Third Quarter 2012 Management's Discussion and Analysis of Financial Condition and Results of Operations Highlights Perifosine (oral AKT inhibitor) After having regained the North American rights for perifosine earlier t

Management's Discussion and Analysis

of Financial Condition and Results of Operations

Perifosine (oral AKT inhibitor)

AEZS-108 (cytotoxic peptide conjugate linked to doxorubicin)

AEZS-130 (oral ghrelin agonist)

Corporate developments

Share Consolidation (Reverse Stock Split)

Third Quarter MD&A - 2012

NASDAQ Minimum Bid Price Compliance

Class Action Lawsuit

Third Quarter MD&A - 2012

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 nine-month periods ended September 30, 2012. 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 September 30, 2012 and for the three-month and nine-month periods ended September 30, 2012 and 2011 (the "interim 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.

All shares, options and share purchase warrants as well as per share, option and share purchase warrant information from prior periods and for the current quarter 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 Share Consolidation.

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 United States Food and Drug Administration ("FDA"), the European Medicines Agency ("EMA"), 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.

Aeterna Zentaris Inc. (NASDAQ: AEZS and TSX: AEZ) is an oncology and endocrinology drug development company currently investigating treatments for various unmet medical needs. Our pipeline encompasses compounds at all stages of development, from drug discovery through to marketed products. We also benefit from strategic collaborators and licensee partners to contribute to the development of our pipeline of product candidates and to establish commercial activities in specific territories.

Over the years, the Company has incurred recurring operating losses, having invested significantly in our R&D activities, as well as supporting our general and administrative expenses. We have financed our operations through different sources

Third Quarter MD&A - 2012

including the issuance of common shares and the conclusion of strategic alliances with licensee partners. The Company expects to continue to incur operating losses and may require significant capital to fulfill our future obligations. See the capital disclosures and the liquidity risk sections below.

In oncology, we are advancing perifosine, our oral AKT inhibitor, currently in a Phase 3 trial in MM and in Phase 1/2 trials in other cancer indications. We also plan to initiate a pivotal program with AEZS 108, a doxorubicin LHRH-targeted conjugate compound, in endometrial cancer, for which we have successfully completed a Phase 2 trial in advanced endometrial and advanced ovarian cancer. We are also advancing Phase 2 trials with AEZS 108 in castration- and taxane-resistant prostate cancer, refractory bladder cancer and in triple-negative breast 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 planning to file an NDA in the United States ("US") for the registration of 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, AEZS 130 is in a Phase 2A trial for the treatment of cancer-induced cachexia.

Third Quarter MD&A - 2012

Key Developments for the Three Months Ended September 30, 2012

Merck Serono, World (except Japan) - Nippon Kayaku/Shionogi, Japan

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

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

Third Quarter MD&A - 2012

On July 26, 2012, we announced that preclinical data on AEZS 108 in urinary bladder cancer, were published in the online edition of Oncotarget. The article underlined that AEZS 108 powerfully inhibited growth of bladder cancers in nude mice exerted greater effects than doxorubicine ("DOX") and was less toxic. In contrast to DOX alone, which activated strong multidrug resistance mechanisms in RT-4 and HT-1197 cancers, AEZS 108 had no or less such effects. Polymerase Chain Reaction ("PCR") assays and in vitro studies revealed differences in the action of AEZS 108 and DOX on the expression of genes involved in apoptosis.

On August 7, 2012, the United States Patent and Trademark Office granted us a patent for the use of AEZS 130 (EP1572) as a diagnostic test for AGHD. Filed on February 19, 2007, the patent (US 8,192,719 B2) entitled, "Methods and Kits to Diagnose Growth Hormone Deficiency by Oral Administration of EP1572 or EP1573 Compounds", became effective as of June 5, 2012 and will expire on October 12, 2027. The corresponding composition of matter patent (US 6,861,409 B2), filed on June 13, 2001 and granted on March 1, 2005, will expire on August 1, 2022, with the possibility of a patent term extension of up to five years.

On August 28, 2012, we announced that a first patient had been recruited for a Phase 2A trial in cancer-induced cachexia with AEZS 130. This study is being conducted under a CRADA between our Company and the Michael E. DeBakey Veterans Affairs Medical Center which is funding the study. This is a double-blind, randomized, placebo-controlled Phase 2A trial to test the effects of different doses of AEZS 130 in 18 to 26 patients with cancer-cachexia. The study will involve 3 sequential groups receiving different doses of AEZS 130 provided by Aeterna Zentaris. In the first group of patients, there will be 6 patients receiving active AEZS 130 and 4 receiving a matching placebo. In subsequent dose groups, there will be 6 patients receiving active AEZS 130 and 2 will be given a matching placebo. After analysis of safety and efficacy at each dose level vs. placebo, a decision will be made either to decrease or increase the dose. The primary objective of the study is to evaluate the safety and efficacy of repeated oral administration of AEZS 130 at different daily doses for one week in view of developing a treatment for cachexia. Secondary objectives will include food intake and changes in the following: appetite, muscle strength, energy expenditure, reward from food and functional brain connectivity.

On September 25, 2012, the European Patent Office granted us a patent for the use of AEZS 130 related to methods and kits for use in relation to the diagnosis of GHD in a human or animal subject. Filed on February 19, 2007, the patent (EP #1 984 744 B1) entitled, "Methods and Kits to Diagnose Growth Hormone Deficiency", was effective as of September 19, 2012, following its publication in the European Patent Bulletin, and will expire on February 19, 2027.

On September 26, 2012, we received notification from the FDA that Fast Track designation had not been granted for AEZS 130 as a diagnostic test for AGHD. Although the FDA's decision will not allow us to submit our NDA on a rolling basis, it should not affect the timing of our filing of the NDA, which is expected in early 2013, nor should it affect the potential of obtaining priority review. We are actively pursuing our strategy to advance AEZS 130 towards regulatory approval for AGHD, as it could become the first orally-administered test in this indication.

On October 18, 2012, subsequent to quarter-end, we announced that results from a multicenter open-label Phase 3 trial for AEZS 130 demonstrated that the drug is safe and effective in diagnosing AGHD. George R. Merriam, MD, Director of the Clinical Study Unit at the Veterans Affairs Puget Sound Health Care System, and Professor of Medicine at the University of Washington, Seattle and Tacoma, WA, disclosed these data at the 6th International Congress of the GRS and IGF Society in Munich, Germany. His presentation confirmed data previously presented by Jose M. Garcia, MD, PhD, of the Baylor College of Medicine and the Michael E. DeBakey Veterans Affairs Medical Center, at the 94th ENDO Meeting in Houston, Texas in June 2012. Dr. Merriam's presentation drew attention to the effect of BMI on optimizing the cut-off values to improve the sensitivity and specificity of the test. Responses in normal subjects classified as obese, with BMI's above 30, were significantly lower than in leaner subjects. Since GH deficiency can lead to increased body fat, many of the patients also met criteria for obesity, and therefore, a lower peak GH cut-off is more accurate in separating obese normals from obese patients. Based upon these study results, a cut-off of 2.7 g/L was optimal for subjects with a BMI 30 and a cut-off of 6.8 g/L for subjects with a BMI<30. Age had a weaker effect on test performance and gender made no difference. Thus GH stimulation with oral

Third Quarter MD&A - 2012

AEZS 130 may provide a simple, rapid, safe, and well-tolerated diagnostic test for AGHD, with accuracy comparable to that of the GHRH-ARG test.

On August 13, 2012, we announced the presentation of a poster on AEZS 136 during the 244th National Meeting of the American Chemistry Society in Philadelphia. The data outlined the compound's unique inhibition and excellent preclinical activity against PI3K and Erk signaling pathways, as well as being well tolerated. AEZS 136 is an integral part of our kinase research program comprising the investigation of different compounds for single Erk inhibition, single PI3K inhibition and dual Erk/PI3K kinase inhibition. AEZS 136 selectively inhibits the kinase activity of Erk 1/2 and class 1 PI3Ks, enabling simultaneous inhibition of the Raf-Mek-Erk and the PI3K-Akt signaling cascades. AEZS 136 was discovered using our proprietary compound library and high throughput screening technology.

On September 20, 2012, we announced the presentation of a poster on AEZS 120 during the 32nd Congress of the Soci t Internationale d'Urologie in Fukuoka, Japan. The poster entitled, "Preclinical Proof of Concept and Characterization of AEZS 120, a Therapeutic Oral Prostate Cancer Vaccine Candidate Based on Live Recombinant Attenuated Salmonella", underlined the feasibility of an oral therapeutic vaccination approach against prostate cancer. The production, release, pharmacology, safety and toxicology program was conducted in agreement with the regulatory authorities and successfully finalized. The conclusions were:

Corporate Developments

Share Consolidation (Reverse Stock Split)

On October 3, 2012, subsequent to quarter-end, we announced that the issued and outstanding common shares of the Company had been consolidated on a 6 to 1 basis effective as of October 2, 2012 and our common shares began trading on NASDAQ and TSX on a consolidated basis on October 5, 2012. The purpose of the consolidation was to enable us to attempt to regain compliance with NASDAQ's minimum bid price requirement.

On October 17, 2012, subsequent to quarter-end, we announced the closing of the Offering of 6.6 million units, at a purchase price of $2.50 per unit, generating net proceeds of $15.2 million, with each unit consisting of one common share and 0.45 of a warrant to purchase one common share. Each warrant is exercisable for a period of five years at an exercise price of $3.45 per share. Roth Capital Partners, LLC, acted as the sole manager for the Offering. We intend to use the net proceeds from the Offering to continue to fund our ongoing drug development activities, particularly for the continued development of perifosine in MM and the advancement of our AEZS 108 and AEZS 130 programs, as well as for general corporate purposes and working capital.

Third Quarter MD&A - 2012

NASDAQ Minimum Bid Price Compliance

On October 19, 2012, we regained compliance with NASDAQ Rule 5450(a)(1), which requires a minimum bid price of $1.00 for continued listing on The NASDAQ Global Market. We believe that regaining compliance with NASDAQ's minimum bid price rule was important in maintaining liquidity in the trading of our common shares.

Third Quarter MD&A - 2012

Interim Consolidated Statements of Comprehensive (Loss) Income Information

Third Quarter MD&A - 2012

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 ("API"). Royalties are derived indirectly from ARES Trading S.A.'s ("Merck Serono") net sales of Cetrotide and represent the periodic amortization, under the units-of-revenue method, of the proceeds received in connection with the 2008 sale to Cowen Healthcare Royalty Partners L.P. ("Cowen") of the underlying future royalty stream.

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

Sales and royalties were $6.8 million and $22.4 million for the three-month and nine-month periods ended September 30, 2012, respectively, compared to $8.8 million and $22.0 million for the same periods in 2011. The third quarter decrease is largely attributable to comparative lower deliveries of Cetrotide to certain customers and to the relative weakening of the euro against the US dollar.

Sales and royalties in the fourth quarter of 2012 are expected to increase slightly as compared to the third quarter of 2012, based on recent Cetrotide orders from our customers.

License fees and other revenues were $0.3 million and $1.7 million for the three-month and nine-month periods ended September 30, 2012, respectively, as compared to $0.7 million and $1.4 million for the same periods in 2011. The year-to-date increase is primarily due to higher R&D services provided.

License fees and other revenues are expected to remain at similar levels in the fourth quarter of 2012.

Cost of sales were $5.6 million and $19.3 million for the three-month and nine month periods ended September 30, 2012, respectively, as compared to $7.9 million and $19.4 million for the same periods in 2011. The third quarter decrease is largely attributable to the decrease in sales of Cetrotide , as discussed above, and to the relative weakening of the euro against the US dollar. Additionally, cost of sales as a percentage of sales and royalties decreased to approximately 81.4%, as compared to 90.2% in the third quarter of 2011, due to a comparative increase of lot sizes delivered that have a lower production cost by unit.

For the nine-month period ended September 30, 2012, cost of sales as a percentage of sales and royalties decreased to approximately 86.4%, as compared to 88.4% for the same period in 2011, due to an increase in lot sizes delivered that have a lower production cost by unit, as well as to the higher margin on the API sold during the second quarter of 2012.

R&D costs, net of refundable tax credits and grants, were $4.3 million and $15.1 million for the three-month and nine month periods ended September 30, 2012, respectively, compared to $5.7 million and $16.7 million for the same periods in 2011.

The comparative decreases are attributable to lower third-party costs associated with the development of perifosine and AEZS 108, combined with the weakening of the euro against the US dollar.

Third Quarter MD&A - 2012

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

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* Includes depreciation and amortization charges.

The following table summarizes primary third-party R&D costs, by product candidate, incurred by the Company during the three-month and nine-month periods ended September 30, 2012.

Excluding the impact of foreign exchange rate fluctuations, we expect net R&D costs to increase in the fourth quarter of 2012, compared to the third quarter of 2012, due to the advancement of our lead projects listed above. Overall, excluding the impact of unforeseen foreign exchange rate fluctuations, we now expect that we will incur net R&D costs of between $21 million and $23 million for the full year 2012, particularly given our primary focus on developing perifosine in multiple myeloma, AEZS 108, AEZS 130 and certain earlier-stage compounds.

Selling, general and administrative ("SG&A") expenses were $2.9 million and $9.8 million for the three-month and nine month periods ended September 30, 2012, respectively, compared to $4.2 million and $10.8 million for the same periods in 2011. The comparative decrease in SG&A expenses is mainly related to the recognition of an impairment loss of $1.1 million recorded in the third quarter of 2011. This impairment loss was related to the Cetrotide asset.

We expect SG&A expenses to slightly increase in the fourth quarter of 2012, as compared to the third quarter of 2012.

Third Quarter MD&A - 2012

Net finance income (costs) are comprised predominantly of the change in fair value of warrant liability, net gains (losses) due to changes in foreign currency exchange rates and the gain on our short-term investment (2011 only). For the three-month and nine month periods ended September 30, 2012, net finance income (costs) totalled $(0.9) million and $6.6 million, respectively, as compared to $9.3 million and $4.8 million for the same periods in 2011, as presented below.

The significant fluctuation in net finance (costs) income, as compared to the same periods in 2011, 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 market price of our common shares, which, on NASDAQ, has fluctuated from $10.32 on January 3, 2011 to $9.12 on September 30, 2011, and from $9.24 on January 3, 2012 to $4.20 on September 28, 2012. The fluctuation in net finance (costs) income is also related to (losses) or gains due to changes in foreign currency exchange rates, which are mainly related to the period-over-period continued weakness of the euro against the U.S. dollars, as presented below.

Net (loss) income for the three-month and nine month periods ended September 30, 2012 was $(6.6) million and $(13.5) million, or $(0.35) and $(0.74) per basic and diluted share, respectively, compared to $1.1 million and $(19.5) million, or $0.07 per basic share and $0.06 per diluted share for the three-month period ended September 30, 2011 and $(1.28) per basic share and diluted share for the nine-month period ended September 30, 2011.

The significant increase in net loss for the three-month period ended September 30, 2012, as compared to the same period in 2011, is due largely to lower net finance income, partly compensated by lower R&D and SG&A expenses, as discussed above.

The significant decrease in net loss for the nine-month period ended September 30, 2012, as compared to the same period in 2011, is largely due to lower R&D and SG&A expenses, combined with higher net finance income, as discussed above.

Third Quarter MD&A - 2012

Quarterly Consolidated Results of Operations Information

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Fourth quarter revenues of 2011, as well as first and second quarter revenues of 2012 have increased, when compared quarter-over-quarter for each of the corresponding periods, mainly due to higher deliveries of Cetrotide to Merck Serono, partly offset by the weakening of the euro against the US dollar.

Third quarter revenues for 2012 have decreased compared to the corresponding period in 2011, as explained above.

In the last eight quarters, net (loss) income has been impacted by revenues, as mentioned above, by the comparative level of net R&D costs in connection with the advancement of perifosine, AEZS 108, AEZS 130 and certain earlier stage compounds. Net R&D costs decreased in the second and third quarters, as compared to the same quarters of 2011 and increased when compared quarter-over-quarter for each of the other corresponding periods in 2012-2011 versus 2011-2010. The quarter-over-quarter periods net (loss) income were also impacted by the recognition of impairment losses in the third and fourth quarters of 2011, 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 gains on our short-term investment recorded during the quarter ended December 31, 2010 up to the quarter ended September 30, 2011, as well as by foreign exchange gains or losses and changes in fair value of our warrant liability.

Third Quarter MD&A - 2012

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 September 30, 2012, as compared to December 31, 2011, is due to the recurring disbursements and other variations in components of our working capital, partially offset by: the receipt of a milestone payment in connection with our development, commercialization and licensing agreement entered into with Yakult, the receipt of net proceeds pursuant to drawdowns made in connection with our January 2012 ATM Program, as discussed above, and the relative weakening, in the third quarter of 2012, of the euro against the US dollar, as compared to December 31, 2011.

Our warrant liability decreased from December 31, 2011 to September 30, 2012 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 increase in shareholders' deficiency from December 31, 2011 to September 30, 2012 is attributable to the increase in our deficit due to the net loss for the nine months ended September 30, 2012 and to the decrease in accumulated other comprehensive income, partly offset by an increase in share capital following proceeds from the issuance of common shares pursuant to the aforementioned drawdowns made under our January 2012 ATM Program, and the exercise of warrants and stock options.