Aeterna Zentaris Second Quarter 2013 Management's Discussion and Analysis of Financial Condition and Results of Operations Highlights Appointment of New President and CEO David Dodd was appointed President and Chief Exec

Management's Discussion and Analysis

of Financial Condition and Results of Operations

Appointment of New President and CEO

Zoptarelin Doxorubicin (AEZS-108)

Macimorelin Acetate (AEZS-130)

Cetrotide Manufacturing Rights

Second Quarter MD&A - 2013

Darmstadt, Germany ("Merck Serono"), for the manufacture, testing, assembling, packaging, storage and release of Cetrotide in all territories in exchange for an upfront payment of 2.5 million (approximately $3.3 million). The transfer and service agreement also provides for the transfer of certain assets used in the production of Cetrotide and stipulates that the Company will provide, in exchange for a monthly fee, transition services over a period of 36 months in order to assist Merck Serono in assuming overall responsibility for the manufacturing of Cetrotide and related activities (collectively the "Cetrotide Business"). During an initial interim period, as defined in the underlying transfer agreement, we will continue to conduct the Cetrotide Business in the ordinary course in a manner consistent with past practices, subject to certain conditions.

"At-the-Market" Issuance Program

Class Action Lawsuit

Subsequent to quarter-end

This Management's Discussion and Analysis ("MD&A") provides a review of the results of operations, financial condition and cash flows of Aeterna Zentaris Inc. for the three-month and six-month periods ended June 30, 2013. In this MD&A, "Aeterna Zentaris", the "Company", "we", "us", "our" and the "Group" mean Aeterna Zentaris Inc. and its subsidiaries. This discussion should be read in conjunction with the information contained in the Company's unaudited interim condensed consolidated financial statements as at June 30, 2013 and for the three-month and six-month periods ended June 30, 2013 and 2012 (the "interim consolidated financial statements").

All amounts in this MD&A are presented in U.S. dollars, except for share, option and warrant data, per share and per warrant data and as otherwise noted.

All shares, options and share purchase warrants as well as per share, option and share purchase warrant information for periods preceding October 2, 2012 have been adjusted, including proportionate adjustments being made to each stock option and share purchase warrant exercise price, to reflect and give effect to the Company's six-to-one share consolidation effected on such date.

Second Quarter MD&A - 2013

About Forward-Looking Statements

This document contains forward-looking statements, which reflect our current expectations regarding future events. Forward-looking statements may include words such as "anticipate", "assuming", "believe", "could", "expect", "foresee", "goal", "guidance", "intend", "may", "objective", "outlook", "plan", "seek", "should", "strive", "target" and "will".

Forward-looking statements involve risks and uncertainties, many of which are discussed in this MD&A. Results or performance may differ significantly from expectations. For example, the results of current clinical trials cannot be foreseen, nor can changes in policy or actions taken by regulatory authorities such as the FDA, the European Medicines Agency, the Therapeutic Products Directorate of Health Canada or any other organization responsible for enforcing regulations in the pharmaceutical industry.

Given these uncertainties and risk factors, readers are cautioned not to place undue reliance on any forward-looking statements. We disclaim any obligation to update any such factors or to publicly announce any revisions to any of the forward-looking statements contained herein to reflect future results, events or developments, unless required to do so by a governmental authority or by applicable law.

About Material Information

This MD&A includes information that we believe to be material to investors after considering all circumstances, including potential market sensitivity. We consider information and disclosures to be material if they result in, or would reasonably be expected to result in, a significant change in the market price or value of our securities, or where it is likely that a reasonable investor would consider the information and disclosures to be important in making an investment decision.

The Company is a reporting issuer under the securities legislation of all of the provinces of Canada, and its securities are registered with the United States Securities and Exchange Commission. The Company is therefore required to file or furnish continuous disclosure information such as interim and annual financial statements, MD&A, proxy circulars, annual reports on Form 20-F, material change reports and press releases with the appropriate securities regulatory authorities. Copies of these documents may be obtained free of charge upon request from the Company's Investor Relations department or on the Internet at the following addresses: www.aezsinc.com, www.sedar.com and www.sec.gov.

Second Quarter MD&A - 2013

Aeterna Zentaris Inc. (NASDAQ: AEZS and TSX: AEZ) is a specialty biopharmaceutical company engaged in developing novel treatments in oncology and endocrinology. The Company's pipeline encompasses compounds from drug discovery to regulatory approval.

Over the years, the Company has incurred operating losses, having invested significantly in our research and development ("R&D") activities, as well as supporting our general and administrative expenses. We have financed our operations through different sources including the issuance of common shares and warrants, the conclusion of strategic alliances with licensee partners and other collaborators as well as through research and development grants awarded by governmental agencies. The Company expects to continue to incur operating expenses and may require significant capital to fulfill our future obligations in absence of sufficient corresponding revenues. See the capital disclosures and the liquidity risk sections below.

In oncology, we have initiated a Phase 3 ZoptEC trial in endometrial cancer under a Special Protocol Assessment ("SPA") with zoptarelin doxorubicin (AEZS-108), a doxorubicin Luteinizing Hormone Releasing Hormone ("LHRH")-targeted conjugate compound. We have successfully completed a Phase 2 trial in advanced endometrial and advanced ovarian cancer with this compound. We are also advancing Phase 2 trials with zoptarelin doxorubicin (AEZS-108) in triple-negative breast cancer, refractory bladder cancer and castration- and taxane-resistant prostate cancer.

Our oncology pipeline also encompasses other earlier-stage programs, including AEZS-112, an oral anticancer agent which involves three mechanisms of action (tubulin, topoisomerase II and angiogenesis inhibition), which has completed a Phase 1 trial in advanced solid tumors and lymphoma. Additionally, several novel targeted anticancer candidates such as AEZS-120, a live recombinant oral tumor vaccine candidate, as well as our PI3K/Erk inhibitors, including AEZS-129 and AEZS-136, are currently in preclinical development.

In endocrinology, we are preparing the submission of an NDA in the United States for the registration of macimorelin acetate (AEZS-130), an oral ghrelin agonist, as a diagnostic test for AGHD. A Phase 3 trial under an SPA with the FDA has been completed in this indication. Furthermore, macimorelin acetate (AEZS-130) is in a Phase 2A trial for the treatment of cancer-induced cachexia.

Second Quarter MD&A - 2013

Key Developments for the Three Months Ended June 30, 2013

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* Submission of an NDA is in preparation.

** See discussion of Cetrotide -related transactions at page 7 of this MD&A.

Licensee Partners and Territories by Product

Spectrum Pharmaceuticals, World (ex-Japan, Korea and other Asian countries) - Handok Pharmaceuticals, Korea and other Asian countries for benign prostatic hyperplasia indication - Nippon Kayaku, Japan for oncology indications

Yakult Honsha, Japan - Handok Pharmaceuticals, Korea - Hikma Pharmaceuticals, Middle East/North Africa

Second Quarter MD&A - 2013

Interim Consolidated Statements of Comprehensive Income (Loss) Information

Second Quarter MD&A - 2013

Revenues are derived primarily from sales and royalties as well as from license fees. Sales are derived from Cetrotide (cetrorelix acetate solution for injection), marketed for reproductive health assistance for in vitro fertilization, as well as from Active Pharmaceutical Ingredients. Royalties are derived indirectly from net sales of Cetrotide and represent the periodic amortization of the proceeds received in connection with the 2008 sale to HealthCare Royalty Partners L.P. (formerly Cowen Healthcare Royalty Partners L.P.) ("HC Royalty") of the underlying Cetrotide royalty stream.

License fees include periodic milestone payments, R&D contract fees and the amortization of upfront payments received from our licensing partners.

On April 3, 2013 (the "Effective Date"), we entered into a transfer and service agreement ("TSA") and concurrent agreements with various partners and licensees with respect to the manufacturing rights for Cetrotide . The principal effect of these agreements will be to transfer, on October 1, 2013 (the "Closing Date") and subject to the satisfaction of customary closing conditions, manufacturing rights and to grant a license to Merck Serono, for the manufacture, testing, assembling, packaging, storage and release of Cetrotide in all territories. The TSA also provides that the Company will provide certain transition services to Merck Serono over a period of 36 months from the Effective Date, to assist Merck Serono in assuming overall responsibility for the manufacturing of Cetrotide and related activities (collectively, the "Cetrotide Business"). Under the TSA, during the period commencing on the Effective Date and ending on the Closing Date (the "Interim Period"), we will continue to conduct the Cetrotide Business in the ordinary course in a manner consistent with past practices, subject to certain conditions.

The TSA provides that we will be entitled to receive, on the Closing Date, a one-time payment of 2.5 million (approximately $3.3 million) (the "Upfront Payment") in consideration for the transfer of the manufacturing rights referred to above, as well as other payments in exchange for the transfer, also on the Closing Date, of certain assets and equipment used solely for the manufacture of Cetrotide . We will provide the transition services in exchange for a monthly fee, payable by Merck Serono.

The Company has applied the provisions of IAS 18, Revenue ("IAS 18") and has concluded that the Upfront Payment will be recognized in full on the Closing Date, given management's assessment that as of that date, substantially all of the risks and rewards associated with the Cetrotide Business will have been transferred to Merck Serono and given that the Company is not expected to retain continuing managerial involvement or control over the Cetrotide Business.

Transition services revenues will be recognized as other revenues by the Company as earned over the corresponding transition period.

With regard to the royalty revenues previously deferred following the aforementioned 2008 transaction with HC Royalty, given our conclusion that, as of the Closing Date, substantially all of the risks and rewards associated with the Cetrotide Business will have been transferred to Merck Serono, that we are not expected to retain continuing managerial involvement or control over the Cetrotide Business and that our continuing involvement with regard to the Cetrotide Business has been inextricably linked to the ability to recognize the royalty revenues associated with the 2008 transaction entered into with HC Royalty, we have determined that the end of the earnings process vis- -vis the aforementioned deferred revenues necessarily coincides with the date at which the substantial risks and rewards of ownership, as well as control of the Cetrotide Business, effectively transfer to Merck Serono, namely the Closing Date.

As such, we have adjusted the amortization of the remaining deferred revenues, which, as of the Effective Date, amounted to approximately $31.9 million, which now will be amortized through September 30, 2013.

During the three-month period ended June 30, 2013, a total of approximately $20.5 million of deferred revenues attributable to the transaction with HC Royalty has been recognized. The acceleration of the recognition of previously deferred revenues is the primary driver of the significant increase in sales and royalties, which, for the three-month and six-month periods ended June 30, 2013, were $29.8 million and $40.0 million, respectively, as compared to $7.2 million and $15.5 million for the same periods in 2012.

Sales and royalties in the second half of 2013 are expected to decrease as compared to the first half of 2013, mainly due to the lower expected remaining amortization of the royalty revenues attributable to HC Royalty and in light of the fact that all sales and royalties related to the Cetrotide Business will cease on the Closing Date.

Second Quarter MD&A - 2013

License fees and other revenues were $0.3 million and $6.7 million for the three-month and six-month periods ended June 30, 2013, respectively, as compared to $0.2 million and $1.4 million for the same periods in 2012. The significant increase for the six-month period ended June 30, 2013 is predominantly due to the recognition, during the three-month period ended March 31, 2013, of unamortized deferred revenues related to upfront payments received from our licensee partners in connection with perifosine, following our decision to discontinue our Phase 3 trials of that compound.

License fees and other revenues are expected to decrease in the second half of 2013, as compared to the first half of 2013, as license fee revenues were fully amortized during the six-month period ended June 30, 2013. This decrease will be partly offset, however, by the recognition, on October 1, 2013, of the Upfront Payment, discussed above, as well as due to the revenues associated with the rendering of the transition services, as discussed above.

Cost of sales were $9.4 million and $18.1 million for the three-month and six-month periods ended June 30, 2013, respectively, as compared to $6.3 million and $13.8 million for the same period in 2012. This increase is largely attributable to the increase in sales of Cetrotide . Additionally, cost of sales as a percentage of sales and royalties decreased to approximately 31.7% and 45.4% for the three-month and six-month periods ended June 30, 2013, respectively, as compared to 86.5% and 88.6% for the same periods in 2012, predominantly due to the recognition of higher royalties as mentioned above.

As a result of the Cetrotide Transactions, cost of sales in the second half of 2013 is expected to decrease.

R&D costs, net of refundable tax credits and grants, were $5.3 million and $9.7 million for the three-month and six-month periods ended June 30, 2013, respectively, compared to $5.2 million and $10.7 million for the same periods in 2012.

The decrease for the six-month period ended June 30, 2013, as compared to the same period in 2012, is attributable to comparative lower third-party costs associated with the development of most of our products, as described below, except for macimorelin acetate (AEZS-130). The decrease is also related to lower employee compensation and benefit costs due to continued cost-saving measures resulting in a lower number of employees.

The following table summarizes our net R&D costs by nature of expense:

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* Includes depreciation and amortization charges.

Second Quarter MD&A - 2013

The following table summarizes primary third-party R&D costs, by product candidate, incurred by the Company during the three-month and six-month periods ended June 30, 2013.

Excluding the impact of foreign exchange rate fluctuations and despite the discontinuance of the perifosine development, we expect net R&D costs to increase in the second half of 2013, compared to the first half of 2013, due to the advancement of zoptarelin doxorubicin (AEZS-108) in different Phase 2 and 3 studies. Overall, excluding the impact of unforeseen foreign exchange rate fluctuations, we continue to expect that we will incur net R&D costs of between $21 million and $23 million for the full year 2013, particularly given our primary focus on developing zoptarelin doxorubicin (AEZS-108) and certain earlier-stage compounds.

Selling, general and administrative ("SG&A") expenses were $5.8 million and $9.6 million for the three-month and six-month periods ended June 30, 2013, respectively, as compared to $3.6 million and $6.9 million for the same periods in 2012.

The increase for the three-month and six-month periods ended June 30, 2013, as compared to the same periods in 2012, is mainly related to the recognition in the second quarter of 2013 of termination benefits granted to our former CEO and to the related non-cash share-based compensation costs.

We expect SG&A expenses to decrease in the second half of 2013, as compared to the first half of 2013, predominantly as a result of the termination benefits and share-based compensation costs mentioned above having already been incurred.

Second Quarter MD&A - 2013

Net finance (costs) income are comprised predominantly of the change in fair value of warrant liability and the net gains (losses) due to changes in foreign currency exchange rates. For the three-month and six-month periods ended June 30, 2013, net finance income (costs) totalled $(0.2) million and $2.0 million, respectively, as compared to $12.1 million and $7.5 million for the same periods in 2012, as presented below.

The significant fluctuation in net finance (costs) income during the three-month and six-month periods ended June 30, 2013, as compared to the same periods in 2012, is mainly due to the change in fair value of our warrant liability. That change results from the periodic "mark-to-market" revaluation, via the application of the Black-Scholes option pricing model, of currently outstanding share purchase warrants. The Black-Scholes "mark-to-market" warrant valuation most notably has been impacted by the closing price of our common shares, which, on NASDAQ, has fluctuated from $2.29 to $12.90 for the six-month period ended on June 30, 2012 and from $1.73 to $3.23 for the period ended June 30, 2013. The fluctuation in net finance income (costs) is also related to gains or (losses) due to changes in foreign currency exchange rates, which are mainly related to the period-over-period strength or (weakness) of the euro against the U.S. dollars, as presented below.

Net income (loss) for the three-month and six-month periods ended June 30, 2013 was $9.3 million and$11.2 million, or $0.37 and $0.44 per per basic and diluted share, respectively, compared to $4.5 million and $(6.9) million, or $0.25 and $(0.38) per basic share and diluted share for the same periods in 2012. The significant increase in net income for the three-month period ended June 30, 2013, as compared to the same period in 2012, is due largely to the significant increase in royalties revenues (non-cash), partly offset by lower net finance income (non-cash), as well as by higher SG&A. The significant increase in net income for the six-month period ended June 30, 2013, as compared to the same period in 2012, is due largely to the significant increases in royalties and in license fees revenues (non-cash) and the decrease in net R&D costs, partly offset by lower net finance income (non-cash) as well as by higher SG&A.

Second Quarter MD&A - 2013

Quarterly Consolidated Results of Operations Information

In the last eight quarters, net income (loss) has been impacted by revenues, as mentioned above, and by the comparative level of net R&D costs in connection with the development of perifosine, zoptarelin doxorubicin (AEZS-108), macimorelin acetate (AEZS-130) and certain earlier stage compounds. Net R&D costs decreased when compared quarter-over-quarter for each of the corresponding periods in 2013-2012 vs. 2012-2011 except for the second quarter of 2013 where net R&D costs remained at the same level.

First and second quarter revenues of 2013 increased, as compared to each of the corresponding periods in 2012, in part due to higher deliveries of Cetrotide to Merck Serono and to the strengthening of the euro against the U.S. dollar. The increase is also predominantly due to the recognition in the first quarter of 2013 of approximately $6.1 million in deferred revenues related to licensing agreements after the development of perifosine was discontinued and to the recognition in the second quarter of 2013 of approximately $20.5 million in deferred revenues associated with the 2008 transaction entered into with HC Royalty, as discussed above.

Third quarter revenues of 2012 and fourth quarter revenues of 2012 decreased as compared quarter-over-quarter to each of the corresponding periods in 2012 vs. 2011. The decreases are largely attributable to comparative lower deliveries of Cetrotide to certain customers in the third quarter of 2012, to a decrease in license fee revenues from a partner in the fourth quarter of 2012 and to the relative weakening of the euro against the U.S. dollar.

The quarter-over-quarter periods net income (loss) were also impacted by the recognition of termination benefits granted to our former CEO and to the related non-cash share-based compensation costs in the second quarter of 2013, by the recognition of impairment losses in the third and fourth quarters of 2011, as well as in the fourth quarter of 2012, by the initiation of prelaunch and marketing efforts related to the potential commercialization of perifosine in Europe in the third and fourth quarters of 2011, by a gain on our short-term investment recorded during the second and third quarters of 2011, by foreign exchange gains or losses and changes in fair value of our warrant liability, as well as by an income tax expense in the fourth quarter of 2011.

Second Quarter MD&A - 2013

Interim Consolidated Statement of Financial Position Information

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* Comprised mainly of non-current portion of deferred revenues, employee future benefits and provision.

The decrease in cash and cash equivalents as at June 30, 2013, as compared to December 31, 2012, is due to the recurring disbursements and other variations in components of our working capital and to the relative weakening, as at June 30, 2013, of the euro against the US dollar, as compared to December 31, 2012.

The increase in payables and accrued liabilities as at June 30, 2013, as compared to December 31, 2012, is mainly due to higher trade accounts payable partly offset by the relative weakening, as at June 30, 2013, of the euro against the US dollar, as compared to December 31, 2012.

The increase in current portion of deferred revenues as at June 30, 2013, as compared to December 31, 2012, is predominantly due to the change in the timing in the amortization of deferred revenues, as mentioned above, partly offset by the relative weakening, as at June 30, 2013, of the euro against the US dollar, as compared to December 31, 2012.

Our warrant liability decreased from December 31, 2012 to June 30, 2013 predominantly due to the change in fair value pursuant to the periodic "mark-to-market" revaluation of the underlying outstanding share purchase warrants, as discussed above.

The decrease in non-financial non-current liabilities as at June 30, 2013, as compared to December 31, 2012, is mainly due to a decrease in deferred revenues predominantly as a result of the recognition of unamortized deferred revenues related to upfront payments received from our partners in connection with Cetrotide and perifosine, as mentioned above, and to the relative weakening, as at June 30, 2013, of the euro against the US dollar, as compared to December 31, 2012.

The significant increase in shareholders' equity (deficiency) from December 31, 2012 to June 30, 2013 is mainly attributable to the decrease in our deficit due to the net income and the decrease in accumulated other comprehensive loss due to foreign currency translation gain, as well as the increase in other capital due to the recording of share-based compensation costs.

Second Quarter MD&A - 2013

Financial Liabilities, Obligations and Commitments

We have certain contractual leasing obligations and purchase obligation commitments. Purchase obligation commitments mainly include R&D services and manufacturing agreements related to the production of Cetrotide and other R&D programs. The following tables summarize future cash requirements with respect to these obligations.

Future minimum lease payments and future minimum sublease payments expected to be received under non-cancellable operating leases (subleases), as well as future payments in connection with utility service agreements are as follows: