below. This summary is
subject to, and is qualified in its entirety by, the form of
purchaser warrant, which will be provided to the investors in
this offering and will be filed with the Canadian securities
regulatory authorities on the SEDAR website at
www.sedar.com and furnished to the SEC as an exhibit to a
report on
Form 6-K.
The purchaser warrants will provide for an exercise price of
$1.3725 per share. They will be immediately exercisable and will
expire five years from the date of their issuance. The exercise
price of the warrants will be subject to adjustment in the case
of stock splits, stock dividends, share consolidations and
similar recapitalization transactions. The holder will not have
the right to exercise any portion of the warrant if the holder,
together with its affiliates, would, subject to limited
exceptions, beneficially own in excess of 4.99% of the number of
our common shares outstanding immediately after the exercise.
The holder may elect to change this beneficial ownership
limitation from 4.99% to up to 9.99% of the number of our common
shares outstanding immediately after the exercise upon not less
than 61 days prior written notice to us.
S-15
The holders of purchaser warrants must make payment in cash of
the exercise price of the shares being acquired upon exercise of
the purchaser warrants. If, however, we are unable to offer and
sell the shares underlying these warrants due to the
ineffectiveness of the registration statement of which this
prospectus supplement is a part, then the purchaser warrants may
be exercised on a net or cashless basis.
No fractional common shares will be issued upon the exercise of
the purchaser warrants.
If, at any time while the warrant is outstanding, we
(i) consolidate or merge with or into another corporation,
(ii) sell all or substantially all of our assets,
(iii) are subject to or complete a tender or exchange offer
pursuant to which holders of our common shares are permitted to
tender or exchange their shares for other securities, cash or
property and which has been accepted by the holders of 50% or
more of our outstanding common shares, (iv) effect any
reclassification of our common shares or any compulsory share
exchange pursuant to which our common shares are converted into
or exchanged for other securities, cash or property, or
(v) in one or more related transactions, consummate a share
purchase agreement or other business combination with another
person whereby such person acquires more than 50% of our
outstanding common shares (not including our common shares held
by such other person or the persons acting jointly with such
person in the context of such transactions), each, a Fundamental
Transaction, then each holder shall have the right thereafter to
receive, upon exercise of the warrant, the same amount and kind
of securities, cash or property as such holder would have been
entitled to receive upon the occurrence of such Fundamental
Transaction if it had been, immediately prior to such
Fundamental Transaction, the holder of the number of warrant
shares then issuable upon exercise of the warrant, or Alternate
Consideration. Any successor to us, surviving entity or the
corporation purchasing or otherwise acquiring such assets shall
assume the obligation to deliver to the holder such Alternate
Consideration as the holder may be entitled to purchase, and the
other obligations under the warrant.
Notwithstanding the above, in the event of any type of
Fundamental Transaction and irrespective of the form of
consideration payable thereunder, the holders of the warrants
will be entitled to receive, in lieu of our common shares and at
the holders option, cash in an amount equal to the value
of the remaining unexercised portion of the warrant on the date
of the transaction determined using a Black-Scholes option
pricing model with an expected volatility equal to the greater
of 60% and the
100-day
historical price volatility obtained from Bloomberg L.P. as of
the trading day immediately prior to the public announcement of
the transaction.
The purchaser warrants will not be listed on any national or
foreign trading market.
PLAN OF
DISTRIBUTION
We have entered into a placement agency agreement dated as of
June 15, 2010 with Rodman & Renshaw, LLC. Subject
to the terms and conditions contained in the placement agency
agreement, the placement agent has agreed to act as placement
agent in connection with the sale of up to 8,805,964 of our
common shares and purchaser warrants to purchase up to 4,402,982
of our common shares in this offering. The placement agent is
not purchasing or selling any securities under this prospectus
supplement and the accompanying prospectus, nor is the placement
agent required to arrange for the purchase or sale of any
specific number or dollar amount of the securities, but it has
agreed to use its reasonable best efforts to arrange for the
sale of all of the securities in this offering. There is no
requirement that any minimum number of units or dollar amount of
units be sold in this offering and there can be no assurance
that we will sell all of the units being offered.
The placement agency agreement provides that the obligations of
the placement agent and the investors are subject to certain
conditions precedent including, among other things, the absence
of any material adverse change in our business.
We currently anticipate that the closing of this offering will
take place on or about June 18, 2010. On the closing date,
the following will occur:
|
|
|
|
|
we will receive funds in the amount of the aggregate purchase
price for the units;
|
|
|
|
the placement agent will receive the placement agents fees
in accordance with the terms of the placement agency agreement;
and
|
|
|
|
we will deliver the units, comprised of common shares and
purchaser warrants, to the investors.
|
We have agreed to pay the placement agent an aggregate fee equal
to 5% of the gross proceeds from the sale of the units in this
offering. We have also agreed to reimburse the placement agent
for expenses incurred by it in connection with this offering in
an amount equal to 0.8% of the gross offering proceeds but in no
event in excess of $30,000. In addition, we agreed to issue
compensation warrants to the placement agent to purchase 2% of
the aggregate number of common shares sold under this prospectus
supplement plus any common shares underlying any convertible
securities or units sold in the
S-16
placement (if all of the common shares are sold under this
prospectus supplement, up to an aggregate of 264,178 common
shares).
Under no circumstances will the fee, commission or discount
received by the placement agent or any other FINRA member or
independent broker-dealer exceed 8% of the gross proceeds to us
in this offering or any other offering in the United States
pursuant to the accompanying prospectus.
The compensation warrants will be on substantially the same
terms as the purchaser warrants offered hereby, except that the
compensation warrants will have an exercise price equal to
$1.7156 per share, will not be exercisable for a period of six
months after their date of issuance, will expire on the fifth
year anniversary of the effective date of the registration
statement under which this prospectus supplement is being filed
and will otherwise comply with FINRA Rule 5110(g) in that
for a period of six months after the issuance date of the
compensation warrants (which shall not be earlier than the
closing date of the offering pursuant to which the compensation
warrants are being issued), neither the compensation warrants
nor any of the common shares issued upon exercise of the
compensation warrants shall 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
the offering pursuant to which the compensation warrants are
being issued, except the transfer of any security:
|
|
|
|
i.
|
by operation of law or by reason of reorganization of the
Company;
|
|
|
ii.
|
to any FINRA member firm participating in this offering and the
officers or partners thereof, if all securities so transferred
remain subject to the lock-up restriction described above for
the remainder of the time period;
|
|
|
iii.
|
if the aggregate amount of securities of the Company held by
Rodman & Renshaw, LLC 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
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
received remain subject to the lock-up restriction set forth
above for the remainder of the time period.
|
The estimated offering expenses payable by us, in addition to
the aggregate fee of approximately $600,000 due to the
placement agent and the placement agents expenses up to a
maximum of $30,000, are approximately $160,000, which includes
legal and filing fees and printing costs, and various other fees
associated with registering the securities and listing the
common shares. After deducting certain fees due to the placement
agent and our estimated offering expenses, we expect the net
proceeds from this offering to be approximately
$11.3 million if the maximum number of units are sold
(excluding proceeds we may receive upon exercise of the
warrants).
The following table shows the per Unit and total commissions we
will pay to the placement agent in connection with the sale of
the units offered under this prospectus supplement and the
accompanying prospectus, assuming the purchase of all of the
units offered hereby and excluding proceeds that we may receive
upon exercise of the warrants.
|
|
|
|
|
Per Unit placement agents fees
|
|
$
|
0.068625
|
|
Maximum offering total
|
|
$
|
604,309
|
|
Because there is no minimum offering amount required as a
condition to closing in this offering, the actual total offering
fees, if any, are not presently determinable and may be
substantially less than the maximum amount set forth above.
We have agreed to indemnify the placement agent and certain
other persons against certain liabilities relating to or arising
out of its activities under the placement agency agreement. We
have also agreed to contribute to payments the placement agent
may be required to make in respect of such liabilities.
From time to time, the placement agent and/or certain of its
affiliates have engaged, and may in the future engage, in
transactions with, and perform investment banking and/or
financial advisory services for, us and our affiliates in the
ordinary course of business.
We have also agreed with the purchasers of the units offered
pursuant to this prospectus supplement that we will not issue or
enter into an agreement to issue common shares or securities
convertible into or exercisable for common shares for a period
of 30 days from the closing of the offering contemplated by
this prospectus supplement.
S-17
The placement agency agreement, the form of securities purchase
agreement with the purchasers and the form of purchaser warrants
are included as exhibits to our report on
Form 6-K
furnished to the SEC, and such documents have also been filed
with the applicable Canadian securities regulatory authorities
in connection with this offering.
The placement agent has informed us that it will not engage in
over-allotment, stabilizing transactions or syndicate covering
transactions in connection with this offering.
The address of the placement agent is 1251 Avenue of the
Americas, 20th Floor, New York, NY, 10020.
The transfer agent for our common shares is Computershare
Investor Services Inc.
The purchase price per Unit and the exercise price for the
warrants was determined based on negotiations with the investors
and discussions with the placement agent.
CERTAIN
INCOME TAX CONSIDERATIONS
United
States Federal Income Taxation
The following discussion is a summary of certain U.S. federal
income tax consequences applicable to the purchase, ownership
and disposition of common shares or warrants 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, Internal Revenue Service
(IRS) rulings and judicial decisions in effect as of
the date of this prospectus supplement. All of these are subject
to change, possibly with retroactive effect, or different
interpretations.
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 provisions of 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;
|
|
|
|
securities traders that use a
mark-to-market
accounting method;
|
|
|
|
banks and financial institutions;
|
|
|
|
insurance companies;
|
|
|
|
regulated investment companies;
|
|
|
|
real estate investment trusts;
|
|
|
|
tax-exempt organizations;
|
|
|
|
persons holding common shares or warrants as part of a hedging
or conversion transaction or a straddle;
|
|
|
|
persons who or that are, or may become, subject to the
expatriation provisions of the Code;
|
|
|
|
persons whose functional currency is not the U.S. dollar; and
|
|
|
|
direct, indirect or constructive owners of 10% or more of the
total combined voting power of all classes of our voting stock.
|
This summary also does not discuss any aspect of state, local or
foreign law, or U.S. federal estate or gift tax law as
applicable to U.S. Holders. In addition, this discussion is
limited to U.S. Holders purchasing common shares and warrants
pursuant to this Prospectus Supplement and that will hold such
common shares and warrants as capital assets. For purposes of
this summary, U.S. Holder means a beneficial holder
of common shares or warrants who or that for U.S. federal income
tax purposes is:
|
|
|
|
|
an individual citizen or resident of the United States;
|
|
|
|
a corporation or other entity classified as a corporation for
U.S. federal income tax purposes created or organized in or
under the laws of the United States, any state thereof or the
District of Columbia;
|
|
|
|
an estate, the income of which is subject to U.S. federal income
taxation regardless of its source; or
|
|
|
|
a trust, if a court within the United States is able to exercise
primary supervision over the administration of such trust and
one or more U.S. persons (within the meaning of the
Code) have the authority to control all substantial decisions of
the trust, or if a valid election is in effect to be treated as
a U.S. person.
|
S-18
If a partnership or other entity or arrangement classified as a
partnership for U.S. federal income tax purposes holds common
shares or warrants, 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
and warrants.
PROSPECTIVE U.S. 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.
Taxation
of U.S. Holders of common shares
Dividends
Subject to the passive foreign investment company
(PFIC) rules discussed below, any distributions paid
by the Company out of current or accumulated earnings and
profits (as determined for U.S. federal income tax purposes),
before reduction for any Canadian withholding tax paid with
respect thereto, will generally be taxable to a U.S. Holder as
foreign source dividend income, and will not be eligible for the
dividends received deduction generally allowed to corporations.
Distributions in excess of current and accumulated earnings and
profits will be treated as a non-taxable return of capital to
the extent of the U.S. Holders adjusted tax basis in the
common shares and thereafter as capital gain. Prospective
purchasers should consult their own tax advisors with respect to
the appropriate U.S. federal income tax treatment of any
distribution received from the Company.
For taxable years beginning before January 1, 2011,
dividends paid by the Company should be taxable to a
non-corporate U.S. Holder at the special reduced rate normally
applicable to long term capital gains, provided that certain
conditions are satisfied. A U.S. Holder will not be able to
claim the reduced rate if the Company is treated as a PFIC for
the taxable year in which the dividend is paid or the preceding
year. See Passive Foreign Investment Company
Considerations below.
Under current law, payments of dividends by the Company to
non-Canadian investors are generally subject to a
25 percent 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 percent. 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.
A U.S. Holder will generally be entitled, subject to certain
limitations, to a credit against its U.S. federal income tax
liability, or a deduction in computing its U.S. federal taxable
income, for Canadian income taxes withheld by the Company. For
purposes of the foreign tax credit limitation, dividends paid by
the Company generally will constitute foreign source income in
the passive category income basket.
Prospective purchasers should consult their tax advisors
concerning the foreign tax credit implications of the payment of
Canadian taxes.
Dividends paid in Canadian dollars will be included in the gross
income of the 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 receives the dividend, regardless of whether such
Canadian dollars are actually converted into U.S. dollars at
that time. Gain or loss, if any, realized on a sale or other
disposition of the Canadian dollars will generally be U.S.
source ordinary income or loss to a U.S. Holder.
The Company generally does not pay any dividends and does not
anticipate paying any dividends in the foreseeable future.
Sale or
Other Taxable Disposition
Subject to the PFIC rules discussed below, upon a sale 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 or other taxable disposition and the U.S.
Holders adjusted tax basis in the common shares.
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This capital gain or loss will be long-term capital gain or loss
if the U.S. Holders holding period in the common shares
exceeds one year. For taxable years beginning before
January 1, 2011, the rates of taxation for long-term
capital gains of non-corporate U.S. Holders are reduced compared
to such rates thereafter. The deductibility of capital losses is
subject to limitations. Any gain or loss will generally be U.S.
source for U.S. foreign tax credit purposes.
Passive
Foreign Investment Company Considerations
A foreign corporation will be classified as a PFIC for any
taxable year in which, after taking into account the income and
assets of the corporation and certain subsidiaries pursuant to
applicable look-through rules, either (i) at
least 75% of its gross income is passive income or
(ii) at least 50% of the average value of its assets is
attributable to assets which produce passive income or are held
for the production of passive income.
The Company believes it was not a PFIC for the 2009 taxable
year. However, since the fair market value of the Companys
assets may be determined in large part by the market price of
the common shares, which is likely to fluctuate, and the
composition of the Companys income and assets will be
affected by how, and how quickly, the Company spends any cash
that is raised in any financing transaction, no assurance can be
provided that the Company would not be classified as a PFIC for
the 2010 taxable year and for any future taxable year.
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
election 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. Holders holding period for the common
shares) and (ii) any gain realized on the sale or other
disposition of common shares.
Under these adverse rules (a) the excess distribution or
gain will be allocated ratably over the U.S. Holders
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 class 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.
U.S. Holders can avoid the interest charge described above by
making a
mark-to-market
election with respect to the common shares, provided that the
common shares are marketable. Common. Shares will be
marketable if they are regularly traded on a qualified exchange
or other market. For this purpose, 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 and regularly
traded on NASDAQ, which constitutes a qualified exchange. If the
common shares 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 common shares at the close of the
taxable year over the U.S. Holders 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.
Holders 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 for prior taxable years. A U.S. Holder that makes a
mark-to-market
election generally will adjust such U.S. Holders 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 for prior taxable years.
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 for any taxable year in which a U.S. Holder owns common
shares but before a
mark-to-market
election is made, the interest charge rules described above will
apply to any
mark-to-market
gain recognized in the year the election is made.
In some cases, a shareholder of a PFIC can avoid the interest
charge and the other adverse PFIC consequences described above
by making a qualified electing fund (QEF) election
to be taxed currently on its share of the PFICs
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undistributed income. If the Company is classified as a PFIC, it
does not, however, expect to provide to U.S. Holders the
information regarding its income that would be necessary in
order for a U.S. Holder to make a QEF election with respect to
common shares.
If the Company is classified as a PFIC, a U.S. Holder 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.
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. Holders 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 a stock in a PFIC by reason
of ownership of common shares in the Company. However, gain
recognized as a result of making the deemed sale election would
be subject to the adverse rules described above.
Under recently enacted U.S. tax legislation and subject to
future guidance, if the Company is a PFIC, U.S. Holders will be
required to file, for returns due after March 18, 2010, an
annual information return with the IRS relating to their
ownership of common shares and, potentially, warrants. This new
filing requirement is in addition to any pre-existing reporting
requirements that applied to a U.S. Holders interest in a
PFIC (which the recently enacted tax legislation does not
affect). Pursuant to IRS Notice
2010-34, the
new filing requirement will not apply for taxable years
beginning before March 18, 2010. No additional guidance has
yet been issued about the annual information return required
under the recently enacted legislation, including on the
information required to be reported on such return, the form of
the return, or the due date for the return.
Prospective purchasers 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.
Receipt
of Warrants
A U.S. Holder is not required to include any amount in income
for U.S. federal income tax purposes as a result of the receipt
of the warrants. The basis in the U.S. Holders shares with
respect to which warrants were received must be allocated
between the common shares and warrants received in proportion to
their fair market values determined on the date of receipt.
Sale or
Other Disposition of Warrants
Upon a sale or other disposition of warrants, a U.S. Holder will
generally recognise capital gain or loss equal to the
difference, if any, between the U.S. dollar value of the amount
realised (as determined on the date of the sale or other
disposition) and the U.S. Holders adjusted tax basis in
the warrants. Any gain or loss will be U.S. source, and will be
long-term capital gain or loss if the U.S. Holders holding
period in the warrants exceeds one year. The deduction of
capital losses is subject to limitations under the Code.
Exercise
and Expiration of Warrants
A U.S. Holder generally should not recognize any income, gain or
loss on the exercise of a warrant, except with respect to any
cash received in lieu of a fractional common share. When a
warrant is exercised, the U.S. Holders cost of the common
share acquired thereby will be equal to the U.S. Holders
adjusted cost basis of the warrant plus the exercise price paid
for the common share, less the portion of such basis allocable
to the fractional common share (if any). In the event a warrant
is cash-settled upon exercise, a U.S. Holder generally will
recognize gain or loss equal to the difference between the cash
received upon exercise and the U.S. Holders adjusted tax
basis in the warrant. This capital gain or loss will be
long-term or short-term capital gain or loss depending upon the
length of time the U.S. Holder held the warrant. The expiration
of an unexercised warrant will generally give rise to a capital
loss equal to the adjusted cost basis to the U.S. Holder of the
expired warrant. The holding period of the common share acquired
through the exercise of a warrant would begin on the date of
exercise of the warrant.
As described above in Description of Securities Offered
under this Prospectus Supplement Warrants, a
warrant may be exercised on a net or
cashless basis in limited circumstances. The tax
consequences of such an exercise are not clear under current tax
law. A cashless exercise may be tax-free or could be treated as
a taxable exchange in which gain or
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loss would be recognized. Prospective purchasers should consult
their tax advisors regarding the tax consequences of a cashless
exercise, including the determination of tax basis, holding
period, and gain or loss.
If the terms of a warrant provide for any adjustment to the
number of shares for which the warrant may be exercised or to
the exercise price of the warrant, such adjustment may, under
certain circumstances, result in constructive distributions that
could be taxable to the holder of the warrants. Prospective
purchasers should consult their own tax advisors with respect to
the tax consequences of any exercise adjustment.
Passive
Foreign Investment Company Considerations
If the Company is classified as a PFIC for any taxable year
during which a U.S. Holder owns warrants, the U.S. Holder will
generally be treated as owning stock in the Company and will be
subject to adverse rules (regardless of whether the Company
continues to be classified as a PFIC) with respect to any gain
realized on the sale or other disposition of warrants. For a
description of these adverse rules, including loss of favorable
capital gains rates and the imposition of an interest charge,
see above Taxation of U.S. Holders of common
shares Passive Foreign Investment Company
Considerations. In addition, if the Company is classified
as a PFIC, the holding period of a common share acquired through
the exercise of the warrant would include the period during
which the warrant was held, which could exacerbate the effect of
the adverse rules described above.
The
mark-to-market
election and the QEF election under the PFIC rules may not be
made with respect to the warrants.
The application of the PFIC rules to warrants, including the
application of the recently enacted reporting requirement
described above in Taxation of U.S. Holders of common
shares Passive Foreign Investment Company
Considerations, is subject to significant uncertainties.
Accordingly, prospective purchasers should consult their tax
advisors regarding the potential application of the PFIC regime.
Information
Reporting and Backup Withholding
The proceeds of a sale or other disposition of common shares or
warrants, as well as dividends paid or deemed paid with respect
to common shares or warrants by a U.S. payor, 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
obtaining 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 specified exceptions and future guidance, recently
enacted U.S. tax legislation generally requires a U.S. Holder
(that is an individual or, to the extent provided in future
guidance, a domestic entity) to report to the IRS such U.S.
Holders interests in stock or securities issued by a
non-U.S.
person (such as the Company) for taxable years beginning after
March 18, 2010. Although expected, no guidance on this
reporting requirement has yet been issued. 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 or warrants.
Canadian
Federal Income Tax Considerations for United States
Residents
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 units
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 arms length with the Company, and is not affiliated
with the Company, (iii) beneficially owns units as capital
property, (iv) does not use or hold the units 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 Act, and (b) for the purposes of the
Convention, is a resident of the United States, 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 who
otherwise qualifies for the full benefits of the Convention. Our
units will generally be considered to be capital property to a
holder unless such units are held in the course of carrying on a
business of buying or selling securities, or in an adventure or
concern in the nature of trade. Our units will generally not be
capital
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property to holders that are financial institutions
(as defined in the Tax Act). 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 or
financial institutions. Such holders and other holders who do
not meet the criteria in clauses (a) and (b) should
consult their own tax advisers.
This summary is based upon the current provisions of the Tax Act
and the regulations thereunder (the Regulations) and
the Companys understanding of the current published
administrative practices and policies of the Canada Revenue
Agency (CRA). It also takes into account all
proposed amendments to the Tax Act and the Regulations publicly
released by the Minister of Finance (Canada) (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.
For purposes of the Tax Act, all amounts, including dividends,
adjusted cost base and proceeds of disposition, must be
determined in Canadian dollars. Amounts denominated in U.S.
dollars must be converted to Canadian currency using the Bank of
Canada noon rate on the day on which the amount first arose or
such other rate of exchange that is acceptable to the Minister.
The amount of any capital gain or any capital loss to a U.S.
shareholder with respect to the units may be affected by
fluctuations in Canadian dollar exchange rates. This description
of foreign exchange consequences does not apply to a U.S.
Shareholder which is a corporation that has elected in
prescribed form and manner and has otherwise met the requirement
to use functional currency tax reporting as set out in the Tax
Act and such U.S. Shareholders are advised to consult their own
tax advisors in this regard.
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
holders particular circumstances. Accordingly, U.S.
Shareholders should consult with their own tax advisers for
advice with respect to their own particular circumstances.
In determining the cost basis to a U.S. Shareholder of our
common shares and warrants, such U.S. Shareholder will be
required to allocate the price paid for our units between the
common shares and warrants in accordance with the relative fair
market value of the common shares and warrants on the date of
purchase. The Company is of the view that the fair market value
of the warrants is minimal. However, the Canada Revenue Agency
is not bound by our determination on this matter. The cost for
Canadian tax purposes to a U.S. Shareholder of a common share
(and a warrant) must be averaged with the adjusted cost base of
all other common shares (and warrants) held by a U.S.
Shareholder as capital property for purposes of calculating the
adjusted cost base of such common shares (and warrants) at the
time of disposition.
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, which
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 of our
common shares or warrants, unless the common shares or warrants,
as the case may be, 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, our common shares and warrants
(unless the U.S. Shareholder receives property other than our
common shares on exercise of the warrants) will not constitute
taxable Canadian property to a U.S. Shareholder provided our
common shares are listed on a designated stock exchange (which
includes the TSX and NASDAQ) at the time of the disposition and,
at no time during the
60-month
period immediately preceding the disposition, has the U.S.
Shareholder, persons with whom the U.S. Shareholder does not
deal at arms length, or the U.S. Shareholder together with
such persons, owned 25% or more of the issued shares of any
series or class of our capital stock. If our 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, our common shares do not derive their value
S-23
principally from real property situated in Canada. If our
warrants constitute taxable Canadian property to a particular
U.S. Shareholder, any capital gain arising on their disposition
should be exempt from Canadian tax under the Convention. The
consequences under the Tax Act of a disposition of the warrants
may be materially different if the U.S. Shareholder is entitled
to receive property other than our common shares on exercise of
the warrants and U.S. Shareholders should consult their own tax
advisors in such circumstances.
As long as our common shares are listed at the time of their
disposition on the TSX, NASDAQ or another recognized stock
exchange (as defined in the Tax Act), a U.S. Shareholder
who disposes of our common shares or warrants (unless the U.S.
Shareholder is entitled to receive property other than our
common shares on exercise of the warrants) that are taxable
Canadian property will not be required to satisfy the
obligations imposed under Section 116 of the Tax Act. An
exemption from such obligations may also be available in respect
of their disposition if they are treaty-protected
property (as defined in the Tax Act). The consequences
under the Tax Act of a disposition of the warrants may be
materially different if the U.S. Shareholder is entitled to
receive property other than our common shares on exercise of the
warrants and U.S. Shareholders should consult their own tax
advisors in such circumstances.
Except in the event a warrant is cash settled, in whole or in
part, upon exercise, or is exercised after the occurrence of a
fundamental transaction (as such term is defined in
the purchaser warrants) and the holder receives property other
than our common shares, a U.S. Shareholder will not realize a
gain or loss upon the exercise of a warrant. A U.S.
Shareholders cost of any common shares acquired in
connection with the exercise of warrants will be equal to the
aggregate of such U.S. Shareholders adjusted cost base of
the warrants exercised plus the exercise price paid for the
common shares. The adjusted cost base of the common shares so
acquired will be determined by averaging the cost of such common
shares with the adjusted cost base (determined immediately
before the acquisition of such common shares) of all other of
our common shares held by such U.S. Shareholder at the time of
acquisition.
On March 4, 2010, the Department of Finance (Canada)
announced in the 2010 Federal Budget that it is proposing to
amend the definition of taxable Canadian property in
the Tax Act to exclude shares (whether listed or not) of
corporations that do not, at any time during the
60-month
period immediately preceding a disposition by a non-resident of
Canada, derive more than 50% of their fair market value from
(i) real or immoveable property situated in Canada,
(ii) Canadian resource properties, (iii) timber
resource properties, and (iv) options to acquire such
property. If the definition of taxable Canadian
property is amended as proposed and the common shares are
not considered to have derived more than 50% of their fair
market value from one or any combination of properties described
in (i) to (iv) above at any time during the
60-month
period preceding a disposition of common shares or warrants by a
U.S. Shareholder, then the common shares or warrants (unless the
U.S. Shareholder receives property other than our common shares
on exercise of the warrants) will not be taxable Canadian
property at the particular time unless such shares or warrants
are otherwise deemed to be taxable Canadian property to the U.S.
Shareholder.
LEGAL
MATTERS
Certain legal matters related to U.S. law in connection with the
securities offered hereby will be passed upon on our behalf by
Ropes & Gray LLP, and certain legal matters related to
Canadian law in connection with the securities offered hereby
will be passed upon on our behalf by Ogilvy Renault LLP. The
placement agent is being represented in connection with this
offering by Weinstein Smith LLP in relation to certain U.S.
legal matters and by McCarthy Tétrault LLP in relation to
certain Canadian legal matters. At the date of this Prospectus
Supplement, the partners and associates of Ogilvy Renault LLP
beneficially own, directly or indirectly, less than 1% of our
outstanding securities.
AUDITORS
Our independent auditors are PricewaterhouseCoopers LLP, who
have issued an independent auditors report dated
March 23, 2010 on our consolidated financial statements as
at December 31, 2009 and 2008 and for each of the years in
the three-year period ended December 31, 2009, the
financial statement schedules and the effectiveness of internal
control over financial reporting as of December 31, 2009.
PricewaterhouseCoopers LLP has advised that they are independent
within the meaning of the Rules of Professional Conduct of the
Ordre des comptables agréés du Québec.
PricewaterhouseCoopers LLP is also independent with respect to
the Company within the meaning of the Securities Act of 1933 and
the applicable rules and regulations thereunder adopted by the
SEC and the Public Company Accounting Oversight Board (United
States).
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No securities regulatory authority has expressed an opinion about these securities and it is an
offence to claim otherwise.
This short form base shelf prospectus constitutes a public offering of securities only in those
jurisdictions where such securities may be lawfully offered for sale and therein only by persons
permitted to sell such securities and it is an offence to claim otherwise.
Information has been incorporated by reference in this short form base shelf prospectus from
documents filed with securities commissions or similar securities regulatory authorities in
Canada. Copies of the documents incorporated herein by reference may be obtained on request
without charge from the Corporate Secretary of Æterna Zentaris Inc. at 1405 du Parc-Technologique
Blvd., Quebec City, Quebec, Canada G1P 4P5, Tel. (418) 652-8525, and are also available
electronically at www.sedar.com.
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Dated March 12, 2010 |
SHORT FORM BASE SHELF PROSPECTUS
U.S.$60,000,000
Common Shares
Warrants to Purchase Common Shares
We may from time to time during the 25-month period that this short form base shelf
prospectus (the Prospectus), including any amendments, remains valid, offer, sell, and issue
under this Prospectus up to U.S.$60,000,000 aggregate initial offering price of our common shares
(the Common Shares) and/or warrants to purchase Common Shares (the Warrants, and, together with
the Common Shares, the Securities). We may offer Securities from time to time in one or more
transactions in such amounts and, in the case of the Warrants, with such terms, as we may determine
in light of prevailing market conditions at the time of sale. We may sell and issue the Warrants
under this Prospectus in one or more series.
The specific variable terms of any offering of Securities will be set out in the applicable
supplement to this Prospectus (each, a Prospectus Supplement), including, where applicable: (i)
in the case of the Common Shares, the number of Common Shares offered, the offering price, the
currency in which the Common Shares will be issued and any other specific terms; and (ii) in the
case of the Warrants, the designation of the particular series offered, the number of Warrants
offered, the offering price, the currency in which the Warrants will be issued, the number of
Common Shares that may be acquired upon exercise of the Warrants, the exercise price, dates and
periods of exercise, adjustment procedures and any other specific terms applicable thereto.
A Prospectus Supplement may include specific terms pertaining to the Securities that are not
within the alternatives and parameters described in this Prospectus. All shelf information
permitted under applicable laws to be omitted from this Prospectus will be contained in one or more
Prospectus Supplements that will be delivered to purchasers together with this Prospectus. Each
Prospectus Supplement will be incorporated by reference into this Prospectus for the purposes of
securities legislation as of the date of the Prospectus Supplement and only for the purposes of the
distribution of the Securities to which the Prospectus Supplement pertains.
We are a foreign private issuer under United States (U.S.) securities laws. We have prepared
our financial statements in accordance with Canadian generally accepted accounting principles
(GAAP), and they are subject to Canadian auditing and auditor independence standards. Thus, they
may not be comparable to the financial statements of U.S. companies. Information regarding the
impact upon our financial statements of significant differences between Canadian and U.S. GAAP is
contained in the Note 27 entitled Summary of differences between generally accepted accounting
principles in Canada and in the United States to our audited consolidated balance sheets as at
December 31, 2008 and 2007 and our audited consolidated statements of earnings (loss), changes in
shareholders equity, comprehensive income (loss) and cash flows for each of the years in the
three-year period ended December 31, 2008 included in our annual report on Form 20-F (filed in
Canada with the Canadian securities regulatory authorities in lieu of an annual information form),
which was filed with the United States Securities and Exchange Commission (SEC) on March 30, 2009
(available electronically at www.sec.gov) and which is incorporated by reference into this
Prospectus. See Reconciliation to U.S. GAAP.
Owning the Securities may subject you to tax consequences both in Canada and the United
States. This Prospectus and any applicable Prospectus Supplement may not describe these tax
consequences fully. You should read the tax discussion in this Prospectus and any applicable
Prospectus Supplement.
Your ability to enforce civil liabilities under U.S. federal securities laws may be affected
adversely by the fact that we are incorporated under the laws of Canada, many of our officers and
directors and all of the experts named in this Prospectus are residents of Canada or elsewhere
outside of the United States, and a substantial portion of our assets and the assets of such
persons are located outside the United States. See Enforceability of Civil Liabilities.
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. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENCE.
Investing in the Securities
involves risk. See Risk Factors beginning on page 8.
Our outstanding Common Shares are currently listed for trading on the Toronto Stock Exchange
(TSX) under the trading symbol AEZ and on the
NASDAQ Global Market (NASDAQ) under the trading
symbol AEZS. There is currently no market through which the Warrants may be sold and purchasers
may not be able to resell Warrants purchased under this Prospectus. This may affect the pricing of
any Warrants in the secondary market, the transparency and availability of trading prices, the
liquidity of the Warrants, and the extent of issuer regulation. See the Risk Factors section of
the applicable Prospectus Supplement.
As
of March 11, 2010, the aggregate market
value of our outstanding Common Shares held by
non-affiliates was approximately U.S.$37.6 million based on
63.1 million Common
Shares outstanding, of
which approximately 45.7 million Common Shares are held by non-affiliates, and
a per share price of
U.S.$0.82, based on the closing sale price of our Common Shares on the
NASDAQ on March 11,
2010. As of the date hereof, we have not offered any securities pursuant to General Instruction
I.B.5 of Form F-3 during the prior twelve calendar month period that ends on and includes the date
hereof.
We may sell Securities to or through underwriters or dealers or directly to investors or
through agents. The Prospectus Supplement relating to a particular offering of Securities will
identify each person who may be deemed to be an underwriter with respect to such offering and will
set forth the terms of the offering of such Securities, including, to the extent applicable, the
offering price, the proceeds that we will receive, the underwriting discounts or commissions and
any other discounts or concessions to be allowed or reallowed to dealers. The managing underwriter
or underwriters with respect to Securities sold to or through underwriters will be named in the
related Prospectus Supplement. See Plan of Distribution.
You should rely only on the information contained in this Prospectus. We have not authorized
anyone to provide you with information different from that contained in this Prospectus. 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.
Our registered office is located at 1405 du Parc-Technologique Blvd., Quebec City, Quebec,
Canada G1P 4P5.
TABLE OF CONTENTS
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4 |
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5 |
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8 |
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CHANGES IN
LOAN AND CAPITAL STRUCTURE |
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22 |
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22 |
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23 |
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24 |
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24 |
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24 |
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25 |
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25 |
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26 |
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26 |
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27 |
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27 |
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DOCUMENTS INCORPORATED BY REFERENCE
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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(a) |
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our annual report on Form 20-F for the financial year ended December 31, 2008
(filed in Canada with the Canadian securities regulatory authorities in lieu of an
annual information form), which was filed with the SEC on March 30, 2009 and which
includes our audited consolidated balance sheets as at December 31, 2008 and 2007 and
our audited consolidated statements of earnings (loss), changes in shareholders equity,
comprehensive income (loss) and cash flows for each of the years in the three-year
period ended December 31, 2008 and the financial statement schedules, together with the
auditors report thereon dated March 10, 2009, and our Managements Discussion and Analysis thereon included as Item 5.
Operating and Financial Review and Prospects in our annual report; |
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(b) |
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our unaudited interim consolidated financial statements as of and for the three-
and nine-month periods ended September 30, 2009 and 2008 and Managements Discussion and
Analysis thereon, which was included as Exhibit 99.1 to our report on Form 6-K furnished
to the SEC on November 12, 2009; |
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(c) |
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our management information circular dated March 10, 2009 in connection with our
annual meeting of shareholders held on May 6, 2009, which was included as Exhibit 99.1
to our report on Form 6-K furnished to the SEC on April 7, 2009; |
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(d) |
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our material change report dated March 16, 2009 with
respect to the entering into a development, commercialization and
licensing agreement with sanofi-aventis for the development,
registration and marketing of cetrorelix in benign prostatic
hyperplasia (BPH) for the U.S market, which was included as Exhibit
99.1 to our report on Form 6-K furnished to the SEC on March 17, 2009; |
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(e) |
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our material change report dated June 5, 2009 with respect to the presentation by our partner Keryx Biopharmaceuticals of positive Phase 2 data in the clinical activity of perifosine as a treatment for advanced metastatic colon
cancer and advanced renal cell carcinoma, which was included in our report
on Form 6-K furnished to the SEC on June 8, 2009; |
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(f) |
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our material change report dated June 23, 2009 with respect to our announcement that data
analysis and reporting of the results of the open-label safety study (study 041)
of our Phase 3 program in benign prostatic hyperplasia (BPH) with cetrorelix would
be brought forward from the scheduled fourth quarter into the third quarter of 2009,
and would follow the disclosure of results from the first double-blind placebo controlled
efficacy study (study 033), which was included in our report
on Form 6-K furnished to the SEC on June 23, 2009; |
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(g) |
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our material change report dated August 21, 2009 with respect to the
reporting of the Phase 3 results for our North American efficacy trial Z-033 and our
safety trial Z-041 in benign
prostatic hyperplasia (BPH) with cetrorelix, which was included as Exhibit
99.2 in our report on Form 6-K furnished to the SEC on August 21, 2009; |
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(h) |
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our material change report dated December 9, 2009 with respect to
the reporting of the Phase 3 results for our European efficacy trial Z-036 in
benign prostatic hyperplasia (BPH) with cetrorelix, which was included as Exhibit
99.1 in our report on Form 6-K furnished to the SEC on December 10, 2009; and |
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(i) |
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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. |
Any documents of the type referred to in the preceding paragraph, or similar material,
including any annual information form, annual report on Form 20-F, annual and interim financial
statements and related managements discussion and analysis, material change report (excluding any
confidential material change report, if any), business acquisition report and information circular
of Æterna Zentaris filed with the various securities commissions or similar securities regulatory
authorities in Canada or filed with or furnished to the SEC after the date of this Prospectus and
prior to the completion or withdrawal of any offering hereunder shall be deemed to be incorporated
by reference into this Prospectus.
Information has been incorporated by reference into this Prospectus from documents filed with
securities commissions or similar securities regulatory authorities in Canada. We will furnish
without charge to each person to whom a copy of this prospectus is delivered, upon written or oral
request, 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). Copies of the documents incorporated herein by reference may be
obtained on request without charge from the Corporate Secretary of Æterna Zentaris at 1405 du
Parc-Technologique Blvd., Quebec City, Quebec, Canada G1P 4P5, Tel. (418) 652-8525, or through the
Internet on the Canadian System for Electronic Document Analysis and Retrieval (SEDAR) which can
be accessed at www.sedar.com.
In addition to our continuous disclosure obligations under the securities laws of the
provinces of Canada, we are subject to the information requirements of the U.S. Securities Exchange
Act of 1934, as amended (the Exchange Act), and in accordance therewith we file with or furnish
to the SEC reports and other information. You may read and copy any document that we have filed
with the SEC at the SECs public reference room at Room 1580, 100 F Street N.E., Washington, D.C.,
20549. You may also obtain copies of the same documents from the public reference room of the SEC
by paying a fee. You should call the SEC at 1-800-SEC-0330 or access its website at
www.sec.gov for further information about the public reference rooms. The SECs EDGAR
Internet site also contains reports and other information about us and any public documents that we
file electronically with the SEC. The EDGAR site can be accessed at www.sec.gov.
Any statement contained in this Prospectus or in a document incorporated or deemed to be
incorporated by reference herein 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 by reference herein 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
managements 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 managements 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 specific variable 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.
- 2 -
In this Prospectus and in any Prospectus Supplement, unless otherwise indicated, references to
we, us, our, Æterna Zentaris or the Company are to Æterna Zentaris Inc., a Canadian
corporation, and its consolidated subsidiaries, unless it is clear that such terms refer only to
Æterna Zentaris Inc. excluding its subsidiaries. Unless otherwise indicated, all financial
information included in and incorporated by reference into this Prospectus and any Prospectus
Supplement is determined using Canadian GAAP.
CURRENCY AND EXCHANGE RATES
All references to Cdn$ are to Canadian dollars and all references to U.S.$ are to U.S.
dollars. The following table sets out the high and low exchange rates for one U.S. dollar expressed
in Canadian dollars, for the period indicated and, the average of such exchange rates, and the
exchange rate at the end of such period, in each case, based upon the noon rates as quoted by the
Bank of Canada:
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ended |
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ended |
Year ended December 31, |
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February 28, |
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January 31, |
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2010 |
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2010 |
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2009 |
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2008 |
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2007 |
High |
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1.0734 |
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1.0657 |
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1.3000 |
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1.2969 |
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1.1853 |
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Low |
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1.0420 |
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1.0251 |
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1.0292 |
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0.9719 |
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0.9170 |
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Rate at end of period |
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1.0526 |
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1.0650 |
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1.0466 |
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1.2246 |
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0.9881 |
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Average rate per period |
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1.0561 |
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1.0440 |
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1.1420 |
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1.0660 |
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1.0748 |
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On
March 11, 2010, the exchange rate for one U.S. dollar expressed in Canadian
dollars based upon the noon rate of the Bank of Canada was Cdn$1.0265.
FORWARD-LOOKING STATEMENTS
This Prospectus and the documents incorporated herein by reference contain forward-looking
statements concerning the business, operations, financial performance and condition of Æterna
Zentaris. When used in this Prospectus, words such as may, will, should, could, expects, plans,
seeks, anticipates, intends, believes, estimates, predicts, potential or continue or the negative
of these terms and similar expressions are intended to identify forward-looking statements,
although not all forward-looking statements contain such words. These forward-looking statements
are based on current expectations and are naturally subject to uncertainty and changes in
circumstances that may cause actual results to differ materially from those expressed or implied by
such forward-looking statements. Such statements, based as they are on the current expectations of
management, inherently involve numerous risks and uncertainties, known and unknown, many of which
are beyond our control. Such risks include but are not limited to:
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investments in biopharmaceutical companies are generally considered to be speculative; |
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we may never achieve or maintain operating profitability; |
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our clinical trials may not yield results which will enable us to obtain regulatory
approval for our products and we may suffer setbacks in any of our clinical trials; |
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we may not be able to successfully complete our clinical trials programs, or such
clinical trials could take longer to complete than we project; |
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the impact of the stringent ongoing government regulation to which our product
candidates are subject and future changes in such regulatory environment; |
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we may not be able to generate significant revenues if our products do not gain market
acceptance; |
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we may require significant additional financing, and we may not have access to
sufficient capital; |
- 3 -
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we may cease to continue operating as we do if we are unsuccessful in increasing our
revenues and/or raising additional funding; |
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failure to achieve our projected development goals in the time-frames we announce and
expect; |
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the impact of any failure on our part to obtain acceptable prices or adequate
reimbursement for our products on our ability to generate revenues; |
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competition in our targeted markets; |
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we may not obtain adequate protection for our products through our intellectual
property; |
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we may infringe the intellectual property rights of others; |
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we may incur liabilities from our involvement in any patent litigation; |
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we may not obtain trademark registrations in connection with our product candidates; |
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we may not be able to make adequate arrangements with third parties for the purpose of
commercializing our product candidates; |
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the failure to perform satisfactorily by third parties upon which we rely to conduct,
supervise and monitor our clinical trials; |
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the failure to perform satisfactorily by third parties upon which we rely to manufacture
and supply products; |
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our ability to retain or attract key personnel; |
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our strategic partners manufacturing capabilities may not be adequate to effectively
commercialize our product candidates; |
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risks related to product liability claims; |
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the impact of legislative actions, new accounting pronouncements and higher insurance
costs on our future financial position or results of operations; |
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fluctuations in currency exchange rates; |
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stock market volatility and the possibility that our Common Shares may be delisted from
the stock exchanges on which they currently trade; and |
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the fact that our largest shareholders have influence over our business and corporate
matters. |
More detailed information about these and other factors is included in this Prospectus under
the section entitled Risk Factors as well as in other documents incorporated by reference into
this Prospectus. Many of these factors are beyond our control. Future events may vary substantially
from what we currently foresee. You should not place undue reliance, if any, on such
forward-looking statements. Æterna Zentaris disavows and is 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.
ENFORCEABILITY OF CIVIL LIABILITIES
We are a corporation incorporated under and governed by the Canada Business Corporations Act.
Many of our officers and directors, and all of the experts named in this Prospectus, are residents
of Canada or elsewhere outside of the United States, and a
- 4 -
substantial portion of our assets and
the assets of such persons are located outside the United States. As a result, it may be difficult
for investors in the United States to effect service of process within the United States upon such
directors, officers and representatives of experts who are not residents of the United States 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 United States. We have been advised by our legal counsel,
Ogilvy Renault 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 Ogilvy Renault 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.
OUR BUSINESS
We are a late-stage drug development company specialized in oncology and endocrine therapy.
Æterna Zentaris Inc. was incorporated on September 12, 1990 under the laws of Canada. Our
registered office is located at 1405 du Parc-Technologique Blvd., Quebec City, Quebec, Canada G1P
4P5, our telephone number is (418) 652-8525 and our website is www.aezsinc.com. None of the
documents or information found on our website shall be deemed to be included in or incorporated
into this Prospectus, unless such document is specifically incorporated herein by reference and
enumerated as such under Documents Incorporated by Reference.
We currently have three wholly-owned direct and indirect subsidiaries, Æterna Zentaris GmbH
(AEZS Germany) based in Frankfurt, Germany, Zentaris IVF GmbH, a direct wholly-owned subsidiary
of AEZS Germany, based in Frankfurt, Germany and Æterna Zentaris, Inc., based in Warren, New Jersey
in the United States. AEZS Germany is our principal operating subsidiary.
Our Common Shares are currently listed for trading on the TSX under the trading symbol AEZ
and on the NASDAQ under the trading symbol AEZS.
Our pipeline encompasses compounds at all stages of development, from drug discovery through
marketed products. The highest priorities in oncology are our Phase 3 program with perifosine in
multiple myeloma and our Phase 2 program in multiple cancers, including metastatic colon cancer, as
well as our Phase 2 program with AEZS-108 in advanced endometrial and advanced ovarian cancer
combined with potential developments in other cancer indications. In endocrinology, our lead
program is the reactivation of a Phase 3 trial with AEZS-130 as a growth hormone (GH) stimulation
test for the diagnosis of GH deficiency in adults (AGHD).
- 5 -
The following table summarizes the development status of our principal products and product
candidates.
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Drug |
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Discovery |
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Preclinical Trials |
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Phase 1 |
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Phase 2 |
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Phase 3 |
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Marketed |
120,000 compound
library
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AEZS-120
Prostate cancer
vaccine
(Oncology)
AEZS-129
Erk & PI3K inhibitor
(Oncology)
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AEZS-112
(Oncology)
AEZS-130
Therapeutic in
tumor cachexia
(Endocrinology)
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Perifosine
§ Metastatic colon
cancer
§ Kidney cancer
and others
AEZS-108
§ Ovarian cancer
§ Endometrial
cancer
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Perifosine
Multiple myeloma
Solorel (AEZS-130)
Diagnostic in adult
growth hormone
deficiency
(Endocrinology)
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CetrotideÒ
(In vitro fertilization)
(Endocrinology) |
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AEZS-127
ErPC (Oncology)
AEZS-123
Ghrelin receptor
antagonist
(Endocrinology) |
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AEZS-115
Non-peptide LHRH
antagonists
(Endometriosis &
urology) |
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Partners
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Perifosine:
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Perifosine:
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CetrotideÒ: |
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Keryx
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Keryx
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Merck Serono |
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North America & Mexico
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North America &
Mexico
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World ex-Japan |
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Handok
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Handok
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Nippon Kayaku / Shionogi |
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Korea
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Korea
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Japan |
Our Business Strategy
Our primary business strategy is to
advance, with the collaboration of our strategic partners, our product development pipeline with a focus on
our flagship product candidates in oncology and endocrinology. In addition, we also continue to
advance certain other clinical and pre-clinical programs as described below. Our vision is to
become a fully-integrated specialty biopharmaceutical company.
Oncology
Our highest oncology priorities are our perifosine Phase 3 program in multiple myeloma and
Phase 2 program in multiple cancers including metastatic colon cancer, as well as our Phase 2
program with AEZS-108 in advanced endometrial and advanced ovarian cancer combined with potential
development in other cancer indications.
Perifosine
Perifosine is an orally active PI3K/Akt pathway inhibitor in a Phase 3 registration trial in
multiple myeloma conducted by our North American partner Keryx for the territories of North America
and Mexico under a Special Protocol Assessment reached with the Food and Drug Administration
(FDA), which has also granted perifosine Orphan Drug and Fast Track designations. Perifosine is
also in current multiple Phase 2 clinical studies, including metastatic colon cancer, renal cell
carcinoma and various other cancers.
Furthermore, our partner Keryx announced on February 3, 2010 that it has reached another
special protocol assessment in refractory metastatic colon cancer with the FDA and is planning the
initiation of a registration Phase 3 trial in this indication.
- 6 -
AEZS-108
AEZS-108 represents a new targeting concept in oncology leading to personalized medicine using
a cytotoxic peptide conjugate which is a hybrid molecule composed of a synthetic peptide carrier
and doxorubicin. The design of AEZS-108 allows for the specific binding and selective uptake of the
cytotoxic conjugate by LHRH-receptor-positive tumors. Phase 2 trials in advanced endometrial cancer
and advanced ovarian cancer have met their predefined primary efficacy endpoints.
Endocrinology
In endocrinology, aside from CetrotideÒ, we intend to further advance the
development of our lead program by the reactivation and further advancement of a Phase 3 trial with
Solorel (AEZS-130) as a GH stimulation test for the diagnosis of AGHD.
AEZS-130 (macimorelin)
AEZS-130 (macimorelin), a growth hormone secretagogue (GHS), is a novel synthetic small
molecule acting as a ghrelin mimetic that is orally active and stimulates the secretion of GH. A
pivotal Phase 3 trial was initiated in the United States to investigate its safety and efficacy as
a GH stimulation test for the diagnosis of AGHD for which Orphan Drug status has been granted by
the FDA. In addition to the diagnostic indication, we believe that AEZS-130, based on the results
of Phase 1 studies, has potential applications for the treatment of cachexia, a condition
frequently associated with severe chronic diseases such as cancer, chronic obstructive pulmonary
disease and AIDS.
Clinical and Preclinical Programs
Additionally, we are advancing in Phase 1, AEZS-112, an oral anticancer agent which involves
three mechanisms of action, tubulin and topoisomeras II and angiogenesic inhibition, as well as
several preclinical programs with targeted potential development candidates. Among the targets for
which we expect to propose clinical development candidates in the coming years are: AEZS-120
(prostate cancer vaccine), AEZS-127 (erucylphosphocholine derivatives), AEZS-129 (Erk and PI3K
inhibitor), AEZS-115 (non-peptide LHRH antagonists) and AEZS-123 (ghrelin receptor antagonist).
We also continue to perform targeted drug discovery activities from which we are able to
derive pre-clinical candidates. This drug discovery includes high throughput screening systems and
a library of more than 120,000 compounds.
We are currently in a stage in which some of our products and product candidates are being
further developed or marketed jointly with strategic partners. We expect we will continue to seek
strategic partnerships in the future as we move to realize our vision of becoming a
fully-integrated specialty biopharmaceutical company.
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RISK FACTORS
The purchase of Securities offered under this Prospectus involves risks which prospective
purchasers should take into consideration when making a decision to purchase such Securities.
Investors should carefully consider the risks described below, together with all of the other
information included in this Prospectus and the documents incorporated by reference into this
Prospectus, before making an investment decision. Certain of these risk factors have been disclosed
in our annual report on Form 20-F for the financial year ended December 31, 2008 (filed in Canada
with the Canadian securities regulatory authorities in lieu of an annual information form) under
the heading Risks Factors and in our managements discussion and analysis for the period ended
September 30, 2009 under the heading Risks Factors and Uncertainties, which documents are
incorporated by reference into this Prospectus. This discussion of risk factors will be updated
from time to time in our subsequent filings with the Canadian securities regulatory authorities,
including in subsequent annual and quarterly managements discussion and analysis and annual
information forms. If any of the following risks actually occurs or materializes, our business,
financial condition or results of operations could be adversely affected, even materially adversely
affected. In such an event, the trading price of our Securities could decline and you may lose part
or all of your investment. Any reference in this section to our products includes a reference to
our product candidates and future products we may develop.
Risks Related to Us and Our Business
Investments in biopharmaceutical companies are generally considered to be speculative.
The prospects for companies operating in the biopharmaceutical industry may generally be
considered to be uncertain, given the very nature of the industry and, accordingly, investments in
biopharmaceutical companies should be considered to be speculative.
We have a history of operating losses and we may never achieve or maintain operating profitability.
Our product candidates remain at the development stage and we have incurred substantial
expenses in our efforts to develop products. Consequently, we have incurred recurrent operating
losses and, as disclosed in our unaudited interim consolidated financial statements as of and for
the three- and nine-month periods ended September 30, 2009 and 2008, we had an accumulated deficit
of U.S.$139.6 million as of September 30, 2009. Our operating losses have adversely impacted, and
will continue to adversely impact, our working capital, total assets and shareholders equity. We
do not expect to reach operating profitability in the immediate future, and our expenses are likely
to increase as we continue to expand our research and development (R&D) and clinical study
programs and our sales and marketing activities and seek regulatory approval for our product
candidates. Even if we succeed in developing new commercial products, we expect to incur additional
operating losses for at least the next several years. If we do not ultimately generate sufficient
revenue from commercialized products and achieve or maintain operating profitability, an investment
in our Securities could result in a significant or total loss.
Our clinical trials may not yield results which will enable us to obtain regulatory approval for
our products, and a setback in any of our clinical trials would likely cause a drop in the price of
our Securities.
We will only receive regulatory approval for a product candidate if we can demonstrate in
carefully designed and conducted clinical trials that the product candidate is both safe and
effective. We do not know whether our pending or any future clinical trials will demonstrate
sufficient safety and efficacy to obtain the requisite regulatory approvals or will result in
marketable products. Unfavorable data from those studies could result in the withdrawal of
marketing approval for approved products or an extension of the review period for developmental
products. Clinical trials are inherently lengthy, complex, expensive and uncertain processes and
have a high risk of failure. It typically takes many years to complete testing, and failure can
occur at any stage of testing. Results attained in preclinical testing and early clinical studies,
or trials, may not be indicative of results that are obtained in later studies.
None of our product candidates has to date received regulatory approval for its intended
commercial sale. We cannot market a pharmaceutical product in any jurisdiction until it has
completed rigorous preclinical testing and clinical trials and passed such jurisdictions extensive
regulatory approval process. In general, significant research and development and clinical studies
are required to demonstrate the safety and efficacy of our product candidates before we can submit
regulatory applications. Pre-clinical testing and clinical development are long, expensive and
uncertain processes. Preparing, submitting and advancing applications for regulatory approval is
complex, expensive and time-consuming and entails significant uncertainty. Data obtained from
pre-clinical and clinical tests can be interpreted in different ways, which could delay, limit or
prevent regulatory approval. It may take us many years to complete the testing of our product
candidates and failure can occur at any stage of this process. In addition, we have limited
experience in conducting and managing the clinical trials necessary to obtain regulatory approval
in the United States, in Canada and
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abroad and, accordingly, may encounter unforeseen problems and delays in the approval process.
Though we may engage a clinical research organization with experience in conducting regulatory
trials, errors in the conduct, monitoring and/or auditing could invalidate the results from a
regulatory perspective. Even if a product candidate is approved by the FDA, the Canadian
Therapeutic Products Directorate or any other regulatory authority, we may not obtain approval for
an indication whose market is large enough to recoup our investment in that product candidate. In
addition, there can be no assurance that we will ever obtain all or any required regulatory
approvals for any of our product candidates.
We are currently developing our product candidates based on R&D activities, preclinical
testing and clinical trials conducted to date, and we may not be successful in developing or
introducing to the market these or any other new products or technology. If we fail to develop and
deploy new products successfully and on a timely basis, we may become non-competitive and unable to
recoup the R&D and other expenses we incur to develop and test new products.
Interim results of preclinical or clinical studies do not necessarily predict their final
results, and acceptable results in early studies might not be obtained in later studies. Safety
signals detected during clinical studies and pre-clinical animal studies may require us to do
additional studies, which could delay the development of the drug or lead to a decision to
discontinue development of the drug. Product candidates in the later stages of clinical development
may fail to show the desired safety and efficacy traits despite positive results in initial
clinical testing. Results from earlier studies may not be indicative of results from future
clinical trials and the risk remains that a pivotal program may generate efficacy data that will be
insufficient for the approval of the drug, or may raise safety concerns that may prevent approval
of the drug. Interpretation of the prior pre-clinical and clinical safety and efficacy data of our
product candidates may be flawed and there can be no assurance that safety and/or efficacy concerns
from the prior data were overlooked or misinterpreted, which in subsequent, larger studies appear
and prevent approval of such product candidates.
Furthermore, we may suffer significant setbacks in advanced clinical trials, even after
promising results in earlier studies. Based on results at any stage of clinical trials, we may
decide to repeat or redesign a trial or discontinue development of one or more of our product
candidates. Further, actual results may vary once the final and quality-controlled verification of
data and analyses has been completed. If we fail to adequately demonstrate the safety and efficacy
of our products under development, we will not be able to obtain the required regulatory approvals
to commercialize our product candidates.
Clinical trials are subject to continuing oversight by governmental regulatory authorities and
institutional review boards and:
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must meet requirements for informed consent; and |
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must meet requirements for good clinical practices. |
We may not be able to comply with these requirements in respect of one or more of our product
candidates.
In addition, we rely on third parties, including Contract Research Organizations (CROs) and
outside consultants, to assist us in managing and monitoring clinical trials. Our reliance on these
third parties may result in delays in completing, or in failing to complete, these trials if one or
more third parties fails to perform with the speed and level of competence we expect.
A failure in the development of any one of our programs or product candidates could have a
negative impact on the development of the others. Setbacks in any phase of the clinical development
of our product candidates would have an adverse financial impact (including with respect to any
agreements and partnerships that may exist between us and other entities), could jeopardize
regulatory approval and would likely cause a drop in the price of our Securities.
If we are unable to successfully complete our clinical trial programs, or if such clinical
trials take longer to complete than we project, our ability to execute our current business
strategy will be adversely affected.
Whether or not and how quickly we complete clinical trials is dependent in part upon the rate
at which we are able to engage clinical trial sites and, thereafter, the rate of enrollment of
patients, and the rate we collect, clean, lock and analyze the clinical trial database. Patient
enrollment is a function of many factors, including the design of the protocol, the size of the
patient population, the proximity of patients to and availability of clinical sites, the
eligibility criteria for the study, the perceived risks and benefits of the drug under study and of
the control drug, if any, the efforts to facilitate timely enrollment in clinical trials, the
patient referral practices
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of physicians, the existence of competitive clinical trials, and whether existing or new drugs
are approved for the indication we are studying. Certain clinical trials are designed to continue
until a pre-determined number of events have occurred to the patients enrolled. Trials such as this
are subject to delays stemming from patient withdrawal and from lower than expected event rates and
may also incur increased costs if enrollment is increased in order to achieve the desired number of
events. If we experience delays in identifying and contracting with sites and/or in patient
enrollment in our clinical trial programs, we may incur additional costs and delays in our
development programs, and 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 outside 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. Accordingly, we may not be able to complete the
clinical trials within an acceptable time frame, if at all. If we or any third party have
difficulty enrolling a sufficient number of patients to conduct our clinical trials as planned, we
may need to delay or terminate ongoing clinical trials.
Additionally, we have never filed a
new drug application (NDA), or similar application for
approval in the United States or in any country for our current
product candidates, which may result in a delay in, or the rejection
of, our filing of an NDA or similar application. During the drug development process, regulatory
agencies will typically ask questions of drug sponsors. While we endeavor to answer all such
questions in a timely fashion, or in the NDA filing, some questions may not be answered by the time
we file our NDA. Unless the FDA waives the requirement to answer any such unanswered questions,
submission of an NDA may be delayed or rejected.
Even if we obtain regulatory approvals for our product candidates, we will be subject to stringent
ongoing government regulation.
Even if regulatory authorities approve any of our product candidates, the manufacture,
marketing and sale of such products will be subject to strict and ongoing regulation. Compliance
with such regulation will be expensive and consume substantial financial and management resources.
For example, an approval for a product may be conditioned on our agreement to conduct costly
post-marketing follow-up studies to monitor the safety or efficacy of the products. In addition, as
a clinical experience with a drug expands after approval because the drug is used by a greater
number and more diverse group of patients than during clinical trials, side effects or other
problems may be observed after approval that were not observed or anticipated during pre-approval
clinical trials. In such a case, a regulatory authority could restrict the indications for which
the product may be sold or revoke the products regulatory approval.
We and our contract manufacturers will be required to comply with applicable current Good
Manufacturing Practice (cGMP) regulations for the manufacture of our products. These regulations
include requirements relating to quality assurance, as well as the corresponding maintenance of
rigorous records and documentation. Manufacturing facilities must be approved before we can use
them in the commercial manufacturing of our products and are subject to subsequent periodic
inspection by regulatory authorities. In addition, material changes in the methods of manufacturing
or changes in the suppliers of raw materials are subject to further regulatory review and approval.
If we, or any future marketing collaborators or contract manufacturers, fail to comply with
applicable regulatory requirements, we may be subject to sanctions including fines, product recalls
or seizures and related publicity requirements, injunctions, total or partial suspension of
production, civil penalties, suspension or withdrawals of previously granted regulatory approvals,
warning or untitled letters, refusal to approve pending applications for marketing approval of new
products or of supplements to approved applications, import or export bans or restrictions, and
criminal prosecution and penalties. Any of these penalties could delay or prevent the promotion,
marketing or sale of our products.
If our products do not gain market acceptance, we may be unable to generate significant revenues.
Even if our products are approved for commercialization, they may not be successful in the
marketplace. Market acceptance of any of our products will depend on a number of factors including,
but not limited to:
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demonstration of clinical efficacy and safety; |
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the prevalence and severity of any adverse side effects; |
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limitations or warnings contained in the products approved labeling; |
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availability of alternative treatments for the indications we target; |
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the advantages and disadvantages of our products relative to current or alternative
treatments; |
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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 the products. |
If our products do not gain market acceptance among physicians, patients, healthcare payers
and others in the medical community, which may not accept or utilize our products, our ability to
generate significant revenues from our products would be limited and our financial conditions will
be materially adversely affected. In addition, if we fail to further penetrate our core markets and
existing geographic markets or successfully expand our business into new markets, the growth in
sales of our products, along with our operating results, could be negatively impacted.
Our ability to further penetrate our core markets and existing geographic markets in which we
compete or to successfully expand our business into additional countries in Europe, Asia or
elsewhere is subject to numerous factors, many of which are beyond our control. Our products, if
successfully developed, may compete with a number of drugs and therapies currently manufactured and
marketed by major pharmaceutical and other biotechnology companies. Our products may also compete
with new products currently under development by others or with products which may be less
expensive than our products. We cannot assure you that our efforts to increase market penetration
in our core markets and existing geographic markets will be successful. Our failure to do so could
have an adverse effect on our operating results and would likely cause a drop in the price of our
Securities.
We may require significant additional financing, and we may not have access to sufficient
capital.
We may require additional capital to pursue planned clinical trials, regulatory approvals, as
well as further R&D and marketing efforts for our product candidates and potential products. Except
as expressly described in this Prospectus and the documents incorporated by reference herein, we do
not anticipate generating significant revenues from operations in the near future and we currently
have no committed sources of capital.
We may attempt to raise additional funds through public or private financings, collaborations
with other pharmaceutical companies or financing from other sources. Additional funding may not be
available on terms which are acceptable to us. If adequate funding is not available to us on
reasonable terms, we may need to delay, reduce or eliminate one or more of our product development
programs or obtain funds on terms less favorable than we would otherwise accept. To the extent that
additional capital is raised through the sale of equity securities or securities convertible into
or exchangeable for equity securities, the issuance of those securities could result in dilution to
our shareholders. Moreover, the incurrence of debt financing 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 and could impose restrictions on our operations. This could render us more
vulnerable to competitive pressures and economic downturns.
We anticipate that our existing working capital, including the proceeds from any sale of
Securities hereunder and anticipated revenues, will be sufficient to fund our development programs,
clinical trials and other operating expenses for the near future. However, our future capital
requirements are substantial and may increase beyond our current expectations depending on many
factors including:
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the duration and results of our clinical trials for our various product candidates
going forward; |
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unexpected delays or developments in seeking regulatory approvals; |
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the time and cost in preparing, filing, prosecuting, maintaining and enforcing patent
claims; |
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other unexpected developments encountered in implementing our business development and
commercialization strategies; |
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the outcome of litigation, if any; and |
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In addition, the ongoing recessionary global market and economic conditions as well as certain
continuing difficulties in the credit and capital markets may make it even more difficult for us to
raise additional financing in the future.
If we are unsuccessful in increasing our revenues and/or raising additional funding, we may
possibly cease to continue operating as we currently do.
Although our unaudited interim consolidated financial statements as of and for the three- and
nine-month periods ended September 30, 2009 and 2008 have been prepared on a going concern basis,
which contemplates the realization of assets and liquidation of liabilities during the normal
course of operations, our ability to continue as a going concern is dependent on the successful
execution of our business plan, which will require an increase in revenue and/or additional funding
to be provided by potential investors as well as non-traditional sources of financing. Although we
stated in our unaudited interim consolidated financial statements as of and for the three- and
nine-month periods ended September 30, 2009 and 2008 that management believed that the Company had,
as at September 30, 2009, sufficient financial resources to fund planned expenditures and other
working capital needs for at least, but not limited to, the 12-month period following such date,
there can be no assurance that management will be able to reiterate such belief in our future
financial statements.
We have had sustained losses, accumulated deficits and negative cash flows from operations
since our inception. We expect that this will continue throughout 2010.
Additional funding may be in the form of debt or equity or a hybrid instrument depending on
the needs of the investor. Given the prevailing global economic and credit market conditions, we
may not be able to raise additional cash resources through these traditional sources of financing.
Although we are also pursuing non-traditional sources of financing, the global credit market crisis
has also adversely affected the ability of potential parties to pursue such transactions. We do not
believe that the ability to access capital markets or these adverse conditions are likely to
improve significantly in the near future. Accordingly, as a result of the foregoing, we continue to
review traditional sources of financing, such as private and public debt or equity financing
alternatives, as well as other alternatives to enhance shareholder value, including, but not
limited to, non-traditional sources of financing, such as alliances with strategic partners, the
sale of assets or licensing of our technology or intellectual property, a combination of operating
and related initiatives or a substantial reorganization of our business. If we do not raise
additional capital, we do not expect our operations to generate sufficient cash flow to
fund our obligations as they come due.
There can be no assurances that we will achieve profitability or positive cash flows or be
able to obtain additional funding or that, if obtained, they will be sufficient, or whether any
other initiatives will be successful, such that we may continue as a going concern. There are
material uncertainties related to certain adverse conditions and events that could cast significant
doubt on our ability to remain a going concern.
We may not achieve our projected development goals in the time-frames we announce and expect.
We set goals and make public statements regarding the timing of the accomplishment of
objectives material to our success, such as the commencement, enrollment and completion of clinical
trials, anticipated regulatory submission and approval dates and time of product launch. The actual
timing of these events can vary dramatically due to factors such as delays or failures in our
clinical trials, the uncertainties inherent in the regulatory approval process and delays in
achieving manufacturing or marketing arrangements sufficient to commercialize our products. There
can be no assurance that our clinical trials will be completed, that we will make regulatory
submissions or receive regulatory approvals as planned or that we will be able to adhere to our
current schedule for the launch of any of our products. If we fail to achieve one or more of these
milestones as planned, the price of our Securities would likely decline.
If we fail to obtain acceptable prices or adequate reimbursement for our products, our ability to
generate revenues will be diminished.
The ability for us and/or our partners to successfully commercialize our products will depend
significantly on our ability to obtain acceptable prices and the availability of reimbursement to
the patient from third-party payers, such as governmental and private insurance plans. These
third-party payers frequently require companies to provide predetermined discounts from list
prices, and they are increasingly challenging the prices charged for pharmaceuticals and other
medical products. Our products may not be considered
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cost-effective, and reimbursement to the patient may not be available or sufficient to allow
us or our partners to sell our products on a competitive basis. It may not be possible to negotiate
favorable reimbursement rates for our products.
In addition, the continuing efforts of third-party payers to contain or reduce the costs of
healthcare through various means may limit our commercial opportunity and reduce any associated
revenue and profits. We expect proposals to implement similar government control to continue. In
addition, increasing emphasis on managed care will continue to put pressure on the pricing of
pharmaceutical and biopharmaceutical products. Cost control initiatives could decrease the price
that we or any current or potential collaborators could receive for any of our products and could
adversely affect our profitability. In addition, in the United States, in Canada and in many other
countries, pricing and/or profitability of some or all prescription pharmaceuticals and
biopharmaceuticals are subject to government control.
If we fail to obtain acceptable prices or an adequate level of reimbursement for our products,
the sales of our products would be adversely affected or there may be no commercially viable market
for our products.
Competition in our targeted markets is intense, and development by other companies could render our
products or technologies non-competitive.
The biomedical field is highly competitive. New products developed by other companies in the
industry could render our products or technologies non-competitive. Competitors are developing and
testing products and technologies that would compete with the products that we are developing. Some
of these products may be more effective or have an entirely different approach or means of
accomplishing the desired effect than our products. We expect competition from biopharmaceutical
and pharmaceutical companies and academic research institutions to increase over time. Many of our
competitors and potential competitors have substantially greater product development capabilities
and financial, scientific, marketing and human resources than we do. Our competitors may succeed in
developing products earlier and in obtaining regulatory approvals and patent protection for such
products more rapidly than we can or at a lower price.
We may not obtain adequate protection for our products through our intellectual property.
We rely heavily on our proprietary information in developing and manufacturing our product
candidates. Our success depends, in large part, on our ability to protect our competitive position
through patents, trade secrets, trademarks and other intellectual property rights. The patent
positions of pharmaceutical and biopharmaceutical firms, including Æterna Zentaris, are uncertain
and involve complex questions of law and fact for which important legal issues remain unresolved.
Applications for patents and trademarks in Canada, the United States and in other foreign
territories have been filed and are being actively pursued by us. Pending patent applications may
not result in the issuance of patents and we may not be able to obtain additional issued patents
relating to our technology or products. Even if issued, patents to us or our licensors may be
challenged, narrowed, invalidated, held to be unenforceable or circumvented, which could limit our
ability to stop competitors from marketing similar products or limit the length of term of patent
protection we may have for our products. Changes in either patent laws or in interpretations of
patent laws in the United States and other countries may diminish the value of our intellectual
property or narrow the scope of our patent protection. The patents issued or to be issued to us may
not provide us with any competitive advantage or protect us against competitors with similar
technology. In addition, it is possible that third parties with products that are very similar to
ours will circumvent our patents by means of alternate designs or processes. We may have to rely on
method of use and new formulation protection for our compounds in development, and any resulting
products, which may not confer the same protection as claims to compounds per se.
In addition, our patents may be challenged by third parties in patent litigation, which is
becoming widespread in the biopharmaceutical industry. There may be prior art of which we are not
aware that may affect the validity or enforceability of a patent claim. There also may 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 competitors technology or product would be found by a court to
infringe our patents. Our granted patents could also be challenged and revoked in opposition or
nullity proceedings in certain countries outside the United States. In addition, we may be required
to disclaim part of the term of certain patents.
Patent applications relating to or affecting our business have been filed by a number of
pharmaceutical and biopharmaceutical companies and academic institutions. A number of the
technologies in these applications or patents may conflict with our technologies, patents or patent
applications, and any such conflict could reduce the scope of patent protection which we could
otherwise obtain. Because patent applications in the United States and many other jurisdictions are
typically not published until eighteen months after
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their first effective filing date, or in some cases not at all, and because publications of
discoveries in the scientific literature often lag behind actual discoveries, neither we nor our
licensors can be certain that we or they were the first to make the inventions claimed in our or
their issued patents or pending patent applications, or that we or they were the first to file for
protection of the inventions set forth in these patent applications. If a third party has also
filed a patent application in the United States covering our product candidates or a similar
invention, we may have to participate in an adversarial proceeding, known as an interference,
declared by the United States Patent and Trademark Office to determine priority of invention in the
United States. 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.
In addition to patents, we 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 individuals relationship with
us is to be kept confidential and not disclosed to third parties except in specific circumstances.
In the case of our employees, the agreements provide that all of the technology which is conceived
by the individual during the course of employment is our exclusive property. These agreements may
not provide meaningful protection or adequate remedies in the event of unauthorized use or
disclosure of our proprietary information. In addition, it is possible that third parties could
independently develop proprietary information and techniques substantially similar to ours or
otherwise gain access to our trade secrets. If we are unable to protect the confidentiality of our
proprietary information and know-how, competitors may be able to use this information to develop
products that compete with our products and technologies, which could adversely impact our
business.
We currently have the right to use certain technology under license agreements with third
parties. Our failure to comply with the requirements of material 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.
As a result of the foregoing factors, we may not be able to rely on our intellectual property
to protect our products in the marketplace.
We may infringe the intellectual property rights of others.
Our commercial success depends significantly on our ability to operate without infringing the
patents and other intellectual property rights of third parties. There could be issued patents of
which we are not aware that our products or methods may be found to infringe, or patents of which
we are aware and believe we do not infringe but which we may ultimately be found to infringe.
Moreover, patent applications and their underlying discoveries are in some cases maintained in
secrecy until patents are issued. Because patents can take many years to issue, there may be
currently pending applications of which we are unaware that may later result in issued patents that
our products or methods are found to infringe. Moreover, there may be published pending
applications that do not currently include a claim covering our products or methods but which
nonetheless provide support for a later drafted claim that, if issued, our products or methods
could be found to infringe.
If we infringe or are alleged to infringe intellectual property rights of third parties, it
will adversely affect our business. Our research, development and commercialization activities, as
well as any product candidates or products resulting from these activities, may infringe or be
accused of infringing one or more claims of an issued patent or may fall within the scope of one or
more claims in a published patent application that may subsequently issue and to which we do not
hold a license or other rights. Third parties may own or control these patents or patent
applications in the United States and abroad. These third parties could bring claims against us or
our collaborators that would cause us to incur substantial expenses and, if successful against us,
could cause us to pay substantial damages. Further, if a patent infringement suit were brought
against us or our collaborators, we or they could be forced to stop or delay research, development,
manufacturing or sales of the product or product candidate that is the subject of the suit.
The biopharmaceutical industry has produced a proliferation of patents, and it is not always
clear to industry participants, including us, which patents cover various types of products. The
coverage of patents is subject to interpretation by the courts, and the interpretation is not
always uniform. In the event of infringement or violation of another partys 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.
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Patent litigation is costly and time consuming and may subject us to liabilities.
Our involvement in any patent litigation, interference, opposition or other administrative
proceedings will likely cause us to incur substantial expenses, 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.
We have filed applications for trademark registrations in connection with our product
candidates in various jurisdictions, including the United States. We intend to file further
applications for other possible trademarks for our product candidates. No assurance can be given
that any of our trademark applications will be registered in the United States or elsewhere, or
that the use of any registered or unregistered trademarks will confer a competitive advantage in
the marketplace. Furthermore, even if we are successful in our trademark registrations, the FDA and
regulatory authorities in other countries have their own process for drug nomenclature and their
own views concerning appropriate proprietary names. The FDA and other regulatory authorities also
have the power, even after granting market approval, to request a company to reconsider the name
for a product because of evidence of confusion in the marketplace. No assurance can be given that
the FDA or any other regulatory authority will approve of any of our trademarks or will not request
reconsideration of one of our trademarks at some time in the future. The loss, abandonment, or
cancellation of any of our trademarks or trademark applications could negatively affect the success
of the product candidates to which they relate.
Our revenues and expenses may fluctuate significantly, and any failure to meet financial
expectations may disappoint securities analysts or investors and result in a decline in the price
of our Securities.
We have a history of operating losses. Our revenues and expenses have fluctuated in the past
and are likely to do so in the future. These fluctuations could cause our share price to decline.
Some of the factors that could cause our revenues and expenses to fluctuate include but are not
limited to:
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the inability to complete product development in a timely manner that results in a
failure or delay in receiving the required regulatory approvals to commercialize our
product candidates; |
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the timing of regulatory submissions and approvals; |
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the timing and willingness of any current or future collaborators to invest the
resources necessary to commercialize our product candidates; |
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the revenue available from royalties derived from our strategic partners; |
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licensing fees revenues; |
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tax credits and grants (R&D); |
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the outcome of litigation, if any; |
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changes in foreign currency fluctuations; |
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the timing of achievement and the receipt of milestone payments from current or future
collaborators; and |
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failure to enter into new or the expiration or termination of current agreements with
collaborators. |
Due to fluctuations in our revenues and expenses, we believe that period-to-period comparisons
of our results of operations are not necessarily indicative of our future performance. It is
possible that in some future quarter or quarters, our revenues and expenses will be above or below
the expectations of securities analysts or investors. In this case, the price of our Securities
could fluctuate significantly or decline.
- 15 -
We may invest or spend the proceeds of any offering of Securities under this Prospectus in ways
with which investors may not agree and in ways that may not earn a profit.
Our management team will have broad discretion concerning the use of the proceeds of any
offering of Securities under this Prospectus as well as the timing of their expenditure. As a
result, investors will be relying on the judgment of management for the application of the proceeds
of any offering of Securities under this Prospectus. We intend to use the proceeds from any
offering primarily for general corporate purposes, which may include, but are not limited to, our
current clinical development programs. Investors may not agree with the ways we decide to use these
proceeds, and our use of the proceeds may not yield any results or profits.
We will not be able to successfully commercialize our product candidates if we are unable to make
adequate arrangements with third parties for such purposes.
We currently have a lean sales and marketing staff. In order to commercialize our product
candidates successfully, we need to make arrangements with third parties to perform some or all of
these services in certain territories.
We contract with third parties for the sales and marketing of our products. Our revenues will
depend upon the efforts of these third parties, whose efforts may not be successful. If we fail to
establish successful marketing and sales capabilities or to make arrangements with third parties
for such purposes, our business, financial condition and results of operations will be materially
adversely affected.
If we had to resort to developing a sales force internally, the cost of establishing and
maintaining a sales force would be substantial and may exceed its cost effectiveness. In addition,
in marketing our products, we would likely compete with many companies that currently have
extensive and well-funded marketing and sales operations. Despite our marketing and sales efforts,
we may be unable to compete successfully against these companies.
We are currently dependent on strategic partners and may enter into future collaborations for
the research, development and commercialization of our product candidates. Our arrangements with
these strategic partners may not provide us with the benefits we expect and may expose us to a
number of risks.
We are dependent on, and rely upon, strategic partners to perform various functions related to
our business, including, but not limited to, the research, development and commercialization of
some of our product candidates. Our reliance on these relationships 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 or issue our equity, voting or
other securities to corporate partners, licensees and others. Any license or sublicense of our
commercial rights may reduce our product revenue.
These agreements also create certain risks. The occurrence of any of the following or other
events may delay product development or impair commercialization of our products:
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not all of our strategic partners are contractually prohibited from developing or
commercializing, either alone or with others, products and services that are similar to
or competitive with our product candidates, and, with respect to our strategic
partnership agreements that do contain such contractual prohibitions or restrictions,
prohibitions or restrictions do not always apply to our partners affiliates and they may
elect to pursue the development of any additional product candidates and pursue
technologies or products either on their own or in collaboration with other parties,
including our competitors, whose technologies or products may be competitive with ours; |
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our strategic partners may under-fund or fail to commit sufficient resources to
marketing, distribution or other development of our products; |
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we may not be able to renew such agreements; |
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our strategic partners may not properly maintain or defend certain intellectual
property rights that may be important to the commercialization of our products; |
- 16 -
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our strategic partners 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
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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 our product candidates; and |
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disputes may arise between us and our strategic partners that could result in the
delay or termination of the development or commercialization of our product candidates,
resulting in litigation or arbitration that could be time-consuming and expensive, or
causing our strategic partners to act in their own self-interest and not in our interest
or those of our shareholders or other stakeholders. |
In addition, our strategic partners can terminate our agreements with them for a number of
reasons based on the terms of the individual agreements that we have entered into with them. If one
or more of these agreements were to be terminated, we would be required to devote additional
resources to developing and commercializing our product candidates, seek a new partner or abandon
this product candidate which would likely cause a drop in the price of our Securities.
We have entered into important strategic partnership agreements relating to certain of our
product candidates for various indications. Detailed information on our research and collaboration
agreements is available in our various reports and disclosure documents filed with the Canadian
securities regulatory authorities and filed with or furnished to the SEC, including the documents
incorporated by reference into this Prospectus. See, for example, Notes 26 and 27 to our audited
consolidated balance sheets as at December 31, 2008 and 2007 and our audited consolidated
statements of earnings (loss), changes in shareholders equity, comprehensive income (loss) and
cash flows for each of the years in the three-year period ended December 31, 2008 included in our
annual report on Form 20-F (filed in Canada with the Canadian securities regulatory authorities in
lieu of an annual information form), which is incorporated by reference into this Prospectus.
We have also entered into a variety of collaborative licensing agreements with various
universities and institutes under which we are obligated to support some of the research expenses
incurred by the university laboratories and pay royalties on future sales of the products. In turn,
we have retained exclusive rights for the worldwide exploitation of results generated during the
collaborations.
In particular, we have entered into an agreement with Tulane University (Tulane), which
provides for the payment by us of single-digit royalties on future worldwide net sales of
cetrorelix and including CetrotideÒ. Tulane is also entitled to receive a low double-digit
participation payment on any lump-sum, periodic or other cash payments received by us from
sub-licensees (see Note 27 to our audited consolidated balance sheets as at December 31, 2008 and
2007 and our audited consolidated statements of earnings (loss), changes in shareholders equity,
comprehensive income (loss) and cash flows for each of the years in the three-year period ended
December 31, 2008 included in our annual report on Form 20-F filed in Canada with the Canadian
securities regulatory authorities in lieu of an annual information form, which is incorporated by
reference into this Prospectus).
We rely on third parties to conduct, supervise and monitor our clinical trials, and those third
parties may not perform satisfactorily.
We rely on third parties such as CROs, medical institutions and clinical investigators to
enroll qualified patients and conduct, supervise and monitor our clinical trials. Our reliance on
these third parties for clinical development activities reduces our control over these activities.
Our reliance on these third parties, however, does not relieve us of our regulatory
responsibilities, including ensuring that our clinical trials are
conducted in accordance with Good Clinical Practice (GCP) guidelines and the investigational plan and protocols contained in an Investigational New Drug
application, or comparable foreign regulatory submission. Furthermore, these third parties may also
have relationships with other entities, some of which may be our competitors. In addition, they may
not complete activities on schedule, or may not conduct our preclinical studies or clinical trials
in accordance with regulatory requirements or our trial design. If these third parties do not
successfully carry out their contractual duties or meet expected deadlines, our efforts to obtain
regulatory approvals for, and commercialize, our product candidates may be delayed or prevented.
- 17 -
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 partners, will be able,
in the future, to continue to purchase products from our current suppliers or any other supplier on
terms similar to current terms or at all. An interruption in the availability of certain raw
materials or ingredients, or significant increases in the prices paid by us for them, could have a
material adverse effect on our business, financial condition, liquidity and operating results.
The failure to perform satisfactorily by third parties upon which we rely to manufacture and supply
products may lead to supply shortfalls.
We rely on third parties to manufacture and supply marketed products. We also have certain
supply obligations vis-à-vis our licensing partners who are responsible for the marketing of the
products. To be successful, our products have to be manufactured in commercial quantities in
compliance with quality controls and regulatory requirements. Even though it is our objective to
minimize such risk by introducing alternative suppliers to ensure a constant supply at all times,
we cannot guarantee that we will not experience supply shortfalls and, in such event, we may not be
able to perform our obligations under contracts with our partners.
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. Competition for skilled personnel is intense, and our ability to attract and retain
qualified personnel may be affected by such competition.
Our strategic partners manufacturing capabilities may not be adequate to effectively commercialize
our product candidates.
Our manufacturing experience to date with respect to our product candidates consists of
producing drug substance for clinical studies. To be successful, these product candidates have to
be manufactured in commercial quantities in compliance with regulatory requirements and at
acceptable costs. Our strategic partners current manufacturing facilities have the capacity to
produce projected product requirements for the foreseeable future, but we will need to increase
capacity if sales continue to grow. Our strategic partners may not be able to expand capacity or to
produce additional product requirements on favorable terms. Moreover, delays associated with
securing additional manufacturing capacity may reduce our revenues and adversely affect our
business and financial position. There can be no assurance that we will be able to meet increased
demand over time.
We are subject to the risk of product liability claims, for which we may not have or be able to
obtain adequate insurance coverage.
The sale and use of our products, in particular our biopharmaceutical products, involve the
risk of product liability claims and associated adverse publicity. Our risks relate to human
participants in our clinical trials, who may suffer unintended consequences, as well as products on
the market whereby claims might be made directly by patients, healthcare providers or
pharmaceutical companies or others selling, buying or using our products. We manage our liability
risks by means of insurance. We maintain liability insurance covering our liability for our
preclinical and clinical studies and for our pharmaceutical products already marketed. However, we
may not have or be able to obtain or maintain sufficient and affordable insurance coverage,
including coverage for potentially very significant legal expenses, and without sufficient coverage
any claim brought against us could have a materially adverse effect on our business, financial
condition or results of operations.
Our business involves the use of hazardous materials which requires us to comply with environmental
and occupational safety laws regulating the use of such materials. If we violate these laws, we
could be subject to significant fines, liabilities or other adverse consequences.
Our discovery and development processes involve the controlled use of hazardous and
radioactive materials. We are subject to federal, provincial and local laws and regulations
governing the use, manufacture, storage, handling and disposal of such materials and certain waste
products. The risk of accidental contamination or injury from these materials cannot be completely
eliminated. In the event of an accident or a failure to comply with environmental or occupational
safety laws, we could be held liable for any damages that result, and any such liability could
exceed our resources. We may not be adequately insured against this type of liability. We may be
required to incur significant costs to comply with environmental laws and regulations in the
future, and our operations, business or assets may be materially adversely affected by current or
future environmental laws or regulations.
- 18 -
Legislative actions, new accounting pronouncements and higher insurance costs are likely to 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.
We will report under International Financial Reporting Standards for our interim and annual
consolidated financial statements for the financial year ending December 31, 2011.
The Accounting Standards Board of the Canadian Institute of Chartered Accountants has
announced that Canadian publicly accountable enterprises are required to adopt International
Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board,
effective January 1, 2011. We will be required to report under IFRS for our interim and annual
consolidated financial statements for the financial year ending December 31, 2011.
Although IFRS uses a conceptual framework similar to Canadian GAAP, we will need to address
differences in accounting policies. We are currently considering the impact that IFRS will have on
our financial statements.
We may incur losses associated with foreign currency fluctuations.
Our operations are in many instances conducted in currencies other than the U.S. dollar
(principally Euros), and fluctuations in the value of foreign currencies could cause us to incur
currency exchange losses. We do not currently employ a hedging strategy against exchange rate risk.
We cannot say with any assurance that we will not suffer losses as a result of unfavorable
fluctuations in the exchange rates between the United States dollar, the euro, the Canadian dollar
and other currencies.
We may not be able to successfully integrate acquired businesses.
Future acquisitions may not be successfully integrated. The failure to successfully integrate
the personnel and operations of businesses which we may acquire in the future with ours could have
a material adverse effect on our operations and results.
Risks Related to the Securities
Our share price is volatile, which may result from factors outside of our control. If we experience
low trading volume or if our Common Shares are delisted from the TSX or NASDAQ, you may have
difficulty selling your Securities.
Our Common Shares are currently listed and traded only on the TSX and NASDAQ. Our valuation
and share price since the beginning of trading after our initial listings, first in Canada and then
in the United States, 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.
During the year ended December 31, 2009, the closing price of our Common Shares ranged from
Cdn$0.57 to Cdn$3.11 per share on the TSX, and from U.S.$0.46 to U.S.$2.83 on the NASDAQ. Our share
price may be affected by developments directly affecting our business and by developments out of
our control or unrelated to us. The biopharmaceutical sector in particular, and the stock market
generally, 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:
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clinical and regulatory developments regarding our product candidates; |
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delays in our anticipated development or commercialization timelines; |
- 19 -
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developments regarding current or future third-party collaborators; |
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other announcements by us regarding technological, product development 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 United States, 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 United States, Canada or abroad. |
Our listing on both the TSX and NASDAQ may increase price volatility due to various factors
including: different ability to buy or sell our Common Shares; different market conditions in
different capital markets; and different trading volumes. In addition, low trading volume may
increase the price volatility of our Common Shares. A thin trading market could cause the price of
our Common Shares to fluctuate significantly more than the stock market as a whole.
In the past, following periods of large price declines in the public market price of a
companys securities, securities class action litigation has often been initiated against that
company. Litigation of this type could result in substantial costs and diversion of managements
attention and resources, which would adversely affect our business. Any adverse determination in
litigation could also subject us to significant liabilities.
We must meet continuing listing requirements to maintain the listing of our Common Shares on
the TSX and NASDAQ. For continued listing, NASDAQ requires, among other things, that listed
securities maintain a minimum closing bid price of not less than U.S.$1.00 per share. On January
22, 2010, we announced that we had received a letter from the NASDAQ Listing Qualifications
Department indicating that the minimum closing bid price of the Common Shares had fallen below
U.S.$1.00 for 30 consecutive trading days, and therefore, Æterna Zentaris was not in compliance
with NASDAQ Listing Rule 5450(a)(1) (the Rule). In accordance with NASDAQ Listing Rule
5810(C)(3)(a), we have been provided a grace period of 180 calendar days, or until July 20, 2010,
to regain compliance with this requirement. We can regain compliance with the Rule if the bid price
of our Common Shares closes at U.S.$1.00 or higher for a minimum of ten consecutive business days
during the grace period, although NASDAQ may, in its discretion, require us to maintain a minimum
closing bid price of at least U.S.$1.00 per share for a period in excess of ten consecutive
business days before determining that we have demonstrated the ability to maintain long-term
compliance.
If we are unsuccessful in meeting the minimum bid requirement by July 20, 2010, NASDAQ will
provide notice to us that our Common Shares will be subject to delisting from the NASDAQ Global
Market. If the Company receives a delisting notification, we may appeal to the Listing
Qualifications Panel or apply to transfer the listing of our Common Shares to the NASDAQ Capital
Market if we satisfy at such time all of the initial listing standards on the NASDAQ Capital
Market, other than compliance with the minimum closing bid price requirement. If the application to
the NASDAQ Capital Market is approved, then we will have an additional 180-day grace period in
order to regain compliance with the minimum bid price requirement while listed on the NASDAQ
Capital Market. There can be no assurance that we will meet the requirements for continued listing
on the NASDAQ Global Market or whether our application to the NASDAQ Capital Market will be
approved or that any appeal would be granted by the Listing Qualifications Panel.
Our largest shareholders have influence over our business and corporate matters, including those
requiring shareholder approval. This could delay or prevent a change in control. Sales of Common
Shares by such shareholders could have an impact on the market price of our Securities.
Our two largest shareholders, which held 13.97% and 12.94% of our outstanding Common Shares as
of the date of this Prospectus, have certain rights to nominate members of our Board of Directors
as well as influence over our business and corporate matters, including those requiring shareholder
approval. This could delay or prevent a change in control. Sales of Common Shares by such
shareholders could have an impact on the price of our Securities.
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We do not intend to pay dividends in the near future.
To date, we have not declared or paid any dividends on our Common Shares. We currently intend
to retain our future earnings, if any, to finance further research and the expansion of our
business. As a result, the return on an investment in our Securities will, for the foreseeable
future, depend upon any future appreciation in value. There is no guarantee that our Securities
will appreciate in value or even maintain the price at which shareholders have purchased their
Securities.
Risks Related to the Issuance of Securities under this Prospectus
An active market may not develop for the Warrants, which may hinder your ability to liquidate your
investment.
Each issuance of Warrants will be a new issue of securities with no established trading
market, and we do not currently intend to list them on any securities exchange. A dealer may intend
to make a market in the Warrants after their issuance pursuant to this Prospectus; however, a
dealer may not be obligated to do so and may discontinue such market-making at any time. As a
result, we cannot assure you that an active trading market will develop for any series of the
Warrants. In addition, subsequent to their initial issuance, the Warrants may trade at a discount
to their initial offering price, depending upon the value of the underlying Common Shares and upon
our prospects or the prospects for companies in our industry generally and other factors, including
those described herein.
A large number of Common Shares may be issued and subsequently sold upon the exercise of the
Warrants. The sale or availability for sale of these Warrants may depress the price of our Common
Shares.
The number of Common Shares that will be initially issuable upon the exercise of Warrants will
be determined by the particular terms of each issue of Warrants and will be described in the
relevant Prospectus Supplement. To the extent that purchasers of Warrants sell Common Shares issued
upon the exercise of the Warrants, the market price of our Common Shares may decrease due to the
additional selling pressure in the market. The risk of dilution from issuances of Common Shares
underlying the Warrants may cause shareholders to sell their Common Shares, which could further
contribute to any decline in the Common Share price.
The sale of Common Shares issued upon exercise of the Warrants could encourage short sales by third
parties which could further depress the price of the Common Shares.
Any downward pressure on the price of Common Shares caused by the sale of Common Shares issued
upon the exercise of the Warrants could encourage short sales by third parties. In a short sale, a
prospective seller borrows Common Shares from a shareholder or broker and sells the borrowed Common
Shares. The prospective seller hopes that the Common Share price will decline, at which time the
seller can purchase Common Shares at a lower price for delivery back to the lender. The seller
profits when the Common Share price declines because it is purchasing Common Shares at a price
lower than the sale price of the borrowed Common Shares. Such sales could place downward pressure
on the price of our Common Shares by increasing the number of Common Shares being sold, which could
further contribute to any decline in the market price of our Common Shares.
We cannot predict the actual number of Common Shares that we will issue upon the exercise of the
Warrants. The number of Common Shares that we will issue under the Warrants may depend on the
market price of our Common Shares.
The actual number of Common Shares that we will issue upon the exercise of the Warrants is
uncertain and will be determined, or made determinable, by the particular terms of each issue of
Warrants and will be described in the relevant Prospectus Supplement. The number of Common Shares
issuable upon the exercise of the Warrants may fluctuate based on the market price of our Common
Shares. Holders of Warrants may receive more Common Shares if our Common Share price declines.
Future issuances of securities and hedging activities may depress the trading price of our Common
Shares.
Any issuance of equity securities or securities convertible into or exchangeable for equity
securities after the offering of Securities under this Prospectus, including the issuance of Common
Shares upon the exercise of stock options and upon exercise of the Warrants, could dilute the
interests of our existing shareholders, and could substantially decrease the trading price of our
Common Shares. We may issue equity securities in the future for a number of reasons, including to
finance our operations and business strategy, to satisfy
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our obligations upon the exercise of options or for other reasons. Our stock option plan
generally permits us to have outstanding, at any given time, stock options that are exercisable for
a maximum number of Common Shares equal to 11.4% of all then issued and outstanding Common Shares.
As of December 31, 2009, there were:
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63,089,954 Common Shares issued and outstanding; |
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No issued and outstanding Preferred Shares (as defined below); |
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4,110,603 Common Shares issuable upon exercise of outstanding warrants; and |
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6,213,922 stock options outstanding. |
In addition, the price of Securities 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 price of our Securities.
CHANGES IN LOAN AND CAPITAL STRUCTURE
Since
September 30, 2009, there has been no material change in our loan and capital structure on a consolidated basis except for the issuance of Common Shares and warrants to purchase Common Shares, as fully described in Note 13 to our unaudited interim consolidated financial statements as at and for the three and nine-month periods ended September 30, 2009 and 2008, which financial statements
are incorporated by reference into this Prospectus. Upon completion of such issuance of Common
Shares and warrants, the Company received proceeds of approximately U.S.$5.5 million, less cash transaction costs of approximately U.S.$0.4 million.
As of September 30, 2009, we had no outstanding long-term debt.
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), both issuable in
series. As of December 31, 2009, there were 63,089,954 Common Shares outstanding. No Preferred
Shares of the Company 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 Companys 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 shares issued and outstanding are
fully paid and non-assessable.
Preferred Shares
The First and Second Preferred Shares are issuable in series with rights and privileges
specific to each class. The holders of Preferred Shares are generally not entitled to receive
notice of or to attend or vote at meetings of shareholders. The holders of First Preferred Shares
are entitled to preference and priority to any participation of holders of Second Preferred Shares,
Common Shares or shares of any other class of shares of 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
- 22 -
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 Canada Business Corporations Act 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.
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, 2008 (filed in Canada
with the Canadian securities regulatory authorities in lieu of an annual information form)
incorporated by reference into this Prospectus.
DESCRIPTION OF WARRANTS
Warrants may be offered separately or together with Common Shares. Each series of Warrants
will be issued under a separate warrant agreement or indenture to be entered into between us and
one or more purchasers of such Warrants or with banks or trust companies acting as warrant agent.
The applicable Prospectus Supplement will include details of the warrant agreements covering the
Warrants being offered. The warrant agent will act solely as our agent and will not assume a
relationship of agency with any holders of Warrant certificates or beneficial owners of Warrants.
The particular terms of each issue or series of Warrants will be described in the related
Prospectus Supplement. This description will include, where applicable:
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the designation and aggregate number of Warrants offered; |
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the price at which the Warrants will be offered; |
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the currency or currency unit in which the Warrants are denominated; |
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the date on which the right to exercise the Warrants will commence and the date on
which the right will expire; |
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|
|
the number of Common Shares that may be purchased upon exercise of each Warrant and
the price at which and currency or currencies in which that amount of Common Shares may
be purchased upon exercise of each Warrant; |
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if offered in conjunction with the Common Shares, the number of Warrants that will
be offered with each Common Share; |
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the date or dates, if any, on or after which the Warrants and the related Common
Shares will be transferable separately; |
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the minimum or maximum amount, if any, of Warrants that may be exercised at any one
time; |
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|
whether the Warrants will be subject to redemption or call, and, if so, the terms
of such redemption or call provisions; and |
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any other terms, conditions and rights (or limitations on such rights) of the
Warrants. |
We reserve the right to set forth in a Prospectus Supplement specific terms of the Warrants
that are not within the options and parameters set forth in this Prospectus. In addition, to the
extent that any particular terms of the Warrants described in a Prospectus Supplement differ from
any of the terms described in this Prospectus, the description of such terms set forth in this
Prospectus shall be deemed to have been superseded by the description of such differing terms set
forth in such Prospectus Supplement with respect to such Warrants.
- 23 -
PRICE RANGE AND TRADING VOLUME
Our Common Shares are listed and posted for trading on NASDAQ under the symbol AEZS and on
the TSX under the symbol AEZ. The following table indicates, for the relevant periods, the high
and low closing prices and the average daily trading volume of our Common Shares on NASDAQ and on the TSX:
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|
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|
NASDAQ (U.S.$) |
|
TSX (Cdn$) |
|
|
High |
|
Low |
|
Volume |
|
High |
|
Low |
|
Volume |
2009 |
|
|
2.83 |
|
|
|
0.46 |
|
|
|
385,128 |
|
|
|
3.11 |
|
|
|
0.57 |
|
|
|
155,194 |
|
2008 |
|
|
1.80 |
|
|
|
0.40 |
|
|
|
29,774 |
|
|
|
1.85 |
|
|
|
0.44 |
|
|
|
46,277 |
|
2007 |
|
|
4.36 |
|
|
|
1.46 |
|
|
|
53,116 |
|
|
|
5.10 |
|
|
|
1.47 |
|
|
|
111,144 |
|
2006 |
|
|
7.46 |
|
|
|
4.05 |
|
|
|
42,679 |
|
|
|
8.60 |
|
|
|
4.68 |
|
|
|
124,079 |
|
2005 |
|
|
6.36 |
|
|
|
4.18 |
|
|
|
39,460 |
|
|
|
7.65 |
|
|
|
4.92 |
|
|
|
61,314 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Fourth quarter |
|
|
0.60 |
|
|
|
0.40 |
|
|
|
28,090 |
|
|
|
0.72 |
|
|
|
0.44 |
|
|
|
55,510 |
|
Third quarter |
|
|
1.36 |
|
|
|
0.59 |
|
|
|
17,600 |
|
|
|
1.42 |
|
|
|
0.61 |
|
|
|
30,641 |
|
Second quarter |
|
|
1.80 |
|
|
|
1.00 |
|
|
|
37,876 |
|
|
|
1.85 |
|
|
|
1.01 |
|
|
|
42,791 |
|
First quarter |
|
|
1.73 |
|
|
|
0.77 |
|
|
|
35,813 |
|
|
|
1.78 |
|
|
|
0.75 |
|
|
|
56,384 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth quarter |
|
|
1.25 |
|
|
|
0.80 |
|
|
|
317,523 |
|
|
|
1.40 |
|
|
|
0.83 |
|
|
|
111,373 |
|
Third quarter |
|
|
2.83 |
|
|
|
0.89 |
|
|
|
1,056,206 |
|
|
|
3.11 |
|
|
|
0.97 |
|
|
|
375,987 |
|
Second quarter |
|
|
2.35 |
|
|
|
0.89 |
|
|
|
113,553 |
|
|
|
2.63 |
|
|
|
1.06 |
|
|
|
99,844 |
|
First quarter |
|
|
0.97 |
|
|
|
0.46 |
|
|
|
32,455 |
|
|
|
1.25 |
|
|
|
0.57 |
|
|
|
33,877 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Last twelve months |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mar-101 |
|
|
0.84 |
|
|
|
0.82 |
|
|
|
111,463 |
|
|
|
0.86 |
|
|
|
0.83 |
|
|
|
58,122 |
|
Feb-10 |
|
|
0.87 |
|
|
|
0.81 |
|
|
|
102,265 |
|
|
|
0.91 |
|
|
|
0.86 |
|
|
|
38,021 |
|
Jan-10 |
|
|
0.93 |
|
|
|
0.80 |
|
|
|
489,389 |
|
|
|
0.99 |
|
|
|
0.83 |
|
|
|
109,245 |
|
Dec-09 |
|
|
1.12 |
|
|
|
0.80 |
|
|
|
341,716 |
|
|
|
1.17 |
|
|
|
0.83 |
|
|
|
140,062 |
|
Nov-09 |
|
|
1.10 |
|
|
|
0.98 |
|
|
|
191,089 |
|
|
|
1.17 |
|
|
|
1.05 |
|
|
|
97,410 |
|
Oct-09 |
|
|
1.25 |
|
|
|
0.99 |
|
|
|
408,270 |
|
|
|
1.40 |
|
|
|
1.07 |
|
|
|
96,648 |
|
Sept-09 |
|
|
1.38 |
|
|
|
0.89 |
|
|
|
1,240,716 |
|
|
|
1.46 |
|
|
|
0.98 |
|
|
|
259,348 |
|
Aug-09 |
|
|
2.83 |
|
|
|
0.89 |
|
|
|
1,567,974 |
|
|
|
3.11 |
|
|
|
0.97 |
|
|
|
704,210 |
|
Jul-09 |
|
|
2.62 |
|
|
|
1.67 |
|
|
|
391,576 |
|
|
|
2.80 |
|
|
|
1.95 |
|
|
|
188,891 |
|
Jun-09 |
|
|
2.35 |
|
|
|
1.73 |
|
|
|
257,401 |
|
|
|
2.63 |
|
|
|
1.97 |
|
|
|
185,032 |
|
May-09 |
|
|
1.69 |
|
|
|
1.11 |
|
|
|
42,220 |
|
|
|
1.86 |
|
|
|
1.31 |
|
|
|
56,320 |
|
Apr-09 |
|
|
1.32 |
|
|
|
0.89 |
|
|
|
30,792 |
|
|
|
1.59 |
|
|
|
1.06 |
|
|
|
51,967 |
|
Mar-09 |
|
|
0.97 |
|
|
|
0.65 |
|
|
|
54,736 |
|
|
|
1.25 |
|
|
|
0.83 |
|
|
|
54,586 |
|
|
|
|
1 |
|
Up to and including March 11, 2010. |
PRIOR
SALES
On June 23, 2009, we completed a registered direct offering pursuant to which we issued
5,319,149 units, each unit being comprised of one Common Share and one warrant to purchase 0.35 of
a Common Share, for a price of U.S.$1.88 per unit. Each such warrant has an exercise price of
U.S.$2.06 per share. We also issued compensation warrants to purchase up to an aggregate of 287,234
Common Shares to Rodman & Renshaw LLC (and certain of its
representatives), who acted as placement agent for this offering, which warrants have an
exercise price of U.S.$2.35 per share.
In addition, on October 23, 2009, we completed a second registered direct offering pursuant to
which we issued 4,583,335 units, each unit being comprised of one Common Share and one warrant to
purchase 0.40 of a Common Share, for a purchase price of U.S.$1.20 per unit. Each such warrant has
an exercise price of U.S.$1.25 per share. We also issued compensation warrants to purchase up to an
aggregate of 128,333 Common Shares to Rodman & Renshaw LLC, who acted as placement agent for this
offering, which warrants have an exercise price of U.S.$1.50 per share.
On December 9, 2009, we granted an aggregate of 1,448,422 stock options to acquire Common
Shares at an exercise price of Cdn$0.95 to our directors, executive officers and employees pursuant to our stock option plan.
- 24 -
USE OF PROCEEDS
Unless otherwise specified in a Prospectus Supplement, the net proceeds resulting from the
issuance of Securities will be used for the general corporate purposes of Æterna Zentaris, which
may include development costs of our product pipeline. All expenses relating to an offering of
Securities and any compensation paid to underwriters, dealers or agents, as the case may be, will
be paid out of our general funds or from the proceeds of any offering under this Prospectus or a
Prospectus Supplement. The use of proceeds will be specified in the
Prospectus Supplement relating to a particular offering of Securities, as required by applicable securities legislation.
EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the sale and
distribution of the securities being registered. We will bear all of the expenses shown below.
|
|
|
|
|
Securities and Exchange Commission registration fee |
|
US$ |
4,278 |
|
Printing and engraving expenses |
|
|
* |
|
Legal fees and expenses |
|
|
* |
|
Accounting fees and expenses |
|
|
* |
|
Transfer agent fees and expenses |
|
|
* |
|
Miscellaneous |
|
|
* |
|
|
|
|
|
Total |
|
US$* |
|
|
|
|
|
|
|
* |
|
The amount of securities and number of offerings are indeterminable, and the expenses cannot
be estimated at this time. |
PLAN OF DISTRIBUTION
We may offer and sell the Securities to or through underwriters or dealers purchasing as
principals, and we may also sell the Securities to one or more purchasers directly or through
agents. Securities may be sold from time to time in one or more transactions at a fixed price or
prices, or at non-fixed prices.
If offered on a non-fixed price basis, the Securities may be offered at prevailing market
prices at the time of sale or at prices to be negotiated with purchasers. The prices at which the
Securities may be offered may vary as between purchasers and during the period of distribution.
Consequently, any dealers overall compensation will increase or decrease by the amount by which
the aggregate price paid for the Securities by the purchasers exceeds or is less than the gross
proceeds paid by the dealers, acting as principals, to us.
If, in connection with the offering of Securities at a fixed price or prices, the underwriters
have made a bona fide effort to sell all of the Securities at the initial offering price fixed in
the applicable Prospectus Supplement, the public offering price may be decreased and thereafter
further changed, from time to time, to an amount not greater than the initial public offering price
fixed in such Prospectus Supplement, in which case the compensation realized by the underwriters
will be decreased by the amount that the aggregate price paid by purchasers for the Securities is
less than the gross proceeds paid by the underwriters to us.
A Prospectus Supplement will identify each underwriter, dealer or agent engaged by us, as the
case may be, in connection with the offering and sale of a particular issue of Securities, and will
also set forth the terms of the offering, including the public offering price (or the manner of
determination thereof if offered on a non-fixed price basis), the proceeds to us and any
compensation payable to the underwriters, dealers or agents.
Under agreements which may be entered into by Æterna Zentaris, underwriters, dealers and
agents who participate in the distribution of the Securities may be entitled to indemnification by
us against certain liabilities, including liabilities arising out of any misrepresentation in this
Prospectus and the documents incorporated by reference herein, other than liabilities arising out
of any misrepresentation made by underwriters, dealers or agents who participate in the offering of
the Securities.
Under
no circumstances will the fee, commission or discount received or to be received by any
underwriter, placement agent or other FINRA member or independent broker-dealer exceed
8% of the gross proceeds of any public offering of the Securities in the United States
pursuant to this Prospectus.
Each issue of Warrants will be a new issue of securities with no established trading market.
In connection with any offering of Securities, the underwriters, dealers or agents, as the case may
be, may over-allot or effect transactions which stabilize or maintain the market price of the
Securities of such series or issue at a level above that which might otherwise prevail in the open
market. Such transactions, if commenced, may be discontinued at any time. Any underwriters, dealers
or agents to or through whom Securities are sold by us for public offering and sale may make a
market in the Securities, but such underwriters, dealers or agents will not be obligated to do so
and may discontinue any market making at any time without notice. No assurance can be given that a
trading market in the Securities of any series or issue will develop or as to the liquidity of any
such trading market for the Securities.
- 25 -
CERTAIN INCOME TAX CONSIDERATIONS
The applicable Prospectus Supplement will describe certain Canadian federal income tax
consequences to an investor of 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),
including, to the extent applicable, any such consequences relating to Securities payable in a
currency other than the U.S. dollar, issued at an original issue discount for U.S. federal income
tax purposes or containing early redemption provisions or other special items.
LEGAL MATTERS
Unless otherwise specified in the Prospectus Supplement relating to any offering of
Securities, certain matters under Canadian law relating to the offering of the Securities under
this Prospectus will be passed upon for us by Ogilvy Renault LLP, Montreal, Canada and certain
legal matters under U.S. law will be passed upon for us by Ropes & Gray LLP. 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 Canadian and U.S. law.
The partners and associates of Ogilvy Renault LLP as a group beneficially own, directly or
indirectly, less than 1% of our outstanding Common Shares.
- 26 -
EXPERTS
The consolidated financial statements, financial statement
schedules and managements assessment of the effectiveness of internal control over financial reporting
(which is included in Managements Report on Internal Control over Financial Reporting) incorporated in this
Prospectus by reference to the Annual Report on Form 20-F of Aeterna Zentaris Inc. for the year ended
December 31, 2008 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.
RECONCILIATION TO U.S. GAAP
Our audited annual consolidated balance sheets as at December 31, 2008 and 2007 and our
audited annual consolidated statements of earnings (loss), changes in shareholders equity,
comprehensive income (loss) and cash flows for each of the years in the three-year period ended
December 31, 2008 and the financial statement schedules thereto, included in our annual report on
Form 20-F for the financial year ended December 31, 2008 (filed in Canada with the Canadian
securities authorities in lieu of an annual information form), filed with the SEC on March 30,
2009, were prepared in accordance with Canadian GAAP that differ in some respects from U.S. GAAP.
We have reconciled our financial results for significant differences between Canadian GAAP and U.S.
GAAP in accordance with the instructions of Item 18 of SEC Form 20-F as set out in Note 27 to our
audited annual consolidated financial statements as of and for the
financial year ended December 31, 2008.
Our unaudited interim consolidated financial statements for the three- and nine-month periods
ended September 30, 2009 and 2008, including the notes thereto, included as Exhibit 99.1 to our
report on Form 6-K furnished to the SEC on November 12, 2009, were prepared in accordance with
Canadian GAAP. Financial statement readers should understand that there are certain significant
differences between Canadian GAAP and U.S. GAAP. In order to facilitate the understanding of the
differences that would have arisen had these financial statements been presented in accordance with
U.S. GAAP, refer to Note 27 to our audited annual consolidated financial statements as of and for
the year ended December 31, 2008 and to Note 14 to our unaudited interim consolidated financial
statements for the three- and nine-month periods ended September 30, 2009 and 2008. In addition, financial statement readers should refer to Note 2
to our unaudited interim consolidated financial statements for the three- and nine-month periods
ended September 30, 2009 and 2008 that describes Canadian GAAP accounting changes that have been
adopted by the Company during that period and to Note 14 that describes U.S. GAAP accounting changes that
have been adopted by the Company during the same period. The adoption of these accounting policies by the Company
is not expected to result in any additional significant differences in 2009 between Canadian GAAP
and U.S. GAAP.
- 27 -