<PAGE>
Message to Shareholders
Dear Shareholders:
AEterna finished the third quarter with continued progress in meeting our
business and clinical development goals for the year. Our financial position is
strong, with healthy investment and a sound foundation. We are moving forward
with encouraging progress in the steady advancement of Neovastat, AEterna's
angiogenesis inhibitor. What is more, we anticipate further developments in the
fourth quarter to meet our goals for the entire year.
Additional shares issued; Atrium shares acquired
AEterna issued additional shares for gross proceeds of $2.1 million from the
exercise of an over-allotment option of the underwriters from the previous
bought deal on May 8, 2000. In addition, SGF Soquia Inc., Fonds de solidarite
FTQ and Fonds d'investissement bioalimentaire, acquired an additional 1,000,000
common shares in Atrium Biotechnologies Inc., for a cash consideration of $10
million. AEterna maintains its position as a majority shareholder of Atrium with
77.8% of the voting rights and 64% in share capital.
Applications filed for additional Neovastat trial
Subsequent to the end of the quarter, AEterna submitted applications to begin a
pivotal Phase II clinical trial of Neovastat in patients with multiple myeloma.
The study, which will involve approximately 20 sites in North America and
Europe, was designed to obtain accelerated approval of Neovastat if results are
conclusive. About 120 patients will be included in the study with final results
of the trial expected by the summer of 2002. This is the third pivotal clinical
trial in oncology initiated by AEterna this year. As we announced in the second
quarter, patient recruitment is underway for Phase III clinical trials for the
treatment of lung and kidney cancer.
Gilles Gagnon named to Business Development position
During the quarter we made an important addition to our organization with the
appointment of Mr. Gilles Gagnon as Vice President of Business Development. Mr.
Gagnon brings more than 20 years of experience in the pharmaceutical and
healthcare industries to his position at AEterna. He will be an integral part of
our team working to make strategic alliances, one of our key objectives for the
year.
Financial results
Sales of Atrium Biotechnologies increased 17% to $2 million for the quarter
ended September 30, 2000, up from $1.7 million for the same period last year.
<PAGE>
Consolidated net earnings for the quarter were $2.2 million ($0.07 per share),
compared to a net loss of $1.7 million ($0.07 per share) for the same period
last year. This was mainly a result of a gain on dilution of $4.3 million. The
gain resulted from the second investment of $10 million by SGF Soquia Inc.,
Fonds de solidarite FTQ and Fonds d'investissement bioalimentaire, in exchange
for an additional 14% equity in Atrium Biotechnologies Inc.
Research and development expenses were $5.2 million in the quarter, compared to
$2.9 million for the same period last year. The increase is attributable to the
costs associated with the two ongoing Phase III clinical trials in lung and
kidney cancer.
Research and development tax credits and grants were $1.6 million compared to
$0.2 million for the same period a year ago. This increase is due to
contributions obtained from the Canadian federal government's Technology
Partnerships Canada (TPC) program.
The Company's consolidated financial position remains strong with $71.3 million
in cash and short-term investments at the end of the third quarter, which
includes $23.6 million in Atrium. AEterna also has access to a Technology
Partnerships Canada (TPC) contribution of up to $22.5 million, as well as an
indirect contribution from the U.S. National Cancer Institute (NCI) of
approximately $5 million.
Outlook
As we enter the last quarter of 2000, we are pleased with our progress this year
in pursuing our focus on oncology and advancing the development of Neovastat in
key clinical trials. At the same time, we remain committed to further pursuit of
our strategic goals of forging strategic alliances and broadening our product
pipeline through an acquisition.
I look forward to reporting to you on our continued progress in our next
quarterly report.
Dr. Eric Dupont
President and Chief Executive Officer
November 9, 2000
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS, WHICH ARE MADE PURSUANT TO THE
SAFE HARBOR PROVISIONS OF THE U.S. SECURITIES LITIGATION REFORM ACT OF 1995.
FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS AND UNCERTAINTIES
WHICH COULD CAUSE THE COMPANY'S ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
IN THE FORWARD-LOOKING STATEMENTS. SUCH RISKS AND UNCERTAINTIES INCLUDE, AMONG
OTHERS, THE AVAILABILITY OF FUNDS AND RESOURCES TO PURSUE R&D PROJECTS, THE
SUCCESSFUL AND TIMELY COMPLETION OF CLINICAL STUDIES, THE ABILITY OF THE COMPANY
TO TAKE ADVANTAGE OF THE BUSINESS OPPORTUNITIES IN THE PHARMACEUTICAL INDUSTRY,
UNCERTAINTIES RELATED TO THE REGULATORY PROCESS AND GENERAL CHANGES IN ECONOMIC
CONDITIONS. INVESTORS SHOULD CONSULT THE COMPANY'S ONGOING QUARTERLY AND ANNUAL
FILINGS WITH THE CANADIAN AND U.S. SECURITIES COMMISSIONS FOR ADDITIONAL
INFORMATION ON RISKS AND UNCERTAINTIES RELATING TO THE FORWARD-LOOKING
STATEMENTS. INVESTORS ARE CAUTIONED NOT TO RELY ON THESE FORWARD-LOOKING
STATEMENTS. THE COMPANY DOES NOT UNDERTAKE TO UPDATE THESE FORWARD-LOOKING
STATEMENTS.
<PAGE>
AETERNA LABORATORIES INC.
CONSOLIDATED BALANCE SHEETS
AS AT SEPTEMBER 30, 2000 AND 1999
(expressed in Canadian dollars)
<TABLE>
<CAPTION>
UNAUDITED 2000 1999
-------------------------------------------------------------------------------------------------
$ $
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents 26,005,522 1,029,786
Short-term investments 45,324,722 22,975,552
Accounts receivable 5,106,426 2,197,499
Research and development tax credits recoverable 744,932 980,427
Inventory 1,757,257 1,066,791
Prepaid expenses 669,794 200,339
-------------------------------------------------------------------------------------------------
79,608,653 28,450,394
CAPITAL ASSETS 15,001,769 15,423,737
OTHER ASSETS 1,238,612 1,162,191
-------------------------------------------------------------------------------------------------
95,849,034 45,036,322
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities 3,781,833 3,062,052
LONG-TERM DEBT 4,000,000 3,348,814
Non-controlling interest (note 1) 9,235,241 -
-------------------------------------------------------------------------------------------------
17,017,074 6,410,866
-------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
SHARE CAPITAL 79,785,107 46,291,868
DEFICIT (953,147) (7,666,412)
-------------------------------------------------------------------------------------------------
78,831,960 38,625,456
-------------------------------------------------------------------------------------------------
95,849,034 45,036,322
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
AETERNA LABORATORIES INC.
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE PERIODS ENDED SEPTEMBER 30, 2000 AND 1999
(expressed in Canadian dollars)
<TABLE>
<CAPTION>
QUARTERS ENDED SEPTEMBER 30 NINE MONTHS ENDED SEPTEMBER 30
UNAUDITED 2000 1999 2000 1999
------------------------------------------------------------------------------------------------------------------------
$ $ $ $
<S> <C> <C> <C> <C>
REVENUES 2,036,342 1,740,503 6,074,014 4,506,731
------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Cost of goods sold 285,626 208,728 804,554 862,500
Selling and administrative 584,247 503,296 1,537,154 1,672,918
Research and development 5,196,106 2,859,621 15,529,338 8,555,589
Research and development tax credits and grants (1,604,743) (237,247) (4,751,426) (873,295)
Depreciation and amortization
Capital assets 290,328 278,150 859,875 711,150
Other assets 39,302 25,545 115,426 100,360
------------------------------------------------------------------------------------------------------------------------
4,790,866 3,638,093 14,094,921 11,029,222
------------------------------------------------------------------------------------------------------------------------
OPERATING LOSS (2,754,524) (1,897,590) (8,020,907) (6,522,491)
INTEREST INCOME 1,113,595 187,534 2,583,411 872,204
------------------------------------------------------------------------------------------------------------------------
LOSS BEFORE THE FOLLOWING (1,640,929) (1,710,056) (5,437,496) (5,650,287)
GAIN ON DILUTION (NOTE 1) 4,295,276 -- 11,673,094 --
------------------------------------------------------------------------------------------------------------------------
2,654,347 (1,710,056) 6,235,598 (5,650,287)
NON-CONTROLLING INTEREST (417,538) -- (995,560) --
------------------------------------------------------------------------------------------------------------------------
NET EARNINGS (LOSS) FOR THE PERIOD 2,236,809 (1,710,056) 5,240,038 (5,650,287)
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
NET EARNINGS (LOSS) PER SHARE
Basic 0.07 (0.07) 0.18 (0.22)
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
Fully diluted 0.07 (0.07) 0.16 (0.22)
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 29,321,420 25,272,766
------------------------------------------------------------------------------------------------------------------------
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</TABLE>
CONSOLIDATED STATEMENT OF DEFICIT
FOR THE PERIODS ENDED SEPTEMBER 30, 2000 AND 1999
(expressed in Canadian dollars)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30
UNAUDITED 2000 1999
------------------------------------------------------------------------------------------------------------------------
$ $
<S> <C> <C>
DEFICIT - BEGINNING OF PERIOD (5,955,956) (2,016,125)
Net earnings (loss) for the period 5,240,038 (5,650,287)
Subsidiary share issue expenses (237,229) -
------------------------------------------------------------------------------------------------------------------------
DEFICIT - END OF PERIOD (953,147) (7,666,412)
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
AETERNA LABORATORIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIODS ENDED SEPTEMBER 30, 2000 AND 1999
(expressed in Canadian dollars)
<TABLE>
<CAPTION>
Nine months ended September 30
Unaudited 2000 1999
------------------------------------------------------------------------------------------------------------
$ $
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) for the period 5,240,038 (5,650,287)
Items not affecting cash
Depreciation and amortization 975,301 811,510
Gain on dilution (11,673,094) --
Non-controlling interest 995,560 --
Change in non-cash operating working capital items
Accounts receivable (1,575,782) 1,084,248
Research and development tax credits recoverable (89,932) 119,703
Inventory (588,291) 353,069
Prepaid expenses (395,333) (74,247)
Accounts payable and accrued liabilities 1,256,517 (401,606)
------------------------------------------------------------------------------------------------------------
(5,855,016) (3,757,610)
------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in long-term debt 95,186 2,927,990
Issuance of share capital, net of related expenses 19,432,201 127,975
Issuance of share capital by the subsidiary to non-controlling interest,
net of related expenses (note 1) 19,675,546 --
------------------------------------------------------------------------------------------------------------
39,202,933 3,055,965
------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in short-term investments (12,668,873) 7,277,495
Purchase of capital assets (534,644) (6,918,434)
Increase in other assets (164,611) (146,583)
------------------------------------------------------------------------------------------------------------
(13,368,128) 212,478
------------------------------------------------------------------------------------------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 19,979,789 (489,167)
------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 6,025,733 1,518,953
------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS - END OF PERIOD 26,005,522 1,029,786
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
ADDITIONAL INFORMATION
Interest paid -- --
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
Income taxes paid -- --
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
AETERNA LABORATORIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED SEPTEMBER 30, 2000 AND 1999
(expressed in Canadian dollars)
UNAUDITED
1 NEW SUBSIDIARY, ATRIUM BIOTECHNOLOGIES INC.
On January 21, 2000, the company transferred to its newly created subsidiary,
Atrium Biotechnologies Inc., its cosmetics and nutrition business. The net
carrying value of the assets transferred amounted to $1,800,000. Moreover, two
private investments were made during the period. On January 21 and September 19,
2000, Atrium Biotechnologies inc. issued shares to third parties for total cash
consideration of $20,000,000, thus decreasing the company's interest to 77.8%
and 63.6% respectively. These two private investments resulted in a gain on
dilution of $11,673,094.
2 SEGMENT INFORMATION
<TABLE>
<CAPTION>
Quarters ended September 30 Nine months ended September 30
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
2000 1999 2000 1999
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ $ $ $
REVENUES
Cosmetics and nutrition 2,036,342 1,740,503 6,074,014 4,506,731
Biopharmaceutical - - - -
------------------------------------------------------------------------------------------------
2,036,342 1,740,503 6,074,014 4,506,731
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
NET EARNINGS (LOSS)
Cosmetics and nutrition 904,012 944,741 2,927,347 1,631,151
Biopharmaceutical 1,332,797 (2,654,797) 2,312,691 (7,281,438)
------------------------------------------------------------------------------------------------
2,236,809 (1,710,056) 5,240,038 (5,650,287)
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
SEGMENT ASSETS
Cosmetics and nutrition 26,029,590 1,990,963
Biopharmaceutical 69,819,444 43,045,359
----------------------------------------------
95,849,034 45,036,322
----------------------------------------------
----------------------------------------------
</TABLE>
