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SEE PAGES 7-9 FOR IMPORTANT DISCLOSURES AND DISCLAIMERS

EQUITY RESEARCH

COMPANY UPDATE

Biotechnology

11/16/2012

Closing Price 11.15.2012 $1.87

12-Month Target Price: $9.00

52-Week Range: $1.75-$13.00

Market Cap (M): $33.0

Shares O/S (000): 17,669

Float (MM): 15,903

Avg. Vol. (000) 425

Debt (M) $0

Dividend/Yield: $0.00/0.00%

Risk Profile:

FYE: December GAAP EPS P/E

2011A $0.00 nm

2012E ($1.00) nm

2013E ($0.77) nm

Aeterna Zentaris (AEZS)

Source: Bigcharts.com as of 11/16/2012

Jason Kolbert (212) 895-3516

jkolbert@maximgrp.com

Speculative

Aeterna Zentaris Inc. Buy

(AEZS –NASDAQ - $1.87)

Reports the Quarter; Perifosine Multiple Myeloma

Phase III Interim Analysis in 1Q13; Reiterate Buy

The company completed a busy quarter raising capital and moving closer to Perifosine data. The next major catalyst for the company should be the interim analysis of lead compound, Perifosine, which is expected to occur by 1Q13. The phase I/II data sets that the current pivotal trial is based on included less than 200 patients. Compared to controls and historical data, the active arm outperformed; we will see soon enough if the data sets carry across trials.

Additional Sites (in Europe) for the PIII MM trial should keep timing on track. The pre-planned interim analysis by an independent Data Safety Monitoring Board ("DSMB") is expected upon reaching approximately 80 events (disease progression or death). The Company's partner for the Japanese market, Yakult Honsha Co. Ltd. ("Yakult") reported progress with the Phase 1 bridging study in MM initiated earlier this year and is also looking to expand work with perifosine in other indications. Stay tuned.

Completed Financing: In October the company completed a public offering of 6.6 million units generating net proceeds of US$15.2 million. Each unit consisting of one common share and 0.45 of a warrant to purchase one common share, at a purchase price of US$2.50 per unit. The company (as of 9.30.2012) has pro forma cash and equivalents of $48 million, providing ample runway to develop the current pipeline.

Beyond perifosine. The company also has a doxorubicin conjugate (AEZS-108) for endometrial cancer, with potential utility in bladder, breast, and prostate cancers, as well as a strong early pipeline of other candidates. This program is now on track to begin a pivotal trial in endometrial cancer. Management had filed for a SPA (Special Protocols Assessment) with the FDA. We expect this trial to move forward in 1Q13.

Diagnostic and therapeutic: AEZS-130. AEZS-130 (a ghrelin agonist) is being developed as a diagnostic test for adult growth hormone deficiency. The compound is also in a phase IIa study for cancer-induced cachexia, (first patient has been recruited). This trial is supported by a Cooperative Research and Development Agreement (CRADA) between AEZS and the Michael E. DeBakey Veterans Affairs Medical Center, which is funding the study.

Valuation. We triangulate free cash flow (FCF), EPS, and sum of the parts. The critical assumption is the outcome of the interim analysis in the phase III multiple myeloma trial. We see the potential for perifosine to be >$500 million by 2017, which includes EU and Japan (royalty). Discounting this value back, averaged and equally weighted, suggests a $9.00 price target.

Aeterna Zentaris Inc. (AEZS)

Maxim Group LLC 2

Exhibit 1. Upcoming catalysts for Aeterna Zentaris Product Indication Event Timeline Impact

Perifosine Global Development

Perifosine Multiple Myeloma - Refractory USA Interim Analysis (based on 80 events), Phase III (SPA) trial, 80 sites, n=400 1Q-2013 ++

Perifosine Multiple Myeloma - Refractory USA Completion of Phase III Trial (USA) at 265 Events 2H-2014 ++

Perifosine Multiple Myeloma - Refractory USA Fast Track Status leads to Approval 2H-2015 +++

Perifosine Multiple Myeloma - Refractory EU European Scientific Advise- EU Approval 2H-2015 +++

Perifosine Multiple Myeloma - Refractory Japan Phase 1 ":bridging" trial in Japan (partner Yakult) in combo with Velcade- Data 1H-2013 +

Perifosine Multiple Myeloma - Refractory Japan Japan Extension Study driven by Yakult +

Perifosine Multiple Myeloma - Refractory Japan File in Japan 2015 ++

Perifosine Multiple Myeloma - Refractory Japan Approval in Japan 1H-2016 +++

Perifosine Neuroblastoma Neuroblastoma: PII/III Registrational Study 1H-2013 +

Doxorubicin Conjugate

AEZS-108 Doxorubicin Conjugate- Endometrial Phase III Start in Advanced recurrent Metastatic Endometrial Cancer: SPA

AEZS-108 Doxorubicin Conjugate- Endometrial N=500 patients, 80 sites, Global, Event Driven OS w/ Interim analysis 1Q-2013 ++

AEZS-108 Doxorubicin Conjugate- Endometrial 3 Years start to completions 2016 +

AEZS-108 Doxorubicin Conjugate- Endometrial Approval 2017 +++

AEZS-108 Castrate & Taxane Resistant Prostate Phase I/II POC Study Data ASCO in 2H -2013 (ASCO) 2H-2013 +

AEZS-108 Castrate & Taxane Resistant Prostate Phase I/II : Castration & Taxance Resistant Prostate Cancer results 2H-2013 +

AEZS-108 Triple Negative Breast Cancer Phase II in Breast Cancer - Initiation 1H-2013 +

AEZS-108 Bladder Phase II in Bladder (Investigator Driven) Small Study - data/results 2H-2013 +

Diagnostic & Therapeutic

AEZS-130 Adult Growth Hormone Defficiency Diagnostic Oral Diagnostic Grehlin Agnonist- NDA Filing 1Q-2013 +

AEZS-130 Adult Growth Hormone Defficiency Diagnostic Priority Review Possible (6 Mos) 2014 ++

AEZS-130 Cancer Induced Cachexa Phase IIa Pilot Study (n=18-26) in cancer cachexia (muscle wasting) patients (enrollment/update) 2013 +

AEZS-130 Cancer Induced Cachexa Top Line Data Presentation Q3-2013 +

Early Pipeline

AEZS-120 Prostate Cancer Oral Immunotherapy CTA Application to start P1 in Europe 4Q-2012 +

AEZS 137 Disorazol-Z Highly Potent Doxorubicin , Next Generation 108 PreClinical Data 2013 +

AEZS 125 LHRH + Disoralzol-Z Combination - PreClinical Data Sets conjugate 2013 +

AEZS 129/136 PI3K/ERT Inhibitors Next Generation Perifosine IND 2014 +

AEZS 112 Tubulin Inhibitor, Topyel Isomerase Phase 1- Solid Tumors - New Formualtion 2013 +

Stock Significance Scale: + of moderate importance; ++ higher level; +++ highly

Source:Maxim Forecasts and Company reports.

Aeterna Zentaris Inc. (AEZS)

Maxim Group LLC 3

Bull Case. Aeterna Zentaris has a robust pipeline with an active phase III trial (perifosine in MM), as

well as a second compound, AEZS-130 (ghrelin agonist), in phase III as a diagnostic in adult growth

hormone deficiency. This compound could also have therapeutic potential to treat cancer patients and

ameliorate the damage associated with muscle wasting (cachexia). Bulls also see great potential in the

doxorubicin conjugate (AEZS-108), an LHRH receptor that thus far has shown a solid safety profile

and efficacy in reproductive (endometrial) cancers, where a pivotal trial is now expected. In addition,

the company has a healthy pipeline of earlier-stage assets, which include an enhanced LHRH

conjugate (AEZS-125: LHRH & Disorazol-Z), a next generation PI3K/ERK inhibitor, an innovative

oral prostate cancer vaccine, and an early-clinical-stage tubulin inhibitor (AEZS-112). Bulls believe

that the pipeline value—plus the probabilities associated with the perifosine trial, the doxorubicin

conjugate trial, and the ghrelin agonist—represent upside versus the current valuation.

Bear Case. Perifosine has already failed once—in colon cancer in Keryx’s X-PECT trial. Keryx

returned its North American rights to the company. The current phase III trial in MM is based on

phase I/II trials with relatively small patient numbers (<200). While good, the results may not be

reliable and reproduced in a larger study across more centers, where deviations from both historical

data often occur as a result of better care in the control arm. As such, the predictive value of the phase

I/II data set is minimal, and the 1Q13 interim analysis is not predictable. Aeterna Zentaris has already

monetized its royalty rights ex-Japan to approved product Cetrotide. Today, the company has at least a

year of operating capital and an ATM facility in place. Most institutional investors will not buy

positions in front of such a facility. The doxorubicin conjugate may hold promise, but there have been

multiple failures in the past of other known chemotherapeutic conjugate agents, and, as such, it’s too

early to factor value into a model. The potential of the ghrelin agonist as a diagnostic is strong, but the

modest pricing may limit the potential. Expanding the product to a therapeutic is still years away, as is

the rest of the pipeline.

Our Take. We believe that perifosine is an active agent, and we are hopeful that the first interim

analysis of the current pivotal trial in MM will be positive. We have seen multiple oncology drugs fail

one indication and succeed in others, such as Avastin. In this case, having carefully evaluated the data

in colon cancer and understanding the dosing and other trial differences, we believe odds favor a

positive outcome. We also believe that the data for AEZS-108 (doxorubicin conjugate) suggests

strong activity and limited toxicity versus the unconjugated version. We see a large potential in

multiple cancers in the out years. We also see the ghrelin agonist as an excellent license opportunity,

especially with a partner who will commit the funds to develop the product for therapeutic potential in

cachexia. We model through 2017 and include the revenue we have outlined and apply a high discount

rate of 30% to derive a valuation ($7) significantly higher than the current <$1 stock price. We believe

the valuation disconnect is in part due to a lack of understanding over perifosine’s potential in MM

versus the outcome in colon cancer.

Aeterna Zentaris Inc. (AEZS)

Maxim Group LLC 4

VALUATION

Our valuation metrics for Aeterna Zentaris assume that perifosine, AEZS-108 (doxorubicin

conjugate), and AEZS-130 are all successfully developed. We project these revenues in our models.

Each model—FCFF, EPS, and SOP—are equally weighted in our calculations. We use a 30%

discount rate, as we feel perifosine is a high-risk product in multiple myeloma, but we also include

doxorubicin conjugate and AEZS-130 (diagnostic) with outyear potential as a therapeutic for muscle

wasting as a side effect of cancer treatment. Combined, we believe these products represent a

substantial global opportunity. Our model assumes dilution and uses a forecast share count for 2017.

The average of these three metrics, equal weighted is $9.00 per share.

Exhibit 2. FCFF Model

We use a 30% discount rate and assume that perifosine, AEZS-108 (doxorubicin conjugate), and

AEZS-130 are all successfully developed. Price Target 7$

Year 2012

DCF Valuation Using FCF (mln):

units (millions - $) 2012E 2013E 2014E 2015E 2016E 2017E

EBIT (29,188) (26,061) (33,479) (35,844) 104,113 368,792

Tax Rate 0% 0% 0% 5% 15% 36%

EBIT(1-t) (29,188) (26,061) (33,479) (34,051) 88,496 236,026

CapEx (152) (198) (257) (250) (1,000) (1,300)

Depreciation 869 904 940 978 1,017 1,057

Change in NWC 4,773 - - - - -

FCF (33,244) (25,355) (32,796) (33,324) 88,512 235,783

PV of FCF (25,572) (15,003) (14,928) (11,668) 30,991 63,503

Discount Rate 30%

Long Term Growth Rate 1%

Terminal Cash Flow 821,177

Terminal Value YE2017 221,167

NPV 248,490

NPV-Debt 668

Shares out (thousands) 36,759 2017E

NPV Per Share 7$

Source: Maxim estimates Exhibit 3. Discounted EPS Model

We use a 30% discount rate and a 10x peer multiple on 2017 projected EPS.

Current Year 2012

Year of EPS 2016 2016 EPS

Earnings Multiple 10 8.5 5% 10% 15% 20% 25% 30%

Discount Factor 30% 0 $0.00 $0.00 $0.00 $0.00 $0.00 -$

Selected Year EPS 2.42$ 5 $9.97 $8.28 $6.93 $5.85 $4.97 4.24$

NPV 8$ 10 $19.95 $16.56 $13.86 $11.69 $9.93 8.49$

Source: Maxim estimates 15 $29.92 $24.84 $20.80 $17.54 $14.90 12.73$

20 $39.90 $33.12 $27.73 $23.39 $19.86 16.98$

25 $49.87 $41.40 $34.66 $29.23 $24.83 21.22$

30 $59.85 $49.69 $41.59 $35.08 $29.80 25.47$

35 $69.82 $57.97 $48.52 $40.93 $34.76 29.71$

Discount Rate and Earnings Multiple Varies, Year is Constant

Earnings

Multiple

Aeterna Zentaris Inc. (AEZS)

Maxim Group LLC 5

Exhibit 4. Sum of the Parts Model Aetrna Zentaris LT Gr Discount Rate Yrs. to Mkt % Success Peak Sales MM's Term Val

Perifosine - MM USA 1% 30% 4 55% $300 $1,034

NPV $3.25

Perifosine - MM EU 1% 30% 4 55% $300 $1,034

NPV $3.25

Perifosine - MM Japan 1% 30% 6 55% $150 $517

NPV $0.96

AEZS 108 1% 30% 5 25% $500 $1,724

NPV $1.89

AEZS 130 1% 30% 5 25% $400 $1,379

NPV $1.52

AEZS Other 1% 30% 6 10% $200 $690

NPV $0.23

Net Margin 60%

MM Shrs OS 37

Total $11

Source: Maxim estimates

FUNDAMENTAL RISKS

Forecasting the Outcome of the Perifosine Pivotal Trial. We believe the principal risk in the stock

today is the outcome of the event-driven interim analysis (around the phase III trial) with Perifosine.

In addition, the company has pipeline risk associated with its other products—specifically the

doxorubicin conjugate, AEZS-108, and AEZS-130 (diagnostic and, later, a therapeutic).

Partner Risk and Partnership Risk. The company is currently partnered with Yakult in Japan and

does not control that company’s decisions or timeline. In addition, the company may lack resources to

develop its pipeline and may choose to see a partner. There are no assurances that the company will be

successful to do so, or will be able to do so, on favorable terms.

Competition. There are currently multiple products in development by other companies expected to

compete with the pipeline and therapeutic indications that the company is pursuing.

Regulatory. Predicting the decisions of the respective regulatory bodies is complex. The company

will require regulatory approval from European, U.S., and Japanese regulators, as well as other

geographies.

Financing Risk. Aeterna Zentaris is like many micro-capitalized biotechnology companies. The

company faces the challenge of raising capital to continue the development of its therapeutic pipeline.

Aeterna Zentaris Inc. (AEZS)

Maxim Group LLC 6

Aeterna Zentaris Corporation

Income Statements (In thousands, except per share data)

Aeterna Zentaris Inc. Income Statement ($ '000)

AEZS: YE Dec. 31 1Q12A 2Q12A 3Q12A 4Q12E 2012E 2013E 2014E 2015E 2016E 2017E

Revenue (000's)

Perifosine: US Market Only - - - - - - 2,597 75,751 142,080

% Sequential Growth ` 2817% 88%

Perifosine: EU Market Only - - - - - 3,531 103,021 193,228

% Sequential Growth ` 2817% 88%

AEZS-108 Doxorubicin Conjugate (all indications) - - - - 128,046

% Sequential Growth `

AEZS- Grehlin Antagonist _ Diagnostic 3,139 10,793 17,868 22,393

% Sequential Growth ` 244% 66% 25%

AEZS- Grehlin Antagonist _ Therapuetic (Cachexia) 1,465 20,557

% Sequential Growth ` 1303%

AEZS- 120, 125 & 137 (Oncology)

% Sequential Growth `

Sales & Royalties (Cetrotide ivf) 8,308 7,239 6,826 7,000 29,373 29,960 30,560 31,171 31,794 32,430

% Sequential Growth 2% 2% 2% 2%

License fees and other 1,202 232 313 200 1,947 2,336 2,804 3,364 4,037 4,845

% Sequential Growth 20% 20%

Total Product Sales 9,510 7,471 7,139 7,200 31,320 32,297 36,502 51,456 233,937 543,579

% Chg - 3% 13% 41% 355% 132%

Perifosine: Japan and WW Market Only- 20% Royalty Rate - - - - - - 2,544 8,756

% Sequential Growth ` 244%

Total Revenues 9,510 7,471 7,139 7,200 31,320 32,297 36,502 51,456 233,937 543,579

% Chg - 3% 13% 41% 355% 132%

Expenses

COGS 7,513 6,262 5,556 6,000 25,331 24,000 24,000 34,291 70,787 108,716

COGS % Sales 79% 84% 78% 83% 81% 74% 66% 67% 30% 20%

R&D 5,572 5,167 4,342 5,000 20,081 24,000 28,000 32,000 36,000 41,000

R&D % Rev's 69% 64% 74% 77% 62% 15% 8%

SG&A 3,213 3,642 2,921 3,600 13,376 16,000 18,000 21,000 23,000 25,000

SG&A %

Total expenses 16,298 15,071 12,819 14,600 58,788 58,400 70,000 87,291 129,787 174,716

Oper. Inc. (Loss) (6,788) (7,600) (5,680) (7,400) (27,468) (26,103) (33,498) (35,835) 104,150 368,863

Oper Margin NM NM NM NM NM NM NM 45% 68%

Investment Income 77 12,145 35 - 12,257 - - - - -

Interest Expense (4,740) (5) (909) - - - - - - -

FX Adjustment (255) 52 (97) - - - - - - -

Pre-tax income (11,706) 4,592 (6,651) (7,400) (15,211) (26,103) (33,498) (35,835) 104,150 368,864

Pretax Margin NM 61% NM NM NM NM NM NM 45% 68%

Taxes (or benefits) - - - - - - - (1,792) 15,623 132,792

Tax Rate 0% 0% 0% 0% 0% 0% 0% 5% 15% 36%

GAAP NI (11,706) 4,592 (6,651) (7,400) (15,211) (26,103) (33,498) (34,043) 88,529 236,074

Net Margin 61% NM NM NM NM NM NM 38% 43%

GAAP-EPS (0.66) 0.25 (0.36) (0.23) (1.00) (0.77) (0.88) (0.79) 2.05 5.46

Non GAAP EPS (dil) (0.66) 0.25 (0.36) (0.23) (1.00) (0.77) (0.88) (0.79) 2.05 5.46

Wgtd Avg Shrs (Bas) - '000s 17,669 18,510 18,703 27,685 20,642 32,762 37,901 43,060 43,157 43,216

Wgtd Avg Shrs (Dil) - '000s 17,669 18,510 18,703 32,000 20,642 32,762 37,901 43,060 43,157 43,216

Source: Company reports and Maxim

Source: Company reports and Maxim Group LLC estimates.

Jason Kolbert jkolbert@maximgrp.com .

Maxim Group LLC 7 7

DISCLOSURES

Source: Investars

Maxim Group expects to receive or intends to seek compensation for investment banking services

from Aeterna Zentaris Inc. in the next 3 months.

I, Jason Kolbert, attest that the views expressed in this research report accurately reflect my personal views

about the subject security and issuer. Furthermore, no part of my compensation was, is, or will be directly or

indirectly related to the specific recommendation or views expressed in this research report.

The research analyst(s) primarily responsible for the preparation of this research report have received

compensation based upon various factors, including the firm’s total revenues, a portion of which is generated

by investment banking activities.

Valuation Methods: Our valuation metrics for Aeterna Zentaris assume that perifosine, AEZS-108

(doxorubicin conjugate), and AEZS-130 are all successfully developed. We project these revenues in our

models. Each model—FCFF, EPS, and SOP—are equally weighted in our calculations. We use a 30%

discount rate, as we feel perifosine is a high-risk product in multiple myeloma, but we also include

doxorubicin conjugate and AEZS-130 (diagnostic) with outyear potential as a therapeutic for muscle wasting as a side effect of cancer treatment. Combined, we believe these products represent a substantial global

opportunity. Our model assumes dilution and uses a forecast share count for 2017. The average of these

three metrics, equal weighted is $9.00 per share.

Maxim Group LLC 8 8

Price Target and Investment Risks: Aside from general market and other economic risks, risks particular

to our price target and rating for Aeterna Zentaris Inc. include: 1) The interim analysis of the phase III

perifosine trial; 2) The outcome of clinical development for the other pipeline products; 3) The ability of the

company to raise capital; 4) Competitive products may limit market share penetration; and 5) Regulatory

risk associated with EU, FDA, and Koseisho regulatory agencies in Europe, the United States, and Japan.

RISK RATINGS

Risk ratings take into account both fundamental criteria and price volatility.

Speculative –

Fundamental Criteria: This is a risk rating assigned to early-stage companies with minimal to no revenues,

lack of earnings, balance sheet concerns, and/or a short operating history. Accordingly, fundamental risk is

expected to be significantly above the industry.

Price Volatility: Because of the inherent fundamental criteria of the companies falling within this risk

category, the price volatility is expected to be significant with the possibility that the investment could

eventually be worthless.

Speculative stocks may not be suitable for a significant class of individual investors.

High –

Fundamental Criteria: This is a risk rating assigned to companies having below-average revenue and

earnings visibility, negative cash flow, and low market cap or public float. Accordingly, fundamental risk is

expected to be above the industry.

Price volatility: The price volatility of companies falling within this category is expected to be above the

industry.

High-risk stocks may not be suitable for a significant class of individual investors.

Medium –

Fundamental Criteria: This is a risk rating assigned to companies that may have average revenue and

earnings visibility, positive cash flow, and is fairly liquid.

Accordingly, both price volatility and fundamental risk are expected to approximate the industry average.

Low –

Fundamental Criteria: This is a risk rating assigned to companies that may have above-average revenue and

earnings visibility, positive cash flow, and is fairly liquid.

Accordingly, both price volatility and fundamental risk are expected to be below the industry.

Maxim Group LLC 9 9

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