EXHIBIT 3 AETERNA LABORATORIES INC. ANNUAL REPORT 2002 EXPANDING OUR VISION STAYING FOCUSED "By any measure, 2002 signalled a defining moment in AEterna's rapid evolution. Our principal objectives for the year were inspired by an ambitious growth strategy. On all counts, we exceeded our expectations. In fact, the developments of the past year have set the stage for AEterna to become a world-class biopharmaceutical company." SUMMARY AETERNa 4 AEterna 2002 Highlights and Milestones 6 Message from the Executive Chairman 10 Message from the President and CEO 12 Product Portfolio 14 Clinical Development Strategy 16 Worldwide Partnerships ATRIUM 18 Atrium Biotechnologies Inc. FINANCES 26 Management's Discussion and Analysis of Financial Condition and Results of Operations 32 Management Report and Report from Auditors 36 Notes to Consolidated Financial Statements 60 Corporate Governance 61 Corporate Information HIGHLIGHTS AS AT DEC. 31, 2002 - ALL FIGURE IN CANADIAN DOLLARS o Total Assets: $331 million o Cash: $82 million o Working Capital: $44 million o Revenues: $101 million o Issued & outstanding shares: 41 million o R&D Investments: $26 million 1 SIGNIFICANT MILESTONES o Three strategic shareholders invest $57 million in AEterna. o AEterna signs a partnership agreement with Mayne Pharma., an Australian multinational pharmaceutical company, for the marketing of Neovastat in Australia, New-Zealand, Canada and Mexico. o Gilles Gagnon is appointed President and, subsequent to year-end, Chief Executive Officer. o The U.S. Food and Drug Administration (FDA) grants Orphan Drug Status to Neovastat for the treatment of renal cell carcinoma, a form of kidney cancer. o AEterna acquires Zentaris, a Frankfurt-based biopharmaceutical company that specializes in developing innovative new therapies for endocrinological and oncological indications for $85 million. Zentaris has eight products in clinical trials and one compound that has been approved and is being marketed for IN VITRO fertilization. Additionally, it maintains a library of 100,000 proprietary compounds and established marketing alliances with some of the world's leading pharmaceutical companies. In 2002, Zentaris is cash-flow positive and debt-free. o Sales of the subsidiary Atrium increased 130% to $101 million in 2002 and generated an EBIT of $12.3 million, an increase of 89% compared to 2001. o Subsequent to year-end, AEterna subsidiary Zentaris signs a product partnership contract with Hainan Tianwang International Pharmaceutical for the manufacturing and marketing of Zentaris' patent-protected compound, Lobaplatin(R), in China, for different cancer indications. CORPORATE PROFILE Established in 1991, AEterna Laboratories Inc. is a biopharmaceutical company focused on the development of novel therapeutic treatments, mainly in oncology and endocrinology. Its product pipeline includes 12 compounds, and its strategic partnerships with leading pharmaceutical companies extend throughout the world. AEterna owns 100% of the biopharmaceutical company, Zentaris AG, based in Frankfurt, Germany, and 61.8% of Atrium Biotechnologies Inc., which develops and markets nutritional supplements as well as active ingredients and fine chemicals intended for the cosmetics, nutrition, fine chemicals and pharmaceuticals industries. Atrium markets over 500 products in 20 countries. AEterna and its subsidiaries have 270 employees in North America and Europe. AEterna is listed on the Toronto Stock Exchange (symbol: AEL) and Nasdaq (symbol: AELA). 2 BROADENING HORIZONS MESSAGE FROM THE EXECUTIVE CHAIRMAN By any measure, 2002 signalled a defining moment in AEterna's rapid evolution. Our principal objectives for the year were inspired by an ambitious growth strategy. Aside from guiding our proprietary angiogenesis-inhibiting compound, Neovastat, through its late-stage clinical trials, our expressed mission featured two key initiatives: to forge additional strategic alliances with the pharmaceutical industry and to develop the Company by acquiring promising therapeutic technologies or biotech companies. At the heart of our corporate strategy was the desire to greatly expand our product pipeline and global reach, and to optimize risk management through product diversification. On all counts, I am very proud to say that we exceeded our expectations. In fact, the developments of the past year have set the stage for AEterna to become a world-class biopharmaceutical company. When the year began, Neovastat had embarked upon two final-stage clinical trials, one targeting the treatment of metastatic renal cell carcinoma, a form of kidney cancer, and one targeting non-small cell lung cancer. During the year, Data Safety Monitoring Boards, constituted of independent oncologists and statisticians, confirmed Neovastat's safety profile for these ongoing Phase III trials. By year-end, we had entered into a third partnership agreement for the commercialization of Neovastat with Mayne Group Ltd., a multinational healthcare products and services company based in Australia. Even more momentous, however, was our acquisition on December 30, 2002, of Zentaris AG from Degussa AG, Germany's largest chemicals company and the worldwide leader in the field of specialty chemicals. The acquisition of Zentaris represents a major milestone in our corporate growth strategy. Based in Frankfurt, Zentaris has built its reputation on its demonstrated proficiency in the fields of endocrinology and oncology. It develops innovative products for new patient-friendly therapies, specializing in the treatment of benign and malignant tumors, and has the expertise to integrate drug discovery and clinical development for this purpose. The new entity formed by this acquisition fits exactly with the vision I had twelve years ago when AEterna was founded. It is a vision that has endured: to build a company dedicated to seeking out and developing groundbreaking biopharmaceutical therapies for cancer and other debilitating diseases. Our history has been marked by a number of successes, dating back to 1994 when our team of scientists and researchers discovered Neovastat. Today, our proprietary compound is recognized as a frontrunner in a new class of drugs known as angiogenesis inhibitors. 3 The establishment of our thriving subsidiary, Atrium Biotechnologies Inc., marked another milestone. Atrium has become a leading Canadian company specializing in the development and marketing of high-end value-added products and active ingredients in the cosmetics, nutrition, fine chemicals and pharmaceuticals sectors. Atrium recorded sales of over $100 million in 2002, with an EBIT of $12.3 million. Our financial position is solid. At the end of fiscal 2002, our total assets amounted to $331 million, our cash and short term investments amounted to $82 million and our working capital exceeded $44 million. In short, AEterna has demonstrated its skills in combining innovative science with responsible risk management, as well as its ability to expand its operations swiftly and successfully. Now, with the Zentaris acquisition, AEterna is transformed. A year ago we had one promising drug therapy in our product pipeline; today we have twelve. Moreover, our leading position in angiogenesis research in oncology has been significantly strengthened, and we have been able to expand into endocrinology. Going forward, I fully expect that Zentaris will drive drug discovery at AEterna under the expertise of Dr. Jurgen Engel. Over the past decade the biotechnology industry has come of age, and AEterna has grown along with it. At this juncture in our history, we begin the next exciting phase of our evolution. AEterna is now an international multi-product biopharmaceutical company with development and marketing alliances that extend around the globe. None of these achievements would have been possible without the substantial contributions of our management and employees. I would like to take this opportunity to thank them all for their tireless efforts, for the extraordinary skills they bring to our team, and most of all for dedicating themselves to the vision we established twelve years ago. Indeed, I am extremely grateful to all of our stakeholders, who have been instrumental in helping the Company advance so far in so brief a time. On a more personal basis, it is very gratifying to be in a position to pass on the management reins to a second generation of seasoned executives from the pharmaceutical industry. I am delighted by the recent appointments of Mr. Gilles Gagnon as President and CEO and of Dr. Jurgen Engel as Executive Vice-President Global R&D and COO, and very confident that their considerable wisdom and expertise will accelerate the continued evolution and growth of AEterna. Signed, Dr. Eric Dupont, PhD Executive Chairman Quebec, Quebec, Canada March 30, 2003 4 o 10 CLINICAL TRIALS ADDRESSING UNMET MEDICAL NEEDS IN ONCOLOGY AND ENDOCRINOLOGY o 150 PARTICIPATING HOSPITAL CENTERS WORLWIDE EXTENDING OUR REACH "In Zentaris we found the perfect partner. In fact, the magnitude of this acquisition has surpassed even our own objectives. It represents nothing less than a turning point in the history of AEterna. Our new company is poised to become an international force in the biopharmaceutical industry, with proven capabilities and expertise that extend from drug discovery up to drug approval." Gilles Gagnon, MSc, MBA President and Chief Executive Officer AEterna Laboratories Inc. POWERING OUR EXPANSION MESSAGE FROM THE PRESIDENT AND CHIEF EXECUTIVE OFFICER One of the greatest challenges in our industry is to manage risk as prudently as possible. By its very nature, biopharmaceutical research requires that a company take chances as it explores therapeutic possibilities that have never been realized before. Yet, with these risks, there is the potential for great rewards. This can also be an extremely costly enterprise. Identifying and developing compounds with untapped potential may take more than a decade and often necessitates an investment of many millions of dollars. The list of companies with promising ideas and products who have nevertheless fallen victim to financial difficulties is legion. Last year, with our lead product Neovastat well advanced in its Phase III clinical trials for lung and kidney cancer, and with our production facilities scaled up to meet commercial needs, we made a commitment to leverage our scientific and management skills to greatly broaden the scope of our operations. We determined that one of the best ways to develop our company while managing risk wisely was to expand our product pipeline, either by purchasing therapeutic compounds that have reached the clinical development stage or by acquiring a company that has already established its scientific credibility and is generating promising new treatments. As part of our planning process, we raised $55 million with our partners, SGF Sante and the Solidarity Fund QFL, from which $35 million was set aside for our acquisition program. Then we began screening acquisition candidates, our investigations guided by specific and demanding criteria. 5 First, we limited our search to companies that possessed a solid scientific rationale for the products they were developing as well as substantial patent protection. Second, we looked only at companies with a specialization in oncological research and products that had reached late-stage clinical development. Third, we considered only those enterprises with skilled management teams and solid financial positions. Fourth, we required that the companies had established collaborative relationships with pharmaceutical partners. In Zentaris we found the perfect partner. In fact, the magnitude of this acquisition has surpassed even our own objectives. It represents nothing less than a turning point in the history of AEterna.With our joined forces, we are now able to offer a vastly expanded product pipeline. The transaction comes with a range of other substantial benefits as well. From a financial perspective, Zentaris was cash-flow positive, debt-free and had working capital of $36.4 million as at December 31, 2002. Moreover, it brings us a very experienced management team with extensive pharmaceutical development experience, as well as relationships with some of the best international scientists and research institutions. Zentaris has also forged development and marketing partnerships with nine major pharmaceutical companies around the world. These partnerships are ongoing, and will help us realize our growth potential on a global scale. Subsequent to year-end, for example, Zentaris signed an agreement with one of these partners, Hainan Tianwang International Pharmaceutical, that calls for the manufacture and marketing of Zentaris' patent protected compound, Lobaplatin(R) , in China. Lobaplatin(R) belongs to the therapeutic group of platinum-based drugs that have proven highly effective in the treatment of many cancer indications. In essence, then, our acquisition of Zentaris represents a defining step towards making AEterna an international force in the biopharmaceutical industry, with proven capabilities and expertise that extend from drug discovery up to drug approval. Our next objective involves the successful merging of our respective clinical operations. Because time is of the essence, this process has already begun. A strategy that achieves maximum efficiency is crucial, so we have assigned portfolio priorities in order to focus the combined AEterna-Zentaris product pipeline. These priorities have been established by carefully evaluating the competitive environment for our products, as well as their potential markets, their development costs, their expected time to market and the degree to which our pharmaceutical partners will participate in clinical studies. Neovastat retains the top priority in our oncology portfolio, and we will now focus strictly on the two ongoing Phase III studies in kidney cancer and lung cancer. This will allow us to advance a new series of promising preclinical and clinical projects for the development of innovative treatments for oncological and endocrinological indications. The year 2003 promises to be very exciting for AEterna. Aside from marketing Lobaplatin(R) in China, we expect to be able to disclose results for Neovastat's Phase III trial in kidney cancer by year-end. If the results are positive, we plan to launch the drug in 2004. Zentaris' IN VITRO fertilization therapy, Cetrotide(R), which is already marketed in 40 countries, should be approved 6 for marketing in Japan in the second half of 2003. Another product in Zentaris'pipeline, an anti-infective with the trade name Impavido(R), which has proven effective in the treatment of leishmaniasis (black fever), has received approval and should be marketed in India in 2003. Over the past year, we were successful in meeting the specific objectives of our growth strategy, first by signing a commercialization agreement with Mayne Group, which extended our coverage for Neovastat to nearly 45% of the world's oncology market, and second by our milestone acquisition of Zentaris. In 2003, we will continue to pursue our growth strategy, with a particular focus on consolidating our strong position in both oncology and endocrinology. With the moves we have made over the past year, AEterna is now positioned to become a significant player in the biopharmaceutical field at the international level. Signed, Gilles Gagnon, MSc, MBA President and Chief Executive Officer PURSUING EXCELLENCE "The joined forces of AEterna and Zentaris provide us with a very extensive product pipeline. Our combined expertise will allow us to advance multiple promising preclinical and clinical projects for the development of novel treatments focused on oncology and endocrinology." Prof. Dr. Jurgen Engel, PhD Chief Executive Officer - Zentaris AG Executive Vice President, Global R&D and Chief Operating Officer - AEterna Laboratories Inc. PRODUCT PORTFOLIO With its acquisition of Zentaris, AEterna has an exceptional product pipeline in two principal therapeutic fields, oncology and endocrinology. This pipeline includes twelve different products in various development stages, from preclinical to marketing. In oncology, AEterna has six compounds in clinical trials and two at the preclinical stage. The Phase III trial in renal cell carcinoma for its potentially groundbreaking angiogenesis inhibitor, Neovastat, is close to completion, and results should be available during the current year. If these results are positive, the drug will be ready for market in 2004. In endocrinology, one product, Cetrotide(R), is already being marketed for IN VITRO fertilization, and is in clinical development for three other indications. Two other products are at the preclinical stage. 7 Finally, AEterna's anti-infective product, Miltefosine, will be marketed in India in 2003 under the trade name Impavido(R) as the first available oral treatment for visceral Leishmaniasis, or black fever. The drug is also in the midst of a Phase III trial for cutaneous Leishmaniasis, a related parasitic skin disease. AEterna also maintains a state-of-the-art drug discovery unit, which includes a proprietary library of 100,000 compounds, and an intellectual property portfolio that consists of some 70 patent families. - --------------------------------------------------------------------------------------------------------------------------- PRODUCT PIPELINE - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- ONCOLOGY - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- PRODUCTS CLASS INDICATIONS STATUS PARTNERS COVERED TERRITORY - --------------------------------------------------------------------------------------------------------------------------- Neovastat Multifunctional Renal cell Phase III - Grupo Ferrer Southern Europe, France, angiogenesis carcinoma Results in 2003 Internacional Belgium, South and Central inhibitor America Medac GmbH Europe (North & East), U.K. Mayne Pharma Australia, New Zealand, Canada and Mexico LG Life Science Korea - --------------------------------------------------------------------------------------------------------------------------- Neovastat Multifunctional Non-small cell Phase III - Grupo Ferrer Southern Europe, France, angiogenesis lung cancer Results in 2006 Internacional Belgium, South and Central inhibitor America Medac GmbH Europe (North & East), U.K. Mayne Pharma Australia, New Zealand, Canada and Mexico LG Life Science Korea - --------------------------------------------------------------------------------------------------------------------------- D-63153 LHRH Prostate cancer Phase II Baxter Oncology World antagonist - --------------------------------------------------------------------------------------------------------------------------- Perifosine Signal Multiple cancers Phase I/II Access Oncology U.S.A., Canada, Mexico transduction Radiosensitizer U.S. NCI inhibitor - --------------------------------------------------------------------------------------------------------------------------- RC-3095 Bombesin Multiple cancers Phase I antagonist - --------------------------------------------------------------------------------------------------------------------------- Teverelix LHRH Prostate cancer Phase I Ardana World (excl. Japan, Taiwan, antagonist Bioscience Korea) Teikoku Hormone Japan, Taiwan, Korea - --------------------------------------------------------------------------------------------------------------------------- Lobaplatin(R) Platinum Multiple cancers Approved in Hainan China derivative China Tianwang International Pharmaceutical - --------------------------------------------------------------------------------------------------------------------------- AN-152/AN-238/ Cytotoxic- Solid tumors Preclinical AN-215 Conjugates - --------------------------------------------------------------------------------------------------------------------------- D-82318 Tubulin Solid tumors Preclinical D-81050 inhibitors - --------------------------------------------------------------------------------------------------------------------------- ENDOCRINOLOGY - --------------------------------------------------------------------------------------------------------------------------- PRODUCTS CLASS INDICATIONS STATUS PARTNERS COVERED TERRITORY - --------------------------------------------------------------------------------------------------------------------------- Cetrotide(R) LHRH IN VITRO Marketed Serono World (excl. Japan) (Cetrorelix) antagonist fertilization Market expected Shionogi / Japan (IVF) in 2003 Nippon Kayaku - --------------------------------------------------------------------------------------------------------------------------- 8 - --------------------------------------------------------------------------------------------------------------------------- Cetrorelix LHRH Endometriosis Phase II Solvay World (excl. Japan) antagonist Uterine myoma Shionogi / Japan Benign prostatic Nippon Kayaku hyperplasia (BPH) - --------------------------------------------------------------------------------------------------------------------------- EP-1572 Growth hormone TBD Preclinical Ardana World secretagogue Bioscience (GHS) - --------------------------------------------------------------------------------------------------------------------------- LHRH- LHRH- TBD Preclinical peptidomimetic antagonist (oral) - --------------------------------------------------------------------------------------------------------------------------- ANTI-INFECTIVES - --------------------------------------------------------------------------------------------------------------------------- PRODUCTS CLASS INDICATIONS STATUS PARTNERS COVERED TERRITORY - --------------------------------------------------------------------------------------------------------------------------- Visceral Market expected Cooperation with India Impavido(R) Alkylphospho- Leishmaniasis in 2003 in India the WHO and (Miltefosine) lipid (black fever) Indian Government German Remedies India, Bangladesh ---------------------------------------------------------------------------------------- Cutaneous Phase III Leishmaniasis (parasitic skin disease) - --------------------------------------------------------------------------------------------------------------------------- COMPOUND LIBRARY (MORE THAN 100,000 COMPOUNDS) 9 CLINICAL DEVELOPMENT STRATEGY With its vastly expanded product pipeline, AEterna has articulated a clinical development strategy. This strategy is designed to efficiently advance multiple preclinical and clinical projects for the development of innovative treatments for oncology and endocrinology, and to diversify Company and shareholder risk. PARTNERS AROUND THE WORLD AEterna has now established international strategic alliances for the codevelopment, manufacturing and marketing of its products in the oncology, endocrinology and anti-infective fields. These alliances generally provide upfront and milestone payments, drug development cost-sharing and royalties on sales. ONCOLOGY PARTNERS ENDOCRINOLOGY PARTNERS Access Oncology Nippon Kayaku & Co., Ltd. Baxter Healthcare S.A. Serono International S.A. Grupo Ferrer Internacional Shionogi & Co., Ltd. Hainan Tianwang International Pharmaceutical Solvay Pharmaceuticals B.V. Mayne Group Ardana Bioscience Medac GmbH Tekoku Hormone ANTI-INFECTIVES PARTNERS German Remedies ATRIUM BIOTECHNOLOGIES INC. o 130% sales increase o 89% increase in EBIT o 48% increase in net earnings in 2002 PARTNERING FOR SUCCESS "Our ultimate goal is to be recognized by our clients as an international leader in the development of high-end raw materials, value-added products and active ingredients for the cosmetics, nutrition, fine chemicals and pharmaceuticals sectors. In order to do so, we have committed significant resources to the development and acquisition of innovative technologies which will allow to further enhance the competitiveness of the businesses that form our international network." Luc Dupont CEO and Vice Chairman of the Board Atrium Biotechnologies Inc. 10 MILESTONES |X| Atrium successfully integrates its French subsidiary, Unipex, in which it first acquired 70% ownership. Unipex provides value-added services related to the development and marketing of specialty chemicals and active ingredients in the cosmetics, nutrition, fine chemicals and pharmaceuticals sectors. In January 2003, Atrium increased its ownership in Unipex to 76%. |X| Atrium acquires the privately-owned French company ADF Chimie S.A., specialized in the marketing of active ingredients and fine chemical products for the cosmetics industry. |X| Atrium invests close to $2 million for acquisition and licensing agreements allowing it to commercialize state of the art technologies and products developed by companies such as Fytokem Products Inc. and Eukarion Inc. |X| Atrium's consolidated sales reached $101million, a 130% increase over the $44 million recorded in 2001. Its EBIT stood at $12.3 million, compared to $6.5 million a year earlier, an increase of 89%. Consolidated net earnings increased 48% to $6.6 million, up from $4.5 million reported in 2001. At year-end, Atrium's cash in hand stood at $14 million. PROFILE Since its establishment as a subsidiary of AEterna Laboratories in 2000, Atrium Biotechnologies Inc. has evolved into one of the most important Canadian companies in the development and marketing of active ingredients and fine chemical products in the cosmetics, nutrition, fine chemicals and pharmaceuticals sectors. From its headquarters in Quebec City, Atrium manages a network of over 1,600 customers and partners throughout the Americas, Europe and Asia. With its subsidiaries, located in the strategic metropolitan areas of New-York and Paris, Atrium maintains research and development collaboration and preferred supplier relationships with numerous international companies. Its client list includes such major multinationals as Estee Lauder, L'Oreal, Kanebo, Aventis, SanofiSynthelabo and Danone. Over the past two years, Atrium delivered on its expressed corporate growth strategy, positioning itself as a global player in its field. First, it acquired 70% of Unipex, a major French company that specializes in the value-added marketing of raw materials for the cosmetics, nutrition, fine chemicals and pharmacuticals sectors. Then, Atrium purchased another privately-owned French company ADF Chimie S.A., enhancing its portfolio and bolstering its expertise in active ingredients and fine chemical products for the cosmetics industry in France. The addition of these new specialized products significantly strengthened Atrium's value offering and augmented its client relations in the active ingredients sector. Additionally, these transactions allowed Atrium to acquire expertise in specific cosmetic segments such as hair 11 colorants, dispersing agents and delivery systems, opening up access to new clientele and new markets. Indeed, with its increasing global presence and substantial market penetration in Europe, Atrium is emerging as a key partner, on one hand, to many of the leading companies that are seeking a consistent supply of innovative raw materials and, on the other, to biotech companies which want access to international markets. Atrium also acquired a line of nutritional supplements to strengthen its product portfolio and developed its sales force in the United States to optimize the distribution of its high- end dietary supplements to the medical community. In 2003, Atrium intends to continue adding new products to its pipeline, forging additional partnerships with companies around the globe and seeking out additional acquisition opportunities. For this purpose, the Company has put in place an internal team of business development specialists supported by an international network of consultants. Its solid financial position, its ability to successfully integrate its subsidiaries and its strong presence on the global markets, enable it to capitalize on the opportunities that exist in its sector of activity marked by consolidation and expansion. PRODUCTS Atrium develops and markets active ingredients and products for the cosmetics, nutrition, fine chemicals and pharmaceuticals sectors which meet the industy's highest quality standards such as GMP and ISO. PHARMACY o Active, natural or synthetic molecules o Excipients for all galenic forms o Additives such as flavoring agents, antiseptics, antioxidants, etc. CHEMICAL SPECIALTIES o Fine chemicals and chemical specialties developed by the manufacturer we represent in areas such as photography, painting, electronics or adhesives ORGANIC CHEMISTRY o Wide range of intermediates and promotion of our manufacture's contract production capabilities in areas such as pharmacy, cosmetics and photography COSMETICS o Wide variety of cosmetic raw materials ranging from innovative additives to the most sophisticated active ingredients HUMAN NUTRITION AND DIETETICS 12 o Functional ingredients o Additives and processing aids o Nutritional supplements VETERINARY, ANIMAL NUTRITION o High-performance ingredients and additives for animal nutrition CONTINUED GROWTH In 2002, Atrium continued to show consistent growth in both sales and earnings. Its sales rose to $101 million, an increase of 130% over the previous year. This increase is mainly due to sales generated by its French subsidiary Unipex and reflects the successful integration of both Unipex and ADF Chimie. Compared to last year, the Company's net earnings increased 48%, demonstrating the soundness of its business model and its capacity to establish partnerships with an increasing number of multinational companies for the research, development and marketing of a full range of value-added products. International markets represented 99% of Atrium's sales in 2002. SALES: EBIT: NET EARNINGS: 2000 : 8,4 M$ 2000 : 4.1 M$ 2000 : 3.4 M$ 2001 : 44 M$ 2001 : 6,5M$ 2001 : 4,5 M$ 2002 : 101 M$ 2002 : 12,3 M$ 2002 : 6,6 M$ PEOPLE ARE THE KEYSTONES OF A COMPANY "To become a world-class company, you must have a team of well qualified professionals who know how to meet customer needs. To that effect, Atrium can count on the expertise of its 75 employees in the development and marketing of ingredients and products in its highly specialized sector." Luc Dupont Chief Executive Officer and Chairman of the Board Atrium Biotechnologies Inc. 13 DELIVERING RESULTS o Cash on hand: $82 million o Revenues: $101 million "With Atrium being a fast growing and profitable subsidiary, Zentaris AG having a deep pipeline that is funded by strategic pharma partners, and Neovastat disclosing Phase III results in 2003 for renal cell carcinoma, as well as a solid financial position, we are well risk diversified and on the edge of becoming a profitable biopharmaceutical.." Dennis Turpin, CA Vice President and Chief Financial Officer 14 MANAGEMENT REPORT The following consolidated financial statements of AEterna Laboratories Inc. and all other financial information contained in this annual report are the responsibility of management. Management has prepared the consolidated financial statements in accordance with Canadian generally accepted accounting principles. When it was possible to use different accounting methods, management chose those that it felt were the most appropriate in the circumstances. The financial statements include amounts based on the use of estimates and best judgment. Management has determined these amounts in a reasonable way in order to ensure that the financial statements are presented accurately in all important regards. Management has also prepared the financial information presented elsewhere in the annual report, and has ensured that it is in accordance with the financial statements. Management maintains systems of internal accounting and administrative controls. The systems are used to provide a reasonable degree of certainty that the financial information is relevant, reliable and accurate, and that the Company's assets are correctly accounted for and effectively protected. The Board of Directors is responsible for ensuring that management assumes its responsibilities with regard to the presentation of financial information, and has ultimate responsibility for examining and approving the financial statements. The Board assumes this responsibility principally through its Audit Committee which is comprised of non-management directors. The Audit Committee met with management as well as with external auditors to discuss the internal monitoring system for presenting financial information, to address issues related to the audit and the presentation of financial information, to ensure that all parties carry out their duties correctly, and to examine the financial statements and the report of the external auditors. The consolidated financial statements have been audited on behalf of shareholders by external auditors PricewaterhouseCoopers LLP for each of the years ended December 31, 2002, 2001 and 2000, in accordance with Canadian generally accepted accounting principles. The external auditors were given full and unrestricted access to the Audit Committee to discuss matters related to their audit and the reporting of information. The Board of Directors has approved the Company's consolidated financial statements on the recommendation of the Audit Committee. Gilles Gagnon, MSc, MBA Dennis Turpin, CA President and Chief Executive Officer Vice President and Chief Financial Officer Quebec, Quebec Canada February 20, 2003 15 Corporate governance GENERAL The responsibility to oversee the conduct of the business and to guide management of AEterna resides with the Board of Directors. DIRECTORS The Board of Directors consists of nine members, including three officers and six external directors. In addition to the Board of Directors, two committees were formed to assist the Directors in their responsibilities. These are the Audit Committee and the Corporate Governance Committee. AUDIT COMMITTEE The Audit Committee is comprised of three external directors. The Audit Committee assists the Board of Directors by reviewing the Company's internal controls and auditing procedures, any relevant accounting or regulatory matters and by recommending the appointment of external auditors. CORPORATE GOVERNANCE COMMITTEE The Corporate Governance Committee consists of three directors, including two external directors. The Corporate Governance Committee is responsible for proposing all nominees to the Board and its committees and for assessing performance of individual directors and the Board as a whole. The Corporate Governance Committee also reviews overall compensation issues for senior management, and assesses the performance of the Chief Executive Officer and senior management. The Board believes that the Board and its Committees carry out effective governance of the Company's affairs. The Board will continue to review the Company's governance practices and will make changes as required. 16 CORPORATE INFORMATION BOARD OF DIRECTORS MARCEL AUBUT, O.C., Q.C. Quebec, Quebec Managing Partner Heenan Blaikie Aubut DR. FRANCIS BELLIDO, PHD(1) Beaconsfield, Quebec President and Chief Operating Officer SGF Sante Inc. STORMY BYORUM, MBA (1) Managing Partner New York, NY Violy, Byorum & Partners Holdings LLC DR. ERIC DUPONT, PHD(2) Sainte-Petronille Ile d'Orleans, Quebec Executive Chairman AEterna Laboratories Inc. PROF. DR. JURGEN ENGEL, PHD Frankfurt, Germany Chief Executive Officer Zentaris AG Executive Vice President, Global Research & Development and Chief Operating Officer AEterna Laboratories Inc. GILLES R. GAGNON, MSC, MBA Sherbrooke, Quebec President and Chief Executive Officer AEterna Laboratories Inc. JEAN-CLAUDE GONNEAU Louveciennes, France Managing Director SG COWEN EUROPE SAS 17 DR. PIERRE LAURIN, PHD, O.C. (2) Verdun, Quebec Executive in Residence H.E.C. Montreal PIERRE MACDONALD, MSC (COMM) (1) (2) Verdun, Quebec President and Chief Executive Officer MacD Consult Inc. (1) Member of the Audit Committee (2) Member of the Corporate Governance Committee 18 SENIOR OFFICERS DR. ERIC DUPONT, PHD Sainte-Petronille Ile d'Orleans, Quebec Chairman of the Board GILLES R. GAGNON, MSC, MBA Sherbrooke, Quebec President and Chief Executive Officer PROF. DR. JURGEN ENGEL, PHD Frankfurt, Germany Executive Vice President, Global Research and Development and Chief Operating Officer CLAUDE CARDINAL, LPHARM Lac Delage, Quebec Vice President, Technical Operations DR. PIERRE CHAMPAGNE, MD Cap-Rouge, Quebec Vice President, Clinical Affairs DR. ECKHARD GUNTHER, PHD Frankfurt, Germany Vice President, Drug Discovery DR. MATTHIAS RISCHER, PHD Frankfurt, Germany Vice President, Pharmaceutical Development NORMAND TREMBLAY Neuville, Quebec Vice President, Planning and External Affairs DENNIS TURPIN, CA Quebec, Quebec Vice President and Chief Financial Officer CLAUDE VADBONCOEUR, LL.L. Quebec, Quebec Vice President, Legal Affairs and Corporate Secretary 19 CORPORATE INFORMATION HEAD OFFICE AEterna Laboratories Inc. 1405 Parc-Technologique Blvd. Quebec, Quebec G1P 4P5 CANADA Phone: (418) 652-8525 Fax: (418) 652-0881 E-mail: aeterna@aeterna.com Internet: www.aeterna.com TICKER SYMBOLS AEL - The Toronto Stock Exchange (TSX) AELA - The Nasdaq Stock Market, Inc. (NASDAQ) TRANSFER AGENT AND REGISTRAR National Bank Trust Inc. 1100 University Street 9th Floor Montreal, Quebec H3B 2G7 AUDITORS PricewaterhouseCoopers LLP 900 Rene-Levesque Blvd. East Suite 500 Quebec, Quebec G1R 2B5 INTELLECTUAL PROPERTY SOLICITORS Haynes and Boone, LLP 901 Main Street, Suite 3100 Dallas, TX 75202 U.S.A. CORPORATE SOLICITORS Ogilvy Renault 1981 McGill College, Suite 1100 Montreal (Quebec) H3A 3C1 Arnold & Porter 399 Park Avenue New York, NY 10022-4690 U.S.A. 20 ANNUAL MEETING May 29, 2003, 10:30 a.m. Ritz-Carlton Hotel 1228 Sherbrooke Street West Montreal, Quebec H3G 1H6 21 AETERNA'S SCIENTIFIC ADVISORY BOARD EXTERNAL MEMBERS: o DR. GERALD BATIST, MD, CM, FACP, Director of the McGill Center for Translational Research in Cancer and Professor, Department of Oncology and Medicine, McGill University, Jewish General Hospital, Montreal, Canada o DR. RICHARD BELIVEAU, PHD, Director of the Molecular Oncology Laboratory of the Cancer Research Centre, Sainte-Justine Hospital, Montreal, Canada o DR. FRANCOIS BERGER, MD, PHD, Professor, INSERM U318, Centre hospitalier universitaire, Grenoble, France o DR. W.K. (BILL) EVANS, MD, FRCPC, Executive Vice President, Clinical Programs, Cancer Care Ontario, Toronto, Canada o DR. FERNAND LABRIE, O.C., O.Q., MD, PHD, Head, Centre hospitalier de l'Universite Laval, (CHUL) Research Centre, Quebec, Canada. o PROF. DR. KLAUS H.R. DIEDRICH, Director of the Department of Gynecology and Obstetrics at the University Clinic in Luebeck, Germany o PROF. DR. RENE FRYDMAN, Head of the Department of Gynecology and Obstetrics at the Hopital Antoine Beclere in Clamart (Paris), France o DR. GEORGES PELLETIER, MD, PHD, Professor, Faculty of Medicine, Laval University, Researcher, Centre Hospitalier Universitaire de Quebec (CHUQ), CHUL Pavillon, Quebec, Canada o DR. DILIP PATEL, MD, Program Director Hematology and Oncology, North Shore Long Island Jewish Health System, New Hyde Park, New York, U.S.A. o DR. JANICE P. DUTCHER, MD, Associate Director, Clinical Affairs and Professor of Medicine, Comprehensive Cancer Center, Our Lady of Mercy Medical Center, New York, U.S.A. o DR. LEE S. ROSEN, MD, Director of Developmental Therapeutics, Cancer Institute Medical Group, Santa Monica, CA, U.S.A. 22