<PAGE>
                                                                      EXHIBIT 5
                      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 CONSOLIDATED FINANCIAL STATEMENTS AND RELATED
              NOTES FOR THE YEARS ENDED ON DECEMBER 31, 2003, 2002
                 AND 2001. ALL FIGURES ARE IN CANADIAN DOLLARS.


OVERVIEW

AEterna Laboratories Inc. ("AEterna" or "the Company") and its subsidiaries are
involved in three segments of operations: biopharmaceutical, cosmetics-nutrition
and distribution segments. AEterna, along with its wholly-owned subsidiary
Zentaris GmbH, represents the biopharmaceutical segment with an extensive
product portfolio, including two already marketed and several other products in
early and late-stage development in oncology, endocrinology and infectious
diseases. Cetrorelix (Cetrotide(R)) is sold in the U.S. and Europe to the IN
VITRO fertilization market, and is in Phase II clinical trials for
endometriosis, uterus myoma and enlarged prostate (BPH). Miltefosine
(Impavido(R)) is sold for black fever and has successfully completed a Phase III
trial in parasitic skin disease. Neovastat(R) is in a Phase III trial for
non-small cell lung cancer. Perifosine is in Phase II trials for multiple
cancers. Several other clinical programs are underway with various potential
development candidates, supported by a worldwide network of scientific and
marketing partnerships. Furthermore, it benefits from a discovery platform of
100,000 molecules which will be useful in identifying and developing future
products such as the peptidomimetic LHRH (Luteinizing Hormone Releasing Hormone)
antagonist for which an agreement was signed with Solvay Pharmaceuticals B.V.
("Solvay") in January 2004.

The cosmetics and nutrition segment is dedicated to the development,
manufacturing and marketing of cosmetics, active ingredients and nutritional
products. On the other hand, the distribution segment specializes in value-added
services by supporting innovation, importing and distributing raw materials and
high-end brand-name activities. These two segments are operated by Atrium
Biotechnologies Inc. ("Atrium") and its subsidiaries.

AEterna seeks to ensure continued growth of its activities by acquiring
companies and/or products, as well as by fulfilling its existing pipeline from
its drug discovery platform and continuing to sign agreements with strategic
worldwide partners. Furthermore, as part of its growth strategy and its
acquisition program, Atrium, through its subsidiary, Unipex Finance S.A.
("Unipex"), acquired 100% of all issued and outstanding shares of
privately-owned companies Chimiray and Interchemical. These companies focuse
mainly on the distribution of fine chemicals and active ingredients.

The Company reported revenues of $166.4 million, an operating loss of $14.3
million and a net loss of $28.1 million for the year ended December 31, 2003. In
the past years, substantially all of the revenues were derived from Atrium. In
2003, the biopharmaceutical segment provided a revenue of $46.1 million mainly
as a result of the acquisition of Zentaris



<PAGE>

in December 2002. As part of an existing agreement with Baxter Healthcare S.A.,
AEterna received an important milestone for further assessment of the D-63153
compound, an LHRH antagonist currently being assessed in a Phase II clinical
trial for prostate cancer. Also in 2003, the Company extended the existing
agreement with Serono for worldwide marketing rights for Cetrotide(R), except
for Japan. The amended agreement provides for Zentaris to receive a signature
fee, as well as fixed annual payments and royalties until December 2010,
followed by royalties.

SIGNIFICANT ACCOUNTING POLICIES

The financial statements are prepared according to generally accepted accounting
principles in Canada. Furthermore, these financial statements were reconciled to
take into account the important differences with generally accepted accounting
principles in the United States, as indicated in Note 23 of the consolidated
financial statements. These accounting principles require that management make
estimates that could have an impact on assets and liabilities in the financial
statements. The significant accounting policies which the Company believes are
the most critical to aid in fully understanding and evaluating its reported
financial results include the following:

BASIS OF CONSOLIDATION

The consolidated financial statements of AEterna include the accounts of the
Company and all of its subsidiaries, accounted for using the full consolidation
method. Intercompany transactions and related balances have been eliminated. The
subsidiaries and the Company's percentage of interest are as follows:
<TABLE>
<CAPTION>

                                                                           PERCENTAGE OF INTEREST
                                                                 --------------------------------------------
                                                                               2003                     2002
                                                                 -------------------      -------------------
                                                                                  %                        %
<S>                                                                         <C>                      <C>
SUBSIDIARIES

Zentaris GmbH (merged with AEterna GmbH in 2003)                             100.00                   100.00
AEterna GmbH                                                                      -                   100.00
Atrium Biotechnologies Inc.                                                   61.76                    61.76
         Atrium Biotech U.S.A. inc.                                          100.00                   100.00
         Siricie S.A.                                                        100.00                        -
         Unipex Finance S.A.                                                  80.65                    70.28
               Interchemical S.A.                                            100.00                        -
               Chimiray  S.A.                                                100.00                        -
</TABLE>


REVENUE RECOGNITION AND DEFERRED REVENUES

In the biopharmaceutical segment, in which there are existing agreements with
strategic partners, revenues increased significantly in 2003. The existing
cooperation and royalty agreements usually provide for upfront, codevelopment
and milestone payments, as well as royalties on sales made by the partners.
Finally, with regard to certain agreements, the Company has to provide
manufacturing of the products and, therefore, generate product sales.


<PAGE>

Payments received at the beginning of research cooperation agreements (upfront
payments) are not recorded as revenue when received, but are amortized based on
the progress of the research and development work concerned. Milestone payments
are recognized when appropriate development results are achieved and agreed by
the customer. Royalty receipts for marketing products are only to be paid by
commercial partners when product revenues are actually achieved and are
accordingly first recorded as revenues by the Company at such time.

Revenue from product sales is recognized net of sales discounts, allowances,
returns, rebates and chargebacks. Amounts received from customers as prepayments
for products to be shipped in the future are reported as deferred revenues.

RESEARCH AND DEVELOPMENT COSTS

All research and development ("R&D") costs, which do not meet generally accepted
criteria for deferral, are expensed as incurred. Development costs, which meet
generally accepted criteria for deferral, are capitalized and amortized against
earnings over the estimated period of benefit. To date, no costs have been
deferred. Acquired in-process R&D having no alternative future uses is written
off at the time of acquisition. No in-process R&D acquired from Zentaris was
written off.

VALUATION OF GOODWILL AND INTANGIBLE ASSETS

We account for our business acquisitions under the purchase method of
accounting. The total cost of an acquisition is allocated to the underlying net
assets based on their respective estimated fair values. As part of this
allocation process, we must identify and attribute values and estimated lives to
the intangible assets acquired. While we may employ experts to assists us with
these matters, such determination involve considerable judgment, and often
involve the use of significant estimates and assumptions, including those
respect to future cash inflows and outflows, discount rates and asset lives.
These determinations will affect the amount of amortization expense recognized
in future periods.

On January 1, 2002, we adopted the new recommendations of the Canadian Institute
of Chartered Accountants ("CICA") and discontinued the amortization of goodwill
accordingly. Prior to this date, goodwill was amortized on a straight-line basis
over its expected useful life of fifteen and twenty years. We review the
carrying values of goodwill and intangible assets when conditions arise that
indicate that any impairment may have occurred. Examples of these conditions
include significant underperformance relative to historical or expected future
results, significant changes in the manner of our use of the acquired assets or
our strategy, significant negative industry or economic trends, or significant
decline in our share price or market capitalization.

Goodwill is tested annually for impairment in relation to the fair value of each
reporting unit to which goodwill applies. An impairment charge is recorded for
any goodwill that is considered impaired. Based on the impairment test performed
as of December 31, 2003, we concluded that no goodwill impairment charge was
required.

Intangible assets consist mainly of patents, trademarks, licenses, and
distribution agreements. They are amortized on a straight-line basis over their
estimated useful lives of eight to fifteen years. Intangible assets with
definite lives are reviewed for impairment when events or


<PAGE>

circumstances indicate that costs may not be recoverable. At year-end, there
were no events or circumstances indicating that the carrying value may not be
recoverable.

ACCOUNTING FOR INCOME TAXES

We operate in multiple jurisdictions, and our profits are taxed pursuant to the
tax laws of these jurisdictions. Our effective tax rate may be affected by the
changes in, or interpretations of, tax laws in any given jurisdiction,
utilization of net operating losses and tax credit carry forwards, changes in
geographical mix of income and expense, and changes in management's assessment
of matters, such as the ability to realize future tax assets. As a result of
these considerations, we must estimate our income taxes in each of the
jurisdictions in which we operate. This process involves estimating our actual
current tax exposure, together with assessing temporary differences resulting
from differing treatment of items for tax and accounting purposes. These
differences result in future tax assets and liabilities, which are included in
our consolidated balance sheet. We must then assess the likelihood that our
future tax assets will be recovered from future taxable income and establish a
valuation allowance for any amounts we believe will not be recoverable.
Establishing or increasing a valuation allowance increases our income tax
expense.

Significant management judgment is required in determining our provision for
income taxes, our income tax assets and liabilities, and any valuation allowance
recorded against our net income tax assets. We recorded a valuation allowance as
at December 31, 2003, due to uncertainties related to our ability to utilize
some of our income tax assets before they expire. The valuation allowance was
based on our estimates of taxable income by jurisdiction in which we operate and
the period over which our income tax assets will be recoverable. In the event
that actual results differ from these estimates or we adjust these estimates in
future periods, we may need to amend our valuation allowance, which could
materially impact our financial position and results of operations.

STOCK-BASED COMPENSATION PLANS

On January 1, 2002, AEterna adopted the recommendations issued by the CICA and,
at that time, we had chosen not to use the fair value method to account for the
stock-based compensation costs arising from awards to employees. The fair value
method was only used for stock-based payments made in exchange for goods and
services. Starting on January 1, 2004, we have to use the fair value method to
account for stock-based compensation costs. We decided to use the prospective
method as transitional method, as permitted under the amendments made to the
recommendations during 2003. According to this method, all stock-based
compensations granted during the twelve-month period ended December 31, 2003
will be recorded in the corresponding period without restatement of prior years.
However, AEterna is still required to provide pro forma disclosures relating to
net loss and net loss per share as if stock-based compensation costs had been
recognized in the financial statements using the fair value method for options
granted to employees in 2002.

BUSINESS ACQUISITIONS

On August 5, 2003, Unipex acquired 100% of the issued and outstanding common
shares of Interchemical S.A. and Chimiray S.A. for a total consideration of
$18.7 million, of which an amount of $14.2 million was paid in cash, net of cash
acquired of $3.6 million, and $0.9 million as a balance of purchase price. These
companies are focused mainly on the


<PAGE>

distribution of fine chemicals and active ingredients. The results of operations
have been included in the statement of operations since August 5, 2003, being
the date of acquisition.

During 2003, Atrium acquired 23,760 common shares of the outstanding capital
stock of Unipex for a cash consideration of $2.8 million. In addition, Atrium
also invested in its subsidiary by acquiring 70,400 treasury common shares of
Unipex, thereby increasing its interest in the latter to 80.65 %.

Finally, on November 18, 2003, Atrium acquired 100% of the issued and
outstanding common shares of Siricie S.A. for a total consideration of $2
million. This company specializes in the development of active ingredients drawn
from marine life for the cosmetics industry.

SUBSEQUENT EVENTS

On January 23, 2004, we entered into an extensive 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 secures itself exclusive worldwide
rights to all gynecological indications as well as to BPH, while we retain
exclusive rights to all other indications, including oncology. The contract
provides us to receive, an amount of $5 million, upon signature, representing an
upfront payment and past development costs, as well as future milestone payments
during further preclinical and clinical development and royalties on future
sales.

On February 2, 2004, we entered 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 this agreement, Roche will support us in the registration
process and will market the product in Brazil, while Zentaris will supply
Impavido(R) to Roche. Brazil is the country in South America that is most
affected with the deadly visceral leishmaniasis (black fever) and the painful
cutaneous leishmaniasis (parasitic skin disease).

On March 3, 2004, Atrium has completed the acquisition of Pure Encapsulations
Inc. (Pure) for approximately $50 million. Based in Sudbury, Massachusetts in
the United States, Pure is focused mainly on the development, manufacturing and
marketing of nutritional supplements geared toward physicians and other
healthcare professionals. Financing of the transaction resulted from the
issuance of a senior debt of $27 million and from a subordinate debt in the
amount of $13.4 million.

RESULTS OF OPERATIONS BY SEGMENT

This section must be read in conjunction with the Segment Information (note 19)
of AEterna's consolidated financial statements.

Biopharmaceutical Segment

REVENUES

Revenues increased from $0.3 million to $46.1 million for the year ended
December 31, 2003. The acquisition, in December 2002, of Frankfurt-based
Zentaris provided most of the revenues in this segment. Zentaris' revenues
reached $31.7 million in 2002. Revenues in 2003


<PAGE>

were generated by the marketing of Cetrotide(R) and Impavido(R) as well as
milestones payments, R&D contract fees and the amortization of upfront payments.
Revenues from R&D contract fees and from the amortization of upfront payments
come mainly from the development of Cetrorelix and Teverelix.

In 2004, Cetrotide(R) is expected to increase its revenues since our commercial
partner, Serono, is growing its reproductive health business year to year.
Impavido(R) has been launched in 2003 for private-use in India and we expect to
extend its marketing for public-use, as well as to file for additional marketing
authorizations in other countries.

OPERATING EXPENSES

COST OF SALES amounted to $6.8 million in 2003 and is related to the production
of Cetrotide(R) and Impavido(R). Sales and royalties generated by these two
products amounted to $24.4 million leaving a marginal contribution of $17.6
million or 72% in 2003. We expect the cost of sales to remain steady in
percentage of corresponding sales and royalties next year.

SELLING, GENERAL AND ADMINISTRATIVE (SG&A) EXPENSES have increased by $8 million
going from $7.5 million in 2002 to $15.5 million in 2003. In 2001, these
expenses reached $6.5 million. All of the increase for 2003 resulted from the
acquisition of Zentaris in December 2002. The increase in 2002 was due to normal
salary raises and significant professional fees related to our acquisition
program, which triggered several due diligences and consulting fees. We expect
that SG&A costs will be maintained in 2004.

R&D EXPENSES totalled $44.7 million in 2003 in comparison with $25.3 million in
2002 and $22.1 million in 2001. This increase of $19.4 million for 2003 is
attributable to the acquisition of Zentaris, whereby the investment in R&D
amounted to $21.7 million for the twelve-month period ended December 31, 2003.
We expect a significant decrease in R&D costs in 2004 since Neovastat is now in
a Phase III study in non-small cell lung cancer, which is partially supported by
the US National Cancer Institute and because we decided to stop the clinical
development in renal cell carcinoma with Neovastat on December 17, 2003.

R&D TAX CREDITS AND GRANTS amounted to $0.9 million in 2003 compared with $1.6
million in 2002 and $5.8 million in 2001. These amounts are recorded using the
cost reduction method and are generally earned on qualified R&D expenses
incurred in the Province of Quebec. The significant decrease in 2002 is
explained by the fact that, during 2001, the maximum limit for eligible expenses
was reached for the oncology project within the Technology Partnerships Canada
(TPC) program.

DEPRECIATION AND AMORTIZATION amounted to $8.8 million in 2003 in comparison
with $2 million for 2002 and $1.4 million in 2001. This significant increase is
attributable to the depreciation and amortization of capital assets and
intangible assets related to the acquisition of Zentaris in December 2002. The
increase in 2002 was mainly due to the amortization of capital assets as a
result of major investments made in that particular year, amounting to $5
million, for the scale-up of the production line in view of the marketing of
Neovastat. Intangible assets are amortized over their estimated useful lives of
eight to fifteen years. We expect that depreciation and amortization will be
maintained in 2004.



<PAGE>

INTEREST INCOME for 2003 amounting to $1.8 million compared to $2.5 million in
2002 and $2.4 million in 2001. The decrease for the twelve-month period ended
December 31, 2003 is primarily due to the cash used for the acquisition of
Zentaris.

INTEREST EXPENSE

Interest expense consists mainly of financing costs on the convertible term
loans, the balance of purchase price settled in March 2003 and the promissory
note of $43 million reimbursed in January 2003 as interim financing related to
Zentaris' acquisition. In prior years, we had no interest expense. Since the
convertible term loans will be outstanding for a twelve-month period in 2004
instead of a nine-month period in 2003, we expect to increase our interest
expense in 2004.

INCOME TAX EXPENSE

Notwithstanding this segment had generated an operating loss, we recorded an
income tax expense which was related to earnings generated by Zentaris from our
operations in Germany. For our Canadian operations, we have to establish a
valuation allowance against future income tax assets because it is more likely
than not that some or all of the future income tax assets will not be realized.

Cosmetics and Nutrition Segment

REVENUES

Revenues in this segment are derived from manufacturing and marketing of
cosmetic, active ingredients and nutritional products. In 2003, revenues reached
$15.3 million, which represents an increase of $1.9 million or 14.2% in
comparison with the prior year. In 2002, the revenues amounted to $13.4 million
in comparison with $11.4 million in 2001. The 2003 increase was mainly
attributable to additional market share at the international level, as well as
to in-licensing activities. Since sales in US dollars represent more than 84% of
revenues, this increase would have been even greater if the average US dollar
exchange rate had not decreased by 10.7% in 2003 compared with 2002. We expect a
significant increase in this segment as we acquired Pure Encapsulations in March
2004 whose revenues exceeded $25 million in 2003.

OPERATING EXPENSES

THE COST OF SALES amounted to $2.5 million in 2003 compared with $2.3 million in
2002 and $1.9 million in 2001. These costs are directly proportional to sales to
which they are related to and consist mainly of raw materials and manufacturing
costs. As a percentage of revenues, there is no significant change for the last
three years where the cost of sales varied from 16.4% to 17.2%.

SG&A EXPENSES amounted to $5.0 million in comparison with $4.3 million in 2002
and $4.0 million in 2001. The increase of $0.7 million in 2003 is mainly
attributable to the increase of the sales forces, especially for the US
territory.

FOREIGN EXCHANGE LOSS amounted to $1 million in 2003. This loss is attributable
to the effect of the strengthening Canadian dollar on our US short-term
investments and working capital


<PAGE>

denominated in US dollars. We are maintaining US dollar cash and cash
equivalents to meet our future requirements in US dollars.

INCOME TAX EXPENSE amounted to $2.1 million in 2003 compared with $2.4 million
in 2002 and a tax recovery of $5.5 million recorded in 2001. This variation of
$7.9 million in 2002 is attributable to $7.6 million of income tax recovery
related to future income tax assets recorded in 2001, and the balance of $0.3
million corresponds to income taxes related to increased earnings in 2002. This
income tax recovery was recorded as it is more likely than not that Atrium will
realize this future income tax asset.

Distribution Segment

REVENUES

Revenues in this segment are derived from the distribution of raw materials and
brand-name active ingredients to multinational firms in the cosmetic, industrial
chemicals, fine chemicals, pharmaceutical and nutrition sectors. In 2003,
revenues reached $105.5 million, which represents an increase of $17.6 million
or 20% in comparison with the prior year. This increase is mainly attributable
to the acquisition of Chimiray/Interchemical in August 2003.

In 2002, the sales amounted to $87.9 million in comparison with $32.6 million in
2001. This increase is attributable to the acquisition of Unipex, as the
acquisition took place on July 2, 2001. Should we have considered the sales of
Unipex for a period of twelve months in 2001, we would have had an increase of
36% with revenues totalling $64.4 million in 2001. This increase is mainly
related to the successful integration of Unipex's operations, the
intensification and focus of our sales forces, as well as the good market
conditions of that segment.

We expect to continue to increase revenue from this segment in 2004, as a
consequence of the acquisition of Chimiray/Interchemical realized in August
2003.

OPERATING EXPENSES

THE COST OF SALES amounted to $88.8 million in 2003 compared with $75.5 million
in 2002 and $28.2 million in 2001. These costs are directly proportional to
sales to which they are related to. The gross margin, as a percentage of
revenues, had increased by 1.8% in 2003 from 14.1% to 15.9%. This significant
increase is related to better margin of products from ADF Chimie S.A and
Chimiray/Interchemical, as well as to gross margin increase of existing products
of Unipex. We expect to remain at the same level of gross margin in 2004.

SG&A EXPENSES amounted to $8.7 million in comparison with $5.9 million in 2002
and $2.5 million in 2001. The increase of $2.8 million in 2003 is mainly
attributable to the acquisition of Chimiray/Interchemical in August 2003. The
increase of $3.4 million in 2002 is due to the acquisition of Unipex in July
2001.

INTEREST EXPENSE is directly related to the existing long-term debt and other
current operations of Unipex and remains steady over the last three years. We
increased our long-term debt for an amount of $5.7 million resulting mainly from
the acquisition of Chimiray/Interchemical in August 2003. We, therefore, expect
to increase the corresponding interest expense in 2004.


<PAGE>

FOREIGN EXCHANGE LOSS amounted to $0.5 million in 2003 in comparison with $0.2
million in 2002. This loss is attributable to the effect of the strengthening
Euro on working capital denominated in foreign currency.

CONSOLIDATED INFORMATION

NET LOSS for 2003 was $28.1 million or $0.65 per share in comparison with net
losses of $25.8 million or $0.67 per share in 2002, and $3.5 million or $0.11
per share in 2001. This increase of $2.3 million is mainly due to amortization
of intangible assets, to non-cash interest expenditure and to one-time $1.9
million expenditure related to the year-end restructuring. In 2002, the increase
of $22.3 million was attributable to an income tax recovery accrual and a gain
on dilution in 2001, amounting to $18.9 million, while the balance of $3.4
million results principally from the increase of R&D investments net of related
grants.

The weighted average number of shares outstanding used to establish the basic
and diluted net loss per share increased from 38.6 million shares for the year
ended December 31, 2002 to 43 million shares for the year ended December 31,
2003. This increase of 4.4 million shares is mainly related to a bought deal
closed on July 24, 2003, for which we issued 4.5 million subordinate voting
shares. Consequently, notwithstanding the increase of the consolidated net loss,
the basic and diluted net loss per share has gone down by $0.02 from $0.67 to
$0.65 per share.

LIQUIDITY AND CAPITAL RESOURCES

The Company's liquidity consists of cash, cash equivalents and short-term
investments. As at December 31, 2003, the liquidity amounted to $64.4 million in
comparison with $81.5 million as of December 31, 2002. The working capital
amounted to $73.2 million as at December 31, 2003, while it was $44.2 million in
2002. The variation of our liquidity is explained below, on a consolidated
basis, per type of activities.

OPERATING ACTIVITIES
The cash flow used in our operational activities amounted to $14.5 million in
2003 compared with $21.9 million in 2002 and $15.8 million in 2001. The decrease
of $7.4 million in 2003 is mainly attributable to the reduction of the burn rate
for an amount of $6.3 million and the balance is related to change in working
capital items. In 2002, the increase of $6.1 million was primarily attributable
to increased R&D expenses in the biopharmaceutical segment, as well as to
increases contained in the working capital accounts.

FINANCING ACTIVITIES
The cash flow from financing activities amounted to $17.9 million for 2003 and
was made of cash received of $66.3 million from convertible term loans, a bought
deal closed in July 2003 and a new long-term debt incurred following the
acquisition of Chimiray/Interchemical. In counterpart, we have disbursed for
financing activities an amount of $48.4 million for the repayment of the
promissory note, the balance of purchase price and payment of long-term debt. In
2002, cash flow from financing activities amounted to nearly $100 million and is
explained by a private placement of $57 million concluded in April 2002, and a
promissory note of $43 million issued for the acquisition of Zentaris in
December 2002. For the year 2001, cash flows from financing activities were
essentially proceeds from AEterna's public financings and from shares issued in
relation to the exercise of the Company's stock option less payment of long-term
debt.


<PAGE>

INVESTING ACTIVITIES

The cash flow used in investing activities (excluding change in short-term
investments) amounted to $20.7 million in 2003. An amount of $18.9 million was
used for business acquisitions, while $1.8 million was used for the purchase of
capital assets and intangible assets. In 2002, $45.3 million was used for
acquisitions of companies, intangible assets and product lines, as well as for
distribution agreements for the cosmetics and nutrition segment. Furthermore, an
amount of $5.1 million represented capital investments mainly for the scale-up
of the production line for Neovastat. In 2001, the cash flow used in investing
activities amounted to $14.4 million, from which an amount of $13.5 million was
used to acquire Unipex and the balance for the purchase of long-term assets,
resulting in a disbursement of $0.9 million.

Since the inception of the Company, AEterna financed the R&D activities with
income generated by the former Cosmetics and Nutrition division, proceeds of
public and private sales of its equity and loans from strategic partners. While
Atrium will continue to generate net earnings in 2004 ($7.1 million in 2003) and
we will continue to efficiently control our biopharmaceutical burn rate, we do
not expect the need for additional financing, within the next year, for our
current operations. However, as part of our growth strategy, additional cash may
be needed for potential acquisitions.

We believe that our liquidity added to funds generated by operations in the
upcoming years will be sufficient to meet our cash requirements, including
development of products of our existing pipeline, research of new candidates
arising from our drug discovery department, capital expenditures and repayment
of long-term debt.

We have certain contractual obligations and commercial commitments. The
following table indicates our cash requirements to respect these obligations:
<TABLE>
<CAPTION>

(in thousands of Canadian dollars)                              PAYMENTS DUE BY PERIOD
                                        -----------------------------------------------------------------------
                                               Total         Less than 1 year    1-3 years       4-5 years
                                        -----------------------------------------------------------------------
                                                 $                  $                $               $

<S>                                             <C>                  <C>              <C>           <C>
LONG-TERM DEBT                                  18,909               3,777            8,786         6,346
OPERATING LEASES                                 9,664               2,595            3,677         3,392
COMMERCIAL COMMITMENTS                           6,039               3,105            2,934             -
                                        -----------------------------------------------------------------------
TOTAL CONTRACTUAL CASH OBLIGATIONS              34,612               9,477           15,397         9,738
                                        -----------------------------------------------------------------------
                                        -----------------------------------------------------------------------
</TABLE>

OUTLOOK

Biopharmaceutical Segment

We expect that Cetrotide(R), which is sold by Serono, will continue to derive
significant revenues in 2004. Furthermore, Cetrotide(R) is pending approval in
Japan and, should authorization be successful, we would benefit from a milestone
payment from our partner Shionogi.

Revenues generated from Impavido(R) are expected to increase in 2004, since we
expect to extend marketing to public-use in India and file for new territories
and indications.


<PAGE>

We expect to continue to benefit from the support of existing partners for our
R&D activities. R&D investment should decrease significantly following our work
force reduction and the focus of our R&D efforts. Finally, as part of our growth
strategy, we intend to pursue our acquisition program.

Cosmetic and Nutrition Segment and Distribution Segment

We expect to achieve an organic growth and continue to acquire technologies
and/or companies in these two segments. As a result of recent acquisitions,
these two segments are expected to continue to grow in 2004.

RISK FACTORS

RISKS ASSOCIATED WITH OPERATIONS

-    Most of our biopharmaceutical products are currently at an early
     development stage. It is impossible to ensure that the R&D on these
     products will result in the creation of profitable operations;

-    We are currently developing our products based on R&D activities conducted
     to date, and we may not be successful in developing or introducing to the
     market these or any other new products or technology. If we fail to develop
     and deploy new products on a successful and timely basis, we may become
     non-competitive and unable to recoup the R&D and other expenses we incur to
     develop and test new products;

-    Even if successfully developed, our biopharmaceutical products may not gain
     market acceptance among physicians, patients, healthcare payers and the
     medical community which may not accept or utilize our products. If our
     biopharmaceutical products do not achieve significant market acceptance,
     our business and financial conditions will be materially adversely
     affected;

-    We rely heavily on our proprietary information in developing and
     manufacturing our product candidates. Despite efforts to protect our
     proprietary rights from unauthorized use or disclosure, third parties may
     attempt to disclose, obtain or use our proprietary information or
     technologies;

-    We have to forge and maintain strategic alliances to develop and market
     products in our current pipeline. If we are unable to reach agreements with
     such collaborative partners, or if any such agreements are terminated or
     substantially modified, we may be unable to obtain sufficient licensing
     revenue for our products, which might have a material adverse effect on
     their development and on us.

CASH FLOW AND FINANCIAL RESOURCES

We believe that we would be able to obtain long-term capital, if necessary, to
support our corporate objectives, including the clinical development program of
our products. Our planned cash requirements may vary materially in response to a
number of factors, including: R&D on our products; clinical trial results;
increases in our manufacturing capabilities;


<PAGE>

changes in any aspect of the regulatory process; and delays in obtaining
regulatory approvals. Depending on the overall structure of current and future
strategic alliances, we may have additional capital requirements related to the
further development of existing or future products.

The development of our subsidiary Atrium may also require, in addition to the
cash generated by its operations, other sources of financing. However, it is
impossible to guarantee the availability of additional financial resources or
that it will be available under acceptable conditions.

We have not entered into any significant forward currency contracts or other
financial derivatives to hedge foreign exchange risk and, therefore, we are
subject to foreign currency transaction and translation gains and losses.
Foreign exchange risk is managed primarily by satisfying foreign denominated
expenditures with cash flows or assets denominated in the same currency.

KEY PERSONNEL

Our success is also dependent upon our ability to attract and retain a highly
qualified work force, and to establish and maintain close relations with
research centres. The competition in that regard is very severe. Our success is
dependent to a great degree on our senior officers, scientific personnel and
consultants. The failure to recruit qualified staff and the loss of key
employees could compromise the pace and success of product development.

ACQUISITION PROGRAM

We intend to continue to acquire new technologies and/or corporations. There is
no assurance that the Company will make certain acquisitions or that it will
succeed in integrating the newly-acquired technologies or corporations into its
operations. The failure to successfully integrate the personnel and operations
of businesses which we may acquire in the future with ours could have a material
adverse effect on our operations and results.


VOLATILITY OF SHARE PRICES

Share prices are subject to changes because of numerous different factors
related to its activity including reports of new information, changes in the
Company's financial situation, the sale of shares in the market, the Company's
failure to obtain results in line with the expectations of analysts, an
announcement by the Company or any of its competitors concerning technological
innovation, etc. During the past few years, shares of AEterna, other
biopharmaceutical companies and the investment market in general have been
subjected to extreme fluctuations that were unrelated to the operational results
of the companies affected. There is no guarantee that the market price of the
Company's shares will be protected from any such fluctuations in the future.


<PAGE>

SAFE HARBOUR STATEMENT

Except for historical data, this report contains statements that, by their very
nature, are projections involving time periods, risks and other factors, known
or unknown, which are beyond the Company's control.

Each of these factors may produce results or performances that differ
significantly from expectations. For example, the results of current clinical
trials cannot be foreseen, nor can changes in policy or actions taken by such
regulatory authorities as the U.S. Food and Drug Administration and the
Therapeutic Products Directorate of Health Canada, or any other organization
responsible for enforcing regulations in the pharmaceutical industry.




On behalf of management,



          /s/ Dennis Turpin
------------------------------------------
Dennis Turpin
Vice President and Chief Financial Officer


<PAGE>


QUARTERLY SUMMARY FINANCIAL INFORMATION (UNAUDITED)
(expressed in thousands of Canadian dollars,except per share data)
<TABLE>
<CAPTION>
                                                                                                                YEARS ENDED
                                                   1ST QUARTER   2ND QUARTER   3RD QUARTER     4TH QUARTER      DECEMBER 31
                                                            $              $             $               $                $
<S>                                                   <C>             <C>          <C>             <C>            <C>
2003
REVENUES                                              40,813          38,875       37,829          48,896         166,413
OPERATING LOSS                                       (1,265)         (1,031)      (5,303)         (6,684)        (14,283)
NET LOSS                                             (4,834)         (4,571)      (9,238)         (9,504)        (28,147)
BASIC AND DILUTED NET LOSS PER SHARE*                 (0.12)          (0.11)       (0.20)          (0.21)          (0.65)


2002
REVENUES                                              25,349          23,440       24,407          28,008         101,204
OPERATING LOSS                                       (3,962)         (4,473)      (5,529)         (6,602)        (20,566)
NET LOSS                                             (5,652)         (5,899)      (6.222)         (8,009)        (25,782)
BASIC AND DILUTED NET LOSS PER SHARE *                (0.17)          (0.15)       (0.15)          (0.20)          (0.67)
</TABLE>


*  Basic and diluted per share data are calculated independently for each of the
   quarters presented. Therefore, the sum of this quarterly information may not
   equal the corresponding annual information.