Exhibit 3

Æterna Zentaris Inc.(previously Æterna Laboratories Inc.)

Consolidated Financial Statements December 31, 2004, 2003 and 2002

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LOGO

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| |  |                                                                                                                                                                                                            
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | PricewaterhouseCoopers LLP
Chartered AccountantsPlace de la Cité, Tour Cominar
2640 Laurier Boulevard, Suite 1700
Sainte-Foy, Quebec
Canada G1V 5C2
Telephone +1 (418) 522 7001
Facsimile +1 (418) 522 5663

Report of Independent Auditors

To the Shareholders of
Æterna Zentaris Inc.

We have audited the consolidated balance sheets ofÆterna Zentaris Inc.as at December 31, 2004 and
2003 and the consolidated statements of operations, deficit, other capital and cash flows for each of the years in the three-year period ended December 31, 2004. These financial
statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We
conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the
financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

In
our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2004 and 2003 and the results of its
operations and its cash flows for each of the years in the three-year period ended December 31, 2004 in accordance with Canadian generally accepted accounting principles.

LOGO

Chartered Accountants

Quebec,
Quebec, Canada
February 25, 2005, except as to note 25c) dated March 10, 2005

PricewaterhouseCoopers refers to the Canadian firm of PricewaterhouseCoopers LLP and the other member firms of PricewaterhouseCoopers
International Limited, each of which is a separate and independent legal entity.

1

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ÆTERNA ZENTARIS INC.
Consolidated Balance Sheets(expressed in thousands of Canadian dollars)

|                                                    |                | As at December 31, |       
|--------------------------------------------------- | -------------- | ------------------ | ------
|
|Assets                                              |                |                    |       
|Current assets                                      |                |                    |       
|Cash and cash equivalents                           |                | 28,533             |       
|Short-term investments (note 22)                    |                | 29,557             |       
|Accounts receivable (note 5)                        |                |                    |       
|                                                    | Trade          |                    | 51,973
|                                                    | Other (note 6) |                    | 6,315 
|Inventory (notes 5 and 7)                           |                | 21,382             |       
|Prepaid expenses                                    |                | 3,068              |       
|Future income tax assets (note 19)                  |                | 3,906              |       
|                                                    |                |                    |       
|                                                    |                | 144,734            |       
|Property, plant and equipment(notes 9 and 18)       |                | 19,899             |       
|Deferred charges and other long-term assets(note 8) |                | 6,785              |       
|Intangible assets(notes 10 and 18)                  |                | 75,490             |       
|Goodwill(note 11)                                   |                | 86,137             |       
|Future income tax assets(note 19)                   |                | 16,183             |       
|                                                    |                |                    |       
|                                                    |                | 349,228            |       
|                                                    |                |                    |       
|Liabilities                                         |                |                    |       
|Current liabilities                                 |                |                    |       
|Accounts payable and accrued liabilities (note 12)  |                | 50,241             |       
|Income taxes                                        |                | 7,338              |       
|Balances of purchase price (note 4)                 |                | 2,553              |       
|Current portion of long-term debt                   |                | 12,133             |       
|                                                    |                |                    |       
|                                                    |                | 72,265             |       
|Deferred revenues                                   |                | 25,557             |       
|Convertible term loans(note 13)                     |                | 24,890             |       
|Long-term debt(note 14)                             |                | 39,365             |       
|Employee future benefits(note 15)                   |                | 7,502              |       
|Future income tax liabilities(note 19)              |                | 24,590             |       
|Non-controlling interest                            |                | 34,767             |       
|                                                    |                |                    |       
|                                                    |                | 228,936            |       
|                                                    |                |                    |       
|Shareholders' Equity                                |                |                    |       
|Share capital(note 16)                              |                | 189,274            |       
|Other capital                                       |                | 8,741              |       
|Deficit                                             |                | (78,770            | )     
|Cumulative translation adjustment                   |                | 1,047              |       
|                                                    |                |                    |       
|                                                    |                | 120,292            |       
|                                                    |                |                    |       
|                                                    |                | 349,228            |       
|                                                    |                |                    |       

Subsequent events(note 25)

The
accompanying notes are an integral part of these consolidated financial statements.

Approved by the Board of Directors

|(Signed) |  | LOGO        |  | Director |  | (Signed) |  | LOGO           |  | Director
|-------- |  | ----------- |  | -------- |  | -------- |  | -------------- |  | --------
|         |  | Éric Dupont |  |          |  |          |  | Gérard Limoges |  |         

2

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ÆTERNA ZENTARIS INC.
Consolidated Statements of Deficit(expressed in thousands of Canadian dollars)

|                            |  | Years Ended December 31,
|--------------------------- |  | ------------------------
|
|Balance  Beginning of year |  | 73,011                  
|Net loss for the year       |  | 5,759                   
|                            |  |                         
|Balance  End of year       |  | 78,770                  
|                            |  |                         

|
|

|
|

|
|

|
|

|
|

Consolidated Statements of Other Capital(expressed in thousands of Canadian dollars)

|                                                              |  | Years Ended December 31,
|------------------------------------------------------------- |  | ------------------------
|
|Balance  Beginning of year                                   |  | 7,486                   
|Conversion option related to convertible term loans (note 13) |  |                        
|Stock-based compensation costs (note 16e)                     |  | 1,395                   
|Exercise of stock options (note 16c)                          |  | (140                    
|Issuance of warrants                                          |  |                        
|                                                              |  |                         
|Balance  End of year                                         |  | 8,741                   
|                                                              |  |                         

The
accompanying notes are an integral part of these consolidated financial statements.

3

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ÆTERNA ZENTARIS INC.
Consolidated Statements of Operations(expressed in thousands of Canadian dollars, except share and per share data)

|                                                          |                                           | Years Ended December 31, |       
|--------------------------------------------------------- | ----------------------------------------- | ------------------------ | ------
|
|Revenues                                                  |                                           | 233,248                  |       
|                                                          |                                           |                          |       
|Operating expenses                                        |                                           |                          |       
|Cost of sales                                             |                                           | 134,535                  |       
|Selling, general and administrative                       |                                           | 42,198                   |       
|Research and development costs                            |                                           | 31,713                   |       
|Research and development tax credits and grants (note 18) |                                           | (1,346                   | )     
|Depreciation and amortization                             |                                           |                          |       
|                                                          | Property, plant and equipment             |                          | 3,190 
|                                                          | Intangible assets                         |                          | 5,788 
|                                                          |                                           |                          |       
|                                                          |                                           | 216,078                  |       
|                                                          |                                           |                          |       
|Earnings (loss) from operations                           |                                           | 17,170                   |       
|                                                          |                                           |                          |       
|Other revenues (expenses)                                 |                                           |                          |       
|Interest income                                           |                                           | 1,359                    |       
|Interest expense                                          |                                           |                          |       
|                                                          | Long-term debt and convertible term loans |                          | (8,070
|                                                          | Other                                     |                          | (98   
|Foreign exchange loss                                     |                                           | (920                     | )     
|                                                          |                                           |                          |       
|                                                          |                                           | (7,729                   | )     
|                                                          |                                           |                          |       
|Earnings (loss) before income taxes                       |                                           | 9,441                    |       
|Income tax expense(note 19)                               |                                           | (8,285                   | )     
|                                                          |                                           |                          |       
|Earnings (loss) before the following items                |                                           | 1,156                    |       
|Gain (loss) on dilution of investments(note 4c, h and l)  |                                           | (631                     | )     
|Non-controlling interest                                  |                                           | (6,284                   | )     
|                                                          |                                           |                          |       
|Net loss for the year                                     |                                           | (5,759                   | )     
|                                                          |                                           |                          |       
|Basic and diluted net loss per share(note 2)              |                                           | (0.13                    | )     
|                                                          |                                           |                          |       
|Weighted average number of shares outstanding(note 21)    |                                           | 45,569,176               |       
|                                                          |                                           |                          |       

The
accompanying notes are an integral part of these consolidated financial statements.

4

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ÆTERNA ZENTARIS INC.
Consolidated Statements of Cash Flows(expressed in thousands of Canadian dollars)

|                                                                          |                                        | Years Ended December 31, |       
|------------------------------------------------------------------------- | -------------------------------------- | ------------------------ | ------
|
|Cash flows from operating activities                                      |                                        |                          |       
|Net loss for the year                                                     |                                        | (5,759                   | )     
|Items not affecting cash and cash equivalents                             |                                        |                          |       
|                                                                          | Depreciation and amortization          |                          | 8,978 
|                                                                          | Stock-based compensation costs         |                          | 1,556 
|                                                                          | Future income taxes                    |                          | (5,414
|                                                                          | Loss (gain) on dilution of investments |                          | 631   
|                                                                          | Non-controlling interest               |                          | 6,284 
|                                                                          | Employee future benefits               |                          | 915   
|                                                                          | Deferred charges                       |                          | (2,730
|                                                                          | Deferred revenues                      |                          | 17,426
|                                                                          | Accretion on convertible term loans    |                          | 1,970 
|Change in non-cash operating working capital items (note 17)              |                                        | (11,054                  | )     
|                                                                          |                                        |                          |       
|                                                                          |                                        | 12,803                   |       
|                                                                          |                                        |                          |       
|Cash flows from financing activities                                      |                                        |                          |       
|Issuance (repayment) of promissory note                                   |                                        |                         |       
|Net proceeds from the issuance of convertible term loans                  |                                        |                         |       
|Payments on balance of purchase price (note 4)                            |                                        | (1,537                   | )     
|Increase in long-term debt                                                |                                        | 39,883                   |       
|Repayment of long-term debt                                               |                                        | (7,806                   | )     
|Issuance of warrants                                                      |                                        |                         |       
|Issuance of shares                                                        |                                        | 1,695                    |       
|Share issue expenses                                                      |                                        | (161                     | )     
|Issuance of shares by a subsidiary                                        |                                        | 1,755                    |       
|                                                                          |                                        |                          |       
|                                                                          |                                        | 33,829                   |       
|                                                                          |                                        |                          |       
|Cash flows from investing activities                                      |                                        |                          |       
|Purchase of short-term investments                                        |                                        | (24,800                  | )     
|Proceeds from the sale of short-term investments                          |                                        | 37,133                   |       
|Purchase of long-term investment                                          |                                        | (825                     | )     
|Business acquisitions, net of cash and cash equivalents acquired (note 4) |                                        | (49,566                  | )     
|Acquisition of a product line                                             |                                        | (8                       | )     
|Purchase of property, plant and equipment                                 |                                        | (2,124                   | )     
|Additions to intangible assets                                            |                                        | (164                     | )     
|                                                                          |                                        |                          |       
|                                                                          |                                        | (40,354                  | )     
|                                                                          |                                        |                          |       
|Net change in cash and cash equivalents                                   |                                        | 6,278                    |       
|Effect of exchange rate changes on cash and cash equivalents              |                                        | (159                     | )     
|Cash and cash equivalents  Beginning of year                             |                                        | 22,414                   |       
|                                                                          |                                        |                          |       
|Cash and cash equivalents  End of year                                   |                                        | 28,533                   |       
|                                                                          |                                        |                          |       
|Additional information                                                    |                                        |                          |       
|Interest paid                                                             |                                        | 2,424                    |       
|Income taxes paid                                                         |                                        | 9,457                    |       

The
accompanying notes are an integral part of these consolidated financial statements.

5

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ÆTERNA ZENTARIS INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  December 31, 2004, 2003 and 2002        (tabular amounts in thousands of Canadian dollars,  except share/option and
per share/option data and as otherwise noted)

1      Incorporation, nature of activities and change of corporate name



2      Summary of significant accounting policies



6

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Percentage of interestSubsidiaries

2004

2003%

%Zentaris GmbH ("Zentaris")

100.00

100.00Atrium Biotechnologies Inc. ("Atrium")

61.12

61.76Atrium Biotech USA Inc.

100.00

100.00Pure Encapsulations, Inc.

100.00

Siricie S.A.

100.00

100.00Unipex Finance S.A.S.

83.78

80.65Chimiray S.A.S.

100.00

100.00Unipex S.A.S.

100.00

100.00




7

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8

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Methods

Annual rates%Building

Straight-line

5Equipment

Declining balance and straight-line

20Office furniture

Declining balance and straight-line

10 and 20Computer equipment

Straight-line

25 and 331/3Automotive equipment

Straight-line

20




9

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10

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11

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12

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3      Changes in accounting policies



13

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14

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4      Business acquisitions



15

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$AssetsCurrent assets

6,355Property, plant and equipment

1,506Intangible assetsTrademarks

16,088Customer relationships

1,073Other

126Liabilities

25,148Current liabilities

1,015Net identifiable assets acquired

24,133Goodwill

26,790Purchase price

50,923Less: Cash and cash equivalents acquired

1,443Balance of purchase price

3,277Net cash used for the acquisition

46,203




16

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17

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Interchemical S.A. and Chimiray S.A.

Siricie S.A.$

$AssetsCurrent assets

17,973

1,130Property, plant and equipment

395

79Intangible assetsLicense and distribution agreements



200Other

4

Future income tax assets

531

7118,903

1,480LiabilitiesCurrent liabilities

15,197

Long-term liabilities

1,019

89816,216

898Net identifiable assets acquired

2,687

582Goodwill

16,002

1,458Purchase price

18,689

2,040Less: Cash and cash equivalents acquired

3,583

74Balance of purchase price

922

155Net cash used for the acquisition

14,184

1,811




18

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19

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20

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Zentaris

ADF Chimie S.A.$

$AssetsCurrent assets

51,330

1,880Property, plant and equipment

2,934

7Intangible assets

66,943

Future income tax assets

14,891

136,098

1,887LiabilitiesCurrent liabilities

15,778

665Deferred revenues

12,438

Employee future benefits

5,886

Future income tax liabilities

28,043

62,145

665Net identifiable assets acquired

73,953

1,222Goodwill

11,594

1,093Purchase price

85,547

2,315Less: Cash acquired

3,646

548Balance of purchase price

39,748

438Net cash used for the acquisition

42,153

1,329




21

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5      Credit facilities



6      Other receivables

As at December 31,2004

2003$

$Interest

522

846Grants

1,516

1,646Research and development tax credits recoverable

1,919

677Commodity taxes

769

1,146Other

1,589

1,3076,315

5,622


22

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7      Inventory

As at December 31,2004

2003$

$Raw materials

2,084

6,572Work in progress

815

Finished goods

18,483

9,59721,382

16,169


8      Deferred charges and other long-term assets

As at December 31,2004

2003$

$Deferred charges

1,625

1,322Long-term receivable

3,087

Investments

2,073

6,785

1,322




23

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9      Property, plant and equipment

As at December 31,2004

2003Cost

Accumulated depreciation

Cost

Accumulated depreciation$

$

$

$Land

453



452

Building

13,578

3,145

13,575

2,531Equipment

14,244

6,398

11,552

4,583Office furniture

1,424

840

1,253

696Computer equipment

2,362

1,863

1,941

1,552Automotive equipment

285

201

288

10032,346

12,447

29,061

9,462Less:Accumulated depreciation

12,447



9,462Net amount

19,899



19,599


24

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10    Intangible assets

As at December 31,2004

2003Cost

Accumulated amortization

Cost

Accumulated amortization$

$

$

$Finite useful livesPatents and trademarks

71,208

12,188

71,094

6,685Licenses and distribution agreements

1,203

271

1,203

99Customer relationships

962

80



Organization costs

286

190

189

189Software and Web sites development expenses

161

25



73,820

12,754

72,486

6,973Less: Accumulated amortization

12,754



6,973Net amount

61,066



65,513Indefinite useful livesTrademarks

14,424



75,490



65,513


25

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11    Goodwill



Biopharmaceutical

Active Ingredients & Specialty Chemicals

Health & Nutrition

Total$

$

$

$Balance as at December 31, 2002



22,734

1,518

24,252Acquisitions (note 4)



20,635

40

20,675Adjustment (note 4i)

11,594





11,594Impact of foreign exchange rate



4,663



4,663Balance as at December 31, 2003

11,594

48,032

1,558

61,184Acquisitions (note 4)



738

27,197

27,935Adjustments(1)



(252
)
8

(244
)Impact of foreign exchange rate



33

(2,771
)
(2,738
)Balance as at December 31, 2004

11,594

48,551

25,992

86,137




12    Accounts payable and accrued liabilities

As at December 31,2004

2003$

$Trade payable

28,839

33,149Interest on convertible term loans

2,520

2,250Advance payment related to a licensing agreement

1,000

999Salaries and employee benefits

2,221

2,291Deferred revenues

9,247

5,564Other accrued liabilities

6,414

8,80950,241

53,062


26

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13    Convertible term loans

As at December 31,2004

2003$

$The liability portion of the convertible term loans, bearing interest at an annual rate of 12%, payable annually or at maturity at the Company's option for which moveable hypothecs on the assets of the Company, with the
exception of the building, equipment and shares of a subsidiary, have been given as collateral

24,890

19,920




14    Long-term debt

As at December 31,2004

2003$

$Æterna ZentarisLoan from the federal and provincial governments, non-interest bearing, payable in five annual equal and consecutive instalments, beginning in July 2004

3,200

4,000Atrium and its subsidiariesLoan in the form of banker's acceptance, bearing interest at a rate based on the market rate plus an applicable margin calculated quarterly on the Atrium's North American operations. A moveable hypothec on all moveable
assets of Atrium and all the shares of Atrium's North American subsidiaries have been given as collateral, principal payable in quarterly instalments of $1,350,000 maturing in March 2007

22,950

Unsecured loan, bearing interest at a rate of 9% for the first year and 10% thereafter, principal payable in accretion annually from February 2005 and interest payable monthly from April 2004, maturing in
February 2009

13,407

(forward)

39,557

4,000


27

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As at December 31,2004

2003$

$(brought forward)

39,557

4,000Loan payable in euros and for which the shares of Unipex S.A.S. have been given as collateral, €2,286,735 in 2004 and 2003 bearing interest at EURIBOR rate plus 2.5%, interest payable annually, maturing in
October 2005

3,726

3,723Unsecured bank loans payable in euros€4,500,000 (€5,000,000 in 2003) bearing interest at EURIBOR rate plus 1%, principal payable in accretion annually from August 2004 and interest payable semi-annually from February 2004, maturing
in August 2008

7,331

8,140€411,335 (€526,696 in 2003) bearing interest at a rate of 4.45%, payable in quarterly instalments including principal and interest, maturing in January 2008

670

858€15,121 (€26,907 in 2003) bearing interest at a rate of 4.35%, payable in quarterly instalments including principal and interest, maturing in January 2006

25

44Balance of purchase price of €115,861 (€189,037 in 2003), non-interest bearing, payable in euros in monthly instalments of €6,098 ($10,100), maturing in July 2006

189

308Loan payable in euros, bearing interest at LIBOR rate plus 1% reimbursed during 2004



1,83651,498

18,909Less: Current portion

12,133

3,77739,365

15,132




15    Employee future benefits



28

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Pension and postemployment benefit plans

Other benefit plan2004

2003

2004

2003$

$

$

$Obligation  Beginning of year

6,149

5,350

509

692Current service cost

283

277

30

21Interest cost

337

287

27

36Actuarial loss (gain)

390

187

35

(136
)Benefits paid

(78
)
(49
)
(123
)
(104
)Business acquisition

(57
)
95



Effect of foreign currency exchange rate changes



2



Obligation  End of year

7,024

6,149

478

509




Other benefit planPension benefit plansActuarial assumptions2004

2003

2004

2003%

%

%

%Discount rate

2.50 and 5.25

2.50 and 5.25

5.25

5.75Pension benefits increase

1.25

1.25

1.25

1.25Rate of compensation increase

0.5 to 3.75

0.5 to 3.75

2.75

2.75




29

---





16    Share capital



As at December 31,2004

2003

2002Number

Amount

Number

Amount

Number

Amount$



$



$Multiple voting sharesBalance  Beginning of year





4,727,100

1,862

4,852,723

1,911Conversion of shares





(4,727,100
)
(1,862
)
(125,623
)
(49
)Balance  End of year









4,727,100

1,862Common shares (formerly Subordinate voting shares)Balance  Beginning of year

45,330,992

187,601

35,961,927

151,716

27,978,321

95,602Conversion of shares





4,727,100

1,862

125,623

49Issued pursuant to the stock option plan

339,917

1,834

141,965

1,030

257,983

1,189Issued pursuant to a private placement









7,600,000

56,253Issued pursuant to a bought deal





4,500,000

35,550



Share issue expenses



(161
)


(2,557
)


(1,377
)Balance  End of year

45,670,909

189,274

45,330,992

187,601

35,961,927

151,716Total share capital

45,670,909

189,274

45,330,992

187,601

40,689,027

153,578


30

---





31

---





2004

2003

2002Number

Weighted average exercise price

Number

Weighted average exercise price

Number

Weighted average exercise price$



$



$Balance  Beginning of year

3,197,435

6.02

2,949,872

6.96

2,877,671

7.05Granted

913,000

8.06

1,074,564

4.09

1,048,895

5.97Exercised

(339,917
)
4.99

(141,965
)
7.25

(257,983
)
4.61Expired

(2,050
)
7.04

(172,285
)
5.74

(382,129
)
6.19Forfeited

(287,876
)
6.97

(512,751
)
7.07

(336,582
)
7.35Balance  End of year

3,480,592

6.58

3,197,435

6.02

2,949,872

6.96Options exercisable  End of year

1,743,429

6.90

1,272,574

7.05

1,025,640

6.92




Options outstanding

Options currently exercisableExercise price

Number

Weighted average remaining contractual life

Weighted average exercise price

Number

Weighted average exercise price$



$$3.75 to $7.00

1,702,759

8.12

4.76

866,924

5.15$7.01 to $10.00

1,611,833

6.99

8.03

759,669

8.22$10.01 to $14.35

166,000

3.52

11.16

116,836

11.253,480,592

7.38

6.58

1,743,429

6.90




32

---





Years Ended December 31,2004

2003

2002Dividend yield

Nil

Nil

NilExpected volatility

64.2%

64.3%

57.0%Risk-free interest rate

3.48%

3.96%

3.72%Expected life (years)

4.30

3.92

2.70Number of stock options granted

913,000

1,074,564

1,048,895Weighted average fair value of options granted ($)

4.28

2.03

2.29




Years Ended December 31,2004

2003

2002$

$

$Pro forma net loss

5,912

29,368

26,039Pro forma basic and diluted net loss per share

0.13

0.68

0.67




33

---





2004

2003

2002Number

Weighted average exercise price

Number

Weighted average exercise price

Number

Weighted average exercise price$



$



$Balance  Beginning of year

2,390,000

2.76

2,314,000

2.74

2,182,000

2.70Granted

2,031,000

4.21

120,000

3.07

240,000

3.07Exercised

(580,000
)
2.60

(8,000
)
2.50



Forfeited

(174,000
)
2.81

(36,000
)
2.82

(108,000
)
2.50Balance  End of year

3,667,000

3.59

2,390,000

2.76

2,314,000

2.74




Options outstanding

Options currently exercisableExercise price

Number

Weighted average remaining contractual life

Weighted average exercise price

Number

Weighted average exercise price$



$$2.50

750,000

5.84

2.50

600,000

2.50$3.07

886,000

7.05

3.07

494,000

3.07$4.21

2,031,000

9.84

4.21



3,667,000

8.35

3.59

1,094,000

2.76


34

---





Years Ended December 31,2004

2003Dividend yield

Nil

NilExpected volatility

Nil

NilRisk-free interest rate

3.77
%
3.96
%Weighted average expected life (years)

4.56

5.00Number of stock options granted

2,031,000

120,000Weighted average fair value of options granted ($)

0.67

0.55Compensation costs ($)

161,817

32,000


17    Statements of cash flows

Years Ended December 31,2004

2003

2002$

$

$Change in non-cash operating working capital itemsAccounts receivable

(9,251
)
(1,071
)
(6,048
)Inventory

(1,679
)
3,670

(960
)Prepaid expenses

233

(956
)
(212
)Accounts payable and accrued liabilities

(4,246
)
(3,884
)
2,603Income taxes

3,889

(275
)
983(11,054
)
(2,516
)
(3,634
)


18    Grants



35

---





19    Income taxes



Years Ended December 31,2004

2003

2002Combined federal and provincial statutoryincome tax rate


31.02
%

33.05
%

35.16
%Income tax expense (recovery) based on statutory income tax rate

$
2,929

$
(6,129
)
$
(6,396
)Manufacturing and processing tax credit





678


1,162Change in valuation allowance


3,311


10,557


9,487Accretion on convertible term loans


611


386


Stock-based compensation costs


433


138


Difference in statutory income tax rate of foreign subsidiaries


1,156


224


(50
)Change in enacted rate





340


357Additional tax deduction





(113
)

(108
)Other


(155
)

(149
)

(27
)$
8,285

$
5,932

$
4,425Income tax expense is represented by:Current

$
13,699

$
3,859

$
2,565Future


(5,414
)

2,073


1,860$
8,285

$
5,932

$
4,425CurrentDomestic

$
519

$
855

$
574Foreign


13,180


3,004


1,991$
13,699

$
3,859

$
2,565FutureDomestic

$
211

$
1,462

$
1,836Foreign


(5,625
)

611


24$
(5,414
)
$
2,073

$
1,860$
8,285

$
5,932

$
4,425


36

---







As at December 31,2004

2003$

$Future income tax assetsCurrentDeferred revenues

3,676

2,134Acquisition costs

58

470Other

172

3,906

2,604Long-termResearch and development costs

13,105

12,489Share issue expenses

717

1,173Operating losses carried forward

20,924

21,916Property, plant and equipment

916

289Intangible assets and goodwill

2,838

3,084Employee future benefits

726

509Deferred revenues

10,595

4,349Other

64

6349,885

43,872Valuation allowance

(33,702
)
(30,356
)16,183

13,51620,089

16,120Future income tax liabilitiesLong-termAccounts receivable

250

Property, plant and equipment

202

Deferred charges and other long-term assets

314

504Intangible assets

23,730

25,487Other

94

24,590

25,991Future income tax liabilities, net

(4,501
)
(9,871
)


37

---





CanadaExpiry date

United StatesFederal

Provincial$

$

$2007

109



2008

16,050

11,860

2009

20,163

18,283

2010

20,309

19,936

2014

7,572

7,382

2020 to 2024





59364,203

57,461

593




20    Segment information



38

---





Years Ended December 31,2004

2003

2002$

$

$Canada

2,003

951

1,301United States

27,897

6,395

4,671EuropeSwitzerland

27,828

20,424

France

134,742

101,046

83,915Other

34,017

29,458

6,450Asia

5,808

7,448

4,385Other

953

691

482233,248

166,413

101,204




Years Ended December 31,2004

2003$

$Canada

17,187

18,785United States

42,163

1,578France

50,040

49,824Germany

72,136

76,109181,526

146,296




39

---





2004Biopharmaceutical

Active Ingredients & Specialty Chemicals

Health & Nutrition

Consolidated Adjustments

Total$

$

$

$

$RevenuesSales and royalties

25,355

144,983

32,333



202,671License fees

30,577







30,57755,932

144,983

32,333



233,248Earnings (loss) from operations

(8,954
)
14,045

12,079



17,170Depreciation and amortization

7,988

576

414



8,978Capital expenditures

2,109

78

101



2,288Segment assets

182,500

105,587

53,465

(243
)
341,309




40

---





2003Biopharmaceutical

Active Ingredients & Specialty Chemicals

Health & Nutrition

Consolidated Adjustments

Total$

$

$

$

$RevenuesSales and royalties

24,403

111,071

9,236



144,710License fees

21,703







21,70346,106

111,071

9,236



166,413Earnings (loss) from operations

(28,679
)
10,170

4,226



(14,283
)Depreciation and amortization

8,824

535

62



9,421Capital expenditures

1,723

48

51



1,822Segment assets

179,882

104,395

6,182

175

290,634




2002Biopharmaceutical

Active Ingredients & Specialty Chemicals/ Health & Nutrition

Consolidated Adjustments

Total$

$

$

$Revenues

315

100,889



101,204Earnings (loss) from operations

(32,890
)
12,324



20,566Depreciation and amortization

1,999

422



2,421Capital expenditures

95,488

1,353



96,841Segment assets

244,709

87,427

(1,168
)
330,968




41

---





21    Loss per share



2004

2003

2002Basic weighted average number of shares outstanding

45,569,176

42,993,432

38,584,537Diluted effect of stock options

417,453

118,953

142,098Diluted weighted average number of shares outstanding

45,986,629

43,112,385

38,726,635Items excluded from the calculation of diluted net loss per share because the exercise price was greater than the average market price of the common shares or due to their anti-dilutive effectStock options

1,563,259

1,281,183

1,298,349Common shares which would be issued following the conversion of the convertible term loans

5,396,040

3,712,871






42

---



22    Financial instruments Short-term investments

2004

2003$

$Mutual fund units

2,000

Discount notes and commercial paper, bearing interest at effective annual rates ranging from 2.81% to 3.13% in 2004 and from 2.44% to 3.49% in 2003, maturing on different dates from August 2005 to February 2006
in 2004 and from April 2004 to August 2005 in 2003

2,636

8,521Bonds, bearing interest at effective annual rates ranging from 2.0% to 4.79% in 2004 and from 2.31% to 4.79% in 2003, maturing on different dates from January 2005 to April 2007 in 2004 and from
February 2004 to April 2007 in 2003

24,921

33,43229,557

41,953




43

---





Cash and cash equivalents

Variable interest rateShort-term investments

Fixed interest rateAccounts receivable

Non-interest bearingUnused lines of credit

Prime rateAccounts payable and accrued liabilities

Non-interest bearingBalances of purchase price

Non-interest bearingConvertible term loans

As described in note 13Long-term debt

As described in note 14


23    Commitments and guarantee



24    Summary of differences between generally accepted accounting principles in Canada and in the United States



44

---





Years Ended December 31,2004

2003

2003$

$

$Net loss for the year under Canadian GAAP



(5,759
)
(28,147
)
(25,782
)Stock-based compensation costs

a
)
(12
)
(64
)
(254
)Accretion on convertible term loans

e
)
1,970

1,245

In-process R&D, net of related future income taxes

c
)


(16,276
)
Amortization of in-process R&D

c
)
1,266

1,266

Financing costs allocated to other capital

e
)
(46
)
(34
)
Organization costs

b
)
(97
)


Amortization of organization costs

b
)


45

87Net loss for the year under U.S. GAAP



(2,678
)
(41,965
)
(25,949
)Other comprehensive lossUnrealized gains on short-term investments

d
)
543

94

885Less: Reclassification of adjustments for gains realized in net loss



(94
)
(885
)
(1,390
)Net unrealized losses (gains)



449

(791
)
(505
)Foreign currency translation adjustments



(2,998
)
3,277

580Comprehensive loss



(5,227
)
(39,479
)
(25,874
)Basic and diluted net loss per share under U.S. GAAP



(0.06
)
(0.98
)
(0.67
)Weighted average number of shares outstanding under U.S. GAAP



45,569,176

42,993,432

38,584,537


45

---





Years Ended December 31,2004

2003

2003$

$

$Deficit in accordance with Canadian GAAP



(78,770
)
(73,011
)
(44,864
)Stock-based compensation costsCurrent year



(12
)
(64
)
(254
)Cumulative effect of prior years



(4,962
)
(4,898
)
(4,644
)Accretion on convertible term loansCurrent year

e
)
1,970

1,245

Cumulative effect of prior years



1,245



In-process R&D, net of related future income taxesCurrent year

c
)


(16,276
)
Cumulative effect of prior years



(16,276
)


Amortization of in-process R&D, net of related income taxesCurrent year

c
)
1,266

1,266

Cumulative effect of prior years



1,266



Amortization of financing costs allocated to other capitalCurrent year

e
)
(46
)
(34
)
Cumulative effect of prior years



(34
)


Organisation costs



(97
)


Amortization of organization costsCurrent year

b
)


45

87Cumulative effect of prior years



173

128

41Deficit in accordance with U.S. GAAP



(94,277
)
(91,599
)
(49,634
)




As at December 31,2004

2003$

$Share capital in accordance with Canadian GAAP

189,274

187,601Stock-based compensation costs related to stock option plan for underwriting compensationCumulative effect of prior years

(896
)
(896
)Share capital in accordance with U.S. GAAP

188,378

186,705


46

---





As at December 31,2004

2003$

$Other capital in accordance with Canadian GAAP



8,741

7,486Reclassification of convertible term loans



(6,325
)
(6,325
)Reclassification of financing costs related to convertible term loans



137

137Stock-based compensation costsCurrent year

a
)
12

64Cumulative effect of prior years



4,962

4,898Stock-based compensation costs related to stock option plan for underwriting compensationCumulative effect of prior years



896

896Other capital in accordance with U.S. GAAP



8,423

7,156




As at December 31,2004

2003$

$Foreign currency translation adjustmentsBalance  Beginning of year

4,045

768Change during the year

(2,998
)
3,277Balance  End of year

1,047

4,045Unrealized gains (losses) on short-term investmentsBalance  Beginning of year

94

885Change during the year

449

(791
)Balance  End of year

543

94Accumulated other comprehensive income

1,590

4,139


47

---





As at December 31, 2004

As at December 31, 2003As reported

U.S. GAAP

As reported

U.S. GAAP$

$

$

$Intangible assets

c
)
75,490

52,153

65,513

40,132Convertible term loans

e
)
24,890

28,000

19,920

25,000Future income tax liabilities

c
)
24,590

15,094

25,991

15,620Shareholders' EquityShare capital



189,274

188,378

187,601

186,705Other capital

e
)
8,741

8,423

7,486

7,156Deficit



(78,770
)
(94,277
)
(73,011
)
(91,599
)Cumulative translation adjustment



1,047



4,045

Accumulated other comprehensive income





1,590



4,139




48

---





49

---





25    Subsequent events



50

---





51

---





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