Acerus Pharmaceuticals : Management Discussion and Analysis

Management's Discussion & Analysis of

Acerus Pharmaceuticals Corporation

For the three and six months ended June 30, 2022

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 six months ended June 30, 2022. This MD&A is dated August 8, 2022 and should be read in conjunction with the annual audited consolidated financial statements and accompanying notes for the year ended December 31, 2021.

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, including International Accounting Standard ("IAS") 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 below regarding "Forward-looking Statements". The results of the operations, business prospects and financial condition of the Company will be affected by, among others, the "Risk Factors" set out in our Annual Information Form dated March 14, 2022 available at www.sedar.com.

We have assessed our ability to continue as a going concern and concluded that in order to complete our planned product development and commercialization programs, additional capital will be required within the next quarter. Notwithstanding the additional financing raised subsequent to June 30, 2022 (see "Subsequent Event"), the Company will require additional funding from lenders or investors, to pay its current liability obligations, including the $6 million up-front fee on the acquisition of Serenity LLC, and to meet its forecast cash flow requirements over the next year. Our ability to accomplish our strategic plans is also dependent upon earning sufficient revenues from existing products, bringing new products and technologies to market, achieving future profitable operations, and executing other strategic initiatives that could provide cash flows, or alternatively curtailing expenditures. There are no assurances that any of these initiatives will be successful. Delays in reintroducing Natesto® to the Canadian market as planned in 2022, or unsuccessfully executing its US market strategy, could result in the Company failing to meet projected revenues or other budgeted targets. In addition, factors within and outside our management's control could have a significant bearing on our ability to obtain additional financing. These circumstances cast significant doubt as to our ability to realize our assets, meet our contractual obligations and commitments as they come due and, accordingly, the ultimate 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 the Company has also made certain macroeconomic and general industry assumptions in the preparation of such forward-looking statements. While the Company considers 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. Forward-looking 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 the Company's 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: the ability of the Company to continue as a going concern; the Company's limited operating history; the Company's ability to meet future capital requirements; the fluctuating operating results of the Company; First Generation's significant influence over matters put before the shareholders; the

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degree of market acceptance of the Company's products; risks relating to generic competition for the Company's products; extensive government regulation; risks associated with debt financing; marketing and distribution risks; manufacturing-related risks; supplier risks; risks relating to the supply of raw materials; publication of adverse clinical trial results; risks related to unexpected product safety or efficacy concerns; risks relating to promotional activities; risks associated with the cost and reimbursement of the Company's products; risks related to reliance on data obtained from Symphony or similar providers; 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 related to disputes regarding ownership or inventorship of products and technologies; risks associated with trade secrets; risks related to the performance of services by third parties; risks associated with the public market and volatility associated with the Company's shares; risk of potential third-party liability; risks relating to clinical testing conducted by the Company; regulatory approval related matters; risks related to 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 relating to the valuation of intangible assets; risks associated with returns, allowances and chargebacks; risks relating to the ability of the Company to expand its operations; competition risks; risks associated with technological change; foreign exchange risk; concentration risk; risks associated with certain indemnity obligations; tax-related risks; risks relating to the Company's ability to generate ancillary additional revenue; risks relating to securities analyst coverage of the Company; risks related to having limited experience in the U.S. market, risks related to the actions of its commercial partners, risks associated with the costs of complying with U.S. laws and regulations, risks related to controlled substances in the U.S., risks related to U.S. third party payer actions, risks related to U.S. federal coverage and reimbursement policies, risks related to training a U.S. sales force and risks related to evolving tariffs and trade policies between the U.S. and other countries; risks related to the Company's acquisition of Serenity Pharmaceuticals LLC ("Serenity") including: the Company's lack of experience marketing nocturia products; overestimating the market opportunity for Noctiva™; underestimating its costs to market Noctiva™; not having a supply agreement in place to produce Noctiva™; and risks associated with the impact of the novel coronavirus ("COVID-19") as a global pandemic on the economy, workforces, financial markets and supply chain.

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 14, 2022, 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 forward- looking 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 over time and it is not possible for us to predict all 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.

Description of business

The unaudited condensed interim consolidated financial statements represent the consolidated accounts of Acerus Pharmaceuticals Corporation ("Acerus") (incorporated in Ontario, Canada) and its wholly-owned subsidiaries, Acerus Labs Inc. ("ALI") (incorporated in Ontario), Acerus Biopharma Inc. ("ABI") (incorporated in Ontario) and Serenity Pharmaceuticals LLC (incorporated in Delaware, USA). The head office, principal address and records office of the Company are located in Mississauga, Ontario, Canada. The Company's registered address is Suite 205, 7025 Langer Drive, Mississauga, Ontario, L5N 0E8.

Acerus Pharmaceuticals Corporation is a Canadian-based specialty pharmaceutical company focused on the commercialization and development of innovative prescription products that improve patient experience, with a primary focus in the field of men's health. We currently have one marketed product: Natesto®, the first and only testosterone nasal gel for testosterone replacement therapy in adult males diagnosed with hypogonadism. Our primary market is the United States where we commercialize our product with our contract commercial provider Syneos Health ("Syneos"). Our previous contract with Aytu Biosciences Inc. ("Aytu") was terminated effective March 31, 2021. Following a transition period that ended on July 31, 2021, we assumed all responsibilities within the U.S. market for services previously contracted to them.

On March 7, 2022, we announced that we had acquired Serenity Pharmaceuticals LLC ("Serenity"), a Miami, FL based pharmaceutical company. Serenity's principal asset is Noctiva™ (desmopressin acetate), a patented prescription treatment for nocturnal polyuria that had received FDA approval. Noctiva™ is clinically indicated for the treatment of nocturia due to nocturnal polyuria in adults who awaken at least two times per night to void. We expect to resume manufacturing of Noctiva™ by the end of 2022 and launch Noctiva™ along with Natesto® using the same sales force noted above. We believe that there is significant synergy between Noctiva™ and

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Natesto® with similar physician call points in the urology and high prescribing general practitioner segment. Refer to the "Key products and developments" section for more information.

Natesto® has also been licensed for distribution in Canada and in over 60 additional countries worldwide, through a global network of licensed distributors. Marketing approvals in jurisdictions outside of North America are expected to take place over the course of the coming years.

Our active pipeline includes two innovative products: avanafil a new chemical entity PDE5 inhibitor for the treatment of erectile dysfunction, which has been approved by the U.S. Food and Drug Administration ("FDA") and the European Medicines Agency ("EU EMA") and is commercialized in the U.S. under the trade name Stendra® and, in the European Union ("EU") under the trade name Spedra® and LidbreeTM (formerly referred to as ShactTM), a short acting lidocaine formulation delivered through a proprietary device into the vaginal mucosal tissue. Refer to the "Key products and developments" section for more information.

Beyond the active product pipeline, we have product rights to TefinaTM, a clinical stage product aimed at addressing a significant unmet need for women with female sexual dysfunction.

On April 19, 2022, the Company announced that it intended to undertake a consolidation of its outstanding common shares on the basis of one (1) post-consolidation share for every two hundred (200) pre-consolidation shares (the "Consolidation"). Subsequently approved by the Toronto Stock Exchange ("TSX"), the Consolidation took effect on April 26,2022 and the Company's common shares commenced trading on the TSX on a post-consolidation basis beginning at the open of markets on April 29, 2022. After the Consolidation, the number of common shares issued and outstanding were consolidated from approximately 1,541,549,299 to approximately 7,707,738 on a non-diluted basis. All fractions of post-consolidation shares were rounded down to the nearest whole number.

For further information please see the Annual Information Form dated March 14, 2022 and our other filings available on SEDAR at www.sedar.com.

Key products and developments

Noctiva™

On March 7, 2022, we acquired Serenity Pharmaceuticals LLC ("Serenity"), a Miami, Florida based pharmaceutical company. Serenity's principal asset is Noctiva™ (desmopressin acetate), a patented prescription treatment for nocturnal polyuria that had received FDA approval. Noctiva™ is the first FDA approved product for the treatment of nocturia, the condition of waking two or more times per night to void, due to nocturnal polyuria (overproduction of urine during the night). Noctiva™ is an emulsified low-dose vasopressin antilog administered through a preservative-free nasal spray 30 minutes before bedtime. Noctiva™ has two dosage strengths, 0.83 mcg/0.1 mL and 1.66 mcg/0.1 mL. Each spray delivers 0.1 mL of Noctiva™. We believe that nocturia affects approximately 40 million Americans and that nocturnal polyuria is present in approximately 88% of those. Of the 40 million Americans affected by nocturia, over 10 million actively seek treatment for their condition. Noctiva™ is designed to decrease the number of night-time voids in men and women suffering from nocturia and uses a patented spray technology to maximize drug delivery while minimizing the risk for Hyponatremia. Noctiva™ had been commercialized in the past but at the time of acquisition was not for sale.

As Noctiva™ represents virtually all of the underlying value of Serenity, we treated the acquisition as an asset acquisition based on the concentration test noted in Paragraph B7B of IFRS3. Accordingly, the acquisition has been treated as the acquisition primarily of an intangible asset as shown below and not as a business combination. As a result, no goodwill or deferred taxes arose on this transaction.

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Details of the purchase consideration and net assets acquired are as follows:

i)	Purchase consideration:
			June 30,
			2022
Cash		$	605
Promissory note		5,658
Contingent share consideration: deferred share issuance		22,601
Contingent share consideration: sales performance milestones		3,445
Closing costs and success fees		1,393
Acquisition cost	$	33,702

The promissory note, originally repayable on June 7, 2022 being 90 days after closing, was subsequently deferred with 50% due on September 30, 2022 and 50% due on December 31, 2022. The promissory note bears interest equal to the applicable federal rate for short term instruments published by the Internal Revenue Service being 2.21% at June 30, 2022. Accrued interest of $17 is also included in the promissory note payable recorded on the consolidated balance sheet.

The contingent share consideration (and corresponding increase in contributed surplus) has been measured at the estimated fair value of the net assets acquired less the cash and promissory notes paid / payable in accordance with IFRS 2 "Share based payments". The deferred share consideration consists of:

• A deferred share issuance of 803,715,000 (4,018,575 post consolidation) shares of the Company. These shares (representing approximately 1/3 of the fully diluted shares of the Company) are issuable upon the later of (i) January 23, 2023; or (ii) 30 days after first commercial sale of Noctiva in the USA or Canada;
• Two contingent share payment tranches of $5,000,000 worth of common shares each if Noctiva™ net annual revenues in the USA and Canada reach:
  o $100 million before December 31, 2026, and
  o $150 million annually on or before December 13, 2028.

		June 30,
		2022
Intangible assets	$	36,331
Provisions		(2,250)
Assumed liabilities		(379)
Net assets and liabilities recognized	$	33,702

Should the Company not achieve a first commercial sale of Noctiva™ in the US market within 24 months, a $3 million exit fee is payable to the sellers and the IP associated with all pipeline products (which excludes Noctiva™) will revert back to the sellers.

In addition to the purchase consideration described above, the Company has agreed to pay milestone payments in the form of royalties to the vendors. These payments are not reflected in the purchase price of the intangible. Refer to the "Contractual obligations and commitments" section below for further discussion.

Amortization of the intangible will begin at the commencement when the asset is available for use and will continue until patent expiry in 2030. Availability for use is expected in Q4 2022 upon qualification of the previous Noctiva™ contract manufacturer.

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Natesto®

We have entered into the following license, development and supply agreements for Natesto®:

Date

Company

Territory

Terms

April 22,	Aytu BioScience United States
2016	Inc. ("Aytu")

• Non-refundableupfront payments totaling $8.0 million
• Sales-basedmilestones that could potentially total $37.4 million
• Tiered supply price per unit
• Agreement amended and restated agreement effective July 2019
• Agreement terminated effective March 31, 2021, with a 120-day transition period ending July 31, 2021

December 15,	Hyundai Pharm	South Korea	•	Non-refundable upfront fee
2016	Co., Ltd		• Milestone payment on regulatory approval
	("Hyundai")		• Tiered supply price per unit
June 5, 2017	Therios	Saudi Arabia, United Arab Emirates,	• Fixed supply price per unit
	Healthcare	and Egypt	•	The agreement was terminated by mutual
	("Therios")			consent on May 19, 2020

June 14, 2017 medac

Gesellschaft fϋr

Klinische

Spezialprӓparate

mbH ("medac")

15 European countries: Germany, United Kingdom, France, Italy, Czech Republic, Slovakia, Spain, Sweden, Finland, Denmark, Norway, Poland, Austria, Netherland and Belgium

(See update below on October 31, 2018)

• Non-refundableupfront fee
• Milestone payment on regulatory approval and sales-based milestone payments
• Tiered supply price per unit

October 17,	Eu Hwa Pte LTD.	Thailand, Malaysia/Brunei,	•	Non-refundable upfront fee
2017	("HWA")	Singapore, Vietnam, Philippines,	• Milestone payment on regulatory approval
		Hong Kong/Macau and one other	• Tiered supply price per unit
		small South East Asian country
November 23,	Apsen	Brazil	•	Non-refundable upfront fee
2017	Farmacêutica		• Milestone payment on regulatory approval
	("Apsen")		• Tiered supply price per unit

April 9, 2018	Producto	Mexico and 18 Central and Latin
	Científicos, S.A.	American countries (Argentina,
	de C.V ("Carnot	Columbia, Peru, Chile, Ecuador,
	Laboratorios")	Guatemala, El Salvador,
		Nicaragua, Honduras, Panama, Costa
		Rica, Cuba, Dominican Republic,
		Venezuela, Bolivia, Uruguay,
		Paraguay and Haiti)

• Non-refundableupfront fee
• Milestone payment on regulatory approval
• Tiered supply price per unit
• This agreement was terminated by mutual consent on May 18, 2021 upon repayment of the upfront fee.

October 30,	medac	Amended to include all existing
2018		European Union Member states and
		the United Kingdom, Norway,
		Liechtenstein, Iceland, Turkey,
		Australia, New Zealand, South
		Africa and Israel.

• Non-refundableupfront fee
• All other terms as per the original agreement
• This agreement was terminated by mutual consent on April 4, 2022 at no cost.

March 30,	Maylen Farma	20 countries in eastern Europe,	•	Milestone payment on regulatory approval
2021		Central Asia and the Middle East.	•	Tiered supply price per unit

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