Exhibit 4.3


 


MANAGEMENT’S DISCUSSION AND ANALYSIS


 


This Management’s Discussion and Analysis
(“MD&A”) provides a review of BELLUS Health Inc.’s (“BELLUS Health” or the “Company”)
operations and financial performance for the years ended December 31, 2018 and 2017. It should be read in conjunction with
the Company’s audited consolidated financial statements for the year ended December 31, 2018, which have been prepared in
accordance with International Financial Reporting Standards (“IFRS”). Additional information relating to the Company,
including its Annual Report and Annual Information Form, as well as other public filings, is available on SEDAR at www.sedar.com.
This document contains forward-looking statements, which are qualified by reference to, and should be read together with the “Forward-Looking
Statements” cautionary notice, which can be found at the end of this MD&A.


 


The consolidated financial
statements and MD&A have been reviewed by the Company’s Audit Committee and approved by the Board of Directors. This
MD&A was prepared by management with information available as at February 20, 2019.


 


All currency figures reported in the consolidated
financial statements and in this document are in Canadian dollars, unless otherwise specified.


 


CORPORATE PROFILE


 


BELLUS Health is a clinical-stage biopharmaceutical
company developing novel therapeutics for conditions with high unmet medical need. The Company’s lead drug candidate is BLU-5937
being developed for the treatment of chronic cough. The Company's shares trade on the Toronto Stock Exchange (“TSX”)
under the symbol BLU.


 


BUSINESS OVERVIEW



 


BELLUS Health’s lead drug candidate
is BLU-5937 for the treatment of chronic cough, a high unmet medical condition affecting millions of patients.


 


In November 2018, the Company announced
positive top-line results from the clinical Phase 1 study for BLU-5937, in which BLU-5937 was shown to be safe and well tolerated.
BLU-5937 did not cause any taste loss at the anticipated therapeutic doses, confirming the Company’s expectation that at
these doses there is no or very limited effect on taste perception. The benign side effect profile, in combination with the anti-tussive
effect demonstrated in several preclinical studies, further reinforces the Company’s position that BLU-5937 has the potential
to be a best-in-class therapeutic for chronic cough patients.


 


Based on the positive data from the Phase
1 study, BELLUS Health expects to initiate a clinical Phase 2 study for BLU-5937 in chronic cough patients in mid-2019, with
top-line results anticipated in mid-2020.


 


In December 2018, the Company completed
a $35 million equity financing, with the vast majority of the offering subscribed by U.S. institutional healthcare investors. The
Company concluded 2018 with a cash, cash equivalents and short-term investments position (“liquidity position”) of
$48.9 million. As at February 20, 2019, the Company has 157,389,686 common shares outstanding and 174,844,685 common shares on
a fully diluted basis, including 15,248,000 stock options granted under the stock option plan and 2,206,999 broker warrants.


 




    	 	1	 



     


    

  


2018 Highlights 


 


		·	Announced positive top-line results from the clinical Phase 1 study for BLU-5937, the Company’s
lead drug candidate for chronic cough. BLU-5937 was shown to be safe and well tolerated with no taste loss at the anticipated therapeutic
doses;



 


		·	Based on the positive top-line data from the Phase 1 study, expects to initiate a clinical Phase
2 study for BLU-5937 in chronic cough patients in mid-2019, with top-line results anticipated in mid-2020;



 


		·	Closed a $35 million equity offering, with the vast majority of the offering subscribed by U.S.
institutional healthcare investors led by OrbiMed;



 


		·	Secured patent protection for BLU-5937 in all major pharmaceutical markets; patents were granted
by the European Patent Office and the Japan Patent Office in 2018 in addition to patents granted in the United States and China
in 2017, with claims covering the composition of matter of BLU-5937 until 2034;



 


		·	Was granted a new U.S. patent claiming P2X3 selectivity as a means of minimizing taste effects
for BLU-5937. This patent extends BLU-5937’s patent protection to 2038;



 


		·	Appointed an international clinical advisory board to provide strategic guidance and support to
the BLU-5937 development program;



 


		·	Concluded the year with cash, cash equivalents and short-term investments totalling $48.9 million,
which should enable the Company to finance its operations for more than two years.



 


2018 Equity Offering


 


On December 18, 2018, the Company closed
an equity offering, issuing a total of 36,842,105 common shares from treasury at a price of $0.95 per share for aggregate
gross proceeds of $35 million (the “2018 Offering”). The 2018 Offering was subscribed in vast majority by U.S.
institutional healthcare investors led by OrbiMed and also included New Leaf Venture Partners, First Manhattan Co., Samsara BioCapital,
Fonds de solidarité FTQ, AppleTree Partners and Amzak Health.


 


In addition, 1,450,264 broker warrants exercisable
for common shares were issued to the agents of the 2018 Offering. Each broker warrant entitles the agents to buy one common
share at a price of $0.95 per share for a period of 18 months from the closing of the 2018 Offering.


 


Net proceeds from the 2018 Offering will
be used to fund the Company’s research and development activities, including but not limited to, activities related to BLU-5937’s
clinical development, general and administrative expenses, working capital needs and other general corporate purposes.


 


BLU-5937 for Chronic Cough


 


The Company’s lead drug candidate
is BLU-5937, a potent, highly selective, orally bioavailable small molecule antagonist of the P2X3 receptor, a clinically validated
target for chronic cough. In preclinical studies, BLU-5937 exhibited a potent anti-tussive effect without affecting taste perception
and an excellent safety profile. BLU-5937 has the potential to be a best-in-class therapeutic for chronic cough patients who do
not respond to current therapies.


 




    	 	2	 



     


    

  


On November 19, 2018, the Company announced
positive top-line results from the clinical Phase 1 study for BLU-5937. The Phase 1 top-line data demonstrated that BLU-5937 has
a good safety and tolerability profile, as well as a pharmacokinetic profile supporting twice-a-day (BID) dosing. At the anticipated
therapeutic doses of 50 to 100 mg, BLU-5937 did not cause any loss of taste perception; only 1 out of 24 subjects reported transient
taste alteration. Based on these data, the Company is preparing for the clinical Phase 2 study of BLU-5937 in chronic cough patients,
expected to begin in mid-2019.


 


BLU-5937 Clinical Phase 1 Study Data



 


The Phase 1 data demonstrated that BLU-5937
has an excellent pharmacokinetic profile. Plasma half-life was established at 4 to 9 hours, supporting BID dosing. Based on pre-clinical
efficacy studies and comparison with drug levels achieved with a clinically validated comparator, the Company anticipates that
drug levels required for optimal inhibition of cough will be achieved at 50 mg or 100 mg BID.


 


BLU-5937 plasma concentration increased
dose-proportionally and was not affected by food, supporting BLU-5937 administration without regard to meals.


 


The Phase 1 data also showed that BLU-5937
has a good safety and tolerability profile. The overall incidence of adverse events was comparable between placebo (50%) and BLU-5937
(44%).


 


There were no serious adverse events and
no subjects withdrew prematurely due to an adverse event during the study. No significant trends of mean changes in vital signs,
electrocardiogram (ECG) and clinical laboratory values have been observed in the Phase 1 study for BLU-5937.


 


No subject reported total loss of taste
at any dose level. Only one subject out of 24 (4.2%) reported taste alteration at the anticipated therapeutic doses of 50-100 mg.
This taste effect was reported only on the first day out of 7 days of dosing in a subject receiving 100 mg BID. There were only
2 cases of transient and sporadic partial taste loss reported: one at 400 mg BID and one at the 800 mg single dose level. At supra
therapeutic doses of 200 mg to 1200 mg, 13 subjects out of 48 (27.1%) reported transient and sporadic taste alteration. No subject
out of 16 reported any taste loss or taste alteration at 200 mg. All taste adverse events were transitory and sporadic in nature
and almost all of them were mild. The other most frequent adverse events reported in the Phase 1 study (> 5%) for BLU-5937 were:
headache (11%), numbness (11%), nausea (8%), dizziness (6%) and heartburn (6%).


 


BLU-5937 Clinical Phase 1 Study 


 


The clinical Phase 1 study was a randomized,
double-blind, placebo-controlled study of orally administered BLU-5937 in 90 healthy adult subjects. The primary objectives of
the clinical Phase 1 study were to assess the safety, tolerability (including taste perception) and pharmacokinetic profile of
BLU-5937 in healthy subjects.


 


The study was divided in two parts:


 


Part 1: A single ascending dose (SAD) study
was conducted in 60 healthy subjects. Subjects were randomized into 6 cohorts of 10 subjects (8 BLU-5937: 2 placebo). The study
evaluated single oral doses of BLU-5937 from 50 to 1200 mg.


 


Part 2: A multiple ascending dose (MAD)
study was conducted in 30 healthy subjects. Subjects were randomized into 3 cohorts of 10 subjects (8 BLU-5937: 2 placebo). The
study evaluated multiple oral doses of BLU-5937 of 100, 200 and 400 mg administered twice-a-day (BID) for 7 consecutive days.


 




    	 	3	 



     


    

  


BLU-5937 Clinical Phase 2 Study Design


 


Based on the positive top-line data from
the Phase 1 study, BELLUS Health expects to initiate a clinical Phase 2 study for BLU-5937 in chronic cough patients in mid-2019,
with top-line results anticipated in mid-2020. This will be a dose escalation crossover design study to assess the efficacy, safety
and tolerability of BLU-5937 in chronic cough patients, in addition to helping confirm the optimal dose regimen. A total of 50
patients with refractory unexplained chronic cough are expected to be enrolled in approximately 10 clinical sites located in the
United Kingdom and Unites States.


 


In addition, for 2019, the Company expects
to pursue BLU-5937 enabling activities to prepare the program for later stage clinical development and to develop the BLU-5937
program for potential expansion in other P2X3 indications.


 


Other


 


Preclinical studies demonstrated that BLU-5937
is a highly selective P2X3 antagonist exhibiting a potent anti-tussive effect without affecting taste perception and an excellent
safety profile. In a guinea pig cough model, BLU-5937 showed comparable anti-tussive efficacy to the current leading P2X3 antagonist
in development, Merck & Co’s gefapixant (also named AF-219 or MK-7264). In a rat taste model, BLU-5937 was not associated
with taste loss whereas, consistent with clinical trial data previously presented by Merck & Co, gefapixant led to significant
taste loss.


 


On July 19, 2018, the Company announced
that patent protection for BLU-5937 had been secured in all major pharmaceutical markets following the Japan Patent Office’s
issuance of a decision to grant Japanese Patent No. 2015-555508, which grants claims covering the composition of matter of BLU-5937
and related imidazopyridine compounds, in addition to pharmaceutical compositions comprising BLU-5937 and uses thereof, until 2034.
Equivalent patents with similar broad claims were granted by the European Patent Office (patent No. 2951177) in April 2018 and
by the U.S. Patent and Trademark Office and the Chinese Patent Office in 2017. The patents have an expiration date of 2034, excluding
any potential patent term extension. Patent applications with similarly broad claims are currently pending in other industrialized
nations.


 


On October 31, 2018, BELLUS Health announced
that the U.S. Patent and Trademark Office had issued U.S Patent No. 10,111,883, granting claims for the use of BELLUS Health's
lead drug candidate BLU-5937 for the treatment of chronic cough without affecting taste response. More generally, the patent entitled
 “Selective P2X3 Modulators” claims the use of imidazopyridine compounds that are selective for the P2X3 receptor as
a means of minimizing taste perturbation in patients treated for chronic cough. In addition to BLU-5937, the patent claims the
use of related selective imidazopyridine compounds and pharmaceutical compositions comprising BLU-5937. Patent No. 10,111,883 has
an expiration date of 2038, excluding any potential patent term extension. This new U.S. patent extends the patent protection of
BLU-5937 by an additional 4 years.


 


On September 25, 2018, the Company announced
the appointment of an international clinical advisory board (the “CAB”) which provides strategic guidance and support
to the BLU-5937 development program. The CAB is comprised of highly-respected clinical leaders whose work has influenced the treatment
and management of chronic cough. The Chair of the CAB is Dr. Jaclyn Smith, MB, ChB, FRCP, PhD, Professor of Respiratory Medicine
at the University of Manchester in the United Kingdom and an Honorary Consultant at the University Hospital of South Manchester
NHS Foundation Trust.


 




    	 	4	 



     


    

  


Chronic cough is a cough that lasts more
than eight weeks and is associated with significant adverse social, psychosocial and physical effects on quality of life. In October
2018, the Company commissioned Bluestar BioAdvisors LLC (formerly known as Torreya Insights LLC) to conduct a market assessment
through an evaluation of chronic cough epidemiology and pricing estimates. Based on primary and secondary research, the report
concludes that, in the United States alone, more than 26 million adults suffer from chronic cough and more than 2.6 million
of these patients have chronic cough lasting for more than a year. The number of treatment-refractory chronic cough patients expands
to 11.7 million when taking into account those patients with a cough duration between eight weeks and one year.


 


Other Development Programs


 


BELLUS Health has economic interests in
other partnered development stage programs, including revenue sharing and royalties on sales.


 


2017 Equity Offering


 


On December 12, 2017, the Company closed
an equity offering, issuing a total of 52,631,580 common shares at a price of $0.38 per share for aggregate gross proceeds
of $20 million (the “2017 Offering”). The 2017 Offering was subscribed in majority by institutional healthcare
investors and also included the participation by members of the senior management team and Board of Directors of the Company.


 


In addition, 1,806,735 broker warrants exercisable
for common shares were issued to the agents of the 2017 Offering. Each broker warrant entitles the agents to buy one common
share at a price of $0.38 per share for a period of 18 months from the closing of the 2017 Offering.


 


2017 Sale of Thallion 


 


On March 16, 2017, BELLUS Health entered
into a share purchase agreement (the “Share Purchase Agreement”) with Taro Pharmaceuticals Inc. (“Taro”)
for the sale of the Company’s wholly-owned subsidiary Thallion Pharmaceuticals Inc. (“Thallion”), including all
the rights to the drug candidate ShigamabTM. Taro acquired all issued and outstanding shares of Thallion for a total consideration
of $2.7 million, consisting of a cash payment of $2.3 million on closing and a deferred payment of $0.4 million, which was
received in January 2018. In addition, the Company is entitled to receive a portion of certain potential future post-approval revenues
related to the ShigamabTM program. A gain on sale of subsidiary in the amount of $1,944,000 was recognized in the consolidated
statement of loss for the year ended December 31, 2017.


 


Refer to section Contractual Obligations
for details of payments made to the CVR holders in accordance with the terms of the agreements of the 2013 Thallion acquisition
by BELLUS Health.


 


2017 Sale of Equity Interest in FB Health



 


On June 30, 2017, the Company sold its equity
interest in FB Health S.p.A (“FB Health”) for a potential total consideration of $2,536,000, consisting of an upfront
cash payment of $1,769,000 and a contingent revenue-based milestone payment of up to $767,000 (€518,000) to be determined
based on FB Health’s revenues for the twelve-month period ended June 30, 2018. The Company received an amount of $465,000
in November 2018 as payment of the contingent consideration receivable.


 




    	 	5	 



     


    

  


In the third quarter of 2018, prior to payment,
the Company adjusted the estimated fair value of the contingent consideration receivable to $465,000 in the consolidated statement
of financial position, based on available information representing management’s revised best estimate of the amount to be
received ($384,000 as at December 31, 2017). The change in fair value for the year ended December 31, 2018 amounted to $81,000,
presented in the consolidated statement of loss (2017 - nil).


 


Prior to the sale of the investment in FB
Health on June 30, 2017, the Company increased the fair value of its investment from $639,000 to $2,153,000, representing the estimated
fair value of the total consideration to be received. Total consideration consisted of $1,769,000 received in cash on closing and
the estimated fair value of the contingent consideration of $384,000 on the transaction date, determined based on management’s
best estimate of FB Health’s future revenues at that time. A realized gain on sale of investment in FB Health in the
amount of $1,909,000, being the difference between the fair value of the total consideration and the amount paid for the original
investment, was recognized by the Company in the consolidated statement of loss for the year ended December 31, 2017, following
the sale of the investment.


 




    	 	6	 



     


    

  


Selected Financial Information


 


(In thousands of dollars, except per share
data)


 


	 	 	Years ended December 31	 
	 	 	2018	 	 	2017	 	 	2016	 
	 	 	 	 	 	 	 	 	 	 
	Revenues	 	$	35	 	 	$	165	 	 	$	1,893	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Expenses:	 	 	 	 	 	 	 	 	 	 	 	 
	Research and development	 	 	7,185	 	 	 	3,610	 	 	 	1,515	 
	Research tax credits	 	 	(653	)	 	 	(289	)	 	 	(149	)
	 	 	 	6,532	 	 	 	3,321	 	 	 	1,366	 
	General and administrative	 	 	3,409	 	 	 	2,529	 	 	 	2,624	 
	Total operating expenses	 	 	9,941	 	 	 	5,850	 	 	 	3,990	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Results from operating activities	 	 	(9,906	)	 	 	(5,685	)	 	 	(2,097	)
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Finance income	 	 	746	 	 	 	80	 	 	 	806	 
	Finance costs	 	 	(5	)	 	 	(61	)	 	 	(922	)
	Net finance income (costs) 	 	 	741	 	 	 	19	 	 	 	(116	)
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Change in fair value of contingent consideration receivable	 	 	81	 	 	 	-	 	 	 	-	 
	Realized gain on sale of investment in FB Health	 	 	-	 	 	 	1,909	 	 	 	-	 
	Gain on sale of subsidiary	 	 	-	 	 	 	1,944	 	 	 	-	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Loss before income taxes	 	 	(9,084	)	 	 	(1,813	)	 	 	(2,213	)
	Deferred tax expense	 	 	-	 	 	 	61	 	 	 	15	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Net loss for the year	 	$	(9,084	)	 	$	(1,874	)	 	$	(2,228	)
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Net loss attributable to:	 	 	 	 	 	 	 	 	 	 	 	 
	Shareholders	 	$	(9,084	)	 	$	(1,874	)	 	$	(2,159	)
	Non-controlling interest	 	 	-	 	 	 	-	 	 	 	(69	)
	Net loss for the year	 	 	(9,084	)	 	 	(1,874	)	 	 	(2,228	)
	Loss per share – Basic and diluted	 	$	(0.08	)	 	$	(0.03	)	 	$	(0.04	)
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Financial Position:	 	 	 	 	 	 	 	 	 	 	 	 



 


	 	 	At December 31,	 	 	At December 31,	 	 	At December 31,	 
	 	 	2018	 	 	2017	 	 	2016	 
	Total assets	 	$	53,300	 	 	$	28,498	 	 	$	9,584	 
	Total non-current financial liabilities	 	$	Nil	 	 	$	Nil	 	 	$	104	 



 




    	 	7	 



     


    

  


RESULTS OF OPERATIONS


 


Year Ended December 31, 2018 Compared
to Year Ended December 31, 2017


 


For the year ended December 31, 2018, net
loss amounted to $9,084,000 ($0.08 per share), compared to $1,874,000 ($0.03 per share) for the previous year. Net loss for
2017 included a gain on sale of subsidiary in the amount of $1.9 million and a realized gain on the sale of the equity interest
in FB Health in the amount of $1.9 million. Excluding these gains, the increase in net loss is primarily attributable to higher
research and development expenses.


 


Revenues amounted to $35,000 for
the year ended December 31, 2018, compared to $165,000 for the previous year. Revenues in 2017 are mainly attributable to a service
agreement with Taro following the sale of the Company’s wholly-owned subsidiary, Thallion, to Taro in March 2017.


 


Research and development expenses,
net of research tax credits, amounted to $6,532,000 for the year ended December 31, 2018, compared to $3,321,000 for the previous
year. The increase is primarily attributable to higher expenses incurred in relation to the development of BLU-5937, the Company’s
lead drug candidate for chronic cough, including the clinical Phase 1 study completed by the Company in 2018.


 


General and administrative expenses
amounted to $3,409,000 for the year ended December 31, 2018, compared to $2,529,000 for the previous year. The increase is mainly
due to higher stock-based compensation expense in relation to the Company’s stock option plan and deferred share unit plans.


 


Net finance income amounted to $741,000
for the year ended December 31, 2018, compared to $19,000 for the previous year. The increase is primarily attributable to higher
interest income due to the Company’s increased cash, cash equivalents and short-term investments position following the 2017
Offering as well as to the foreign exchange gain that arose from the translation of the Company’s net monetary assets denominated
in US dollars.


 


Change in fair value of contingent consideration
receivable amounted to an increase of $81,000 for the year ended December 31, 2018, compared to nil for the previous year.
The contingent consideration receivable is related to the sale of the Company’s equity interest in FB Health in June
2017, as discussed previously.


 


Realized gain on sale of investment in
FB Health amounted to $1,909,000 for the year ended December 31, 2017 and is related to the sale of the Company’s
equity interest in FB Health in 2017, as discussed previously.


 


Gain on sale of subsidiary amounted
to $1,944,000 for the year ended December 31, 2017 and is related to the sale of Thallion in March 2017, as discussed previously.


 


As at December 31, 2018, total assets
amounted to $53,300,000, compared to $28,498,000 as at December 31, 2017. The increase is primarily due to the funds received from
the 2018 Offering, offset by funds used to finance the Company’s operating activities. Total non-current financial liabilities
amounted to nil as at December 31, 2018 and December 31, 2017.


 




    	 	8	 



     


    

 


Year Ended December 31, 2017 Compared
to Year Ended December 31, 2016


 


For the year ended December 31, 2017, net
loss amounted to $1,874,000 ($0.03 per share), compared to $2,228,000 ($0.04 per share) for the previous year. The decrease
in net loss is primarily attributable to the gain on sale of subsidiary in the amount of $1.9 million and the realized gain on
sale of equity interest in FB Health in the amount of $1.9 million, offset by lower revenue recognized in 2017 as well as
higher research and development expenses.


 


Revenues amounted to $165,000 for
the year ended December 31, 2017, compared to $1,893,000 for the previous year. Revenues for 2016 included those in relation to
agreements with a partner for the development of KIACTATM for AA amyloidosis, terminated since then.


 


Research and development expenses,
net of research tax credits, amounted to $3,321,000 for the year ended December 31, 2017, compared to $1,366,000 for the previous
year. The increase is attributable to expenses incurred in relation to the development of BLU-5937, for which an exclusive worldwide
license to develop and commercialize was entered into in February 2017. Expenses for 2016 included those in relation to the development
of ShigamabTM, which was sold to Taro in March 2017 as part of the sale of the Company’s wholly-owned subsidiary Thallion.


 


General and administrative expenses
amounted to $2,529,000 for the year ended December 31, 2017, compared to $2,624,000 for the previous year.


 


Net finance income amounted to $19,000
for the year ended December 31, 2017, compared to net finance costs of $116,000 for the previous year. The increase in net finance
income is primarily attributable to lower foreign exchange loss in 2017 that arose from the translation of the Company’s
net monetary assets denominated in US dollars, due to the appreciation of the US dollar compared with the Canadian dollar in 2017.


 


Realized gain on sale of investment in
FB Health amounted to $1,909,000 for the year ended December 31, 2017 and is related to the sale of the Company’s
equity interest in FB Health in June 2017, as discussed previously.


 


Gain on sale of subsidiary amounted
to $1,944,000 for the year ended December 31, 2017 and is related to the sale of Thallion in March 2017, as discussed previously.


 


As at December 31, 2017, total assets
amounted to $28,498,000, compared to $9,584,000 as at December 31, 2016. The increase is primarily due to funds received from the
2017 Offering, the sale of Thallion and the sale of the Company’s equity interest in FB Health, offset by funds used to finance
the Company’s operating activities. Total non-current financial liabilities amounted to nil and $104,000 as at December 31,
2017 and December 31, 2016, respectively.


 




    	 	9	 



     


    

 


Quarter Ended December 31, 2018 Compared
to Quarter Ended December 31, 2017 (Unaudited)


 


For the three-month period ended December
31, 2018, net loss amounted to $2,630,000 ($0.02 per share), compared to $1,605,000 ($0.02 per share) for the corresponding
period the previous year. The increase in net loss is primarily attributable to higher research and development expenses in relation
to the development of BLU-5937, partially offset by a foreign exchange gain.


 


Research and development expenses,
net of research tax credits, amounted to $2,268,000 for the three-month period ended December 31, 2018, compared to $792,000
for the corresponding period the previous year. The increase is attributable to expenses incurred in relation to the development
of BLU-5937, including the clinical Phase 1 study completed by the Company in 2018.


 


Net finance income amounted to $500,000
for the three-month period ended December 31, 2018, compared to $16,000 for the corresponding period the previous year. The
increase is mainly attributable to a foreign exchange gain that arose from the translation of the Company’s net monetary
assets denominated in US dollars.


 


Quarterly Results (Unaudited)


(in thousands of dollars, except per
share data)


 


	 	 	 	 	 	 	 	 	Basic and diluted	 
	 	 	 	 	 	Net (loss)	 	 	(loss) earnings	 
	Quarter	 	Revenues	 	 	income	 	 	per share	 
	 	 	 	 	 	 	 	 	 	 
	Year ended December 31, 2018	 	 	 	 	 	 	 	 	 	 	 	 
	Fourth	 	$	9	 	 	$	(2,630	)	 	$	(0.02	)
	Third	 	 	9	 	 	 	(3,047	)	 	 	(0.03	)
	Second	 	 	8	 	 	 	(1,564	)	 	 	(0.01	)
	First	 	 	9	 	 	 	(1,843	)	 	 	(0.02	)
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Year ended December 31, 2017	 	 	 	 	 	 	 	 	 	 	 	 
	Fourth	 	$	22	 	 	$	(1,605	)	 	$	(0.02	)
	Third	 	 	93	 	 	 	(1,680	)	 	 	(0.03	)
	Second	 	 	41	 	 	 	267	 	 	 	Nil	 
	First	 	 	9	 	 	 	1,144	 	 	 	0.02	 
	 	 	 	 	 	 	 	 	 	 	 	 	 



 


The variation of the net (loss) income of
a quarter compared to the corresponding quarter of the previous year are explained by the following elements.


 


The increase in net loss for the fourth
quarter of 2018 is primarily attributable to higher research and development expenses, partially offset by a foreign exchange gain.
The increase in net loss for the third quarter of 2018 is primarily attributable to higher research and development expenses and
stock-based compensation expense. The increase in net loss for the second quarter of 2018 is primarily attributable to the non-recurrence
of the realized gain on the sale of the equity interest in FB Health of $1.9 million recorded in the second quarter of 2017. The
increase in net loss for the first quarter of 2018 is primarily attributable to higher research and development expenses in addition
to the non-recurrence of the gain on the sale of Thallion of $1.9 million recorded in the first quarter of 2017.


 




    	 	10	 



     


    

 


Related Party Transactions 


 


Dr. Francesco Bellini is the Chairman of
the Board of Directors and provides ongoing advisory services to the Company under the terms of a consulting and services agreement
between the Company and Picchio International Inc. (“Picchio International”), wholly-owned by Dr. Francesco Bellini
and his spouse. Picchio International receives a monthly fee of $20,833, plus the reimbursement of applicable expenses for services
rendered under the agreement. The agreement has a one-year term renewable for successive one-year terms. The Company recorded fees
and expenses under the consulting and services agreement of $381,000 for both of the years ended December 31, 2018 and 2017.


 


FINANCIAL CONDITION


 


Liquidity and Capital Resources


 


As at December 31, 2018, the Company had
available cash, cash equivalents and short-term investments totaling $48,906,000, compared to $23,888,000 as at December 31, 2017.
For the year ended December 31, 2018, the net increase in cash, cash equivalents and short-term investments amounted to $25,018,000,
compared to $17,054,000 for the previous year. The Company’s working capital amounted to $48,148,000 as at December 31, 2018,
compared to $23,860,000 as at December 31, 2017. The net increase in the cash position and working capital for the year ended
December 31, 2018 is primarily attributable to funds received from the 2018 Offering, offset by funds used to finance the Company’s
operating activities.


 


The other significant changes in the Company’s
financial position as at December 31, 2018, compared to the financial position as at December 31, 2017, are
as follows:


 


		-	The decrease in Trade and other receivables is mainly due
to the amounts received in 2018 in relation to the in-licensing of the BLU-5937 program from NEOMED and the sale of Thallion in
2017.



		-	The decrease in Contingent consideration receivable is
attributable to the proceeds received in 2018 in relation to the sale of the Company’s equity interest in FB Health in 2017.



		-	The increase in Prepaid and other assets is mainly due
to payments made in relation to the BLU-5937 Phase 2 clinical study.



		-	The increase in Trade and other payables reflects the Company’s
increased operations in 2018.



 


Based on management’s estimate and
current level of operations, the Company believes that the current liquidity position is sufficient to finance its operations for
more than two years.


 


The Company does not have any debt nor does
it have pre-arranged credit facilities or other sources of financing cash flows.


 


The Company is subject to a number of risks
associated with the conduct of its drug development programs and their results, the establishment of strategic alliances and the
successful development of new drug products and their marketing. The Company has incurred significant operating losses and negative
cash flows from operations since inception. To date, the Company has financed its operations primarily through public offerings
of common shares, private placements, the issuance of convertible notes, assets sales and the proceeds from research tax credits.
The ability of the Company to ultimately achieve future profitable operations is dependent upon the successful expansion and development
of its project pipeline, obtaining regulatory approval in various jurisdictions and successful sale or commercialization of the
Company’s products and technologies, which is dependent on a number of factors outside of the Company’s control.


 




    	 	11	 



     


    

 


Refer to Financial Condition – Contractual
Obligations and Financial Risk Management – Liquidity Risk sections for further details on liquidity and capital resources
of the Company.


 


Financing and Investing Activities


 


On December 18, 2018, the Company completed
the 2018 Offering by issuing 36,842,105 common shares from treasury at a price of $0.95 per share for aggregate gross proceeds
of $35 million. In addition, 1,450,264 broker warrants exercisable for common shares were issued to the agents. Each
warrant entitles the holders to buy one common share at a price of $0.95 per share for a period of 18 months from the
closing of the 2018 Offering.


 


On September 12, 2018, upon the exercise
of 700,000 broker warrants issued in connection with the 2017 Offering, the Company received $266,000 and issued 700,000 common
shares from treasury.


 


During 2018, cash and cash equivalents amounting
to net $17,651,000 were invested in short-term investments with initial maturities greater than three months and less than a year
($11,880,000 in 2017).


 


On December 12, 2017, the Company completed
the 2017 Offering by issuing 52,631,580 common shares from treasury at a price of $0.38 per share for aggregate gross
proceeds of $20 million. In addition, 1,806,735 broker warrants exercisable for common shares were issued to the agents. Each
warrant entitles the holders to buy one common share at a price of $0.38 per share for a period of 18  months from the
closing of the 2017 Offering.


 


On February 28, 2017, the Company paid $3.2
million in relation to the BLU-5937 license obtained from NEOMED, consisting of $1.7 million in cash and $1.5 million in equity
with the issuance of 5,802,177 common shares from treasury ($0.2585 per share), as discussed in the Business Overview section.


 


On March 16, 2017, the Company sold its
wholly-owned subsidiary, Thallion, to Taro for total consideration of $2.7 million, consisting of a cash payment of $2.3 million
on closing and a deferred payment of $0.4 million, which payment was received in January 2018, as discussed in the Business Overview
section.


 


On June 30, 2017, the Company sold its equity
interest in FB Health for a potential total consideration of $2,536,000, consisting of an upfront cash payment of $1,769,000 and
a contingent revenue-based milestone payment of up to $767,000 (€518,000), to be determined based on FB Health’s revenues
for the twelve-month period ended June 30, 2018. The Company received an amount of $465,000 in November 2018 as payment of the
contingent consideration receivable. Refer to the Business Overview section for additional details.


 


At December 31, 2018, the Company is contingently
liable for a letter of credit in the amount of $50,000. Cash is pledged under this letter of credit and is presented as restricted
cash under non-current Other assets in the consolidated statement of financial position as at December 31, 2018.


 


Other 


 


As at February 20, 2019, the Company
had 157,389,686 common shares outstanding and 174,844,685 common shares on a fully diluted basis, including 15,248,000 stock options
granted under the stock option plan (of which 3,655,000 stock options were granted on February 20, 2019) and 2,206,999 warrants
issued in relation to the 2018 and 2017 Offerings.


 


During the year ended December 31, 2018,
4,300,000 stock options were granted (2,885,000 in 2017), nil stock options were forfeited (290,000 in 2017) and nil stock options
expired (90,000 in 2017).


 




    	 	12	 



     


    

 


Contractual Obligations 


 


As at December 31, 2018, BELLUS Health’s
minimum future contractual obligations are principally for payments in relation to operating leases, consulting fees for Picchio
International, trade and other payables and contracts for research and development activities. Future contractual obligations by
year of maturity are presented below.


 


	Contractual obligations	 	 	 	 	Less than	 	 	 	 
	(in thousands of dollars)	 	Total	 	 	1 year	 	 	2 years	 
	 	 	 	 	 	 	 	 	 	 
	Operating leases	 	$	164	 	 	$	151	 	 	$	13	 
	Consulting fees	 	 	250	 	 	 	250	 	 	 	—	 
	Trade and other accrued liabilities	 	 	2,716	 	 	 	2,716	 	 	 	—	 
	Contracts for research and development activities	 	 	6,785	 	 	 	4,959	 	 	 	1,826	 



 


On August 15, 2013, BELLUS Health acquired
all of the issued and outstanding common shares of Thallion in exchange for cash on closing of transaction and the issuance of
one contingent value right (“CVR”) per common share to Thallion’s shareholders, with an expiration date of August 14,
2028, to be paid upon the settlement of the amounts described below.


 


The CVRs issued to Thallion’s shareholders
entitle the holder thereof to: (i) its pro rata share of 100% of any additional purchase price consideration to be received in
relation to a 2009 sale transaction by Thallion, (ii) its pro rata share of 5% of the ShigamabTM revenue generated or received
by BELLUS Health, capped at $6,500,000, and (iii) its pro rata share of 100% of any net proceeds generated from the licensing,
selling or otherwise commercializing of (a) diagnostic products or services using certain Caprion Proteomics Inc. products, and
(b) all issued patents or pending patents pertaining to such Caprion Proteomics Inc. products, in respect of which Thallion has
an ownership interest or monetary entitlement.


 


The amount to which the holders of CVRs
may be entitled can be reduced for potential contingent liabilities owing by Thallion (including, but not limited to, in respect
of the indemnity agreement entered into in relation to the 2009 sale transaction by Thallion, accounts payable or litigation).


 


In relation to (i) above, BELLUS Health
paid in March 2017 a net amount of $577,152 ($0.01609 per CVR) to the CVR holders in relation to the 2009 sale transaction by Thallion.


 


In relation to (ii) above, the Company paid
in April 2017 and in January 2018 net amounts of $94,550 ($0.00263 per CVR) and $14,721 ($0.00041 per CVR), respectively, to the
CVR holders in connection with the sale of the Company’s wholly-owned subsidiary Thallion, including all the rights to the
drug candidate ShigamabTM, to Taro in March 2017. Taro acquired all issued and outstanding shares of Thallion for a
total consideration of $2.7 million, consisting of a cash payment of $2.3 million on closing and a deferred payment of $0.4 million
upon the completion of a pre-established milestone, which payment was received in January 2018.


 


The CVRs also entitled the holder thereof
to receive Thallion’s income tax credits deducted in the 2013 Thallion Statement of Net Cash in the event that they were
not claimed by tax authorities after their audit, or their assessment period expired (the “Income Tax Credits”). As
they were not claimed nor assessed, BELLUS Health paid on January 25, 2019 a net amount of $134,149 ($0.00374 per CVR) to the CVR
holders.


 




    	 	13	 



     


    

  


All payments made to CVR holder were in
accordance with the terms of the agreements of the 2013 Thallion acquisition by BELLUS Health.


 


The Company expects that there will be no
additional payment to CVR holders.


 


The Company is potentially liable in relation
to the following indemnity agreement:


 


In March 2017, the Company entered into
a Share Purchase Agreement with Taro for the sale of the Company’s wholly-owned subsidiary Thallion, including all the rights
to the drug candidate ShigamabTM. The Company agreed to indemnify Taro, subject to certain conditions and limitations,
for losses which it may suffer or incur, arising out of any debts, liabilities, commitments or obligations of any nature resulting
from any matters, actions, events, facts or circumstances related to the activities or affairs of Thallion, which occurred prior
to the effective time of the Share Purchase Agreement. No indemnity provision has been recorded by the Company as at December 31,
2018 and 2017 for this matter as the Company does not expect to make any payments under this indemnity agreement.


 


The Company has a letter of credit issued
in connection with a lease agreement in the amount of $50,000. Cash is pledged under the letter of credit and is presented as restricted
cash under non-current Other assets in the consolidated statement of financial position as at December 31, 2018.


 


The Company has entered into a number of
other agreements, which involve future commitments, including agreements with Parteq Research and Development Innovations, the
federal Ministry of Industry (Technology Partnerships Canada Program) and NEOMED. Refer to note 17 to the consolidated financial
statements for the year ended December 31, 2018 for details.


 


The Company has not engaged in commodity
contract trading or off-balance sheet financing, other than in relation to operating leases.


 


FINANCIAL RISK MANAGEMENT


 


This section provides disclosures relating
to the nature and extent of the Company’s exposure to risks arising from financial instruments, including credit risk, liquidity
risk, foreign currency risk and interest rate risk, and how the Company manages those risks.


 


Credit Risk


 


Credit risk results from the possibility
that a loss may occur from the failure of another party to perform according to the terms of the contract. Financial instruments
that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents,
short-term investments and trade and other receivables. The Company invests cash mainly with major North American financial institutions.
Cash equivalents and short-term investments are comprised of fixed income instruments with a high credit ranking (not less than
A-1) as rated by Standard and Poor’s. The Company has investment policies that are designed to provide for the safety and
preservation of principal, the Company's liquidity needs and yields that are appropriate.


 


As at December 31, 2018, the Company’s
maximum credit exposure corresponded to the carrying amount of these financial assets.


 




    	 	14	 



     


    

  


Liquidity Risk


 


Liquidity risk is the risk that the Company
will not be able to meet its financial obligations as they fall due. The Company requires continued access to capital markets to
support its operations, as well as to achieve its strategic plans. Any impediments to the Company’s ability to access capital
markets, including the lack of financing capability or an adverse perception in capital markets of the Company’s financial
condition or prospects, could have a materially adverse effect on the Company. In addition, the Company’s access to financing
is influenced by the economic and credit market environment.


 


The Company manages liquidity risk through
the management of its capital structure, as outlined in note 20 to the consolidated financial statements for the year ended December
31, 2018 (Capital Disclosures). In addition, the Company manages liquidity risk by continuously monitoring actual and projected
cash flows. The Board of Directors reviews, approves and monitors the Company’s annual operating and capital budgets, as
well as any material transactions.


 


Foreign Currency Risk


 


Foreign currency risk is the risk that the
fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. Foreign
currency risk is limited to the portion of the Company’s business transactions denominated in currencies other than Canadian
dollars. The Company’s exposure relates primarily to changes in the Canadian dollar versus the US dollar exchange rate. For
the Company’s foreign currency transactions, fluctuations in the respective exchange rates relative to the Canadian dollar
will create volatility in the Company’s cash flows and the reported amounts for revenue and expenses in income. Additional
variability arises from the translation of monetary assets and liabilities denominated in currencies other than the Canadian dollar
at the rates of exchange at each reporting date, the impact of which is reported as a foreign exchange gain or loss in income.


 


The Company’s objective in managing
its foreign currency risk is to minimize its net exposures to foreign currency cash flows, by transacting with third parties in
the Company’s functional currency to the maximum extent possible and practical and holding cash, cash equivalents and short-term
investments as well as incurring borrowings in its functional currency. The Company holds a portion of its cash, cash equivalents
and short-term investments in US dollars to meet its liquidity needs in US dollars, but does not use derivative financial instruments
to reduce its foreign exchange exposure. Note 21 (d) to the consolidated financial statements for the year ended December 31, 2018
provides indication of the Company’s significant foreign exchange currency exposures as at that date.


 


Interest Rate Risk


 


Interest rate risk is the risk that the
fair value or future cash flows of a financial instrument will fluctuate because of changes in market rates. The Company’s
financial instruments exposed to interest rate risk are cash and cash equivalents, short-term investments and restricted cash.
Management believes that the risk that the Company will realize a loss as a result of the decline in the fair value of its cash
equivalents and short-term investments is limited because these investments have short-term maturities and are generally held to
maturity. The capacity of the Company to reinvest the short-term amounts with equivalent returns will be impacted by variations
in short-term fixed interest rates available in the market.


 


The Company has had no interest rate hedging
activities during the current year.


 




    	 	15	 



     


    

 


DISCLOSURE CONTROLS AND PROCEDURES


 


Disclosure controls and procedures are designed
to provide reasonable assurance that information required to be disclosed by the Company in its reports filed with securities regulatory
authorities is recorded, processed, summarized and reported within prescribed time periods and is accumulated and communicated
to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure.


 


The Company’s Chief Executive Officer
and its Chief Financial Officer are responsible for establishing and maintaining disclosure controls and procedures designed to
ensure that information required to be disclosed in the reports filed or submitted under securities legislation is recorded, processed,
summarized and reported within the time periods specified by applicable securities legislation. The design of any system of controls
and procedures is based in part upon certain assumptions about the likelihood of certain events. There can be no assurance that
any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. The Company’s
Chief Executive Officer and its Chief Financial Officer are assisted in this responsibility by the Company’s disclosure committee,
which is composed of members of senior management. Based on an evaluation of the Company’s disclosure controls and procedures,
the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures
were effective as of December 31, 2018.


 


INTERNAL CONTROL OVER FINANCIAL REPORTING


 


Management’s Annual Report on Internal
Control Over Financial Reporting


 


Internal control over financial reporting
(“ICFR”) is designed to provide reasonable assurance regarding the reliability of the Company’s financial reporting
and the preparation of financial statements for external purposes in accordance with IFRS. Management, including the Company’s
Chief Executive Officer and its Chief Financial Officer, is responsible for establishing and maintaining adequate ICFR. The design
of any system of controls and procedures is based in part upon certain assumptions about the likelihood of certain events. There
can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless
of how remote. Management assessed the effectiveness of the Company’s ICFR as of December 31, 2018 based on the framework
established in Internal Control – Integrated Framework (2013) by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”). Based on this assessment, the Company’s Chief Executive Officer and its Chief Financial
Officer concluded that the Company’s ICFR were effective as of December 31, 2018. The Company’s assessment is
not subject to an attestation report of the Company’s auditors regarding ICFR.


 


Changes in Internal Controls Over Financial
Reporting


 


In accordance with the Canadian Securities
Administrators’ Multilateral Instrument 52-109, the Company has filed certificates signed by the Chief Executive Officer
and the Chief Financial Officer, that, among other things, report on the design of disclosure controls and procedures and the design
of internal control over financial reporting.


 


There have been no changes in the Company’s
ICFR during the quarter ended December 31, 2018 that have materially affected, or are reasonably likely to materially affect its
ICFR.


 




    	 	16	 



     


    

 


CRITICAL ACCOUNTING POLICIES AND ESTIMATES


 


The preparation of the consolidated financial
statements in conformity with IFRS requires management to adopt accounting policies and to make certain judgments, estimates and
assumptions that the Company believes are reasonable based upon the information available at the time these decisions are made.
These accounting policies, judgments, estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure
of contingent liabilities at the date of the financial statements, and the reported amounts of revenues, expenses and cash flows
during the reporting periods. By their nature, these judgments are subject to an inherent degree of uncertainty and are based upon
historical experience, trends in the industry and information available from outside sources. On an ongoing basis, management reviews
its estimates and actual results could differ from estimates.


 


The Company’s significant accounting
policies are described in note 3 to the consolidated financial statements for the year ended December 31, 2018. Management considers
that the following accounting policies and estimates are more important in assessing, understanding and evaluating the Company’s
consolidated financial statements.


 


In-process research and development asset:
The in-process research and development (“IPR&D”) asset is accounted for as an indefinite-lived intangible asset
until the project is completed or abandoned, at which point it will be amortized or impaired, respectively. The Company accounts
for subsequent research and development costs associated with the acquired IPR&D asset consistent with the research and development
policy in note 3 (d) to the consolidated financial statements. The Company assesses at each reporting date whether there is an
indication that the asset may be impaired. Irrespective of whether there is any indication of impairment, the IPR&D asset is
tested for impairment annually by comparing its carrying amount with its recoverable amount.


 


Stock-based compensation: The Company
follows the fair value-based method to account for options granted to employees, whereby compensation cost is measured at fair
value at the date of grant and is expensed over the award’s vesting period with a corresponding increase to equity. The fair
value of each option granted is estimated on the date of grant using the Black-Scholes pricing model, which requires certain assumptions,
including the future stock price volatility and expected time to exercise. Expected volatility is estimated by considering historic
average share price volatility. For stock options with graded vesting, the fair value of each tranche is recognized over its respective
vesting period. The amount recognized as an expense is adjusted to reflect the number of awards for which the related service vesting
conditions are expected to be met, such that the amount ultimately recognized as an expense is based on the number of awards that
meet the related service conditions at the vesting date. When stock options are exercised, the Company issues new shares. The proceeds
received, together with the related portion previously recorded in other equity, are credited to share capital. Changes to any
assumptions, or the use of a different option pricing model, could produce different fair values for stock-based compensation,
which could have a material impact on the Company’s income.


 


Note 2 (d) to the consolidated financial
statements provides additional information regarding the use of estimates and judgements in the application of accounting policies.


 




    	 	17	 



     


    

 


CHANGES IN ACCOUNTING POLICIES 


 


Changes in significant accounting policies
in 2018


 


On January 1, 2018, the Company adopted
the following new accounting standards and interpretations issued by the IASB, for which the application did not have a material
impact on the audited consolidated financial statements for the year ended December 31, 2018:


 


		(a)	IFRS 2, Share-Based Payment;



 


		(b)	IFRS 9 (2014), Financial Instruments; and



 


		(c)	IFRS 15, Revenue from Contracts with Customers.



 


Further information on these accounting
changes can be found in note 4 (a) to the December 31, 2018 audited consolidated financial statements.


 


New accounting standard and interpretations
not yet adopted


 


Leases


 


In January 2016, the IASB issued IFRS 16,
Leases, which will replace IAS 17, Leases and the related interpretations. This standard introduces a single lessee accounting
model and requires all leases of more than 12 months to be reported on a company’s statement of financial position as assets
and liabilities, unless the underlying asset is of low value. A lessee is required to recognize a right-of-use asset representing
its right to use the underlying asset and a lease liability representing its obligation to make lease payments. This standard substantially
carries forward the lessor accounting requirements of IAS 17, while requiring enhanced disclosures to be provided by lessors. Other
areas of the lease accounting model have also been impacted, including the definition of a lease. Transitional provisions have
been provided.


 


The new standard is effective for annual
periods beginning on or after January 1, 2019. The Company will adopt IFRS 16 using the modified retrospective transition method,
with the cumulative effect of initially applying the standard recognized as an adjustment to opening retained earnings at date
of initial adoption. The Company does not expect that the adoption of the standard will have a material effect on the consolidated
financial statements, other than that its operating leases will need to be recognized in its consolidated statement of financial
position on initial adoption of IFRS 16.


 


The nature of expenses related to those
leases will now change because the Company will recognize a depreciation charge for right-of-use assets and interest expense on
lease liabilities. Previously, the Company recognized operating lease expense on a straight-line basis over the term of the lease,
and recognised assets and liabilities only to the extent that there was a timing difference between actual lease payments and the
expense recognized.


 


Based on the information currently available, the Company expects
that the right-of-use asset and lease liability on January 1, 2019 will be between $100,000 and $164,000.


 




    	 	18	 



     


    

  


RISKS AND UNCERTAINTIES


 


Since its inception in 1993, BELLUS Health
has incurred significant operating losses. The Company’s drug candidates are in development and none have yet been approved
for commercialization by regulatory authorities in any jurisdiction. The Company’s business entails significant risks, including
the ability to expand and develop its project pipeline, costs and time involved in obtaining the required regulatory approvals,
the adequacy of patent protection, the uncertainties involved in clinical testing, the availability of capital to continue development
and commercialization of drugs, and competition from pharmaceutical and biotechnology companies.


 


Significant funding is required for research
and development, clinical trials, marketing, commercial manufacturing of drugs and the establishment of sales and marketing teams
that may be necessary for the launch and sales of new drugs. In addition, major financial resources are necessary until such time
as the drugs are commercialized and sold successfully, and sales are sufficient to generate profits. The Company may seek to raise
additional funds through public or private financing, collaborations agreements with other companies, or financing from other sources.
However, there can be no assurance that these financing efforts will be successful or that the Company will continue to be able
to meet its ongoing cash requirements. It is possible that financing will not be available or, if available, may not be on favourable
terms.


 


The availability of financing will be affected
by the results of scientific research and clinical development, the Company’s ability to obtain regulatory approvals, the
market acceptance of the Company’s drugs, the state of the capital markets generally (with particular reference to pharmaceutical,
biotechnology, nutraceutical and medical companies), the status of strategic alliance agreements, and other relevant commercial
considerations.


 


Drug research and development involves a
high degree of risk, and returns to investors are dependent upon successful development and commercialization of the Company’s
drug candidates. A setback in any of the Company’s clinical trials may cause a drop in the Company’s stock price. Difficulties
encountered in enrolling patients in the Company’s clinical trials could delay or adversely affect the trials. There can
be no assurance that development of any drug candidate will be successfully completed or that regulatory approval of any of the
Company’s drug candidates under development will be obtained. Furthermore, there can be no assurance that existing drugs
or new drug candidates developed by competitors will not be more effective, or more effectively marketed and sold, than any that
may be developed by the Company. There can be no assurance that the Company’s future potential drugs will gain market acceptance
among physicians, patients, healthcare payers, the medical community and consumers. In
addition, given the very high costs of development of drug candidates, the Company anticipates having to partner with pharmaceutical
companies to develop and/or bring drugs candidates to market. The terms of such partnership arrangements along with the related
financial obligations cannot be determined at this time and the timing of completion of the development and/or approval of such
drug candidates will likely not be within the Company’s control.


 


The Company
is heavily dependent on licensed intellectual property. If the Company was to lose its rights to licensed intellectual property,
it would not be able to continue developing or commercializing BLU-5937. If the Company breaches any of the agreements under which
it licenses the use, development and commercialization rights to BLU-5937 or any other drug candidate or technology from third
parties or if certain insolvency events were to occur, it could lose license rights that are critical to its business.


 




    	 	19	 



     


    

 


Because
of the length of time and expense associated with bringing new drug candidates through development, obtaining regulatory approval
and bringing drugs to market, the Company places considerable importance on obtaining and maintaining patent protection and safeguarding
trade secret protection for significant discoveries. There can be no assurance that any pending patent application filed by the
Company will mature into an issued patent. Furthermore, there can be no assurance that existing or pending patent claims will offer
protection against competition, or will not be designed around or infringed upon by others. Commercial success will also depend
in part on the Company not infringing patents or proprietary rights of others. Patent litigation is costly and time consuming and
may subject the Company to liabilities.


 


The Company is currently dependent on third
parties for a variety of functions and may enter into future collaborations for the development, manufacturing and commercialization
of drugs. There is no assurance that the arrangements with these third parties will provide benefits the Company expects. There
can also be no assurance that the Company will be successful in manufacturing, marketing and distributing drugs, or that the Company
will be able to make adequate arrangements with third parties for such purposes. There can be no assurance that the Company will
generate significant revenue or achieve profitability.


 


The Company may be required to make payments
under the indemnity agreement in relation to the sale of Thallion in 2017.


 


A detailed discussion on the Company’s
risks and uncertainties can be found in the Company’s public filings including the Annual Information Form available on SEDAR
at www.sedar.com.


 




    	 	20	 



     


    

 


FORWARD-LOOKING STATEMENTS 


 


Certain statements contained in this MD&A,
other than statements of fact that are independently verifiable at the date of this report, may constitute “forward-looking
statements” within the meaning of Canadian securities legislation and regulations. Such statements, based as they are on
the current expectations of management, inherently involve numerous important risks, uncertainties and assumptions, known and unknown,
many of which are beyond the Company's control. This forward-looking information may include among other things, information with
respect to the Company’s objectives and the strategies to achieve these objectives, as well as information with respect to
the Company’s beliefs, plans, expectations, anticipations, estimates, and intentions. Forward-looking statements generally
can be identified by the use of conditional or forward-looking terminology such as “may”, “will”, “expect”,
 “intend”, “estimate”, “anticipate”, “plan”, “foresee”, “believe”
or “continue” or the negatives of these terms or variations of them or similar terminology. Refer to the Company’s
public filings with the Canadian securities regulatory authorities, including the Annual Information Form, for a discussion of
the various risk factors that may affect the Company’s future results. Such risks factors include but are not limited to:
the ability to expand and develop its project pipeline, the ability to obtain financing, the impact of general economic conditions,
general conditions in the pharmaceutical industry, changes in the regulatory environment in the jurisdictions in which the Company
does business, stock market volatility, fluctuations in costs, changes to the competitive environment due to consolidation, achievement
of forecasted burn rate, potential payments/outcomes in relation to indemnity agreements and contingent value rights, achievement
of forecasted pre-clinical and clinical trial milestones and that actual results may vary once the final and quality-controlled
verification of data and analyses has been completed. In addition, the length of the Company’s drug candidates’ development
process, their market size and commercial value, as well as the sharing of proceeds between the Company and its potential partners
from potential future revenues, if any, are dependent upon a number of factors. Consequently, actual future results and events
may differ materially from the anticipated results and events expressed in the forward-looking statements. The Company believes
that expectations represented by forward-looking statements are reasonable, yet there can be no assurance that such expectations
will prove to be correct. The reader should not place undue reliance, if any, on any forward-looking statements included in this
report. These forward-looking statements speak only as of the date made, and the Company is under no obligation and disavows any
intention to update publicly or revise such statements as a result of any new information, future events, circumstances or otherwise,
unless required by applicable legislation or regulation. The forward-looking statements contained in this report are expressly
qualified by this cautionary statement.


 






    	 	21