FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
REPORT OF FOREIGN ISSUER
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the first quarter of 2004
AETERNA ZENTARIS INC.
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(Formerly named AEterna Laboratories Inc.)
1405, boul. du Parc-Technologique
Quebec, Quebec
Canada, G1P 4P5
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F.
Form 20-F Form 40-F X
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Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934
Yes No X
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If "Yes" is marked, indicate below the file number assigned to the registrant
in connection with Rule 12g3-2(b): 82-
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DOCUMENTS INDEX
Documents Description
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1. AEterna's Interim Report 2004 - First Quarter (Q1)
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May 4, 2004
To our stockholders,
We are very pleased by the financial results and strategic achievements we've
had in the first quarter of 2004. The significant increase in revenues was
driven by strong performances from all our sectors of activity. On the strategic
front, we continued to advance and expand our rich product portfolio. We entered
into development and marketing alliances with Roche for Impavido(R) and with
Solvay Pharmaceuticals for our orally-available LHRH antagonist peptidomimetic.
We also had an exciting development subsequent to quarter end, with the
announcement of positive results from six Phase II trials on cetrorelix in three
indications: uterus myoma, endometriosis and benign prostatic hyperplasia. Our
partner Solvay Pharmaceuticals is already planning for initiation of
registration studies on cetrorelix.
We believe these accomplishments continue to reflect the breadth and depth of
our pipeline, as well as the value of our international network of current and
potential partners, which are two key components of our long-term growth
strategy
FIRST QUARTER AND YEAR-TO-DATE 2004 HIGHLIGHTS
o ATRIUM ACQUISITION OF PURE ENCAPSULATIONS INC. - Acquisition in the
amount of $50 million of this American company specialized in the
development, manufacturing and marketing of nutritional supplements to
a network of some 36,000 physicians and other healthcare professionals.
Sales for 2003 reached $25 million.
o PARTNERSHIP WITH ROCHE FOR IMPAVIDO(R) - Agreement for the marketing,
in Brazil, of Impavido(R) (miltefosine), the first oral treatment
against leishmaniasis, a severe tropical disease that affects over 12
million people worldwide.
o PARTNERSHIP WITH SOLVAY FOR ORAL LHRH ANTAGONIST - Agreement for
the development of a novel, orally-bioavailable luteinizing
hormone-releasing hormone (LHRH) antagonist peptidomimetic for
different indications, including endometriosis, uterine myoma and
benign prostate hyperplasia (HPB), as well as breast and prostate
cancer. Upon signing, AEterna received a $5 million payment from
Solvay.
o POSITIVE RESULTS FOR ZEN-014 - Disclosure of positive preclinical
results with ZEN-014, a novel tubulin inhibitor, at the annual American
Association for Cancer Research (AACR). ZEN-014 represents a new class
of antiangiogenic products that could become very potent anticancer
agents with an exceptional potential.
o INITIATION OF A DOSE RANGING STUDY WITH ARDANA FOR EP-1572 - Initiation
of a dose ranging study for this novel, orally-available peptidomimetic
agent which could be used, among different indications, for the
treatment of growth hormone deficiency disorders.
AEterna received an undisclosed milestone payment from its development
partner, Ardana Bioscience.
o EXPANDED PARTNERSHIP WITH ARDANA FOR TEVERELIX - Ardana acquired full
global rights and was assigned the intellectual property relating to
teverelix and the underlying microcrystalline suspension technology. In
return, Zentaris received a substantial payment at signature, fixed
annual guaranteed payments until 2006, as well as potential future
income on sales of teverelix.
o POSITIVE PHASE II RESULTS FOR CETRORELIX - Announcement of positive
results with cetrorelix (LHRH antagonist) in six Phase II trials in
endometriosis, pre-surgical treatment of uterine myomas and benign
prostatic hyperplasia (BPH). Solvay plans to initiate pivotal program
with cetrorelix.
OUTLOOK
Over the next few months, we look forward to disclosing detailed results of our
clinical trials with cetrorelix and perifosine at major scientific meetings and
we will be pursuing our development program for other products in our pipeline.
Finally, our subsidiary Atrium should benefit from continued growth at a
substantial rate during the next quarter.
On behalf of my colleagues and our Board of Directors, I thank you for your
continued interest and support.
Sincerely,
/s/ GILLES GAGNON
Gilles Gagnon, MSc, MBA
President and Chief Executive Officer
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING ANALYSIS EXPLAINS THE VARIATIONS IN THE COMPANY'S RESULTS OF
OPERATIONS, FINANCIAL CONDITION AND CASH FLOW. THIS DISCUSSION SHOULD BE READ
IN CONJUNCTION WITH THE INFORMATION CONTAINED IN AETERNA LABORATORIES INC.'S
INTERIM CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES FOR THE THREE-
MONTH PERIOD ENDED ON MARCH 31, 2004 AND 2003. ALL FIGURES ARE IN
CANADIAN DOLLARS.
COMPANY OVERVIEW
During this quarter, all three segments of activities performed as we expected.
The ongoing integration of newly acquired French subsidiaries Chimiray and
Interchemical into the distribution segment is proceeding well. In addition, the
cosmetics and nutrition segment completed the acquisition of Pure Encapsulations
Inc. (Pure) for approximately $50 million. Pure is focused mainly on the
development, manufacturing and marketing of nutritional supplements geared
toward physicians and other healthcare professionals and is based in Sudbury,
Massachusetts in the United States. Pure revenues reached over $25 million in
2003.
In the Biopharmaceutical segment, we entered on January 23, 2004 into a broad
collaboration agreement with Solvay. Based on the agreement, we will jointly
push forward the development of novel, low molecular weight and
orally-bioavailable peptidomimetic LHRH antagonists. As part of the agreement,
Solvay secured exclusive worldwide rights to all gynecological indications as
well as benign prostatic hyperplasia (BPH), while we retain worldwide rights to
all other indications, including oncology. Under the terms of this agreement, we
have received $5 million in cash, representing an upfront payment and past
development costs, upon signing, and may receive additional future payments
based upon achievement of certain development, regulatory and commercialization
milestones, as well as royalties on future sales.
We also entered on February 2, 2004 into a partnership with Produtos Roche QFSA
in Sao Paulo ("Roche") for the marketing of Impavido(R) in Brazil, an oral drug
for leishmaniasis. Under the terms of this agreement, Roche will provide support
with the registration process in Brazil and will market Impavido(R) in Brazil,
while Zentaris will supply the product to Roche. In South America, Brazil has
the highest incidence of both visceral leishmaniasis (black fever), the
systemic, more severe and often deadly form of the parasitic disease, and
cutaneous leishmaniasis, the localized form of the parasitic skin disease.
CRITICAL ACCOUNTING POLICIES
Our critical accounting policies are disclosed in the "Management's Discussion
and Analysis of Financial Condition and Results of Operations" section and the
annual consolidated financial statements contained in our 2003 Annual Report.
Our financial statements are prepared in accordance with the Canadian Generally
Accepted Accounting Principles (GAAP) and access to a summary of differences
between Canadian and US GAAP is possible by consulting note 23 of our annual
2003 financial statements.
SUBSEQUENT EVENTS
On April 2, 2004, we announced that our wholly owned subsidiary Zentaris GmbH
and Ardana Bioscience, a specialty pharmaceutical company located in Edinburgh,
Scotland, entered into an expanded agreement for the LHRH antagonist
Teverelix(R). Ardana acquired full worldwide rights to the Teverelix(R) compound
and the underlying microcrystalline suspension technology, including all related
intellectual property. In return, Zentaris is eligible to receive upfront and
guaranteed payments totalling 12 million Euro until 2006, as well as potential
future royalties on sales of Teverelix(R) or any other LHRH antagonist that
could be combined with the microcrystalline suspension technology.
On April 29, 2004, we also announced statistically significant positive results
from recently completed Phase II clinical program designed to evaluate
cetrorelix, a luteinizing hormone releasing hormone (LHRH) antagonist, in three
different indications: endometriosis, pre-surgical treatment of uterine myomas
and benign prostatic hyperplasia (BPH). These results showed that patients can
benefit from a targeted and controlled decrease in sex hormones, including
estrogen and testosterone. The positive results of six Phase II trials, which
also demonstrated good tolerability in all indications, will form the basis for
further development of cetrorelix in different indications through collaboration
with Solvay Pharmaceuticals, the Company's worldwide (ex-Japan) exclusive
development and marketing partner for cetrorelix for the above indications.
RESULTS OF OPERATIONS BY SEGMENT
Biopharmaceutical Segment
REVENUES
For the three-month period ended March 31, 2004, biopharmaceutical segment
revenue was $12.6 million, an increase of $0.1 million compared to $12.5 million
for the same period last year. Revenue is derived from sales and royalties on
Cetrotide(R) as well as milestone payments, R&D contract fees and amortization
of upfront payments received to date. Revenue from R&D contract fees and from
the amortization of upfront payments is derived mainly from the ongoing
development of Cetrorelix and Teverelix under existing collaboration agreements
with our licensing partners Solvay and Ardana, respectively.
Going forward in 2004, we expect to see an increase in revenue from R&D contract
fees and amortization of upfront payments, since the Company has received and
expects to receive, under newly signed additional partnerships, additional
revenues which will be amortized under the appropriate accounting policies.
OPERATING EXPENSES
For the three-month period ended March 31, 2004, cost of sales was $3.8 million,
an increase of $2.5 million compared to $1.3 million for the same period last
year. Manufacturing costs for Cetrotide(R) have increased, due to growing sales
of this product generated by our partner Serono, and are expected to continue to
increase in 2004 and beyond. Sales and royalties generated by Cetrotide(R) were
$7.4 million in the first quarter of 2004 compared to $4.8 million in the same
period last year. This leaves a gross margin of $3.6 million in the three-month
period ended March 31, 2004 compared to $3.5 million for the same period last
year. We do not expect any significant changes in the cost of sales, as
percentage of corresponding sales and royalties, for the next quarter.
SELLING, GENERAL AND ADMINISTRATIVE (SG&A) EXPENSES for the three-month period
ended March 31, 2004 were $3.6 million, an increase of $1 million compared to
$2.6 million for the same period in 2003. The increase in SG&A expenses in 2004
was primarily due to increased insurance costs and stock-based compensation
costs. We do not expect any major fluctuations in SG&A costs for the remainder
of 2004.
R&D EXPENSES for the three-month period ended March 31, 2004 were $7.7 million,
a decrease of $3.6 million compared to $11.3 million for the same period in
2003, reflecting the realignment of the clinical development program, initiated
in December 2003, including the refocusing of the pipeline on perifosine and
cetrorelix. We do not expect any major fluctuations in R&D expenses for the
remainder of 2004.
DEPRECIATION AND AMORTIZATION for the three-month period ended March 31, 2004
was approximately $2.0 million, a decrease of $0.4 million compared to $2.4
million for the same period last year. The decrease was primarily attributable
to the re-allocation of a portion of the purchase price of Zentaris, which was
finalized in the second quarter of 2003, from intangible assets to goodwill. We
do not expect any major fluctuations in depreciation and amortization in the
next three quarters.
INTEREST INCOME for the three-month period ended March 31, 2004 was
approximately $0.4 million, a decrease of $0.4 million compared to $0.8 million
for the same period in 2003, primarily due to lower cash balance in 2003 as a
result of Zentaris acquisition in early 2003.
INTEREST AND FINANCIAL EXPENSE for the three-month period ended March 31, 2004
was $1.2 million and consisted mainly of financing costs on the convertible term
loans. The interest and financial expense in the corresponding period in 2003
related to the balance of purchase price payable to Degussa AG settled in March
2003 and the $43 million promissory note payable to Royal Bank of Canada,
reimbursed in January 2003. This explains the $0.6 million increase in interest
and financial expense for the first quarter of 2004 compared to the same period
last year. Since the debt portion of the convertible term loans are accounted
for as discounted loans and are increasing in accretion, we expect that our
interest expense will increase in the next quarters of 2004.
Cosmetics and Nutrition Segment
REVENUE
Revenue in this segment is derived from manufacturing and marketing of cosmetic,
active ingredients and nutritional products. In the first quarter of 2004,
revenue was $7.5 million, an increase of $4.2 million, or 127%, compared to $3.3
million for the same period last year. The increase in the sales was driven by
organic growth as well as through recent acquisitions of Siricie S.A. and Pure
Encapsulations Inc. We expect a significant increase in revenue for this segment
in the coming quarters, as the impact of March 2004 acquisition of Pure
Encapsulations, was not reflected for the first two months of the first quarter
2004 financial results.
OPERATING EXPENSES
COST OF SALES was $1.9 million in the three-month period ended March 31, 2004,
an increase of $1.3 million compared with $0.6 million for the same period in
2003. These costs consist mainly of raw materials and manufacturing costs
related to and are proportional to sales of respective products. Since most of
the sales are booked in the US dollar whereas our manufacturing costs are
incurred in other currency, the fluctuation of the US dollar combined with the
acquisition of Pure Encapsulations Inc has led to a negative currency impact and
corresponding increase in the cost of sales from 16.9% in the first quarter of
2003 to 25.6% in the same period in 2004.
SG&A EXPENSES were $2.4 million, an increase of $1.5 million, compared with $0.9
million for the first quarter of 2003, primarily reflecting recent acquisitions
of companies.
FOREIGN EXCHANGE GAIN was $0.1 million in the three-month period ended March 31,
2004, an increase of $0.4 million compared with a $0.3 million loss in the same
period last year. The foreign exchange loss in 2003 was attributable to the
impact of a stronger Canadian dollar on our US short-term investments and
working capital denominated in US dollars. We did not have significant gain or
loss in the first quarter of 2004 owing to lack of significant fluctuations in
the US dollar during the first quarter of 2004. It is our policy to maintain
sufficient cash and cash equivalents in US currency to meet our future
requirements in US dollars.
Distribution Segment
REVENUE
Revenue in this segment is derived from the distribution of raw materials and
brand-name active ingredients to multi-national companies in the cosmetic,
industrial chemicals, fine chemicals, pharmaceutical and nutrition sectors. In
the first quarter of 2004, revenue was $38.4 million, an increase of $13.2
million or 52%, compared with $25.2 million for the same period in 2003,
primarily reflecting the acquisition of Chimiray/Interchemical in August 2003.
For the second quarter of 2004, we expect a favorable year-over-year comparison
for revenue from this segment, again as a result of the acquisition of
Chimiray/Interchemical, completed in the third quarter of 2003.
OPERATING EXPENSES
COST OF SALES was $31.5 million in the three-month period ended March 31, 2004,
an increase of $10.1 million compared with $21.4 million for the same period in
2003. Cost of sales is directly proportional and related to sales of respective
products. The gross margin, as a percentage of revenues, was 17.9%, an increase
of 3% compared to 14.9% for the same period in 2003, reflecting the contribution
of high-margin products from ADF Chimie S.A and Chimiray/Interchemical, as well
as improved margins for existing products from Unipex. We expect gross margin to
remain stable for the next several quarters of 2004.
SG&A EXPENSES were $3.6 million in the first quarter of 2004, an increase of
$1.7 million compared to $1.9 million in the same period in 2003, primarily
reflecting the acquisition of Chimiray/Interchemical in August 2003.
FOREIGN EXCHANGE GAIN was $0.1 million, an increase of $0.3 million compared to
a $0.2 million loss for the same period in 2003, reflecting the impact of
foreign currency fluctuations especially that of US dollar, in comparison to
Euro on working capital denominated in foreign currency.
CONSOLIDATED INFORMATION
NET LOSS for the first quarter of 2004 decreased by nearly 50%, from $4.9
million or $0.12 per share in the first quarter of 2003 to $2.6 million or $0.06
per share for the same period in 2004, primarily reflecting higher net earnings
from our Cosmetic Nutrition and Distribution segments as well as the realignment
of the clinical development program, initiated in December 2003.
The weighted average number of shares outstanding used to calculate the basic
and diluted net loss per share for the first quarter of 2004 was 45.4 million
shares as compared to 40.7 million shares for the same period in 2003. This
increase of 4.7 million shares primarily reflects the issuance of 4.5 million
subordinate voting shares for a bought deal closed on July 24, 2003.
OFF BALANCE SHEET ARRANGEMENTS AND RELATED-PARTY TRANSACTIONS
There were no related-party transactions other than those eliminated during the
consolidation process and no off balance sheet arrangement.
TOTAL ASSET
Total asset, which was $295.8 million as at December 31, 2003, reached $342.8
million as at March 31, 2004. This $47 million increase is mainly attributable
to the acquisition of Pure Encapsulations, Inc in March 2004. Detail of segment
assets is provided in note 6 of the Interim consolidated financial statements.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2004 the Company had cash, cash equivalents and short-term
investments of approximately $52 million, a decrease of approximately $12.4
million compared to December 31, 2003. The variation of our liquidity is
explained below, on a consolidated basis, per type of activities.
OPERATING ACTIVITIES
--------------------
Cash flow used in our operations was $5.2 million during the first quarter of
2004. This includes a $10.3 million use of cash from change of non-cash working
capital items. We expect to decrease our ongoing cash expenditures in the next
quarters and also try to contain the variation in the working capital accounts
as well as to continue to generate increased operating income from our Cosmetic
Nutrition and Distribution segments.
FINANCING ACTIVITIES
--------------------
Cash flow provided from financing activities was $39.6 million for the
three-month period ended March 31, 2004 compared to a use of $20.4 million for
the same period last year. $40.3 million long-term debts contracted during the
quarter less $1 million as repayment of long term debt explain the inflow in the
current quarter. The repayment of the $43 million interim financing for the
acquisition of Zentaris offset by the proceeds of the $25 million convertible
term loans mainly explain the outflow in the corresponding period last year.
INVESTING ACTIVITIES
--------------------
Cash flow used in investing activities (excluding change in short-term
investments) was $46.8 million in the first quarter of 2004, of which $45.7
million was used for acquiring companies. For the same period last year, cash
flow used in investing activities was $2.6 million (excluding change in
short-term investments), primarily to increase our share in one of our
French-based subsidiaries.
We have certain contractual obligations and commercial commitments. The
following table indicates our cash requirements to respect these obligations:
(in thousands of Canadian dollars) PAYMENTS DUE BY PERIOD
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Total Less than 1 year 1-3 years 4-5 years
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$ $ $ $
LONG-TERM DEBT 50,222 7,599 21,151 21,472
CONVERTIBLE TERM LOANS 25,000 - 25,000 -
OPERATING LEASES 9,664 2,595 3,677 3,392
COMMERCIAL COMMITMENTS 6,039 3,105 2,934 -
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TOTAL CONTRACTUAL CASH OBLIGATIONS 90,925 13,299 52,762 24,864
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Information related to our share capital and to outstanding stock options is
presented in note 5 of the Interim Consolidated Financial Statements.
OUTLOOK
Biopharmaceutical Segment
We expect that Cetrotide(R), which is sold by Serono, to continue to generate
significant revenue in 2004. Furthermore, Cetrotide(R) is pending approval in
Japan and, should authorization be successful, we would receive a milestone
payment from our partner Shionogi.
Revenue generated from Impavido(R) is expected to increase in the next quarters
of 2004, since we expect to extend marketing to public-use in India and file for
approval in new territories and indications.
We expect to continue to benefit from the support of existing partners for our
R&D activities and as part of our growth strategy, we intend to pursue
additional partnerships as well as acquisition of additional technologies and/or
companies.
Cosmetic and Nutrition Segment and Distribution Segment
We plan to continue to integrate the newly acquired companies and expect to
continue to achieve organic growth during the next quarters.
RISK FACTORS
Economic and sector related risks are the same as those identified in the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained in the Company's 2003 Annual Report.
Copies of the Company's public disclosure documents are available on our website
at www.aeterna.com and on SEDAR website at www.sedar.com.
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On behalf of management,
/s/ DENNIS TURPIN
Dennis Turpin, CA
Vice President and Chief Financial Officer
May 3, 2004
AETERNA LABORATORIES INC.
INTERIM CONSOLIDATED BALANCE SHEETS
(expressed in thousands of Canadian dollars)
AS AT AS AT
MARCH 31, DECEMBER 31,
2004 2003
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(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 19,539 $ 22,414
Short-term investments 32,450 41,953
Accounts receivable 58,724 48,191
Inventory 20,988 16,169
Prepaid expenses and deferred charges 4,900 3,314
Future income tax assets 2,423 2,604
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139,024 134,645
PROPERTY, PLANT AND EQUIPMENT 20,510 19,599
DEFERRED CHARGES AND LONG-TERM INVESTMENT 2,158 1,322
INTANGIBLE ASSETS 64,139 65,513
GOODWILL (note 3) 103,805 61,184
FUTURE INCOME TAX ASSETS 13,209 13,516
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$ 342,845 $ 295,779
==============================================================================================================================
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities 56,157 53,062
Income taxes 4,447 3,490
Balance of purchase price 3,330 1,113
Current portion of long-term debt 9,641 3,777
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73,575 61,442
DEFERRED REVENUES 13,600 10,563
CONVERTIBLE TERM LOANS 20,335 19,920
LONG-TERM DEBT 49,438 15,132
EMPLOYEE FUTURE BENEFITS 6,714 6,658
FUTURE INCOME TAX LIABILITIES 24,828 25,991
NON-CONTROLLING INTEREST 31,039 29,952
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219,529 169,658
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SHAREHOLDERS' EQUITY
SHARE CAPITAL (note 5) 188,043 187,601
OTHER CAPITAL 7,769 7,486
DEFICIT (75,561) (73,011)
CUMULATIVE TRANSLATION ADJUSTMENT 3,065 4,045
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123,316 126,121
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$ 342,845 $ 295,779
==============================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AETERNA LABORATORIES INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIODS ENDED MARCH 31, 2004 AND 2003
(expressed in thousands of Canadian dollars, except share and per share data)
THREE MONTHS ENDED MARCH 31,
UNAUDITED 2004 2003
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REVENUES $ 58,449 $ 40,813
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OPERATING EXPENSES
Cost of sales 37,128 23,220
Selling, general and administrative 9,621 5,495
Research and development costs 7,978 11,396
R&D tax credits and grants (25) (480)
Depreciation and amortization
Property, plant and equipment 756 860
Intangible assets 1,407 1,643
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56,865 42,134
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OPERATING INCOME (LOSS) 1,584 (1,321)
Interest income 494 937
Interest and financial expenses (1,637) (793)
Foreign exchange gain (loss) 417 (387)
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INCOME (LOSS) BEFORE THE FOLLOWING 858 (1,564)
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INCOME TAX EXPENSE
Current (2,424) (632)
Future 784 (1,869)
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(1,640) (2,501)
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(782) (4,065)
Non-controlling interest (1,768) (825)
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NET LOSS FOR THE PERIOD $ (2,550) $ (4,890)
==============================================================================================================================
BASIC AND DILUTED NET LOSS PER SHARE $ (0.06) $ (0.12)
==============================================================================================================================
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 45,402,892 40,693,527
==============================================================================================================================
INTERIM CONSOLIDATED STATEMENTS OF DEFICIT
FOR THE PERIODS ENDED MARCH 31, 2004 AND 2003
(expressed in thousands of Canadian dollars)
THREE MONTHS ENDED MARCH 31,
UNAUDITED 2004 2003
------------------------------------------------------------------------------------------------------------------------------
Balance - Beginning of period $ 73,011 $ 44,864
Net loss for the period 2,550 4,890
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Balance - End of period $ 75,561 $ 49,754
==============================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AETERNA LABORATORIES INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIODS ENDED MARCH 31, 2004 and 2003
(expressed in thousands of Canadian dollars)
THREE MONTHS ENDED MARCH 31,
UNAUDITED 2004 2003
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CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period $ (2,550) $ (4,890)
Items not affecting cash and cash equivalents
Depreciation and amortization 2,163 2,503
Future income taxes (774) 1,869
Deferred charges 145 95
Deferred revenues 3,802 (167)
Accretion on convertible loans 415 -
Employee future benefits 60 94
Non-controlling interest 1,768 825
Stock-based compensation 288 56
Foreign exchange loss on long term item denominated in foreign currency (130) -
Change in non-cash operating working capital items
Accounts receivable (10,717) (4,544)
Inventory (1,078) 446
Prepaid expenses (1,490) (1,364)
Accounts payable and accrued liabilities 1,976 (534)
Income taxes 961 (334)
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(5,161) (5,945)
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CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of promissory note - (43,000)
Convertible term loans - 25,000
Payment of balance of purchase price (1,001) (2,358)
Increase in long-term debt 40,251 -
Repayment of long-term debt (82) (30)
Issuance of share capital, net of related expenses 442 (51)
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39,610 (20,439)
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of short-term investments - (3,962)
Proceeds from short-term investments 9,503 59,380
Purchase of long-term investment (825) -
Business acquisition (note 3) (45,682) (2,339)
Purchase of a product line (10) -
Purchase of property, plant and equipment (191) (250)
Additions to intangible assets (35) (52)
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(37,240) 52,777
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NET CHANGE IN CASH AND CASH EQUIVALENTS (2,791) 26,393
Effect of exchange rate changes on cash and cash equivalents (84) (130)
Cash and cash equivalents - Beginning of period 22,414 12,494
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Cash and cash equivalents - End of period $ 19,539 $ 38,757
==============================================================================================================================
Additional information
Interest paid $ 26 $ 121
==============================================================================================================================
Income taxes paid $ 294 $ 1,159
==============================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AETERNA LABORATORIES INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED MARCH 31, 2004 AND 2003
(expressed in thousands of Canadian dollars, except share and per share data)
UNAUDITED
--------------------------------------------------------------------------------
1 BASIS OF PRESENTATION
These interim financial statements as at March 31, 2004 and for the periods
ended March 31, 2004 and 2003, are unaudited. They have been prepared by the
Company in accordance with Canadian generally accepted accounting principles
(GAAP) for interim financial information. In the opinion of management, all
adjustments necessary to present fairly the financial position, results of
operations and cash flows for these periods have been included.
The accounting policies and methods of computation adopted in these financial
statements are the same as those used in the preparation of the Company's most
recent annual consolidated financial statements. All disclosures required for
annual financial statements have not been included in these financial
statements. These consolidated financial statements should be read in
conjunction with the Company's most recent annual consolidated financial
statements. These interim results of operations are not necessarily indicative
of the results for the full year.
2 NEW ACCOUNTING STANDARDS
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
In July 2003, the CICA issued new Handbook Section 1100 "Generally Accepted
Accounting Principles" ("GAAP"), which is effective for fiscal years beginning
on or after October 1, 2003. This new section defines GAAP, establishes the
relative authority of various types of CICA Accounting Standards Board
pronouncements, says what to do when the Handbook does not cover a particular
situation and clarifies the role of "industry practice" in setting GAAP. The
Company adopted this new standard on January 1, 2004 without having any
significant effect on the Company's financial statements.
GENERAL STANDARDS OF FINANCIAL STATEMENT PRESENTATION
In July 2003, the CICA issued new Handbook Section 1400 "General Standards of
Financial Statement Presentation" which is effective for fiscal years beginning
on or after October 1, 2003. This new section confirms that the financial
statements of an entity must present fairly in accordance with Canadian
generally accepted accounting principles its financial position, results of
operations and cash flows. The Company adopted this new standard on January 1,
2004 without having any significant impact on the Company's financial
statements.
HEDGING RELATIONSHIPS
The CICA has issued Accounting Guideline 13 "Hedging Relationships", which
establishes certain conditions regarding when hedge accounting may be applied
and which is effective for fiscal years beginning on or after January 1, 2004.
AcG 13 addresses the identification, designation, documentation, and
effectiveness of hedging transactions for the purposes of applying hedge
accounting. It also establishes conditions for applying or discontinuing hedge
accounting. Under this new guideline, the Company is also required to document
its hedging transactions and explicitly demonstrate that the hedges are
sufficiently effective in order to continue hedge accounting for positions
hedged with derivatives. Any derivative instrument that does not qualify for
hedge accounting will be reported on a mark-to-market basis in earnings. The
company adopted this guideline as at January 1, 2004 without having any
significant impact on the Company's financial statements since there was no
significant hedging transactions during the quarter ended March 31, 2004
3 BUSINESS ACQUISITION
PURE ENCAPSULATIONS, INC.
On March 3, 2004, our subsidiary Atrium completed through its new incorporated
subsidiary, Atrium Pureco, Inc, the acquisition of all operating assets of Pure
Encapsulations, Inc. for a total consideration of $49,676,167 of which an
amount of $45,681,982 was paid cash, net of cash and cash equivalent acquired of
$1,242,518 and $2,751,667 as a balance of purchase price. This company, based
in the United States is focused mainly on the development, manufacturing and
marketing of nutritional supplements geared towards physicians and other
healthcare professionals.
The financing of the transaction resulted from the issuance of a senior debt of
$27,000,000 and a subordinate debt in the amount of $13,407,000. The senior
debt, for which a moveable hypothec on all Atrium's North American moveable
assets as been given as security, is lended in the form of bankers' acceptances.
The debt bears interest at a rate based on the market rate plus an applicable
margin calculated quarterly on Atrium's North American operations. As at March
31, 2004, the actual interest rate for this debt was 3.9%. The principal is
payable in quarterly instalments of $ 1,340,700. The subordinate debt, without
any security granted, bears interest at a rate of 9% for the first year and 10%
for the following years. Interest is payable in monthly instalments and the
principal is payable in accretion annually starting in March 2005.
The acquisition has been accounted for using the purchase method and the results
of operations have been included in the statement of operations from the date of
acquisition. The purchase price allocation shown below is preliminary and is
based on the Company's estimates of fair value. The final allocation is expected
to be completed within the next six months and may result in a portion of the
purchase price being allocated from goodwill to identifiable intangible assets.
The allocated values of the net assets acquired are as follows:
AETERNA LABORATORIES INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED MARCH 31, 2004 AND 2003
(expressed in thousands of Canadian dollars, except share and per share data)
UNAUDITED
--------------------------------------------------------------------------------
$
---------------------------------------------------------------------------------------------------------------------
Assets
Current assets 6,322
Property, plant and equipment 1,522
----------------------------------------------------------------------------------------------------------------------
7,844
----------------------------------------------------------------------------------------------------------------------
Liabilities
Current liabilities 2,261
Future income taxes 134
----------------------------------------------------------------------------------------------------------------------
2,395
----------------------------------------------------------------------------------------------------------------------
Net identifiable assets acquired 5,449
Goodwill 44,228
----------------------------------------------------------------------------------------------------------------------
Purchase price 49,677
Consideration
Cash and cash equivalents acquired (1,243)
Balance of purchase price (2,752)
----------------------------------------------------------------------------------------------------------------------
Net cash paid for the acquisition 45,682
======================================================================================================================
The goodwill is deductible for income tax purposes.
4 COMPANY'S STOCK OPTION PLAN
The Company has chosen to use the fair value method to account for stock-based
compensation costs arising from awards granted to employees after December 31,
2002. As part of the adoption of this standard, we had to restate 2003 quarters
to take into account the decision taken in the fourth quarter of 2003 to use the
prospective method of accounting. Consequently, an additionnal charge of
approximately $56,000 is recorded in the statement of operation without having
any effect on the basic and diluted net loss per share. We also have to disclose
pro-forma information relating to net loss and loss per share as if the fair
value method of accounting had been used for awards granted to employees before
January 1, 2003.
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 2004 MARCH 31, 2003
Net loss for the period $ (2,550) $ (4,890)
Pro-forma adjustment for stock-based compensation costs 7 (508)
-------------------------------------
Pro-forma net loss for the period $ (2,543) $ (5,398)
------------------------------------
Basic and diluted net loss per share $ (0.06) $ (0.12)
=====================================
Pro-forma basic and diluted net loss per share $ (0.06) $ (0.13)
=====================================
The pro-forma amounts may not be representation of future disclosure as the
estimated fair value of stock options is amortized to expense over the vesting
period and additional options may be granted in future periods.
AETERNA LABORATORIES INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED MARCH 31, 2004 AND 2003
(expressed in thousands of Canadian dollars, except share and per share data)
UNAUDITED
--------------------------------------------------------------------------------
5 SHARE CAPITAL
Autorized
Unlimited number of shares of the following classes:
Common: Multiple voting shares, voting and participating, ten votes per
share, convertible into one subordinate share at the option of
the holder
Subordinate voting shares, voting and participating, one
vote per share
Preferred: First and second ranking, issuable in series, with rights and
privileges specific to each class.
Issued AS AT AS AT
MARCH 31, DECEMBER 31,
2004 2003
------------------------------------------
(UNAUDITED)
-- Multiple voting shares $ - $ -
45,440,242 Subordinate voting shares (45,330,992 as at December 31, 2003) 188,075 187,601
------------------------------------------
$ 188,075 $ 187,601
==========================================
Pursuant to the exercice of stock options, the company issued 109,250
subordinate voting shares for a total proceed of $538,243
Instruments convertible into shares
As at March 31, 2004, the company has 2,907,509 outstanding stock options. In
addition, the convertible term loans can be converted into subordinate voting
shares of the Company at a conversion price of $5.05 per subordinate voting
shares up to a maximum of 6,955,089 shares.
Shareholder rights plan
On March 29, 2004 and subject to regulatory approval and to ratification by
AEterna's shareholders at its annual general meeting the Company has adopted a
shareholder rights plan (the "Rights Plan"). The rights issued to the
shareholders under the Rights Plan will be exercisable, under certain
conditions, only when a person or entity, including any related party(ies),
acquires or announces its intention to acquire more than twenty (20) percent of
the outstanding subordinate voting shares of AEterna (as such shares may be
redesignated or reclassified) without complying with the "permitted bid"
provisions of the Rights Plan or without approval of AEterna's Board of
Directors. Should such an acquisition occur, each right would, upon exercise,
entitle a holder, other than the person pursuing the acquisition together with
its related party(ies), to purchase subordinate voting shares of AEterna at a
fifty (50) percent discount to the market price of AEterna's shares at the time.
AETERNA LABORATORIES INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED MARCH 31, 2004 AND 2003
(expressed in thousands of Canadian dollars, except share and per share data)
UNAUDITED
--------------------------------------------------------------------------------
6 SEGMENT INFORMATION
The company manages its business and evaluates performance based on three
operating segments, which are the biopharmaceutical segment, the cosmetics and
nutrition segment and the distribution segment. The accounting principles used
for these three segments are consistent with those used in the preparation of
these consolidated financial statements.
THREE MONTHS ENDED MARCH 31,
--------------------------------------------------
2004 2003
--------------------------------------------------
Revenues
Biopharmaceutical $ 12,615 $ 12,545
Cosmetics and nutrition 7,481 3,681
Distribution 38,353 25,199
Consolidated adjustments - (612)
--------------------------------------------------------------------------------------------------------------------------
$ 58,449 $ 40,813
==========================================================================================================================
Net earnings (loss) for the period
Biopharmaceutical $ (4,752) $ (5,837)
Cosmetics and nutrition 1,135 749
Distribution 1,045 401
Consolidated adjustments 22 (147)
--------------------------------------------------------------------------------------------------------------------------
$ (2,550) $ (4,834)
==========================================================================================================================
AS AT AS AT
MARCH 31, DECEMBER 31,
2004 2003
-------------- -------------
Segment assets
Biopharmaceutical $ 170,687 $ 179,882
Cosmetics and nutrition 56,075 15,565
Distribution 116,019 100,434
Consolidated adjustments 64 (102)
--------------------------------------------------------------------------------------------------------------------------
$ 342,845 $ 295,779
==========================================================================================================================
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
AETERNA ZENTARIS INC.
Date: August 13, 2004 By: /s/ MARIO PARADIS
---------------------- ------------------------------------------------
Mario Paradis
Senior Director, Finance and Corporate Secretary