Exhibit 4.1


 


 


 


BELLUS HEALTH INC.


 


ANNUAL INFORMATION FORM


 


Fiscal year ended December 31, 2018


 


March
13, 2019


 




     


     


    

 


TABLE OF CONTENTS 


 





	CORPORATE STRUCTURE	1
	 	 
	Name, Address and Incorporation	1
	 	 
	Intercorporate Relationships	1
	 	 
	BUSINESS	2
	 	 
	Business Overview	2
	 	 
	2018 Highlights	2
	 	 
	2018 Equity Offering	2
	 	 
	About BLU-5937	3
	 	 
	BLU-5937 For Chronic Cough	3
	 	 
	Other Programs	5
	 	 
	2017 Equity Offering	6
	 	 
	2017 Sale of Thallion	6
	 	 
	2017 Sale of Equity Interest in FB Health	6
	 	 
	Contingent
    Value Rights - Acquisition of Thallion Pharmaceuticals Inc. in 2013	6
	 	 
	Intellectual Property	7
	 	 
	Human Resources	8
	 	 
	Facilities	8
	 	 
	RISK FACTORS	8
	 	 
	dividends	22
	 	 
	description of capital structure	22
	 	 
	MARKET FOR SECURITIES	23
	 	 
	PRIOR SALES	23
	 	 
	DIRECTORS AND OFFICERS	24
	 	 
	LEGAL PROCEEDINGS AND REGULATORY ACTIONS	26
	 	 
	INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS	26
	 	 
	AUDIT COMMITTEE AND PRINCIPAL ACCOUNTANTS FEES AND SERVICES	26
	 	 
	TRANSFER AGENT AND REGISTRAR	27
	 	 
	INTEREST OF EXPERTS	27
	 	 
	ADDITIONAL INFORMATION	28
	 	 
	Schedule A – AUDIT COMMITTEE CHARTER 	29










 




     


     


    

 


As used in this annual information
form, unless the context otherwise requires, the terms “we”, “us”, “our”, “BELLUS Health”
or the “Company” mean or refer to BELLUS Health Inc. and its subsidiaries and its Affiliates (as
such term is defined in this annual information form). All currency figures reported
in this document are in CDN dollars, unless otherwise specified.


 


Certain statements contained in
this annual information form, other than statements of fact that are independently verifiable at the date hereof, may constitute
 “forward-looking statements” within the meaning of applicable securities legislation and regulations. 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. 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.
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 annual information form. 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 annual information form are expressly qualified by this cautionary statement.


 


Unless otherwise noted, all information
in this annual information form is presented as at December 31, 2018.


 


CORPORATE
STRUCTURE


 


Name, Address and Incorporation


 


BELLUS Health was incorporated on April
12, 2012 under the Canada Business Corporations Act (the “CBCA”) and is the successor of BELLUS Health Inc.,
a company incorporated on June 17, 1993.


 


The Company's shares trade on the Toronto
Stock Exchange (“TSX”) under the symbol BLU.


 


The Company’s head office is located
at 275 Armand-Frappier Boulevard, Laval, Quebec H7V 4A7, Canada.


 


Intercorporate Relationships


 


As at March 13, 2019, BELLUS Health Inc.
has one wholly-owned subsidiary, BELLUS Health Cough Inc., a CBCA company incorporated on March 16, 2017.


 




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BUSINESS


 


Business Overview


 


BELLUS Health is a clinical-stage biopharmaceutical
company developing novel therapeutics for the treatment of chronic cough and other hypersensitization-related disorders.


 


BLU-5937 is the Company’s lead product
candidate for the treatment of chronic cough. In addition to chronic cough, BLU-5937 may potentially have clinical benefit in other
afferent hypersensitization-related disorders, such as visceral pain, hypertension and migraine, among others.


 


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 of $48.9 million. As at March 13, 2019,
the Company has 157,956,173 Common Shares outstanding and 174,844,685 Common Shares on a fully diluted basis, including 15,238,000
stock options granted under the stock option plan and 1,650,512 broker warrants.


 


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.



 


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.


 




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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 is
to 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.


 


About
BLU-5937 


 


BLU-5937 is a highly-selective P2X3 antagonist
which has the potential to be a best-in-class therapeutic for refractory chronic cough patients. The P2X3 receptor in the cough
reflex pathway is a rational target for treating refractory chronic cough, and it has been validated in animal and human studies.
P2X3 is an ATP gated ion channel in the peripheral nervous system, and a key sensory receptor in feeling upper airway irritation
and triggering cough reflex.


 


BLU-5937 is the Company’s lead product
candidate for the treatment of chronic cough. BELLUS Health is exploring how P2X3 activation can contribute to irritation and pain,
and that inhibition of P2X3 receptors may be able to help treat afferent hypersensitization-related disorders, such as chronic
cough, visceral pain, hypertension and migraine, among others. The Company is currently conducting pre-clinical studies in several
additional, as yet undisclosed, indications.


 


BLU-5937
For Chronic Cough


 


The Company’s lead drug candidate,
BLU-5937, is a potent, highly selective, orally bioavailable small molecule antagonist of the P2X3 receptor, a clinically validated
target for chronic cough.


 


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. No subject reported total loss of taste at any dose levels. 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 has been shown to be highly selective
(>1500 fold) for human P2X3 receptors versus P2X2/3 receptors. With a modestly-selective P2X3 antagonist therapy for chronic
cough, an adverse effect on taste perception is a well-known and widely-documented tolerability issue. This significant issue is
likely caused by inhibition of P2X2/3 receptors located in the taste buds. Merck & Co reported that gefapixant, currently in
Phase 3 development for the treatment of chronic cough, showed that 80% of patients studied experienced taste alteration or taste
loss.


 


The Company believes that a highly selective
P2X3 antagonist can reduce coughing in patients with refractory chronic cough, while maintaining taste function by not inhibiting
P2X2/3 receptors. BLU-5937’s high selectivity for P2X3 has the potential to deliver comparable anti-tussive efficacy as Merck
 & Co’s gefapixant, with little to no effect on taste. 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.


 


BLU-5937 Clinical Phase 1 Study Data



 


The Phase 1 data demonstrated that BLU-5937
is safe and well tolerated, with 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.


 




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


 


The overall incidence of adverse events
was comparable between placebo (50%) and BLU-5937 (44%).


 


At the anticipated therapeutic doses of
50 mg or 100 mg, BLU-5937 did not cause any loss of taste perception and only one subject out of 24 (4%) reported transient taste
alteration. No subject reported total loss of taste at any dose levels. This taste effect was reported only on the first day out
of seven days of dosing, by a subject receiving 100 mg BID.


 


At supra-therapeutic doses (200 mg –
1200 mg), two subjects out of 48 (4%) reported transient and sporadic partial loss of taste, and 13 subjects out of 48 (27%) reported
transient and sporadic taste alteration. No subject out of 16 reported any taste loss or taste alteration at 200 mg. All taste-related
events were transitory and sporadic in nature; one was rated moderate and all others were rated mild. The other most frequent adverse
events reported in the Phase 1 study (>5%) were: headache (11%), numbness (11%), nausea (8%), dizziness (6%), and heartburn
(6%).


 


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. One subject had a
mild elevation of liver enzymes at 400 mg BID that normalized at follow up visit. This increase in liver enzyme levels was
not associated with any signs of liver toxicity (e.g. no increase in bilirubin and no clinical symptoms of liver toxicity). There
was also a slight increase in bilirubin in some subjects dosed at 400 mg BID. This elevation in bilirubin was not associated with
any concomitant increases in liver enzyme levels and returned to baseline value two days after drug discontinuation, which suggests
that it is most likely benign and due to an interaction between BLU-5937 and bilirubin hepatic disposition.


 


Additional data are expected to be presented
at medical conferences in 2019.


 


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
this 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.


 


BLU-5937 Clinical Phase 2 Study Design


 


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. 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 (study to be done at four doses:
25, 50, 100 and 200 mg BID). A total of 50 patients with refractory unexplained chronic cough are expected to be enrolled at approximately
10 clinical sites located in the United Kingdom and United 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-related indications.


 




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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. 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.


 


About Chronic Cough 


 


Chronic cough is classified as a cough
lasting more than eight weeks. The condition is associated with significant adverse physical, social and psychosocial effects on
health and 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. Of these patients, more than 2.6 million have unexplained or refractory chronic cough lasting for more than a year.


 


Refractory chronic cough is a significant
unmet medical need with no currently approved treatments.


 


A P2X3 antagonist in development (Merck
 & Co’s gefapixant) is currently in Phase 3 clinical studies. The compound has previously shown clinically and statistically
significant anti-tussive efficacy in multiple Phase 2 studies. However, gefapixant’s cough frequency reduction is coupled
with significant tolerability issues, with 80% of patients at the therapeutic dose experiencing taste alteration and/or taste loss.


 


Other Programs


 


BELLUS Health has economic interests in
other partnered development stage programs, including KIACTATM for the treatment of sarcoidosis (partnered with Auven
Therapeutics), AMO-01 for the treatment of Phelan McDermid syndrome (partnered with AMO Pharma Limited) and ALZ-801 for the treatment
of Alzheimer’s disease (partnered with Alzheon Inc.). The Company has no operational involvement in these programs and is
not responsible for any


 




    	 	5	 



     


    

 


expenses associated with these programs.
These programs are not anticipated to generate any short or medium term revenue for the Company.


 


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.


 


Refer to section Contingent Value Rights
- Acquisition of Thallion Pharmaceuticals Inc. in 2013 for details on 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.


 


FB Health is an Italy-based specialty pharma
focused on neurology and psychiatry. BELLUS Health’s equity interest in FB Health was acquired at the time the Company entered
into a worldwide license agreement with FB Health for BLU8499 (ALZ-801). In turn, FB Health sublicensed all its rights to
Alzheon as part of an exclusive worldwide license, excluding Italy.


 


Contingent Value Rights
- Acquisition of Thallion Pharmaceuticals Inc. in 2013


 


On August 15, 2013, the Company 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.


 




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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, the Company announced
on February 17, 2017 that it had received $572,586 as settlement for the additional purchase price consideration (the “Additional
Consideration Payment”) in relation to the 2009 Thallion Transaction. A net amount of $577,152 ($0.01609 per CVR) was
paid to CVR holders on March 10, 2017, which consists of the Additional Consideration Payment, in addition to $50,000 in relation
to the replacement cost of ShigamabTM antibodies less $28,458 of CVR agent costs, $13,404 of undisclosed liability not
included in the 2013 Thallion Statement of Net cash and $3,572 of expenses in relation to the unsuccessful listing of the CVR on
the Toronto Stock Exchange, all in accordance with the terms of the agreements of the 2013 Thallion acquisition by BELLUS Health.


 


On March 16, 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. 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. In relation to (ii) above, in accordance
with the terms of the agreements of the 2013 Thallion acquisition, 5% of the proceeds received by BELLUS Health from the sale of
Thallion, including the ShigamabTM technology (the “ShigamabTM Consideration”), was paid
to CVR holders. Accordingly, on April 7, 2017, a net amount of $94,550 ($0.00263 per CVR), which consists of the ShigamabTM
Consideration of $115,000 less $20,450 for CVR agent costs, was paid to CVR holders. In addition, on January 26, 2018, a net amount
of $14,721 ($0.00041 per CVR) was paid to CVR holders as final payment of the contingent consideration payable in relation to CVRs
on ShigamabTM future revenues, which consists of the ShigamabTM Consideration of $20,000 less $5,279 for CVR agent costs.


 


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, which consists of the Income Tax Credits of $159,603 less $25,454 for CVR agent costs.


 


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


 


In accordance with the terms of the plan
of arrangement, BELLUS Health applied to list the CVRs on the TSX, which request was rejected. Therefore, the CVRs are not listed
on a stock exchange.


 


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


 


Intellectual Property


 


BELLUS Health’s approach regarding
its intellectual property portfolio is to file and/or license patents and patent applications as appropriate and to obtain patent
protection in at least the major pharmaceutical markets, including the US, major European countries, Japan, and Canada. BELLUS
Health also relies on trade secrets, proprietary unpatented information, trademarks and contractual arrangements to protect the
Company’s technology and enhance its competitive position.


 


BELLUS Health currently has a patent estate
comprised of exclusively owned and in-licensed patents and patent applications. The patent portfolio includes patents and patent
applications claiming compounds, pharmaceutical compositions, nutraceuticals, processes, and methods for treating diseases, disorders,
or conditions.


 




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BLU-5937


 


BELLUS Health’s BLU-5937 program
is covered by a comprehensive patent estate comprised of issued and allowed patents, as well as pending patent applications. The
main patent family, incorporating composition of matter and methods of use claims for a broad array of potent and selective P2X3
antagonist compounds, has been granted 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.


 


In addition, a new U.S. patent claiming
P2X3 selectivity as a means of minimizing taste effects for BLU-5937 was granted in October 2018, which extends BLU-5937’s
patent protection to 2038.


 


Refer to the Business Overview section
for additional details.


 


Partnered Projects


 


BELLUS Health also owns other patents,
including patents relating to BLU8499 (ALZ-801) and TLN-4601 (AMO-01), that have been licenced to third parties.


 


Human Resources


 


As at March 13, 2019, BELLUS Health employed
10 people.


 


Facilities


 


BELLUS Health
leases office space in facilities located in the Parc Scientifique de la Haute Technologie in Laval, Quebec, Canada, pursuant
to a lease originally entered into in March 2011. In March 2018, the lease was extended to January 31, 2020. 


 


RISK FACTORS


 


Investing in BELLUS Health’s securities
involves a significant amount of risk. You should carefully consider the risks described below, together with all of the other
information in publicly filed documents, before making an investment decision. If any of the following risks actually occurs, the
Company’s business, financial condition or results of operations could be adversely affected. In such an event, the trading
price of the Company’s Common Shares could decline and you may lose part or all of your investment in our securities. Any
reference in this section to the Company’s “products” includes a reference to BELLUS Health’s product or
product candidates and future products that may be develop.


 


BELLUS Health may not be able to maintain
its operations and research and development without additional funding, and the Company may not have access to sufficient capital.



 


To date, the Company has financed its operations
primarily through public offerings of Common Shares, private placements, the issuance of convertible notes and research tax credits.
The Company has incurred significant operating losses and negative cash flows from operations since inception. As at December 31,
2018, the Company had available cash, cash equivalents and short-term investments totalling $48,906,000. The Company will need
to raise additional capital to fund its operations and to develop its drug candidates. The Company’s future capital requirements
will be substantial and may increase beyond current expectations depending on many factors, such as the duration, scope, rate of
progress, results and costs of any clinical and preclinical trials for drug candidates; unexpected delays or developments in seeking
regulatory approvals and the outcome thereof; the time and cost in preparing, filing, prosecuting, maintaining, and enforcing patent
claims; other unexpected developments encountered in implementing the Company’s business development and commercialization
strategies; the outcome of any litigation; and arrangements with collaborators. Further, changing circumstances may cause the Company
to consume capital significantly faster than it currently anticipates. The Company has based the foregoing estimates on assumptions
that


 




    	 	8	 



     


    

 


may prove to be wrong, and the Company
could utilize its available financial resources sooner than it currently expects.


 


BELLUS Health may seek to raise additional
funds through public or private equity or debt financing, collaborations agreements with other companies and/or from other sources.
The Company has no committed source of additional capital and additional funding may not be available on terms that are acceptable
to the Company, or at all. If adequate funding is not available on reasonable terms, BELLUS Health may need to obtain funds on
terms less favorable than it would otherwise accept. To the extent that additional capital is raised through the sale of equity
or convertible debt securities, the issuance of those securities could result in dilution to the Company’s shareholders.
Moreover, the incurrence of debt financing could result in a substantial portion of BELLUS Health’s future operating cash
flow, if any, being dedicated to the payment of principal and interest on such indebtedness and could impose restrictions on operations.
This could render the Company more vulnerable to competitive pressures and economic downturns. If BELLUS Health is unable to raise
additional capital in sufficient amounts or on terms acceptable to the Company, it may have to significantly delay, scale back
or discontinue the development or commercialization of BLU-5937 or other drug candidates or other research and development initiatives.
The Company could be required to seek collaborators for its product candidates at an earlier stage than otherwise would be desirable
or on terms that are less favorable than might otherwise be available or relinquish or license on unfavorable terms its rights
to its product candidates in markets where the Company otherwise would seek to pursue development or commercialization itself.


 


No assurance can be given
that any such additional funding will be available or that, if available, it can be obtained on terms favourable to the Company.
The failure to obtain additional financing on favorable terms, or at all, could have a material adverse effect on the Company’s
business, financial condition and results of operations.


 


BELLUS Health has a history of losses
and has not generated any significant product sales revenue to date. The Company may never achieve or maintain profitability.


 


BELLUS Health’s potential drug candidates
are still only in development, and as a result, the Company has not generated significant revenues from drug sales to date. BELLUS
Health has incurred substantial expenses in its efforts to develop drugs, and consequently, has generated operating losses each
year since its inception. As of December 31, 2018, the Company had an accumulated deficit of $479,223,000. BELLUS Health’s
losses have adversely affected, and will continue to adversely impact, working capital, total assets, and shareholders’ equity.
The Company does not expect to generate any significant revenues from drug sales in the immediate future. The Company may never
successfully commercialize any drugs. Even if BELLUS Health succeeds in developing commercial drugs, it expects to incur additional
operating losses for at least the next several years. If the Company does not ultimately commercialize drugs and achieve or maintain
profitability, an investment in its shares could result in a significant or total loss.


 


BELLUS Health’s prospects currently
depend heavily on the success and market acceptance of BLU-5937, which is still in clinical development.


 


BELLUS Health currently has no drug products
for sale and may never be able to successfully develop drug products. The Company currently believes that its growth and future
prospects are mainly dependent on the successful development, regulatory approval and commercialization of its lead product candidate
BLU-5937, which may never occur. The Company is investing the vast majority of its efforts and resources into the development of
BLU-5937. BELLUS Health’s business thus depends heavily on the successful preclinical and clinical development, regulatory
approval and commercialization of BLU-5937, for which the Company must conduct additional preclinical and clinical trials, undergo
further development activities and seek and receive regulatory approval prior to commercial launch. Further development of BLU-5937
will require substantial investment, access to sufficient commercial manufacturing capacity and significant marketing efforts before
the Company can generate any revenue from product sales, if approved.


 


The Company anticipates that its ability
to generate revenues will depend mainly on the commercial success of BLU-5937, which will depend upon its market acceptance by
purchasers in the pharmaceutical market and the future market demand and medical need for products and research utilizing BLU-5937.
Most prescription drug candidates never reach the clinical development stage and even those that do reach clinical development
have only a small chance of


 




    	 	9	 



     


    

 


successfully completing clinical development
and gaining regulatory approval. If the Company is unable to successfully commercialize BLU-5937, it may never generate meaningful
revenues. There is also the risk that the actual market size or opportunity for BLU-5937 is not certain. If BLU-5937 reaches commercialization
and there is low market demand for BLU-5937 or the market for BLU-5937 develops less rapidly than the Company anticipates, the
Company may not have the ability to shift its resources to the development of alternative products. Failure to gain market acceptance
of BLU-5937 or an incorrect estimate in the nature and size of its market could have a material adverse effect on the Company.


 


BELLUS Health relies on third parties
to conduct preclinical studies and clinical trials for BLU-5937, and if they do not properly and successfully perform their obligations
to the Company, the Company may not be able to obtain regulatory approvals for BLU-5937.


 


BELLUS Health has designed the clinical
trials for BLU-5937. However, the Company relies on contract research organizations and other third parties to assist in managing,
monitoring and otherwise carrying out these trials. The Company competes with many other companies for the resources of these third
parties. The third parties on whom the Company relies generally may terminate their engagements at any time, and having to enter
into alternative arrangements would delay development and commercialization of its drug candidate. The FDA and comparable foreign
regulatory authorities require compliance with regulations and standards for designing, conducting, monitoring, recording, analyzing,
and reporting the results of clinical trials to assure that the data and results are credible and accurate and that the rights,
integrity and confidentiality of trial participants are protected. Although the Company relies on third parties to conduct its
clinical trials, they are not the Company’s employees, and the Company is responsible for ensuring that each of these clinical
trials is conducted in accordance with its general investigational plan, protocol and other requirements. The Company’s reliance
on these third parties for research and development activities will reduce its control over these activities but will not relieve
the Company of its responsibilities.


 


If these third parties do not successfully
carry out their duties under their agreements, if the quality or accuracy of the data they obtain is compromised due to their failure
to adhere to clinical trial protocols or to regulatory requirements, or if they otherwise fail to comply with clinical trial protocols
or meet expected deadlines, the clinical trials of the Company’s drug candidate may not meet regulatory requirements. If
clinical trials do not meet regulatory requirements or if these third parties need to be replaced, preclinical development activities
or clinical trials may be extended, delayed, suspended or terminated. If any of these events occur, the Company may not be able
to obtain regulatory approval of its drug candidate on a timely basis or at all.


 


BELLUS Health relies completely on one
third-party contract manufacturer to manufacture the active pharmaceutical ingredient (“API”) for BLU-5937 and another
third party contract manufacturer to manufacture final drug product, and BELLUS Health intends to rely on third parties to produce
non-clinical, clinical and commercial supplies of its product candidates, including BLU-5937. 


 


BELLUS Health does not currently have,
nor does it plan to acquire, the infrastructure or capability to internally manufacture its clinical drug supply of BLU-5937, or
any other product candidates, for use in the conduct of its research and development activities, preclinical studies and clinical
trials, and BELLUS Health lacks the internal resources and the capability to manufacture any product candidates on a clinical or
commercial scale. BELLUS Health currently has the API for BLU-5937 manufactured by one contract manufacturer and final drug product
supplied by another contract manufacturer, and does not currently have backup manufacturing capacity.


 


BELLUS Health plans to continue to rely
on contract manufacturers for the foreseeable future to produce quantities of products and substances necessary for research and
development, preclinical trials, human clinical trials and product commercialization, and to perform their obligations in a timely
manner and in accordance with applicable government regulations. While BELLUS Health intends to contract for the commercial manufacture
of its product candidates, BELLUS Health may not be able to identify and qualify contractors or obtain favorable contracting terms.


 


If BELLUS Health’s current or future
third party manufacturers do not perform as agreed, breach or terminate their agreements with the Company, significant additional
time and costs would be required to effect a transition to a new contract manufacturer. If BELLUS Health is unable to retain its
current contractors, or is unable to secure arrangements with new contractors to provide manufacturing services in a timely manner
and on acceptable terms as


 




    	 	10	 



     


    

 


needed, it will delay or prevent the development,
promotion, marketing, or sale of its product candidates, including BLU-5937 and have a negative effect on its operations and financial
condition. Moreover, if a replacement to BELLUS Health’s current or future contract manufacturers was required, the ability
to establish second-sourcing or find a replacement manufacturer may be difficult due to the lead times generally required to manufacture
drugs and the need for regulatory compliance inspections and approvals of any replacement manufacturer, all of which factors could
result in production delays and additional costs.


 


Manufacturing of API and final drug products
is complex and requires significant expertise. Difficulties could be encountered in production, particularly in scaling up and
validating production. There can be no assurance that contract manufacturers will be successful at scaling up and producing BLU-5937
with the required quality and in the quantities and timelines that will be needed for clinical and/or commercial purposes. So far
we have produced small quantities of BLU-5937 at kilogram scale for use in preclinical and clinical studies.


 


BELLUS Health’s reliance on these
contract manufacturers also exposes the Company to the possibility that they, or third parties with access to their facilities,
will have access to and may appropriate the Company’s trade secrets or other proprietary information.


 


The clinical effectiveness of BLU-5937
and of the Company’s other drug candidates is not yet supported by clinical data.


 


The preclinical toxicology studies and
the Phase 1 top-line data announced in November 2018 demonstrated that BLU-5937 has a good safety and tolerability profile. However,
the clinical safety of BLU-5937 has to be demonstrated through further clinical studies. The clinical effectiveness of BLU-5937
and of the Company’s other drug candidates is not yet supported by clinical data and the medical community has not yet developed
a large body of peer reviewed literature that supports the safety and efficacy of the Company’s products, including BLU-5937.
If future studies call into question the safety or efficacy of BLU-5937 or any of the Company’s other products, the Company’s
business, financial condition, and results of operations could be adversely affected.


 


Even if BLU-5937 or any of the Company’s
other products successfully complete the clinical trials and receive the regulatory approval necessary to market the drug candidates
to the public, there is also the risk of unknown side effects, which may not appear until the drug candidates are on the market
and may result in delay or denial of regulatory approval or withdrawal of previous approvals, product recalls or other adverse
events, which could materially adversely affect the Company.


 


BELLUS Health’s clinical trials
may not yield results that will enable the Company to obtain regulatory approval for its or its partnered drug candidates. 


 


The Company will only receive regulatory
approval for a drug candidate if it can demonstrate in carefully designed and conducted clinical trials that the drug candidate
is safe and effective. BELLUS Health does not know whether its current or any future clinical trials will demonstrate sufficient
safety and efficacy to obtain the requisite regulatory approvals or if they will result in marketable drugs.


 


Clinical trials are lengthy, complex, costly,
and uncertain processes. It takes several years to complete testing, and failure can occur at any stage of testing. The early stage
of the Company’s drug candidates involves risks related to safety, efficacy, drug metabolism, pharmacokinetic profile, tolerability,
manufacturing, formulation and distribution, among others. Results attained in preclinical testing and early clinical studies or
trials may not be indicative of results that are obtained in later studies. The Company has suffered, and may suffer further, significant
setbacks in advanced clinical trials, even after promising results in earlier studies. Based on results at any stage of clinical
trials, BELLUS Health may decide to repeat or redesign a trial or discontinue the development of a drug candidate. Furthermore,
actual results may vary once the final and quality-controlled verification of data and analyses has been completed. If the Company
fails to adequately demonstrate the safety and efficacy of a drug under development, BELLUS Health will not be able to obtain the
required regulatory approvals to commercialize that drug candidate.


 




    	 	11	 



     


    

 


Clinical trials are subject to continuing
oversight by governmental regulatory authorities and institutional review boards, and must meet the requirements of these authorities;
must meet requirements for informed consent; and must meet requirements for good clinical practices.


 


BELLUS Health may not be able to comply
with these requirements. The Company relies on third parties, including contract research organizations and outside consultants,
to assist in managing and monitoring clinical trials. BELLUS Health’s reliance on these third parties may result in delays
in completing, or in failing to complete, these trials if one or more third parties fail to perform with the speed and level of
competence expected. If clinical trials for a drug candidate are unsuccessful, BELLUS Health will be unable to commercialize such
drug candidate. If one or more of the clinical trials is delayed, the Company will be unable to meet its anticipated development
or commercialization timelines. Either circumstance could cause the price of the Company’s Common Shares to decline.


 


If BELLUS Health encounters difficulties
enrolling patients in clinical trials, the trials could be delayed or otherwise adversely affected. 


 


Clinical trials for drug candidates require
to identify and enroll a large number of patients with the disorder under investigation. The Company or its partner may not be
able to enroll a sufficient number of patients to complete clinical trials in a timely manner. Patient enrollment is a function
of many factors, including the following: design of the protocol, size of the patient population, eligibility criteria for the
study in question, perceived risks and benefits of the drug under study, availability of competing therapies, efforts to facilitate
timely enrollment in clinical trials, patient referral practices of physicians, and availability of clinical trial sites. If BELLUS
Health or its partner has difficulty enrolling a sufficient number of patients to conduct its clinical trials as planned, it may
need to delay or terminate ongoing clinical trials.


 


Setbacks in any of the clinical trials
would likely cause a drop in the price of the Company’s Common Shares. 


 


Setbacks in any phase of the clinical development
of a product candidate would have an adverse financial impact and could jeopardize U.S. Food and Drug Administration (FDA), European
Medicines Agency (EMA) or Japanese Pharmaceuticals and Medical Devices Agency (PMDA) approval, and would likely cause a further
drop in the price of the Company’s Common Shares.


 


BELLUS Health does not have the required
approvals to market any of its drug candidates, and the Company does not know if it will ever receive such approvals. 


 


To date, none of the Company’s drug
candidates has received regulatory approval for commercial sale. BELLUS Health cannot market a drug in any jurisdiction until it
has completed rigorous clinical trials as well as such jurisdiction’s extensive regulatory approval process. In general,
significant research and development and clinical studies are required to demonstrate the safety and efficacy of BELLUS Health’s
drug candidates before the Company can submit regulatory applications. Preparing, submitting, and advancing applications for regulatory
approval is sometimes complex, costly, and time consuming and entails significant uncertainty.


 


Even if BELLUS Health or its partners
obtain regulatory approvals for its drug candidates, the Company will be subject to ongoing government regulation.


 


Even if regulatory authorities approve
any of the Company’s drug candidates, the manufacturing, marketing, and sale of such drugs will be subject to strict and
ongoing regulation. Compliance with such regulation may be costly and consume substantial financial and management resources. For
example, an approval for a drug may be conditioned on conducting costly post-marketing follow-up studies. In addition, if, based
on these studies, a regulatory authority does not believe that the drug demonstrates a benefit to patients, such authority could
limit the indications for which the drug may be sold or revoke the drug’s regulatory approval.


 


BELLUS Health and its contract manufacturers
are required to comply with applicable current Good Manufacturing Practice (“cGMP”) regulations for the manufacture
of drugs. These regulations include requirements relating to quality assurance, as well as the corresponding maintenance of records
and documentation. Manufacturing facilities must be approved before they can be used in the commercial manufacturing of products
and are subject to subsequent


 




    	 	12	 



     


    

 


periodic inspection by regulatory authorities.
In addition, material changes in the methods of manufacturing or changes in the suppliers of raw materials are subject to further
regulatory review and approval.


 


If the Company or any future marketing
collaborators or contract manufacturers fail to comply with applicable regulatory requirements, BELLUS Health may be subject to
sanctions, including fines, drug recalls or seizures, injunctions, total or partial suspension of production, civil penalties,
withdrawals of previously granted regulatory approvals, and criminal prosecution. Any of these penalties could delay or prevent
the promotion, marketing, or sale of the Company’s drugs.


 


If BELLUS Health’s drugs do not
gain market acceptance, the Company may be unable to generate significant revenues.


 


Even if the Company’s drugs are approved
for sale, they may not be successful in the marketplace. Market acceptance of any of BELLUS Health’s drugs will depend on
a number of factors including demonstration of clinical effectiveness and safety, the advantages and disadvantages of the Company’s
drugs relative to alternative treatments, the availability of acceptable pricing and adequate third-party reimbursement, and the
effectiveness of marketing and distribution methods for the drugs. If BELLUS Health’s drugs do not gain market acceptance
among consumers, physicians, patients, and others in the medical community, the ability to generate significant revenues from its
drugs would be limited.


 


BELLUS Health may not achieve its projected
development goals in the announced and expected time frames.


 


The Company sets goals for and makes public
statements regarding timing of the accomplishment of objectives material to its success, such as the commencement and completion
of clinical trials, anticipated regulatory submission and approval dates, and time of drug launch. The actual timing of these events
can vary dramatically due to factors such as delays or failures in clinical trials, the uncertainties inherent in the regulatory
approval process, and delays in achieving manufacturing or marketing arrangements sufficient to commercialize drugs. There can
be no assurance that BELLUS Health’s clinical trials will be completed, that it will make regulatory submissions or receive
regulatory approvals as planned, or that the Company will be able to adhere to its current schedule for the launch of any of its
drugs. If BELLUS Health fails to achieve one or more of these milestones as planned, the price of its Common Shares would likely
decline.


 


If BELLUS Health or its partners fail
to obtain acceptable prices or adequate reimbursement for its drugs, the Company’s ability to generate revenues will be diminished.



 


BELLUS Health’s ability to successfully
commercialize drugs would depend significantly on the ability to obtain acceptable prices and the availability of reimbursement
to the patient from third-party payers, such as government and private insurance plans. While the Company has not commenced discussions
with any such parties, these third-party payers frequently require companies to provide predetermined discounts from list prices,
and they are increasingly challenging the prices charged for pharmaceuticals and other medical products. BELLUS Health’s
drugs may not be considered cost-effective, and reimbursement to the patient may not be available or sufficient to allow the Company
to sell its drugs on a competitive basis. BELLUS Health may not be able to negotiate favorable reimbursement rates for its drugs.


 


In addition, the continuing efforts of
third-party payers to contain or reduce the costs of healthcare through various means may limit the Company’s commercial
opportunity and reduce any associated revenue and profits. BELLUS Health expects proposals to implement similar government controls
to continue. In addition, increasing emphasis on managed care will continue to put pressure on the pricing of pharmaceutical and
biopharmaceutical products. Cost-control initiatives could decrease the price that the Company or any current or potential collaborators
could receive for any of the drugs and could adversely affect profitability. In addition, in Canada and in many other countries,
including in the US, where significant healthcare reforms are currently under discussion, pricing and/or profitability of some
or all prescription pharmaceuticals and biopharmaceuticals are subject to government control. If BELLUS Health fails to obtain
acceptable prices or an adequate level of reimbursement for its drugs, the sales of the drugs would be adversely affected or there
may be no commercially viable market for the Company’s drugs.


 




    	 	13	 



     


    

 


Competition in the biopharmaceutical
industry is intense, and development by other companies could render BELLUS Health’s drugs or technologies non-competitive.


 


The biopharmaceutical industry is highly
competitive. New drugs developed by other companies could render the Company’s drugs or technologies non-competitive. Competitors
are developing and testing drugs and technologies that would compete with the drugs that BELLUS Health is developing. Some of these
drugs may be more effective or have an entirely different approach or means of accomplishing the desired effect than the Company’s
drugs. BELLUS Health expects competition from biopharmaceutical and pharmaceutical companies and academic research institutions
to increase over time. Many of BELLUS Health’s competitors and potential competitors have substantially greater drug development
capabilities and financial, scientific, marketing, and human resources. The Company’s competitors may succeed in developing
drugs earlier and in obtaining regulatory approvals and patent protection for such drugs more rapidly than BELLUS Health can or
at a lower price.


 


BELLUS Health 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 product 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.


 


The Company has an exclusive worldwide
license to develop and commercialize BLU-5937 pursuant to a license agreement with NEOMED that is critical to its business, which
is subject to termination for breach of its terms, and therefore its rights may only be available to it for as long as the Company’s
development and commercialization activities are sufficient to meet the terms of the license. In addition, the Company may need
to enter into additional license agreements in the future. BELLUS Health’s existing license agreements impose, and any future
license agreements may impose on the Company, various development, regulatory and/or commercial diligence obligations, payment
of milestones and/or royalties and other obligations. If the Company fails to comply with its obligations under these agreements,
or it is subject to a bankruptcy, the licensor may have the right to terminate the license, in which event the Company would not
be able to market products covered by the license, which would have a material adverse effect on its business and financial condition.
Moreover, the Company’s current or future licenses may provide for a reversion to the licensor of its rights in regulatory
filings or other intellectual property or data that it regards as its own in the event the license terminates under certain circumstances,
such as due to breach.


 


Licensing of intellectual property is of
critical importance to BELLUS Health’s business and involves complex legal, business and scientific issues. Disputes may
arise between the Company and its licensors regarding intellectual property subject to a license agreement, including with respect
to:


 


• the scope of rights granted under
the license agreement and other interpretation-related issues;


 


• the rights of the Company’s
licensors under the license agreements;


 


• the Company’s diligence obligations
with respect to the use of the licensed technology in relation to its development and commercialization of its product candidates,
and what activities satisfy those diligence obligations; and


 


Any disputes with the Company’s licensors
over intellectual property that it has licensed from them may prevent or impair its ability to maintain its current licensing arrangements
on acceptable terms. Termination or expiry of the Company’s license agreements could result in the loss of significant rights
and could materially harm its ability to further develop and commercialize BLU-5937 or other product candidates.


 


The Company depends on its licensors to
protect a significant portion of its proprietary rights that derive from license agreements, including its exclusive worldwide
license with NEOMED to develop and commercialize BLU-5937. BLU-5937 is covered by a patent that is not owned by the Company but
is instead licensed to the Company by NEOMED. Moreover, BELLUS Health’s licensors under current licenses retain and its licensors
under future licenses may retain certain rights and obligations.


 




    	 	14	 



     


    

 


BELLUS Health’s business could suffer,
for example, if the licensed patents or other rights are found to be invalid or unenforceable, or if the Company is unable to enter
into necessary licenses on acceptable terms.


 


BELLUS Health may not obtain adequate
protection for its drugs through its intellectual property. 


 


BELLUS Health’s success depends,
in large part, on its ability to protect the Company’s competitive position through patents, trade secrets, trademarks, and
other intellectual property rights. The patent positions of pharmaceutical and biopharmaceutical firms, including BELLUS Health’s,
are uncertain and involve complex questions of law and fact for which important legal issues remain unresolved. The patents issued
or to be issued to BELLUS Health may not provide it with any competitive advantage. The Company’s patents may be challenged
by third parties in patent litigation, which is becoming widespread in the biopharmaceutical industry. In addition, it is possible
that third parties with drugs that are very similar to BELLUS Health will circumvent patents by means of alternate designs or processes.
The Company may have to rely on method of use protection for its compounds in development and any resulting drugs, which may not
confer the same protection as protection of its compounds per se. BELLUS Health may be required to disclaim part of the
term of certain patents. There may be prior art of which the Company is not aware that may affect the validity or enforceability
of a patent claim. There also may be prior art of which BELLUS Health is aware, but which it does not believe affects the validity
or enforceability of a claim, which may, nonetheless ultimately be found to affect the validity or enforceability of a claim. No
assurance can be given that the Company’s patents would, if challenged, be held by a court to be valid or enforceable or
that a competitor’s technology or drug would be found by a court to infringe BELLUS Health’s patents. Applications
for patents and trademarks in Canada, the US, and in foreign markets have been filed and are being actively pursued. Pending patent
applications may not result in the issuance of patents, and the Company may not develop additional proprietary drugs that are patentable.


 


Patent applications relating to or affecting
the Company’s business may have been filed by a number of pharmaceutical and biopharmaceutical companies and academic institutions.
A number of the technologies in these applications or patents may conflict with BELLUS Health’s technologies, patents, or
patent applications, and such conflict could reduce the scope of patent protection that the Company could otherwise obtain. BELLUS
Health could become involved in interference proceedings in the US in connection with one or more of its patents or patent applications
to determine priority of invention. The Company’s granted patents could also be challenged and revoked in opposition proceedings
in certain countries outside of the US. In addition to patents, the Company relies on trade secrets and proprietary know-how to
protect its intellectual property. BELLUS Health generally requires employees, consultants, outside scientific collaborators, and
sponsored researchers and other advisors to enter into confidentiality agreements. These agreements provide that all confidential
information developed or made known to the individual during the course of the individual’s relationship with the Company
is to be kept confidential and not disclosed to third parties except in specific circumstances. In the case of employees, the agreements
provide that all of the technology that is conceived by the individual during the course of employment is the exclusive property
of BELLUS Health. These agreements may not provide meaningful protection or adequate remedies in the event of unauthorized use
or disclosure of proprietary information. In addition, it is possible that third parties could independently develop proprietary
information and techniques substantially similar to the Company’s or otherwise gain access to BELLUS Health’s trade
secrets.


 


BELLUS Health may obtain the right to use
certain technology under license agreements with third parties. The Company’s failure to comply with the requirements of
material license agreements could result in the termination of such agreements, which could cause BELLUS Health to terminate the
related development program and cause a complete loss of investment in that program. As a result of the foregoing factors, the
Company may not be able to rely on its intellectual property to protect its products in the marketplace.


 


BELLUS Health may infringe the intellectual
property rights of others. 


 


The Company’s commercial success
depends significantly on its ability to operate without infringing on the patents and other intellectual property rights of third
parties. There could be issued patents of which BELLUS Health is not aware that its products infringe or patents that the Company
believes it does not infringe, but that it may ultimately be found to infringe. Moreover, patent applications are, in some cases,
maintained in secrecy until patents are issued. The publication of discoveries in the scientific or patent literature frequently
occurs substantially later than the date on which the underlying discoveries were made and patent applications were filed. Because
patents can take many years to issue, there may be currently pending applications of which BELLUS Health is unaware that may later
result in


 




    	 	15	 



     


    

 


issued patents that its products infringe.
For example, pending applications may exist that provide support or can be amended to provide support for a claim that results
in an issued patent that the Company’s drug infringes.


 


The biopharmaceutical industry has produced
a proliferation of patents, and it is not always clear to industry participants which patents cover various types of products.
The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform. BELLUS Health
is aware of, and has reviewed, third-party patents relating to the treatment of amyloid-related diseases, and the Company believes
that its drug candidates do not infringe any valid claim of these patents, although there can be no assurances of this. In the
event of an infringement or violation of another party’s patent, BELLUS Health may not be able to enter into licensing arrangements
or make other arrangements at a reasonable cost. Any inability to secure licenses or alternative technology could result in delays
in the introduction of drugs or lead to prohibition of the manufacture or sale of drugs by the Company.


 


Patent litigation is costly and time
consuming and may subject BELLUS Health to liabilities. 


 


The Company’s involvement in any
patent litigation, interference, opposition, or other administrative proceedings will likely cause BELLUS Health to incur substantial
expenses, and the efforts of technical and management personnel will be significantly diverted. In addition, an adverse determination
in litigation could subject the Company to significant liabilities.


 


BELLUS Health may not obtain trademark
registrations. 


 


The Company has filed applications for
trademark registrations in connection with its drug candidates in various jurisdictions, including in the US. BELLUS Health does
not believe that any of these current trademarks is critical to the success of the drug candidate to which it relates. No assurance
can be given that any of BELLUS Health’s trademarks will be registered in the US or elsewhere, or that the use of any trademark
will confer a competitive advantage in the marketplace. Furthermore, even if the Company is successful in these trademark registrations,
the FDA has its own process for drug nomenclature and its own views concerning appropriate proprietary names. It also has the power,
even after granting market approval, to request that a corporation reconsider the name for a drug because of evidence of confusion
in the market place. No assurance can be given that the FDA or any other regulatory authority will approve any of the Company’s
trademarks or will not request reconsideration of one of these trademarks at some time in the future.


 


Unstable market conditions may have
serious adverse consequences on BELLUS Health’s business.


 


BELLUS Health’s business may be adversely
affected by unpredictable and unstable market conditions. If the current equity and credit markets deteriorate it may make any
necessary equity or debt financing more difficult, more costly, and more dilutive. Failure to secure any necessary financing in
a timely manner and on favorable terms could have a material adverse effect on the Company’s growth strategy, financial performance
and stock price and could require the Company to delay or abandon clinical development plans. Global economic volatility and uncertainty
may also have an adverse effect on the Company’s the ability to obtain strategic partner support or commercialization opportunities
and alliances for the Company’s drug candidates, and to obtain continued services and supplies. There is a risk that one
or more of the Company’s current or future strategic partners may encounter difficulties during challenging economic times,
which would directly affect its ability to attain its operating goals on schedule and on budget.


 


Brexit may create volatility in markets
and uncertainty regarding future laws and regulations in the United Kingdom and the rest of Europe. 


 


In June 2016, a majority of voters in the
United Kingdom elected to withdraw from the European Union in a national referendum. While the terms of any withdrawal are subject
to an ongoing negotiation period, the referendum has led to volatility in the financial markets of the United Kingdom and more
broadly across Europe and may lead to a weakening in consumer, corporate and financial confidence in such markets. The referendum
has also created significant uncertainty about the future relationship between the United Kingdom and the European Union, including
with respect to the laws and regulations that will apply as the United Kingdom determines which European Union laws to replace
or replicate in the event of a withdrawal, and has also given rise to calls for the governments of other


 




    	 	16	 



     


    

 


European Union member states to consider
withdrawal. The risks of changing laws and regulations in the United Kingdom are creating uncertainty for companies such as BELLUS
Health. Compliance with any such changing laws and regulations may be costly and consume substantial financial and management resources,
as well as delay or prevent the development, promotion, marketing, or sale of the Company’s product candidates. The extent
and process by which the United Kingdom may exit the European Union, and the longer term economic, legal, political and social
framework to be put in place between the United Kingdom and the European Union are likely to lead to ongoing political and economic
uncertainty and periods of exacerbated volatility in both the United Kingdom and in wider European markets for some time. This
mid-to-long-term uncertainty may have an adverse effect on global economic conditions and on the ability of BELLUS Health to carry
out its plans with respect to the development of BLU-5937, which in turn could have a material adverse effect on our business and
financial condition.


 


The market price of the Company’s
Common Shares experiences a high level of volatility due to factors such as the volatility in the market for biotechnology stocks
generally and the short-term effect of a number of possible events. 


 


BELLUS Health is a public growth company
in the biotechnology sector. As frequently occurs among these companies, the market price for the Company’s Common Shares
may experience a high level of volatility. During the year ended December 31, 2018, BELLUS Health’s Common Shares traded
between $0.33 and $1.30 per share on the TSX. Numerous factors, including many over which the Company has no control, may have
a significant impact on the market price of its Common Shares, including, among other things, the following: (1) clinical
and regulatory developments regarding the Company’s drugs and drug candidates and those of its competitors; (2) arrangements
or strategic partnerships by BELLUS Health or its competitors; (3) other announcements by the Company or its competitors regarding
technological, drug development, sales, or other matters; (4) patent or other intellectual property achievements or adverse
developments; (5) arrivals or departures of key personnel; (6) changes in financial estimates and recommendations by
securities analysts; (7) government regulatory action affecting BELLUS Health’s drug candidates and its competitors’
drugs in the US, Canada, and foreign countries; (8) actual or anticipated fluctuations in revenues or expenses; (9) general
market conditions and fluctuations for the emerging growth and biopharmaceutical market sectors; (10) failure to enter into
favorable third-party manufacturing agreements; (11) events related to threatened, new, or existing litigation; (12) economic
conditions in the US, Canada, or abroad; (13) purchases or sales of blocks of BELLUS Health’s securities; and (14) difficulties
in the Company’s ability to obtain additional financing.


 


Listing on the TSX may increase share price
volatility due to various factors, including that the stock market in recent years has experienced extreme price and trading volume
fluctuations that often have been unrelated or disproportionate to the operating performance of individual companies. These broad
market fluctuations may adversely affect the price of the Company’s Common Shares, regardless of its operating performance.
In addition, sales of substantial amounts of its Common Shares in the public market after any offering, or the perception that
those sales may occur, could cause the market price of the Company’s Common Shares to decline.


 


As at March 13, 2019, OrbiMed Advisors
LLC (“OrbiMed”), Victoria Square Ventures Inc. (“VSVI”), a subsidiary of Power Corporation
of Canada, and Rocabe Investments Inc. (“Rocabe”), a company in which Mr. Roberto Bellini has a 50% equity interest,
(the “Major Shareholders”) own, directly or indirectly, respectively 13.5%,
11.3% and 10.4% of the Company’s outstanding Common Shares. A decision by one or more of the foregoing persons, or any other
significant shareholder, to sell a substantial amount of the Company’s Common Shares could cause the trading price of such
Common Shares to decline substantially. Furthermore, shareholders may initiate securities class action lawsuits if the market price
of BELLUS Health’s stock drops significantly, which may cause the Company to incur substantial costs and could divert the
time and attention of its management.


 


These factors, among others, could depress
the trading price of the Company’s securities. Because BELLUS Health may experience high volatility in its Common Shares,
individuals or entities should not invest in the stock unless prepared to absorb a significant loss of capital. At any given time,
investors may not be able to sell their shares at a price that is acceptable. The market liquidity for BELLUS Health’s stock
is low. While a more active trading market may develop in the future, the limited market liquidity for the Company’s stock
may affect investor’s ability to sell at a price that is satisfactory to them.


 




    	 	17	 



     


    

 


BELLUS Health does not expect to pay
any cash dividends for the foreseeable future.


 


Investors should not rely on an investment
in BELLUS Health’s Common Shares to provide dividend income. The Company does not anticipate that it will pay any cash dividends
to holders of its Common Shares in the foreseeable future. Instead, the Company plans to retain any earnings to maintain and expand
its operations. In addition, any future debt financing arrangement may contain terms prohibiting or limiting the amount of dividends
that may be declared or paid on its common shares. Accordingly, investors must rely on sales of their Common Shares after price
appreciation, which may never occur, as the only way to realize any return on their investment. As a result, investors seeking
cash dividends should not purchase the Company’s Common Shares.


 


If securities or industry analysts do
not publish research, or publish inaccurate or unfavorable research about BELLUS Health’s business, its share price and trading
volume could decline.


 


The trading market for BELLUS Health’s
Common Shares will depend, in part, on the research and reports that securities or industry analysts publish about the Company
or its business. If one or more of the analysts who cover the Company downgrade its stock or publish inaccurate or unfavorable
research about the Company’s business, its stock price would likely decline. In addition, if the Company’s operating
results fail to meet the forecast of analysts, its stock price would likely decline. If one or more of these analysts cease coverage
of the Company or fail to publish reports on the Company regularly, demand for the Company’s Common Shares could decrease,
which might cause its share price and trading volume to decline.


 


BELLUS Health’s revenues and expenses
may fluctuate significantly and any failure to meet financial expectations may disappoint securities analysts or investors and
result in a decline in the price of its Common Shares. 


 


The Company’s revenues and expenses
have fluctuated in the past and are likely to do so in the future. These fluctuations could cause BELLUS Health’s share price
to decline. Some of the factors that could cause revenues and expenses to fluctuate include the following: the inability to complete
drug development in a timely manner that results in a failure or delay in receiving the required regulatory approvals or allowances
to commercialize drug candidates; the timing of regulatory submissions and approvals; the timing and willingness of any current
or future collaborators to invest the resources necessary to commercialize the drug candidates; the outcome of any litigation;
changes in foreign currency fluctuations; the conversion of any convertible; the timing of achievement and the receipt of milestone
payments from current or future collaborators; failure to enter into new or the expiration or termination of current agreements
with collaborators; failure to introduce the drug candidates to the market in a manner that generates anticipated revenues; the
potential payments in relation to indemnity agreements and accounting policies adopted by the Company, including the fair value
determination of financial instruments based on the Company’s share price.


 


Due to fluctuations in the Company’s
revenues and expenses, BELLUS Health believes that period-to-period comparisons of its results of operation are not indicative
of future performance. It is possible that in some future quarter or quarters, revenues and expenses will be below the expectations
of securities analysts or investors. In this case, the price of the Company’s Common Shares could fluctuate significantly
or decline.


 


BELLUS Health would not be able to successfully
commercialize drug candidates if the Company is unable to create sales, marketing, and distribution capabilities or make adequate
arrangements with third parties, including entering into collaborations with partners, for such purposes. 


 


In order to commercialize the Company’s
drug candidates successfully, BELLUS Health could, on a product-by-product basis, either develop internal sales, marketing, and
distribution capabilities or make arrangements with third parties, including entering into collaborations with partners, to perform
some or all of these services. The Company currently has no marketing capabilities and sales force. To the extent that BELLUS Health
internally develops a sales force, the cost of establishing and maintaining a sales force would be substantial and may exceed its
cost effectiveness. In addition, in marketing the Company’s drugs, BELLUS Health would likely compete with many companies
that currently have extensive and well-funded marketing and sales operations. Despite marketing and sales efforts, BELLUS Health
may be unable to compete successfully against these companies. The Company may not be able to do so on favorable terms. The Company
could rely on third parties to market and sell its drugs in certain territories,


 




    	 	18	 



     


    

 


rather than establishing an internal sales
force. When BELLUS Health contracts with third parties, including entering into collaborations with partners, for the sale and
marketing of its drugs, revenues depend upon the efforts of these third parties, which may not be successful. If the Company fails
to establish successful marketing and sales capabilities or to make arrangements with third parties for such purposes, BELLUS Health’s
business, financial condition, and results of operations will be materially adversely affected.


 


BELLUS Health is subject to intense
competition for skilled personnel. The loss of key personnel or the inability to attract additional personnel could impair the
Company’s ability to conduct operations. 


 


BELLUS Health is highly dependent on its
management and staff; the loss of whose services might adversely impact the Company’s ability to achieve its objectives.
Recruiting and retaining qualified management and other personnel is critical to BELLUS Health’s success. Competition for
skilled personnel is intense, and the ability to attract and retain qualified personnel may be affected by such competition.


 


BELLUS Health is subject to the risk
of drug liability claims, for which the Company may not have, or may not be able to obtain, adequate insurance coverage. 


 


Human therapeutic products involve the
risk of drug liability claims and associated adverse publicity. Currently, BELLUS Health’s principal risks relate to participants
in the clinical trials who may suffer unintended consequences. Claims might be made directly by consumers, patients, healthcare
providers, or pharmaceutical companies or others selling or consuming BELLUS Health’s drugs. The Company may not have or
be able to obtain or maintain sufficient and affordable insurance coverage, including coverage for potentially very significant
legal expenses. Without sufficient coverage, any claim brought against BELLUS Health could have a materially adverse effect on
its business, financial condition, or results of operations.


 


Legislative actions, potential new accounting
pronouncements, and higher insurance costs are likely to impact the Company’s future financial position or results of operations.


 


Future changes in financial accounting
standards may cause adverse, unexpected revenue or expense fluctuations and affect BELLUS Health’s financial position or
results of operations. New pronouncements and varying interpretations of pronouncements have occurred with greater frequency and
are expected to occur in the future, and the Company may make, or may be required to make, changes in its accounting policies in
the future. Compliance with changing regulations of corporate governance and public disclosure, notably with respect to internal
controls over financial reporting, may result in additional expenses. Changing laws, regulations, and standards relating to corporate
governance and public disclosure are creating uncertainty for companies such as BELLUS Health, and insurance costs are increasing
as a result of this uncertainty.


 


BELLUS Health may incur losses associated
with foreign currency fluctuations.


 


The Company’s functional and reporting
currency is the Canadian dollar. BELLUS Health’s operations are, in some instances, conducted in currencies other than the
Canadian dollar (principally in US dollars) and a portion of the Company’s net monetary assets is denominated in other currencies
(principally in US dollars). Fluctuations in the value of foreign currencies relative to the Canadian dollar could cause BELLUS
Health to incur currency exchange losses.


 


BELLUS Health may incur losses due to
adverse decisions by tax authorities


 


The Company’s income tax reporting
is subject to audit by tax authorities. The effective tax rate may change from year to year based on the mix of income; non-deductible
expenses; changes in tax law; and changes in the estimated values of future income tax assets and liabilities.


 


BELLUS Health may enter into transactions
and arrangements in the ordinary course of business in which the tax treatment is not entirely certain. The Company must therefore
make estimates and judgments in determining its consolidated tax provision. In addition, BELLUS Health applies for numerous tax
credits that play an important role in its financial planning and it is not certain that the tax authorities will grant them. The
final outcome of any audits


 




    	 	19	 



     


    

 


by taxation authorities may differ from
estimates and assumptions used in determining the consolidated tax provisions and accruals. This could result in a material effect
on the Company’s consolidated research tax credits, income tax provision, financial position and the net income/loss for
the period in which such determinations are made.


 


The Company is subject to taxation in Canada
and was subject to taxation in certain foreign jurisdictions prior to the corporate reorganization. The Company’s effective
tax rate and tax liability are determined by a number of factors, including the amount of taxable income in particular jurisdictions,
the tax rates in these jurisdictions, tax treaties between jurisdictions, the extent to which it transfers funds to and repatriates
funds from its subsidiaries and future changes in laws. An adverse interpretation or ruling by one of the taxing authorities in
a jurisdiction in which the Company operates or a change in law could increase its tax liability or result in the imposition of
penalty payments, which could adversely impact its operating results.


 


The Major Shareholders have influence
over BELLUS Health’s business and corporate matters, including those requiring shareholder approval. This could delay or
prevent a change in control. Sales of Common Shares by BELLUS Health’s largest shareholders could have an impact on the market
price of the Company’s Common Shares. 


 


The Major Shareholders own, directly or
indirectly, an aggregate of approximately 35.2% of BELLUS Health’s outstanding Common Shares as at March 13, 2019. Pursuant
to Board representation agreement dated December 18, 2018, between the Company and OrbiMed (the “2018 Board Representation
Agreement”), OrbiMed is entitled to cause one nominee to be included in the list of management nominees to be proposed
for election to the Board at each shareholders meeting occurring following that date. OrbiMed’s right to one nominee shall
terminate on the date OrbiMed ceases to beneficially hold at least 10% of the issued and outstanding Common Shares. OrbiMed’s
nominated candidate is Mr. Khuong. In addition, pursuant to board representation agreements dated April 16, 2009, between the Company
and each of VSVI and a predecessor to Rocabe (the “2009 Board Representation Agreements”), each of VSVI and
Rocabe is entitled to cause two nominees to be included in the list of management nominees to be proposed for election to the Board
at each shareholders meeting occurring following that date. Despite their rights, each of VSVI and Rocabe has only nominated one
candidate. VSVI’s and Rocabe’ right to two nominees each shall terminate on the date each of VSVI, on the one hand,
and Rocabe, FMRC and 1324286 Alberta Limited, a wholly-owned subsidiary of the FMRC, collectively, on the other hand, ceases to
beneficially hold at least 7.5% of the issued and outstanding Common Shares. Therefore, OrbiMed, VSVI, FMRC, Rocabe and certain
persons related to such entities have the ability to exercise some degree of influence over BELLUS Health’s business and
the outcome of various corporate matters, including those requiring shareholder approval. In particular, this concentration of
ownership may have the effect of delaying or deferring a change in control of the Company and may adversely affect the price of
its Common Shares.


 


The Company may be required to make
a payment under an 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.


 


A share consolidation involves certain
risks.


 


The Company’s total market capitalization
immediately after a share consolidation may be lower than immediately before the share consolidation. There are numerous factors
and contingencies that could affect the Common Share price prior to or following a share consolidation, including the status of
the market for the Common Shares at the time, the status of the Company’s reported financial results in future periods, and
general economic, geopolitical, stock market and industry conditions. Accordingly, the market price of the Common Shares may not
be sustainable at the direct arithmetic result of a share consolidation and may be lower. If the market price of the Common Shares
is lower than it was before a share consolidation on an arithmetic equivalent basis, the Company’s total market capitalization


 




    	 	20	 



     


    

 


(the aggregate value of all Common Shares
at the then market price) after the share consolidation may be lower than before the Share Consolidation.


 


A decline in the market price of the Common
Shares after a share consolidation may result in a greater percentage decline than would occur in the absence of the share consolidation,
and the liquidity of the Common Shares could be adversely affected following the share consolidation – if a share consolidation
is implemented and the market price of the Common Shares declines, the percentage decline may be greater than it would occur in
the absence of the share consolidation. The market price of the Common Shares will, however, also be based on the Company’s
performance and other factors, which are unrelated to the number of the Common Shares outstanding.


 


The liquidity of the Common Shares could
be adversely affected by the reduced number of Common Shares that would be outstanding after a share consolidation.


 


A share consolidation may result in some
shareholders owning “odd lots” of less than 100 Common Shares on a post-consolidation basis, which may be more difficult
to sell, or require greater transaction costs per Common Share to sell. A share consolidation may result in some shareholders owning
 “odd lots” of less than 100 Common Shares on a post-consolidation basis. “Odd lots” may be more difficult
to sell, or require greater transaction costs per Common Share to sell, than Common Shares held in “board lots” of
even multiples of 100 Common Shares.


 


There is no assurance whatsoever that the
Common Shares of the Company will be listed on a major exchange in the United States in the occurrence of a share consolidation.


 


An investor may be unable to bring actions
or enforce judgments against us and certain of our directors and officers.


 


BELLUS Health is incorporated under the
laws of Canada, and its principal executive offices are located in Canada. Most of the Company’s directors and officers reside
outside of the United States and all or a substantial portion of its assets and the assets of these persons are located outside
the United States. Consequently, it may not be possible for an investor to effect service of process within the United States on
the Company or those persons. Furthermore, it may not be possible for an investor to enforce judgments obtained in United States
courts based upon the civil liability provisions of United States federal securities laws or other laws of the United States against
those persons or the Company.


 


If BELLUS Health is, or becomes, a “passive
foreign investment company,” adverse U.S. federal income tax consequences may result for U.S. shareholders of BELLUS Health.



 


U.S. holders of Common Shares should be
aware that BELLUS Health, based on current business plans and financial expectations, expects that it may be a passive foreign
investment company (“PFIC”) for the current tax year and may be a PFIC for future tax years. PFIC classification
is fundamentally factual in nature, generally cannot be determined until the close of the tax year in question, and is determined
annually. Consequently, there can be no assurance that BELLUS Health is not and will not become a PFIC for any tax year during
which U.S. holders own Common Shares. If BELLUS Health is a PFIC for any year during a U.S. holder’s holding period, then
such U.S. holder generally will be required to treat any gain realized upon a disposition of Common Shares, or any “excess
distribution” received on its Common Shares, as ordinary income, and to pay an interest charge on a portion of such gain
or distribution, unless the U.S. holder makes a timely and effective “qualified electing fund” election (“QEF
Election”) or a “mark-to-market” election with respect to its Common Shares. A U.S. holder who makes a QEF
Election generally must report on a current basis its share of BELLUS Health’s net capital gain and ordinary earnings for
any year in which BELLUS Health is a PFIC, whether or not BELLUS Health distributes any amounts to its shareholders. However, U.S.
holders should be aware that there can be no assurance that BELLUS Health will satisfy the record keeping requirements that apply
to a QEF, or that BELLUS Health will supply U.S. holders with information that such U.S. holders require to report under the QEF
Election rules, in the event that BELLUS Health is a PFIC and a U.S. holder wishes to make a QEF Election. Thus, U.S. holders may
not be able to make a QEF Election with respect to their Common Shares. A U.S. holder who makes a mark-to-market election generally
must include as ordinary income each year the excess of the fair market value of the Common Shares over the taxpayer’s basis
therein. Each U.S. holder should consult its


 




    	 	21	 



     


    

 


own tax advisors regarding the PFIC rules
and the U.S. federal income tax consequences of the acquisition, ownership, and disposition of Common Shares.


 


dividends


 


BELLUS Health has not declared any dividends
on Common Shares since its incorporation. Any future determination to pay dividends on Common Shares will remain at the discretion
of BELLUS Health’s Board of Directors and will depend on the Company’s financial condition, results of operations,
capital requirements and such other factors as the Board of Directors deems relevant.


 


description
of capital structure


 


BELLUS Health’s authorized share
capital consists of an unlimited number of voting Common Shares and an unlimited number of non-voting preferred shares (“Preferred
Shares”), all without nominal or par value.


 


As at March 13, 2019, the Company had 157,956,173
Common Shares outstanding and 174,844,685 Common Shares on a fully diluted basis, including 15,238,000 stock options granted under
the stock option plan and 1,650,512 warrants issued in relation to the 2018 Offering and 2017 Offering.


 


Equity


 


Common Shares. Each Common Share
entitles the holder thereof to one vote at any meeting of the shareholders of the Company, except meetings at which only holders
of a specified class of shares are entitled to vote. Subject to the rights of holders of the Preferred Shares, the Common Shares
are entitled to receive, as and when declared by the Board of Directors, dividends in such amounts as shall be determined by the
Board of Directors. The holders of Common Shares have the right, subject to the rights of the holders of Preferred Shares, to receive
the remaining property of the Company in the event of liquidation, dissolution or winding-up of the Company, whether voluntary
or involuntary.


 


Preferred Shares. No Preferred Shares
are currently issued however they may be issued from time to time in one or more series, the terms of each series, including the
number of shares, the designation, rights, preferences, privileges, priorities, restrictions, conditions and limitations, to be
determined at the time of creation of each such series by the Board of Directors without shareholder approval, provided that all
Preferred Shares will rank, with respect to dividends and return of capital in the event of liquidation, dissolution, winding-up
or other distribution of the Company’s assets for the purpose of winding-up its affairs, pari passu among themselves
and in priority to all Common Shares or shares of any class ranking junior to the Preferred Shares. Except as provided for in the
Company’s articles of incorporation (as amended), the holders of Preferred Shares shall not be entitled to receive notice
of meetings of the Company’s shareholders nor to attend thereat and shall not be entitled to vote at any such meeting.


 




    	 	22	 



     


    

 


MARKET
FOR SECURITIES


 


BELLUS Health’s Common Shares are
listed and posted for trading on the TSX (BLU). The following table sets forth, for the periods indicated, the reported high and
low sales prices and the aggregate volume of trading of the Company’s Common Shares on the TSX.


 


	 	TSX 
	Period	High	Low	Volume
	 	 	 	 
	January 2018	0.42	0.36	1,509,203
	February 2018	0.41	0.33	2,415,656
	March 2018	0.50	0.39	11,934,854
	April 2018	0.60	0.46	1,116,752
	May 2018	0.62	0.49	3,186,760
	June 2018	0.60	0.50	1,159,689
	July 2018	0.59	0.51	1,900,418
	August 2018	1.20	0.55	10,242,008
	September 2018	1.10	0.87	13,601,956
	October 2018	1.15	0.67	3,298,545
	November 2018	1.04	0.66	4,113,051
	December 2018	1.30	0.97	7,383,170


 


PRIOR SALES


 


No securities of the Company that are outstanding
but not listed or quoted on a marketplace were issued during the financial year ended December 31, 2018.


 




    	 	23	 



     


    

  


DIRECTORS
AND OFFICERS


 


As of March 13, 2019, the directors and
executive officers, as a group, beneficially owned or exercised control or direction over an aggregate of 60,541,926 of the Common
Shares representing 38.3% of the issued and outstanding Common Shares as at such date.


 


The following table states the names of
all BELLUS Health’s directors and executive officers as at March 13, 2019, their municipality, province or state and country
of residence, their age, their principal occupation during the past five years, their position and office held with the Company
and the period during which each director has served as a director of the Company. All members of the Board of Directors will hold
their positions until the next annual meeting of shareholders of the Company.


 


	Name and Municipality of Residence	 	Age

(at March 13,

  2019)	 	Principal Occupation During Past Five

    Years	 	Office	 	Period

during which

served as a

Director
	 	 	 	 	 	 	 	 	 
	Dr.
        Francesco Bellini, O.C. (1)

        Calgary,
        Alberta, Canada
	 	71	 	Chairman of the Board

    of Picchio International Inc

    (a management and holding company) 	 	Chairman of the Board	 	2002-2019
	 	 	 	 	 	 	 	 	 
	Mr.
        Roberto Bellini (1)

        Montreal,
        Quebec, Canada
	 	39	 	President and Chief Executive Officer

    of the Company 	 	Director	 	2009-2019
	 	 	 	 	 	 	 	 	 
	Dr.
        Youssef L. Bennani (2)

        Lorraine,
        Quebec, Canada
	 	58	 	Chairman of the Board of Domain Therapeutics
    (3)	 	Director	 	2017-2019
	 	 	 	 	 	 	 	 	 
	Mr.
        Franklin M. Berger, CFA (4)

        New
        York, New York, United States
	 	69	 	Consultant	 	Director	 	2010-2019
	 	 	 	 	 	 	 	 	 
	Dr.
        Clarissa Desjardins

        Montreal,
        Quebec, Canada
	 	52	 	Chief Executive Officer of

    Clementia Pharmaceuticals Inc.	 	Director	 	2017-2019
	 	 	 	 	 	 	 	 	 
	Mr.
        Chau Q. Khuong (5)

        New
        York, New York, United States
	 	43	 	Private Equity Partner

    of OrbiMed Advisors LLC	 	Director	 	2018-2019
	 	 	 	 	 	 	 	 	 
	Mr.
        Pierre Larochelle (1), (2), (4)

        Montreal,
        Quebec, Canada
	 	47	 	Vice President, Investments

    of Power Corporation of Canada (a diversified management and holding company)	 	Director	 	2009-2019
	 	 	 	 	 	 	 	 	 
	Mr.
        Joseph Rus (2), (4)

        Toronto,
        Ontario, Canada
	 	73	 	Consultant	 	Director	 	2009-2019
	 	 	 	 	 	 	 	 	 
	Mr.
        François Desjardins, CPA, CA

        Montreal,
        Quebec, Canada
	 	56	 	Vice President, Finance

    of the Company	 	Vice President, Finance	 	—
	 	 	 	 	 	 	 	 	 
	Dr.
        Denis Garceau

        Montreal,
        Quebec, Canada
	 	62	 	Senior Vice President, Drug Development

    of the Company	 	Senior Vice President,

    Drug Development	 	—
	 	 	 	 	 	 	 	 	 
	Mr.
        Tony Matzouranis

        Montreal,
        Quebec, Canada
	 	46	 	Vice President, Business Development

    of the Company 	 	Vice President, Business Development	 	—
	 	 	 	 	 	 	 	 	 
	Mr.
        Sébastien Roy

        Montreal,
        Quebec, Canada
	 	43	 	Partner,

    Davies Ward Phillips & Vineberg LLP

    (a law firm)	 	Corporate Secretary	 	—


 


NOTES:


 


		(1)	Pursuant
                                         to board representation agreements dated April 16, 2009 between the Company and each
                                         of VSVI and a predecessor to Rocabe (the “2009 Board Representation Agreements”),
                                         each of VSVI and Rocabe is entitled to cause two nominees to be included in the list
                                         of management nominees to be proposed for election to the Board at each shareholders
                                         meeting occurring following that date. VSVI’s and Rocabe’ right to two nominees
                                         each shall terminate on the date each of VSVI, on the one hand, and Rocabe, FMRC Family
                                         Trust (“FMRC”),



 




    	 	24	 



     


    

 


a
trust of which Dr. Francesco Bellini, Chairman of the Board of the Company, and Mr. Roberto Bellini, President and Chief Executive
Officer of the Company, are beneficiaries and 1324286 Alberta Limited (“AlbertaCo”), a wholly-owned subsidiary
of the FMRC, collectively, on the other hand, ceases to beneficially hold at least 7.5% of the issued and outstanding Common Shares.
Despite their rights, VSVI has only nominated one candidate, being Mr. Larochelle, and Rocabe has only nominated one candidate,
being Dr. Bellini.


		(2)	Member
                                         of the Human Resources and Governance Committee.



		(3)	From
                                         2013 to 2017, Dr. Bennani was Site Head and Vice-President of R&D at Vertex Pharmaceuticals
                                         Canada Inc., a research and development company.



		(4)	Member
                                         of the Audit Committee.



		(5)	Pursuant
                                         to Board representation agreement dated December 18, 2018 between the Company and OrbiMed
                                         (the “2018 Board Representation Agreement”), OrbiMed is entitled to
                                         cause one nominee to be included in the list of management nominees to be proposed for
                                         election to the Board at each shareholders meeting occurring following that date. OrbiMed’s
                                         right to one nominee shall terminate on the date OrbiMed ceases to beneficially hold
                                         at least 10% of the issued and outstanding Common Shares. OrbiMed’s nominated candidate
                                         is Mr. Khuong.



 


Committees of the Board

 


The following is a description of the current
committees of the Board:


 


Audit Committee


 


The mandate of the Audit Committee includes
assisting the Board in its oversight of (i) the integrity of the Company’s financial statements, accounting and financial
reporting processes, system of internal controls over financial reporting and audit process, (ii) the Company’s compliance
with, and process for monitoring compliance with, legal and regulatory requirements so far as they may relate to matters of financial
reporting, (iii) the independent auditors’ qualifications, independence and performance, and (iv) the performance
of the Company’s internal audit function (if any). The current members of the Audit Committee are Mr. Pierre Larochelle (Chair),
Mr. Franklin M. Berger and Mr. Joseph Rus.


 


Human Resources and Governance Committee


 


Compensation Matters: The mandate
of the Human Resources and Governance Committee includes reviewing the compensation arrangements for the Company’s employees,
including executive officers and directors, and making recommendations to the Board with respect to such compensation arrangements,
as well as making recommendations to the Board with respect to the Company’s incentive compensation plans and equity-based
plans and overseeing succession planning.


 


Governance Matters: The mandate
of the Human Resources and Governance Committee is also to develop and recommend to the Board a set of corporate governance principles
and to prepare and review the disclosure with respect to, and the operation of, the Company’s system of corporate governance,
before such disclosure is submitted to the Board for its approval. The Human Resources and Governance Committee is responsible
for the review and periodic update of the Company’s corporate governance mandates, charters, policies and procedures, including
its Code of Ethics which governs the conduct of the Company’s directors, officers and other employees. Moreover, the Human
Resources and Governance Committee is mandated to examine, on an annual basis, the size and composition of the Board and, if appropriate,
recommend to the Board a program to establish a Board comprised of members who facilitate effective decision-making.


 


Human Resources Matters: Finally,
the Human Resources and Governance Committee shall also identify individuals qualified to become members of the Board, recommend
to the Board nominees to be put before shareholders at each annual meeting and recommend to the Board a process for board, committee
and director assessment. In fulfilling its responsibilities to identify nominees to the Board, the Human Resources and Governance
Committee comes up with the names of individuals it believes represent potentially suitable candidates and also solicits names
of other potentially suitable candidates from the other members of the Board of Directors and also from management of the Company.
It then looks at the qualifications and qualities of each in light of the needs of the Board of Directors and the Company and bases
its recommendation to the Board on this basis.


 


The current members of the Human Resources
and Governance Committee are Mr. Joseph Rus (Chair), Mr. Pierre Larochelle and Dr. Youssef L. Bennani.


 




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LEGAL PROCEEDINGS
AND REGULATORY ACTIONS


 


From time to time during the normal course
of business, BELLUS Health becomes party to legal proceedings. At the date hereof, the Company is not a party to proceedings that
alone or in aggregate represent claims that could, in the judgment of management, be material to us on a consolidated basis. In
addition, during the year ended December 31, 2018, BELLUS Health was not subject to: any penalties or sanctions imposed by a court
relating to securities legislation or by a securities regulatory authority; any penalties or sanctions imposed by a court or regulatory
body that would be considered important by a reasonable investor; or any settlement agreements relating to securities legislation
or with a securities regulatory authority.


 


INTEREST
OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS


 


Consulting and Service
Agreement


 


The Company has entered into a Consulting
and Service Agreement with effect from January 1, 2010 with Picchio International providing for strategic advice on matters pertaining
to the development and commercialization of pharmaceutical products to provide health solutions to address critical unmet needs.
Under the terms of that agreement, Picchio International has assigned primary responsibility for providing such services to Dr.
Francesco Bellini. For the services, a monthly retainer of $20,833 is paid and Picchio International is reimbursed for its reasonable
expenses incurred in the proper conduct of the services. During the fiscal period ended December 31, 2018, Picchio International
received $381,000 under the Consulting and Service Agreement.


 


AUDIT COMMITTEE
AND PRINCIPAL ACCOUNTANTS FEES AND SERVICES


 


Charter of the Audit Committee


 


The Charter of the Audit Committee is attached
hereto as Schedule A.


 


Composition
of the Audit Committee


 


Until the next annual meeting of shareholders
of the Company, the Audit Committee is composed of Mr. Pierre Larochelle (Chair), Mr. Franklin M. Berger and Mr. Joseph Rus. Each
of the members of the Audit Committee is financially literate and independent.


 


Relevant
Education and Experience


 


Mr. Pierre Larochelle has an MBA from INSEAD
and has experience in finance and finance-related matters through his work in banking and in a venture capital company specializing
in biopharmaceutical and healthcare investments and his roles as President and Chief Executive Officer of Adaltis Inc., a publicly
listed biotechnology company and as Vice President, Investments at Power Corporation of Canada, a diversified management and holding
company. Mr. Franklin
M. Berger, CFA, is a biotechnology industry analyst with over 25 years of experience in capital markets and financial analysis.
He holds an M.B.A. from the Harvard Graduate School of Business Administration and an M.A. in International Economics and a B.A.
in International Relations both from Johns Hopkins University. Mr. Joseph Rus has broad experience in the pharmaceutical industry
as he held senior management positions in global pharmaceutical companies. He is a graduate of the Executive Marketing Program
at the University of Western Ontario (Canada), as well as the International Program at the Institute of Management and Development
of the University of Lausanne, Switzerland.


 


As such, all members of the Company’s
Audit Committee understand the accounting principles the Company uses to prepare its financial statements and have the ability
to assess the general application of such accounting principles in connection with the accounting for estimates, accruals and reserves.


 


Messrs. Larochelle, Berger and Rus have
an understanding of internal controls and procedures for financial reporting.


 




    	 	26	 



     


    

 


External
Auditor Services Fees


 


The Company has paid KPMG LLP (“KPMG”),
its external auditors, the following fees in each of the last two fiscal periods.


 


Annual
Audit Fees


 


The following sets forth the aggregate
fees for each of the last two fiscal periods for professional fees to KPMG for the audit of the annual financial statements or
for services normally provided by KPMG in connection with statutory and regulatory filings or engagements for those fiscal periods:


 


	Fiscal year ended December 31, 2018	$154,500 
	Fiscal year ended December 31, 2017	$164,000


 


Audit-Related
Fees


 


The following sets forth additional aggregate
fees to those reported under “Audit Fees” in each of the last two fiscal periods for assurance and related services
by KPMG that are reasonably related to the performance of the audit of the financial statements:


 





	Fiscal year ended December 31, 2018	Nil 
	Fiscal year ended December 31, 2017	Nil




 


Tax
Fees


 


The following sets forth the aggregate
fees in each of last two fiscal periods for professional services rendered by KPMG for tax compliance, tax advice and tax planning:


 


	Fiscal year ended December 31, 2018	$8,500
	Fiscal year ended December 31, 2017	$66,400


 


All
Other Fees


 


The following sets forth the aggregate
fees in each of the last two fiscal periods for products and services provided by the principal accountant not described above:


 


	Fiscal year ended December 31, 2018	Nil
	Fiscal year ended December 31, 2017	Nil


 


The Company’s Audit Committee pre-approves
every significant engagement by KPMG to render audit or non-audit services. All of the services described above were approved
by the Audit Committee.


 


TRANSFER
AGENT AND REGISTRAR


 


In connection with BELLUS Health’s
Common Shares, Computershare Investor Services Inc. is the Canadian transfer agent and registrar and Computershare Trust Corporation,
Inc. is the US transfer agent and registrar.


 


INTEREST
OF EXPERTS


 


KPMG has audited the Company’s consolidated
statements of financial position as at December 31, 2018 and 2017, and the consolidated statements of loss, other comprehensive
income, changes in shareholders’ equity and cash flows for the years ended December 31, 2018 and 2017. KPMG are
independent in accordance with the Code of Ethics of l’Ordre des comptables professionnels agréés du Québec.


 




    	 	27	 



     


    

 


ADDITIONAL
INFORMATION


 


Additional information regarding BELLUS
Health may be found on SEDAR at www.sedar.com.


 


Additional information, including directors’
and officers’ remuneration and indebtedness, principal holders of BELLUS Health’s securities, options to purchase securities
and interests of informed persons in material transactions, if applicable, is contained in the Company’s management information
circular for the most recent meeting of shareholders that involved the election of directors. Additional financial information
is provided in the Company’s consolidated financial statements for the most recently completed financial year.


 




    	 	28	 



     


    

 


Schedule
A


 


BELLUS HEALTH
INC.


 


AUDIT COMMITTEE
CHARTER


 


ESTABLISHMENT
OF COMMITTEE


 


The establishment of
the Audit Committee of the Board of Directors of BELLUS Health Inc. (the “Company”) is hereby confirmed with
the purpose, constitution and responsibilities described below.


 


The
Purpose of THE Audit Committee


 


The purpose of the
Audit Committee is to assist the Board of Directors in its oversight of, and recommend appropriate actions with respect to (i)
the integrity of the Company’s financial statements, accounting and financial reporting processes, system of internal controls
over financial reporting and audit process, (ii) the Company’s compliance with, and process for monitoring compliance with,
legal and regulatory requirements so far as they relate to matters of financial reporting, (iii) the independent auditor’s
qualifications, independence and performance and (iv) the performance of the Company’s internal audit function. Management
is responsible for (a) the preparation, presentation and integrity of the Company’s financial statements, (b) accounting
and financial reporting principles and (c) the Company’s internal controls and procedures designed to promote compliance
with accounting standards and applicable laws and regulations. The Company’s independent auditing firm is responsible for
performing an independent audit of the consolidated financial statements in accordance with generally accepted auditing standards.


 


The Audit Committee
members are not necessarily professional accountants or auditors and their functions are not intended to duplicate or to certify
the activities of management and the independent auditor. The Audit Committee is not expected to certify that the independent auditor
is “independent” under applicable rules. The Audit Committee serves a Board level oversight role where it oversees
the relationship with the independent auditor, as set forth in this charter, and provides advice, counsel and general direction,
as it deems appropriate, to management and the independent auditor on the basis of the information it receives, discussions with
the auditor and the experience of the Audit Committee’s members in business, financial and accounting matters.


 


Membership


 


The Committee shall
consist of no fewer than three members of the Board of Directors, all of whom shall be appointed by the Board. Except as otherwise
permitted by applicable law and the rules of the relevant regulatory authorities and stock exchanges, the members of the Committee
shall meet the independence and financial literacy requirements of The Toronto Stock Exchange (“TSX”) and applicable
law and no Committee member may have participated in the preparation of the financial statements of the Company or any of its subsidiaries
at any time in the previous three years. Appointment to the Committee, and the designation of any Committee members as “audit
committee financial experts”, shall be made on an annual basis by the full Board upon recommendation of the Human Resources
and Governance Committee.


 


Compensation
of Committee Members


 


No member of the Committee
may receive any compensation from the Company other than (i) director’s fees, which may be received in cash, common stock,
equity-based awards or other in-kind consideration ordinarily available to directors, (ii) a pension or other deferred compensation
for prior service that is not contingent on future service, and (iii) any other regular benefits that directors of peer companies
may receive, all as determined from time to time by the Human Resources and Governance Committee and the Board of Directors.


 




    	 	29	 



     


    

 


Committee
Structure and CONDUCT


 


The Board shall designate
one member of the Committee as its chairperson. The Committee shall meet at least once during each fiscal quarter, with further
meetings to occur, or actions to be taken by unanimous written consent, when deemed necessary or desirable by the Committee or
its chairperson.


 


The Audit Committee
shall meet at such times and places as it shall determine. The Committee may invite such members of management, the independent
auditor and other persons to its meetings as it may deem desirable or appropriate. Periodically, the Audit Committee shall meet
in executive session amongst themselves, with the independent auditor, the internal audit function, if any, and management. The
Chairman of the Audit Committee shall report on Audit Committee activities to the full Board of Directors.


 


Responsibilities


 


With respect to the independent auditor,
the Audit Committee:


 


		1.	is directly responsible for the
appointment (and recommends to the Company’s Board of Directors and shareholders the appointment/ratification of the appointment
of) and replacement, compensation and oversight of the work of the Company’s independent auditor, including the resolution
of any disagreement between management and the independent auditor; the independent auditor shall report directly to the Audit Committee.



 


		2.	reviews and discusses the written statement from the independent auditor concerning any relationship
between the independent auditor and the Company or any other relationships that may adversely affect the independence of the auditor,
and, based on such review, assesses the independence of the auditor.



 


		3.	reviews and evaluates the qualifications, performance and independence of the independent auditor,
and makes recommendation to the Board of Directors whether to retain their services.



 


		4.	establishes policies and procedures for the review and pre-approval by the Committee of all auditing
services and permissible non-audit services (including the fees and terms thereof) to be performed by the independent auditor,
with exceptions provided for de minimis amounts under certain circumstances as described by law.



 


		5.	reviews and discusses with the independent auditor: (a) its audit plans and audit procedures, including
the scope, fees and timing of the audit, and (b) the results of the annual audit examination and accompanying management letters.



 


		6.	discusses and reviews with the independent auditor the year-end audited financial statements, the
Management’s Discussion and Analysis (“MD&A”) of operations and financial performance and the related
press release.



 


		7.	reviews and discusses with the independent auditor on (a) critical accounting policies used by
the Company, (b) alternative accounting treatments in accordance with International Financial Reporting Standards (“IFRS”)
related to material items that have been discussed with management, including the ramifications of the use of the alternative treatments
and the treatment preferred by the independent auditor and (c) other material written communications between the independent auditor
and management.



 


		8.	reviews with the independent auditor its judgment as to the quality, not just the acceptability,
of the Company’s accounting principles and such matters required to be discussed with the Committee under generally accepted
auditing standards.



 




    	 	30	 



     


    

 


With respect to other matters, the Audit
Committee:


 


		9.	reviews annually its Charter, prepares and approves a conforming annual work plan to ensure all
tasks are duly executed.



 


		10.	discusses and reviews with management quarterly financial statements, the year-end audited financial
statements, the MD&A and related press release before the Company publicly discloses this information; and recommends to the
Board of Directors that these documents be approved.



 


		11.	reviews and discusses with management the Company’s major risks, including those affecting
its financial reporting, information management and information technology as well as the steps management has taken to monitor
and control such risks.



 


		12.	reviews and has prior-approval authority for related-party transactions (as defined in the relevant
TSX requirements).



 


		13.	reviews and discusses with Management, the Chief Financial Officer (or that person fulfilling the
functions of the Chief Financial Officer) and the internal audit function, if any: (a) the adequacy and effectiveness of selected
internal controls (including any significant deficiencies and significant changes in internal controls reported to the Committee
by the independent auditor or management), (b) the Company’s internal audit procedures, where applicable, and (c) the adequacy
and effectiveness of selected disclosure controls and procedures, and management reports thereon.



 


		14.	requires Management to prepare accurate financial reports, maintain appropriate internal controls,
perform appropriate risk management, develop and apply proper practices and financial policies;



 


		15.	reviews and approves the Company’s financial policies.



 


		16.	reviews and concurs in the appointment, replacement, reassignment or dismissal of the internal
audit function, if any.



 


		17.	reviews and approves the internal audit function’s annual audit planning report, reviews
its progress reports on a quarterly basis and evaluates its performance annually.



 


		18.	establishes procedures for the receipt, retention and treatment by the Company of complaints regarding
accounting, internal accounting controls, or auditing matters, and the confidential, anonymous submission by employees of concerns
regarding questionable accounting or auditing matters.



 


		19.	establishes policies for the hiring of employees/partners and former employees/partners of the
present and former independent auditor.



 


		20.	when appropriate, designates one or more of its members to perform certain of its duties on its
behalf, subject to such reporting to or ratification by the Committee as the Committee shall direct.



 


		21.	ensures that adequate procedures are in place for the review of the Company’s public disclosure
of financial information extracted or derived from the Company’s financial statements, other than the information described
in paragraph 10 above, and must periodically assess the adequacy of those procedures.



 


		22.	performs financial analysis as required from time to time by the Board of Directors and provide
advice.



 




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PERFORMANCE
EVALUATION


 


The Audit Committee
will engage in periodic self-assessments with the goal of continuing improvement, and will report to the Board of Directors annually
on the performance of the Audit Committee against its mandate; will annually review and reassess the adequacy of its charter, and
recommend any changes to the Board of Directors, where appropriate.


 


RESOURCES
AVAILABLE TO THE COMMITTEE


 


The Audit Committee
shall have the authority to engage independent legal, accounting and other advisers, as it determines necessary to carry out its
duties. The Audit Committee shall have sole authority to approve related fees and retention terms.


 


DIRECT
COMMUNICATION WITH THE COMMITTEE


 


The Chairman of the Audit Committee is
to be contacted directly by the Chief Financial Officer (or that person fulfilling the functions of the Chief Financial Officer),
the internal audit function or the independent auditor: (1) to review items of a sensitive nature that can impact the accuracy
of financial reporting, or (2) to discuss significant issues relative to the overall Board of Directors’ responsibility that
have been communicated to management but, in their judgment, may warrant follow-up by the Audit Committee.


 




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