---



Merus Labs International Inc.

Annual Report 2014

For the Years Ended September 30, 2014 and 2013

---



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|                   | Deloitte LLP     
|------------------ | -----------------
|5140 Yonge Street 
|Suite 1700        
|Toronto ON M2N 6L7
|                   | Canada           
|                   |                  
|                   | Tel: 416-601-6150
|                   | Fax: 416-601-6151
|                   | www.deloitte.ca  

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Merus Labs
International Inc.

We have audited the accompanying consolidated financial
statements of Merus Labs International Inc. (the Company), which comprise the
consolidated balance sheet as at September 30, 2013 and the consolidated
statement of operations, consolidated statements of comprehensive income (loss),
consolidated statements of changes in equity and the consolidated statements of
cash flows for each of the years in the two-year period ended September 30,
2013, and a summary of significant accounting policies and other explanatory
information.

Managements Responsibility for the Consolidated Financial
Statements

Management is responsible for the preparation and fair
presentation of these consolidated financial statements in accordance with
International Financial Reporting Standards as issued by the International
Accounting Standards Board, and for such internal control as management
determines is necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether due to fraud or
error.

Auditors Responsibility

Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We conducted our audits
in accordance with Canadian generally accepted auditing standards and the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we comply with ethical requirements and plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free from material misstatement. We were not engaged to
perform an audit of the Companys internal control over financial reporting. Our
audits included consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the
Companys internal control over financial reporting. Accordingly, we express no
such opinion.

An audit involves performing procedures to obtain audit
evidence about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditors judgment, including
the assessment of the risks of material misstatement of the consolidated
financial statements, whether due to fraud or error. An audit also includes
evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by management, as well as evaluating
the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained in our
audits is sufficient and appropriate to provide a basis for our audit
opinion.

35

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Opinion

In our opinion, the consolidated financial statements present
fairly, in all material respects, the financial position of Merus Labs
International Inc. as at September 30, 2013, and its financial performance and
its cash flows for each of the years in the two-year period ended September 30,
2013 in accordance with International Financial Reporting Standards as issued by
the International Accounting Standards Board.

|Chartered Professional Accountants, Chartered Accountants
|---------------------------------------------------------
|Licensed Public Accountants                              
|December 30, 2013                                        
|Toronto, Canada                                          

36

---

|Merus Labs
      International Inc.          
|---------------------------------------------
|Consolidated Statements of Financial Position
|(Expressed in
      Canadian dollars)        

|As at:                                         |   |                   |  |  | September 30 |   |   | September 30 |  
|---------------------------------------------- | - | ----------------- |  |  | ------------ | - | - | ------------ | -
|                                               |   |                   |  |  | 2014         |   |   | 2013         |  
|Assets                                         |   |                   |  |  |              |   |   |              |  
|Current assets                                 |   |                   |  |  |              |   |   |              |  
|Cash and
      cash equivalents                | $ |                   |  |  | 14,358,567   |   | $ | 8,084,367    |  
|Short-term investments                         |   | note 4            |  |  | 5,002        |   |   | 104,807      |  
|Trade and
      other receivables              |   | note 5            |  |  | 4,072,304    |   |   | 7,028,993    |  
|Inventories                                    |   | note 6            |  |  | 2,606,568    |   |   | 1,168,933    |  
|Loans
      receivable                         |   | note 7            |  |  | -            |   |   | 166,909      |  
|Derivative assets                              |   | note 8            |  |  | 269,699      |   |   | 19,111       |  
|Prepaid
      expenses                         |   |                   |  |  | 128,281      |   |   | 127,409      |  
|                                               |   |                   |  |  | 21,440,421   |   |   | 16,700,529   |  
|Non-current
      assets                       |   |                   |  |  |              |   |   |              |  
|Property and equipment                         |   | note 9            |  |  | 128,593      |   |   | 11,291       |  
|Intangible assets                              |   | notes 3,
      10 |  |  | 176,624,352  |   |   | 70,328,140   |  
|Total assets                                   | $ |                   |  |  | 198,193,366  |   | $ | 87,039,960   |  
|Liabilities and Equity                         |   |                   |  |  |              |   |   |              |  
|Current liabilities                            |   |                   |  |  |              |   |   |              |  
|Accounts
      payable and accrued liabilities |   |                   |  |  | 4,169,095    |   |   | 4,177,960    |  
|Income taxes payable                           |   |                   |  |  | 997,102      |   |   | 594,344      |  
|Provisions                                     |   | note 11           |  |  | -            |   |   | 190,701      |  
|Long term debt due within
      one year       |   | note 12           |  |  | 15,348,386   |   |   | 8,116,260    |  
|                                               |   |                   |  |  | 20,514,583   |   |   | 13,079,265   |  
|Non-current liabilities                        |   |                   |  |  |              |   |   |              |  
|Provisions                                     |   | note 11           |  |  | 330,789      |   |   | 92,572       |  
|Long term debt                                 |   | note 12           |  |  | 62,712,009   |   |   | 29,949,502   |  
|Total
      liabilities                        |   |                   |  |  | 83,557,381   |   |   | 43,121,339   |  
|                                               |   |                   |  |  |              |   |   |              |  
|Equity                                         |   |                   |  |  |              |   |   |              |  
|Share capital                                  |   | note 13           |  |  | 123,808,971  |   |   | 56,014,232   |  
|Equity
      reserve                           |   | note 14           |  |  | 35,132,914   |   |   | 33,881,330   |  
|Preferred shares                               |   | note 15           |  |  | 9,947,730    |   |   | -            |  
|Convertible debt - equity component            |   | note 16           |  |  | -            |   |   | 1,313,550    |  
|Accumulated deficit                            |   |                   |  |  | (61,033,735  | ) |   | (52,972,037  | )
|Accumulated other comprehensive income         |   | note 16           |  |  | 6,780,105    |   |   | 5,681,546    |  
|Total equity                                   |   |                   |  |  | 114,635,985  |   |   | 43,918,621   |  
|Total liabilities and equity                   | $ |                   |  |  | 198,193,366  |   | $ | 87,039,960   |  

Commitments and contingencies (note 17)

|Approved on behalf of the Board: |              
|-------------------------------- | -------------
|(signed)                         | (signed)     
|Tim
      Sorensen,              | Dave Guebert,
|Director                         | Director     

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

37

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|Merus Labs
      International Inc.  
|-------------------------------------
|Consolidated Statements of Operations
|(Expressed in
      Canadian dollars)

|                                                                      |  |         |            |   | Years ended
      September 30 |           
|--------------------------------------------------------------------- |  | ------- | ---------- | - | ------------------------------ | ----------
|                                                                      |  |         |            |   | 2014                           |           
|Revenues                                                              |  | note 2  |            | $ | 26,151,440                     |           
|Cost of goods sold                                                    |  |         |            |   | 4,493,769                      |           
|Gross
      margin                                                    |  |         |            |   | 21,657,671                     |           
|Operating expenses:                                                   |  |         |            |   |                                |           
|Sales and
      marketing                                             |  |         |            |   | 2,933,340                      |           
|General and
      administrative                                      |  |         |            |   | 6,631,140                      |           
|Acquisition costs                                                     |  |         |            |   | -                              |           
|Amortization of
      intangible assets                               |  | note 10 |            |   | 12,983,584                     |           
|Depreciation                                                          |  | note 9  |            |   | 3,547                          |           
|Intangible assets and
      goodwill impairment charge                |  | note 10 |            |   | 4,212,441                      |           
|Foreign
      exchange (gains) losses                                 |  |         |            |   | (1,181,886                     | )         
|                                                                      |  |         |            |   | 25,582,166                     |           
|                                                                      |  |         |            |   |                                |           
|Operating income (loss)                                               |  |         |            |   | (3,924,495                     | )         
|                                                                      |  |         |            |   |                                |           
|Interest expense                                                      |  |         |            |   | 3,468,940                      |           
|Investment expense (income)                                           |  | note 4  |            |   | 131,663                        |           
|                                                                      |  |         |            |   |                                |           
|Loss before income
      taxes                                        |  |         |            |   | (7,525,098                     | )         
|                                                                      |  |         |            |   |                                |           
|Income tax expense (recovery)
      - current                         |  | note 19 |            |   | 536,600                        |           
|- deferred                                                            |  | note 19 |            |   | -                              |           
|Loss from continuing
      operations                                 |  |         |            |   | (8,061,698                     | )         
|(Loss) income from discontinued operations,
      net of income taxes |  | note 20 |            |   | -                              |           
|                                                                      |  |         |            |   |                                |           
|Net loss for the year                                                 |  |         |            | $ | (8,061,698                     | )         
|                                                                      |  |         |            |   |                                |           
|Loss per share                                                        |  |         |            |   |                                |           
|Basic                                                                 |  | note 21 |            | $ | (0.15                          | )         
|Diluted                                                               |  | note 21 |            | $ | (0.15                          | )         
|Loss per share -
      continuing operations                          |  |         |            |   |                                |           
|Basic                                                                 |  | note 21 |            | $ | (0.15                          | )         
|Diluted                                                               |  | note 21 |            | $ | (0.15                          | )         
|Earnings (loss) per share
      - discontinued operations             |  |         |            |   |                                |           
|Basic                                                                 |  | note 21 |            | $ | -                              |           
|Diluted                                                               |  | note 21 |            | $ | -                              |           
|                                                                      |  |         |            |   |                                |           
|Weighted average
      number of common shares outstanding - basic    |  |         | 52,651,933 |   |                                | 33,151,593
|Weighted average number of common shares
      outstanding - diluted  |  |         | 52,651,933 |   |                                | 33,151,593

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

38

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|Merus Labs
      International Inc.                         
|------------------------------------------------------------
|Consolidated Statements of Comprehensive (Loss)
      Income
|(Expressed in
      Canadian dollars)                       

|                                                                                                                   |   | Years ended
      September 30 |  
|------------------------------------------------------------------------------------------------------------------ | - | ------------------------------ | -
|                                                                                                                   |   | 2014                           |  
|Net loss for the year                                                                                              | $ | (8,061,698                     | )
|Other comprehensive income                                                                                         |   |                                |  
|Items that may be
      reclassified to income: Currency translation differences (net of tax,
      2013: $20,429) |   | 1,098,559                      |  
|Other comprehensive income for the
      year                                                                      |   | 1,098,559                      |  
|Total comprehensive (loss) income                                                                                  | $ | (6,963,139                     | )

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

39

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|Merus Labs
      International Inc.  
|-------------------------------------
|Consolidated Statements of Cash Flows
|(Expressed in
      Canadian dollars)

|                                                               |   | Years ended
      September 30
|-------------------------------------------------------------- | - | ------------------------------
|                                                               |   | 2014                          
|Operating activities                                           |   |                               
|Net loss for the year                                          | $ | (8,061,698                    
|Add: loss (income) from
      discontinued operations          |   | -                             
|Adjustments for the following items:                           |   |                               
|Amortization of intangible assets                              |   | 12,983,584                    
|Depreciation                                                   |   | 3,547                         
|Gain on
      sale of real estate                              |   | -                             
|Impairment of intangible
      assets and goodwill             |   | 4,212,441                     
|Interest
      expense                                         |   | 3,468,940                     
|Income tax expense                                             |   | 536,600                       
|Unrealized (gains) losses on foreign exchange                  |   | (268,321                      
|Deferred tax liability                                         |   | -                             
|Loss on
      disposal of property and equipment               |   | -                             
|Share-based compensation                                       |   | 1,251,584                     
|Writedown
      of investments                                 |   | 123,947                       
|Change in fair value of
      derivative financial instruments |   | (250,588                      
|Interest
      paid                                            |   | (2,660,473                    
|Net change in non-cash working capital
      balances:         |   |                               
|Provisions                                                     |   | 47,516                        
|Trade and other
      receivables                              |   | 2,956,689                     
|Prepaid
      expenses                                         |   | (872                          
|Inventories                                                    |   | (1,437,635                    
|Accounts
      payable and accrued liabilities                 |   | (8,865                        
|Income taxes payable                                           |   | (133,842                      
|Net cash provided by
      operating activities                |   | 12,762,554                    
|Financing activities                                           |   |                               
|Proceeds
      from debt issuance, net of issuance costs       |   | 78,013,214                    
|Repayment of long-term
      debt                              |   | (30,000,000                   
|Private
      placement proceeds                               |   | -                             
|Proceeds from prospectus
      offering                        |   | 50,846,979                    
|Proceeds
      from issuance of preferred shares, net          |   | 9,947,730                     
|Proceeds from exercise of
      stock options                  |   | -                             
|Proceeds
      from exercise of stock warrants                 |   | -                             
|Payment to Old Merus                                           |   | -                             
|Net cash provided by (used
      in) financing activities      |   | 108,807,923                   

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

40

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|Merus Labs
      International Inc.  
|-------------------------------------
|Consolidated Statements of Cash Flows
|(Expressed in
      Canadian dollars)

|                                                               |   | Years ended
      September 30 |  
|-------------------------------------------------------------- | - | ------------------------------ | -
|                                                               |   | 2014                           |  
|Investing activities:                                          |   |                                |  
|Acquisition of Sintrom                                         |   | (121,512,827                   | )
|Acquisition of Enablex and capitalization of development costs |   | (607,971                       | )
|Acquisition of Factive                                         |   | -                              |  
|Disposal
      of Factive                                      |   | -                              |  
|Cash acquired on
      acquisition                             |   | 6,807,162                      |  
|Short-term investments                                         |   | 37,987                         |  
|Loan receivable
      repayments                               |   | 104,780                        |  
|Purchase
      of property and equipment                       |   | (125,408                       | )
|Proceeds from sale of
      real estate                        |   | -                              |  
|Cash
      acquired in amalgamation                            |   | -                              |  
|Net cash (used in) provided by investing
      activities      |   | (115,296,277                   | )
|Net change in cash from
      continuing operations            |   | 6,274,200                      |  
|Discontinued operations:                                       |   |                                |  
|Net cash
      provided by (used in) operating activities      |   | -                              |  
|Net cash provided by
      (used in) investing activities      |   | -                              |  
|Net change provided by
      (used in) discontinued operations |   | -                              |  
|Net change in cash and cash
      equivalents                  |   | 6,274,200                      |  
|Cash and cash equivalents,beginning of year                    |   | 8,084,367                      |  
|                                                               |   |                                |  
|Cash and cash equivalents,end of year                          | $ | 14,358,567                     |  

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

41

---

|Merus Labs
      International Inc.         
|--------------------------------------------
|Consolidated Statements of Changes in Equity
|(Expressed in
      Canadian dollars)       

AccumulatedConvertible
    
    
    
    
    
    otherPreferred
    
    
    Warrants
    
    
    debt - equity
    
    
    Accumulated
    
    
    **comprehensive**Share capital
    
    
    **Equity
      reserve**
    
    
    Shares
    
    
    reserve
    
    
    component
    
    
    deficit
    
    
    income (AOCI)
    
    
    **Total equity**Balance,
      September 30, 2012
    $
    51,639,478
    
    $
    31,468,434
    
    $
    -
    
    $
    1,427,175
    
    $
    -
    
    $
    (49,869,908
    )
    $
    598,603
    
    $
    35,263,782Share-based compensation (note
      13)
    
    -
    
    
    993,049
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    993,049Exercise of
      stock options (note 13)
    
    10,128
    
    
    (7,328
    )
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    2,800Expiry of warrants (note 14)
    
    -
    
    
    1,427,175
    
    
    -
    
    
    (1,427,175
    )
    
    -
    
    
    -
    
    
    -
    
    
    -Private
      placement (note 13)
    
    4,364,626
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    4,364,626Net loss for the period
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (3,102,129
    )
    
    -
    
    
    (3,102,129
    )Other comprehensive income
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    5,082,943
    
    
    5,082,943Balance, September 30, 2013
    $
    56,014,232
    
    $
    33,881,330
    
    $
    -
    
    $
    -
    
    $
    1,313,550
    
    $
    (52,972,037
    )
    $
    5,681,546
    
    $
    43,918,621Balance,
      September 30, 2013
    $
    56,014,232
    
    $
    33,881,330
    
    $
    -
    
    $
    -
    
    $
    1,313,550
    
    $
    (52,972,037
    )
    $
    5,681,546
    
    $
    43,918,621Share-based compensation (note
      13)
    
    -
    
    
    1,251,584
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    1,251,584Prospectus
      offering (note 13)
    
    50,846,979
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    50,846,979Acquisition (note 13)
    
    6,807,162
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    6,807,162Issuance of
      preferred shares (note 15)
    
    -
    
    
    -
    
    
    9,947,730
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    9,947,730Conversion of convertible debt
      (notes 12, 13)
    
    10,140,598
    
    
    -
    
    
    -
    
    
    -
    
    
    (1,313,550
    )
    
    -
    
    
    -
    
    
    8,827,048Net loss for
      the period
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (8,061,698
    )
    
    -
    
    
    (8,061,698
    )Other comprehensive income
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    1,098,559
    
    
    1,098,559Balance, September 30, 2014
    $
    123,808,971
    
    $
    35,132,914
    
    $
    9,947,730
    
    $
    -
    
    $
    -
    
    $
    (61,033,735
    )
    $
    6,780,105
    
    $
    114,635,985


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

42

---

|Merus Labs
      International Inc.                        
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2014, 2013 and 2012

|1. | Presentation of Financial
  Statements
|-- | --------------------------------------

Nature of Business

Merus Labs International Inc.,
incorporated under the Business Corporations Act (British Columbia), and its
subsidiaries (the Company), operate in Canada and Europe. The head office of
the Company is 100 Wellington St. West, Ste. 2110, Toronto, Ontario M5K 1H1. The
Company is a specialty pharmaceutical company engaged in the acquisition and
licensing of branded prescription pharmaceutical products.

Basis of Preparation

These consolidated annual financial
statements of the Company have been prepared in accordance with International
Financial Reporting Standards as issued by the International Accounting
Standards Board (IASB) (IFRS) for financial statements. The consolidated
annual financial statements have been prepared on a historical cost basis,
except for items that are required to be accounted for at fair value. The
policies set out below have been consistently applied to all the periods
presented.

The consolidated financial statements
were authorized for issue by the Companys Board of Directors on December 18,
2014.

|2. | Significant Accounting Policies
|-- | -------------------------------
|   |                                
|   | (a)                            
|   |                                
|   |                                
|   |                                
|   |                                

| |                           |  | September 30 |  |  | September 30 |  |  |                 | 
| | ------------------------- |  | ------------ |  |  | ------------ |  |  | --------------- | 
| |                           |  | 2014         |  |  | 2013         |  |  | Jurisdiction of | 
| | Company                   |  | % ownership  |  |  | % ownership  |  |  | incorporation   | 
| |                           |  |              |  |  |              |  |  |                 | 
| | Merus Labs Luxco S.a r.l. |  | 100.0        |  |  | 100.0        |  |  | Luxembourg      | 
| | Merus Labs Netherlands BV |  | 100.0        |  |  | 100.0        |  |  | Netherlands     | 
| | ECG Holdings (US) Inc.    |  | 100.0        |  |  | 100.0        |  |  | Delaware        | 

43

---

| | (b) | Accounting judgements, estimates, and uncertainties
      Critical judgements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | The following are the critical judgements, apart from
      those involving estimations (see below), that have been made in the
      process of applying the Company's accounting policies and that have the
      most significant effect on the amounts recognised in the consolidated
      financial statements.                                                                                                                                                                                                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | Acquisition accounting                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | Management exercised judgement in determining that the
      product acquisitions of Sintrom and Enablex were asset acquisitions, and
      that the acquisition of Factive was a business combination accounted for
      under the acquisition method of accounting. Management considered the
      guidance and definitions per IFRS 3 in making these determinations. These
      transactions have been recorded in the consolidated financial statements
      based on managements assessment of fair value for the acquired assets and
      liabilities.                                        
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | Functional currency                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | Management has exercised judgement in selecting the
      functional currency of each of the entities that it consolidates based on
      the primary economic environment in which the entity operates and in
      reference to the various indicators as provided by IAS 21  The effects
      of changes in foreign exchange rates. The consolidated financial
      statements of the Company are presented in Canadian dollars (CAD), which
      is the parent Companys functional and presentation currency.                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | Use of estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | In preparation of the Companys consolidated financial
      statements in accordance with IFRS, management is required to make
      estimates and assumptions that affect the reported amount of assets,
      liabilities, and the disclosure of contingent liabilities at the date of
      the financial statements and the reported amounts of revenues and expenses
      during the reporting period. Actual results could differ from those
      estimates used in the Companys consolidated financial statements and such
      differences could be material. Significant estimates
  include:

| |  | the allowance for inventory obsolescence;                                                                  
| | - | -----------------------------------------------------------------------------------------------------------
| |  | estimate for product returns;                                                                              
| |  | allocation of the purchase price and estimates
      of fair value for the acquired assets and liabilities;
| |  | the estimated useful lives of property and
      equipment and intangible assets;                          
| |  | impairment of financial and non-financial
      assets;                                                    
| |  | the valuation of deferred tax assets and
      liabilities;                                                
| |  | the valuation of warrants and share-based
      compensation expense                                       
| |  | the valuation of the equity component of
      convertible debt; and                                       
| |  | the valuation of non-cash consideration
      received on the sale of Factive                              

44

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| | Significant estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | The following are the key assumptions concerning the
      future, and other key sources of estimation uncertainty at the end of the
      reporting period, that have a significant risk of causing a material
      adjustment to the carrying amounts of assets and liabilities within the
      next financial year:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (i)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | The Company reviews the net realizable value of its
      inventory. The Company has determined that there are adequate sales to
      support the carrying amount for all inventories as at September 30, 2014.
      In addition, management reviews specific product and industry experience
      with returns in assessing if a write-down is required.                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (ii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | Revenue from product sales is recognized net of estimated
      sales discounts, credits, returns, rebates and allowances. The Companys
      return policy is limited to damaged or expired product. The return
      allowance is determined based on an analysis of the historical rate of
      returns, industry return data, and current market conditions, which is
      applied directly against sales.                                                                                                                                                                                                                                                                                                                                                                                                 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (iii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | The Company as part of its business combinations and
      product acquisitions performs a preliminary assessment of the fair value
      of all assets and liabilities acquired based on all current available
      information. As part of the measurement period to finalize the purchase
      price allocation, management updates the estimated fair values as
      information becomes available, support from third party market data
      becomes available, and where necessary, third party independent valuations
      are obtained. Management is ultimately responsible for concluding on the
      allocation of purchase price and estimates of fair value for the acquired
      assets and liabilities.                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (iv)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | Financial Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | The Company assesses at each statement of financial
      position date whether there is objective evidence that a financial asset
      or group of financial assets is impaired. If there is objective evidence
      that an impairment loss has occurred on an unquoted or not actively traded
      equity instrument that is not carried at fair value (because its fair
      value cannot be reliably measured), the amount of the loss is measured as
      the difference between the assets carrying amount and the present value
      of estimated future cash flows discounted at the current market rate of
      return for a similar financial asset and is recognized in profit or loss
      for the period. Reversals of impairment losses on assets carried at cost
      are not permitted.

45

---

For financial assets carried at
amortized cost, the amount of the loss is measured as the difference between the
assets carrying amount and the present value of estimated future cash flows
(excluding future credit losses that have not been incurred) discounted at the
financial assets original effective interest rate (i.e. the effective interest
rate computed at initial recognition).

Objective evidence of impairment of
financial assets carried at amortized cost exists if the counterparty is
experiencing significant financial difficulty, there is a breach of contract,
concessions are granted to the counterparty that would not normally be granted,
or it is probable the counterparty will enter into bankruptcy or a financial
reorganization.

Non-Financial Assets

Determining whether goodwill is
impaired requires an estimation of the recoverable amount of the cash generating
units (CGUs) or groups of CGUs to which goodwill has been allocated. The
determination of recoverable amount requires the Company to estimate the future
cash flows expected to arise from these CGUs and a suitable discount rate in
order to calculate the recoverable amount of the CGUs. If the recoverable amount
of the CGUs is less than its carrying amount, an impairment loss is recorded.
The Company currently has no goodwill.

At the end of each reporting period,
the Company reviews property, plant and equipment and intangible assets for
indicators of impairment. If any such indication exists, the recoverable amount
of the asset is estimated in order to determine the extent of the impairment
loss, if any. Where it is not possible to estimate the recoverable amount of an
individual asset, the assets are then grouped together into a CGU and a
recoverable amount is estimated for that CGU.

During the fourth quarter of 2014, the
Companys Vancocin and Enablex intangible assets exhibited indicators of
impairment, requiring the Company to assess these intangible assets for
impairment. The Company carried out a review of the recoverable amount of the
assets of each of its cash generating units (CGUs), which are defined at the
product line level (Vancocin and Enablex). The carrying values of the CGUs at
the impairment evaluation date of September 30, 2014 are included below:

| |                    |   | Enablex    |  |   | Vancocin  | 
| | ------------------ | - | ---------- |  | - | --------- | 
| | September 30, 2014 | $ | 56,351,000 |  | $ | 9,507,000 | 

The recoverable amount was calculated
based on the CGUs fair value less costs to sell, determined using a discounted
cash flow model. The assumptions in the discounted cash flow model that have the
greatest estimation uncertainty include forecasted revenue and the discount rate
which was based on the factors specific to each CGU, including risks inherent in
the discounted cash flow models. The rates applied were as follows:

Vancocin
    13%Enablex
    15%


46

---

| | As a result of the review, the
      Company concluded that an impairment loss of approximately $4,212,000 was
      required for Vancocin, but no impairment loss was required for Enablex.                                  
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                               
| | (v)                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                               
| | The Company reviews the estimated
      useful lives of property, equipment and intangible assets at the end of
      each year, with the effect of any changes in estimates being accounted for
      on a prospective basis.
| | Depreciation on property, equipment,
      and intangible assets is calculated using the straight- line method to
      allocate their cost to their residual values over their estimated useful
      lives, as follows:     

Furniture, fittings and
      equipment
    3  5 yearsLeasehold improvements
    Over the term of the leaseProduct rights
    2  10 yearsProduct patents
    Remaining economic life of patentManufacturing equipment
    5  10 years


| | During the year ended September 30, 2014, the
      useful lives were considered reasonable.                                                                                                                                                                                                                                                                                                            
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                         
| | (vi)      Valuation of
      deferred tax assets and liabilities                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                         
| | The Company estimates the probability that taxable
      profits will be available against deductible temporary differences can be
      utilized and thus give rise to deferred tax assets. The Company has
      reviewed the expected profitability and determined that no deferred tax
      asset should be recognized at this time.                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                         
| | (vii)      Valuation
      of warrants and share-based compensation expense                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                         
| | The Company estimates the fair value of warrants and
      share options issued for employment services based on the Black Scholes
      option-pricing model for warrants and share options with a service
      condition. These methods of valuation, which require management to use
      certain assumptions regarding inputs used, were applied to the equity
      transactions during the year.

47

---

| | (viii)      Valuation
      of the equity component of convertible debt                                                                                                                                                                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | The Company estimates the fair value of convertible debt
      by first estimating the liability component of the instrument based on a
      discounted cash flow model. The fair value of the equity component of the
      instrument is then determined as the difference between the fair value of
      the liability component and the fair value of the instrument at inception.                                                    
| |                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | (ix)      Valuation of
      non-cash consideration received on the sale of Factive                                                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | Proceeds from the sale of Factive (note 20) consisted of
      non-cash consideration of convertible debentures and shares. Management
      was required to make significant estimates in order to determine the fair
      value of the non-cash consideration at the transaction date due to the
      limited objective information available at that date. The significant
      estimates included in the calculation were as follows:

| |  | Management estimated the likelihood of repayment of the
      convertible debenture based on working capital levels and short-term
      commitments and determined there was significant uncertainty of
      collection.                                                                                 
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Management estimated the net realizable value of the
      shares received based on the limited trading history and determined that
      given the large number of shares and low trading volumes, there was
      significant uncertainty as to whether the shares could be sold on a timely
      basis.

| | (c) | Financial instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | The Company classifies all financial instruments as
      either fair value through profit or loss (FVTPL), available-for-sale
      (AFS), held-to-maturity (HTM), loans and receivables or other
      financial liabilities. Financial instruments are required to be measured
      at fair value on initial recognition. Measurement in subsequent periods
      depends on the financial instruments classification. Financial
      instruments classified as FVTPL are measured at fair value with unrealized
      gains and losses recognized in the results of operations. AFS instruments
      are measured at fair value with unrealized gains and losses recognized in
      other comprehensive income. HTM instruments, loans and receivables, and
      other financial liabilities are measured at amortized cost. Transaction
      costs for FVTPL financial instruments are expensed as incurred, whereas
      transaction costs for AFS, HTM, and other financial liability instruments
      are capitalized upon initial recognition of the instrument.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | The Company has classified its financial instruments as
      follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

| | Cash and cash equivalents                | Loans and
      receivables            
| | ---------------------------------------- | ---------------------------------------
| | Publicly-traded investments              | Fair value through profit or loss      
| | Privately-held investments               | Available-for-sale at cost             
| | Trade and other receivables              | Loans and receivables                  
| | Loans receivable                         | Loans and
      receivables            
| | Accounts payable and accrued liabilities | Other financial liability              
| | Derivative assets/liabilities            | Fair value
      through profit or loss
| | Long term debt                           | Other financial liability              

48

---

| | At each financial reporting period, the Companys
      management estimates the fair value of investments based on the criteria
      below and reflects such valuations in the consolidated financial
      statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (i)      Publicly-traded
      investments:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | Securities which are traded on a recognized securities
      exchange and for which no sales restrictions apply are recorded at fair
      values based on quoted market prices at the consolidated statement of
      financial position dates or the closing price on the last day the security
      traded if there were no trades at the consolidated statement of financial
      position dates.                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | Securities which are traded on a recognized securities
      exchange but which are escrowed or otherwise restricted as to sale or
      transfer may be recorded at amounts discounted from market value. In
      determining whether a discount is appropriate for such investments, the
      Company considers the nature and length of the restriction, the business
      risk of the investee company, its stage of development, market potential,
      relative trading volume and price volatility and any other factors that
      may be relevant to the ongoing and realizable value of the investments.                                                                                                                                                                                                                                            
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (ii)      Privately-held
      investments:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | Securities in privately-held companies that are not
      considered equity investments are recorded at fair value upon acquisition
      and subsequently measured at their initial cost less impairment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (iii)     Other financial
      liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | Other financial liabilities (including debt and trade and
      other payables) are initially recorded at fair value less transaction
      costs and subsequently measured at amortized costs using the effective
      interest method. The effective interest method is a method of calculating
      the amortized cost of a financial liability and of allocating interest
      expense over the relevant period. The effective interest rate is the rate
      that exactly discounts estimated future cash payments (including all fees
      and points paid or received that form an integral part of the effective
      interest rate, transaction cost and other premiums or discounts) through
      the expected life of the financial liability, or (where appropriate) a
      shorter period, to the net carrying amount on initial recognition.

49

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| | (d) | Derivative financial instruments and hedging
      activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     | Derivatives are initially recognized at fair value on the
      date a derivative contract is entered into and are subsequently
      re-measured at their fair value. The method of recognizing the resulting
      gain or loss depends on whether the derivative is designated as a hedging
      instrument, and if so, the nature of the item being hedged. The Company
      designates certain derivatives as one of the following:                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     | i)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     | ii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     | iii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     | The effective portion of changes in the fair value of
      derivatives that are designated and qualify as cash flow hedges is
      recognized in other comprehensive income. The gain or loss relating to the
      ineffective portion is recognized immediately in the statement of
      operations.                                                                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     | Amounts accumulated in equity are reclassified to profit
      or loss in the periods when the hedged item affects profit or
  loss.                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     | When a hedging instrument expires or is sold, or when a
      hedge no longer meets the criteria for hedge accounting, any cumulative
      gain or loss existing in equity at that time remains in equity and is
      recognized when the forecast transaction is ultimately recognized in the
      statement of operations. When a forecast transaction is no longer expected
      to occur, the cumulative gain or loss that was reported in equity is
      immediately transferred to the statement of operations within foreign
      exchange (gains) losses.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     | The Company has not designated any of its derivatives as
      hedges as at September 30, 2014 and 2013.                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | (e) | Cash and cash equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     | Cash includes demand deposits with financial institutions
      of $14,358,567 and $8,054,367, at September 30, 2014 and 2013,
      respectively. Cash equivalents may consist of short-term, highly liquid
      investments purchased with original maturities of three months or less and
      were $nil and $30,000, at September 30, 2014 and 2013, respectively.
      Interest earned on cash and cash equivalents was $46,781 and $375, for the
      years ended September 30, 2014 and 2013, respectively.                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | (f) | Inventories                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     | Inventories are comprised of raw materials,
      work-in-progress and finished goods of pharmaceutical products and are
      recorded at the lower of cost and net realizable value on a first-in
      first-out basis. Costs are comprised of raw materials (active
      pharmaceutical ingredient), conversion costs (contract manufacturing), and
      batch-specific stability testing.                                                                                                                                                                       

50

---

| |     | Net realizable value is the estimated selling price in
      the ordinary course of business less estimated costs of completion and
      applicable selling expenses. The Company writes down inventory to its
      estimated net realizable value based upon assumptions about future and
      market conditions when necessary.                                                                                                                                                                                                                                                                                                         
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | (g) | Trade and other receivables                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | Trade and other receivables are stated at their amortized
      cost and are non-interest bearing and unsecured. Management conducts a
      periodic review of the collectability of trade receivables. The Company
      records an allowance for doubtful accounts if any uncertainty exists with
      respect to the recoverability of certain amounts based on historical
      experience or economic climate.                                                                                                                                                                                                                        
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | (h) | Intangible assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | Intangible assets include all costs incurred to acquire
      licensing and distribution agreements, product rights and patents.
      Intangible assets are recorded at cost and amortized on a straight-line
      basis over their estimated useful life of 2 to 10 years. Management has
      estimated the useful life based on industry data of similar products and
      patents. The Company conducts an annual assessment of the residual
      balances, useful lives and depreciation methods being used for intangible
      assets and any changes arising from the assessment are applied by the
      Company prospectively.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | (i) | Business combinations and goodwill                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | Business combinations are accounted for using the
      acquisition method. The cost of an acquisition is measured as the
      aggregate of the consideration transferred, measured at the acquisition
      date fair value. Acquisition costs incurred are expensed and included in
      acquisition costs.                                                                                                                                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | Goodwill represents the price paid for acquisitions in
      excess of the fair market value of net tangible and identifiable
      intangible assets acquired. Goodwill is carried at cost, less impairment
      losses if any. Goodwill is tested for impairment at the end of each fiscal
      year or if events or changes in circumstances indicate a potential
      impairment. Determining whether goodwill is impaired requires an
      estimation of the recoverable amount of the cash generating units (CGUs)
      to which goodwill has been allocated.                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | For the purpose of impairment testing, goodwill acquired
      in a business combination is allocated to each of the CGUs, or groups of
      CGUs, that is expected to benefit from the synergies of the combination.
      Each unit or group of units to which the goodwill is allocated represents
      the lowest level within the entity at which the goodwill is monitored for
      internal management purposes.                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | (j) | Impairment of non-financial assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | At the end of each reporting period, the Company reviews
      the carrying amounts of its property and equipment, intangible assets and
      goodwill to determine whether there is an indication that those assets have suffered an impairment
      loss. If any such indication exists, the recoverable amount of the asset
      is estimated in order to determine the extent of the impairment loss. In
      addition, goodwill, intangible assets with indefinite useful lives and
      intangible assets not yet available for use, if any, are tested for
impairment annually.                                                  

51

---

| |     | An impairment loss is recognized when the carrying amount
      of an asset, or its CGU, exceeds its recoverable amount. A CGU is the
      smallest identifiable group of assets that generates cash inflows that are
      largely independent of the cash inflows from other assets or groups of
      assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | The recoverable amount is the greater of the assets or
      CGUs fair value less costs to sell (FVLCTS) and value in use (VIU).
      In assessing VIU, the estimated future cash flows are discounted to their
      present value using a pre-tax discount rate that reflects current market
      assessments of the time value of money and the risks specific to the asset
      or CGU. In determining FVLCTS, a post-tax discounted cash flow model is
      used. For an asset that does not generate largely independent cash
      inflows, the recoverable amount is determined for the CGU to which the
      asset belongs. If the recoverable amount of the asset or CGU is less than
      its carrying amount, an impairment loss is recognized immediately in the
      statement of operations.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | Other than goodwill, where an impairment loss
      subsequently reverses, the carrying amount of the asset is increased to
      the revised estimate of its recoverable amount to the extent that the
      increased carrying amount does not exceed the carrying amount that would
      have been determined had no impairment loss been recognized for the asset
      in prior years. Goodwill impairment losses are not reversed.                                                                                                                                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | (k) | Provisions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | Provisions are recorded when a present legal or
      constructive obligation exists as a result of past events where it is
      probable that an outflow of resources embodying economic benefits will be
      required to settle the obligation, and a reliable estimate of the amount
      of the obligation can be made.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | The amount recognized as a provision is the best estimate
      of the consideration required to settle the present obligation at the
      statement of financial position date, taking into account the risks and
      uncertainties surrounding the obligation. Where a provision is measured
      using the cash flows estimated to settle the present obligation, its
      carrying amount is the present value of those cash flows. When some or all
      of the economic benefits required to settle a provision are expected to be
      recovered from a third party, the receivable is recognized as an asset if
      it is virtually certain that reimbursement will be received and the amount
      receivable can be measured reliably.                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | (l) | Income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | Provision for income taxes consists of current and
      deferred tax expense. Tax is recognized in the statement of consolidated
      operations, except to the extent that it relates to items recognized in
      other comprehensive income or directly in equity. In this case, the tax is
      also recognized in other comprehensive income or directly in equity,
      respectively.                                                                                                                                                                                                                                                                                                                                                                                                                         

52

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| |     | Current tax expense is the expected tax payable on the
      taxable income for the year, using tax rates enacted or substantively
      enacted at period end in the countries where the Company and its
      subsidiaries operate and generate taxable income, adjusted for amendments
      to tax payable with regards to previous years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     | Deferred tax is recognized, using the liability method,
      on temporary differences between the carrying amounts of assets and
      liabilities on the consolidated statement of financial position and their
      corresponding tax values, using the enacted or substantively enacted, as
      applicable, income tax rates at each statement of financial position
      date.                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     | Deferred tax assets also result from unused losses and
      other deductions carried forward. An assessment of the probability that a
      deferred tax asset will be recovered is made prior to any deferred tax
      asset being recognized. The valuation of deferred tax assets is reviewed
      on a quarterly basis and adjusted, if necessary, to reflect the estimated
      realizable amount.                                                                                                                                                                                                                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     | Deferred tax assets and liabilities are offset when there
      is a legally enforceable right to offset current tax assets against
      current tax liabilities and when the deferred tax assets and liabilities
      relate to income taxes levied by the same taxation authority on either the
      same taxable entity or different taxable entities where there is an
      intention to settle the balances on a net basis.                                                                                                                                                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (m) | Foreign currency translation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     | (i)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     | Items included in the financial statements of each of the
      Companys entities are measured using the currency of the primary economic
      environment in which the entity operates (the functional currency). The
      consolidated financial statements of the Company are presented in Canadian
      dollars (CAD), which is the parent Companys functional and presentation
      currency. The functional currency of Merus Labs Luxco S.a.r.l and Merus
      Labs Netherlands BV is Euros.                                                                                                                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     | (ii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     | Foreign currency transactions are initiated by the
      Companys entities at their respective functional currency using the
      exchange rates prevailing at the date of the transaction. At each
      statement of financial position date, monetary assets and liabilities are
      translated using the period-end foreign exchange rate. Non-monetary items
      that are measured in terms of historical cost in a foreign currency are
      translated using exchange rates as at the dates of the initial
      transactions. Non-monetary items measured at fair value in a foreign
      currency are translated using the exchange rates at the date when
      acquired. All gains and losses on translation of these foreign currency
      transactions are included in the statement of
operations.

53

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| |  | (iii) | Companys subsidiaries
| |  | ----- | ----------------------

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     | On consolidation the assets and liabilities of foreign
      operations are translated into CAD at the rate of exchange prevailing at
      the reporting date and their statement of operations are translated at the
      average exchange rates prevailing during the period. The exchange
      differences arising on translation for consolidation are recognized in
      other comprehensive income. On disposal of a foreign operation, the
      component of other comprehensive income relating to that particular
      foreign operation is recognized in the consolidated statement of
      operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (n) | Revenue recognition and estimated product
  returns                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     | Revenue from product sales, including shipments to
      distributors, is recognized when the Company has transferred to the
      customer the significant risks and benefits of ownership or future
      obligations with respect to the product, it is probable that the economic
      benefits associated with the transaction will flow to the Company and the
      amount of revenue can be measured reliably. Revenue from product sales is
      recognized net of estimated sales discounts, credits, returns, rebates and
      allowances.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     | In connection with its acquisition of Sintrom (note 3),
      the Company entered into a transition services and supply agreement with
      the vendor (Novartis Pharma AG, or Novartis) to facilitate the seamless
      and efficient transfer of the product to the Company. The agreement
      required that Novartis continue to manufacture, distribute, and promote
      the product until the Company obtained the necessary marketing
      authorizations to allow it to take over these functions as principal.
      Novartis provided the Company with a monthly reconciliation of revenues,
      cost of goods, and marketing and selling expenses for which the Company
      then billed Novartis for the net amount receivable. The Company relied on
      the financial information provided by Novartis to estimate the amounts due
      under this agreement. Based on the terms of this arrangement and the
      guidance per IAS 18 regarding agency relationships, for the period of this
      arrangement the Company recorded revenues relating to Sintrom on a net
      basis in the statement of operations, net of cost of goods and marketing
      and selling expenses.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     | The Company also entered into a transition services and
      supply agreement with Novartis, as described above, in connection with its
      acquisition of Enablex (note 3). During April and May 2013, substantially
      all marketing authorizations for Enablex were transferred and the Company
      began selling directly to third parties, incurred the inventory and credit
      risk and took over all other responsibilities for purchase and sale of the
      product. As a result, management determined the Company was acting as the
      principal in the sales of Enablex as opposed to an agent. As such,
      revenues for sales of Enablex made by the Company acting as principal were
      accounted for on a gross basis, in the same manner as its other products
      as described above.                                                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     | The Companys return policy is limited to damaged or
      expired product. The return allowance is determined based on analysis of
      the historical rate of returns and current market conditions, which is
      applied directly against sales.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

54

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| | (o) | Share-based compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     | From time to time, the Company grants options to
      directors, officers, employees and non- employees to purchase common
      shares. The Company accounts for its stock options using the fair-value
      method. Share-based payments, equal to the fair value of the options on
      the date of grant, are recognized in the statement of operations, with an
      offsetting credit to equity reserves, for stock options granted to
      employees, officers and directors over the period during which the related
      options vest. Share-based payments are recognized in the statement of
      operations, with an offsetting credit to equity reserves, for options
      granted to non-employees based on the fair value of the services received.
      Consideration paid upon exercise of stock options, along with the
      applicable amount of equity reserves, is credited to share
  capital.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | (p) | Comprehensive income or loss                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     | Comprehensive income or loss is the change in net assets
      arising from transactions and other events and circumstances from
      non-owner sources, and comprises net income or loss and other
      comprehensive income or loss. Financial assets that are classified as
      available for sale will have revaluation gains and losses included in
      other comprehensive income or loss until the asset is removed from the
      statement of financial position.                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | (q) | Basic and diluted net earnings per share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     | Basic earnings per share are computed using the weighted
      average number of common shares outstanding during the period. The
      treasury stock method is used to compute the dilutive effect of equity
      instruments. Stock options, share purchase warrants, and other equity
      instruments are dilutive when the average market price of the common
      shares during the period exceeds the exercise price of the options,
      warrants and other equity instruments. The diluted earnings per share is
      equal to the basic earnings per share if the effects of the outstanding
      options and warrants are anti-dilutive.                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | (r) | Related parties                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     | Parties are considered to be related if one party has the
      ability, directly or indirectly, to control the other party or exercise
      significant influence over the other party in making financial and
      operating decisions. Parties are also considered to be related if they are
      subject to common control. Related parties may be individuals or corporate
      entities. A transaction is considered to be a related party transaction
      when there is a transfer of resources or obligations between related
      parties.                                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | (s) | Changes in accounting standards                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     | During the year ended September 30, 2014 the following
      new or amended standards were issued and are effective for annual periods
      beginning on or after January 1, 2014 (October 1, 2014 for the Company),
      unless otherwise noted.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

55

---

Accounting standards implemented in
fiscal 2014:

| |  | On October 1, 2013, the Company retrospectively adopted
      IFRS 10, Consolidated Financial Statements, together with
      IFRS 11, Joint Arrangements, IFRS 12, Disclosure of Interests in
      Other Entities,IAS 27 (Revised), Separate Financial
      Statementsand IAS 28 (Revised), Investments in Associates or
      Joint Ventures. There was no impact to the annual consolidated
      Financial Statements as a result of adopting these standards.                                                                                             
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  | On October 1, 2013, the Company prospectively adopted
      IFRS 13, Fair Value Measurement, which establishes a single
      framework for measuring fair value essentially based on exit price, i.e.,
      the price that would be expected to be received to sell an asset or to be
      paid to transfer a liability. IFRS 13 also provides guidance on
      measurement and introduces certain disclosure requirements. The adoption
      of IFRS 13 did not result in any measurement adjustments and its impact on
      disclosures was not material.
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  | On October 1, 2013, the Company adopted the amendments to
      IAS 1 Presentation of Financial Statementswhich requires
      separate grouping of items of other comprehensive income into items that
      may be reclassified to profit and loss in future periods, and items that
      will not be reclassified to profit and loss in future periods. There was
      no impact to the annual consolidated Financial Statements as a result of
      adopting these standards.                                                                             
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  | On October 1, 2013, the Company adopted amendments to
      IFRS 7 Financial Instruments Disclosures,which set out new
      disclosure requirements related to the offsetting of financial assets and
      liabilities. There was no impact to the annual consolidated Financial
      Statements as a result of adopting these standards.                                                                                                                                                                                                                     

Future changes in accounting
standards:

| |  | IFRS 9 Financial Instruments. The IASB issued IFRS
      9, Financial Instruments to replace IAS 39, Financial Instruments:
      Recognition and Measurement. IFRS 9 uses as a single approach to
      determine whether a financial asset is measured at amortized cost or fair
      value, and replaces the multiple rules in IAS 39. The approach in IFRS 9
      focuses on how an entity manages its financial instruments in the context
      of its business model, as well as the contractual cash and cash
      equivalents flow characteristics of the financial assets. The new standard
      also requires a single impairment method to be used, replacing the
      multiple impairment methods currently provided in IAS 39. In November
      2013, the IASB has removed the mandatory effective date for IFRS 9. The
      new date will be determined when IFRS 9 is closer to completion. The
      effective date is for annual periods beginning on or after January 1,
      2018. The Company is currently assessing the impact of this standard.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | IFRS 15 Revenue from Contracts with Customers. The
      IASB issued IFRS 15 to establish principles for reporting the nature,
      amount, timing and uncertainty of revenue and cash flows arising from an
      entitys contracts with customers. The core principle of IFRS 15 is that an entity recognizes revenue to
depict the transfer of promised goods or services to customers in an amount that
reflects the consideration to which the entity expects to be entitled in
exchange for those goods and services. IFRS 15 also includes a cohesive set of
disclosure requirements that would result in an entity providing comprehensive
information about the nature, amount, timing and uncertainty of revenue and cash
flows arising from the entitys contracts with customers. This standard is
effective for annual periods beginning on or after January 1, 2017 with earlier
adoption permitted. The Company is currently assessing the impact of this
standard.                                                                                              

56

---

|3. | Acquisitions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Sintrom                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | On September 8, 2014, the Company acquired the European
      rights to manufacture, market, and sell the branded prescription medicine
      product Sintrom.                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Pursuant to the acquisition, Merus acquired the Sintrom
      product rights, certain related intellectual property, and other
      information and materials required to continue marketing and selling the
      brand in the territories acquired. Total consideration for the product
      acquisition was US$111,000,000. Approximately US$53,000,000 of the upfront
      cash payment was funded through a new $80,000,000 debt facility from a
      syndicate of Canadian commercial lenders, with the remainder funded from
      cash on hand (note 12). The transaction was accounted for as an asset
      acquisition.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Costs incurred to complete the acquisition were
      approximately $157,000, which were capitalized to the cost of the assets
      acquired. The fair value of the acquired identifiable net assets was
      $121,512,827 (US$111,000,000) and was allocated as
  follows:                                                                                                                                                                                                                                                                                                                                                         

| | Product rights            | $ | 121,512,827 | 
| | ------------------------- | - | ----------- | 
| | Net
      assets acquired | $ | 121,512,827 | 

|4. | Short-term investments
|-- | ----------------------

| |                              |   | September 30 |  |   | September 30 | 
| | ---------------------------- | - | ------------ |  | - | ------------ | 
| |                              |   | 2014         |  |   | 2013         | 
| |                              |   |              |  |   |              | 
| | Total short-term investments | $ | 5,002        |  | $ | 104,807      | 

As at September 30, 2014 the
portfolio of short-term investments was invested in marketable securities
consisting of common shares of public companies. The marketable securities have
been classified as held for trading and recorded at FVTPL. During the year ended
September 30, 2014, the company recognized impairment charges of
approximately $62,000 on a thinly traded public investment and approximately
$62,000 on a loan receivable from the same public company (note 7). During the
year ended September 30, 2013, the Company recognized impairment charges of
approximately $1,262,000 on a privately held investment. These charges were
recorded as investment expenses in the financial statements. The impairment
assessment was based on evidence of other financing transactions undertaken by
the investee as well as detailed financial information from the investee itself.
For the year ended September 30, 2014, the investment portfolio, including
dividend income, realized and unrealized investment gains and losses, incurred a
net loss of $7,716 (September 30, 2013: $31,053), after deducting fees and
expenses.

57

---

|5. | Trade and other
receivables
|-- | ---------------------------

| |                                       |   | September 30 |  |   | September 30 | 
| | ------------------------------------- | - | ------------ |  | - | ------------ | 
| |                                       |   | 2014         |  |   | 2013         | 
| |                                       |   |              |  |   |              | 
| | Trade receivables                     | $ | 3,782,246    |  | $ | 6,683,674    | 
| | Less: provision for doubtful accounts |   | -            |  |   | -            | 
| | Trade receivables  net               |   | 3,782,246    |  |   | 6,683,674    | 
| | Other receivables                     |   | 290,058      |  |   | 345,319      | 
| | Trade and other receivables           | $ | 4,072,304    |  | $ | 7,028,993    | 

The aging analysis of trade receivables
is as follows:

| |                              |   | September 30 |  |   | September 30 | 
| | ---------------------------- | - | ------------ |  | - | ------------ | 
| |                              |   | 2014         |  |   | 2013         | 
| | Current                      | $ | 3,632,705    |  | $ | 6,248,681    | 
| | 1 to 30 days overdue         |   | 110,120      |  |   | 250,867      | 
| | 31 to 60 days overdue        |   | 2,539        |  |   | 62,152       | 
| | 61 to 90 days overdue        |   | -            |  |   | 339          | 
| | Greater than 90 days overdue |   | 36,882       |  |   | 121,635      | 
| | Total trade receivables      | $ | 3,782,246    |  | $ | 6,683,674    | 

|6. | Inventories
|-- | -----------

| |                   |   | September 30 |  |   | September 30 | 
| | ----------------- | - | ------------ |  | - | ------------ | 
| |                   |   | 2014         |  |   | 2013         | 
| | Raw materials     | $ | 870,799      |  | $ | 467,499      | 
| | Work-in-progress  |   | 135,230      |  |   | 91,125       | 
| | Finished goods    |   | 1,600,539    |  |   | 610,309      | 
| | Total inventories | $ | 2,606,568    |  | $ | 1,168,933    | 

58

---

The amount of inventories expensed in
cost of goods sold during the year amounted to $4,113,374 (2013: $2,200,168,
2012: $753,659). During the year, the Company recorded inventory impairments of
$52,011 (2013:$104,477, 2012: $21,000)

|7. | Loans receivable
|-- | ----------------

| |                           |   | September 30 |  |   | September 30 | 
| | ------------------------- | - | ------------ |  | - | ------------ | 
| |                           |   | 2014         |  |   | 2013         | 
| |                           |   |              |  |   |              | 
| | Loans receivable  Vansen | $ | -            |  | $ | 166,909      | 
| | Total loans receivable    | $ | -            |  | $ | 166,909      | 

On August 26, 2013, in connection with
the sale of Factive (note 20), the Company entered into two new loan agreements
with Vansen Pharma Inc. (Vansen); one representing part of the sale proceeds,
the other being a renegotiation of a loan from March 2012. The first new loan
has a principal value of US$800,000, is non-interest bearing and was scheduled
to be repaid in four installments of US$200,000, due February 28, May 31, August
31 and November 30, 2014. The second new loan has a principal value of
US$280,000 and represents the remaining balance of the original loan with
payments of US$35,000 per month which were scheduled to begin September 1, 2013,
with a lump sum payment of US$140,000 due December 31, 2013. Both new loans are
unsecured, but contain a right of conversion at the holder's option into common
shares of Vansen for any overdue installments based on 95% of the 20-day moving
average price of the shares.

At inception, the fair value of the
loans were determined to be US$162,000, collectively based on the information
available at the date of sale as well as information received subsequent to
August 26, 2013 and after the statement of financial position date. During the
year ended September 30, 2014, the Company received US$98,378 against the loan
receivable. Management assessed the fair value of the loans based on a number of
factors and determined that given the deterioration in Vansens financial
condition and their dependence on raising additional financing, the remaining
value of the loans should be fully impaired.

|8. | Derivative financial
instruments
|-- | --------------------------------

| |                                    |   | September 30 |  |   | September 30 | 
| | ---------------------------------- | - | ------------ |  | - | ------------ | 
| |                                    |   | 2014         |  |   | 2013         | 
| | Assets:                            |   |              |  |   |              | 
| |                                    |   |              |  |   |              | 
| | Forward foreign exchange contracts | $ | 269,699      |  | $ | 19,111       | 
| |                                    |   |              |  |   |              | 
| | Total                              | $ | 269,699      |  | $ | 19,111       | 

59

---

In connection with its European
operations, the Company uses foreign currency contracts in order to partially
hedge the risk associated with its Euro currency source revenue. At September
30, 2014, the Company had forward foreign exchange contracts outstanding with a
notional principal amount of $4,861,370 (2013: $9,843,967). The fair value of
these contracts at September 30, 2013 was previously included in trade and other
receivables. For the period ended September 30, 2014, losses of $173,052 (2013:
$382,059, 2012: $373,800) were recognized in foreign exchange (gains) losses in
the statement of operations in connection with these contracts.

|9. | Property and equipment
|-- | ----------------------

Continuity of property and equipment
for the year ended September 30, 2014 was as follows:

| |                                                      |   | Computer  |   |   | Furniture    |   |   | Manufacturing |   |   | Total   |  
| | ---------------------------------------------------- | - | --------- | - | - | ------------ | - | - | ------------- | - | - | ------- | -
| |                                                      |   | Equipment |   |   | and Fixtures |   |   | Equipment     |   |   |         |  
| | Cost at September 30, 2013                           | $ | 2,572     |   | $ | 11,761       |   | $ | -             |   | $ | 14,333  |  
| | Additions                                            |   | -         |   |   | -            |   |   | 125,408       |   |   | 125,408 |  
| | Foreign exchange differences                         |   | 43        |   |   | 29           |   |   | (4,650        | ) |   | (4,578  | )
| |                                                      |   |           |   |   |              |   |   |               |   |   |         |  
| | Cost at September 30, 2014                           | $ | 2,615     |   | $ | 11,790       |   | $ | 120,758       |   | $ | 135,163 |  
| |                                                      |   |           |   |   |              |   |   |               |   |   |         |  
| | Accumulated Amortization at
      September 30, 2013 | $ | 940       |   | $ | 2,102        |   | $ | -             |   | $ | 3,042   |  
| | Amortization charge                                  |   | 862       |   |   | 2,685        |   |   | -             |   |   | 3,547   |  
| | Foreign exchange differences                         |   | (16       | ) |   | (3           | ) |   | -             |   |   | (19     | )
| | Accumulated Amortization at September 30, 2014       | $ | 1,786     |   | $ | 4,784        |   | $ | -             |   | $ | 6,570   |  
| |                                                      |   |           |   |   |              |   |   |               |   |   |         |  
| | Carrying amount at September 30, 2013                | $ | 1,631     |   | $ | 9,660        |   | $ | -             |   | $ | 11,291  |  
| | Carrying amount at September 30, 2014                | $ | 829       |   | $ | 7,006        |   | $ | 120,758       |   | $ | 128,593 |  

60

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|10. | Intangible assets                                                                          
|--- | -------------------------------------------------------------------------------------------
|    |                                                                                            
|    | Continuity of intangible assets for the year ended
      September 30, 2014 was as follows:

| |                                                      |   | Product Rights |   |   | Patents    |   |   | Total       |  
| | ---------------------------------------------------- | - | -------------- | - | - | ---------- | - | - | ----------- | -
| | Cost at September 30, 2013                           | $ | 69,890,744     |   | $ | 21,600,365 |   | $ | 91,491,109  |  
| | Product acquisitions                                 |   | 121,512,827    |   |   | -          |   |   | 121,512,827 |  
| | Additions arising from
      internal development    |   | 607,971        |   |   | -          |   |   | 607,971     |  
| | Foreign exchange differences                         |   | 797,039        |   |   | 361,558    |   |   | 1,158,597   |  
| |                                                      |   |                |   |   |            |   |   |             |  
| | Cost at September 30, 2014                           | $ | 192,808,581    |   | $ | 21,961,923 |   | $ | 214,770,504 |  
| |                                                      |   |                |   |   |            |   |   |             |  
| | Accumulated Amortization at September 30,
      2013 | $ | 15,319,674     |   | $ | 5,843,295  |   | $ | 21,162,969  |  
| | Amortization charge                                  |   | 7,915,136      |   |   | 5,068,448  |   |   | 12,983,584  |  
| | Impairment charge                                    |   | 4,212,441      |   |   | -          |   |   | 4,212,441   |  
| | Foreign exchange differences                         |   | (122,778       | ) |   | (90,064    | ) |   | (212,842    | )
| | Accumulated amortization at September 30, 2014       | $ | 27,324,473     |   | $ | 10,821,679 |   | $ | 38,146,152  |  
| |                                                      |   |                |   |   |            |   |   |             |  
| | Carrying amount at September 30, 2013                | $ | 54,571,070     |   | $ | 15,757,070 |   | $ | 70,328,140  |  
| | Carrying amount at September 30, 2014                | $ | 165,484,108    |   | $ | 11,140,244 |   | $ | 176,624,352 |  

Continuity of intangible assets for the
year ended September 30, 2013 was as follows:

| |                                                      |   | Product Rights |   |   | Patents    |   |   | Total      |  
| | ---------------------------------------------------- | - | -------------- | - | - | ---------- | - | - | ---------- | -
| | Cost at September 30, 2012                           | $ | 68,298,401     |   | $ | 20,766,160 |   | $ | 89,064,561 |  
| | Product divestitures                                 |   | (3,029,782     | ) |   | (1,142,725 | ) |   | (4,172,507 | )
| | Foreign exchange differences                         |   | 4,622,125      |   |   | 1,976,930  |   |   | 6,599,055  |  
| |                                                      |   |                |   |   |            |   |   |            |  
| | Cost at September 30, 2013                           | $ | 69,890,744     |   | $ | 21,600,365 |   | $ | 91,491,109 |  
| |                                                      |   |                |   |   |            |   |   |            |  
| | Accumulated Amortization at
      September 30, 2012 | $ | 8,625,444      |   | $ | 1,131,238  |   | $ | 9,756,682  |  
| | Amortization charge                                  |   | 6,658,156      |   |   | 4,596,341  |   |   | 11,254,497 |  
| | Product divestitures                                 |   | (284,930       | ) |   | (184,311   | ) |   | (469,241   | )
| | Foreign exchange differences                         |   | 321,004        |   |   | 300,027    |   |   | 621,031    |  
| | Accumulated amortization at September 30,
      2013 | $ | 15,319,674     |   | $ | 5,843,295  |   | $ | 21,162,969 |  
| |                                                      |   |                |   |   |            |   |   |            |  
| | Carrying amount at September 30, 2012                | $ | 59,672,957     |   | $ | 19,634,922 |   | $ | 79,307,879 |  
| | Carrying amount at September 30, 2013                | $ | 54,571,070     |   | $ | 15,757,070 |   | $ | 70,328,140 |  

61

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Vancocin  Product Rights

For the year ended September 30, 2014,
Management identified indicators of impairment with respect to the Vancocin
product rights intangible asset as a result of actual results being lower than
expectations due to the entry of a second generic competitor. The recoverable
amount of the product rights was determined based on FVLCTS calculations using a
discounted cash flow analysis. These calculations used post-tax cash flow
projections covering a nine-year period plus terminal period based on
managements best estimate of the impact of a second generic entrant on Vancocin
as at September 30, 2014. Cash flows beyond the projection period were
extrapolated using an estimated rate of decline of 15.0% . A post-tax discount
rate of 13.0% was applied. Based on this analysis, the carrying amount of the
Vancocin product rights was reduced to its recoverable amount through
recognition of an impairment charge at September 30, 2014 of approximately
$4,212,000 against the product rights.

Enablex  Product Rights

For the year ended September 30, 2014,
Management identified an indicator of impairment with respect to the Enablex
product rights intangible asset. Management became aware of an effort on the
part of the Federal Joint Committee (G-BA) of Germany to implement reference
pricing (maximum reimbursable price) for anticholinergic-based OAB products in
the market. Germany is the Companys largest market for Enablex. The recoverable
amount of the product rights was determined based on FVLCTS calculations using a
discounted cash flow analysis. These calculations used post-tax cash flow
projections covering a nine-year period plus terminal period based on
managements best estimate of the impact of reference pricing in Germany. Cash
flows beyond the projection period were extrapolated using an estimated rate of
decline of 20.0% . A post-tax discount rate of 15.0% was applied. Based on this
analysis, the FVLCTS for Enablex was found to be greater than its carrying value
and no impairment charge was taken.

|11. | Provisions
|--- | ----------

| |                                      |   | Year ended September 30 |  
| | ------------------------------------ | - | ----------------------- | -
| |                                      |   | 2014                    |  
| | Balance at beginning of year         | $ | 283,273                 |  
| | Additions from business combinations |   | -                       |  
| | Charges                              |   | 695,864                 |  
| | Utilization                          |   | (644,362                | )
| | Foreign exchange                     |   | (3,987                  | )
| | Product divestitures                 |   | -                       |  
| | Balance at end of year               |   | 330,789                 |  
| | Less: current portion of provisions  |   | -                       |  
| | Non-current portion of provisions    | $ | 330,789                 |  

62

---

The Companys provisions are comprised
of the following product-related liabilities:

Product Returns Liability:

The Company accepts all product returns
relating to North American product sales. Management estimates the fair value of
the product returns liability by taking into consideration the amount of units
previously sold, returns experience to date, and changes in the marketplace.

|12. | Long-term debt
|--- | --------------

| |                                                                                    |   | September 30 |  |   | September 30 | 
| | ---------------------------------------------------------------------------------- | - | ------------ |  | - | ------------ | 
| |                                                                                    |   | 2014         |  |   | 2013         | 
| | Current                                                                            |   |              |  |   |              | 
| | New secured facility, net of unamortized
      transaction costs of $651,614 (a)   | $ | 15,348,386   |  | $ | -            | 
| | Former secured facility (b)                                                        |   | -            |  |   | 8,116,260    | 
| |                                                                                    |   |              |  |   |              | 
| | Total                                                                              | $ | 15,348,386   |  | $ | 8,116,260    | 
| |                                                                                    |   |              |  |   |              | 
| | Non-Current                                                                        |   |              |  |   |              | 
| | New secured facility, net of unamortized
      transaction costs of $1,287,991 (a) | $ | 62,712,009   |  | $ | -            | 
| | Former secured facility (b)                                                        |   | -            |  |   | 21,314,702   | 
| | Convertible debenture (c)                                                          |   | -            |  |   | 8,634,800    | 
| |                                                                                    |   |              |  |   |              | 
| | Total                                                                              | $ | 62,712,009   |  | $ | 29,949,502   | 

| | (a)      New secured
  facility:
| | --------------------------------

On September 5, 2014, the Company
entered into a new secured debt facility with a syndicate of Canadian lenders.
The new facility provided additional funds for the purchase of Sintrom and
refinanced the Company's existing senior secured debt at a lower rate and
extended term. The new facility matures September 30, 2019 and provides for an
$80 million term loan, currently at prime plus 3.0%, with principal repayments
of $4,000,000 per quarter and monthly interest payments. The facility is secured
by all assets of the Company and contains affirmative and negative covenants
including compliance with laws and restrictions on additional debt, as well as
financial covenants such as debt to earnings and fixed charge coverage ratios.
The Company was in compliance with all covenants of the senior secured facility
as at September 30, 2014. Finance costs of $1,986,786 were capitalized to the
loan balance and will be amortized over the term of the loan.

63

---

| | (b)      Former
      secured facility:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | On September 24, 2013, the Company entered into a senior
      secured debt facility with a syndicate of Canadian chartered banks. The
      facility, in combination with the convertible debenture described below,
      refinanced the Company's existing debt at a lower rate and extended term.
      The facility consisted of a $30 million term loan at prime plus 3.5%, with
      monthly payments of principal and interest. Principal payments were
      $700,000 per month for the first 24 months and were to increase to
      $1,100,000 per month for the final 12 months. The facility also provided
      for up to $2 million on a revolving line of credit, based on eligible
      accounts receivable. The facility was secured by all assets of the Company
      and contained affirmative and negative covenants. This facility was repaid
      in full on September 5, 2014, in connection with the refinancing described
      above.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | (c)      Convertible
      debenture:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | In connection with the former secured facility described
      above, the Company issued convertible debentures with a principal value of
      $10,000,000 to two investment funds. The debentures had a term of five
      years, maturing September 20, 2018, with interest at 8.0%, payable
      quarterly. The principal amount of the debentures were convertible at the
      option of the holder into common shares at a fixed rate of $1.50 per
      common share, with an option for the Company to force conversion if its
      common shares trade at, or above, $2.30 per share for 20 consecutive days.
      As required under IFRS, management bifurcated the fair value of the
      convertible debenture into a liability component and an equity component,
      based on first determining the fair value of the liability with the
      remainder being the equity value. Based on these calculations, management
      determined the equity component to be $1,313,550, which was included as
      part of equity in the financial statements. On July 17, 2014, the Company
      notified the holder that it had met the requirements in order to force
      conversion of the debenture into common shares. Upon conversion, the
      Company issued 6,677,918 shares in settlement of the principal and accrued
      interest on the debt and transferred the equity component of convertible
      debt to share capital.

64

---

|13. | Share capital                                       
|--- | ----------------------------------------------------
|    |                                                     
|    | (a) Authorized:                                     
|    |                                                     
|    | Unlimited common shares without par value.
  Issued:

| |                                                             |  | Year ended         |  |   | Year ended         | 
| | ----------------------------------------------------------- |  | ------------------ |  | - | ------------------ | 
| |                                                             |  | September 30, 2014 |  |   | September 30, 2013 | 
| |                                                             |  | Number of          |  |   |                    | 
| |                                                             |  | shares             |  |   | Amount             | 
| | Balance,beginning of
      year                             |  | 38,391,512         |  | $ | 56,014,232         | 
| |                                                             |  |                    |  |   |                    | 
| | Common shares issued pursuant
      to prospectus offerings |  | 31,929,750         |  |   | 50,846,979         | 
| |                                                             |  |                    |  |   |                    | 
| | Common shares issued on
      conversion of debenture       |  | 6,677,918          |  |   | 10,140,598         | 
| |                                                             |  |                    |  |   |                    | 
| | Common shares issued pursuant
      to acquisition          |  | 4,246,544          |  |   | 6,807,162          | 
| |                                                             |  |                    |  |   |                    | 
| | Common shares issued pursuant
      to private placement    |  | -                  |  |   | -                  | 
| |                                                             |  |                    |  |   |                    | 
| | Common shares issued pursuant to options exercise           |  | -                  |  |   | -                  | 
| |                                                             |  |                    |  |   |                    | 
| | Balance,end of year                                         |  | 81,245,724         |  | $ | 123,808,971        | 

| | (b)      Prospectus
      offerings                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | On June 19, 2014, the Company closed a prospectus
      offering of 18,400,000 shares, including the underwriter over-allotment
      option, at a price of $1.70 per share for gross proceeds of $31,280,000.
      Proceeds were used for acquisitions and general corporate purposes. Costs
      of the offering were approximately $2,017,000.                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | On March 25, 2014, the Company closed a prospectus
      offering of 11,765,000 shares at a price of $1.70 per share for gross
      proceeds of $20,000,500. Additionally, on March 31, 2014, the underwriters
      exercised their over-allotment option on the offering, resulting in an
      additional issuance of 1,764,750 shares for gross proceeds of $3,000,075.
      Proceeds were used for future acquisitions and general corporate purposes.
      Costs of the offering were approximately $1,416,000.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | (c)      Conversion of
      debenture                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | On July 17, 2014, the Company notified the holder of its
      convertible debenture that it had achieved the threshold required to force
      conversion into common shares as per the terms of the arrangement. As such, the Company issued 6,677,918 shares
      in satisfaction of the outstanding principal and accrued interest to the
      date of conversion.                                                                                                                                                

65

---

| | (d)      Acquisitions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | On August 14, 2014, the Company completed an acquisition
      agreement with Dacha Strategic Metals Inc. (Dacha). The acquisition
      agreement provided that Dacha convert its liquid assets into cash and cash
      equivalents and contribute the proceeds to a new subsidiary. The
      subsidiary was to consist of only cash and no other assets or liabilities
      when acquired by Merus. The purchase price was equal to the total value of
      the cash held by the newly incorporated subsidiary, being $6,975,001 and
      was paid for by the issuance to Dacha of the Company's common shares
      valued at $1.70 per share, subject to certain purchase price adjustments.
      Costs of the acquisition were approximately $168,000.                                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | On January 6, 2012, the Company acquired 51% of Orbis
      Pharma Inc. (Orbis), a development stage pharmaceutical company. The
      arrangement involved the issuance of 300,000 shares which are released
      over a 3 year period. The Company was also obligated to purchase the
      remaining 49%, based on the achievement of certain milestones, through the
      issuance of additional common shares. Upon closing of the Enablex
      transaction, the Company issued an additional 525,035 shares in connection
      with the purchase of the remaining 49% of Orbis. The estimated fair value
      of the shares issued was $1,486,558, of which $202,888 was recognized as
      stock based compensation during the twelve months ended September 30, 2014
      (2013: $660,874). There are no further obligations under this agreement.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | (e)      Private placement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | On June 7, 2013, the Company completed a private
      placement of 7,678,034 shares at a price of $0.60 per share for gross
      proceeds of $4,606,820. Proceeds were used for debt repayment and general
      corporate purposes. Costs of the offering were approximately $242,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | (f)      Stock option plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | The Company has reserved 8,124,572 common shares under a
      10% rolling reloading stock option plan. Under the plan, the options are
      exercisable for one common share and the exercise price of the option must
      equal the market price of the underlying share at the grant date. The
      options have vesting periods ranging from the date of grant up to three
      years. Once vested, options are exercisable at any time until expiry.                                                                                                                                                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | In January 2013, the Company granted 50,000 options to an
      officer of the Company as incentive compensation. The options have a five
      year term and were granted with an exercise price of $1.19 per share, with
      all options vesting on the first anniversary date of the grant.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | In February 2013, 5,000 options previously granted were
      exercised by a former director of the Company at $0.56 per share for
      proceeds of $2,800.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | In May 2013, the Company granted 25,000 options to an
      employee of the Company as incentive compensation. The options have a five
      year term and were granted with an exercise price of $0.51 per share, with one third vesting immediately
and one third vesting on each of the next two anniversary dates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

66

---

In July 2013, the Company granted
150,000 options to a new director. The options have a term of five years,
vesting immediately, with an exercise price of $0.91 per share.

In January 2014, the Company granted
75,000 options to an officer of the Company in connection with his employment
agreement. The options have a five year term and were granted with an exercise
price of $1.49 per share, with options vesting over a three year period based on
one-third vesting on each anniversary.

In March 2014, the Company granted a
total of 1,025,000 incentive stock options to officers and directors of the
Company in connection with their compensation arrangements. The options have a
five year term with an exercise price of $1.80 per share and vest on the basis
of one-third immediately and one third on each of the first two anniversaries.

In May 2014, the Company granted
150,000 options to a new director. The options have a term of five years,
vesting immediately, with an exercise price of $1.69 per share. In addition, the
Company granted 75,000 options to an advisor to the board of directors. The
options are exercisable at $1.70 for a period of five years and vest on April
23, 2015.

In September 2014, the Company granted
200,000 options to an executive officer. The options have a term of five years,
with one half vesting immediately and the remainder vesting on the first
anniversary of the date of grant and an exercise price of $1.63 per share.

The estimated fair value of the options
granted during the twelve months of fiscal 2014, using the Black-Scholes option
pricing model, was $1,633,734 (2013: $136,799). $1,048,696 was expensed in the
financial statements during the twelve months ending September 30, 2014 (2013:
$332,175) relating to current and prior period grants, and has been included in
general and administrative expenses in the statement of operations and in equity
as equity reserves. The remaining expense will be recognized over the balance of
the vesting periods.

(g)      Stock
option details

The fair value of each option granted
was estimated on the date of the grant using the Black-Scholes fair value option
pricing model with the following assumptions:

| |                                                 |   | Year ended September 30 | 
| | ----------------------------------------------- | - | ----------------------- | 
| |                                                 |   | 2014                    | 
| | Weighted-average fair value
      of options    | $ | 1.07                    | 
| | Risk-free interest rate                         |   | 2.0%                    | 
| | Volatility of the Company's
      common shares |   | 74%                     | 
| | Weighted average expected life of the options   |   | 5 years                 | 
| | Forfeiture rate                                 |   | 0%                      | 
| | Expected dividends                              |   | Nil                     | 

67

---

Volatility was determined based on
daily observations of the historical stock price over a period consistent with
the expected life of the options at the date of grant.

Details of the options are as follows:

| |                                               | Number of | Weighted average
| | --------------------------------------------- | --------- | ----------------
| |                                               | options   | price per share 
| |                                               |           |                 
| | Options outstanding,
      September 30, 2012 | 2,320,000 | $ 2.01          
| | Options granted                               | 225,000   | 0.93            
| | Options exercised                             | (5,000)   | 0.56            
| | Options expired                               | (25,000)  | 3.00            
| | Options forfeited                             | (50,000)  | 2.00            
| | Options outstanding, September 30, 2013       | 2,465,000 | $ 1.90          
| | Options granted                               | 1,525,000 | 1.75            
| | Options expired                               | (200,000) | 2.03            
| | Options forfeited                             | (333,333) | 1.94            
| |                                               |           |                 
| | Options outstanding, September 30, 2014       | 3,456,667 | $ 1.82          

The range of exercise prices for
outstanding and exercisable options at September 30, 2014 are as follows:

| |                | Number      | Weighted Average | Number     
| | -------------- | ----------- | ---------------- | -----------
| | Exercise Price | Outstanding | Contractual Life | Exercisable
| | $ 0.51         | 25,000      | 3.62             | 16,666     
| | $ 0.91         | 150,000     | 3.77             | 150,000    
| | $ 1.19         | 50,000      | 3.27             | 50,000     
| | $ 1.49         | 75,000      | 4.26             | -          
| | $ 1.52         | 100,000     | 2.95             | 50,000     
| | $ 1.63         | 200,000     | 4.99             | 100,000    
| | $ 1.69         | 150,000     | 4.65             | 150,000    
| | $ 1.70         | 75,000      | 4.56             | -          
| | $ 1.80         | 891,667     | 4.11             | 341,667    
| | $ 2.00         | 600,000     | 1.82             | 600,000    
| | $ 2.02         | 840,000     | 0.78             | 790,000    
| | $ 2.05         | 300,000     | 0.22             | 300,000    
| |                | 3,456,667   |                  | 2,548,333  

68

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|14. | Equity reserves and warrants reserve                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | On December 19, 2011, the Company completed a private
      placement consisting of 4,196,500 Units at a price of $2.00. Each Unit
      consisted of one common share of the Company and one half of one warrant,
      which entitles the holder to purchase an additional common share of the
      Company at an exercise price of $3.00 at any time for a period of 36
      months. The Company may accelerate the term to 30 days if the share price
      exceeds $4.00 for 20 consecutive trading days. In allocating the fair
      value of the proceeds between the common shares and these half warrants,
      it was determined that the fair value of the common shares was more
      reliably measurable and since the common shares of the Company were
      trading at $2.00 per share on December 19, 2011, the entire value of the
      proceeds was allocated to the shares. In addition, the Company also issued
      197,700 warrants as a finders fee. The fair value of these warrants was
      deemed to be of nominal value.

| |                             |  | Number of  |   |   | Weighted average | 
| | --------------------------- |  | ---------- | - | - | ---------------- | 
| |                             |  | warrants   |   |   | exercise price   | 
| | Balance, September 30, 2012 |  | 4,477,387  |   | $ | 2.70             | 
| | Warrants expired            |  | (2,181,437 | ) |   | 2.48             | 
| | Balance, September 30, 2013 |  | 2,295,950  |   | $ | 2.91             | 
| |                             |  |            |   |   |                  | 
| | Balance, September 30, 2014 |  | 2,295,950  |   | $ | 2.91             | 

The following share purchase warrants
were outstanding at September 30, 2014:

Exercise Price
    Number
    Weighted AverageOutstanding
    Contractual Life$ 2.00
    197,700
    0.22$
      3.00
    2,098,250
    0.222,295,950


|15. | Preferred shares                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | On July 11, 2014, the Company completed a private
      placement subscription agreement to issue $10,000,000 of Series A
      convertible preferred shares (the Series A Preferred Shares) to a large
      Canadian institutional investor.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | The Series A Preferred Shares pay a dividend of 8% per
      annum, subject to adjustment if the Company does not redeem after October
      31, 2019. At any time at the option of the holder, the Series A Preferred
      Shares may be converted into the Companys common shares at a conversion
      price of $2.20 per share. The Series A Preferred Shares are redeemable at
      the option of the Company at any time after October 31, 2019. The Series A
      Preferred Shares are also redeemable by the Company at any time in the
      event of a change of control subject to payment of a change of control premium. The Series A Preferred
Shares were also redeemable by the holder if the Company had not complete a
product acquisition transaction by December 31, 2014. However, with the
completion of the Sintrom acquisition, the holder's redemption option is no
longer available. Costs associated with this transaction were approximately
$52,000.

69

---

|16. | Accumulated other comprehensive
  income
|--- | ----------------------------------------

| |                                                         |   | Translation |  |   | Total     | 
| | ------------------------------------------------------- | - | ----------- |  | - | --------- | 
| | At September 30, 2012                                   | $ | 598,603     |  | $ | 598,603   | 
| | Currency translation differences, net of tax of $20,429 |   | 5,082,943   |  |   | 5,082,943 | 
| | At September 30, 2013                                   |   | 5,681,546   |  |   | 5,681,546 | 
| | Currency translation differences                        |   | 1,098,559   |  |   | 1,098,559 | 
| | At September 30, 2014                                   | $ | 6,780,105   |  | $ | 6,780,105 | 

|17. | Commitments and contingencies                                                                                                                                                 
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                               
|    | (a) Operating lease commitments                                                                                                                                               
|    |                                                                                                                                                                               
|    | The Company has entered into non-cancellable operating
      lease agreements for office premises and equipment with minimum annual
      lease payments to expiry as follows:

| |                  |   | September 30 |  |   | September 30 | 
| | ---------------- | - | ------------ |  | - | ------------ | 
| |                  |   | 2014         |  |   | 2013         | 
| | Less than 1 year | $ | 114,295      |  | $ | 143,750      | 
| | 1 to 2 years     |   | 105,576      |  |   | 128,265      | 
| | 2 to 3 years     |   | 105,576      |  |   | 105,576      | 
| | 3 to 4 years     |   | 26,394       |  |   | 105,576      | 
| | 4 to 5 years     |   | -            |  |   | 26,394       | 
| | Thereafter       |   | -            |  |   | -            | 
| | Total            | $ | 351,841      |  | $ | 509,561      | 

| | Lease expense recognized during the year was
      $188,364 (2013: $219,613, 2012: $71,714), which has been included in
      general and administrative expenses in the statements of operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | (b)      Legal
      proceedings                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | Notice of Allegation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | In June 2014, Merus received notification from
      Apotex Inc. that it has filed with Health Canada an Abbreviated New Drug
      Submission seeking market approval for a generic version of Enablex for the Canadian marketplace. In connection
      with this filing, Merus received Notices of Allegation (NOAs) from
      Apotex against our Enablex patents listed on the Canadian patent register
      which expire in August of 2016 and beyond. The NOAs were issued under the
      Canada Patented Medicines (Notice of Compliance) Regulations. Enablex is
      currently protected in Canada by three issued patents listed on the
      Canadian patent register. Merus intends to vigorously defend the Enablex
      intellectual property rights and pursue all available legal and regulatory
      pathways in defense of the product. The Company considers this claim to be
      without merit.

70

---

|    | Arbitration Proceeding                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | In August 2014, Merus received notice of a request for
      arbitration from the original owner of Merus former Factive product. The
      request for arbitration is based on the original license agreement entered
      into by the original owner and Cornerstone Therapeutics, Inc. (now Chiesi
      USA, Inc.). The request for arbitration names Merus as a respondent
      together with Cornerstone and Vansen. The request for arbitration includes
      the allegation that Cornerstone did not have the legal right to transfer
      the Factive product to Merus. The original owner is seeking an award for
      damages relating to an alleged breach of contract, as well of disgorgement
      of revenues and other benefits derived by the Company from sales of
      Factive. Merus denies any liability to the original owner.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|18. | Related party transactions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | At September 30, 2014, there were no amounts owing to or
      from related parties. The remuneration of directors and other members of
      key management personnel recording in the general and administrative line
      of operating expenses are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

| |                          |   | Year ended September 30 | 
| | ------------------------ | - | ----------------------- | 
| |                          |   | 2014                    | 
| | Salaries                 | $ | 1,440,910               | 
| | Share-based compensation |   | 1,251,584               | 
| |                          | $ | 2,692,494               | 

71

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|19. | Income taxes                                                                                               
|--- | -----------------------------------------------------------------------------------------------------------
|    |                                                                                                            
|    | The major components of income tax expense for the years
      ended September 30, 2014, 2013 and 2012 are:

| |                                                               |   | Year ended September 30 | 
| | ------------------------------------------------------------- | - | ----------------------- | 
| | Income tax recognized in profit or loss                       |   | 2014                    | 
| | Current tax                                                   |   |                         | 
| | Current period tax expense                                    | $ | 536,600                 | 
| | Adjustments recognized for current tax of
      prior periods |   | -                       | 
| |                                                               |   |                         | 
| | Deferred tax:                                                 |   |                         | 
| | Recognition of opening unrecognized deferred tax assets       |   | -                       | 
| | Provision for (recovery of) income taxes                      | $ | 536,600                 | 

A reconciliation between income tax
expense and the product of accounting income multiplied by Canadas domestic tax
rate (26.47% for Merus) for the years ended September 30, 2014, 2013 and 2012 is
as follows:

| |                                                                                                                       |   |            |   |   | Year ended September 30 |  
| | --------------------------------------------------------------------------------------------------------------------- | - | ---------- | - | - | ----------------------- | -
| |                                                                                                                       |   | 2014       |   |   | 2013                    |  
| | Loss from continuing
      operations before income taxes and non-controlling interest                                | $ | (7,525,098 | ) | $ | (1,172,305              | )
| |                                                                                                                       |   |            |   |   |                         |  
| | Income tax expense (benefit)
      at the statutory income tax rate of 26.47% (2013: 26.46%, 2012: 25.01%)            |   | (1,991,893 | ) |   | (310,192                | )
| | Impairment losses on goodwill that is not tax
      deductible                                                        |   | -          |   |   | -                       |  
| | Utilization or expiry of
      previously unrecognized tax losses                                                     |   | -          |   |   | -                       |  
| | Non-deductible expenses for tax purposes                                                                              |   | 333,933    |   |   | 542,732                 |  
| | Deductible temporary
      differences and unused tax losses not recognized, including impact of
      change in rate |   | 2,181,626  |   |   | 2,095,830               |  
| | Effect of income taxes recorded at rates
      different from the Canadian tax rate                                   |   | 12,934     |   |   | (1,857,547              | )
| | Other differences                                                                                                     |   | -          |   |   | 86,695                  |  
| |                                                                                                                       |   |            |   |   |                         |  
| | Tax expense (recovery)                                                                                                | $ | 536,600    |   | $ | 557,518                 |  

The difference in statutory tax rate is
due to changes in provincial rates and differences in allocation of revenue
between jurisdictions.

In 2012, deferred tax liabilities of
$1,608,758 were recorded as part of business combinations. Deferred tax assets
of $1,608,758 were recognized since the taxable temporary differences giving rise to the above mentioned deferred tax liability were
of the appropriate character and reverse in the appropriate carryforward period.
The benefit of the recognition of deferred tax assets is recorded to profit or
loss from continuing operations in accordance with IAS 12.

72

---

The following is an analysis of
deferred tax assets, which are currently not being recognized in the
consolidated statement of financial positions:

| |                                                        |   | Year ended September 30 | 
| | ------------------------------------------------------ | - | ----------------------- | 
| |                                                        |   | 2014                    | 
| | Unrecognized deferred
      tax assets in relation to: |   |                         | 
| | Unused capital and non-capital losses                  | $ | 6,514.932               | 
| | Capital and Intangible assets                          |   | 2,117,760               | 
| | Undeducted share and debt issuance costs               |   | 1,471,843               | 
| |                                                        |   |                         | 
| |                                                        | $ | 10,104,535              | 

The aggregate amount of temporary
differences associated with investments in subsidiaries, branches and associates
and interests in joint arrangements, for which deferred tax liabilities have not
been recognized is approximately $2,418,000.

The Company has unused non-capital tax
losses that may be applied against future taxable income for Canadian federal
and provincial income tax purposes, which expire between 2014 and 2033 as
follows:

| | Non-capital losses |  | Federal and provincial | 
| | ------------------ |  | ---------------------- | 
| | Expires in         |  |                        | 
| | 2025 to 2029       |  | 14,788,721             | 
| | 2030 to 2034       |  | 9,823,786              | 
| | Total              |  | 24,612,507             | 

The Company has realized net capital
losses of approximately $13,807,000 available for carry forward to be applied
against future taxable capital gains for Canadian tax purposes. These losses are
available for carry forward indefinitely. The Company has not recognized any
potential deferred income tax assets that may be associated with these
non-capital and net capital losses.

73

---

|20. | Discontinued operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | On August 26, 2013, the Company divested its North
      American product rights for Factive (Gemifloxacin Mesylate) tablets to
      Vansen Pharma. Proceeds from the disposition included US$2,200,000 cash, a
      note receivable for US$800,000, plus 3 million shares of Vansen. Expenses
      of US$261,860 were incurred on the sale. The disposition of Factive
      resulted in a loss on disposal, net of income taxes, of $522,271. The
      results of Factive were as follows:

| |                                                    |   | Year ended September 30 | 
| | -------------------------------------------------- | - | ----------------------- | 
| |                                                    |   | 2014                    | 
| |                                                    |   |                         | 
| | Revenue                                            | $ | -                       | 
| | Cost of goods sold                                 |   | -                       | 
| | Gross margin                                       |   | -                       | 
| |                                                    |   |                         | 
| | Sales and marketing                                |   | -                       | 
| | General and administrative                         |   | -                       | 
| | Amortization of intangibles                        |   | -                       | 
| | (Loss) earnings from discontinued
      operations |   | -                       | 
| | Loss on sale of discontinued
      operations      |   | -                       | 
| | Net (loss) earnings from discontinued operations   | $ | -                       | 

|21. | Earnings per share                                                                                                                                                                                   
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                      
|    | (a) Basic                                                                                                                                                                                            
|    |                                                                                                                                                                                                      
|    | Basic earnings per share is calculated by dividing the
      profit attributable to equity holders of the Company by the weighted
      average number of ordinary shares in issue during the
  year.

| |                                                                                                |   | Year ended September 30 |  
| | ---------------------------------------------------------------------------------------------- | - | ----------------------- | -
| |                                                                                                |   | 2014                    |  
| | Income (loss)                                                                                  |   |                         |  
| | Loss attributable to equity holders of the
      Company from continuing operations            | $ | (8,061,698              | )
| | Income (loss) attributable to equity holders of the
      Company from discontinued operations |   | -                       |  
| |                                                                                                |   |                         |  
| | Total                                                                                          | $ | (8,061,698              | )
| | Weighted average number of ordinary shares in issue                                            |   | 52,651,933              |  

74

---

| | (b)      Diluted                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | Diluted earnings per share is calculated by adjusting the
      weighted average number of ordinary shares outstanding to assume
      conversion of all dilutive potential ordinary shares. The Company has two
      categories of dilutive potential ordinary shares: warrants and stock
      options. As the Company recorded a net loss for the years ended September
      30, 2014, 2013 and 2012, these items were considered anti-dilutive and
      have therefore been excluded from the calculation of diluted earnings per
      share.

| |                                                                                                |   | Year ended September 30 |  
| | ---------------------------------------------------------------------------------------------- | - | ----------------------- | -
| |                                                                                                |   | 2014                    |  
| | Income (loss)                                                                                  |   |                         |  
| | Loss attributable to equity holders of the
      Company from continuing operations            | $ | (8,061,698              | )
| | Income (loss) attributable to equity holders of the
      Company from discontinued operations |   | -                       |  
| |                                                                                                |   |                         |  
| | Total                                                                                          | $ | (8,061,698              | )
| | Weighted average number of ordinary shares in issue                                            |   | 52,651,933              |  
| |                                                                                                |   |                         |  
| | Weighted average number of ordinary shares for diluted earnings
      per share                |   | 52,651,933              |  

|22. | Management of capital                                                 
|--- | ----------------------------------------------------------------------
|    |                                                                       
|    | The Company includes the following in its definition of
      capital:

| |                                           |   | September 30 |   |   | September 30 |  
| | ----------------------------------------- | - | ------------ | - | - | ------------ | -
| |                                           |   | 2014         |   |   | 2013         |  
| |                                           |   |              |   |   |              |  
| | Debt comprised of:                        |   |              |   |   |              |  
| | New secured facility                      | $ | 78,060,395   |   | $ | -            |  
| | Former
      secured facility             |   | -            |   |   | 29,430,962   |  
| | Convertible debenture                     |   | -            |   |   | 8,634,800    |  
| |                                           |   |              |   |   |              |  
| | Equity comprised of:                      |   |              |   |   |              |  
| | Share
      capital                       |   | 123,808,971  |   |   | 56,014,232   |  
| | Equity reserve                            |   | 35,132,914   |   |   | 33,881,330   |  
| | Preferred
      shares                    |   | 9,947,730    |   |   |              |  
| | Convertible debt  equity
      component |   | -            |   |   | 1,313,550    |  
| | Deficit and AOCI                          |   | (54,253,630  | ) |   | (47,290,491  | )
| |                                           | $ | 192,696,380  |   | $ | 81,984,383   |  

75

---

The Companys objectives when managing
capital are:

| | (a) | to allow the Company to respond to changes in economic
      and/or marketplace conditions;                              
| | --- | -------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                          
| | (b) | to give shareholders sustained growth in shareholder
      value by increasing shareholders equity;                     
| |     |                                                                                                                          
| | (c) | to ensure that the Company maintains the level of capital
      necessary to meet the requirements of its long-term debt;
| |     |                                                                                                                          
| | (d) | to comply with financial covenants required under its
      debt facilities; and                                         
| |     |                                                                                                                          
| | (e) | to maintain a flexible capital structure which optimizes
      the cost of capital at acceptable levels of risk          

The Company manages its capital
structure and makes adjustments to it in light of changes in economic conditions
and the risk characteristics of its underlying assets. The Company maintains or
adjusts its capital level to enable it to meet its objectives by:

| | (a) | raising capital through equity financings;                      
| | --- | ----------------------------------------------------------------
| |     |                                                                 
| | (b) | utilizing leverage in the form of third party debt;
      and   
| |     |                                                                 
| | (c) | realizing proceeds from the disposition of its
      investments

|    | The Company is not subject to any capital requirements
      imposed by a regulator. The Company is subject to certain capital
      requirements and negative covenants with respect to its New Secured
      Facility (refer to note 12). There were no changes in the Companys
      approach to capital management during the year. To date, the Company has
      not declared any cash dividends to its common shareholders as part of its
      capital management program. The Companys management is responsible for
      the management of capital and monitors the Companys use of various forms
      of leverage on a regular basis.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|23. | Financial instruments and financial risk
      management                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | a)      Fair Value
    Estimation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | The Companys carrying value of cash, short-term
      investments, trade and other receivables, loan receivable and accounts
      payable and accrued liabilities approximate their fair values due to the
      immediate or short term maturity of these instruments. The fair value of
      long-term liabilities is not materially different than its carrying value
      due to the recent issuance of these liabilities.                                                                                                                                                                                                                   

76

---

Carrying value and fair value of
financial assets and liabilities are summarized as follows:

| |                                                  |   | September 30, 2014 | 
| | ------------------------------------------------ | - | ------------------ | 
| | Classification                                   |   | Carrying value     | 
| |                                                  |   |                    | 
| | Financial assets at FVTPL                        | $ |                    | 
| | - Short-term investments                         |   | 5,002              | 
| | - Derivative
      assets used for hedging       |   | 269,699            | 
| | Loans and receivables                            |   |                    | 
| | - Cash and cash
      equivalents                |   | 14,358,567         | 
| | - Trade and other receivables                    |   | 4,072,304          | 
| | - Loans receivable                               |   | -                  | 
| | Other financial liabilities                      |   |                    | 
| | - Accounts payable and
      accrued liabilities |   | 4,169,095          | 
| | - Long term debt                                 |   | 78,060,395         | 

| |                                                  |   | September 30, 2013 | 
| | ------------------------------------------------ | - | ------------------ | 
| | Classification                                   |   | Carrying value     | 
| |                                                  |   |                    | 
| | Financial assets at FVTPL                        | $ |                    | 
| | - Short-term investments                         |   | 104,807            | 
| | - Derivative
      assets used for hedging       |   | 19,111             | 
| | Loans and receivables                            |   |                    | 
| | - Cash and cash
      equivalents                |   | 8,084,367          | 
| | - Trade and other receivables                    |   | 7,028,993          | 
| | - Loans receivable                               |   | 166,909            | 
| | Other financial liabilities                      |   |                    | 
| | - Accounts payable and
      accrued liabilities |   | 4,177,960          | 
| | - Long term debt                                 |   | 38,065,762         | 

The Company is required to present
information about its financial assets and liabilities with respect to the
hierarchy of the valuation techniques the Company utilized to determine fair
value. The different levels have been defined as follows:

| | - | Level 1 inputs utilize quoted prices
      (unadjusted) in active markets for identical assets or liabilities                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | - | Level 2 inputs utilize data points that are
      observable such as quoted prices, interest rates and yield curves                                                                   
| | - | Level 3 inputs are unobservable data points for
      the asset or liability, and includes situations where there is little, if
      any, market activity for the asset or liability.

77

---

At September 30, 2014, the Companys
financial assets and liabilities would be classified as follows:

| |                        |   |         |          |   | Significant |          |   | Significant Other |          |   | Significant  | 
| | ---------------------- | - | ------- | -------- | - | ----------- | -------- | - | ----------------- | -------- | - | ------------ | 
| |                        |   |         |          |   | Observable  |          |   | Observable        |          |   | Unobservable | 
| |                        |   |         |          |   | Inputs      |          |   | Inputs            |          |   | Inputs       | 
| | September 30, 2014     |   |         | (Level 1 | ) |             | (Level 2 | ) |                   | (Level 3 | )
| |                        |   |         |          |   |             |          |   |                   |          |   |              | 
| | Assets:                |   |         |          |   |             |          |   |                   |          |   |              | 
| | Short-term investments | $ | 5,002   |          | $ | 5,002       |          | $ | -                 |          | $ | -            | 
| | Derivative assets      | $ | 269,699 |          | $ | 269,699     |          | $ | -                 |          | $ | -            | 
| |                        | $ | 274,701 |          | $ | 274,701     |          | $ | -                 |          | $ | -            | 
| |                        |   |         |          |   |             |          |   |                   |          |   |              | 
| | Liabilities:           |   |         |          |   |             |          |   |                   |          |   |              | 
| |                        | $ | -       |          | $ | -           |          | $ | -                 |          | $ | -            | 
| |                        | $ | -       |          | $ | -           |          | $ | -                 |          | $ | -            | 

At September 30, 2013, the Companys
financial assets and liabilities would be classified as follows:

| |                        |   |         |          |   | Significant |          |   | Significant Other |          |   | Significant  | 
| | ---------------------- | - | ------- | -------- | - | ----------- | -------- | - | ----------------- | -------- | - | ------------ | 
| |                        |   |         |          |   | Observable  |          |   | Observable        |          |   | Unobservable | 
| |                        |   |         |          |   | Inputs      |          |   | Inputs            |          |   | Inputs       | 
| | September 30, 2013     |   |         | (Level 1 | ) |             | (Level 2 | ) |                   | (Level 3 | )
| |                        |   |         |          |   |             |          |   |                   |          |   |              | 
| | Assets:                |   |         |          |   |             |          |   |                   |          |   |              | 
| | Short-term investments | $ | 104,807 |          | $ | 42,989      |          | $ | -                 |          | $ | 61,818       | 
| | Derivative assets      | $ | 19,111  |          | $ | 19,111      |          | $ | -                 |          | $ | -            | 
| |                        | $ | 123,918 |          | $ | 62,100      |          | $ | -                 |          | $ | 61,818       | 
| |                        |   |         |          |   |             |          |   |                   |          |   |              | 
| | Liabilities:           |   |         |          |   |             |          |   |                   |          |   |              | 
| |                        | $ | -       |          | $ | -           |          | $ | -                 |          | $ | -            | 
| |                        | $ | -       |          | $ | -           |          | $ | -                 |          | $ | -            | 

The fair value of financial instruments
traded in active markets is based on quoted market prices at the statement of
financial position date. A market is regarded as active if quoted prices are
readily and regularly available from an exchange, dealer, broker, industry
group, pricing service, or regulatory agency, and those prices represent actual
and regularly occurring market transactions on an arms length basis.

The fair value of financial instruments
that are not traded in an active market (for example, over-the-counter
derivatives) is determined by using valuation techniques. These valuation
techniques maximize the use of observable market data where it is available and
rely as little as possible on entity specific estimates. If all significant
inputs required to fair value an instrument are observable, the instrument is
included in Level 2.

78

---

| | If one or more significant inputs are not based on
      observable market data, the instrument is included in Level 3.                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                
| | b) Financial Risk Factors                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                
| | The use of financial instruments can expose the Company
      to several risks, including market, credit and liquidity risks. Apart from
      the risks listed below, management is of the opinion that they are not
      exposed to any other significant risks. A discussion of the Companys use
      of financial instruments and its risk management is provided below.
| |                                                                                                                                                                                                                                                                                                                                                                                
| | (i)                                                                                                                                                                                                                                                                                                                                                                            
| |                                                                                                                                                                                                                                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                

| |                                          |   | Year ended September 30 | 
| | ---------------------------------------- | - | ----------------------- | 
| | At September 30, 2014                    |   | 2015                    | 
| | Debt                                     | $ | 16,000,000              | 
| | Accounts payable and accrued liabilities |   | 4,169,095               | 
| | Income taxes payable                     |   | 997,102                 | 
| | Total                                    | $ | 21,166,197              | 

| |                                          |   | Year ended September 30 | 
| | ---------------------------------------- | - | ----------------------- | 
| | At September 30, 2013                    |   | 2014                    | 
| | Debt                                     | $ | 8,400,000               | 
| | Accounts payable and accrued liabilities |   | 4,177,960               | 
| | Income taxes payable                     |   | 594,344                 | 
| | Total                                    | $ | 13,172,304              | 

79

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| | (ii)  | Market risk:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |       | Market risk is the risk that the fair value of, or future
      cash flows from, the Companys financial instruments will significantly
      fluctuate because of changes in market prices. The value of the financial
      instruments can be affected by changes in interest rates, foreign exchange
      rates, and equity and commodity prices. The Company is exposed to market
      risk in trading its investments and unfavourable market conditions could
      result in dispositions of investments at less than favourable
    prices.                                 
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | (iii) | Currency risk:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |       | The Company is subject to currency risk through its sales
      of products denominated in foreign currencies, purchases of inventory in
      US dollars and product acquisitions denominated in foreign currencies. As
      such, changes in the exchange rate affect the operating results of the
      Company. Dependent on the nature, amount and timing of foreign currency
      receipts and payments, the Company may from time to time enter into
      foreign currency derivative contracts to reduce its exposure to foreign
      currency risk as discussed in note 8.
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |       | The following financial assets and liabilities were
      denominated in foreign currencies at September 30, 2014 (U.S. dollar
      1.1200, Euro 1.4153) and September 30, 2013:                                                                                                                                                                                                                                                                                                                                                                                                      

| |                                          |  | September 30 |   |  | September 30 |  
| | ---------------------------------------- |  | ------------ | - |  | ------------ | -
| |                                          |  | 2014         |   |  | 2013         |  
| | Denominated in U.S. dollars              |  |              |   |  |              |  
| | Cash and cash equivalents                |  | 3,738,885    |   |  | 5,865,221    |  
| | Trade and
      other receivables        |  | 970,087      |   |  | 972,313      |  
| | Loans receivable                         |  | -            |   |  | 166,909      |  
| | Accounts payable and accrued liabilities |  | (327,163     | ) |  | (80,294      | )
| | Net assets denominated in U.S. dollars   |  | 4,381,809    |   |  | 6,924,149    |  
| |                                          |  |              |   |  |              |  
| | Denominated in Euros                     |  |              |   |  |              |  
| | Cash and cash equivalents                |  | 6,676,575    |   |  | 578,484      |  
| | Trade and other
      receivables        |  | 1,475,443    |   |  | 4,953,268    |  
| | Accounts payable and accrued liabilities |  | (2,204,374   | ) |  | (2,980,091   | )
| | Income taxes
      payable               |  | (997,102     | ) |  | (594,344     | )
| | Net assets denominated in Euros          |  | 4,950,542    |   |  | 1,957,317    |  

80

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The following table shows the
estimated sensitivity of the Companys total comprehensive loss for the year
ended September 30, 2014 from a change in foreign currencies with all other
variables held constant as at September 30, 2014:

| |                      | Change in net after-tax | Change in net after-tax
| | -------------------- | ----------------------- | -----------------------
| | Percentage change in | loss from % increase    | loss from % decrease   
| | foreign currencies   | in foreign currencies   | in foreign currencies  
| |                      |                         |                        
| | 2%                   | $ 95,219                | $ (95,219)             
| | 4%                   | 190,437                 | (190,437)              
| | 6%                   | 285,656                 | (285,656)              
| | 8%                   | 380,875                 | (380,875)              
| | 10%                  | 476,093                 | (476,093)              

| | (iv) | Credit risk:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |      | Certain of the Companys financial assets, including cash
      and cash equivalents, short- term investments and loans receivable are
      exposed to the risk of financial loss occurring as a result of default of
      a counterparty on its obligations to the Company. The Company may, from
      time to time, invest in debt obligations. The Company is also exposed, in
      the normal course of business, to credit risk from customer receivables.
      These amounts are continually monitored by management for collectability,
      and, in general, are lower risk as they are typically due from large
      institutions or multinational distributors.                                                                                                                                                                         
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (v)  | Interest rate risk:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |      | Interest risk is the impact that changes in interest
      rates could have on the Companys earnings and liabilities. The Company is
      exposed to variable interest rates as a result of its senior secured debt,
      which currently bears interest at bank prime plus 3.0%. The Company is
      able to manage this exposure through facilities under its credit agreement
      which allow the Company to convert the interest charge to a fixed rate,
      either through converting to Bankers' Acceptance notes on a short-term
      basis or through interest rate swaps over the remaining term of the loan.
      As a result of this flexibility, it is managements opinion that the
      Company is not exposed to significant interest rate risk. At September 30,
      2014, the Company held no interest-bearing
investments.

81

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|24. | Segment information                                                                                                                                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                               
|    | The Company operates in a single reportable segment
      focused on acquiring, in-licensing, marketing and distributing
      pharmaceutical products in Canada and internationally. The Company carries
      out business principally in Canada and Europe.
|    |                                                                                                                                                                                                                                                               
|    | Revenues by geographic region are detailed as
    follows:                                                                                                                                                                                                    

| |               |   | Year ended September 30 | 
| | ------------- | - | ----------------------- | 
| |               |   | 2014                    | 
| | Canada        | $ | 8,198,140               | 
| | International |   | 17,953,300              | 
| |               | $ | 26,151,440              | 

Other than Canada, the Company derived
more than 10% of its revenues in either fiscal 2014 or 2013 from Germany,
Netherlands, and the UK. Revenues in Germany, Netherlands, and the UK of
$4,707,240, $3,325,481, and $2,688,366, respectively, (2013: $7,395,891,
$1,433,327, and $2,088,346) are included in International in the table above.

Long-term assets by geographic region
are comprised of product rights and patents and property and equipment, detailed
as follows:

| |               |   | September 30 |  |   | September 30 | 
| | ------------- | - | ------------ |  | - | ------------ | 
| |               |   | 2014         |  |   | 2013         | 
| | Canada        | $ | 4,205,625    |  | $ | 10,242,846   | 
| | International |   | 172,547,320  |  |   | 60,096,585   | 
| |               | $ | 176,752,945  |  | $ | 70,339,431   | 

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