Full Press Release Details
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Aeterna Zentaris Inc. is a specialty biopharmaceutical company engaged in developing novel treatments in oncology and endocrinology. Our pipeline encompasses compounds at various stages of development.
Our product candidates include Macrilen (macimorelin), an orphan drug that evaluates growth hormone deficiency in adults, and zoptarelin doxorubicin, a targeted therapy for endometrial cancer and other cancers. We are also investigating various additional compounds as potential treatments for a host of unmet medical needs as we work concurrently to pursue strategic initiatives in connection with our goal to become a commercially operating specialty biopharmaceutical company.
The Company's common shares are listed on both the NASDAQ Capital Market ("NASDAQ"), under the symbol "AEZS", and on the Toronto Stock Exchange ("TSX"), under the symbol "AEZ".
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, 2014. 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 condensed interim consolidated financial statements and the accompanying notes thereto as at September 30, 2014 and for the three-month and nine-month periods ended September 30, 2014 and 2013 (the "condensed interim consolidated financial statements"). Our condensed interim consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") applicable to the preparation of interim financial statements, including IAS 34, Interim Financial Reporting.
All amounts in this MD&A are presented in United States ("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", "assume", "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 and others of which are discussed under the caption "Key Information - Risk Factors" in our most recent Annual Report on Form 20-F filed with the Canadian Securities Regulatory Authorities in lieu of an annual information form and with the United States Securities and Exchange Commission. 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 US Food and Drug Administration ("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.
Third Quarter MD&A - 2014
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 our securities are registered with the US Securities and Exchange Commission. The Company is therefore required to file or furnish 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.
Product Candidate Developments
Zoptarelin Doxorubicin
Commercial Developments
Third Quarter MD&A - 2014
Resource Optimization and Executive Appointment
Corporate Developments
Third Quarter MD&A - 2014
Status of Our Drug Pipeline
(1) Phase 2 in ovarian cancer completed.
(2) Investigator-driven and sponsored.
(3) Potential oral prostate cancer vaccine available for out-licensing.
(4) Sponsored entirely by license partners.
We are focused on preparing for the launch of Macrilen for the evaluation of AGHD in the US and on advancing our ZoptEC Phase 3 program with zoptarelin doxorubicin in endometrial cancer, as discussed further below. We are also planning to develop macimorelin for the evaluation of pediatric growth hormone deficiency ("PGHD").
As for our compounds in earlier stages of development, as part of our focused initiative to optimize R&D activities, we have decided to streamline our drug discovery activities and focus on specific projects related to our Erk inhibitors and our LHRH-disorazol Z product candidate.
Our investment in the development of macimorelin for the evaluation of PGHD, Erk inhibitors and LHRH-disorazol Z product candidate will depend on the level of liquidity available to fund our R&D activities.
Third Quarter MD&A - 2014
Condensed Interim Consolidated Statements of Comprehensive (Loss) Income Information
| Three months ended September 30, | Nine months ended September 30, | |||||||||||
| (in thousands, except share and per share data) | 2014 | 2013 | 2014 | 2013 | ||||||||
| $ | $ | $ | $ | |||||||||
| Revenues | ||||||||||||
| Sales and royalties | - | - | - | 96 | ||||||||
| License fees and other | - | 17 | - | 6,079 | ||||||||
| - | 17 | - | 6,175 | |||||||||
| Operating expenses | ||||||||||||
| Cost of sales | - | - | - | 51 | ||||||||
| Research and development costs, net of refundable tax credits and grants | 6,142 | 6,230 | 17,434 | 15,939 | ||||||||
| Selling, general and administrative expenses | 3,701 | 2,435 | 9,014 | 9,689 | ||||||||
| 9,843 | 8,665 | 26,448 | 25,679 | |||||||||
| Loss from operations | (9,843 | ) | (8,648 | ) | (26,448 | ) | (19,504 | ) | ||||
| Finance income | 1,091 | 1,384 | 5,266 | 3,567 | ||||||||
| Finance costs | (2,877 | ) | (535 | ) | - | (707 | ) | |||||
| Net finance (costs) income | (1,786 | ) | 849 | 5,266 | 2,860 | |||||||
| Net loss from continuing operations | (11,629 | ) | (7,799 | ) | (21,182 | ) | (16,644 | ) | ||||
| Net income from discontinued operations | 292 | 11,641 | 465 | 31,702 | ||||||||
| Net (loss) income | (11,337 | ) | 3,842 | (20,717 | ) | 15,058 | ||||||
| Other comprehensive (loss) income: | ||||||||||||
| Items that may be reclassified subsequently to profit or loss: | ||||||||||||
| Foreign currency translation adjustments | (387 | ) | 550 | (481 | ) | 649 | ||||||
| Items that will not be reclassified to profit or loss: | ||||||||||||
| Actuarial loss on defined benefit plans | (1,099 | ) | - | (3,169 | ) | - | ||||||
| Comprehensive (loss) income | (12,823 | ) | 4,392 | (24,367 | ) | 15,707 | ||||||
| Net loss per share (basic and diluted) from continuing operations | (0.20 | ) | (0.26 | ) | (0.37 | ) | (0.62 | ) | ||||
| Net income per share (basic and diluted) from discontinued operations | 0.00 | 0.39 | 0.01 | 1.18 | ||||||||
| Net (loss) income per share (basic and diluted) | (0.20 | ) | 0.13 | (0.36 | ) | 0.56 | ||||||
| Weighted average number of shares outstanding: | ||||||||||||
| Basic and diluted | 59,163,710 | 29,627,222 | 56,881,919 | 26,848,668 |
Third Quarter MD&A - 2014
Revenues recorded during the nine-month period ended September 30, 2013 resulted predominantly from the non-recurring, accelerated recognition of remaining unamortized deferred revenue associated with an upfront payment received from a licensing partner following the termination of related R&D activities.
We do not expect to record any revenues from continuing operations during the fourth quarter of 2014, as discussed further below.
R&D costs, net of refundable tax credits and grants, were $6.1 million and $17.4 million for the three-month and nine-month periods ended September 30, 2014, respectively, compared to $6.2 million and $15.9 million for the same periods in 2013.
The increase for the nine-month period ended September 30, 2014, as compared to the same period in 2013, is attributable to higher comparative employee compensation and benefits costs, which in turn are mainly due to the recording of R&D restructuring costs. Upon approval of the Resource Optimization Program, discussed above, we recorded a provision for restructuring costs, amounting to approximately $1.6 million, for severance payments and other directly related costs associated with our R&D restructuring activities. This increase is partly offset by lower comparative salaries and short-term employee benefits and share-based compensation costs.
The following table summarizes our net R&D costs by nature of expense:
| Three months ended September 30, | Nine months ended September 30, | |||||||||||
| (in thousands) | 2014 | 2013 | 2014 | 2013 | ||||||||
| $ | $ | $ | $ | |||||||||
| Employee compensation and benefits 1 | 3,017 | 1,932 | 7,198 | 6,235 | ||||||||
| Third-party costs | 2,476 | 3,503 | 7,390 | 7,221 | ||||||||
| Facilities rent and maintenance | 367 | 442 | 1,272 | 1,292 | ||||||||
| Other costs 2 | 327 | 520 | 1,705 | 1,590 | ||||||||
| R&D tax credits and grants | (45 | ) | (167 | ) | (131 | ) | (399 | ) | ||||
| 6,142 | 6,230 | 17,434 | 15,939 |
_________________________
1 Includes provision for restructuring (2014 only).
2 Includes depreciation, amortization and impairment charges.
The following tables summarize primary third-party R&D costs, by product candidate, incurred by the Company during the three-month and nine-month periods ended September 30, 2014.
| (in thousands, except percentages) | Three months ended September 30, | Three months ended September 30, | ||||||||||
| Product Candidate | 2014 | 2013 | ||||||||||
| $ | % | $ | % | |||||||||
| Zoptarelin doxorubicin | 2,122 | 85.7 | 1,878 | 53.6 | ||||||||
| Macrilen , macimorelin | 68 | 2.7 | 563 | 16.1 | ||||||||
| Erk inhibitors | 80 | 3.2 | 420 | 12.0 | ||||||||
| LHRH - Disorazol Z | 47 | 1.9 | 299 | 8.5 | ||||||||
| Other | 159 | 6.5 | 343 | 9.8 | ||||||||
| 2,476 | 100.0 | 3,503 | 100.0 |
Third Quarter MD&A - 2014
| (in thousands, except percentages) | Nine months ended September 30, | Nine months ended September 30, | ||||||||||
| Product Candidate | 2014 | 2013 | ||||||||||
| $ | % | $ | % | |||||||||
| Zoptarelin doxorubicin | 6,059 | 82.0 | 3,267 | 45.2 | ||||||||
| Erk inhibitors | 376 | 5.1 | 816 | 11.3 | ||||||||
| Macrilen , macimorelin | 212 | 2.9 | 954 | 13.2 | ||||||||
| LHRH - Disorazol Z | 202 | 2.7 | 520 | 7.2 | ||||||||
| Perifosine | 196 | 2.7 | 1,134 | 15.7 | ||||||||
| Other | 345 | 4.6 | 530 | 7.4 | ||||||||
| 7,390 | 100.0 | 7,221 | 100.0 |
As shown above, a substantial portion of the quarter-to-date and year-to-date third-party R&D costs relates to development initiatives associated with zoptarelin doxorubicin, and in particular with our Phase 3 ZoptEC trial initiated in 2013 with our partner, Ergomed Clinical Research Ltd. ("Ergomed"), the contract clinical development organization with which, in April 2013, we entered into a co-development and profit sharing agreement.
During the three-month and nine-month periods ended September 30, 2014, ongoing services provided by Ergomed included the conducting of initiation and monitoring visits at various clinical sites, screening and enrolment initiatives, investigation-related management and analysis and regulatory support. ZoptEC-related efforts are progressing in accordance with pre-established timelines. As we continue to closely monitor all initiatives supported by Ergomed, we may decide to revise some of the trial's parameters or expand the scope of work performed by Ergomed, and consequently, total estimated costs in connection with the co-development and revenue sharing agreement may be adjusted. To date, our arrangement with Ergomed has been revised following our decision to open additional clinical sites and to perform additional sub-studies, resulting in estimated cost increases of approximately $1.7 million, as compared to our original estimate.
Excluding the impact of foreign exchange rate fluctuations, we expect net R&D costs to increase slightly in the fourth quarter of 2014, as compared to the third quarter of 2014, as we continue to advance our lead ZoptEC Phase 3 trial with zoptarelin doxorubicin and related sub-studies.
We now expect that we will incur net R&D costs of between $24 million and $26 million for the year ended December 31, 2014, which is slightly lower than our previously given range of between $25 million and $27 million, as we expect third-party R&D costs in connection with our Phase 3 ZoptEC trial will be lower than estimated for the year ended December 31, 2014.
Selling, general and administrative ("SG&A") expenses were $3.7 million and $9.0 million for the three-month and nine-month periods ended September 30, 2014, respectively, as compared to $2.4 million and $9.7 million for the same periods in 2013.
The increase in SG&A expenses for the three-month period ended September 30, 2014, as compared to the same period in 2013, is mainly related to higher comparative foreign exchange losses, the ramping up of our pre-commercialization activities associated with Macrilen , and the recording of restructuring costs related to planned administrative staff redundancies.
Excluding the impact of foreign exchange rate fluctuations, we expect SG&A expenses to increase in the fourth quarter of 2014, as compared to the third quarter of 2014, largely due to efforts related to our Co-promotion Agreement with Ascend. Specifically, as noted above, we expect to deploy a contracted sales force in order to commence co-promotion activities associated with EstroGel .
Due to the aforementioned and more recent initiatives, we continue to expect that our overall SG&A expenses for the year ended December 31, 2014 will increase slightly, as compared to comparative expenses in 2013.
Third Quarter MD&A - 2014
Net finance (costs) income are comprised predominantly of the change in fair value of warrant liability and of gains and losses recorded due to changes in foreign currency exchange rates, as presented below.
| Three months ended September 30, | Nine months ended September 30, | |||||||||||
| (in thousands) | 2014 | 2013 | 2014 | 2013 | ||||||||
| $ | $ | $ | $ | |||||||||
| Finance income | ||||||||||||
| Change in fair value of warrant liability | - | 1,349 | 4,193 | 3,447 | ||||||||
| Gains due to changes in foreign currency exchange rates | 1,053 | - | 955 | - | ||||||||
| Interest income | 38 | 35 | 118 | 120 | ||||||||
| 1,091 | 1,384 | 5,266 | 3,567 | |||||||||
| Finance costs | ||||||||||||
| Change in fair value of warrant liability | (2,877 | ) | - | - | - | |||||||
| Losses due to changes in foreign currency exchange rates | - | (535 | ) | - | (707 | ) | ||||||
| (2,877 | ) | (535 | ) | - | (707 | ) | ||||||
| (1,786 | ) | 849 | 5,266 | 2,860 |
The change in fair value of our warrant liability 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 issuance of 8.8 million additional share purchase warrants and by the closing price of our common shares, which, on the NASDAQ, has fluctuated from $1.05 to $1.50 for the nine-month period ended September 30, 2014 and from $1.37 to $3.23 for the same period in 2013.
Gains and losses due to changes in foreign currency exchange rates are mainly related to the US dollar, which, vis- -vis the euro ("EUR"), weakened by approximately 0.1% and strengthened by approximately 2.9%, respectively, during the three-month and nine-month periods ended September 30, 2014, as compared to the same periods in 2013.
Net loss from continuing operations for the three-month and nine-month periods ended September 30, 2014 was $11.6 million and $21.2 million, or $0.20 and $0.37 per basic and diluted share, respectively, compared to $7.8 million and $16.6 million, or $0.26 and $0.62 per basic and diluted share for the same periods in 2013.
The increase in net loss from continuing operations for the three-month period ended September 30, 2014, as compared to the same period in 2013, is due largely to higher comparative SG&A expenses and to higher comparative net finance costs (non-cash), as presented above.
The increase in net loss from continuing operations for the nine-month period ended September 30, 2014, as compared to the same period in 2013, is due largely to lower comparative license fee revenues and to higher comparative net R&D costs, partially offset by lower comparative SG&A expenses and by higher comparative net finance income (non-cash), as presented above.
Third Quarter MD&A - 2014
Discontinued Operations
On April 3, 2013, we entered into a transfer and service agreement and concurrent agreements with various partners and licensees with respect to our manufacturing rights for Cetrotide , currently marketed for therapeutic use as part of in vitro fertilization programs. The principal effect of these agreements was to transfer, effective October 1, 2013 (the "Closing Date"), our manufacturing rights for Cetrotide and to grant a license to ARES Trading S.A. ("Merck Serono") for the manufacture, testing, assembling, packaging, storage and release of Cetrotide , as well as related activities (collectively, the "Cetrotide Business"), in all territories.
As a result of the transfer of substantially all of the risks and rewards associated with the Cetrotide Business on the Closing Date, the Cetrotide Business was classified as a discontinued operation. As such, relevant amounts in our condensed interim consolidated statements of comprehensive (loss) income have been retroactively reclassified to reflect the Cetrotide Business as a discontinued operation, as presented below.
| Three months ended September 30, | Nine months ended September 30, | |||||||||||
| (in thousands) | 2014 | 2013 | 2014 | 2013 | ||||||||
| $ | $ | $ | $ | |||||||||
| Revenues | ||||||||||||
| Sales and royalties | - | 20,834 | - | 60,698 | ||||||||
| License fees and other* | 512 | 208 | 919 | 872 | ||||||||
| 512 | 21,042 | 919 | 61,570 | |||||||||
| Operating expenses | ||||||||||||
| Cost of sales | - | 8,860 | - | 26,931 | ||||||||
| Research and development costs, net of tax credits and grants | - | - | 18 | 8 | ||||||||
| Selling, general and administrative expenses | 220 | 541 | 436 | 2,929 | ||||||||
| 220 | 9,401 | 454 | 29,868 | |||||||||
| Net income from discontinued operations | 292 | 11,641 | 465 | 31,702 |
_________________________
* Includes revenues from certain transition services being provided to Merck Serono pursuant to the aforementioned agreements.
The decrease in sales and royalties from discontinued operations, in cost of sales from discontinued operations and in SG&A expenses from discontinued operations during the three-month and nine-month periods ended September 30, 2014, as compared to the same periods in 2013, reflects the fact that we recorded no sales of Cetrotide and royalties during the three-month and nine-month periods ended September 30, 2014, as compared to the corresponding periods of 2013, given that the transfer of the Cetrotide Business was effective on October 1, 2013.
Net (loss) income for the three-month and nine-month periods ended September 30, 2014 was $(11.3) million and $(20.7) million, or $(0.20) and $(0.36) per basic and diluted share, respectively, compared to $3.8 million and $15.1 million, or $0.13 and $0.56 per basic and diluted share, for the same periods in 2013.
The decrease in net income for the three-month period ended September 30, 2014, as compared to the same period in 2013, is due largely to lower net income from discontinued operations, to higher comparative operating expenses and to higher comparative net finance costs.
The decrease in net income for the nine-month period ended September 30, 2014, as compared to the same period in 2013, is due largely to lower revenues and to lower net income from discontinued operations, partially offset by higher comparative net finance income.
Third Quarter MD&A - 2014
Quarterly Consolidated Results of Operations Information
| (in thousands, except for per share data) | Three months ended | |||||||||||
| September 30, 2014 | June 30, 2014 | March 31, 2014 | December 31, 2013 | |||||||||
| $ | $ | $ | $ | |||||||||
| Revenues | - | - | - | - | ||||||||
| Loss from operations | (9,843 | ) | (8,410 | ) | (8,195 | ) | (7,972 | ) | ||||
| Net loss from continuing operations | (11,629 | ) | (5,249 | ) | (4,304 | ) | (10,596 | ) | ||||
| Net loss | (11,337 | ) | (5,024 | ) | (4,356 | ) | (8,243 | ) | ||||
| Net loss per share from continuing operations (basic and diluted)* | (0.20 | ) | (0.09 | ) | (0.08 | ) | (0.28 | ) | ||||
| Net loss per share (basic and diluted)* | (0.20 | ) | (0.09 | ) | (0.08 | ) | (0.22 | ) |
| Three months ended | ||||||||||||
| September 30, 2013 | June 30, 2013 | March 31, 2013 | December 31, 2012 | |||||||||
| $ | $ | $ | $ | |||||||||
| Revenues | 17 | 96 | 6,062 | 281 | ||||||||
| Loss from operations | (8,648 | ) | (9,693 | ) | (1,163 | ) | (8,119 | ) | ||||
| Net (loss) income from continuing operations | (7,799 | ) | (9,848 | ) | 1,003 | (8,130 | ) | |||||
| Net income (loss) | 3,842 | 9,330 | 1,886 | (6,947 | ) | |||||||
| Net (loss) income per share from continuing operations (basic and diluted)* | (0.26 | ) | (0.39 | ) | 0.04 | (0.34 | ) | |||||
| Net income (loss) per share (basic and diluted)* | 0.13 | 0.37 | 0.07 | (0.29 | ) |
_________________________
Historical quarterly results of operations and net (loss) income from continuing operations cannot be taken as reflective of recurring revenue or expenditure patterns or of predictable trends, largely given the non-recurring nature of certain components of our historical revenues due most notably to the accelerated recognition of upfront payments and to unpredictable quarterly variations attributable to our net finance income (costs), which in turn are comprised of the impact of the periodic "mark-to-market" revaluation of our warrant liability and of foreign exchange gains and losses. Additionally, our net R&D costs historically have varied on a quarter-over-quarter basis due to the ramping up or winding down of potential product candidate activities, which in turn are dependent upon a number of factors that often do not occur on a linear or predictable basis.
In addition to the items referred to above, our net (loss) income also has been impacted by net variations attributable to the Cetrotide Business, which, as discussed above, has been presented on a retrospective basis within discontinued operations.
Third Quarter MD&A - 2014
Condensed Interim Consolidated Statement of Financial Position Information
| As at September 30, | As at December 31, | |||||
| (in thousands) | 2014 | 2013 | ||||
| $ | $ | |||||
| Cash and cash equivalents 1 | 41,952 | 43,202 | ||||
| Trade and other receivables and other current assets | 2,124 | 2,453 | ||||
| Restricted cash equivalents | 794 | 865 | ||||
| Property, plant and equipment | 705 | 1,351 | ||||
| Other non-current assets | 9,942 | 11,325 | ||||
| Total assets | 55,517 | 59,196 | ||||
| Payables and other current liabilities 2 | 7,364 | 7,242 | ||||
| Warrant liability | 22,304 | 18,010 | ||||
| Non-financial non-current liabilities 3 | 18,445 | 16,880 | ||||
| Total liabilities | 48,113 | 42,132 | ||||
| Shareholders' equity | 7,404 | 17,064 | ||||
| Total liabilities and shareholders' equity | 55,517 | 59,196 |
_________________________
1 Of which approximately $5.7 million was denominated in EUR as at September 30, 2014.
3 Comprised mainly of employee future benefits and provisions for onerous contracts.
The decrease in cash and cash equivalents as at September 30, 2014, as compared to December 31, 2013, is due to variations in components of our working capital and to recurring disbursements, as well as to the effect of exchange rate fluctuations, partially offset by the receipt of net proceeds of $12.2 million, pursuant to our public offering of 11.0 million units, each of which was comprised of one common share and 0.8 of a warrant to purchase one common share (the "January 2014 Offering"), of $9.8 million pursuant to drawdowns made under the May 2014 ATM Program and of $0.3 million pursuant to drawdowns made under a previous ATM sales agreement program, entered into in May 2013 and discontinued in connection with the implementation of the May 2014 ATM Program.
The decrease in other non-current assets as at September 30, 2014, as compared to December 31, 2013, is primarily due to the lower comparative exchange rate of the euro against the US dollar, which weakened from December 31, 2013 to September 30, 2014. The decrease is also due to the net reduction in the carrying value of our identifiable intangible assets, for which we recognized an impairment loss of approximately $0.2 million, pursuant to implementation of the Resource Optimization Program, discussed above.
The increase in payables and other current liabilities as at September 30, 2014, as compared to December 31, 2013, is mainly due to the recording of a provision for restructuring costs related to the Resource Optimization Program, discussed above, partially offset by lower comparative trade accounts payable balances related to the Cetrotide Business.
Our warrant liability increased from December 31, 2013 to September 30, 2014 predominantly due to the issuance of 8.8 million additional share purchase warrants in connection with the January 2014 Offering, which initially increased our warrant liability by $8.5 million. The increase was partly offset by net fair value gains of $4.2 million, which were recorded pursuant to our periodic "mark-to-market" revaluation of the underlying outstanding share purchase warrants.
The increase in non-financial non-current liabilities as at September 30, 2014, as compared to December 31, 2013, is mainly due to the increase of $1.8 million in our pension-related employee benefit obligation (due predominantly to the recording of an actuarial loss subsequent to the adjustment of the discount rate assumption from 3.37%, which had been applied as at December 31, 2013, to 2.2% as at September 30, 2014). This adjustment was deemed necessary due to changes in the European economic environment.
Third Quarter MD&A - 2014
The decrease in shareholders' equity as at September 30, 2014, as compared to December 31, 2013, is mainly attributable to the increase in our deficit due to the recording of net loss and actuarial loss on pension-related employee benefit obligation, partly offset by the increase in our share capital following the issuance of common shares pursuant to equity transactions discussed above.
Financial Liabilities, Obligations and Commitments
We have certain contractual lease obligation commitments. Expected future minimum lease payments and future minimum sublease receipts under non-cancellable operating leases (subleases) are as follows:
| As at September 30, 2014 | |||||||||
| (in thousands) | Minimum lease payments | Minimum sublease receipts | Utilities | ||||||
| $ | $ | $ | |||||||
| Less than 1 year | 1,784 | (400 | ) | 589 | |||||
| 1 - 3 years | 1,691 | (538 | ) | 264 | |||||
| 4 - 5 years | 464 | (75 | ) | 19 | |||||
| Total | 3,939 | (1,013 | ) | 872 |
Outstanding Share Data
As at November 4, 2014, we had 65,509,077 common shares issued and outstanding, as well as 2,842,298 stock options outstanding. Warrants outstanding as at November 4, 2014 represented a total of 28,785,189 equivalent common shares.
Our objective in managing capital, consisting of shareholders' equity, with cash and cash equivalents and restricted cash equivalents being its primary components, is to ensure sufficient liquidity to fund R&D activities, selling, general and administrative expenses, working capital and capital expenditures.