Forward-looking Statements

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1 MANAGEMENT S DISCUSSION AND ANALYSIS OF ACERUS PHARMACEUTICALS CORPORATION (FORMERLY TRIMEL PHARMACEUTICALS CORPORATION) FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2015 The following management s discussion and analysis ( MD&A ) of the financial condition and results of the operations of Acerus Pharmaceuticals Corporation and its wholly owned subsidiaries (the Company, Acerus, we or our ) constitutes management s review of the factors that affected our financial and operating performance for the three and nine months This MD&A is dated November 4, 2015 and should be read in conjunction with the unaudited condensed interim consolidated financial statements for the three and nine months 2015, together with the notes and audited consolidated financial statements for the year ended December 31, The unaudited condensed interim consolidated financial statements were prepared in accordance with International Financial Reporting Standards ( IFRS ) as issued by the International Accounting Standards Board applicable to the preparation of interim financial statements including International Accounting Standards 34: Interim Financial Reporting and are presented in thousands of United States ( U.S. ) dollars except for per share amounts and unless otherwise noted. For more detailed information regarding certain forward-looking statements contained herein, please see the note regarding Forward-looking Statements. The results of the operations, business prospects and financial condition of Acerus will be affected by, among others, the "Risk Factors" set out in our Annual Information Form dated March 4, 2015 available at Our ability to realize our assets and meet our obligations as they come due is dependent on successfully commercializing our existing products, bringing new products and technologies to market and achieving future profitable operations, the outcome of which cannot be predicted at this time. As we have only been generating revenue from product sales since the third quarter of 2014, it will be important for us to achieve our commercial goals or raise additional capital from external sources. It is expected that the cash flows generated from these revenue streams will be used to fund a portion of current operations, obligations and other initiatives. Factors within and outside our control could have a significant bearing on our ability to generate sales or to obtain additional financing, which may in turn impact our ability to continue the development and subsequent commercialization of our products. Please see note 1 of our unaudited condensed interim consolidated financial statements for the three and nine months 2015 for additional information regarding the appropriateness of the use of accounting principles applicable to a going concern. Forward-looking Statements This MD&A contains forward-looking information. This forward-looking information is not based on historical facts but rather on our expectations regarding the future growth of the Company and our respective results of operations, performance and business prospects and opportunities. Forward-looking information may include financial and other projections, as well as statements regarding future plans, objectives or economic performance, or the assumptions underlying any of the foregoing. This MD&A uses words such as believe, expect, would, will, expects, anticipates, intends, estimates, or similar expressions to identify forward-looking information. Such forward-looking information reflects our current beliefs based on information currently available to us. These forward-looking statements are subject to important assumptions and we have also made certain macroeconomic and general industry assumptions in their preparation. While we consider these factors and assumptions to be reasonable based on information currently available, there can be no assurance that actual results will be consistent with these forward-looking statements. Forwardlooking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Acerus business, or developments in our industry, to differ materially from the anticipated results, performance, achievements or developments expressed or implied by such forward-looking statements. Risks related to forward-looking statements include, among other things: our ability to continue as a going concern; our limited operating history; our ability to meet future capital requirements; the degree of market acceptance of our products; marketing and distribution risks; manufacturing-related risks; supplier risks; risks relating to the supply of raw materials; publication of adverse clinical trial results; risks relating to promotional activities; 1

2 risks relating to generic competition for our products; risks associated with the cost and reimbursement of our products; intellectual property risks, including the uncertainty of intellectual property protection, risks associated with licensed patent rights and the risk of third party claims of infringement; risks associated with trade secrets; risks related to changes to extensive government regulation; risks related to the performance of services by third parties; risks associated with the public market and volatility associated with our shares; risk of potential third-party liability; risks relating to clinical testing we conducted; regulatory approval related matters; research and development related risks; risk associated with debt financing; certain minimum payment obligations; a dependence on key personnel; risk of potential dilution of shareholders; risks associated with potential future acquisition activities; risks associated with the expiry of inventory; risks associated with returns, allowances and chargebacks; risks relating to our ability to expand our operations; competition risks; risks associated with technological change; foreign exchange risk; concentration risk; risks associated with certain indemnity obligations; tax-related risks; our intention to not pay dividends in the foreseeable future; risks relating to the enforcement of judgments and risks relating to our ability to generate ancillary additional revenue. Risks related to forward-looking statements include those risks referred to in our filings with the Canadian Securities regulators, including risks described in our Annual Information Form dated March 4, 2015 under the heading Risk Factors. Actual results, performance or achievement could differ materially from that expressed in, or implied by; any forward-looking information in this MD&A, and, accordingly, investors should not place undue reliance on any such forward-looking information. Further, any forwardlooking information speaks only as of the date on which such statement is made and we undertake no obligation to update any forward-looking information to reflect the occurrence of unanticipated events, except as required by law. New factors emerge from time to time and the importance of current factors may change from time to time and it is not possible for us to predict all of such factors, changes in such factors and to assess in advance the impact of each such factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking information contained in this MD&A. CRITICAL ACCOUNTING ESTIMATES In preparing our unaudited condensed interim consolidated financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities at the date of the unaudited condensed interim consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results may differ from these estimates. Significant estimates made by management include those that applied to the audited annual consolidated financial statements for the year ended December 31, We did not have any significant changes in estimates and judgments as compared to those that applied at year end. Overview Acerus is the parent corporation of two wholly-owned subsidiaries, Acerus Pharmaceuticals SRL ( SRL ) (incorporated in Barbados) and Acerus Pharmaceuticals (Barbados) Inc. ( APBI ) (incorporated in Barbados). Our corporate head office, principal address and records office are located in Mississauga, Ontario, Canada. The Company's registered address is 2486 Dunwin Drive, Mississauga, Ontario, L5L 1J9. We are a Canadian pharmaceutical company focused on the development, manufacture, marketing and distribution of innovative, branded products that improve the patient experience. Our current therapeutic areas of focus are men s health (urology) and women s health (hormone replacement therapy, female sexual dysfunction). Natesto TM, a product utilizing Acerus s licensed nasal gel technology, has been approved for sale in the United States by the Food and Drug Administration ( FDA ) and on December 9, 2014, we secured a partnership agreement with an affiliate of Endo International plc, a third party pharmaceutical company, to manage the sales and marketing of Natesto TM in the United States and Mexico. Under the terms of the agreement, we are eligible to receive payments of up to $165 million based on certain regulatory and sales milestones in addition to an upfront fee of $25 million and a prepaid inventory deposit of $5 million which was received upon closing of the transaction on December 9, Endo launched the product in the United States on March 16, Please see subsequent event note for an update. For further information please see the Annual Information Form dated March 4, 2015 and our other filings available on SEDAR at 2

3 SELECTED CONSOLIDATED FINANCIAL INFORMATION The following table sets forth selected consolidated financial information for Acerus as of and for the last eight quarters. This information is derived from quarterly unaudited condensed interim consolidated financial statements. These results were prepared in accordance with IFRS. For the three months ended Statement of Income/(Loss) and Comprehensive Loss Data Q Q Q Q Q Q Q Q Revenues Product revenues $ 2,202 $ 2,132 $ 2,616 $ 2,418 $ 1,748 $ - $ - $ - Licensing and other fees ,815 2,739 3,216 2,565 1, Operating Expenses: Cost of sales 1, ,282 7,163 2, Research and development expenses Research and development expenses ,169 1,036 1,639 2,710 4,618 Research and development milestone expenses ,500-4,250 Total research and development ,169 1,036 4,139 2,710 8,868 Selling general and administrative 1,422 1,690 1,350 1,160 1,493 1,531 1,275 2,281 Business acquisition costs , ,183 3,294 4,427 9,492 6,832 5,671 3,985 11,149 Finance costs, net (1,501) 1,072 (1,083) 1,153 (557) 1,790 (1,406) (1,035) Total expenses 1,682 4,366 3,344 10,645 6,275 7,460 2,579 10,114 (Recovery of) income taxes - - (90) Net income/(loss) 1,133 (1,627) (38) (8,080) (4,527) (7,460) (2,579) (10,114) Foreign cumulative translation adjustment (4,141) 987 (5,518) (2,296) (3,000) 1,906 (1,806) (1,460) Net comprehensive loss $ (3,008) $ (640) $ (5,556) $ (10,376) $ (7,527) $ (5,554) $ (4,385) $ (11,574) Net earnings/(loss) per basic and diluted common share (in dollars) $0.01 ($0.01) ($0.00) ($0.04) ($0.02) ($0.05) ($0.02) ($0.07) As at the end of Statement of Financial Position Data Q Q Q Q Q Q Q Q Total Assets $ 63,113 $ 67,124 $ 67,760 $ 75,944 $ 60,039 $ 22,355 $ 27,151 $ 28,121 Total Liabilities 55,551 56,679 56,827 59,483 33,394 8,951 8,420 14,547 Total Shareholders' Equity 7,562 10,445 10,933 16,461 26,646 13,404 18,731 13,575 Our operating results reflect the purchase of the Canadian rights to Estrace in July 2014, the exclusive license, development and supply agreement with an affiliate of Endo to market and sell Natesto TM in the United States and Mexico entered into in Q4 2014, and the advancement of Tefina which completed a second Phase II clinical study in April The decrease in research and development expenses over the past several quarters is driven primarily by the timing associated with clinical trial expenses, milestone expenses and product development costs. The average level of selling, general and administrative costs in the past eight quarters has decreased from 2013 spending levels due to a decrease in legal expenses related to arbitration costs. The fluctuation in the finance costs over the quarters is mainly a result of the foreign exchange gain/loss during the period on the revaluation of a U.S. dollar denominated intercompany receivable offset by the increase in financing costs related to the acquisition of debt to fund the purchase of the Canadian rights to Estrace. Factors Affecting Results from Operations Revenue and Gross Profit Our product revenues reflect the net sales of Estrace and Natesto TM which include adjustments for chargebacks, discounts and other price adjustments. Cost of sales reflect the cost of finished goods inventory which includes a fair value adjustment to Estrace inventories acquired as part of a business combination, manufacturing, distribution and warehousing costs, the amortization of the Estrace product rights intangible asset and royalty expense for Natesto TM. Our licensing and other fee revenue reflects the amortization of the $25.0 million license fee received as part of the Natesto TM marketing, license, development and supply agreement entered into in Q

4 Research and Development Expenses Our research and development ( R&D ) expenses consist primarily of project specific costs, namely: project management, clinical studies, laboratory analysis, formulation development and packaging design costs as well as milestone obligations based on the achievement of specific developmental, regulatory or commercial milestones on or before specific dates. Research and development expenses also include salary, benefits and share-based compensation for R&D management and staff and amortization of intangible assets, of leasehold improvements and of manufacturing and laboratory assets. Acerus' research and development activities focus on clinical research and development and include internal and external activities associated with advancing product candidates towards obtaining regulatory approval for manufacture and marketing in various jurisdictions. Selling, General and Administrative Expenses Our selling, general and administrative costs mainly consist of salary and benefits for executive management and administrative staff, share-based compensation, professional fees, public company related costs, selling expenses, office expenses and amortization of leasehold improvements and equipment related to administrative usage. Share-based compensation is recognized as an expense in the statement of loss and comprehensive loss based on the fair value of share-based payments awarded using the Black-Scholes option pricing model. Assumptions that affect the application of the fair value model include volatility, the risk free interest rate and the term of the options issued. The expense recognized in the period is based on the value of the share-based awards that are expected to vest and is apportioned between research and development and general and administrative costs based on the nature of each individual s employment. Business Acquisition Costs These costs include legal, accounting, advisory and professional fees incurred for the acquisition of the Canadian rights to Estrace. Net Finance Costs Our financing expenses consist of interest expense, accretion, amortization of deferred financing fees, fair value adjustment to the derivative financial instruments, and foreign exchange gains and losses. The foreign exchange gains and losses are significantly affected by an intercompany receivable that is denominated in U.S. dollars and is held by the parent company, whose functional currency is the Canadian dollar and do not eliminate on consolidation. Foreign Currency The majority of our Canadian legal entity revenue and expenses are incurred in Canadian dollars and are translated into our reporting currency, the U.S. dollar, for consolidated reporting. Accordingly, the results of operations for Acerus are impacted by fluctuations of the Canadian dollar against the U.S. dollar exchange rate. The Canadian dollar results in the consolidated statement of income/(loss) and comprehensive loss were translated into U.S. dollars at the average exchange rate of $ and $ respectively for the nine months 2015 and The Canadian dollar denominated consolidated statement of financial position was translated into U.S. dollars at the period-end spot rates of $ at September 30, 2015 and $ at December 31, Taxation Canada and Barbados have laws related to various taxes imposed by national/federal, provincial and municipal authorities. Applicable taxes include a value added tax ( VAT ) and harmonized sales tax ( HST ), corporate income tax, payroll taxes and other taxes. The VAT and HST taxes that are payable on goods and services billed and purchased are 17.5% in Barbados, 19.6% in Europe and 13% in Canada respectively. The VAT and HST may be recoverable due to input tax credits. Corporate income tax payable in Canada would be approximately 26.5% in 2014 and in Barbados there is a sliding scale of rates ranging from 2.5% on the first BBD$10 million of taxable income to 0.25% on taxable income of BBD$30.0 million and greater. 4

5 Acquisition On July 16, 2014, we acquired from affiliates of Shire plc, the Canadian rights for Estrace (17-beta estradiol), a product indicated for the treatment of symptomatic relief of menopausal symptoms. Under the terms of the agreement, we acquired the Canadian rights to Estrace, together with existing inventories (valued at CDN$5.0 million) at the date of acquisition, for $41.4 million (CDN$44.5 million). The acquisition has been accounted for as a business combination. Third Quarter Results from Operations The following table presents selected financial information (including certain non-ifrs measures, as noted) for the unaudited three and six months 2015 and 2014, which were derived from the unaudited condensed interim consolidated financial statements for the respective periods: Statement of Income/(Loss) and Comprehensive Loss Data For the three months ended For the nine months ended September 30, Q3 Change September 30, YTD Change $ % $ % $ $ Revenues Product revenues 2,202 1, % 6,950 1,748 5, % Licensing and other fees n/a 1,820-1,820 n/a 2,815 1,748 1,067 61% 8,770 1,748 7, % Operating Expenses: Cost of sales 1,095 2,026 (931) (46%) 4,265 2,026 2, % Research and development 666 1,036 (370) (36%) 2,177 5,385 (3,208) (60%) Research and development milestone expenses n/a - 2,500 (2,500) (100%) Total research and development 666 1,036 (370) (36%) 2,177 7,885 (5,708) (72%) Selling, general and administrative 1,422 3,770 (2,348) (62%) 4,462 6,576 (2,114) (32%) Total operating expenses 3,183 6,832 (3,649) (53%) 10,904 16,487 (5,583) (34%) Finance costs, net (1,501) (557) (944) 169% (1,512) (174) (1,338) 769% Total expenses 1,682 6,275 (4,593) (73%) 9,392 16,313 (6,921) (42%) Recovery of income taxes n/a (90) - (90) n/a Net income/(loss) 1,133 (4,527) 5, % (532) (14,565) 14,033 96% Foreign currency translation adjustment (4,141) (3,000) (1,141) (38%) (8,672) (2,900) (5,772) (199%) Total comprehensive loss for the period (3,008) (7,527) 4,519 60% (9,204) (17,465) 8,261 47% Net earnings/(loss) per basic and diluted common share (in dollars) $ 0.01 $ (0.02) $ % $ 0.00 $ (0.09) $ % EBITDA (1) $ 1,311 $ (3,370) 1,328 (11,848) Adjusted EBITDA (1) $ (251) $ (668) (857) (8,756) Statement of Financial Position Data As at September 30, 2015 December 31, 2014 Total Assets $ 63,113 $ 75,944 Total Liabilities 55,551 59,483 Total Shareholders' Equity 7,562 16,461 (1) Represents a non-ifrs measure. For the relevant definitions and reconciliation to reported results, see Non-IFRS Financial Measures 5

6 Revenue, Gross Profit and Adjusted Gross Profit For the three months $000s Change $ Change % Change $ Change % Revenue Product revenues 2,202 1, % 6,950 1,748 5, % Licensing and other fees n/a 1,820-1,820 n/a 2,815 1,748 1,067 61% 8,770 1,748 7, % Cost of sales 1,095 2,026 (931) (46%) 4,265 2,026 2, % Total gross profit 1,720 (278) 1,998 (719%) 4,505 (278) 4,783 (1,720.5%) Licensing and other fees (613) - (613) n/a (1,820) - (1,820) n/a Amortization of intangible asset % 1, % Inventory fair value adjustment - 1,278 (1,278) (100%) 844 1,278 (434) (34%) Adjusted gross profit (1) $ 1,485 $ 1, % $ 4,706 $ 1,375 3, % (1) Represents a non-ifrs measure. For the relevant definitions and reconciliation to reported results, see Non-IFRS Financial Measures For the nine months Product revenues relate mainly to the sale of Estrace (CDN$2,558 and CDN$7,356 for the three and nine months ended September 30, 2015 and CDN$1,920 for the three and nine months 2014), for which we obtained the Canadian rights to in July 2014, and Natesto TM for which a license, development and supply agreement was concluded with Endo in December Revenues from Natesto TM are earned in two steps: 1) at a contractual price when the product is delivered to Endo; and 2) an additional top-up amount is earned based on a tiered pricing schedule when Endo recognizes sales of the product to the marketplace. Revenues earned during the quarter reflect both a delivery of product to Endo and additional top-up amounts based on the sale of the product to the market place. As Natesto is a new product without the requisite historical data on which to base estimates of returns and allowances, additional top-up revenue will be based on prescriptions filled until accurate estimates of product returns and allowances can be determined. Natesto TM product revenue for the nine months 2015 is mainly due to revenues earned upon the delivery of the product to Endo at a contractual price. Additional revenue may be generated when the product is sold in the marketplace in future periods. Included in cost of sales is a $0.2 million inventory write-down reversal regarding raw materials that have been deemed suitable for commercial use. Licensing and other fees reflect the amortization of the $25.0 million upfront payment earned in the Natesto TM license, development and supply agreement. The upfront fee is being amortized over the term of the agreement, approximately 10 years. Included in the Estrace cost of sales for the three and nine months 2015 is $0.4 million and $1.2 million respectively in amortization of the product rights intangible and $nil and $0.8 million of a fair value adjustment related to inventory sold that was acquired as part of the Estrace acquisition. In accordance with IFRS the inventory was recorded at its fair value on the date of acquisition. As a result, current gross reflects greater costs than are anticipated to be experienced in the normal course of business after the acquired inventory is sold. See the section Non-IFRS Financial Measures Adjusted Gross Profit for more detail on the fair value adjustment. 6

7 Research and Development For the three months For the nine months Change $ Change % Change $ Change % Research and development expenses 666 1,036 (370) (36%) 2,177 5,385 (3,208) (60%) Research and development milestone expenses n/a - 2,500 (2,500) (100%) Total research and development expense $ 666 $ 1,036 (370) (36%) 2,177 7,885 (5,708) (72%) The $0.4 million decrease in research and development expense for the three months 2015 versus the comparable prior year period is mainly due to lower product development, professional fees, overhead costs and investment tax credits received, offset by increased clinical trial expenses incurred regarding the clinical trial to support a BID dose for Natesto TM. Prior year product development and professional fees included costs regarding preparation for the Natesto TM U.S. market launch. Overall research and development expenses decreased by $5.7 million for the nine months 2015 compared to the nine months 2014 primarily due to a $2.5 million milestone expense recognized in 2014 and $1.2 million decrease in clinical trial expenses and a $0.6 million decrease in professional fees with the completion of the Phase II Tefina TM clinical trial, $0.1 million investment tax credits received, partially offset by increased costs related to the BID Natesto TM clinical trial. Depreciation expense decreased by $0.8 million due to the acceleration of depreciation on the leasehold improvements in 2014 and the classification of depreciation related to manufacturing equipment to inventory and cost of sales in the current period. Given our business strategy, we expect to continue to incur research and development expenses. We initiated a BID clinical trial for Natesto TM in the current period and will continue to incur product development costs related to our technology platforms and for the clinical development of Tefina TM. Selling, General and Administrative For the three months For the nine months Change $ Change % Change $ Change % Selling, general and administrative expense $ 1,422 $ 3,770 (2,348) (62%) 4,462 6,576 (2,114) (32%) Selling, general and administrative expenses have decreased by $2.3 million period over period for the three months ended September 30, The decrease is mainly due to the $2.5 million decrease in professional fees and business acquisition costs partially offset by $0.3 million of termination benefits expensed in the current period. The additional professional fees and business acquisition costs incurred in the prior year mainly relate to the acquisition of the Canadian rights to Estrace. The $2.1 million decrease in selling, general and administrative expenses for the nine months 2015 versus the comparable prior year is mainly due to $2.5 million in professional fees and business acquisition costs that were incurred in the 2014 period related to the acquisition of the Canadian rights to Estrace, $0.2 million decrease in public company costs due to a decrease in shareholder events and listing fees in the prior year related to issuance of common shares, $0.2 million decrease in share-based compensation expense due to the timing of issuance and vesting of options and $0.1 million decrease in depreciation expense due to the acceleration of depreciation on leasehold improvements. This is offset by $0.4 million increase in selling expenses related to Estrace and $0.5 million increase in salaries and benefits. As the Canadian rights to Estrace were acquired on July 16, 2014, the current period reflects a full nine months of selling expenses versus only two and a half months in the prior nine month period. The additional salaries and benefits expenses incurred in the current period relate to termination benefits. 7

8 Finance Costs For the three months For the nine months Change $ Change % Change $ Change % Interest on long-term debt and other financing costs $ 968 $ 1,185 (217) (18%) $ 2,877 $ 1,541 1,336 87% Interest income (42) (25) (17) (68%) (106) (74) (32) (43%) Foreign exchange gain (1,695) (1,072) (623) (58%) (3,451) (1,024) (2,427) (237%) Change in fair value of derivative financial instruments (732) (645) (87) (13%) (832) (617) (215) (35%) Total finance costs $ (1,501) $ (557) (944) (169%) $ (1,512) $ (174) (1,338) (769%) The gain in finance costs for the three months 2015 increased by $1.0 million over the prior year comparable period. The foreign exchange gain increased by $0.6 million due to the revaluation of the intercompany loan that is denominated in U.S. dollars but held at the parent which has a Canadian functional currency and does not eliminate upon consolidation. In connection with the financing related to the purchase of the Canadian rights to Estrace, we issued warrants which are accounted for as a derivative liability. Due to the decrease of our share price from CDN$0.68 at June 30, 2015 to CDN$0.31 at September 30, 2015, the outstanding derivative liabilities have decreased by $0.7 million. There was also a $0.2 million decrease in interest on long-term debt and other financing costs related to the financing of the Estrace acquisition. The gain in finance costs have increased by $1.3 million for the nine months 2015 compared to the nine months The variance is primarily due to an additional $2.4 million foreign exchange gain in the current period related to the revaluation of the intercompany loan, and an additional $0.2 million gain on the revaluation of the outstanding derivative liabilities, offset by the $1.3 million increase in interest on long-term debt and by other financing costs related to the Senior Financing. Income Taxes For the three months For the nine months Change $ Change % Change $ Change % Recovery of income taxes $ - $ - - n/a (90) - (90) n/a Income tax expense for the nine months 2015 was a recovery of $0.1 million compared to $nil in the comparable prior year period. A total of 3,859,200 warrants with a cumulative value of $1.0 million expired on January 19, The expiry of these warrants resulted in a capital gain equal to their cumulative value. As a result, we recognized a deferred tax asset to the extent of the deferred tax liability created by this expiry. Net Income/(Loss) and Comprehensive Loss For the three months For the nine months Change $ Change % Change $ Change % Net income/(loss) $ 1,133 $ (4,527) 5, % (532) (14,565) 14,033 96% Net comprehensive loss $ (3,008) $ (7,527) 4,519 60% (9,204) (17,465) 8,261 47% Basic and diluted net earnings/(loss) per share $0.01 ($0.02) $0.00 ($0.09) Please refer to the discussions above for more detail on the period changes. 8

9 Financial Position The following table presents a summary of our financial position: Change September 30, 2015 December 31, 2014 $ % Working capital (total current assets less total current liabilities) $ 16,579 $ 25,898 (9,319) (36%) Non-current assets 32,653 38,127 (5,474) (14%) Long-term obligations 41,670 47,564 (5,894) (12%) Shareholders' equity 7,562 16,461 (8,899) (54%) As at Working Capital The $9.3 million decrease in working capital from December 31, 2014 to September 30, 2015 is primarily due to the following: Cash decreased by $5.9 million mainly due to net loss of $0.5 million offset by $2.3 million in non-cash expenses, $1.3 million used in working capital items, $2.0 million in interest paid, $0.2 million used to investing activities and $4.0 million in exchange loss on cash. $1.2 million decrease in inventory due to the sale of Estrace and Natesto TM products during the period and $0.2 million of the reversal of a prior period inventory write-down. $4.5 million increase in the current portion of long-term debt due to the timing of future principal payments, net of capitalized financing fees. Offset by: $2.1 million decrease in accounts payable and accrued liabilities mainly due to a $2.5 million Natesto TM milestone that was accrued in the second quarter of 2014 and paid in January The remaining variance is due to the timing of invoices, payments and development activities. $0.5 million decrease in deferred revenues and customer deposits due to the drawdown of customer deposits related to Natesto TM product revenue. Non-Current Assets Non-current assets consist of property and equipment and intangible assets. Property and equipment mainly consists of office equipment and fixtures, lab and manufacturing equipment, fixtures and leasehold improvements. Intangible assets consist of technology, patents and product rights. The increase in property and equipment from December 31, 2014 to September 30, 2015 is primarily due to the leasehold improvements made in our new Canadian facility offset by depreciation expense. At September 30, 2015, manufacturing equipment with a net book value $1.2 million was held off-site by a third party ($1.4 million at December 31, 2014). The $5.8 million decrease in intangible assets is due to the amortization of $1.4 million and a $4.4 million foreign exchange effect on the Estrace product rights intangible which is valued in Canadian dollars. Long-term obligations Long-term obligations consist of long-term debt, derivative financial instruments, deferred lease inducement and deferred revenue. Deferred revenue relates to the $25.0 million upfront licensing fee received in connection with the Natesto TM licensing agreement. The $1.8 million decrease is due to the amortization of this upfront licensing amount. 9

10 Shareholders equity The authorized capital of the Company consists of an unlimited number of Acerus common shares without par value. As of the date of this MD&A, 200,873,234 Acerus common shares were issued and outstanding. The $8.9 million decrease in the shareholders equity from December 31, 2014 to September 30, 2015 is primarily due to the $8.7 million foreign currency translation adjustment, the $0.5 million net loss, the $0.1 million adjustment due to the warrant expiry, and offset by $0.4 million in share-based compensation. Liquidity and Capital Resources Liquidity Risk Liquidity risk is the risk that we may encounter difficulties in meeting our financial liability obligations as they become due. We have planning and budgeting processes in place to help determine the funds required to support our normal operating requirements on an ongoing basis. Since inception, we have financed our cash requirements primarily through issuances of equity securities and long-term debt (including convertible debt). We control liquidity risk through management of working capital, cash flows and the availability and sourcing of financing. The purpose of liquidity management is to ensure that there is sufficient cash to meet all of our financial commitments and obligations as they come due. Our ability to accomplish our strategic plans is dependent upon earning sufficient revenues from our existing products, bringing new products and technologies to market, achieving future profitable operations and possibly obtaining additional financing or executing other strategic initiatives that could provide cash inflows. Prior to any of the funds raised through private and public placements, the majority of our cash requirements had been funded by convertible debt. Private placement offerings of equity occurred in 2009, 2010, 2011 and 2014 and public offerings occurred in 2012 and We are pursuing commercial or strategic transactions as well as exploring financing options to raise additional funds. We have some ability to defer research and development programs or expenditures; however, any potential modification of research and development expenditures could negatively affect anticipated product development timelines. In July 2014, we purchased the Canadian rights to Estrace together with existing inventories at the date of acquisition for $41.4 million (CDN$44.5 million). We closed a licensing, supply and development agreement with regards to Natesto TM in December We expect to use cash flows generated from these products to partially fund operations and other strategic initiatives. We are authorized to issue an unlimited number of common shares. As at September 30, 2015, we had 200,873,234 common shares issued and outstanding, 3,241,369 warrants outstanding and exercisable for 3,241,369 common shares, 6,077,990 outstanding stock options with a weighted average exercise price of CDN$1.31 and 2,351,225 outstanding stock options with a weighted average exercise price of $5.38. Cash flows Cash flow used in operating activities For the nine months 2015, we had a cash inflow of $0.4 million from operating activities consisting of outflows from a net loss of $0.5 million and working capital items of $1.3 million, offset by non-cash expenses of $2.3 million. The prior year comparable period had a cash outflow of $18.1 million from operating activities consisting of outflows from a net loss of $14.6 million, working capital outflow of $6.2 million, offset by non-cash expense of $2.7 million. The decreased operating cash outflow over the prior year periods is mainly a result of lower research and development activities and an increased inflow of funds from the sales of Estrace and Natesto TM. Cash flow from financing activities Cash out flows for interest payments on long-term debt for the nine months 2015 totalled $2.0 million. In the same prior year period, we had an inflow of $53.0 million due to debt financing obtained of $50.0 million, net proceeds from private placements in Q1 and Q of $24.9 million, offset by the $20.2 million debt repayment and $1.6 million in interest payments. 10

11 Cash flow used in investing activities Net cash out flows from investing activities totalled $0.2 million compared to $41.6 million in the same prior year periods. The outflows in the current period primarily relate to the leasehold improvements and furniture and equipment purchased for our new Canadian facility. The outflows in the prior year period primarily relate to the acquisition of the Canadian rights to Estrace. Capital Expenditures Our capital expenditures primarily relate to our investment in leasehold improvements at our Canadian facilities, and manufacturing and laboratory assets at an offsite third party supplier location. We moved into a new Canadian facility in June Off-Balance Sheet Arrangements We have operating leases for the right to use office, manufacturing and laboratory facilities in Canada and office facilities in Barbados. We also have operating leases for office equipment. There are no other off-balance sheet arrangements. We have entered into a lease agreement for a 10,000 sq. ft. facility in Canada that expires in February Our Barbados office is under a lease that expires in November Contractual obligations and commitments We are obligated to make the following payments: Payments due by Period Contractual obligations Total Less than 1 year 1-3 years 4-5 years Over 5 years Accounts payable and accrued liabilities $ 2,428 $ 2,428 $ - $ - $ - Operating leases 1, Inventory purchase Long-term debt (principal and interest) 31,487 7,063 17,187 7,237 - Total Obligations $ 36,534 $ 10,102 $ 17,782 $ 7,839 $ 811 Under certain of our research and development agreements, we may be required to make payments contingent upon the achievement of specific developmental, regulatory, or commercial milestones. As described in note 5(a) of our September 30, 2015 unaudited condensed interim consolidated financial statements, we may be required to make remaining milestone payments in the aggregate amount of $4.5 million related to Tefina TM, pursuant to the terms of certain product rights and asset acquisition agreements. In relation to the pulmonary and nasal dry powder delivery technology, there is a milestone payment of $2.0 million due upon FDA approval for each product to a maximum of $8.0 million (see note 5(b) of the September 30, 2015 unaudited condensed interim consolidated financial statements). 11

12 Related Party Transactions Details of the transactions between the Company, key management and other related parties are disclosed below: Key management includes our directors and executive officers. The remuneration of directors and key members of management and legal fees paid or payable to firms affiliated with the current directors for the three and nine months 2015 and 2014 were as follows: For the three months ended September 30, For the nine months ended September 30, Short-term compensation of key management and directors $ 608 $ 524 $ 1,841 $ 1,472 Termination benefits Share-based compensation Legal fees paid or payable to firms affilliated with directors $ 1,030 $ 669 $ 2,557 $ 2,018 These transactions are in the normal course of operations. Executive employment agreements allow for total additional payments of approximately $280 if a liquidity event occurs, $1,110 if all are terminated without cause, and $nil if all are terminated with cause. As at September 30, 2015, we hold a $28,893 ($23,052 as at December 31, 2014) receivable from its wholly owned subsidiary SRL. This receivable is non-interest bearing, due on demand and eliminate upon consolidation except for the foreign exchange gain of $1,998 and $3,631 for the three and nine months 2015 (gain of $2,036 and $2,180 for the three and nine months 2014) that has been recorded in the statement of loss. Dividends We intend to re-invest future earnings to finance our growth and therefore do not intend to pay dividends in the foreseeable future. Any subsequent decision to pay dividends is at the discretion of the Board of Directors and will depend on our financial position, operating results, capital requirements and other factors deemed relevant by the Board of Directors. Financial Instruments and Other Instruments As at September 30, 2015, our financial instruments consisted of cash, trade and other receivables, accounts payable and accrued liabilities, long-term debt, derivative financial instrument and an embedded derivative instrument. The derivative financial instrument and embedded derivative instrument are measured at fair value with any changes recognized through the statement of loss and comprehensive loss and are classified as Level 2. Cash, trade and other receivables, accounts payable and accrued liabilities are measured at amortized costs and their fair values approximate carrying values due to their short-term nature. The long-term debt is measured at amortized cost. As at September 30, 2015, the fair value of the long-term debt approximates its face value of $25.0 million. The fair value is based on cash flows discounted using a rate based on the borrowing rate. Our financial instruments are exposed to certain financial risks, including currency risk, interest rate risk, credit risk and liquidity risk. The unaudited condensed interim consolidated financial statements do not include all financial risk management information and disclosures required in the audited annual consolidated financial statements; they should be read in conjunction with the Company s audited annual consolidated financial statements as at December 31, There have been no changes in the risk management area or in any risk management policies since December 31, Accounting Pronouncements The accounting policies applied are consistent with the significant accounting policies used in the preparation of the audited annual consolidated financial statements for the year ended December 31, These policies have been consistently applied to all periods presented, unless otherwise stated. 12

13 New and revised IFRSs issued but not yet effective The impact of new standards, amendments to standards and interpretations that have been issued but are not effective for financial periods beginning on or after January 1, 2016 and have not been early adopted have been discussed in our annual financial statements for the year ended December 31, IFRS 15 Revenue from Contracts with Customers IFRS 15 specifies how and when to recognize revenue as well as requiring us to provide users of financial statements with more informative, relevant disclosures. The standard provides a single, principles-based five-step model to be applied to all contracts with customers. Extensive disclosures will be required, including disaggregation of total revenue; information about performance obligations; changes in contract asset and liability account balances between periods and key judgments and estimates. IFRS 15 applies to an annual reporting period beginning on or after January 1, We are currently reviewing the impact of IFRS 15 on the financial statements and plan to adopt the standard on January 1, IFRS 9 Financial Instruments IFRS 9 addresses the classification, measurement and recognition of financial assets and financial liabilities. The complete version of IFRS 9 was issued in July It replaces the guidance in IAS 39 that relates to the classification and measurement of financial instruments. IFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets: amortized cost, fair value through other comprehensive income (OCI) and fair value through profit and loss. The basis of classification depends on the entity s business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are required to be measured at fair value through profit or loss with the irrevocable option at inception to present changes in fair value in OCI without recycling to profit and loss. There is now a new expected credit losses model that replaces the incurred loss impairment model used in IAS 32. For financial liabilities, there were no changes to classification and comprehensive income for liabilities designated at fair value through profit or loss. IFRS 9 relaxes the requirements for hedge effectiveness by replacing the bright line hedge effectiveness test. It requires an economic relationship between the hedged item and the hedging instrument and for the hedged ratio to be the same as the one management actually use for risk management purposes. Contemporaneous documentation is still required but is different to that currently prepared under IAS 32. The standard is effective for accounting periods beginning on or after January 1, Early adoption is permitted. We have yet to assess IFRS 9 s full impact. Non-IFRS Financial Measures The non-ifrs measures included in this MD&A are not recognized measures under IFRS and do not have a standardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other issuers. When used, these measures are defined in such terms as to allow the reconciliation to the closest IFRS measure. These measures are provided as additional information to complement those IFRS measures by providing further understanding of our results of operations from our perspective. Accordingly, they should not be considered in isolation nor as a substitute for analysis of our financial information reported under IFRS. Despite the importance of these measures to management in goal setting and performance measurement, we stress that these are non-ifrs measures that may have limits in their usefulness to investors. We use non-ifrs measures, such as Adjusted Gross Profit, EBITDA and Adjusted EBITDA to provide investors with a supplemental measure of our operating performance and thus highlight trends in our core business that may not otherwise be apparent when relying solely on IFRS financial measures. We also believe that securities analysts, investors and other interested parties frequently use non- IFRS measures in the valuation of issuers. We also use non-ifrs measures in order to facilitate operating performance comparisons from period to period, prepare annual operating budgets, and to assess our ability to meet our future debt service, capital expenditure and working capital requirements. The definition and reconciliation of Adjusted Gross Profit, EBITDA and Adjusted EBITDA used and presented by the Company to the most directly comparable IFRS measures follows below: 13

14 Adjusted Gross Profit Adjusted Gross Profit is defined as gross profit plus the following expenses which are part of cost of sales: (i) amortization of intangible assets; (ii) charges to cost of sales resulting from fair market value adjustments to inventory as a result of a business acquisition; and (iii) other one-time or non-cash items. We use Adjusted Gross Profit as a key performance measure to assess our core gross profit and as a supplemental measure to evaluate the overall operating performance of our cost of sales. The table below provides the reconciliation of gross profit to Adjusted Gross Profit: For the three months For the nine months $000s Change $ Change % Change $ Change % Revenue Product revenues 2,202 1, % 6,950 1,748 5, % Licensing and other fees n/a 1,820-1,820 n/a 2,815 1,748 1,067 61% 8,770 1,748 7, % Cost of sales 1,095 2,026 (931) (46%) 4,265 2,026 2, % Total gross profit 1,720 (278) 1,998 (719%) 4,505 (278) 4,783 (1,720.5%) Licensing and other fees (613) - (613) n/a (1,820) - (1,820) n/a Amortization of intangible asset % 1, % Inventory fair value adjustment - 1,278 (1,278) (100%) 844 1,278 (434) (34%) Adjusted gross profit $ 1,485 $ 1, % $ 4,706 $ 1,375 3, % a) We secured a licensing agreement with a third party pharmaceutical company (Endo) to manage the sales and marketing of Natesto TM in the United States and Mexico. Under the terms of the agreement, we received an upfront fee of $25 million. This fee is amortized into income over the term of the agreement. For the three and nine months 2015, $0.6 million and $1.8 million of this deferred licensing fee was recognized as revenue. b) Upon completion of the acquisition of the Canadian rights to Estrace, we capitalized acquired intangible assets at fair market value. These intangible assets are amortized over their useful life and we recognize the amortization as a non-cash cost of sales. We adjusted for amortization of $0.4 million and $1.2 million for the three and nine months ended September 30, 2015 ($0.4 million for the three and nine months 2014), as we believe the exclusion facilitates investors ability to more accurately compare our operating results to those of our peer companies and is reflective of how we internally manage the business. c) Had the inventories acquired as part of the Estrace acquisition been purchased directly from the third party manufacturer, the costs ascribed to it would have been lower by $nil and $0.8 million for the three and nine months 2015 ($1.3 million for the three and nine months 2014). Included in cost of sales for the reporting period are charges in respect of a fair value adjustment on the inventory acquired from the seller of the Canadian rights of Estrace in accordance with IFRS standards. Upon the acquisition, we took assignment of the third party manufacturing agreement and will be able, on a go forward basis, to purchase goods directly from the manufacturer at a lower cost than that included in unadjusted cost of sales for the reporting period in respect of the inventory acquired from the seller of the Canadian rights to Estrace. 14