Management s Discussion and Analysis of Financial Condition and Results of Operations Highlights Perifosine

Management s Discussion and Analysis of Financial Condition and Results of Operations

January 25, 2010: Updated results of a Phase 2 study related to the use of perifosine in the treatment of advanced metastatic colon cancer showing a statistically significant benefit in survival.

January 29, 2010: Publication in the February 2010 issue of the Journal of Clinical Cancer Research of positive Phase 2 results for perifosine as a single agent for the treatment of advanced Waldenstrom s macroglobulinemia.

February 3, 2010: Special Protocol Assessment ( SPA ) granted by the United States Food and Drug Administration ( FDA ) for the Phase 3 trial of perifosine in combination with capecitabine (Xeloda ) in refractory advanced colorectal cancer ( X-PECT ). The trial is to be conducted and sponsored by our partner, Keryx Biopharmaceuticals, Inc. ( Keryx ).

March 1, 2010: Disclosure that the Committee for Orphan Medicinal Products of the European Medicines Agency ( EMA ) had issued a positive opinion for orphan medicinal product designation for perifosine for the treatment of multiple myeloma.

April 5, 2010: Perifosine receives FDA Fast Track Designation for the Phase 3 X-PECT (Xeloda + Perifosine Evaluation in Colorectal cancer Treatment) registration trial.

April 8, 2010: Initiation of the X-PECT Phase 3 registration trial by Keryx.

April 15, 2010: Positive Scientific Advice from the EMA for the Phase 3 registration trial with perifosine in multiple myeloma, therefore indicating that the data from the ongoing trial are expected to be sufficient for product registration in Europe.

April 20, 2010: Presentations at the annual meeting of the American Association for Cancer Research ( AACR ), in Washington, D.C., of preclinical data on extracellular signal-regulated kinases ( Erk ) inhibitor, AEZS-131, and on Erk/phosphoinositide 3-kinase ( PI3K ) dual inhibitor, AEZS-132, as well as preclinical data from a study sponsored by the National Institutes of Health ( NIH ) with perifosine in oncology.

May 17, 2010: Publication of an article in the May 12, 2010 issue 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.

June 7, 2010: Presentation at the American Society of Clinical Oncology s ( ASCO ) annual meeting of Phase 1 data on single agent perifosine in the treatment of recurrent pediatric solid tumors, including patients with advanced brain tumors and neuroblastoma.

June 8, 2010: Report at the ASCO annual meeting of final Phase 2 results, confirming a statistically significant improvement in both time to tumor progression and overall survival with perifosine, in combination with capecitabine (Xeloda ), in the treatment of advanced metastatic colorectal cancer.

June 29, 2010: EMA issues positive Scientific Advice for Phase 3 trial with perifosine in colorectal cancer, therefore indicating that the data from the ongoing X-PECT trial are expected to be sufficient for product registration in Europe.

July 14, 2010: Perifosine receives orphan-drug designation by the FDA for the treatment of neuroblastoma, a cancer of the nervous system affecting mostly children and infants.

December, 6, 2010: Presentation at the 52nd Annual Meeting of the American Society of Hematology ( ASH ) in Orlando, of the Phase 2 data on perifosine as a treatment for advanced chronic lymphocytic leukemia ( CLL ) and Hodgkin s lymphoma ( HL ), as well as of Phase 1 results of perifosine in combination with Revlimid and dexamethasone in multiple myeloma.

May 6, 2010: Received orphan drug designation from the FDA for AEZS-108, our luteinizing hormone-releasing hormone ( LHRH ) receptor conjugate, for the treatment of ovarian cancer.

May 12, 2010: Received approval from the FDA for our Investigational New Drug ( IND ) application for AEZS-108 in LHRH receptor-positive urothelial (bladder) cancer.

May 17, 2010: Received positive opinion for orphan medicinal product designation from the Committee for Orphan Medicinal Products ( COMP ) of the EMA, for AEZS-108 for the treatment of ovarian cancer.

June 7, 2010: Presentation at the annual meeting of the ASCO of positive Phase 2 efficacy and safety data for AEZS-108 in ovarian cancer.

June 28, 2010: Announcement of a collaboration with Almac Group Ltd. s ( Almac ) Diagnostic division to develop a companion diagnostic for AEZS-108 in cancer.

August 5, 2010: Announcement that a clinical investigator, Dr. Jacek Pinski, of the Norris Comprehensive Cancer Center of the University of Southern California, had been awarded a grant of $1.5 million (payable over the next three years) from the NIH for a Phase 1/2 study in advanced refractory prostate cancer with AEZS-108.

November, 18, 2010: Presentation at the EORTC-NCI-AACR symposium in Germany of positive Phase 2 results of AEZS-108 in advanced endometrial cancer.

December 14, 2010: Announcement of the initiation of Phase 1/2 trials with AEZS-108 in castration refractory prostate cancer and refractory bladder cancer.

June 21, 2010: Presentation at the 92nd Annual Endocrine Society ( ENDO ) Meeting and Expo of positive data on Solorel , a ghrelin agonist for diagnostic and therapeutic use.

July 14, 2010: Presentation at the Seventh International Congress of Neuroendocrinology in Rouen, France, of an abstract on Solorel , an oral synthetic ghrelin receptor agonist, as a diagnostic test for Adult Growth Hormone ( GH ) Deficiency ( AGHD ).

October 5, 2010: Presentation at the Fifth International Congress of the Growth Hormone Research Society and the Insulin-like Growth Factors Society in New York City, of interim Phase 3 data on Solorel demonstrating the potential to provide a simple, well tolerated and safe oral diagnostic test for AGHD.

December 20, 2010: Agreement with the FDA on an SPA for Solorel to complete our Phase 3 study for the diagnosis of AGHD.

Corporate developments

April 20, 2010: Completion of a US$15.0 million registered direct offering with certain institutional investors.

June 21, 2010: Completion of a US$12.1 million registered direct offering with certain institutional investors.

On February 22, 2011, we entered into an At-the-Market ( ATM ) sales agreement, under which we may, at our discretion, from time to time during the 24-month term of the agreement, sell up to a maximum of 12.5 million of our common shares through ATM issuances on the Nasdaq for aggregate gross proceeds not to exceed $19.8 million. On March 10, 2011, we issued approximately 1.7 million shares under this agreement for gross proceeds of approximately $3.2 million.

On February 28, 2011, we announced that we had received a net sales royalty milestone of $2.5 million from Cowen Healthcare Royalty Partners L.P. ( Cowen ). This milestone was payable pursuant to the sale, in December 2008, to Cowen of our rights to royalties on future net sales of Cetrotide .

On March 9, 2011, we announced that we had entered into an agreement with Yakult Honsha Co. Ltd. ( Yakult ) for the development, manufacture and commercialization of perifosine in all human uses, excluding leishmaniasis, in Japan.

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 year ended December 31, 2010. 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 consolidated financial statements and related notes as at December 31, 2010 and December 31, 2009 and for the years ended December 31, 2010, 2009 and 2008. Our consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles ( Canadian GAAP ) for financial information, which differ in certain respects from United States generally accepted accounting principles ( US GAAP ).The recognition, measurements and disclosure differences as they relate to the company are described in note 25 to our 2010 consolidated financial statements.

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

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 , 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 EMA, the Therapeutic Products Directorate of Health Canada or any other organization responsible for enforcing regulations in the pharmaceutical industry. Additionally, expected adjustments related to our conversion to International Financial Reporting Standards ( IFRS ), discussed below, that likely will impact various components of our future earnings and are referred to in our discussion of future expectations are unaudited, may not be complete and are subject to further review.

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 reasonably would 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 provide continuous disclosure information such as interim and annual financial statements, MD&As, 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.

Aeterna Zentaris Inc. (Nasdaq: AEZS and TSX: AEZ) is 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 to 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 the further advancement of AEZS-108, which recently completed with success a Phase 2 trial in advanced endometrial and advanced ovarian cancer. AEZS-108 is also in development in other cancer indications, including refractory bladder and castration refractory prostate cancer. In endocrinology, our lead program is our Phase 3 trial with AEZS-130 (Solorel ) as a GH stimulation test for the diagnosis of GH deficiency in adults. We are advancing this Phase 3 trial with an SPA obtained from the FDA.

Additionally, we are advancing AEZS-112, an oral anticancer agent which involves three mechanisms of action (tubulin, topoisomerase II and angiogenesis inhibition) in Phase 1, as well as several preclinical programs with novel targeted potential development candidates.

We are currently at a stage in which some of our products and product candidates are being further developed or marketed jointly with strategic partners.

Key Developments for the year ended December 31, 2010

Status of our drug pipeline as at March 22, 2011

Perifosine is a novel, oral anticancer treatment that inhibits Akt activation in the PI3K pathway. Perifosine, in combination with chemotherapeutic agents, is currently in Phase 3 studies for the treatment of multiple myeloma, colorectal cancer and in Phase 2 studies for the treatment of other cancers, and is the most advanced anti-cancer compound of its class in late-stage development. Perifosine as monotherapy also is being explored in other indications. The FDA has granted perifosine orphan-drug designation in multiple myeloma and in neuroblastoma and Fast Track designations in both multiple

myeloma and refractory advanced colorectal cancer. Additionally, an agreement was reached with the FDA to conduct the Phase 3 trials in both of these indications under an SPA. Perifosine has also been granted Orphan Medicinal Product designation from the EMA in multiple myeloma, and has received positive Scientific Advice from the EMA for both the multiple myeloma and advanced colorectal cancer programs, with ongoing Phase 3 trials for these indications expected to be sufficient for registration in Europe. Perifosine rights have been licensed to Keryx for North America and to Handok for Korea. On January 25, 2010, we announced that Keryx, our partner and licensee in North America, had reported a statistically significant benefit in survival from updated results of a Phase 2 study of perifosine in the treatment of advanced metastatic colorectal cancer. Results showed improvement in both time to tumor progression and overall survival in the perifosine + capecitabine arm, versus the placebo + capecitabine arm. Of notable interest, and for the first time presented, were data showing a statistically significant benefit in median overall survival (15.3 months vs. 6.8 months p=0.0088) and time to progression (18 weeks vs. 10 weeks p=0.0004) for the subset of patients who were refractory to a 5-FU (Fluorouracil) chemotherapy-based treatment regimen.

On January 29, 2010, we announced the publication in the February 2010 issue of the Journal of Clinical Cancer Research of positive Phase 2 results for perifosine as a single agent for the treatment of advanced Waldenstrom s macroglobulinemia. The data demonstrated a 35% overall response rate with a median progression-free survival of 12.6 months in patients with relapsed or relapsed/refractory Waldenstrom s macroglobulinemia.

On February 3, 2010, we announced that Keryx had reached an agreement with the FDA on an SPA for the Phase 3 X-PECT trial of perifosine in refractory advanced colorectal cancer, in addition to the earlier SPA agreement for the Phase 3 trial in multiple myeloma.

On March 1, 2010, we disclosed that the Committee for Orphan Medicinal Products of the EMA had issued a positive opinion for orphan medicinal product designation for perifosine for the treatment of multiple myeloma.

On April 5, 2010, our partner, Keryx, was granted Fast Track designation by the FDA for the Phase 3 X-PECT registration trial.

On April 8, 2010, our partner, Keryx announced the initiation of a Phase 3 X-PECT registration trial with perifosine in refractory advanced colorectal cancer. The Phase 3 trial is being conducted pursuant to a SPA with the FDA. Approximately 40 to 50 U.S. sites will participate in the study.

On April 15, 2010, we received Positive Scientific Advice from the EMA for the Phase 3 program with perifosine in multiple myeloma, therefore indicating that the data from the ongoing trial are expected to be sufficient for product registration in Europe.

On April 20, 2010, at the AACR s annual meeting we presented data on our dual Erk/PI3K inhibitors and on our selective Erk inhibitors. Data supported further evaluation of selective Erk inhibitors as antiproliferative agents, either as monotherapy or in combination with inhibitors of the PI3K/Akt pathway. Other data resulted in the identification of AEZS-132, a unique dual inhibitor of PI3K and Erk with a favourable pharmacology and ADMET (Absorption, Distribution, Metabolism, Excretion, and Toxicity) profile for further evaluation as an antitumor agent. At that same meeting, preclinical data in neuroblastoma for perifosine were also presented. Data demonstrated that single agent perifosine targets activation of Akt in neuroblastoma cells and xenografts, significantly inhibited tumor growth in vivo and improved the survival of mice bearing neuroblastoma tumors.

On May 17, 2010, we announced the publication of an article in the May 12, 2010 issue 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.

On June 7, 2010, we announced that Phase 1 data for perifosine in recurrent pediatric solid tumors had been presented in the pediatric solid tumor poster discussion session held at the 46th annual ASCO meeting 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 of perifosine after a loading dose on day 1, and taking into account the drug s long half-life (t1/2 100 hours). No DLTs were observed at any of the three dose levels; dose level 4 is currently open for accrual. PK data thus far suggest 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.

On June 8, 2010, we reported Phase 2 results at the ASCO annual meeting, confirming a statistically significant improvement in both time to tumor progression and overall survival with perifosine, in combination with capecitabine (Xeloda ), in the treatment of advanced metastatic colorectal cancer.

In this randomized, double-blind, placebo-controlled study, conducted at 11 centers across the United States, heavily pre-treated patients with second- or third-line metastatic colorectal cancer were randomized to receive capecitabine (Xeloda ) at 825 mg/m2 BID (total daily dose of 1650 mg/m2) on days 1 14, every 21 days, plus either perifosine or placebo at 50 mg daily. Of the 38 patients enrolled, 35 patients were evaluable for response (20 patients on the perifosine + capecitabine arm and 15 patients on the placebo + capecitabine arm). The perifosine + capecitabine arm demonstrated a greater than 60% improvement in overall survival, a more than doubling of median time to progression, and almost a doubling of the percentage of patients achieving stable disease or better. In addition, the overall response rate was 20% (including one complete response, and durable responses) in the perifosine + capecitabine arm versus 7% in the capecitabine arm. Of notable interest were the patients who were previously refractory to a 5-FU based regimen. The perifosine + capecitabine arm again demonstrated a statistically significant increase in both time to progression and overall survival, as compared to the capecitabine arm. As for safety, the perifosine + capecitabine arm was well tolerated.

On June 29, 2010, we announced that we had received positive Scientific Advice from the EMA regarding the Phase 3 X-PECT trial for the development of perifosine in refractory advanced colorectal cancer. The Scientific Advice from the EMA indicates that the ongoing study, in conjunction with safety data generated from other clinical studies with perifosine, is considered sufficient to provide all data necessary to support a marketing authorization of perifosine in advanced colorectal cancer. We do not

intend to initiate any additional studies with perifosine for this indication. Therefore, for the development of perifosine in both multiple myeloma and colorectal cancer, we believe that the planned North American clinical program, sponsored by our partner Keryx, is now sufficient for approval in Europe and in many countries in the rest of the world, where we hold rights for our compound.

On July 14, 2010, our partner, Keryx, was granted orphan-drug designation by the FDA for perifosine for the treatment of neuroblastoma, a cancer of the nervous system affecting mostly children and infants for which there are no FDA-approved therapies.

On November 17, 2010, at the EORTC-NCI-AACR Symposium on Molecular Targets and Cancer Therapeutics in Berlin, Germany, we presented an abstract on perifosine combined with antimetabolites which induces synergistic effects on cytotoxicity and apoptosis in human colon, multiple myeloma, breast, renal, and liver tumor cell lines.

On December 6, 2010 at the ASH s 52nd annual meeting in Orlando, we announced positive safety and tolerability Phase 2 data for perifosine in patients with advanced CLL and HL, as well as positive Phase 1 results of perifosine in combination with lenalidomide (Revlimid ) + dexamethasone in patients with relapsed or refractory multiple myeloma.

In the first Phase 2 study related to CLL, 12 patients with advanced CLL began treatment with single agent perifosine at 50 mg BID. Patients on study were heavily pre-treated having had a median of four prior lines of therapy with 75% of patients classified as Rai stage IV. One patient achieved a partial response (5 months on treatment) and 5 additional patients achieved stable disease (median duration of 4.25 months), for an overall 50% clinical benefit rate (PR + SD). Perifosine was well tolerated with minimal dose modifications.

In the second study presented, 26 patients were enrolled in a Phase 2 study with advanced lymphoma (6 non-HL, 4 CLL, 1 Waldenstrom s Macroglobulinemia and 15 HL). 73% of patients were previously refractory to their prior therapy, with 85% of patients having had 4 or more prior therapies. Perifosine (50 mg BID) was started as a single agent for 28 days; after 28 days, patients achieving partial response (PR) or better were continued on single agent perifosine. Patients achieving less than a PR were given the combination of perifosine (50 mg BID) plus sorafenib (Nexavar ) at 400 mg BID. All of the 4 CLL patients in this study achieved a partial response on single-agent perifosine within one month of treatment and remained on perifosine single agent. Response durations for each of the 4 patients were 4, 8, 9+ and 12 months. The remaining 22 patients were administered the combination with sorafenib, where 5 of the 15 (33%) HL patients achieved a partial response with a median response duration of 9 months. An additional 6 patients receiving the combination (40%) achieved stable disease. The combination was well tolerated with no unexpected safety events.

The investigators concluded that perifosine in combination with sorafenib has significant anti-lymphoma activity in relapsed/refractory HL, and that perifosine as a single agent induced prolonged responses in high-risk, heavily pretreated CLL patients.

With regard to multiple myeloma, the final data set from the Phase 1 study of perifosine + lenalidomide (Revlimid ) + dexamethasone were also presented during the ASH meeting. The final data showed a 73% objective response rate (minimal response or better) with a 50% PR or better, a median Progression-Free Survival of 10.8 months, and a median duration for Overall Survival of 30.6 months. The myeloma investigators concluded that perifosine in combination with lenalidomide + dexamethasone was well tolerated even at the highest doses used, and demonstrated encouraging clinical activity and survival.

AEZS-108 has been studied in gynecological cancers and has been shown to be effective and well tolerated in advanced endometrial and ovarian cancers. Positive Phase 2 results for ovarian cancer were disclosed in June 2010 at the annual ASCO meeting, while positive Phase 2 results for endometrial cancer were presented at the EORTC-NCI-AACR International Symposium on Molecular Targets and Cancer Therapeutics in November 2010. In addition to the ongoing Phase 1/2 studies in refractory bladder cancer and castration refractory prostate cancer, we intend to initiate discussions with the FDA and the EMA in an effort to reach an agreement on a protocol for a registration trial in endometrial cancer.

On May 6, 2010, we announced that we had received orphan drug designation from the FDA for AEZS-108 for the treatment of ovarian cancer. Orphan drug designation is granted by the FDA s 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 US. The designation provides a drug developer with a seven-year period of U.S. marketing exclusivity if the drug is the first of its type approved for the specified indication or if it demonstrates superior safety or efficacy 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 IND application for AEZS-108 in LHRH receptor-positive urothelial (bladder) cancer. Following this approval from the FDA, this trial will be conducted at the Sylvester Comprehensive Cancer Center at the University of Miami s 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 announced that we had received a positive opinion for orphan medicinal product designation from the COMP of the EMA, 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 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 AEZS-108, once approved for the treatment of ovarian cancer.

On June 7, 2010, Prof. G nter Emons, Chairman, Department of Obstetrics & Gynaecology Georg-August University G ttingen, Germany, presented positive efficacy and safety data for AEZS-108 in ovarian cancer at the ASCO Annual Meeting. 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 in women with histologically confirmed taxane-pretreated platinum-resistant/refractory LHRH receptor-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 the primary endpoint. Secondary endpoints were safety, time-to-progression and overall survival.

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 of 38% can be estimated. Median time to progression and overall survival were

3.5 months (104 days) and 15.6 months (475 days), respectively. Overall survival compares favourably with data from Doxil and Topotecan (8-9 months). 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.

On June 28, 2010, we announced that we had concluded an agreement with Almac s Diagnostics division for AEZS-108, aimed at determining LHRH receptor expression through the development of a companion diagnostic tool. Selection for treatment with AEZS-108 is determined on the basis of LHRH receptor expression, currently measured immunohistochemically. In humans, LHRH receptors are expressed in ovarian, endometrial, breast, bladder, prostate and pancreatic tumors. This state of the art companion diagnostic tool will allow us to develop improved methods of selecting the most appropriate patients to be treated with AEZS-108 in order to enhance the efficiency of our clinical trials and help us with the future successful development of AEZS-108 in a number of different LHRH expressing cancers.

On August 5, 2010, we announced that the NIH had awarded Dr. Jacek Pinski, Associate Professor of Medicine at the Norris Comprehensive Cancer Center of the University of Southern California, a grant of approximately $1.5 million over three years to conduct a Phase 1/2 study in refractory prostate cancer with AEZS-108. The study, entitled A Phase I/II Trial of AN-152 [AEZS-108] in Castration- and Taxane-Resistant Prostate Cancer, will enrol up to 55 patients and will be conducted in two portions: an abbreviated dose-escalation followed by a single arm, Simon Optimum two-stage design Phase 2 study using the dose selected in the Phase 1 portion. The primary objective of the Phase 2 portion is to evaluate the clinical benefit of AEZS-108 in men with castration- and taxane-resistant metastatic prostate cancer, for which the presence of LHRH receptors has been confirmed.

On November 18, 2010, Prof. G nter Emons of the Department of Obstetrics & Gynaecology Georg-August at the University of G ttingen (Germany) presented positive data for the Phase 2 of AEZS-108 in Advanced Endometrial Cancer at the EORTC-NCI-AACR symposium in Berlin, Germany. The study showed encouraging results as AEZ-108 was used as a single agent.

Of 43 patients treated with AEZS-108 in this study, 39 were evaluable for efficacy. Responses confirmed by independent review included 2 patients with complete response (CR; 5.1%), 10 patients with partial response (PR; 25.6%), and 17 patients with stable disease (SD; 43.6%). Based on those data, an overall response rate (ORR = CR+PR) of 30.8 % and a clinical benefit rate (CBR = CR+PR+SD) of 74.4% can be estimated. Responses were also achieved in patients with prior chemotherapy, 1 CR, 1 PR and 2 SDs in 8 of the patients pre-treated with platinum/taxane regimens. Median time to progression and overall survival were 7 months (30 weeks) and 14.3 months (62 weeks), respectively. Conclusions from this trial were as follows:

AEZS-108 at a dosage of 267 mg/m2 every 3 weeks was active and well tolerated in patients with endometrial cancer;

Hematological toxicity was rapidly reversible, and non-hematological toxicities were usually not severe, causing few deviations from scheduled treatment;

The objective response rate of 30.8% compares well with those of single agent platinum or taxane treatment; responders included patients pre-treated with platinum/taxane combination; and

The rate of stable disease was 43.6%, resulting in a Clinical Benefit Rate of 74.4%.

The overall survival after single agent AEZS-108 is similar to that reported for modern triple combination chemotherapy, but was achieved with lower toxicity.

On December 14, 2010, we announced the initiation of a Phase 1/2 trial in castration refractory prostate cancer conducted by Dr. Jacek Pinski at the Norris Comprehensive Cancer Center, as well as a Phase 1/2 trial in refractory bladder cancer conducted by Dr. Gustavo Fernandez at the Sylvester Comprehensive Cancer Center.

AEZS-130/Solorel (macimorelin), a ghrelin agonist, is a novel synthetic small molecule that stimulates the secretion of growth hormone. The product is currently in Phase 3 for use as a simple oral diagnostic test for AGHD. Solorel has been granted orphan-drug designation by the FDA.

On June 21, 2010, we presented positive data at the 92nd ENDO Meeting and Expo on AEZS-130 for diagnostic and therapeutic use. The preclinical data showed that AEZS-130 is a potent and safe oral synthetic GH-releasing compound with potential utility as a diagnostic test for growth hormone deficiencies. In addition to the diagnostic indication, we believe that, based on the results of Phase 1 studies, AEZS-130 (Solorel ) has potential applications for the treatment of cachexia, a condition frequently associated with severe chronic diseases such as cancer, chronic obstructive pulmonary disease and Acquired Immune Deficiency Syndrome, or AIDS.

On July 14, 2010, we announced the presentation of a poster on Solorel , entitled Use of the Orally Active Ghrelin Mimetic AEZS-130 as a Simple Test for the Diagnosis of Growth Hormone (GH) Deficiency (GHD) in adults (AGHD), Merriam G.R., Yuen K., Bonert V., Dobs A, Garcia J., Kipnes M., Molitch M., Swerdloff R., Wang C., Cook D., Altemose I. and Biller B. This poster was presented at the Seventh International Congress of Neuroendocrinology, in Rouen, France.

On October 5, 2010, we announced at the Fifth International Congress of the Growth Hormone Research Society and the Insulin-like Growth Factors Society, after the interim Phase 3 analysis of the orphan drug AEZS-130, that it demonstrated the potential to provide a simple, well tolerated and safe oral diagnostic test for AGHD. Solorel has been granted orphan drug designation by the FDA as a diagnostic test.

Corporate developments

On April 20, 2010, we completed a registered direct offering of 11,111,111 units, with each unit consisting of one common share and a warrant to purchase 0.40 of a common share, at a price of $1.35 per unit (the April 2010 Offering ). Total proceeds raised upon completion of the April 2010 Offering amounted to $15.0 million less cash transaction costs of approximately $1.3 million. The securities described above were offered by us pursuant to a shelf prospectus dated March 12, 2010 and a prospectus supplement dated April 15, 2010.

We granted warrants (the April 2010 Investor Warrants ) to the investors who participated in the April 2010 Offering. Each April 2010 Investor Warrant entitles the holder to purchase 0.40 of a common share at an exercise price of $1.50 per share. The April 2010 Investor Warrants are exercisable between October 20, 2010 and October 20, 2015, and, upon complete exercise, would result in the issuance of an aggregate of 4,444,444 common shares.

We estimated the fair value attributable to the April 2010 Investor Warrants of $3.6 million as of the date of grant by applying the Black-Scholes pricing model, to which the following additional assumptions were applied: a risk-free annual interest rate of 2.56%, expected volatility of 87.3%, an expected term of

5 years, a dividend yield of 0.0% and an issue-date market share price of $1.24. Transaction costs allocated to the April 2010 Investor Warrants amounted to approximately $0.3 million.

On June 21, 2010, we completed a registered direct offering of 8,805,964 units, with each unit consisting of one common share and a warrant to purchase 0.50 of a common share, at a price of $1.3725 per unit (the June 2010 Offering ). Total proceeds raised upon completion of the June 2010 Offering amounted to $12.1 million, less cash transaction costs of approximately $0.8 million. The securities described above were offered by us pursuant to a shelf prospectus dated March 12, 2010 and a prospectus supplement dated June 15, 2010.