First Quarter 2008 Management s Discussion and Analysis of Financial Condition and Results of Operations The following analysis provides a review of the Company s results of operations, financial condition and cash flows

Management s Discussion and

of Financial Condition and

Results of Operations

The following analysis provides a review of the

Company s results of operations, financial condition and cash flows for the

three-month period ended March 31, 2008. In this Management s Discussion and

Analysis (MD&A), the Company , we , us , and our mean terna Zentaris

Inc. and its subsidiaries.

This discussion should be read in conjunction with the information contained in

terna Zentaris Inc. s interim consolidated financial statements and related

notes for the three-month periods ended on March 31, 2008 and 2007. Our consolidated financial

statements are reported in United States dollars and have been prepared in

accordance with generally accepted accounting principles in Canada, or Canadian

Generally Accepted Accounting Principles (Canadian GAAP). All

amounts are in US dollars unless otherwise indicated.

(TSX: AEZ, NASDAQ: AEZS) is a global biopharmaceutical company focused on

endocrine therapy and oncology.

encompasses compounds at all stages of development, from drug discovery through

marketed products. The two highest priority clinical programs are our lead

value driver, cetrorelix for benign prostatic hyperplasia (BPH) and our lead

oncology program, AEZS-108 for endometrial and ovarian cancers.

In February 2008, we

announced the departure of Mario Paradis, CA, Senior Vice President,

Administrative & Legal Affairs and Corporate Secretary.

On March 31, 2008, we

completed the sale of our intangible property held for sale Impavido

(miltefosine) to Paladin Labs Inc. for net proceeds of $8.3 million (CAD$8.5 million).

Subsequent to quarter-end,

Juergen Ernst, Chairman of the Board, was appointed interim President and CEO,

replacing David J. Mazzo, Ph.D., former President and CEO of the Company. The

Company also announced the departure of Ellen McDonald, former Senior Vice

President Business Operations and Chief Business Officer ( CBO ).

Status of our Drug Pipeline

as of March 31, 2008

In March 2008, we commenced dosing of

cetrorelix in the second efficacy study of our Phase 3 program in benign

prostatic hyperplasia (BPH). This second study, a one-year double-blind,

placebo-controlled trial, is assessing an intermittent dosage regimen of

cetrorelix as a safe and tolerable treatment providing prolonged improvement in

BPH-related signs and symptoms. Conducted in Europe, it will involve

approximately 400 patients.

Subsequent to quarter-end, we reported the

completion of patient recruitment for our first efficacy trial of this same

Phase 3 program in BPH with cetrorelix. The study involves approximately 600

patients primarily in the United States and Canada, with additional sites in

Europe. The corresponding results are expected in the third quarter of 2009.

The third study of this Phase 3 program is

expected to commence shortly. It will be an open-label, single-armed,

multi-center safety study involving approximately 500 patients in both North

we reported the beginning of patient dosing with our cytotoxic conjugate (LHRH

agonist linked to doxorubicin) compound, AEZS-108, in our Phase 2 trial in

female patients with ovarian and endometrial cancers expressing LHRH receptors.

The primary endpoint of this European open-label, non-comparative multi-center

trial involving up to 82 women, will be the partial or complete tumor response

rate according to Response Evaluation Criteria in Solid Tumors (RECIST) and/or

Gynaecologic Cancer Intergroup (GCIG) guidelines.

Consolidated Results of Operations

the three-month period ended March 31, 2007, consolidated revenues and

expenses of Echelon Biosciences have been reclassified as discontinued

operations. Since we disposed of our entire position in Echelon Biosciences in November 2007,

going forward we will no longer have access to liquidity or cash flows from

following table sets forth selected Canadian GAAP consolidated financial data

in thousands of US dollars, except per share data.

Consolidated Revenues

Consolidated revenues are derived from sales and royalties as well as

license fees. Sales are derived from Cetrotide (cetrorelix),

Impavido (miltefosine), reagents and active pharmaceutical

ingredients. Royalties are derived from Cetrotide (cetrorelix),

sold by Merck Serono in reproductive health assistance for in vitro

fertilization. Furthermore, license fees are derived from non-periodic

milestone payments, R&D contract fees and amortization of upfront payments

received to date from our licensing partners.

Sales and royalties increased to $7.9 million

for the three-month period ended March 31, 2008 compared to

$7.2 million for the same period in 2007. The increase in sales and

royalties is related primarily to additional sales of Cetrotide to

Merck Sereno, mainly offset by decreased sales activities of Impavido and Cetrotide in Japan. Sales

increased partly because of the strengthening of the Euro currency.

During the first quarter of 2008, the Company

entered into an agreement, with respect to the sale of its intangible property

held for sale Impavido (miltefosine) with Paladin Labs Inc. On March 31,

2008, this transaction was completed for cash at a gross selling

price of approximately $8.9 million (CAD$9.1

million). In 2007, annual sales of Impavido represented

$3 million. As a result of the sale of the product, we expect a

corresponding decrease in sales and royalties for 2008.

License fees revenues decreased to $1.8 million

for the three-month period ended March 31, 2008, compared to

$2 million for the same period in 2007. The decrease is mainly

attributable to a reduction in license fees revenues related to services

rendered through our collaborations with Spectrum and Keryx. License fees

revenues are expected to slightly decrease in 2008, primarily from the

termination of the collaboration agreement with Solvay Pharmaceuticals in 2007.

Consolidated Operating Expenses

cost of sales, increased to $4.6 million for the three-month

period ended March 31, 2008 compared to $3.3 million for the same