Zealand Pharma
Annual Report 2018

Plain-text annual report

Clear path ahead Zealand Pharma Annual Report 2018 Company reg. no. 20045078 Anders Stensbjerg Kristensen lives with type 1 diabetes 2 2 Changing lives with next generation peptide therapeutics Our ambition is to be a world leader in treating specialty gastrointestinal and metabolic diseases. Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 201833 Contents Contents Management review Financial statements About Zealand Pharma Other Programs Consolidated financial statements Rare Diseases: dasiglucagon for congenital hyperinsulinism Partnered Programs: Obesity/ type 2 diabetes Our Established Peptide Platform Pre-Clinical Projects Corporate matters Corporate Governance Corporate Social Responsibility Our People 28 29 30 33 36 37 Risk Management and Internal Control 38 Financial Review Shareholder Information Board of Directors Corporate Management 41 44 46 48 Zealand in brief Shareholder Letter 2018 Achievements 5 6 9 Financial highlights and 2019 guidance 10 Consolidated Key Figures 2019 Objectives Our Ambition and Business Model Pipeline Overview Our programs Reducing the burden of short bowel syndrome Mike’s story About short bowel syndrome 11 12 14 16 18 20 Glepaglutide for short bowel syndrome 22 ZP7570 (GLP-1/GLP-2) for short bowel syndrome Improving the lives of people with insulin-dependent diabetes Anders and Finn’s story Dasiglucagon for severe hypoglycemia in diabetes Dasiglucagon for fully automated management of type 1 diabetes 23 24 26 27 Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Statement of changes in equity Business overview Notes Financial statements of the parent company Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Statement of changes in equity Notes Alternative performance measures for the group (non-audited) Statement of the Board of Directors and Executive Management Independent auditor’s report 51 51 52 53 53 54 55 89 89 90 91 91 92 96 97 98 Other information Sources Addresses (company information) 103 103 Shareholder letter 2018 has been a remarkable year, with substantial advancement of our fully-owned medicines in development. Read more on page 6 Financial highlights A strong financial position to enable full-speed development of our pipeline. Read more on page 10 Pipeline overview We have four late stage programs with potential to launch in two to four years, and a promising early pipeline. Read more on page 16 Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018About Zealand Pharma 4 4 About Zealand Pharma Zealand in brief Shareholder Letter 2018 Achievements Financial highlights and 2019 guidance Consolidated Key Figures 2019 Objectives Our Ambition and Business Model Pipeline Overview 5 6 9 10 11 12 14 16 Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 201855 Zealand in brief Zealand in brief Changing lives with next generation peptide therapeutics. We are passionate about changing the lives of people with severe medical conditions through targeted development of next generation peptide therapeutics. To achieve this ambition, our organization is rapidly maturing towards a fully integrated biotech company with commercial operations in the U.S. We have four late stage programs with the potential to launch into major markets in the next two to four years. Phase 3 is ongoing for glepaglutide, a long-acting GLP-2 analog for treatment of short bowel syndrome. Three late stage programs are based upon dasiglucagon, a stable glucagon analog: positive Phase 3 results for treatment of severe hypoglycemia in diabetes with anticipated new drug application (NDA) submission within the coming year; Phase 3 ongoing for treatment of the rare pediatric condition, congenital hyperinsulinism; and a Phase 2b study planned for use in dual-hormone fully automated pump therapy for management of type 1 diabetes. Our early development pipeline consists of two clinical programs partnered with Boehringer Ingelheim, and a long-acting GLP-1/GLP-2 agonist for treatment of short bowel syndrome that is approaching Phase 1. We continue to leverage our established discovery peptide platform, which has already led to two approved medicines and provides multiple opportunities for near-term pipeline expansion. Danish Biotech Founded in Copenhagen (HQ) in 1998, opened U.S. subsidiary 2018 Leading Peptide Platform A world leading peptide platform, with two medicines on the market Four Late Stage Programs Accelerating late stage programs to launch new products into major markets in 2 to 4 years Find out more about Zealand on zealandpharma.com/about-us Expanding Capabilities Transforming into a fully integrated biotech company with U.S. commercial organization Experienced Team 153 employees of which 87% are in R&D Dual Nasdaq Listing Traded in Copenhagen and New York Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018Shareholder letter 6 6 Shareholder Letter Committed and on track, with a clear path ahead 2018 was a remarkable year for Zealand. In line with our strong commitment to change the lives of people with severe medical conditions, we have substantially advanced our fully- owned medicines in development. In September, we executed the sale of future royalties associated with lixisenatide for USD 205 million, securing a strong financial position to enable full-speed development of our pipeline toward making our medicines available to patients. On track with strategy execution Zealand has a proven track record with two medi- cines, based on a Zealand invention, developed and launched through a partner. In 2015, we introduced an ambitious growth strategy to become a fully integrated biotech company, thus maintaining more control and a larger share of value creation. Today, we have three fully-owned product can- didates in Phase 3 development, one of which is approaching filing to the FDA in the coming year. A fourth program is ready for Phase 3 initiation in early 2020, and we have advanced a number of new innovative product candidates: all based on our own inventions and leveraging our world leading peptide expertise. This progress has been achieved by a dedicated, focused and highly skilled organization that is adept at developing medicines to treat rare diseases, in particular within the gastrointestinal and metabolic fields. Our successful business progress has led to an increased focus on activities where a partner can bring valuable additional capabilities. In 2018, we also continued to make progress in our two clinical part- nerships with Boehringer Ingelheim, as well as in our multiple research partnerships. In 2018, Zealand made important positive advancement of its fully- owned programs as well as developing the organization with deeper capabilities. New exciting data has propelled our clinical candidates into the next stages of development, while the sale of future lixisenatide royalties and milestones provided financial strength for the ongoing key business activities. The company is positioned well, with a clear path ahead, to deliver on its objectives striving for creating shareholder value in 2019. Martin Nicklasson Chairman of the Board Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 201877 Britt Meelby Jensen President & CEO (through February 28, 2019) Martin Nicklasson Chairman of the Board Adam Steensberg Interim CEO (effective March 1, 2019) Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 20188 8 Leadership in short bowel syndrome In 2018, we initiated Phase 3 development with our long acting GLP-2 analog, glepaglutide. We aspire to reduce the burden of living with short bowel syn- drome by offering a best-in-class GLP-2 treatment. The Phase 3 program is on track. We are proud to be working with leading experts in the field, and 40 centers across the U.S., Europe and Canada are en- gaged in the development. Our long-term ambition is to address the extensive medical need for short bowel syndrome patients. Therefore, we celebrated reaching a major milestone of successfully completing the pre-clinical phase with our GLP-1/GLP-2 dual agonist, which we believe represents the next generation therapy for SBS pa- tients. This program will advance to Phase 1 in 2019. Dasiglucagon offers multiple options Our invention of dasiglucagon, a novel glucagon analog with unique stability in liquid formulation, provides opportunities for diabetes patients suffering from multiple acute and chronic conditions. Phase 3 results confirmed the potential of our drug candidate as the fastest treatment option for severe hypoglycemia, a life-threatening acute condition in diabetes. The dasiglucagon molecule is also in development for chronic use. The Phase 3 study was initiated for congenital hyperinsulinism, a treatment with poten- tial to transform the lives of children affected by this severe and rare condition. In 2018, our equity investment with partner Beta Bionics strengthened our collaboration to deliver a solution for fully automated diabetes care, with the iLet® dual hormone pump using dasiglucagon. This holds potential to transform how insulin-dependent diabetes are treated, and we are excited to progress toward Phase 3 initiation in early 2020. We change lives with next generation peptide therapeutics We leverage our leading peptide R&D experience, built over the past 20 years, to transform peptides into next generation therapeutics. In 2018, we expanded our rare disease pre-clinical pipeline to include potent and selective inhibitors of complement C3 for the treatment of complement-mediated diseases. Strong organization All of our progress has been possible because of the drive and commitment of Zealand’s employees, who have demonstrated boldness and dedication in achieving our goals. In 2018, we continued add- ing new capabilities to support the progress of our pipeline and to ensure a successful path ahead. While keeping our headquarters in the greater Copenha- gen area, we established our first U.S. presence to be closer to this important market. In Corporate Management, we added two new col- leagues, bringing extensive U.S. experience to secure that we have the right competences to deliver on the 2019 priorities. These valuable additions combined with an already strong management team enable us to effectively manage the transition associated with the recruitment of a new CEO and CFO, without dis- traction from delivering on our business objectives. Clear path ahead With remarkable progress in 2018, our path is clear toward becoming a fully integrated biotech com- pany. 2019 is off to a strong start, with three Phase 3 programs progressing according to plan and preparations underway for an NDA filing to the FDA. Zealand maintains a strong financial position to de- liver on our plans, and multiple new opportunities are being pursued to continue building a successful and sustainable business. On behalf of the Board, the entire Management team, and Zealand employees, we would like to thank our shareholders, partners and patients for placing trust in our company. We remain committed to maintain- ing and strengthening that trust, and delivering on our ambitious goals in the years ahead. Martin Nicklasson Chairman of the Board Britt Meelby Jensen President & CEO (through February 28, 2019) Adam Steensberg Interim CEO (effective March 1, 2019) Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 201899 2018 Achievements 2018 Achievements Accelerated our late-stage pipeline 2018 was a very successful year for Zealand. We had multiple clinical successes, a substantial improvement of our cash position, and made clear organizational progress towards becoming a fully integrated biotech company. Announced the next internal drug candidate for clinical development Secured value-generating partnerships across existing programs Sale of future royalties and milestones Verified potential in obesity/ type-2 diabetes with Boehringer Ingelheim • Glepaglutide Phase 3 trial initiated with best-in-class potential • Positive dasiglucagon HypoPal® rescue pen Phase 3 results reported • Significant regulatory progress secured for dasiglucagon for dual- hormone pumps • Dasiglucagon Phase 3 program for congenital hyperinsulinism initiated • Long-acting GLP-1/GLP-2 analog (ZP7570) selected as next generation treatment of short bowel syndrome • Multiple partnership discussions are advancing, following positive pipeline developments • DKK 22.8 million (USD 3.5 million) equity investment in strategic partner Beta Bionics, developer of the iLetTM bionic pancreas system • DKK 1,320 million (USD 205 million) secured from sale of future royalties and milestones related to the lixisenatide program • Once-weekly GLP-1/glucagon analog advanced into Phase 1b • New once-weekly amylin analog lead selected for clinical testing Celebrating 20 Years In 2018, Zealand Pharma celebrated 20 years of achievements since the company’s founding. Watch a video highlighting our biggest successes: zealandpharma.com/20years Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018Financial highlights and 2019 guidance 10 10 Financial highlights and 2019 guidance Find out more about Zealand at zealandpharma.com/investor-relations Revenue Revenue consists of royalty revenue from sales of products licensed to Sanofi and milestone payments relating to development and regulatory achievements from outlicensed programs. Zealand’s revenue in 2018 amounted to DKK 38.0 million (136.3), down 72% due to a decrease in both royalties and milestone payments. Royalty revenue decreased by 30% versus the previous year and amounted to DKK 24.9 million (35.3). The decrease is a consequence of the sale of future Sanofi royalties and milestones, which had the effect that only royalties earned before June 30, 2018 are included in the income statement. Royalty revenue from sales of Lyxumia®/Adlyxin® amounted to DKK 7.1 million (16.7) and from Soliqua® 100/33 to DKK 17.8 million (18.7). Milestone payments amounted to DKK 13.1 million (101.0). The milestone payments comprised a payment of DKK 9.8 million from an undisclosed counterpart in connection with a Material Transfer Agreement, and a payment of DKK 3.3 million from a license agreement with Protagonist Therapeutics Inc. Research, development and administrative expenses Total research, development and administrative expenses amounted to DKK 481.8 million (372.1), up 29% on 2017. The increase reflects higher research and develop- ment expenses as a result of accelerated develop- ment activities and more late-stage clinical trials. This includes costs for the three dasiglucagon programs, including the Phase 3 trials relating to the rescue pen for severe hypoglycemia and clinical costs for dasiglucagon to be used in a dual-hormone artificial pancreas as well as treatment for congenital hyperin- sulinism. It also includes costs for initiating the Phase 3 trial with glepaglutide as well as costs relating to pre-clinical activities. In addition, costs were impacted by an increase in the number of employees in our clin- ical development organization. Net operating expenses and operating result The net operating expenses amounted to DKK 481.1 million (371.6), which is in the lower end of the latest guidance (DKK 475-495 million) published in the interim report for the first nine months of 2018 on November 15, 2018. Operating result amounted to DKK 652.4 million (-249.4). The increase compared to 2017 is due to the sale of future Sanofi royalties and milestones leading to Other operating income of DKK 1,099.5 million (0.6) Financial guidance for 2019 For 2019, Zealand expects revenue from new po- tential partnership agreements and from milestones from existing license agreements. However, since such revenue is uncertain both in terms of size and timing, Zealand does not guide on such revenue. Net operating expenses in 2019 are expected to be within the DKK 550 - 570 million range. The increase compared to 2018 is due to higher clinical develop- ment costs associated with advancing glepaglutide and the dasiglucagon programs into Phase 3. Operating result is calculated as revenue from roy- alties and milestone payments less royalty expenses and net operating expenses. 2019 2018 DKKm Revenue Net operating expenses¹ 1 For definition of net operating expenses, see page 96, Alternative performance guidance No guidance 550-570 realized 38 481 measures for the Group. Note: Comparative figures for 2017 are shown in brackets. Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018 Consolidated key figures 1111 Consolidated key figures DKK ’000 2018 Restated6 Restated6 Restated6 Restated6 2014 2016 2015 2017 DKK ’000 2018 Restated6 Restated6 Restated6 Restated6 2014 2017 2016 2015 Income statement and comprehensive income Revenue Royalty expenses Research and development expenses Administrative expenses Other operating income Operating result Net financial items Result before tax Income tax Net result for the year Comprehensive income/loss Earnings/loss per share – basic (DKK) Earnings/loss per share – diluted (DKK) 37,977 -3,356 136,322 -14,163 230,864 -30,931 182,573 -21,578 150,633 -13,352 -438,215 -43,542 1,099,526 652,390 -27,334 625,056 -43,774 581,282 581,282 -324,667 -47,470 607 -249,371 -31,387 -280,758 5,500 -275,258 -275,258 -268,159 -52,503 1,697 -119,032 -43,764 -162,796 5,500 -157,296 -157,296 -217,741 -41,824 12,828 -85,742 -38,505 -124,247 5,875 -118,372 -118,372 -180,036 -39,826 6,328 -76,253 1,047 -75,206 7,500 -67,706 -67,706 18.94 -9.88 -6.47 -5.13 -2.99 18.94 -9.88 -6.47 -5.13 -2.99 Statement of financial position Cash and cash equivalents Restricted cash1 Securities Total assets Share capital (‘000 shares) Equity Equity ratio2 Royalty bond 860,635 0 298,611 1,229,797 30,787 1,116,281 0.91 0 588,718 5,892 75,111 721,285 30,751 514,669 0.71 135,734 323,330 318,737 0 683,116 26,142 267,381 0.39 332,243 418,796 21,403 0 627,621 24,353 244,803 0.39 312,951 538,273 0 0 593,273 23,193 249,815 0.42 272,170 Cash flow Cash outflow/inflow from operating activities Cash outflow/inflow from investing activities Cash outflow/inflow from financing activities Purchase of property, plant and equipment Free cash flow3 Other Share price (DKK) Market capitalization (DKKm)4 Equity per share (DKK)5 Average number of employees Number of full time employees at the end of the year -460,400 -278,746 40,904 -224,767 -42,183 881,905 221,351 -299,958 -1,594 19,763 -155,449 337,930 157,146 96,413 272,170 -4,038 -464,438 -7,226 -285,972 -2,600 38,304 -4,040 -228,807 -4,497 -46,680 82.4 2,537 36.33 146 85.00 2,614 16.77 128 106.50 2,784 11.24 124 151.50 3,689 10.29 110 83.00 1,925 11.04 103 149 133 108 106 94 1 Restricted cash serves as collateral for the royalty bond issued in 2014. Zealand has redeemed the outstanding royalty bond in 2018 and therefore Zealand no longer has restricted cash. 2 Equity ratio is calculated as equity at the balance sheet date divided by total assets at the balance sheet date. 3 See page 96 regarding alternative performance measures. 4 Market capitalization is calculated as outstanding shares at the balance sheet date times the share price at the balance sheet date. 5 Equity per share is calculated as shareholders’ equity divided by total number of shares less treasury shares. 6 Royalty revenue and royalty expenses have been restated for the period 2014-2017. See note 1 to the consolidated financial statements.. Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018 2019 Objectives 12 12 2019 Objectives We have clear success criteria for 2019, from continuing the advancement of our robust pipeline, to expanding strength through partnerships and organizational development. Accelerate our late-stage pipeline • Glepaglutide for short bowel syndrome: 60-80 patients enrolled in Phase 3, on track for 2020 results • Dasiglucagon HypoPal® rescue pen: Clinical program completion and NDA submission to the FDA • Dasiglucagon for dual-hormone pump: Phase 2 completion • Dasiglucagon for congenital hyperinsulinism: Phase 3 program advancement Advance our early pipeline • Once-weekly GLP-1/GLU: Phase 1 clinical results for obesity/type 2 diabetes • Once-weekly Amylin analog: Phase 1 trial initiation for obesity/type 2 diabetes • Long-acting GLP-1/GLP-2 dual agonist (ZP7570) for SBS: Phase 1 trial initiation • Complement C3 inhibitor: Preclinical development towards Phase 1 initiation in 2020 • Value-adding partnerships for selected fully-owned drug candidates concluded • Organizational preparedness for commercialization and expansion of U.S. presence • Disciplined financial management with tight cost control Expand our strong financial and organizational position Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 20181313 With remarkable progress in 2018, our path is clear toward becoming a fully integrated biotech company Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018Our Ambition and Business Model 14 14 Our Ambition and Business Model Our ambition is to provide next generation peptide therapeutics that change the lives of people affected by specialty gastrointestinal and metabolic diseases. We aim to deliver best-in-class treatment options that meet patient medical needs and ease the burden on the health care system. To achieve this, we utilize a business model with two approaches. First, within rare diseases, we aim to retain full own- ership and control of product candidates all the way to market in selected geographies by transforming into a fully integrated R&D organization with com- mercial capabilities. Our agile organization engages with partners across the value chain, such as leading CROs and CMOs. Second, within diabetes and other broad indications, we progress clinical development ourselves to the point at which it makes business sense to engage in partnerships that expand the opportunity and prob- ability of success by providing additional resources and investment. Optimizing value through internal drug development and partnerships Academic and Scientific Institutions Contract Research Organizations (CROs) Contract Manufacturing Organizations (CMOs) Distribution Partners Optimizing execution across the value chain Internal Drug Development Drug Development in Strategic Partnerships Peptide Research Platform Early and Late Stage Drug Development Approved Medicines to Patients Maintaining full control and value potential Expanding the innovation platform Find out more about Zealand on zealandpharma.com/strategy Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 20181515 Delivering best-in-class treatment options to meet patient medical needs and ease burden on the health care system Changing Lives We work every day with patient communities and thought leaders to change the lives of people with severe medical conditions. Transforming Peptides We leverage our 20 years of experience discovering and developing peptide drugs to transform peptide projects into next generation therapeutics. Engaging Partnerships We engage with development and commercial partners to enhance innovation and expand opportunities across markets and therapeutics areas. Approaching Commercialization We are building a fully integrated commercial organization with U.S. operations to market our own therapies for rare diseases. Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018Pipeline Overview 16 16 Pipeline Overview Zealand is a leader in the discovery of novel peptide therapeutics, with a focus on delivering next generation therapeutics for specialty gastrointestinal and metabolic diseases. We transform peptides into life-changing thera- peutics by leveraging our leading peptide expertise. True to our biotech roots, we are opportunistic and efficient in applying our peptide platform to discover breakthrough treatments leading to new standards of patient care. medicines: 1 – a ready-to-use rescue treatment for severe hypoglycemia; 2 – a treatment for the orphan disease congenital hyperinsulinism; and 3 – as an essential component in a dual-hormone pump sys- tem combined with insulin for the treatment of type 1 diabetes. Zealand is developing treatments for gastrointestinal diseases, with a current focus on short bowel syn- drome (SBS). One of the leading programs in Zea- land’s pipeline is glepaglutide, a long-acting GLP-2 analog in development for the treatment of SBS. Our pipeline also includes two product candidates developed in collaboration with Boehringer Ingel- heim for the treatment of obesity and type 2 diabe- tes: a GLP-1/GLU dual agonist and an amylin analog, both suitable for once-weekly dosing. Our efforts to improve treatments for metabolic diseases is led by dasiglucagon, a liquid formulation glucagon analog in development as three distinct Several pre-clinical programs are also advancing Zea- land’s pipeline. These candidates have potential for development solely by Zealand or in partnership. Four late stage programs and a promising early pipeline Product Candidate Indication Pre-clinical Phase 1 Phase 2 Phase 3 Registration Development Programs Glepaglutide GLP-2 Analog Short bowel syndrome ZP7570 GLP-1/GLP-2 Dual Agonist Short bowel syndrome Dasiglucagon HypoPal® Rescue Pen Severe hypoglycomia Dasiglucagon Rare Diseases Congential hyperinsulinism Dasiglucagon Dual-hormone Pump Therapy Diabetes management GLP-1/GLU Dual Agonist Obesity/Type 2 diabetes1 Amylin Analog Obesity/Type 2 diabetes2 Pre-Clinical Programs Complement C3 Inhibitors Undisclosed GIP/GLP-1/Glucagon Mono/Dual/Triple Undisclosed Ion Channel Blockers Undisclosed Find out more about Zealand’s pipeline at zealandpharma.com/product-pipeline Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 20181717 Our programs Our programs Reducing the burden of short bowel syndrome Improving the lives of people with insulin-dependent diabetes Other Programs Our Established Peptide Platform 18 24 28 30 Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018Mike – Going from 10 hours 18 18 “Going from 10 hours to 8 hours was the largest jump” Dependent on parenteral support to survive, Mike must connect to infusion equipment for eight hours a day, six days a week. Reducing the complexity – and time spent – for parenteral support enables this driven college football coach to get back in the game. Find more Zealand news at zealandpharma.com/mikes-story Reducing the burden of short bowel syndrome Mike was hospitalized after experiencing severe stomach pains and bleeding, from what he originally thought was a bad reaction to food. After sever- al days of tests in two different hospitals, doctors discovered that Mike was born with an abnormal cluster of veins in his small bowel, and that cluster had ruptured. He then progressed through a series of surgeries that resulted in removing approximately seven meters of his intestine. Mike had now become a patient with short bowel syndrome. The remaining eight centimeters of his intestine were not capable of absorbing the nutrition and fluids Mike needed to live, so he also became dependent on parenteral support to survive. For 12 hours every day, Mike connected to intravenous lines to absorb nutrients and fluids through his blood stream. “Being tough, being strong. These are decisions that you make.” A former football player turned collegiate coach, Mike knew about pushing through physical bound- aries and dealing with pain. Following his surgeries, Mike underwent months of physical therapy. He had to relearn daily tasks, like putting on socks and shoes, and walking up stairs. “My very first physical therapy appointment was to sit in a chair. Seems simple. Yet, it was one of the most painful things I have ever gone through in my life. It was excruciating.” Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 20181919 Regaining hours in the day Initially, Mike connected to parenteral support for 12 hours a day. Eventually, he was decreased to 10 hours a day, an improvement, yet the time needed to absorb enough nutrition and fluids required Mike to carry and be connected to a backpack containing total parenteral nutrition (TPN). “I would have to wear my backpack into the office. At work with a TPN backpack and cords hanging out of everywhere: that doesn’t do much for trying to convince people you are healthy and can do the job.” For Mike, the biggest impact so far on his daily life came when he reduced time spent on parenteral support from 10 hours to 8 hours. He now gets his parenteral support needs covered while he sleeps, and no longer needs to be connected to a backpack with parenteral support during the day. Mike's ulti- mate goal is to be free of parenteral support. “It is a longshot. If I can’t get free [of parenteral support], it is moving toward it being an afterthought in my life rather than a dominating force in my life. That’s just as important.” 40,000 people are living with SBS Short bowel syndrome is a chronic and debilitating disease affecting up to 40,000 people in the U.S. and Europe1,2 1 Jeppesen P. Expert Opin Orphan Drugs; 1:515-25; 2 Transparency Market Research; Short Bowel Syndrome Market, 2017 Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018About short bowl syndrome 20 20 About short bowel syndrome Short bowel syndrome (SBS) is a chronic and debilitating condition associated with reduced or complete loss of intestinal function. About Patients with SBS have undergone massive intestinal surgery resulting in significantly reduced or complete loss of intestinal function. Underlying causes for SBS include inflammatory bowel syndrome, intestinal infarction, radiation damage or trauma, and recurrent intestinal obstruction or congenital disorders.1,2,3 SBS affects an estimated 20,000-40,000 people in the U.S. and Europe.4 SBS patients cannot absorb adequate fluids and nutri- tion taken orally, and those most severely affected become dependent on home parenteral support to survive. Home parenteral support is delivered through daily infusion of intravenous fluids and nutrition via a central venous catheter.1,2 Long-term use of paren- teral support carries a risk of catheter-related blood stream infections, blood clots, and organ impair- ment including liver and kidney damage. Patients are required to connect to the infusion lines and pumps for up to 16 hours every day, which can pose signifi- cant restrictions on ability to engage in normal daily activities. Limitations of current treatments Management of SBS is a complex multidisciplinary task with a focus on optimizing the patient’s hydra- tion and nutritional status. It includes striking the right balance between parenteral support and oral intake of fluids and nutrition. Treatment with GLP-2 analogs has been demonstrated to increase the absorptive capacity of the remaining intestines, and thus enables the patient to realize their full potential for intestinal rehabilitation following surgery. Despite the clear benefits of reducing the depend- ency on parenteral support, people treated with the only currently available short-acting GLP-2 therapy have shown high levels of treatment discontinua- tion,1,2 emphasizing the need for more effective, less complex and better tolerated treatments tailored to the needs of SBS patients. Find more Zealand news at zealandpharma.com/disease-focus Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018The gastrointestinal tract – in a healthy person and in a SBS patient Normal person Length of gastrointestinal tract SBS patient Length of gastrointestinal tract ~8.5 m / ~25 ft <2 m / ~6.5 ft 2121 Zealand’s ambition We aspire to provide the next generation, best- in-class therapies to help transform the lives of people living with short bowel syndrome. Expanding treatment options Glepaglutide has the potential to be the best- in-class GLP-2 therapy, allowing people with SBS a fast, reliable and well-tolerated treatment option to reduce dependence on parenteral support. ZP7570 GLP-1/GLP-2 is designed to improve management of SBS beyond what is achievable with mono GLP-2 treatments, and may represent a next level of innovation for helping people with SBS. Next steps The pivotal Phase 3 trial for glepaglutide was initiated in 2018, and results are expected in 2020. ZP75750 is set to enter Phase 1 in 2019. Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018Glepaglutide for short bowel syndrome 22 22 Glepaglutide for short bowel syndrome Glepaglutide is a long-acting GLP-2 analog being developed in an auto- injector with potential for convenient weekly administration. About GLP-2 molecules stimulate the growth of intestinal tissue, increase nutrient and fluid absorption, increase intestinal blood flow, and reduce gastric secretion and emptying. Our Phase 2 results with glepaglutide demonstrated clinically significant increases in intestinal absorption following only three weeks of treatment with glepa- glutide.1 With an effective plasma half-life of ap- proximately 50 hours, glepaglutide has the potential to be the best-in-class GLP-2 therapy allowing SBS patients a fast, reliable and well-tolerated treatment option to reduce dependency on parenteral support. Next steps The pivotal Phase 3 trial for glepaglutide, EASE SBS 1 (Efficacy And Safety Evaluation of glepaglutide in treatment of SBS), was initiated in 2018 and results are expected in 2020. The trial seeks to establish the efficacy and safety of once- and twice-weekly administration of glepaglutide in patients with SBS. The primary endpoint is to evaluate the reduction in weekly parenteral support volume from baseline to week 24. Orphan drug designation is granted in the U.S. Strong Phase 2 data with clinically significant increases in intestinal absorption following 3 weeks of glepaglutide treatment Change in wet weight absorption (g/day)1 h t i w n a e m d e t s u d A j ) y a d / g ( l a v r e t n i e c n e d fi n o c % 5 9 1000 750 500 250 0 -250 -500 -211.4 Response in 0.1 mg 649.96 785.78 Response in 1 mg Response in 10 mg Find more Zealand news at zealandpharma.com/glepaglutide 1 Naimi, R., ASPEN 2018 Nutrition Science and Practice Conference (Abstract number 2829969t). Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018 2323 ZP7570 (GLP-1/GLP-2) ZP7570 (GLP-1/GLP-2) for short bowel syndrome ZP7570 is a potential first-in- class long-acting GLP-1/GLP-2 dual agonist. Expanding treatment options for patients The ZP7570 GLP-1/GLP-2 peptide is designed to im- prove management of SBS beyond what is achievable with mono GLP-2 treatments, and may represent a next level of innovation for helping SBS patients to further realize full potential for intestinal rehabilita- tion. Pre-clinical and clinical evidence indicates that SBS patients may experience an improved outcome by combining the GLP-1 and GLP-2 mechanisms, over GLP-2 alone.1,2 GLP-2 primarily increases the ab- sorptive capacity of the intestines, whereas GLP-1 is believed to act by reducing gastrointestinal motility, thereby allowing more time for the fluids and nutri- tion to be absorbed. Next steps IND enabling pre-clinical studies were concluded in 2018. ZP7570 is set to enter Phase 1 in 2019. Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018Anders – Severe hypoglycemia 24 24 “Severe hypoglycemia is an extremely scary experience” Anders was diagnosed with type 1 diabetes when he was fifteen months old. Now twenty-two, he must manage the constant challenges of the disease. His father, Finn, recalled when Anders experienced severe hypoglycemia, and acknowledged the constant fear of it happening again. Find more Zealand news at zealandpharma.com/anders-story Since he was seven years old, Anders has had an insulin pump to improve management of insulin injections. It accompanies constant monitoring of blood glucose levels to maintain glycemic control and good health. Anders must continually adapt to ever-changing insulin needs dictated by his blood glucose levels, food intake, exercise, sickness, and prior insulin injections. “It is really difficult. After twenty years of living with type 1 diabetes, managing blood glucose levels is still a lot of guessing.” Anders When his blood glucose levels crashed unexpectedly, Anders experienced severe hypoglycemia. Onset of severe hypoglycemia was unpredictable despite dili- gent management of blood glucose levels by Anders and his parents. “I don’t need anyone’s pity, but I need to explain the fear that is involved.” Finn Finn described what it was like when Anders, as a small child, had a severe hypoglycemic event. “My son started shaking. Then out comes this un- controlled primal screaming, in a different voice that I could not recognize as his. My wife and I could not get into contact with him. We really believed he was going to die.” Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 20182525 Finn recalls having a glucagon rescue kit, but never using it. “In this panic, it was not possible to remem- ber what to do or to read the instructions,” said Finn. "The emergency kit required a complicated preparation process. Instead, we would dab honey in Anders’s mouth, try to get him to drink juice, and call emergency medical service." “These were the most terrible moments of my life. After one time, I never wanted it to happen again.” Finn Unfortunately, Anders has experienced severe hypo- glycemia multiple times. It remains one of the most feared challenges of living with his type 1 diabetes. A rescue option to feel safer Today, Anders is a university student and lives on his own. Having a ready-to-use rescue treatment is appealing to both Anders and Finn. “Diabetes affects me all the time, and I have to think about it no matter what I do.” Anders “Even with continuous glucose monitoring and an insulin pump, it is important to have rescue with you all the time. A rescue pen could be a great aid, in all occasions. It would certainly make us feel safer.” Finn Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018Dasiglucagon for severe hypoglycemia 26 26 Dasiglucagon for severe hypoglycemia in diabetes HypoPal® rescue pen for fast and effective treatment of severe hypoglycemia. About All people with type 1 diabetes and those most se- verely affected by type 2 diabetes depend on multiple daily insulin injections to maintain blood glucose. Constant monitoring of blood glucose levels and frequent adjustment via insulin injections are required to maintain glycemic control and good health.1,2 Severe hypoglycemia is an acute, life-threatening condition resulting from a critical drop in blood glucose levels.3 Unpredictable and among the most feared complications of diabetes treatment, severe hypoglycemia requires another person for rescue.2 It happens to up to 40% of patients every year and can result in seizure, coma, and ultimately death.2,4,5 Limitations of current treatments Current glucagon emergency kits require a compli- cated preparation process.6,7 Studies have shown that more than 85% of trained caregivers fail to deliver the full dose of these products.8 Severe hypoglycemic events result in approximately 300,000 hospitaliza- tions per year in the U.S.9 Zealand’s ambition To offer the millions of people living with diabetes the fastest and most effective rescue treatment for severe hypoglycemia. HypoPal® HypoPal® rescue pen The HypoPal® rescue pen is a ready-to-use auto-injector containing 0.6 mg dasiglucagon and is being developed as a fast and effective rescue treatment for severe hypoglycemia. Next steps A pediatric trial initiated in September 2018, with results expected Q3 2019. The New Drug Application (NDA) filing with the FDA is planned for the end of 2019. Median time to plasma glucose recovery was 10 minutes with dasiglucagon10,11 99% of patients injected with dasiglucagon recovered within 15 minutes10 Min 40 35 30 25 20 15 10 5 0 Find more Zealand news at zealandpharma.com/dasiglucagon-rescue % 100 80 60 40 20 0 Dasiglucagon Placebo Glucagon Dasiglucagon Placebo Glucagon Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 20182727 Dasiglucagon for fully automated Dasiglucagon for fully automated management of type 1 diabetes Dasiglucagon 1ml cartridge for use in dual-hormone artificial pancreas pumps. Find more Zealand news at zealandpharma.com/dasiglucagon-pump About A person with type 1 diabetes depends on multiple daily insulin injections to maintain plasma glucose in the normal ranges.1,2 Currently, maintaining blood glucose levels requires continuous intervention with insulin. The amount of insulin administered is subject to continuous adaptation dictated by the individual’s blood glucose levels, food intake, activities such as exercise, sickness, prior insulin injections, etc. When too much insulin is injected, dangerously low blood glucose levels can develop and rapid intake of sugar-rich food is needed to prevent development of severe hypoglycemia. Conversely, injecting too little insulin will lead to dangerously high blood glucose, which is also associated with significant acute and chronic complications. Limitations of current treatments Despite progress with faster acting modern insu- lins and novel insulin pumps connected to glucose sensors, current therapies require considerable effort by the people with diabetes and their caregivers. As such, type 1 diabetes remains one of the most bur- densome diseases to manage. When a person with type 1 diabetes experiences dangerously low blood glucose, they produce an insufficient amount of the counteracting hormone glucagon, and depend on frequent ingestion of excessive food to re-establish normal glucose levels. Moreover, most people with type 1 diabetes keep blood glucose levels in the higher ranges; only 17% of children and 21% of adults diagnosed with diabetes in the U.S. achieved the glycemic targets recommended by American Diabetes Association.3 Zealand’s ambition A future with fully automated diabetes care realized by dual-hormone artificial pancreas pump systems using insulin together with dasiglucagon. k c o l n U Dasiglucagon for dual hormone artificial pancreas pumps Zealand is developing a 1 ml cartridge containing 4 mg dasiglucagon, intended for use in dual- hormone artificial pancreas pumps. We are collaborating with Beta Bionics, developer of the iLet™: a pocket-sized, dual-chamber, autonomous, glycemic control system. The iLet mimics a biological pancreas by calculating and dosing insulin and/or glucagon (dasiglucagon) as needed, based on data from the diabetic person’s continuous glucose monitor. Next steps A Phase 2 study comparing dual-hormone to insulin-only artificial pancreas pump performance in people with type 1 diabetes is planned for H1 2019. Phase 3 initiation is planned for 2020 together with collaborator Beta Bionics. Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018Rare Diseases 28 28 Rare Diseases: dasiglucagon for congenital hyperinsulinism Dasiglucagon is a potential first- in-class glucagon analog for the treatment of children with congenital hyperinsulinism. About Congenital hyperinsulinism (CHI) is a rare disease af- fecting mainly newborns and toddlers. It is caused by a defect in pancreatic beta-cells, resulting in insulin overproduction. This leads to persistently and dan- gerously low blood sugar levels (hypoglycemia). The most severely affected children need to have their pancreas surgically removed within a few months of birth in order to prevent hypoglycemia. This invariably results in the development of type 1 diabetes.1 Current treatment options are insufficient: less than one-third of newborns and two-thirds of older chil- dren respond to approved medical therapy.2 CHI develops in one out of 50,000 (or fewer) chil- dren.3,4 This corresponds to approximately 300 chil- dren diagnosed in the U.S. and Europe every year. Find more Zealand news at zealandpharma.com/dasiglucagon-orphan Our ambition From the earliest diagnosis, we aspire to improve the lives of children born with congenital hyperinsulinism. 1.0 U/h CHI pump treatment In Phase 3, Zealand is evaluating the potential of chronic dasiglucagon infusions delivered via a pump to prevent hypoglycemia in children with CHI. The aim is to reduce or eliminate the need for intensive hospital treatment, and to also potentially delay or eliminate the need for pancreatectomy. In 2017, the U.S. FDA and the European Commission both granted orphan drug designation to dasiglucagon for the treatment of CHI, and the U.S. FDA approved Zealand’s investigational new drug (IND) application. Next steps The first Phase 3 trial with children aged three months to 12 years has been initiated. The second Phase 3 trial with children up to one year of age is expected to start in 2019. Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018 2929 Partnered Programs Partnered Programs: Obesity/type 2 diabetes Zealand has a long-term and productive partnership with Boehringer Ingelheim, to develop an amylin analog and GLP-1/GLU product candidates for obesity and/or type 2 diabetes. About Our partner Boehringer Ingelheim is progressing a GLP-1/glucagon agonist and a long-acting amylin analog. Both have the potential for once-weekly ad- ministration for the treatment of obesity and/or type 2 diabetes. The dual-acting GLP-1/glucagon agonist activates both the GLP-1 and glucagon receptors, two key gut hormone receptors, and may offer better blood glu- cose and weight loss control than currently available single-agonist treatments. The compound builds partly on the effects of the natural gut hormone oxyntomodulin, which has been shown to decrease food intake and increase energy expenditure in hu- mans. Amylin is a pancreatic peptide hormone that plays an important role in decreasing food intake and in the regulation of postprandial plasma glucose levels. The compound is a long-acting analog of amylin and has demonstrated significant weight loss in pre-clinical models of obesity. Partnership Help people with type 2 diabetes and/or obesity to improve blood glucose management and better control weight loss. Product candidates The GLP-1/glucagon dual-acting analog and the long-acting amylin analog are once- weekly drug candidates with the potential to improve blood glucose and weight loss control, having shown weight loss in pre-clinical obesity models. Next steps A Phase 1b trial with the once-weekly GLP-1/ Glu dual agonist for treatment of diabetes/ obesity was initiated by Boehringer Ingelheim in 2018, with results expected in 2019. The once-weekly amylin analog lead molecule for treatment of diabetes/obesity was replaced by a stronger back-up candidate with improved pharmaceutical properties. Phase 1 clinical testing is anticipated to start in 2019. Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018 Our Established Peptide Platform 30 30 Our Established Peptide Platform Discovering and optimizing peptides to create new medicines Peptides represent a growing therapeutic modality with over 90 approved and marketed peptide drugs and many more in clinical development. Zealand’s peptide discovery platform is built on 20 years of experience and has been extensively validated by our clinical pipeline, partnerships and marketed products. Find out more about our research at zealandpharma.com/our-approach Over the past twenty years, Zealand has achieved significant success in optimizing native gut peptide hormones to confer the necessary properties to be a safe and effective drug. Native peptides are com- posed of amino acids (fifty or less) in a linear or cyclic form, have powerful biological functions but are inherently unstable and short-lived. To convert these native peptides into an effective peptide therapeutic requires the instability and thus duration of action to be corrected while maintaining or enhancing the biological activity. This requires modifications to the amino acid sequence of the peptide, generally using substitution with another of the twenty natural amino acids found in the body. To make all the potential substitutions in a ten amino acid peptide results in over three million sequence possibilities, and testing of all of these is not feasible. Zealand uses its unique in depth understanding of peptide chemistry and bi- ology to focus the substitution process on key amino acids to remove the weak points that result in poor solubility, stability or activity, and thus create new drug candidates. We have successfully applied this approach to glucagon, amylin, GLP-1, and GLP-2, which exert pleiotropic effects on many organs. Enhancing their natural properties or combining their activities in single peptides has presented multiple therapeutic opportunities and led to lixizenatide, the first mar- keted peptide drug discovered by Zealand’s peptide platform. Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018Pre-clinical pipeline We continually look for opportunities to enhance na- tive peptides, expand current Zealand drugs into new indications, or discover novel peptide therapeutics to address unmet needs in specialty gastrointestinal and metabolic diseases. We have in-depth knowledge of the role of GLP-2 in physiology and disease through our work on glep- aglutide, and we see exciting opportunities beyond short bowel syndrome. We have recently optimized a single peptide, ZP7570, which has activity at both the GLP-1 and GLP-2 receptors, with the potential to treat specialty gastrointestinal and liver diseases. This program will enter clinical development in the first half of 2019. We further utilize our understanding to discover peptides that act as agonists and antagonists of other endogenous hormones and their receptors. Our pre-clinical pipeline contains programs focused on analogs of endogenous peptide hormones, as well as exploration of peptides as therapeutics acting on components of the complement cascade, ion chan- nels and other target classes. Working with external innovation In line with Zealand’s strategy to access cutting-edge technology, we have a range of research collabora- tions providing us with access to novel peptide librar- ies (e.g. Orbit Discovery UK, the Torrey Pines Institute for Molecular Studies U.S.A) or new technologies for peptide stabilisation and delivery. All are focused on identifying peptides that act on targets relevant to specialty gastrointestinal and metabolic diseases. Pre-Clinical Projects Complement C3 inhibitors Altered activation of the com- plement cascade is implicated in many immune mediated diseases and in particular rare diseases such as paroxysmal nocturnal hemoglobinuria, cold agglutinin disease, myasthenia gravis and C3 glomerulopathy. There is currently only one approved drug to treat com- plement mediated diseases: an antibody that blocks the com- plement cascade at C5, the final step in complement activation. We have identified novel pep- tides that are potent, selective, long-acting inhibitors of the complement cascade acting at factor C3, upstream of C5 and thus offering potential differen- tiation and broader utility than current therapy. A candidate is selected for pre-clinical toxicol- ogy in 2019 and progression to clinical development in 2020. GIP analogs Expanding on our GLP-1 ex- perience, we have discovered potent selective analogs of gas- tric inhibitory peptide (GIP) and extended this to single peptides that have dual activity at both GIP and GLP-1 as well as single peptides with triple activity (GIP/GLP-1/glucagon). These peptides have therapeu- tic potential to treat metabolic diseases such as type 2 diabetes and obesity with early clinical validation of GIP/GLP-1 dual agonist provided by a Phase 2 study reported in 2018 (Frias et al, The Lancet 392:2180-2193). In addition, there is potential to treat other metabolic dis- eases such as NASH, and CNS conditions such as Alzheimer’s and Parkinson’s disease. We are actively seeking partnerships as these programs advance into clinical development. 3131 Ion Channel Blockers Ion channels are transmem- brane proteins that control Na+, Ca2+, K+ ion flow across cell membranes in almost all living cells. Their dysregulation is implicated in many diseases including inflammatory diseas- es, metabolic disorders and rare channelopathies, and blocking their function is likely to be therapeutically relevant. We have identified novel peptides that are potent and se- lective blockers of ion channels that may play roles in gastroin- testinal inflammation. Further optimisation is required and we expect these programs to con- tribute to the clinical pipeline in the future. Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018Corporate matters 32 32 Corporate matters Corporate Governance Corporate Social Responsibility Our People Risk Management and Internal Control Financial Review Shareholder Information Board of Directors Corporate Management 33 36 37 38 41 44 46 48 Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 20183333 Corporate Governance Corporate Governance Zealand’s approach to corporate governance is founded on ethics and integrity, and forms the basis of our efforts to ensure strong confidence from our shareholders, partners, employees and other stakeholders. Read the full report on corporate governance at zealandpharma.com/corporate-governance As a company incorporated under the laws of Den- mark, and with its shares admitted to trading and official listing on Nasdaq Copenhagen, as well as having American Depositary Shares representing Zea- land shares trading on Nasdaq Global Select Market in New York, Zealand is subject to various applica- ble legislations, standards and other regulations for publicly traded companies. These include Danish and U.S. securities law and the recommendations on corporate governance issued by the Danish Com- mittee on Corporate Governance (in the below ‘‘the Recommendations’’). Management structure Zealand has a two-tier management structure com- posed of the Board of Directors and the Corporate Management. The Board is responsible for the overall visions, strategies and objectives, the financial and managerial supervision of Zealand as well as for reg- ular evaluation of the work of the Corporate Man- agement. In addition, the Board of Directors provides general oversight of Zealand's activities and ensures that it is managed in a manner and in accordance with applicable law and Zealand's articles of associa- tion. The Board of Directors approves the policies and procedures, and Corporate Management is respon- sible for the day-to-day management of Zealand in compliance with the guidelines and directions set by the Board of Directors. The allocation of respon- sibilities between the Board of Directors and the Corporate Management is stipulated in the Rules of Procedure. Corporate governance structure Annual General Meeting Board of Directors Nomination Committee Audit Committee Remuneration and Compensation Committee Corporate Management Organization Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 201834 34 Evaluation of the Board of Directors In 2018, the annual evaluation of the Board of Directors was performed through questionnaire to each board member followed by a one-one meeting between the chairman and each board member. The conclusions were discussed at the December 2018 meeting. The evaluation, in general, revealed a good performance by the Board of Directors as well as good collaboration between the Board of Directors and the Corporate Man- agement. The evaluation also resulted in a need of increased com- mercial competences in the U.S. market. Board of Directors The Board of Directors plays an active role in setting Zealand's strategies and goals and in monitoring the operations and results. The Board of Directors functions according to its rules of procedure. Board duties include establishing Zealand’s strategy, poli- cies and activities to achieve Zealand's objectives in accordance with the Articles of Association. In line with the Recommendations, the Board of Directors annually reviews and determines the qual- ifications and experience needed on the Board. The chairman supervises the Board of Director's annual self-evaluation of its performance. The Board of Directors met twelve times in 2018, of which six meetings were physical meetings. Remuneration and Compensation Committee, and a Nomination Committee. Audit Committee The Audit Committee assists the Board of Directors with oversight of financial reporting, internal control and risk management systems, external auditing of the annual report, and control of the auditor’s independ- ence, including oversight of non-audit services and other activities delegated by the Board of Directors. Specific topics discussed in 2018 included account- ing treatment of sale of future royalties and mile- stones from the Sanofi license, auditor’s reports, accounting policies, internal controls, including SOX (Sarbanes-Oxley Act) compliance, risk management, insurance policy, year-end issues and external financ- ing. Board Committees The Board has established a number of committees to support the Board in its duties: Audit Committee, The Audit Committee met eight times in 2018, of which four meetings were physical meetings. Overview of meetings in 2018 Martin Nicklasson Rosemary Crane Kirsten A. Drejer1 Catherine Moukheibir Alain Munoz2 Michael J Owen Hanne Heidenheim Bak Jens Peter Stenvang Helle Haxgart3 1 Elected at the Annual General Meeting on April 19, 2018 2 Appointed member after the Annual General Meeting on April 19, 2018 3 Stepped down at the Annual General Meeting on April 19, 2018 Board 12/12 12/12 6/8 11/12 11/12 12/12 12/12 12/12 4/4 Audit Committee Remuneration and Compensation Committee Nomination Committee 8/8 8/8 - 8/8 - - - - - 3/3 - - - 2/2 3/3 - - - 2/2 2/2 2/2 2/2 2/2 2/2 - - - Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018 3535 Remuneration and Compensation Committee The Remuneration and Compensation Committee pro- poses the remuneration policy and general guidelines for incentive pay for the Board of Directors and the CEO of Zealand as well as targets for company-operated performance-related incentive programs. These policies and guidelines set out the various components of the remuneration, including fixed and variable remuneration such as pension schemes, benefits, retention bonuses, severance and incentive schemes as well as the related bonus and evaluation criteria. Specific topics discussed in 2018 included warrant programs, long-term incentive programs in general, company goals, employee salary levels, employee pensions, and CEO and Board compensation. The Remuneration and Compensation Committee met physically three times in 2018. Nomination committee At the annual general meeting held on April 19, 2018 the Shareholder Nomination Committee was dissolved by the Shareholders. This committee has been re- placed by a Board committee, similar to the Audit and Remuneration and Compensation Committees. The Nomination Committee make recommendations for decisions to the Board of Directors regarding board and CEO positions and identifies and recommend candidates for the Board of Directors. Specific topics discussed in 2018 included the replace- ment of CEO, as Britt Meelby Jensen resigned in No- vember 2018, and candidates for the Board of Directors. The Nomination Committee met physically two times in 2018. Compliance with the Corporate Governance Recommendations Zealand complies with the Recommendations on Cor- porate Governance issued by the Danish Committee on Corporate Governance, November 23, 2017, with the following two exceptions: 2.3 Chairman and vice-chairman of the board of directors (Recommendation, section 2.3.1): The Board has not ap- pointed a vice chairman after the annual general meeting on April 19, 2018 due to the current composition of the Board and since the board has executed its governance role as a well-functioning team. If the board composition changes the issue will be reconsidered. 3.4 Board committees (Recommendation, section 3.4.8): The Remuneration and Compensation Committee will be using the same external advisers as the Executive Manage- ment. The Board considers that the external advisers will provide professional and unbiased advice in both capaci- ties: as advisers to the Executive Management and to the Remuneration and Compensation Committee The charter of the Audit Committee is available at: www.zealandpharma.com/audit-committee/ The charter of the Remuneration and Compen- sation Committee, the remuneration report, the remuneration policy and the guidelines for incen- tive pay are available at: www.zealandpharma.com/remuneration-and- compensation-committee/ The rules of procedure of the Nomination Committee are available at: www.zealandpharma.com/ nomination-committee/ Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018CSR 36 36 Corporate social responsibility (CSR) In addition to contributing to the sustainability of the world in which we live and work, acting responsibly will further our ability to develop meaningful and similarly sustainable relationships with customers, suppliers, investors, and key stakeholders including current and future employees. Read the full report at zealandpharma.com/csr Our corporate social responsibility (CSR) efforts are based on the requirements of the Danish Financial Statements Act, and we comply with relevant laws, standards and guidelines for reporting on CSR activ- ities. Zealand’s CSR policy focuses on areas most relevant to our core business: management levels – from the Board of Directors to the heads of departments. Zealand has an even distribution of female and male managers, and slightly more women than men across the organization in general. The overall management level is made up of 41% females (2017: 43%) and is regarded to be an even gender distribution. • Working environment and employee well-being, • Diversity, • Quality in relation to research, development, and As of December 31, 2018, the Board of Directors consisted of four women and four men, giving a female representation of 50% (2017: 40%). supply chain activities, • Patient-centric approach, • Environmental sustainability and climate, and • Business ethics. Commitment to Sustainable Development Goals Zealand is making a commitment to Sustainable De- velopment Goals established by the United Nations. This introduces yet another perspective to making effective and sustainable business decisions, and will connect Zealand’s efforts with those of other compa- nies to address global challenges. We have selected six sustainable development goals that are relevant to our business. Additional goals may be considered as our company continues to grow and evolve. Diversity Diversity provides better understanding of the com- munities in which we operate, so that we can create value for patients and our stakeholders. Zealand aims to achieve equal representation of both genders at all Quality in everything we do Zealand’s quality policy describes compliance with rigorous internationally recognized standards and guidelines at all stages of research and development, to ensure that we do not place patients or animals at risk due to inadequate safety, quality or effica- cy. Zealand maintains oversight of the outsourced GxP activities to ensure vendor compliance with the requirements of pharmaceutical quality standards as articulated in Good Laboratory Practice (GLP), Good Manufacturing Practice (GMP), Good Clinical Practice (GCP), Good Pharmacovigilance Practice (GVP), and others. Focus on patients At Zealand, we work to create better lives for patients through collaborations with advocacy groups and patient organizations. We aim to demonstrate our commitment to patients and caregivers by serving their interests with the aim of consolidating relations and obtaining better treatment options. Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 20183737 Our People Our People Highly qualified and motivated employees are a prerequisite for achieving the ambitious Zealand business goals. We aspire to attract, develop and retain the best people and to be a company where employees thrive, regardless of their background or nationality. Engagement Highly qualified and motivated employees are a pre- requisite for achieving the ambitious Zealand busi- ness goals. Zealand’s annual employee engagement survey helps leaders and employees to continuously improve the working environment, and results from the 2018 survey show that Zealand employees are both dedicated and motivated. Competency development Ensuring every employee has opportunity to both improve upon their existing strengths while develop- ing skills is critical to attracting and retaining qualified and engaged employees. An analysis of all compe- tency development plans made in 2018 showed that the quantity and quality of competency development plans has increased compared to previous years. Health and well-being We work to ensure our employees’ well-being and have a number of policies in place to promote phys- ical and psychosocial health as well as the safety of Zealand’s working environment. Zealand has tak- en Danish Labor Law as a starting point for related policies and, in many cases, has gone beyond what is required of public companies in order to be more considerate of and responsive to the needs of its workforce. Safe work environment Zealand works systematically to maintain a safe and healthy work environment. We implement numerous procedures to support our work environment, and train all Zealand employees in standard safety proto- cols to enable self-management of their own occu- pational safety. Diversity Other key employee ratios 2018 Male 2018 Female Zealand total Corporate Management People managers Other employees 41% 83% 54% 37% 59% 17% 46% 63% Average age of workforce Non-Danish employees (%) Ph.D. students Other trainees 2018 46.3 16% 3 0 Read about Zealand as a workplace at zealandpharma.com/zealand-as-a-work-place Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018 Risk management 38 38 Risk management and internal control We constantly monitor and assess the overall risk of doing business in the pharmaceutical/biotech industry and the particular risks associated with our current activities and corporate profile. This section contains a summary of Zealand’s key risk areas and how we attempt to address and mitigate such risks. Environmental and ethical risks are cov- ered in our corporate social responsibility reporting, and risks related to financial reporting are covered in our corporate governance reporting. to risk management and internal control, and for assessing the overall and specific risks associated with Zealand’s business and operations. Furthermore, Zealand’s Management seeks to ensure that such risks are managed optimally and in a responsible and efficient manner. Doing business in the pharmaceutical/biotech indus- try involves major financial risks. The development of novel medicines takes several years, costs are high, and the probability of reaching the market is relatively low due to developmental and regulatory hurdles. Zealand’s Management is responsible for imple- menting adequate systems and policies in relation Risks of particular importance to Zealand are scientif- ic and development risks, commercial risks, intellec- tual property risks, clinical trial risks, regulatory risks, partner interest risks, and financial risks. Risk and mitigation plans are monitored by Management, and the continuous risk assessment is an integral part of the yearly reporting to the Board of Directors. Zealand risk and mitigation Risk Mitigation Commercial activities – products in research and development Research and development Risks relating to market size, competition, de- velopment time and costs, partner interest and pricing of products in development. Research and development of new pharmaceu- tical medicines is inherently a high-risk activity. The probability of discovering and developing an efficient and safe new medicine with strong IP protection is very low. From early in the research phase and throughout development, commercial potential and risks are assessed to ensure that final products have the potential to be commercially viable. Any major changes in the commercial potential of a drug candidate can lead to reduced value prospects and, ultimately, discontinued development. Throughout the research and development process, Zealand regularly assesses these risks by means of a quarterly risk assessment of all the Company’s research and development projects, conducted by Management together with the department heads and project managers. This assessment, which is presented to the Board of Directors, describes each project and measures its progress based on milestones. It analyzes the individual risks of each project and prioritizes the project portfolio. Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 20183939 Risks at Zealand and mitigation – continued Risk Mitigation Clinical trials Intellectual property Regulatory Our product candidates will need to undergo time-consuming and expensive trials to document efficacy and safety, the outcome of which is unpredictable, and for which there is a high risk of failure. If clinical trials of our product candidates fail to satisfactorily demonstrate safety and efficacy to the FDA, the EMA and other compa- rable regulatory authorities, Zealand may incur additional costs or experience delays in completing, or ultimately not be able to complete, the development of these product candidates. If Zealand or its partners were to face infringement claims or challenges by third par- ties, an adverse outcome could subject Zealand or its partners to significant liabilities to such third parties. This could lead Zealand or its partners to curtail or cease the development of some or all of their candidate drugs, or cause Zealand’s partners to seek legal or contractual remedies against Zealand, potentially involving a reduction in the royalties due to Zealand. The regulatory approval processes of the FDA, the EMA and other comparable regulatory authorities are lengthy, time consuming and inherently unpredictable, and if Zealand or its collaboration partners are ultimately unable to obtain regulatory ap- proval for their internal or outlicensed product candidates, Zealand’s business could be substantially harmed. Future partnerships Entering into collaborations with partners can bring significant benefits as well as involve risks. In addition, full control of the product is often given to the partner. Financial Financial risks relate to cash and treasury management, liquidity forecasts and financing opportunities. Zealand’s clinical project teams work closely with external expert clinicians and product development experts within the industry to design, set up and conduct the clinical programs. Zealand’s employees have been selected due to their extensive experience within their field of expertise, receive training and are continuously de- veloped to fulfill requirements. Zealand’s patent department works closely with external patent counsels and part- ners’ patent counsels to minimize the risk of patent infringement claims as well as to prepare any patent defence should this be necessary. Zealand’s employees receive training and updates on policies regarding the correct and lawful management of external intellectual property. Zealand’s regulatory department works closely with external consultants and regula- tory agents to develop regulatory strategies and frequently interacts with regulatory agencies. Zealand has taken a decision to increase its focus on proprietary programs in order to decrease its dependence on partners in the development process and capture more of the value of its projects. However, partnerships may still be relevant in the future and, in order to maximize the value of such partnerships, Zealand strives to foster a close and open dialogue with its partners, thereby building strong partnerships that work effectively. Financial risks are managed in accordance with the Finance Policy, regularly as- sessed by the Company’s Management and reported to the Audit Committee and the Board of Directors. During 2018 Zealand has worked to design and implement an Internal Control Framework to respond to the requirements of the Sarbanes-Ox- ley Act as a result of the US listing. See also p. 84, Note 23 - Financial risks. Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 201840 40 Zealand maintains a strong financial position to deliver on our plans, and multiple new opportunities are being pursued to continue building a successful and sustainable business Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 20184141 Financial review Financial review Financial review for the period January 1 – December 31, 2018. Since there is no significant difference in the de- velopment of the Group and the parent company, except for the royalty bond, the financial review is based on the Group’s consolidated financial infor- mation for the year ended December 31, 2018, with comparative figures for 2017 in brackets. Income statement The net result for the financial year 2018 was DKK 581.3 million (-275.3). The increased result is mainly a consequence of an increase in Other operating in- come as a result of the sale of future milestones and royalties relating to the Sanofi licence having a net impact of DKK 1,098.9 million. This is partly offset by decreased revenue of DKK 98.3 million and increased costs of DKK 98.8 million. Revenue Revenue in 2018 amounted to DKK 38.0 million (136.3). Revenue from milestone payments amounted to DKK 13.1 million (101.0), corresponding to an 87% decrease versus the previous year. The milestone payments comprised a payment of DKK 9.8 million from an undisclosed counterpart in connection with a Material Transfer Agreement and a payment of DKK 3.3 million from a license agreement with Protagonist Therapeutics Inc. Total royalty revenue amounted to DKK 24.9 million (35.3), a decrease of 30%. The decrease is a conse- quence of the sale of future Sanofi royalties and mile- stones which had the effect that only royalties earned before June 30, 2018 are included in the income statement. Royalty revenue from sales of Lyxumia®/ Adlyxin® amounted to DKK 7.1 million (16.7) and from Soliqua® 100/33 to DKK 17.8 million (18.7). During Q2 2018, it was determined that royalty reve- nue from Sanofi recognized from 2013 until Q1 2018 included DKK 17.1 million of royalty revenue on net sales in countries with no valid IP protection for Zea- land, and therefore revenue has been overstated in this period. Such misstatements have been corrected with retrospective impact and thus comparable peri- ods as of and for the years ended December 31, 2017, 2016 and 2015 have been restated. The restatement also includes correction of a misstatement related to royalty expenses as discussed below under “Royalty expenses”. Royalty Expenses Royalty expenses for the year amounted to DKK 3.4 million (14.2) and relate to royalties paid to third parties on milestone payments received and royalty income relating to the license agreement with Sanofi. As a consequence of the restatement mentioned above, royalty expenses from 2013 until Q1 2018 were misstated by DKK 2.3 million. Such misstate- ments have been corrected with retrospective impact and thus comparable periods as of and for the years ended December 31, 2017, 2016 and 2015 have been restated, as presented in note 1 to the condensed consolidated interim financial statements. Research and development expenses Research and development (R&D) expenses amount- ed to DKK 438.2 million (324.7). The increase in R&D Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 201842 42 R&D and administrative expenses DKKm 500 400 300 200 100 0 2013 2014 2015 2016 2017 2018 R&D expenses Administrative expenses expenses for the year ended December 31, 2018, was primarily related to external costs of DKK 79.6 million from accelerated development activities. This figure comprises costs for the three dasiglucagon programs, including the Phase 3 trials relating to the rescue pen for severe hypoglycemia, and clinical costs for dasiglucagon to be used in a dual-hormone artificial pancreas and to treat CHI. It also includes costs for initiating the Phase 3 trial with glepaglutide as well as costs relating to pre-clinical activities. The R&D share of the personnel expenses for the year ended December 31, 2018, was DKK 153.5 million (119.5). The increase is mainly related to an increase in the number of employees in the clinical development organization. Administrative expenses Administrative expenses amounted to DKK 43.5 million (47.5). The decrease is due to a change in the composition of employees working in R&D and Ad- ministration in comparison to the previous year. Other operating income Other operating income amounted to DKK 1.099.5 million (0.6) and mainly consists of the net effect from the agreement to sell future royalty streams and USD 85 million of potential commercial milestones for Soliqua® 100/33/ Suliqua® and Lyxumia®/Adlyxin® to Royalty Pharma. Zealand received DKK 1,310.2 mil- lion or USD 205 million in September 2018 at closing of the transaction. Costs directly related to the trans- action amounted to DKK 211.3 million and consists of 13.5% or DKK 176.9 million paid to third parties plus other transaction costs of DKK 34.5 million. Other operating income also consists of government grants of DKK 0.6 million (0.6) Operating result The operating result for the year was DKK 652.4 mil- lion (-249.4). Net financial items Net financial items amounted to DKK -27.3 mil- lion (-31.4). The decrease is mainly due to positive exchange rate adjustments in 2018 compared to negative exchange rate adjustments in 2017 and decreased interest expenses as the royalty bond has been redeemed in September 2018. Net financial items consist of interest income and expenses, am- ortized costs relating to the royalty bond financing, banking fees and exchange rate adjustments. DKK 15.1 million of the net financial items (18.9) relates to interest expense on the royalty bond, and DKK 18.3 million (5.7) relates to amortized costs of the royalty bond financing. The increased amortized costs is a result of the repayment of the outstanding royalty bond in September 2018 as all remaining capitalized financing costs has been expensed. Result before tax Result before tax was DKK 625.1 million (-280.8). Income tax Income tax amount to DKK -43.8 million (5.5). The income tax is a consequence of the positive result before tax for the year stemming mainly from the net effect from the agreement to sell future royalty streams and USD 85 million of potential commercial milestones for Soliqua® 100/33/ Suliqua® and Lyx- umia®/Adlyxin® to Royalty Pharma, see “Other oper- ating income” above. No deferred tax asset has been recognized in the statement of financial position due to uncertainty as to when and whether tax losses can be utilized. Net result and comprehensive result The net result and comprehensive result both amounted to DKK 581.3 million (-275.3), in both cas- es due to the factors described above. Allocation of result No dividend has been proposed, and the net result for the year of DKK 581.3 million (-275.3) has been transferred to retained loss. Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018Statement of financial position Securities, cash and cash equivalents At December 31, 2018, securities, cash and cash equivalents amounted to DKK 1,159.2 million (663.8). Restricted cash was no longer held as collateral for the royalty bond DKK 0.0 million (5.9). In 2018, Zealand has invested DKK 298.6 million (75.1) in securities (listed bonds). The increase in securities, cash and cash equivalents is due to the net effect from the agreement to sell future royalty streams and milestones from Sanofi, partly offset lower revenue, higher costs and by the repayment of the remaining outstanding royalty bond. Equity Equity amounted to DKK 1,116.3 million (514.7) at De- cember 31, 2018, corresponding to an equity ratio of 91% (71%). The increase in equity is a result of the net result for the year of DKK 581.3 million (-275.3), offset by a capital increase of DKK 2.8 million (6.8) related to the exercise of warrants by employees during the year, and warrant compensation expenses of DKK 17.5 million (20.2). Royalty bond Zealand has since December 2014 had a royalty bond financing arrangement, based on part of the royalties from lixisenatide as a stand-alone product. The bond has carried an interest rate of 9.375%. On September 6, 2018 Zealand entered into an agree- ment to sell future royalties and USD 85 million of potential commercial milestones for Soliqua® 100/33/ Suliqua® and Lyxumia®/Adlyxin® to Royalty Pharma. As part of the transaction Zealand has redeemed the outstanding royalty bond of USD 24.7 million (DKK 157.6 million), after which Zealand is debt free. Cash flow Cash outflow/inflow from operating activities Cash flow from operating activities amounted to DKK -460.0 million (-278.7), mainly as a result of the net profit for the year adjusted for the net effect from the agreement to sell future royalty streams and USD 85 million of potential commercial milestones for Soli- qua® 100/33/ Suliqua® and Lyxumia®/Adlyxin® and for other non-cash items. Cash outflow/inflow from investing activities Cash flow from investing activities amounted to DKK 881.9 million (221.4), mainly comprising the net effect from the agreement to sell future royalty streams and USD 85 million of potential commercial milestones for Soliqua® 100/33/ Suliqua® and Lyxumia®/Adlyxin of DKK 1,105.5 million (0.0). Net investments in securities for the period amount- ed to DKK 225.6 million (75.0). Zealand’s securities portfolio comprises listed bonds in Danish kroner. Cash flows related to other investments for the pe- riod amounted to DKK 0.0 million (9.3). Zealand has invested in Beta Bionics, Inc. in 2018, but payment related to such investment did not occur in 2018. Investments in plant and equipment for the period amounted to DKK 4.0 million (7.2), mainly related to new laboratory equipment. 4343 Cash and cash equivalents, restricted cash and securities DKKm 1200 1000 800 600 400 200 0 2013 2014 2015 2016 2017 2018 Securities Restricted cash Cash and equivalents Cash outflow/inflow from financing activities Cash flow from financing activities amounted to DKK -155.4 million (337.9), related to the repayment of the royalty bond of DKK -158.3 million (-176.4) and proceeds from issuance of shares related to exercise of warrants of DKK 2.9 million (6.8). For previous year cash flow from financing activities also included the net proceeds from the U.S. IPO of DKK 0.0 million (507.5). The total cash flow for full-year 2018 amounted to DKK 266.1 million (280.5). Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018Shareholder information 44 44 Shareholder information At December 31, 2018, the nominal value of Zea- land’s share capital was DKK 30,786,827, divided into 30,786,827 shares with a nominal value of DKK 1 each. The share capital has remained unchanged in 2019 (at March 7, 2019). Zealand is dual listed on Nasdaq Copenhagen and Nasdaq Global Select Market, New York, under the ticker symbol “ZEAL”. The share capital has increased by a nominal value of DKK 35,500 in 2018 as a result of the exercise of employee warrants. All Zealand shares are ordinary shares and belong to one class. Each share listed by name in Zealand’s shareholder register represents one vote at the annual general meeting and other shareholders’ meetings. Stable number of shareholders during 2018 The number of registered Zealand shareholders was stable during 2018. From 16,043 registered share- holders at December 31, 2017, the number grew to 16,204 at December 31, 2018. In addition, 3,132,086 shares were represented by ADSs traded on Nasdaq Global Select Market, New York. At March 4, 2019, Zealand had 15,871 registered shareholders, representing a total of 30,786,827 shares. Total shareholder composition % 5<1 15 52 2018 Institutional Domestic retail Non-Institutional Company related Miscellaneous 28 Institutional shares by investment style % 34 2018 12 3 7 26 18 Value GARP Growth Hedge fund Index Other Institutional shares by geography Ownership The following shareholders are registered in Zea- land’s register of shareholders as being the owners of a minimum of 5% of the voting rights or a minimum of 5% of the share capital (one share equals one vote) at March 7, 2019: • Wellington Management Group LLP,U.S. (8% of votes/8% of capital). • Sunstone LSV Management A/S, Denmark (7% of votes/7% of capital). % 13 13 1 7 5 38 2018 23 United States Denmark Switzerland Netherlands France Rest of Europe Rest of World Find out more about our investor relations at zealandpharma.com/investor-relations Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 20184545 Core share data Number of shares and ADSs at Dec. 31, 2018 Listing Denmark U.S. 30,786,827 3,132,086 Nasdaq Copenhagen Nasdaq Global Select Market, New York Ticker symbol ZEAL ZEAL Index membership OMXC Copenhagen Midcap STOXX Europe TMI Pharm Financial calendar 2019 Date Event April 4 May 16 August 15 November 14 Annual General Meeting Interim report for Q1 2019 Interim report for H1 2019 Interim report for Q3 2019 • Van Herk Investments, Netherlands (6% of votes/6% of capital). • Bank Julius Bär & Co. AG, Switzerland (6% of votes/6% of capital). Analyst coverage Zealand is followed by the financial institutions and analysts listed below: Share price performance The price of Zealand’s shares decreased by 3% during the year, which was above relevant indexes. The share price at year-end 2018 was DKK 82.40, compared to DKK 85.00 at year-end 2017. Despite reaching several major milestones during the year, with strong clinical progress for both glepaglutide and dasiglucagon as well as the sale of future roy- alties and milestones from Sanofi the share price decreased, partly caused by a general downturn in biotech shares at the end of the year. Positive development in share liquidity Zealand’s share liquidity remained strong in 2018, with an average daily turnover on Nasdaq Copenha- gen of 123,028 shares, or DKK 8.5 million and 13,273 ADS, or USD 0.2 million. In the first two months of 2019, liquidity has continued to increase to a daily turnover of approximately DKK 6.6 million. Nasdaq charting 2018 of Zealand's share price Institution Analyst’s name U.S. Morgan Stanley Needham David N. Lebowitz Alan Carr United Kingdom Goldman, Sachs & Co. Graig C. Suvannavejh Jefferies Peter Welford France Bryan, Garnier & Co Oddo Securities Eric Le Berrigaud Oussama Denguir Netherlands Kempen Denmark Danske Bank Handelsbanken Nordea Suzanne van Voorthuizen Thomas Bowers Peter Sehested Michael Novod Index 120 110 100 90 80 70 January February March April May June July August September October November December Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018 Board of Directors and Corporate Management Board of Directors 46 46 Board of Directors and Corporate Management Zealand Board of Directors at March 7, 2019 Position Chairman Board member Board member Martin Nicklasson Rosemary Crane Kirsten A. Drejer Year of birth Nationality Gender First elected Committee 1955 Swedish Male 2015 AuC, RemCo chair and Nom- Co chair Independent Yes 1960 American Female 2015 AuC Yes 1956 Danish Female 2018 Yes Special competencies Extensive general man- agement and research and development experience from AstraZeneca Plc and Swedish Orphan Biovitrum AB. Marketing and a knowledge base within diabetes and cardiovascular disease from Johnson & Johnson and BMS. Current positions Chairman of the board of Orexo AB and Kymab Ltd. Board member of Basilea Pharmaceutica Ltd. Member of the board of Teva Pharmaceutical Industries Ltd. and Edge Therapeutics. Zealand shares at December 31, 2018 Zealand warrants at December 31, 2018 1,000 0 Change in ownership in 2018 0 0 0 0 More than 30 years of inter- national experience in the pharmaceutical and biotech industry. Before co-founding Symphogen A/S in 2000, held several scientific and manage- rial positions at Novo Nordisk A/S. Chairman of the board of Antag Therapeutics, Bioneer and Resother Pharma. Board member of Bioporto, Lyhne & Co. 500 0 +500 Find out more about the Board of Directors at zealandpharma.com/ board-of-directors-and-nomination-committee Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 20184747 Catherine Moukheibir Alain Munoz Michael John Owen Hanne Heidenheim Bak Jens Peter Stenvang Position Board member Board member Board member Employee-elected board member3 Employee-elected board member2 Year of birth Nationality Gender First elected Committee Independent Special competencies Current positions 1959 British Female 2015 AuC chair Yes 1949 French Male 20051 1951 British Male 2012 RemCo and NomCo RemCo and NomCo Yes Yes 1953 Danish Female 20123 No 1954 Danish Male 2014 No Physician qualified cardiology and intensive care. Experience in the pharmaceutical industry at senior management level. Served as SVP for international development in the Sanofi Group and in the pharma- ceutical division of Fournier Laboratories. Independant Board member of Valneva SEHybrigenics, , Auris medical and Oxthera, adviser to Kurma Biofund. Particular experience in align- ing corporate and financial strategy at various stages of a biotech’s development. Has held senior management positions at several European biotech companies. Chairman of the board of MedDay Pharmaceuticals S.A., board member of Ablynx NV, Cerenis Therapeutics Holding SA, Orphazyme and GenKyo- Tex. Advisory board member of the Yale School of Manage- ment, U.S., and Imperial Col- lege Business School, UK. Research experience focusing on the immune system and more than 150 publications. Has held several leading positions at GlaxoSmithKline, most recently as SVP and head of biopharma- ceuticals research. Project management expe- rience in drug development from lead to launch, focusing on CNS diseases and orphan drugs. Experience in disease awareness and customer rela- tionship management. Senior Project Director, GI, External Relations and Collaborations. Laboratory Technician (Biology). Chairman of the board of Ossianix Inc and is also a member of the board of Avacta Group plc, ReNeuron Group plc, Sareum Holdoings plc, Iksuda Therapeutics and Gam- maDelta Therapeutics. He is also an adviser to the CRT Pioneer Fund. Zealand shares at December 31, 2018 Zealand warrants at December 31, 2018 0 0 Change in ownership in 2018 0 5,250 0 0 0 0 0 24,684 15,500 0 3,500 3,500 0 1 Resigned in 2006 and re-elected in 2007. 2 Employee-elected board members are elected for a period of four years. 3 Elected term ended in 2014; re-elected in 2016 for a period of two years. Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018Corporate Management 48 48 Zealand Corporate Management at March 7, 2019 Position Year of birth Nationality Gender Joined Zealand Experience Adam Steensberg Mats Blom Andrew Parker Ivan Møller Marino Garcia Executive Management Interim Chief Executive Officer (from March 1, 2019); Executive Vice President and Chief Medical and Development Officer Executive Management Executive Vice President and Chief Financial Officer (through March 31, 2019) Executive Vice President and Chief Scientific Officer Senior Vice President, Technical Development and Operations (from March 1, 2018) Senior Vice President, Corporate and Business Development (from October 1, 2018) 1974 Danish Male 2010 1965 Swedish Male 2010 1965 British Male 2016 1972 1966 American/Danish Canadian/Spanish Male 2018 Male 2018 Prior to joining Zealand, Adam led clinical research teams as medical director at Novo Nord- isk and worked as a clinician at Rigshospitalet, University of Co- penhagen. Adam was a medical and scientific adviser in the areas of endocrinology, cardiology, gastroenterology and rheu- matology, and has significant experience of leading regulatory strategies. Prior to joining Zealand, Mats served as CFO of Swedish Or- phan International, a leading Eu- ropean orphan drug company. Mats has extensive managerial experience and has held CFO positions at Active Biotech and Anoto, both publicly listed on Nasdaq Stockholm. Previously, Mats worked as a management consultant at Gemini Consulting and for Ernst & Young. Adam is a board member of Beta Bionics, Inc. Mats is chairman of the board of Medical Need AB and a board member of Auris Medical AG. Prior to joining Zealand, Andrew was general partner and sci- entific director of Eclosion2 & Cie SCPC in Switzerland. CEO of Arisgen SA, an Eclosion2 portfolio company developing an oral peptide drug delivery technology. Prior to joining Zealand, Ivan worked for Novartis in both generics and pharmaceutical manufacturing, as well as in strategy, quality assurance, con- tract manufacturing and supply chain leadership in Germany, the U.S. and Switzerland. Andrew has more than 20 years of experience in international pharmaceutical, biotech and start-up companies, including several years at Shire Pharma- ceuticals, Opsona Therapeutics and AstraZeneca. Ivan was project leader at The Boston Consulting Group in the pharmaceutical R&D and manu- facturing areas. Prior to joining Zealand, Marino has held various U.S. and inter- national leadership positions of increasing responsibility at pharmaceutical companies, in- cluding Synergy Pharma, Aptalis Pharma, Vifor Pharma, Aspreva Pharmaceuticals, Pfizer and Eli Lilly & Co. Marino has almost 25 years of global pharma and biotech ex- perience in senior commercial, corporate strategy, and business development roles. Zealand shares at December 31, 2018 22,800 Zealand warrants at December 31, 2018 227,000 Change in ownership in 2018 -2,200 120,000 217,000 +2,000 0 147,000 0 0 40,000 0 0 3,3334 0 4 A total of 40,000 warrants have been granted with a vesting over 36 months Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 20184949 Financial statements Financial statements Consolidated financial statements Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Statement of changes in equity Business overview Notes Parent company financial statements Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Statement of changes in equity Notes Alternative performance measures for the group (non-audited) Statements Statement of the Board of Directors and Executive Management Independent auditor’s report 51 51 52 53 53 54 55 89 89 90 91 91 92 96 97 98 Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018Con Fin – Content 50 Contents – consolidated financial statements Consolidated financial statements Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Statement of changes in equity Business overview Notes 1 Significant accounting policies, and significant accounting estimates and assessments 2 Revenue 3 Royalty expenses 4 Research, development and administrative expenses 5 Fees to auditors appointed at the Annual General Meeting 6 Information on staff and remuneration 7 Other operating income 8 Financial income 9 Financial expenses 10 Income tax benefit 11 Basic and diluted earnings per share 12 Property, plant and equipment 13 Other investments 14 Trade receivables 50 79 80 80 80 80 82 83 83 84 86 87 87 87 87 51 51 52 53 53 54 55 64 66 66 67 67 75 75 75 76 77 78 79 79 15 Prepaid expenses 16 Other receivables 17 Securities 18 Cash and cash equivalents 19 Share capital 20 Royalty bond 21 Other liabilities 22 Contingent assets, liabilities and other contractual obligations 23 Financial risks 24 Related parties 25 Adjustments for non-cash items 26 Change in working capital 27 Significant events after the balance sheet date 28 Approval of the annual report Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018Consolidated financial statements Consolidated income statement for the years ended December 31, 2018, 2017 and 2016 Consolidated statements of comprehensive income for the years ended December 31, 2018, 2017 and 2016 5151 Con Fin – Income Statement DKK thousand Note 2018 Restated1 Restated1 2016 2017 Net result for the year Other comprehensive income (loss) Comprehensive result for the year 1 See note 1 to the consolidated financial statements. 581,282 0 581,282 -275,258 0 -275,258 -157,296 0 -157,296 The Business overview on page 54 and the accompanying notes on pages 55 to 87 form an integral part of these financial statements. DKK thousand Note Restated1 Restated1 2016 2017 2018 Revenue Royalty expenses Research and development expenses Administrative expenses Other operating income Operating result Financial income Financial expenses Result before tax Income tax Net result for the year Earnings/loss per share – DKK Basic earnings/loss per share Diluted earnings/loss per share 1 See note 1 to the consolidated financial statements. 2 3 4,5,6 4,5,6 37,977 -3,356 -438,215 -43,542 7 1,099,526 652,390 136,322 -14,163 -324,667 -47,470 607 -249,371 230,864 -30,931 -268,159 -52,503 1,697 -119,032 8 9 9,988 -37,322 625,056 2,122 -33,509 -280,758 592 -44,356 -162,796 10 -43,774 581,282 5,500 -275,258 5,500 -157,296 11 11 18.94 18.94 -9.88 -9.88 -6.47 -6.47 Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018 Con Fin – Financial position 52 52 Consolidated financial statements Consolidated statements of financial position as of December 31, 2018 and 2017 DKK thousand Assets Non-current assets Plant and machinery Other fixtures and fittings, tools and equipment Leasehold improvements Deposits Restricted cash Other investments Total non-current assets Current assets Trade receivables Prepaid expenses Income tax receivable Other receivables Securities Cash and cash equivalents  Total current assets Total assets 1 See note 1 to the consolidated financial statements Note Restated1 2017 2018 DKK thousand Note Restated1 2017 2018 12 12 12 18 13 13,650 1,794 186 2,762 0 32,582 50,974 14,855 953 304 2,729 5,892 9,312 34,045 14 15 10 16 17 18 3,274 11,740 1,195 3,368 298,611 860,635 1,178,823 5,679 7,253 5,500 4,979 75,111 588,718 687,240 1,229,797 721,285 Liabilities and equity Share capital Share premium Retained loss Equity Royalty bond Non-current liabilities Trade payables Royalty bond Other liabilities Current liabilities  Total liabilities Total equity and liabilities  1 See note 1 to the consolidated financial statements 19 30,787 30,751 1,979,493 1,959,199 -893,999 -1,475,281 514,669 1,116,281 20 20 21 0 0 132,986 132,986 32,652 0 80,864 113,516 29,428 2,748 41,454 73,630 113,516 206,616 1,229,797 721,285 Significant accounting policies, and significant 1 accounting estimates and assessments  5 Fees to auditors appointed at the Annual General Meeting  6 Information on staff and remuneration  Contingent assets, liabilities and other contractual commitments 22 23 Financial risks  24 Related parties  27 Significant events after the balance sheet date  Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018 Con Fin – Cash Flow Con Fin – Equity 5353 Total Consolidated financial statements Consolidated statements of cash flows for the years ended December 31, 2018, 2017 and 2016 Consolidated statements of changes in equity at December 31, 2018, 2017 and 2016 DKK thousand Note Restated1 Restated1 2016 2017 2018 Net result for the year Adjustments for non-cash items Change in working capital Financial income received Financial expenses paid Sale of future royalties and milestones Income tax receipt Income tax paid Cash (outflow)/inflow from operating activities 25 26 581,282 101,926 12,785 5,283 -16,705 7 -1,105,471 5,500 -45,000 -460,400 10 10 -275,258 25,379 -11,304 2,048 -25,111 0 5,500 0 -278,746 -157,296 57,685 156,838 592 -22,790 0 5,875 0 40,904 Transfer to restricted cash related to the royalty bond Transfer from restricted cash related to the royalty bond Transfer from restricted cash for royalty bond interest payments Sale of future royalties and milestones Royalty expenses regarding sale of future royalties and milestones Change in deposit Purchase of other investments Purchase of securities Sale of securities Purchase of property, plant and equipment Sale of fixed assets Cash (outflow)/inflow from investing activities 7 Proceeds from issuance of shares related to exercise of warrants Proceeds from initial public offering Costs related to initial public offering Proceeds from private placement of new shares Costs related to private placement of new shares Repayment of royalty bond Cash (outflow)/inflow from financing activities Increase/(Decrease) in cash and cash equivalents Cash and cash equivalents at January 1 Exchange rate adjustments Cash and cash equivalents at December 31 1 See note 1 to the consolidated financial statements. 0 7 1,275,802 0 6,124 -60,675 365,795 -305,120 0 7,725 0 7,786 0 0 -39 -9,312 -75,037 0 -7,226 120 221,351 6,790 567,076 -59,576 0 0 -176,360 337,930 280,535 323,330 -15,147 588,718 0 -24 0 0 0 -2,600 0 -299,958 21,935 0 0 143,072 -7,861 0 157,146 -101,908 418,796 6,442 323,330 -170,331 -33 0 -299,849 74,230 -4,038 0 881,905 2,862 0 0 0 0 -158,311 -155,449 266,056 588,718 5,861 860,635 DKK thousand Equity at January 1, 2018 Comprehensive result for the year Net result for the year Share Share capital premium Retained loss (Restated) 30,751 1,959,199 -1,475,281 514,669 0 0 581,282 581,282 Warrant compensation expenses Capital increases Equity at December 31, 2018 0 36 17,468 2,826 30,787 1,979,493 0 0 17,468 2,862 -893,999 1,116,281 Equity at January 1, 2017 Restatement1 Comprehensive loss for the year Net loss for the year Warrant compensation expenses Capital increases Costs related to capital increases Equity at December 31, 2017 Equity at January 1, 2016 Restatement1 Comprehensive loss for the year Net loss for the year Warrant compensation expenses Capital increases Costs related to capital increases Equity at December 31, 2016 1 See note 1 to the consolidated financial statements. 26,142 1,441,263 -1,189,211 -10,812 278,194 -10,812 0 0 -275,258 -275,258 0 4,609 0 0 20,156 0 569,041 0 -71,261 30,751 1,959,199 -1,475,281 20,156 573,650 -71,261 514,669 24,353 1,263,179 -1,035,301 -7,427 0 0 252,231 -7,427 0 0 -157,296 -157,296 0 1,789 0 0 22,727 0 163,218 0 -7,861 26,142 1,441,263 -1,200,024 22,727 165,007 -7,861 267,381 Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018 Con Fin – Business overview 54 54 Consolidated financial statements Business overview Zealand (the “Company”, the “Group”, “Zealand” and “we”) was founded in 1998 and is a biotechnology company focused on the discovery and development of innovative pep- tide-based medicines. More than 10 drug candidates invented by Zealand have advanced into clinical development, of which two have reached the market. Zealand’s current pipeline of internal product candidates focus on specialty gastrointestinal and metabolic diseases. Zealand’s portfolio also includes two clinical license collaborations with Boehringer Ingel- heim. We have since 2003 had a license collaboration with Sanofi in the diabetes field. On Sep- tember 6, 2018 we entred into an agreement with Royalty Pharma to transfer all the royalties that we were due to earn from our agreement with Sanofi in exchange for an upfront one- time payment of USD 205 million. Excluded from this agreement was a potential milestone payment from Sanofi of up to USD 15 million. Please refer to note 7. We have four fully owned programs in late clinical development: 1 Glepaglutide, a long-acting GLP-2 analog in development for the treatment of short bowel syndrome (SBS). The pivotal Phase 3 trial in 129 patients was initiated in Q4 2018 with expected results by mid-2020. Dasiglucagon, a Zealand-invented proprietary glucagon analog currently in development for three different indications: 2 Dasiglucagon in Dual-hormone pump therapy for diabetes treatment Zealand has already reported positive results from two Phase 2a trials during the second quarter of 2017, and the initiation of a small Phase 2b trial in iLet™ dual-hormone artificial pancreas system is planned for 2019. 3 Dasiglucagon Hypoplal® Rescue Pen for severe hypoglycemia Ready-to-use dasiglucagon may offer diabetes patients and their families a fast treatment solution for severe hypoglycemia that is easier to use than currently marketed glucagon kits. The pivotal Phase 3 trial with dasiglucagon for the treatment of severe hypoglycemia was completed with good results in 2018. A peadiatric Phase 3 trial was initiated in by end 2018, with results expected in H2 2019. 4 Dasiglucagon for Congenital hyperinsulinism Congenital hyperinsulinism, or CHI, is an ultra-rare but devastating disease caused by inap- propriately elevated insulin secretion irrespective of glucose levels. This leads to frequent and often severe hypoglycemia and long-term irreversible damage to health. In 2017, the FDA in the U.S. and the Committee for Orphan Medicinal Products in the EU issued a posi- tive opinion on an orphan medicinal product application for Zealand’s glucagon analog. In January 2018, the FDA issued a safe-to-proceed letter, and the Phase 3 program started in Q1 2019. In addition to the late stage clinical programs we also have a pipeline of pre-clinical pro- grams with the potential to enter into the clinic in 2019 and the years to come. Company summary Zealand Pharma A/S subsidiaries ZP Holding SPV K/S ZP General Partner 1 ApS Zealand Pharma US Inc. ZP Holding SPV K/S subsidiaries ZP SPV 1 K/S ZP General Partner 2 ApS Domicile Owner- ship Voting rights Denmark Denmark United States 100% 100% 100% 100% 100% 100% Denmark Denmark 100% 100% 100% 100% Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018 5555 Con Fin – Note 1 Notes Note 1 – Significant accounting policies, and significant accounting estimates and assessments Significant accounting policies Basis of preparation The consolidated financial statements of Zealand have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and as adopted by the EU and additional requirements under the Danish Financial Statements Act. The Board of Directors considered and approved the 2018 Annual Report of Zealand on March 7, 2019. The Annual Report will be submitted to the shareholders of Zealand for approval at the Annual General Meeting on April 4, 2019. The consolidated financial statements are presented on a historical cost basis. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. For financial reporting purposes, fair value measurements are categorized into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and on the significance of the inputs to the fair value measurement as a whole. The inputs are described as follows: • Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date • Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observ- able for the asset or liability, either directly or indirectly • Level 3 inputs are fair value measures derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs). The consolidated financial statements are presented in Danish kroner (DKK), which is the func- tional currency of the Company. In the narrative sections of the financial statements, comparative figures for 2017 and 2016 are shown in brackets. Implementation of new and revised standards and interpretations The IASB has issued the following new standards and revisions to existing standards and new interpretations that are mandatory for accounting periods commencing on or after January 1, 2018: IFRS 9 Financial instruments. The Group’s implementation of IFRS 9 ‘Financial Instruments’, that replaces IAS 39 ‘Financial Instruments: Recognition and Measurement’, comprises amendments to the measurement categories for financial assets. These amendments have not resulted in any changes to the measurement basis for financial assets. Further, it has lead to the imple- mentation of a new impairment model that requires the recognition of impairment provisions based on the “expected credit loss model” rather than the “incurred-loss model.” The major- ity of Zealand’s receivables are receivables from sales with its strategic partners, Boehringer Ingelheim and Sanofi, and due to the low credit risk in the Group, the new rules have not had a significant impact on the valuation of trade receivables. In the annual report for 2017, Manage- ment indicated an expected increase of DKK 5 million to financial liabilities due to the revised guidance regarding modification of financial liabilities introduced by IFRS 9 Financial Instru- ments’. Based on further analyses, Management has concluded that the current accounting treatment is in line with IFRS 9 ‘, hence no impact is recognized as the cost of the amendment to the royalty bond from March 2017 is considered transaction costs, which are deducted in financial liabilities. IFRS 15 Revenue from Contracts with Customers. The Group has implemented IFRS 15 ‘Rev- enue from Contracts with Customers’ using the modified retrospective approach. IFRS 15 re- places the current standards on revenue (IAS 11 ‘Construction Contracts’ and IAS 18 ‘Revenue’). In 2003, Zealand Pharma entered into a licensing agreement with Sanofi under which Zealand Pharma was entitled to milestone payments and sales based royalty payments. Refer to note 2 for further disclosure about the arrangement. Although the arrangement provided Sanofi with all rights related to the use of the underlying IP, Management has concluded that the license guidance of IFRS 15 applies to the arrangement. Therefore, sales based royalties has continued to be recognized along with the underlying sale and milestone payment have not been recog- nized until the milestone is met. Therefore, no adjustment is made to the opening balance as of January 1, 2018 for this arrangement. The right to the royalty and milestone payments under the arrangement was unconditionally transferred to a third party in September 2018 and a gain on the sale recognized as other operating income. In 2011 and 2014 respectively, Zealand Pharma entered into license, research and develop- ment agreements with Boehringer Ingelheim. Refer to note 2 for further disclosure about the arrangement. Due to the continuing involvement through the research and development collaboration, these are arrangements subect to the license guidance of IFRS 15. Consequently, Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 201856 Notes 56 Note 1 – Significant accounting policies, and significant accounting estimates and assessments (continued) sales based royalties continue to be recognized along with the underlying sale and milestone payment are not recognized until the milestone is met. and low-value leases which will both be recognised on a straight-line basis as expense in the income statement. The Group had no other revenue generating activities as of January 1, 2018, and consequently, there is no impact from the adoption of IFRS 15. Other standards and amendments adopted • Amendments to IFRS 2 Share-based Payment. • Part of Annual Improvements to IFRSs Cycle 2014-2016. The implementation of these new or revised standards and interpretations has not resulted in any significant impact on the net result for the year or the financial position. Standards and interpretations not yet effective At the date of approval of the annual report, the following new and revised standard have been issued but are not yet effective. Therefore, they have not been adopted in the present financial statements: IFRS 16 Leases, effective for annual periods beginning on or after January 1, 2019 IFRS 16 requires all leases (except for short-term leases and leases of low-value assets) to be recognized as a right-of-use asset and lease liability, measured at the present value of future lease payments. The right-of-use asset is subsequently depreciated in a similar way to other depreciable assets over the lease term and interest calculated on the lease liability in a similar way to how it is calculated on finance leases under IAS 17. Consequently, the change will also impact the presentation in the income statement and the statement of cash flows. Zealand has assessed the standard, and the changes will require capitalization of several of Zealand’s operating lease contracts, representing approximately 0.1-0.3% of the total assets. The impact on operating result will be insignificant. The Group will apply the standard from its mandatory adoption date of January 1, 2019. The Group intends to apply the simplified transition approach and will not restate comparative amounts for the year prior to first adoption. Right-of-use assets will be measured at the amount of the lease liability on adoption (adjusted for any prepaid or accrued lease expenses). As at the reporting date, the Group has operating leasing commitments of approx. DKK 5.7 million from 2019 – 2025 from leases that are currently available for use by the Group. The Group has assessed that approx. DKK 3.7 million of these commitments relate to short-term The Group has entered into a property lease expexted to commence September 1, 2019 with a non- cancellable lease term of 13 years with annual payments of approx. DKK 9.8 million. This property lease will be recognised in the statement of financial position on the date of com- mencement. For the current lease commitments, the Group expects to recognise right-of-use assets and lease liabilities in the range of approx. DKK 1.8 – 1.9 million on the date of transition. This amount excludes all current property leases as they have a remaining lease term at January 1, 2019 of less than a year. In calculating the discounted value of future lease payments, the Group will apply its incremen- tal borrowing rate. In general, the Group does not expect any significant impact on the financial statements as a result of adoption of IFRS 16. Other relevant standards or interpretations adopted by the IASB, but not adopted by the EU, have not been applied in this annual report. Accounting policies The accounting policies are unchanged from last year, except for clarification to the accounting policy on ‘Other operating income’, included in note 7. The accounting policies for specific line items and transactions are included in the respective notes to the financial statements except for basis of consolidation, foreign currency translation and the cash flow statement, which are included below. Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities (including structured entities) controlled by the Company and its subsidiaries. Con- trol is achieved when the Company: • has power over the investee; • is exposed, or has rights, to variable returns from its involvement with the investee; and • has the ability to use its power to affect its returns. The Company reassesses whether it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above. Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 20185757 Notes Note 1 – Significant accounting policies, and significant accounting estimates and assessments (continued) Principles of consolidation The consolidated financial statements are prepared on the basis of the financial statements of the parent company and the individual subsidiaries, which are based on uniform accounting policies and accounting periods in all Group entities. Consolidation of Group entities is per- formed after elimination of all intra-Group transactions, balances, income and expenses. Foreign currency translation Transactions denominated in foreign currencies are translated at the exchange rates on the transaction dates.  Exchange differences arising between the rate on the transaction date and the rate on the pay- ment day are recognized in the income statement as financial income or financial expenses. Receivables, payables and other monetary items denominated in foreign currencies that have not been settled at the balance sheet date are translated by applying the exchange rates at the balance sheet date. Differences arising between the rate at the balance sheet date and the rate at the date on which the receivable or payable arose are recognized in the income statement as financial income and financial expenses. Non-monetary assets purchased in foreign currencies are measured at the exchange rate on the transaction date. Consolidated financial statements Income statement The income statement is classified by function. Segment reporting The Group is managed by a Corporate Management team reporting to the Chief Executive Officer. The Corporate Management team, including the Chief Executive Officer, represents the chief operating decision maker (CODM). No separate business areas or separate business units have been identified in connection with product candidates or geographical markets. Conse- quently, there is no segment reporting concerning business areas or geographical areas. Statement of financial position Financial assets Financial assets include receivables, securities and cash. Financial assets are divided into cate- gories of which the following are relevant for the Group: 1. Financial assets at amortised cost comprising of receivables with contractual cash flows solely comprising of payment of principal and interest and which are held for the purpose of collecting the contractual cash flow. 2. Financial assets at fair value through the income statement, which are securities held in a business model whose purpose is to regularly sell securities within the portfolio. 3. Equity investments. These investments are measured at fair value through profit or loss. Financial assets are assigned to the different categories by Management on initial recognition, depending on the cash flow characteristics and purpose for which the assets were acquired. All financial assets are recognized on their settlement date. All financial assets other than those classified at fair value through the income statement are initially recognized at fair value, plus transaction costs. Statement of cash flows The cash flow statement is prepared in accordance with the indirect method on the basis of the net loss for the year. The statement shows the cash flows broken down into operating, invest- ing and financing activities, cash and cash equivalents at the beginning and end of the year, and the impact of the calculated cash flows on cash and cash equivalents. Cash flows in foreign currencies are translated into Danish kroner at the exchange rate on the transaction date. Cash flow from operating activities Cash flow from operating activities is presented indirectly and is calculated as the net loss ad- justed for sale of royalties, non-cash operating items, changes in net working capital, financial items paid and income tax benefits received and paid. Cash flow from investing activities Cash flow from investing activities includes cash flows from the sale of future royalties and milestones relating to the Sanofi license, purchase and sale of property, plant and equipment, investments and deposits, as well as transfers to and from restricted cash related to the royalty bond. Cash flow from financing activities Cash flow from financing activities includes new equity, loan financing, sale of treasury shares and funds from private placements. Cash and cash equivalents Cash and cash equivalents comprise cash and bank balances. Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 201858 Notes 58 Note 1 – Significant accounting policies, and significant accounting estimates and assessments (continued) Significant accounting estimates and assessments In preparing the financial statements, Management makes a number of accounting estimates that form the basis for the recognition and measurement of our assets and liabilities. In applying our accounting policies, Management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily appar- ent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. The estimates used are based on assumptions assessed to be reasonable by Management. However, estimates are inherently uncertain and unpredictable. The assumptions may be incomplete or inaccurate, and unexpected events or circumstances may occur. Furthermore, we are subject to risks and uncertainties that may result in deviations in actual results compared with estimates. No significant changes have been made to accounting estimates and assessments in 2018. The following are the most significant accounting estimates and assessments applied by Man- agement in these financial statements: Revenue recognition Revenue comprises license payments, milestone payments and royalty income. License payments which provide the buyer with the right to use the license as it exists at the date of transfer are recognized upon transfer of the associated licensing rights at the point at which the buyer obtains the right to use the license. Milestone payments are related to the collaborative research agreements with commercial partners when it is highly probable that Zealand Pharma will become entitled to the milestone which is generally when the milestone is achieved. Royal- ty income from licenses is based on third-party sales of licensed products and is recognized in accordance with contract terms in the period in which the sales occur. goods or service and the promise is distinct within the context of the contract. If no individual components are distinct, the contract is treated as a single performance obligation. Employee incentive programs In accordance with IFRS 2 Share-based Payment, the fair value of the warrants classified as equity settled is measured at the grant date and recognized as an expense in the income statement. The fair value of each warrant granted during the year is calculated using the Black– Scholes option pricing model. This requires the input of subjective assumptions such as: • The expected stock price volatility, which is based on the historical volatility of Zealand’s share price • The risk-free interest rate, which is determined as the interest rate on Danish government bonds with a maturity of five years • The duration of the warrants, which is assumed to be until the end of the last exercise period The total fair value of the warrants is recognized in the income statement over the vesting period, if any. An adjustment is made to reflect an expected attrition rate during the vesting pe- riod. The attrition rate is re-estimated at year-end based on the historical attrition rate resulting in recognition of an expense equal to grant date fair value of the number of warrants which actually vest. Restatement The Company has been eligible to receive royalty revenue of 10% on Sanofi’s net sales of Lyx- umia® / Adlyxin® (lixisenatide) in countries with a valid IP protection for Zealand and potentially up to USD 100 million in commercial milestones. During Q2 2018 it was determined that royalty revenue from Sanofi recognized from 2013 until Q1 2018 included DKK 17.1 million of royalty revenue on net sales in countries with no valid IP protection for Zealand and therefore revenue has been overstated in these periods. As a conse- quence of this, royalty expenses from 2013 until Q1 2018 has been overstated in this same pe- riod. Such misstatements have been corrected with retrospective impact and thus comparable periods as of and for the years ended December 31, 2017, 2016 and 2015 have been restated. Revenue from transactions involving the rendering of services which are consumed by the cus- tomer simultaneously with delivery is recognized along with delivery of the services. The nature and impact of each restatement per line item in the consolidated income state- ments and consolidated statement of financial position for Zealand is presented below. Upon entering into agreements with multiple components, Management determines whether individual components are distinct, which is the case if the buyer can obtain benefits from the Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 20185959 Notes Note 1 – Significant accounting policies, and significant accounting estimates and assessments (continued) Income statement: A) Revenue Royalty revenue has been restated as Zealand has previously recognized royalty revenue on net sales in countries with no valid IP protection. B) Royalty expenses Royalty expenses comprise contractual amounts due to third parties that are derived from royalty revenue earned from the corresponding collaboration agreements. The restatement on royalty revenue therefore leads to a corresponding restatement of royalty expenses. Statement of financial position: C) Trade receivables and other liabilities The restatement related to trade receivables and other liabilities corresponds to the restate- ment on royalty revenue and royalty expenses, as discussed in tickmark A and B. D) Retained loss The restatement related to net loss for the period amounts to the combined impact of the restatements on royalty revenue and royalty expenses from 2013 through December 2016. Statement of cash flow: The impact of the restatement on the statement of cash flow is solely a reclassification be- tween “Net loss for the period” and “Change in working capital” in the amount of DKK 3.0, 3.4 and 4.4 million respectively as of December 31, 2017, 2016 and 2015. The restatement related to net loss for the period amounts to the net impact of the restatements for the respective years on royalty revenue and royalty expenses while the restatement related to working capital for the period amounts to the net impact of the misstatements in trade receivables and other liabilities in the statement of financial position. Hence, there is no impact on the cash flow from operating activities. Based on the above outlined factors, the Company deemed irrelevant to present restated statements of cash flow for the years ended December 31, 2017 and 2016. Condensed consolidated income statement for the twelve month period ended December 31, 2017 DKK thousand As originally reported, December 31, 2017 Restate- ment Amount as adjusted, December 31, 2017 Tickmark Revenue Royalty expenses Research and development expenses Administrative expenses Other operating income Operating loss Financial income Financial expenses Loss before tax Income tax benefit Net loss for the period 139,775 -14,629 -324,667 -47,470 607 -246,384 2,122 -33,509 -277,771 5,500 -272,271 Loss per share - basic (DKK) Loss per share - diluted (DKK) -9.77 -9.77 -3,453 466 0 0 0 -2,987 0 0 -2,987 0 -2,987 -0.11 -0.11 A B 136,322 -14,163 -324,667 -47,470 607 -249,371 2,122 -33,509 -280,758 5,500 -275,258 -9.88 -9.88 Condensed consolidated statements of comprehensive income for the twelve month period ended December 31, 2017 DKK thousand Net loss for the period Other comprehensive income (loss) Net loss for the period As originally reported, December 31, 2017 Restate- ment Amount as adjusted, December 31, 2017 Tickmark -272,271 -2,987 0 -272,271 0 -2,987 -275,258 0 -275,258 Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018 60 Notes 60 Note 1 – Significant accounting policies, and significant accounting estimates and assessments (continued) Condensed consolidated income statement for the twelve month period ended December 31, 2016 Condensed consolidated income statement for the twelve month period ended December 31, 2015 DKK thousand As originally reported, December 31, 2016 Restate- ment Amount as adjusted, December 31, 2016 Tickmark DKK thousand As originally reported, December 31, 2015 Restate- ment Amount as adjusted, December 31, 2015 Tickmark Revenue Royalty expenses Research and development expenses Administrative expenses Other operating income Operating loss Financial income Financial expenses Loss before tax Income tax benefit Net loss for the period 234,778 -31,459 -268,159 -52,503 1,697 -115,646 592 -44,356 -159,410 5,500 -153,910 Loss per share - basic (DKK) Loss per share - diluted (DKK) -6.33 -6.33 -3,914 528 0 0 0 -3,386 0 0 -3,386 0 -3,386 -0.14 -0.14 A B 230,864 -30,931 -268,159 -52,503 1,697 -119,032 592 -44,356 -162,796 5,500 -157,296 -6.47 -6.47 Revenue Royalty expenses Research and development expenses Administrative expenses Other operating income Operating loss Financial income Financial expenses Loss before tax Income tax benefit Net loss for the period 187,677 -22,267 -217,741 -41,824 12,828 -81,327 3,889 -42,394 -119,832 5,875 -113,957 Loss per share - basic (DKK) Loss per share - diluted (DKK) -4.94 -4.94 -5,104 689 0 0 0 -4,415 0 0 -4,415 0 -4,415 -0.19 -0.19 A B 182,573 -21,578 -217,741 -41,824 12,828 -85,742 3,889 -42,394 -124,247 5,875 -118,372 -5.13 -5.13 Condensed consolidated statements of comprehensive income for the twelve month period ended December 31, 2016 Condensed consolidated statements of comprehensive income for the twelve month period ended DKK thousand Net loss for the period Other comprehensive income (loss) Net loss for the period As originally reported, December 31, 2016 Restate- ment Amount as adjusted, December 31, 2016 Tickmark -153,910 -3,386 0 -153,910 0 -3,386 -157,296 0 -157,296 DKK thousand Net loss for the period Other comprehensive income (loss) Net loss for the period As originally reported, December 31, 2015 Restate- ment Amount as adjusted, December 31, 2015 Tickmark -113,957 -4,415 0 -113,957 0 -4,415 -118,372 0 -118,372 Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018 Notes Note 1 – Significant accounting policies, and significant accounting estimates and assessments (continued) Condensed consolidated statement of financial position as of December 31, 2017 Condensed consolidated statement of financial position as of December 31, 2017 (continued) 6161 As originally reported, December 31, 2017 Restate- ment Amount as adjusted, December 31, 2017 Tickmark DKK thousand ASSETS Non-current assets Plant and machinery Other fixtures and fittings, tools and equipment Leasehold improvements Deposits Restricted cash Other investments Total non-current assets Current assets Trade receivables Prepaid expenses Income tax receivable Other receivables Securities Cash and cash equivalents Total current assets 14,855 953 304 2,729 5,892 9,312 34,045 21,632 7,253 5,500 4,979 75,111 588,718 703,193 0 -15,953 C -15,953 Total assets 737,238 -15,953 14,855 953 304 2,729 5,892 9,312 34,045 5,679 7,253 5,500 4,979 75,111 588,718 687,240 721,285 As originally reported, December 31, 2017 Restate- ment Amount as adjusted, December 31, 2017 Tickmark DKK thousand EQUITY AND LIABILITIES Share capital Share premium Retained loss Equity Royalty bond Non-current liabilities Trade payables Royalty bond Other liabilities Current liabilities 30,751 1,959,199 -1,461,482 528,468 132,986 132,986 29,428 2,748 43,608 75,784 -13,799 -13,799 0 -2,154 -2,154 Total liabilities 208,770 -2,154 Total equity and liabilities 737,238 -15,953 D C 30,751 1,959,199 -1,475,281 514,669 132,986 132,986 29,428 2,748 41,454 73,630 206,616 721,285 Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018 62 Notes 62 Note 1 – Significant accounting policies, and significant accounting estimates and assessments (continued) Condensed consolidated statement of financial position as of December 31, 2016 Condensed consolidated statement of financial position as of December 31, 2016 (continued) As originally reported, December 31, 2016 Restate- ment Amount as adjusted, December 31, 2016 Tickmark DKK thousand ASSETS Non-current assets Plant and machinery Other fixtures and fittings, tools and equipment Leasehold improvements Deposits Restricted cash Total non-current assets Current assets Trade receivables Prepaid expenses Income tax receivable Other receivables Restricted cash Cash and cash equivalents Total current assets 12,081 1,154 408 2,690 305,120 321,453 11,510 13,837 5,500 5,379 13,617 323,330 373,173 0 -11,510 C -11,510 Total assets 694,626 -11,510 12,081 1,154 408 2,690 305,120 321,453 0 13,837 5,500 5,379 13,617 323,330 361,663 683,116 DKK thousand EQUITY AND LIABILITIES Share capital Share premium Retained loss Equity Royalty bond Non-current liabilities Trade payables Royalty bond Other liabilities Current liabilities As originally reported, December 31, 2016 Restate- ment Amount as adjusted, December 31, 2016 Tickmark 26,142 1,441,263 -1,189,211 278,194 328,878 328,878 19,739 3,365 64,450 87,554 -10,813 -10,813 0 -697 -697 -697 D C 26,142 1,441,263 -1,200,024 267,381 328,878 328,878 19,739 3,365 63,753 86,857 415,735 683,116 Total liabilities 416,432 Total equity and liabilities 694,626 -11,510 Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018 Notes Note 1 – Significant accounting policies, and significant accounting estimates and assessments (continued) Condensed consolidated statement of financial position as of December 31, 2015 Condensed consolidated statement of financial position as of December 31, 2015 (continued) 6363 As originally reported, December 31, 2015 Restate- ment Amount as adjusted, December 31, 2015 Tickmark DKK thousand ASSETS Non-current assets Plant and machinery Other fixtures and fittings, tools and equipment Leasehold improvements Deposits Total non-current assets Current assets Trade receivables Prepaid expenses Income tax receivable Other receivables Restricted cash Cash and cash equivalents Total current assets 14,672 1,153 628 2,666 19,119 158,158 2,430 5,875 10,427 21,403 418,796 617,089 0 -8,587 C -8,587 Total assets 636,208 -8,587 14,672 1,153 628 2,666 19,119 149,571 2,430 5,875 10,427 21,403 418,796 608,502 627,621 As originally reported, December 31, 2015 Restate- ment Amount as adjusted, December 31, 2015 Tickmark DKK thousand EQUITY AND LIABILITIES Share capital Share premium Retained loss Equity Royalty bond Non-current liabilities Trade payables Other liabilities Current liabilities 24,353 1,263,179 -1,035,301 252,231 312,951 312,951 21,676 49,350 71,026 -7,428 -7,428 0 -1,159 -1,159 Total liabilities 383,977 -1,159 Total equity and liabilities 636,208 -8,587 D C 24,353 1,263,179 -1,042,729 244,803 312,951 312,951 21,676 48,191 69,867 382,818 627,621 Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018 Con Fin – Note 2 64 Notes Note 2 – Revenue Accounting policies Revenue comprises license payments, milestone payments and royalty income. License payments which provide the buyer with the right to use the license as it exists at the date of transfer are recognized upon transfer of the associated licensing rights at the point at which the buyer obtains the right to use the license. Milestone payments are related to the collaborative research agreements with commercial partners when it is highly probable that Zealand Pharma will become entitled to the milestone which is generally when the milestone is achieved. Royal- ty income from licenses is based on third-party sales of licensed products and is recognized in accordance with contract terms in the period in which the sales occur. Revenue from transactions involving the rendering of services which are consumed by the customer simultaneously with delivery is recognized along with delivery of the services. Upon entering into agreements with multiple components, Management determines whether individual components are distinct, which is the case if the buyer can obtain benefits from the goods or service and the promise is distinct within the context of the contract. If no individual components are distinct, the contract is treated as a single performance obligation. Accounting for the Sanofi License Agreement In 2003, Zealand entered into a license agreement with Sanofi (the Sanofi License Agreement), pursuant to which Zealand granted Sanofi exclusive rights to its patents, know-how and other intellectual property relating to lixisenatide, for all fields. Pursuant to the Sanofi License Agree- ment, which has been amended over the years, Sanofi assumed responsibility for the further development, manufacturing and marketing of lixisenatide, and we cannot research or develop lixisenatide while the Sanofi License Agreement remains in effect. Under the Sanofi License Agreement, we were eligible to receive remaining milestone pay- ments relating to commercialized products of up to USD 100 million, contingent on the achievement of certain sales levels, as well as royalties on global sales of such products. Royal- ties correspond to tiered, low-double-digit percentages of Sanofi’s global net sales of lixisenati- de (branded as Adlyxin® in the U.S. and as Lyxumia® in the EU and in other countries) plus a 10% royalty on global net sales of a combination of lixisenatide and insulin glargine 100 units/ml (Lantus®) marketed under the brand name Soliqua® 100/33 in the U.S. and as Suliqua® in the EU. In 2016, Sanofi challenged the validity of certain patents owned by a competitor, AstraZeneca (and its affiliates), in both administrative and court proceedings in the U.S. and in certain other countries, and AstraZeneca brought counterclaims in the U.S. proceedings asserting that prod- ucts containing lixisenatide infringe its patents. Sanofi and AstraZeneca subsequently agreed to settle all claims and counterclaims between them in various proceedings relating to lixisenatide. Our financial obligations related to this now-resolved intellectual property dispute could reduce our net revenue from the original commercial milestone payments from Sanofi relating to Soli- qua® 100/33/Suliqua®. The amount and timing of any such reductions are not currently known, but they will not exceed USD 15 million in total. 64 We pay Alkermes plc 13% of all payments received on lixisenatide while lixisenatide is subject to a commercialization agreement such as the Sanofi License Agreement. We also pay one of the inventors of the Structure Induced Probe (SIP) technology employed in lixisensatide a 0.5% royalty on amounts received in connection with drug candidates that, like lixisenatide, are produced using the SIP technology. Milestone payments have been recognized as revenue when the relevant milestones are achieved. As of September 2018, all future royalties and all but up to USD 15 million of future milestones relating to the Sanofi License Agreement have been sold to Royalty Pharma. Refer to note 7. Accounting for the Boehringer Ingelheim License Agreements In 2011, Zealand entered into a license, research and development collaboration agreement with Boehringer Ingelheim International GmbH (BI) to advance novel GLP-1/glucagon du- al-acting peptide receptor agonists (GGDAs) for the treatment of patients with type 2 diabetes and obesity. Under the terms of the 2011 BI License Agreement, BI paid a fixed amount per full-time employee and other costs related to all research, development and commercialization in respect of the compounds covered by the agreement. We are eligible to receive license and milestone payments of up to EUR 386 million, of which EUR 365 million was outstanding at December 31, 2018, related to the achievement of pre- specified development, regulatory and commercial milestones for the lead product. We are also eligible to receive tiered royalties ranging from high-single-digit to low-double-digit per- centages on BI’s sales of all products stemming from this collaboration. In addition, we retain copromotion rights in Scandinavia. In 2014, Zealand entered into a second global license, research and development collaboration agreement with BI (the 2014 BI License Agreement). This agreement pertained to a collabo- ration on a specific therapeutic peptide project from our portfolio of preclinical programs for a period of up to four and a half years, with the aim of developing novel drugs to improve the treatment of patients with cardiometabolic diseases. In 2015, BI selected a novel peptide thera- peutic to be advanced into preclinical development under this agreement. Pursuant to this agreement, we have worked with BI to advance the therapeutic peptides stemming from this research collaboration into preclinical development. BI is responsible for conducting preclinical and clinical development as well as for the commercialization of products stemming from the agreement and funding all activities under the agreement. We are eligible to receive license and milestone payments of up to EUR 295 million for the first compound to be developed and marketed under the collaboration, of which EUR 283 million was outstanding at December 31, 2018. We are also eligible to receive tiered royalties ranging from low-single-digit to low-double-digit percentages on global sales of products arising from Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018Notes Note 2 – Revenue (continued) this collaboration. We retain copromotion rights in Scandinavia and are not eligible for royalty payments in those countries if we exercise such rights. No product candidates outlicensed to BI are currently marketed, and accordingly we have not received any royalty payments to date under our licensing agreements with BI.  Milestone payments are recognized as revenue when the relevant milestones are achieved. Accounting for other license agreements In 2018, Zealand entered into a Material Transfer agreement with an undisclosed counterpart. A milestone payment was recognized as revenue, when the relevant milestone was achieved. Such Material Transfer agreement related to the delivery of an existing material to the undis- closed third party. No remaining performance obligations exist related to such agreement. In 2012, Zealand entered into an agreement with Protagonist Therapeutics, Inc., but this re- search collaboration was terminated in 2014. In line with the terms of the terminated agree- ment, Zealand is entitled to receive up to USD 15 million if certain milestone events occur. Milestone payments are recognized as revenue when the relevant milestones are achieved. Recognized revenue can be specified as follows for all agreements: DKK thousand Sanofi-Aventis Deutschland GmbH Boehringer Ingelheim International GmbH Helsinn Healthcare S.A. Undisclosed counterpart Protagonist Therapeutics, Inc. Total license and milestone revenue Sanofi-Aventis Deutschland GmbH Total royalty revenue 2018 Restated 2017 Restated 2016 0 0 0 9,845 3,274 13,119 69,603 29,750 0 0 1,662 101,015 208,692 0 112 0 1,636 210,440 24,858 24,858 35,307 35,307 20,424 20,424 Total revenue 37,977 136,322 230,864 Royalty revenue can be specified as follows: Soliqua® Lyxumia® Total royalty revenue 1 See Note 1 to the consolidated financial statements. 17,786 7,072 24,858 18,655 16,652 35,307 0 20,424 20,424 6565 On September 6, 2018, Zealand entered into an agreement under which all rights to sales based royalties and milestone payments under the Sanofi agreement were transferred to Royalty Pharma for a fixed consideration. The gain net of transaction costs and settlement of the liabili- ty to Alkermes plc and another investor is included in other operating income. Refer to note 7. No transfers of licenses occurred in 2017 or 2016.   All Zealand revenue can be attributed to countries other than Denmark. Revenue from Sanofi1 In 2018, we recognized DKK 24.9 million as royalty income, reflecting sales of Lyxumia® of EUR 9.5 million and sales of Soliqua® 100/33 of EUR 23.8 million. No milestone revenue was received. In 2017, we recognized DKK 69.6 million in revenue from milestone payments from Sanofi under the Sanofi License Agreement in connection with the approval of Suliqua® in the EU in January 2017. In addition, in 2017 we recognized DKK 35.3 million as royalty income, reflecting sales of Lyxumia® of EUR 22.4 million and sales of Soliqua® 100/33 of EUR 25.1 million. In 2016, we recognized DKK 208.7 million in revenue from milestone payments from Sanofi under the Sanofi License Agreement in connection with the approval of lixisenatide as Adlyxin® in July 2016 amounting to DKK 33.5 million, and in connection with the approval of Soliqua® 100/33 in November 2016 amounting to DKK 175.2 million, both in the U.S. In addition, in 2016 we recognized DKK 20.4 million as royalty income, reflecting sales of Lyxumia® of EUR 27.4 million. Revenue from Boehringer Ingelheim No revenue was recognized from BI in 2018, as no milestone event was reached.  In 2017, we recognized DKK 29.8 million in revenue from milestone payments from BI related to the initiation of the Phase 1 trial for the long-acting amylin analog.  No revenue was recognized from BI in 2016, as no milestone event was reached.  Revenue from Helsinn No revenue was recognized from Helsinn in 2018 and 2017. In 2016, we recognized DKK 0.1 million in revenue from Helsinn, representing contractual payments rather than milestone payments. Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018   Con Fin – Note 3-4 66 Notes Note 2 – Revenue (continued) Revenue from other agreements In 2018, we recognized DKK 9.8 million in revenue from a milestone payment from an undis- closed counterpart relating to a Material Transfer Agreement. No revenue was recognized in 2017 or 2016. In 2018, we recognized DKK 3.3 million in revenue from a milestone payment from the Protag- onist Therapeutics agreement in connection with the start of Phase 2 with the novel hepcidin mimetic PTG-300. In 2017, we recognized DKK 1.7 million in revenue from a milestone payment from the Protag- onist Therapeutics agreement in connection with the start of Phase 1 with the novel hepcidin mimetic PTG-300. In 2016, we recognized DKK 1.6 million in revenue from a milestone payment from the Protag- onist Therapeutics agreement in connection with its selection of a development candidate. 66 Note 3 – Royalty expenses Accounting policies Royalty expenses comprise contractual amounts payable to third parties that are derived from the milestone payments and royalty income earned from the corresponding collaboration agreements. We have agreed to pay some of our revenue in deferred payments or royalties to third parties. At the time of the dissolution of a former joint venture with Elan Corporation, plc (Elan) and certain of its subsidiaries that were party to the joint venture agreement with us, we agreed to pay roy- alties to Elan – now Alkermes plc, as successor in interest to a termination agreement between us and the Elan entities – including 13% of future payments we receive in respect of lixisenatide under the Sanofi License Agreement. In addition, we have agreed to pay a royalty of 0.5% of the total amounts we receive in connec- tion with our SIP-modified peptides, including lixisenatide, to one of the inventors of our SIP technology, who is one of our employees. The royalty to be paid to this inventor is calculated on the basis of all the amounts we receive, including license payments, milestone payments and sales. In 2018 and 2017, the royalty expenses related to royalties from sales of Lyxumia® and Soliqua® 100/33 and milestone payments received from Sanofi. In 2016, the royalty expenses related to royalties from sales of Lyxumia® and milestone payments received from Sanofi. As further discussed in note 7, the arrangement was settled in 2018 as part of transferring the right to future royalty and milestone payments under the Sanofi agreement. Note 4 – Research, development and administrative expenses Accounting policies Research and development expenses Research expenses comprise salaries, contributions to pension schemes and other expenses, including patent expenses, as well as depreciation and amortization directly attributable to the Group’s research activities. Research expenses are recognized in the income statement as incurred. Development expenses comprise salaries, contributions to pension schemes and other expenses, including depreciation and amortization, directly attributable to the Group’s development activities. Development expenses are recognized in the income statement as incurred. Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018Notes Note 4 – Research, development and administrative expenses (continued) Note 5 – Fees to auditors appointed at the Annual General Meeting 6767 Con Fin – Note 5-6 No indirect costs that are not directly attributable to research and development activities are includ- ed in the disclosure of research and development expenses recognized in the income statement. Overhead expenses have been allocated to research and development or administrative expenses based on the number of employees in each department, determined according to the respective employees’ associated undertakings. Accounting estimates and assessments related to research and development expenses A development project involves a single product candidate undergoing a large number of tests to demonstrate its safety profile and its effect on human beings, prior to obtaining the nec- essary final approval for the product from the appropriate authorities. The future economic benefits associated with the individual development projects are dependent on obtaining such approval. Considering the significant risk and duration of the development period for biological products, Management has concluded that whether the intangible asset will generate probable future economic benefits cannot be estimated with sufficient certainty until the project has been finalized and the necessary final regulatory approval of the product has been obtained. Accordingly, Zealand has not recognized such assets at this time, and all research and develop- ment expenses are therefore recognized in the income statement when incurred.  Capitalization of development costs assumes that, in the Group’s opinion, the development of the technology or the product has been completed, all necessary public registrations and marketing approvals have been received, and expenses can be reliably measured. Furthermore, it must be established that the technology or the product can be commercialized and that the future income from the product can cover not only the production, selling and administra- tive expenses but also development expenses. Zealand has not capitalized any development expenses in 2018, 2017 or 2016. DKK thousand 2018 2017 2016 Audit  Audit-related services and other assurance engagements Tax advice Other Total fees 1,661 718 106 0 2,485 1,199 2,418 114 196 3,927 1,937 4,107 43 232 6,319 The fee for audit-related services and other assurance engagements, tax advice and other services provided to the Group by Deloitte Statsautoriseret Revisionspartnerselskab amounts to DKK 0.8 million and consists of review of tax returns, work in relation to existing internal control processes at the Company, and other general financial reporting matters. Note 6 – Information on staff and remuneration DKK thousand 2018 2017 2016 Total staff salaries can be specified as follows: Salaries Pension schemes (defined contribution plans) Other payroll and staff-related costs Total  141,661 11,065 27,252 179,978 112,614 9,135 30,291 152,040 104,614 8,239 32,838 145,691 153,521 26,457 179,978 119,474 32,566 152,040 109,509 36,182 145,691 Average number of employees 146 128 124 Administrative expenses Administrative expenses include expenses for administrative personnel, expenses related to com- pany premises, operating leases, investor relations, etc. Overhead expenses have been allocated to research and development or administrative expenses according to the number of employees in each department, based on the respective employees’ associated undertakings. The amount is charged as: Research and development expenses Administrative expenses Total  Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018 68 Notes 68 Note 6 – Information on staff and remuneration (continued) Remuneration DKK thousand Remuneration to the Board of Directors Martin Nicklasson1 Rosemary Crane Catherine Moukheibir Alain Munoz Michael Owen Kirsten Drejer Jens Peter Stenvang2 Hanne Heidenheim Bak2 Helle Haxgart2, 3 Rasmus Just2, 4 Peter Benson5 Christian Thorkildsen2, 5 Helle Størum2, 5 Total Base Committee Fees 2018 board fee 2018 Total fees 2018 Base board fee 2017 Committee Fees 2017 Total fees 2017 Base board fee 2016 Committee Fees 2016 Total fees 2016 650 333 300 300 300 200 300 300 100 0 0 0 0 2,783 100 50 150 50 50 0 0 0 0 0 0 0 0 400 750 383 450 350 350 200 300 300 100 0 0 0 0 3,183 550 350 250 250 250 0 250 198 21 229 0 0 0 2,348 100 50 150 33 50 0 0 0 0 0 0 0 0 383 650 400 400 283 300 0 250 198 21 229 0 0 0 2,731 550 350 250 250 250 0 250 167 0 167 104 83 83 2,504 200 50 150 0 0 0 0 0 0 0 0 0 0 400 750 400 400 250 250 0 250 167 0 167 104 83 83 2,904 1 In addition to the base board fee, Martin Nicklasson received an observation fee for his period as Observer to the Board before being appointed at the Annual General Meeting in 2015. This fee amounted to DKK 150,000, and was paid in 2016. 2 Employee-elected board members; the table only includes remuneration for board work. 3 This board member resigned from the Board in 2018. 4 This board member resigned from the Board in 2017. ⁵ These board members resigned from the Board in 2016. Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018 Notes Note 6 – Information on staff and remuneration (continued) DKK thousand 2018 Remuneration to the Executive Management Britt Meelby Jensen Mats Blom Total Other Corporate Management1 Total Total 2017 Remuneration to the Executive Management Britt Meelby Jensen Mats Blom Total Other Corporate Management1 Total Total 2016 Remuneration to the Executive Management Britt Meelby Jensen Mats Blom Total Other Corporate Management1 Total 6969 Total 7,441 6,406 13,847 16,785 16,785 Base salary Pension Bonus contribution Other benefits Warrant Severance compensation expenses payment 4,189 2,621 6,810 6,689 6,689 2,513 1,031 3,544 2,653 2,653 419 262 681 604 604 320 273 593 1,035 1,035 13,499 6,197 1,285 1,628 3,915 2,496 6,411 4,416 4,416 2,482 999 3,481 1,787 1,787 392 250 642 442 442 10,827 5,268 1,084 3,795 2,448 6,243 6,422 6,422 683 526 1,209 833 833 380 245 625 642 642 231 271 502 388 388 890 231 268 499 1,324 1,324 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1,782 1,782 0 2,219 2,219 5,804 5,804 8,023 30,632 4,058 2,389 6,447 4,779 4,779 11,078 6,405 17,483 11,812 11,812 11,226 29,295 4,442 1,111 5,553 7,322 7,322 9,531 4,598 14,129 18,325 18,325 Total 1 Other Corporate Management in 2018 and 2017 comprised two members. Other Corporate Management in 2016 comprised four members, including two members who resigned during the year. 12,665 2,042 1,267 1,823 1,782 12,875 32,454 Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018 70 Notes 70 Note 6 – Information on staff and remuneration (continued) Employee incentive programs Accounting policies The value of services received as consideration for granted warrants is measured at the fair value of the warrant. The fair value is determined at the grant date and is recognized in the income statement as employee benefit expense over the period in which the warrants vest. The 2010 employee incentive program The offsetting entry to this is recognized under equity. an estimate is made of the number of warrants expected to vest. Subsequently, an adjustment is made for changes in the estimate of the number of warrants which will vest, so the total expense is equal to fair value of the actual number of warrants which vest. The fair value of warrants granted is estimated using the Black– Scholes pricing model. Number of warrants Outstanding at January 1, 2018 Granted during the year Forfeited during the year Exercised during the year Expired during the year Outstanding at December 31, 2018 Specified as follows: Executive Management Other employees Total  Number of warrants Outstanding at January 1, 2017 Granted during the year Forfeited during the year Exercised during the year Expired during the year Outstanding at December 31, 2017 Specified as follows: Executive Management Other employees Total  Program of 2010 10/Feb/11 Program of 2010 17/Nov/11 Program of 2010 10/Feb/12 Program of 2010 19/Nov/12 Program of 2010 08/Feb/13 Program of 2010 01/Apr/14 Program of 2010 25/Mar/15 Program of 2010 05/May/15 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 6,250 0 0 0 -6,250 0 0 0 0 0 0 0 0 0 0 0 0 0 183,425 0 0 0 -183,425 0 100,000 0 0 -28,000 0 72,000 100,000 0 0 0 0 100,000 0 0 0 0 72,000 72,000 0 100,000 100,000 214,883 0 0 0 -214,883 0 261,137 0 0 -77,712 0 183,425 100,000 0 0 0 0 100,000 100,000 0 0 0 0 100,000 0 0 0 0 183,425 183,425 0 100,000 100,000 0 100,000 100,000 46,359 0 0 0 0 46,359 0 46,359 46,359 46,359 0 0 0 0 46,359 0 46,359 46,359 Total 429,784 0 0 -28,000 -183,425 218,359 0 218,359 218,359 728,629 0 0 -77,712 -221,133 429,784 0 429,784 429,784 Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018 Notes Note 6 – Information on staff and remuneration (continued) The 2010 employee incentive program (continued) Number of warrants Outstanding at January 1, 2016 Granted during the year Forfeited during the year Exercised during the year Expired during the year Outstanding at December 31, 2016 Specified as follows: Executive Management Other employees Total Exercise period From Until Program of 2010 10/Feb/11 Program of 2010 17/Nov/11 Program of 2010 10/Feb/12 Program of 2010 19/Nov/12 Program of 2010 08/Feb/13 Program of 2010 01/Apr/14 Program of 2010 25/Mar/15 Program of 2010 05/May/15 11,600 0 0 0 -11,600 0 105,259 0 0 -105,259 0 0 151,741 0 0 -145,491 0 6,250 214,883 0 0 0 0 214,883 326,012 0 -1,250 -63,625 0 261,137 100,000 0 0 0 0 100,000 100,000 0 0 0 0 100,000 0 0 0 0 0 0 0 6,250 6,250 31,019 183,864 214,883 0 261,137 261,137 0 100,000 100,000 0 100,000 100,000 46,359 0 0 0 0 46,359 0 46,359 46,359 10/Feb/14 10/Feb/16 17/Nov/14 17/Nov/16 10/Feb/15 10/Feb/17 19/Nov/15 19/Nov/17 10/Feb/16 10/Feb/18 01/Apr/17 01/Apr/19 25/Mar/18 25/Mar/20 05/May/18 05/May/20 7171 Total 1,055,854 0 -1,250 -314,375 -11,600 728,629 31,019 697,610 728,629 Black–Scholes parameters Term (months)  Share price Exercise price (DKK) Volatility* Risk-free interest rate  Cost price Dividend  * The volatility rate used is based on the actual volatility of the Zealand share price. 60 92.0 101.2 43.7% -0.10% 31.63 not expected not expected not expected not expected not expected not expected not expected not expected 60 115.5 127.05 41.9% -0.21% 37.78 60 70.0 77.0 33.0% 3.09% 21.36 60 70.0 77.0 44.0% 0.37% 24.74 60 86.0 113.3 56.0% 0.86% 23.76 60 45.7 50.27 34.0% 1.02% 12.90 60 69.0 75.9 37.5% 0.71% 21.05 60 79.05 87.45 39.3% 0.66% 25.38 Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018 72 Notes Note 6 – Information on staff and remuneration (continued) The 2015 employee incentive program Program of 2015 05/may/15 Program of 2015 05/may/15 Program of 2015 05/Apr/16 Program of 2015 05/Apr/16 Program of 2015 15/Jul/16 Program of 2015 06/Apr/17 72 Program of 2015 15/Oct/18 Total Program of 2015 Program of 2015 06/Apr/17 25/Aug/17 25/Aug/17 22/May/18 Program of 2015 Program of 2015 Number of warrants Outstanding at January 1, 2018 Granted during the year Forfeited during the year Exercised during the year Expired during the year Outstanding at December 31, 2018 Specified as follows: Executive Management Other employees Total  Number of warrants Outstanding at January 1, 2017 Granted during the year Forfeited during the year Exercised during the year Expired during the year Outstanding at December 31, 2017 Specified as follows: Executive Management Other employees Total  100,000 0 -100,000 0 0 349,750 0 0 -7,500 0 328,750 0 -7,000 0 0 85,434 0 -85,434 0 0 40,000 0 0 0 0 405,500 0 -24,500 0 0 93,392 0 -93,392 0 0 14,566 0 -14,566 0 0 6,608 0 -6,608 0 0 0 615,500 -105,500 0 0 0 40,000 0 0 0 1,424,000 655,500 -437,000 -7,500 0 0 342,250 321,750 0 0 0 75,000 267,250 342,250 25,000 296,750 321,750 0 0 0 0 40,000 381,000 0 40,000 40,000 57,000 324,000 381,000 0 0 0 0 0 0 0 0 0 510,000 40,000 1,635,000 0 0 0 60,000 450,000 510,000 0 40,000 40,000 217,000 1,418,000 1,635,000 100,000 0 0 0 0 357,250 0 -7,500 0 0 345,000 0 -16,250 0 0 100,000 0 -14,566 0 0 40,000 0 0 0 0 0 424,000 -18,500 0 0 0 93,392 0 0 0 0 14,566 0 0 0 0 6,608 0 0 0 100,000 349,750 328,750 85,434 40,000 405,500 93,392 14,566 6,608 100,000 0 100,000 75,000 274,750 349,750 25,000 303,750 328,750 85,434 0 85,434 0 40,000 40,000 57,000 348,500 405,500 93,392 0 93,392 14,566 0 14,566 6,608 0 6,608 0 0 0 0 0 0 0 0 0 0 0 0 0 0 942,250 538,566 -56,816 0 0 0 1,424,000 0 0 0 457,000 967,000 1,424,000 Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018 Notes Note 6 – Information on staff and remuneration (continued) The 2015 employee incentive program Program of 2015 05/may/15 Program of 2015 05/may/15 Program of 2015 05/Apr/16 Program of 2015 05/Apr/16 Program of 2015 15/Jul/16 Program of 2015 06/Apr/17 Program of 2015 Program of 2015 06/Apr/17 25/Aug/17 25/Aug/17 22/May/18 Program of 2015 Program of 2015 7373 Program of 2015 15/Oct/18 Total Number of warrants Outstanding at January 1, 2016 Granted during the year Forfeited during the year Exercised during the year Expired during the year Outstanding at December 31, 2016 Specified as follows: Executive Management Other employees Total  Exercise period From Until 100,000 0 0 0 0 363,250 0 -6,000 0 0 0 347,250 -2,250 0 0 0 100,000 0 0 0 0 40,000 0 0 0 100,000 357,250 345,000 100,000 40,000 100,000 0 100,000 75,000 282,250 357,250 25,000 320,000 345,000 100,000 0 100,000 0 40,000 40,000 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 463,250 487,250 -8,250 0 0 942,250 300,000 642,250 942,250 05/May/16 05/May/20 05/May/18 05/May/20 05/Apr/19 05/Apr/21 05/Apr/17 05/Apr/21 15/Jul/19 15/Jul/21 06/Apr/20 06/Apr/22 06/Apr/18 06/Apr/22 25/Aug/17 25/Aug/22 06/Apr/18 06/Apr/22 22/May/21 22/May/23 15/Oct/21 15/Oct/23 Black–Scholes parameters Term (months)  Share price (DKK) Exercise price (DKK) Volatility* Risk-free interest rate  Cost price (DKK) Dividend  * For warrants granted in 2015 and earlier, the volatility rate used is based on the actual volatility of the Zealand share price. For warrants granted after January 1, 2016, the volatility rate used is based on the 5-year historical volatility of the Zealand share price. 60 90.0 90.0 42.5% -0.03% 32.83 not expected not expected not expected not expected not expected not expected not expected not expected not expected not expected not expected 60 118.5 135.3 43.0% -0.16% 38.58 60 118.5 142.45 43.0% -0.16% 36.74 60 123.0 135.3 43.6% -0.24% 41.92 60 92.0 101.2 43.7% -0.10% 31.63 60 92.0 101.2 43.7% -0.10% 31.63 60 126.0 138.6 45.0% -0.33% 44.23 60 129.5 142.45 43.5% -0.04% 44.42 60 129.5 142.45 43.5% -0.04% 44.42 60 123.0 135.3 43.6% -0.24% 41.92 60 100.8 100.8 42.6% 0.05% 36.98 The average traded share price on the exercise date(s) of the 2010 warrant programme was 120.9 and the average traded share price on the exercise date(s) of the 2015 warrant programme was 87.4. Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018 Con Fin – Note 7 74 Notes 74 Note 6 – Information on staff and remuneration (continued) Employee warrant programs In order to motivate and retain key employees and encourage the achievement of common goals for employees, Management and shareholders, the Company has established an incentive plan based on warrant programs. Incentive programs were offered in 2005, 2007 and in the periods 2009-2018.  The warrants are granted in accordance with the authorizations given to the Board of Directors by the shareholders. The Board of Directors has fixed the terms of and size of the grants, taking into account authorizations from the shareholders, the Group’s guidelines for incentive pay, an assessment of expectations of the recipient’s work efforts and contribution to the Group’s growth, as well as the need to motivate and retain the recipient. Grant takes place on the date of establishment of the program. Exercise of warrants is by default subject to continuing employ- ment with the Group. The warrants granted are subject to the provisions of the Danish Public Companies Act regarding termination of employees prior to their exercise of warrants in the case of recipients covered by the Act. The exercise price is determined by the closing price of Zealand’s shares on Nasdaq Copenhagen on the day prior to the grant date. For warrants granted before April 19, 2018, the exercise price is determined by the closing price of Zealand’s shares on Nasdaq Copenhagen on the day prior to the grant date plus 10%. Warrants expire automatically after five years. Warrants are considered vested at the grant date, when there is no vesting period explicit in the warrant agreement, and may be exercised after three years. Warrants granted on October 15, 2018 are vested over 36 months with 1/36 of the warrants vesting per month from the date of grant, and can be exercised after three years. Warrants may be exercised four times a year during a four-week period starting from the date of the publication of Zealand’s Annual Report or interim reports. 2010 employee incentive program This program was established in 2010 for Zealand’s Board of Directors, Executive Management, employees and consultants. The Board of Directors was authorized to issue up to 2,750,000 warrants in the period until No- vember 2, 2015. The program has expired and a total of 2,355,495 warrants have been granted. As of December 31, 2018, 1,579,809 warrants have been exercised, 422,327 warrants have expired without being exercised, and 135,000 warrants have forfeited. The total proceeds amount to DKK 127.4 million (2017: DKK 125.3 million and 2016: DKK 116.3 million). As of December 31, 2018, 218,359 warrants can still be exercised. 2015 employee incentive program This program was established in 2015 for Zealand’s Executive Management and employees. The Board of Directors was authorized to issue up to 2,750,000 warrants in the period until April 20, 2020, of which 602,434 have not yet been granted. As of December 31, 2018, 2,147,566 warrants have been granted, 7,500 warrants have been exercised, and 505,066 warrants have forfeited. This means that the remaining amount of warrants that can be granted is 1,107,500. As of December 31, 2018, 1,635,000 warrants can be exercised. The total proceeds amount to DKK 0.8 million. Effect on income statement In 2018, the fair value of warrants recognized in the income statement amounted to DKK 17.4 million (2017: DKK 20.2 million and 2016: DKK 22.7 million), of which DKK 2.2 million (2017: DKK 6.4 million and 2016: DKK 5.6 million) related to Executive Management. Costs for the warrant programs have been adjusted at the end of the year by DKK 0,0 million (2017: DKK 0.7 million and 2016: DKK 2.4 million) due to the actual attrition rate and an adjustment to the warrant programs granted in 2015 to reflect the estimated attrition rate split between Exec- utive Management and employees. Warrants granted to the CEO, Britt Meelby Jensen in May 2018, have been reversed by DKK 3.7 million, as a consequense of Britt Meelby Jensen's resignation. DKK thousand 2018 2017 2016 The amount is charged as: Research and development expenses Administrative expenses Total  Note 7 – Other operating income Accounting policies 13,838 3,631 17,469 12,190 7,966 20,156 14,290 8,437 22,727 Other operating income comprises gains from sale of intangible assets, research funding from business partners and government grants. A gain from disposal of intangible assets is recog- nized when control over the asset is transferred to the buyer. The gain is determined as the disposal proceeds less the carrying amount, if any, and disposal costs. Research funding is recognized in the period when the research activities have been per- formed, and government grants are recognized periodically when the work supported by the grant has been reported. Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018 7575 Con Fin – Note 8-9 Notes Note 7 – Other operating income (continued) Government grants are recognized when a final and firm right to the grant has been obtained. Government grants are included in Other operating income, as the grants are considered to be cost refunds. Note 8 – Financial income Accounting policies Financial income includes interest from trade receivables, as well as realized and unrealized exchange rate adjustments and fair value adjustments of securities. DKK thousand 2018 2017 2016 Interest income is recognized in the income statement in accordance with the effective interest rate method. Gross proceeds from sale of future royalties and milestones Royalty expenses regarding the above sale of future royalties and milestones Fee, advisors regarding the above sale of future royalties and milestones Research funding Government grants Total other operating income 1,310,237 -176,882 -34,459 0 630 1,099,526 0 0 0 40 567 607 0 0 0 920 777 1,697 Zealand has on September 6, 2018 entered into an agreement to sell future royalties and USD 85.0 million of potential commercial milestones for Soliqua® 100/33/ Suliqua® and Lyxumia®/ Adlyxin® to Royalty Pharma. Under the agreement, all rights and obligations under the Sanofi Licensing agreement apart from a potential payment from Sanofi of up to USD 15.0 million, expected in 2020 (see note 22) have been transferred to the buyer. Zealand has received USD 205.0 million (DKK 1,310.2 million) upon closing of the transaction on September 17, 2018. Royalty expenses to third parties amounts to 13.5% or DKK 176.9 million and fees to advisors amounts to DKK 34.5 million. Zealand has also redeemed the outstanding royalty bond of USD 24.7 million (DKK 157.6 million), after which Zealand is debt free. The Sanofi license agreement was classified as an intangible asset upon adoption of IFRS 15 (see note 1), and the agreement with Royalty Pharma is treated as a sale of this license. The payment to the third parties is con- sidered additional cost price for a license forming part of the rights under the Sanofi agreement and therefore forming part of the gain. As part of the license agreements with BI, BI is responsible for conducting preclinical and clin- ical development, as well as for commercializing the products stemming from the agreement and funding all activities under the agreement. In the first quarter of 2016 Zealand was entitled to research funding from BI amounting to DKK 0.9 million. The funding related to the 2014 BI License Agreement and ended in March 2016. In addition, Zealand received government grants in 2018, 2017 and 2016. DKK thousand 2018 2017 2016 Interest income from financial assets measured at amortized costs Fair value adjustments of securities Exchange rate adjustments Dividend, securities Total financial income Note 9 – Financial expenses Accounting policies 4,263 0 4,705 1,020 9,988 2,048 74 0 0 2,122 592 0 0 0 592 Financial expenses include interest expenses, as well as realized and unrealized exchange rate adjustments and fair value adjustments. In addition, expenses related to the royalty bond are amortized over the expected duration of the bond and recognized as financial expenses. The royalty bond is described further in note 20. Interest expense is recognized in the income statement in accordance with the effective inter- est rate method. DKK thousand 2018 2017 2016 Interest expenses from financial liabilities measured at amortized costs Amortization of financing costs Fair value adjustments of securities Loss on sale of securities Other financial expenses Exchange rate adjustments Total financial expenses 15,080 18,347 1,389 881 1,625 0 37,322 18,913 5,748 0 0 949 7,899 33,509 32,157 8,369 0 0 255 3,575 44,356 Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018 Con Fin – Note 10 76 76 Note 10 – Income tax benefit Accounting policies Income tax on results for the year, which comprises current tax and changes in deferred tax, is recognized in the income statement, whereas the portion attributable to entries in equity is recognized directly in equity.  Current tax liabilities and current tax receivables are recognized in the statement of financial position as tax calculated on the taxable income for the year adjusted for tax on previous years’ taxable income and taxes paid on account/prepaid. Deferred tax is measured according to the statement of financial position liability method in respect of temporary differences between the carrying amount and the tax base of assets and liabilities. Deferred tax liabilities are generally recognized for all taxable temporary differences, and deferred tax assets are recognized to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilized. Such deferred tax assets and liabilities are not recognized if the temporary difference arises from the initial recog- nition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. In addition, deferred tax liabilities are not recognized if the temporary difference arises from the initial recognition of goodwill. Deferred tax liabilities are recognized for taxable temporary differences arising on investments in subsidiaries except where the Group is able to control the reversal of the temporary differ- ence and it is probable that the temporary difference will not be reversed in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interest are only recognized to the extent that it is probable that there will be sufficient taxable profits against which to utilize the benefits of the temporary differences and they are expected to be reversed in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. This judgment is made on an ongoing basis and is based on recent historical losses carrying more weight than factors such as budgets and business plans for the coming years, including planned commercial initiatives. The creation and development of therapeutic products within the biotechnology and pharmaceutical industry is subject to considerable risks and uncertain- ties. With exception of the one-off gain driven by the sale of Sanofi royalties and milestones in 2018, Zealand has so far reported significant losses and, consequently, has unused tax losses. Management has concluded that deferred tax assets should not be recognized at December 31, 2018 or 2017. The tax assets are currently not deemed to meet the criteria for recognition, as Management has determined that it was not probable that future taxable profit would be available against which the deferred tax assets could be utilized. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities, they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realized, based on tax laws and rates that have been enacted or substantively enacted at the balance sheet date. Income tax receivables are recognized in accordance with the Danish tax credit scheme (Skattekreditordningen). Companies covered by the tax credit scheme may obtain payment of the tax base of losses originating from research and development expenses of up to DKK 25 million. DKK thousand Net result for the year before tax Tax rate Expected tax expenses/(benefit) Difference in tax rate in subsidiary Adjustment for nondeductible expenses Adjustment for exercised warrants Adjustment for R&D super deduction Tax effect on exercise of warrants Tax effect on expired warrants Change in tax assets (not recognized) Total income tax expense/benefit 2018 Restated 2017 Restated 2016 625,056 22.0% -280,758 22.0% -162,796 22.0% 137,512 9 56 2,228 -1,427 -8 -151 -94,445 43,774 -61,767 0 62 1,732 0 -688 4,407 50,754 -5,500 -35,815 0 100 36 0 -2,864 0 33,043 -5,500 Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018 Notes Note 10 – Income tax benefit (continued) Note 11 – Basic and diluted earnings per share DKK thousand 2018 2017 2016 Accounting policies 7777 Con Fin – Note 11 Breakdown of unrecognized deferred tax assets: Tax losses carried forward (available indefinitely) Research and development expenses Rights Non-current assets Other Total temporary differences 580,932 136,755 35,849 50,308 79,986 722,186 873,515 145,822 210,148 43,019 43,019 62,953 67,590 102,074 104,377 883,830 1,298,649 1,076,054 Tax rate Calculated potential deferred tax asset at local tax rate Write-down of deferred tax asset Recognized deferred tax asset 22% 194,443 -194,443 0 22% 285,703 -285,703 0 22% 236,732 -236,732 0 As a consequence of tax losses from previous years, no deferred net tax assets have been recognized. Deferred tax reductions (tax assets) have not been recognized in the consolidated statement of financial position due to uncertainty as to when and whether they can be utilized. Under Danish tax legislation, Zealand was eligible to receive DKK 5.5 million in 2017 and 2016 in cash relating to the surrendered tax loss of DKK 156.5 million for 2017 and DKK 81.5 million for 2016 based on qualifying research and development expenses. These tax receipts comprise the entire current tax benefit in 2017 and 2016 respectively. As a consequence of the sale of future royalties and milestones in 2018, Zealand is no longer eligible to receive up to DKK 5.5 million in income tax benefit for 2018. The sale of future royal- ties and milestones in 2018 are considered to be a one-off transaction. As a result of the taxable income for the year, Zealand recognized an income tax expense of DKK 43.7 million, after utilization of a portion of the unrecognized deferred tax asset. Basic result per share Basic result per share is calculated as the net result for the period that is allocated to the parent company’s ordinary shares, divided by the weighted average number of ordinary shares out- standing. Diluted result per share Diluted result per share is calculated as the net result for the period that is allocated to the parent company’s ordinary shares, divided by the weighted average number of ordinary shares outstanding and adjusted by the dilutive effect of potential ordinary shares. The result and weighted average number of ordinary shares used in the calculation of basic and diluted result per share are as follows: DKK thousand Net result for the year Net result used in the calculation of basic and diluted earnings per share Weighted average number of ordinary shares Weighted average number of treasury shares Weighted average number of ordinary shares used in the calculation of basic earnings per share Weighted average number of ordinary shares used in the calculation of diluted earnings per share Basic earnings/loss per share (DKK) Diluted earnings/loss per share (DKK) 2018 Restated 2017 Restated 2016 581,282 -275,258 -157,296 581,282 -275,258 -157,296 30,754,948 27,918,271 24,873,940 -564,223 -64,223 -64,223 30,690,725 27,854,048 24,309,717 30,696,404 27,854,048 24,309,717 -6.47 -6.47 18.94 18.94 -9.88 -9.88 The following potential ordinary shares are dilutive at December 31, 2018 (anti-dilutive at De- cember 31, 2017 and December 31, 2016) and are therefore included in the weighted average number of ordinary shares for the purpose of diluted earnings per share: Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018 Con Fin – Note 12 78 Notes 78 Note 11 – Basic and diluted earnings per share (continued) Note 12 – Property, plant and equipment Potential ordinary shares are included at December 31, 2018 due to dilutive effect (excluded at December 31, 2017 and 2016) related to: 2018 2017 2016 Outstanding warrants under the 2010 employee incentive program Outstanding warrants under the 2015 employee incentive program Total outstanding warrants 218,359 429,784 728,629 1,635,000 1,424,000 942,250 1,853,359 1,853,784 1,670,879 - out of which these warrants are dilutive - out of which these warrants are anti-dilutive Note 12 – Property, plant and equipment 72,000 0 1,781,359 1,853,784 1,670,879 0 recoverable amount of the asset is estimated to determine the extent of the impairment loss (if any). If it is not possible to estimate the recoverable amount of an individual asset, the Compa- ny estimates the recoverable amount of the cash-generating unit to which the asset belongs. If a reasonable and consistent basis of allocation can be identified, assets are also allocated to cash-generating units, or allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified. The recoverable amount is the higher of fair value less costs of disposal and value in use. The estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects the current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. Impairments are recognized in a separate line in the income statement. No impairments have been recognized for 2018, 2017 or 2016. DKK thousand machinery Plant and Other fixtures Leasehold and fittings improvements Accounting policies Plant and machinery, other fixtures and fittings, tools and equipment and leasehold improve- ments are measured at cost less accumulated depreciation. Cost comprises acquisition price and costs directly related to acquisition until the time when the Group starts using the asset. The basis for depreciation is cost less estimated residual value at the end of the useful life. As- sets are depreciated using the straight-line method over the expected useful lives of the assets. The depreciation periods are as follows: • Leasehold improvements 5 years • Plant and machinery 5 years • Other fixtures and fittings, tools and equipment 3-5 years Gains and losses arising from disposal of plant and equipment are stated as the difference between the selling price less the costs of disposal and the carrying amount of the asset at the time of the disposal. Gains and losses are recognized in the income statement under Research and development expenses and Administrative expenses. At the end of each reporting period, the Company reviews the carrying amount of property, plant and equipment as well as non-current asset investments to determine whether there is an indication that those assets have suffered an impairment loss. If any such indication exists, the Cost at January 1, 2018 Additions Retirements Cost at December 31, 2018 Depreciation at January 1, 2018 Depreciation for the year Retirements Depreciation at December 31, 2018 Carrying amount at December 31, 2018 Depreciation for the financial year has been charged as: Research and development expenses Administrative expenses Total 53,629 2,748 -832 55,545 38,774 3,941 -820 41,895 13,650 3,941 0 3,941 4,382 1,290 -542 5,130 3,429 449 -542 3,336 1,794 382 67 449 10,800 0 0 10,800 10,496 118 0 10,614 186 100 18 118 Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018 Notes Note 12 – Property, plant and equipment (continued) Note 14 – Trade receivables 7979 Con Fin – Note 13-14-15 Accounting policies Trade receivables are recognized and derecognized on a settlement date basis. They are measured at nominal value less expected credit losses based on historical experience. Zealand Pharma applies the simplified approach for determining expected credit losses. Trade receivables are mainly related to milestone and royalty payments from our collaboration agreements, and are due in 30-60 days. There are no overdue receivables and the write down for expected credit losses is not material. At December 31, 2018, Zealand had trade receivables related to the milestone from Protago- nist. At December 31, 2017, trade receivables related to accrued royalty income on sales of Lyxumia® and Soliqua®. Note 15 – Prepaid expenses Accounting policies Prepaid expenses comprise amounts paid in respect of goods or services to be received in subsequent financial periods. Prepayments are measured at cost and are tested for impairment at the balance sheet date. DKK thousand machinery Plant and Other fixtures Leasehold and fittings improvements Cost at January 1, 2017 Adjustment to prior year Additions Retirements Cost at December 31, 2017 Depreciation at January 1, 2017 Adjustment to prior year Depreciation for the year Retirements Depreciation at December 31, 2017 Carrying amount at December 31, 2017 Depreciation for the financial year has been charged as: Research and development expenses Administrative expenses Total Note 13 – Other investments Accounting policies 47,170 0 6,657 -198 53,629 35,089 0 3,883 -198 38,774 14,855 3,883 0 3,883 3,612 286 484 0 4,382 2,458 286 685 0 3,429 953 569 116 685 10,715 0 85 0 10,800 10,307 0 189 0 10,496 304 157 32 189 Other investments are measured on initial recognition at fair value, and subsequently at fair value. Changes in fair value are recognized in the income statement under financial items. The Group’s other investments consist of a USD 5.0 million (2017: USD 1.5 million) investment in Beta Bionics, Inc., the developer of iLet™, a fully integrated dual-hormone pump (bionic pancreas) for autonomous diabetes care. The investment in Beta Bionics, Inc. is recorded at fair value through profit and loss. This investment represents 2.0% (2017: 0.9%) ownership of Beta Bionics, Inc., and is recorded at a fair value of DKK 32.6 million as of December 31, 2018 (DKK 9.3 million as of December 31, 2017). The payment related to this investment has not been made as of December 31, 2018 and is recorded within "other liabilities". Refer to Note 21. Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018 Con Fin – Note 16-17-18-19 80 Notes Note 16 – Other receivables Accounting policies Other receivables are measured on initial recognition at fair value and subsequently at amor- tized cost, usually equal to the nominal value. DKK thousand VAT Other  Total other receivables Note 17 – Securities Accounting policies 2018 2017 2,980 388 3,368 3,378 1,601 4,979 The Group’s securities portfolio comprises a bond portfolio. The investment strategy allows for regular sales and Management has determined that the “hold to collect” or “hold to collect and sell” criteria are not met. Consequently, the securities are classified at fair value through profit or loss. See Note 23, Interest rate risk. Note 18 – Cash and cash equivalents Accounting policies Cash is measured on initial recognition at fair value and subsequently at amortized cost, usually equal to the nominal value. DKK thousand DKK USD EUR Total cash and cash equivalents 2018 2017 343,585 96,526 420,524 860,635 12,824 252,884 323,010 588,718 In addition, at December 31, 2017, restricted cash amounted to DKK 5.9 million. See also note 20. 80 Note 19 – Share capital Accounting policies Consideration paid and proceeds from selling treasury shares recognized directly in equity within retained earnings. Capital reductions through cancellation of treasury shares reduce the share capital by an amount equal to the orginal cost price of the shares. Dividend payments are recognized as a deduction of equity and a corresponding liability when declared. Share capital Share capital at January 1, 2018 Capital increase on September 14, 2018 Capital increase on December 14, 2018 Share capital at December 31, 2018 Share capital at January 1, 2017 Capital increase on March 23, 2017 Capital increase on April 13, 2017 Capital increase on May 30, 2017 Capital increase on June 15, 2017 Capital increase on August 14, 2017 Capital increase on August 18, 2017 Capital increase on September 1, 2017 Capital increase on September 22, 2017 Capital increase on November 20, 2017 Share capital at December 31, 2017 30,751,327 7,500 28,000 30,786,827 26,142,365 9,500 22,000 5,000 8,537 4,375,000 156,250 1,500 28,675 2,500 30,751,327 Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018 Notes Note 19 – Share capital (continued) Share capital Share capital at January 1, 2016 Capital increase on March 30, 2016 Capital increase on April 14, 2016 Capital increase on May 26, 2016 Capital increase on June 16, 2016 Capital increase on September 6, 2016 Capital increase on September 23, 2016 Capital increase on September 29, 2016 Capital increase on November 17, 2016 Capital increase on November 25, 2016 Capital increase on December 8, 2016 Share capital at December 31, 2016 Share capital at January 1, 2015 Capital increase on March 21, 2015 Capital increase on April 11, 2015 Capital increase on June 2, 2015 Capital increase on June 20, 2015 Capital increase on September 8, 2015 Capital increase on September 26, 2015  Capital increase on November 4, 2015 Capital increase on November 13, 2015 Capital increase on December 4, 2015 Share capital at December 31, 2015 8181 24,352,769 46,613 50,453 43,071 41,269 7,400 45,457 1,475,221 8,200 57,913 13,999 26,142,365 23,193,047 120,833 106,220 51,487 46,521 383,190 150,702 60,843 176,456 63,470 24,352,769 The share capital at December 31, 2018 consisted of 30,786,827 (2017: 30,751,327) ordinary shares issued of DKK 1 each. The parent company has only one class of shares, and all shares rank equally. The shares are negotiable instruments with no restrictions on their transferability. All shares have been fully paid. On August 9, 2017, American Depositary Shares (ADSs) repre- senting Zealand shares started trading on the Nasdaq Global Select Market in the U.S. under the symbol ZEAL. On August 14, 2017, Zealand registered a capital increase of 4,375,000 new shares and completed its initial public offering on Nasdaq Global Select Market in the U.S. Following full exercise of a 15% overallotment option, a further 156,250 new shares were issued on August 15, 2017. In addition, 500,000 treasury shares were sold. The total gross proceeds of the offering amounted to DKK 567.1 million. Other capital increases in 2018 and 2017 related to exercise of warrant programs. Expenses directly related to capital increases are deducted from equity. In 2018 expenses of DKK 0.1 million related to the exercise of warrant programs. In 2017 expenses related to the initial public offering on August 14 and 15, 2017 amounted to DKK 71.5 million, and DKK 0.1 million related to the exercise of warrant programs. At December 31, 2018, there were 64,223 treasury shares (2017: 64,223), equivalent to 0.2% (2017: 0.2%) of the share capital and corresponding to a market value of DKK 5.3 million (2017: DKK 5.5 million). 500,000 treasury shares were sold in 2017 in relation to the initial public offer- ing. The treasury shares were purchased for DKK 1.3 million in 1999-2001 and DKK 0.4 million in 2011, giving a total purchase cost of DKK 1.7 million. Rules on changing the Articles of Association All resolutions put to the vote of shareholders at general meetings are subject to adoption by a simple majority of votes, unless the Danish Companies Act (Selskabsloven) or our Articles of Association prescribe other requirements. There were no changes in share capital in 2014. At December 31, 2018, the total number of authorized ordinary shares was 32,640,186 (2017: 32,840,494). Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018 Con Fin – Note 20 82 Notes Note 20 – Royalty bond Accounting policies The royalty bond was initially measured at the time of borrowing at fair value less any trans- action costs. In subsequent periods, the royalty bond has been measured at amortized cost corresponding to the capitalized value using the effective interest method. Consequently, the difference between the proceeds of the loan and the amount to be repaid is recognized as a financial expense in the income statement over the term of the loan. In December 2014, Zealand established four 100%-owned subsidiaries: ZP Holding SPV K/S, ZP General Partner 1 ApS, ZP SPV 1 K/S and ZP General Partner 2 ApS. The purpose of this structure was to make the royalty bond nonrecourse for Zealand and at the same time protect the bond investors from a parent company bankruptcy. On December 11, 2014, ZP SPV 1 K/S issued the royalty bond, which represents senior secured notes issued at par with a USD-de- nominated principal amount of USD 50 million (DKK 299.3 million at issue) and a stated fixed interest rate of 9.375% per annum. The royalty bond falls due on March 15, 2026. Concurrent with the issue of the royalty bond, Zealand contributed the Sanofi License Agree- ment to ZP Holding SPV K/S, among other things. See Note 2 Revenue, Accounting for the Sanofi License Agreement. Among the rights arising under the License Agreement were the rights to receive patent royal- ties, including relating to Adlyxin®/Lyxumia®, a single remaining milestone payment relating to Adlyxin®/Lyxumia® and three regulatory event milestone payments in 2016 and January 2017 relating to certain other products containing lixisenatide combined with one or more other active pharmaceutical ingredients (“Group 2 Products”). ZP Holding SPV K/S sold and trans- ferred to ZP SPV 1 K/S an interest in such royalties and milestone payments equal to 86.5% of the amount of such royalties payable from and after December 11, 2014, and 86.5% of such milestone payments. Under the License Agreement, royalties are payable by Sanofi in EUR and at a varying percent- age of annual net sales as defined in the License Agreement. In addition, at December 11, 2014, the aggregate remaining regulatory milestone payments (86.5% of which were transferred to ZP SPV 1 K/S) amounted to USD 60 million, plus value added taxes, payable subject to various terms and conditions of the License Agreement. In addition, at December 31, 2017 and 2016, restricted cash held by the Company also related to the Interest Reserve Account, established upon issue of the royalty bond. The source of payment of the principal of and interest on the royalty bond is ZP SPV 1 K/S’ in- terest on Adlyxin®/Lyxumia® royalties. Interest on the senior secured notes is payable biannually on March 15 and September 15 each year. 82 The principal of the royalty bond was to be paid from available cash in ZP SPV 1 K/S com- mencing on the third payment date (March 15, 2016). Beginning with the third payment date, the royalty bond indenture states that available royalty revenue in ZP SPV 1 K/S in excess of interest payments is to be used for principal repayments of the royalty bond at each payment date. Upon full repayment of the royalty bond, the bondholders have no rights to future royalty payments. It is possible for ZP SPV 1 K/S to make voluntary repayments from March 2016, sub- ject to various provisions and at various redemption premiums established in the royalty bond indenture. In February 2017, USD 8.7 million (DKK 60.7 million) was transferred to the restricted cash account following receipt of the USD 10 million milestone payment from Sanofi related to the approval of Suliqua® in the EU.  On March 15, 2017, Zealand used restricted cash of USD 25 million (DKK 175 million) to repay half of the outstanding bond. Furthermore, the remaining restricted cash of USD 26.9 million (DKK 184 million) held as collateral for the bond was released to Zealand in exchange for a par- ent company guarantee. The maturity date of the royalty bond was also changed from March 15, 2026 to March 15, 2021.  As a consequence of the repayment of the royalty bond in March 2017, the carrying amount of the royalty bond was adjusted. This resulted in a loss of DKK 11.2 million, which was recognized in the consolidated income statement for 2017 in net financial items. Furthermore, a fee of DKK 5.2 million was paid due to the repayment and amendment of the financing agreement. DKK 3.5 million of this fee has been capitalized, and DKK 1.7 million was recognized in the consoli- dated income statement for 2017 in financial expenses. As a consequence of deferrals of the expected repayment of the royalty bond at December 31, 2017, the carrying amount of the royalty bond was adjusted again. This had a positive impact on net financial items of DKK 10.8 million, which was recognized in the consolidated income statement for 2017 in financial expenses.  On September 6, 2018 Zealand entered into an agreement to sell future royalties and USD 85 million of potential commercial milestones for Soliqua® 100/33/ Suliqua® and Lyxumia®/Ad- lyxin® to Royalty Pharma. Zealand has received USD 205.0 million (DKK 1,310.2 million) upon closing of the transaction on September 17, 2018. Zealand has also redeemed the outstanding royalty bond of USD 24.7 million (DKK 157.6 million), after which Zealand is debt free. Zealand will remain eligible for a payment from Sanofi up to USD 15.0 million, expected in 2020 (see note 22). Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 20188383 Con Fin – Note 21-22 Notes Note 20 – Royalty bond (continued) As of December 31, 2018, total outstanding debt on the royalty bond is DKK 0 million (2017: DKK 153.8 million). In the consolidated statements of financial position, this is therefore pre- sented as DKK 0 million (2017: DKK 135.7 million), net of capitalized financing costs of DKK 0 million (2017: DKK 18.1 million). Accrued interest expenses related to the royalty bond amount to DKK 0 million (2017: DKK 4.3 million) and are recognized in other liabilities. The change in the balance of the royalty bond from December 31, 2016 to December 31, 2017 was attributable to movements in the USD/DKK exchange rate and repayment of 50.4% of the principal. The table below details changes in the Group’s liabilities arising from financing activities re- garding the royalty bond, including both cash and non-cash changes. Liabilities arising from financing activities are those for which cash flows were, or future cash flows will be, classified in the Group’s consolidated statements of cash flows as cash flows from financing activities.  DKK thousand January 1, 2018 Financing cash flows (repayment) Amortization of financing costs Exchange rate adjustments December 31, 2018 January 1, 2017 Financing cash flows (repayment) Amortization of financing costs Exchange rate adjustments December 31, 2017 135,734 -158,311 18,347 4,230 0 332,243 -176,360 5,748 -25,897 135,734 Note 21 – Other liabilities Accounting policies Financial liabilities are recognized initially at fair value less transaction costs. In subsequent pe- riods, financial liabilities are measured at amortized cost corresponding to the capitalized value using the effective interest method. Provisions are measured as the best estimate of the costs needed at the balance sheet date to settle obligations. Provisions also include contingent payments on the conclusion of agree- ments, contracts, etc. DKK thousand Severance payment Employee benefits Royalty payable to third party Interest payable on royalty bond Investment in Beta Bionics Other payables Total other liabilities 2018 Restated 2017 925 34,971 6,682 0 22,803 15,483 80,864 896 28,165 763 4,295 0 7,335 41,454 Note 22 – Contingent assets, liabilities and other contractual obligations Contingent assets include potential future milestone payments. Contingent liabilities and other contractual obligations include contractual obligations related to agreements with contract research organizations (CROs) and lease commitments. Accounting policies Contingent assets and liabilities are disclosed, unless the possibility of an outflow of resources embodying economic benefits is remote. At December 31, 2018, Zealand is eligible for a payment from Sanofi of up to USD 15.0 million, expected in 2020. However, it is Management’s opinion that the amount of any payment can- not be determined on a sufficiently reliable basis, and therefore have not recognized an asset in the statement of financial position of the Group. At December 31, 2018, total contractual obligations related to agreements with CROs amount- ed to DKK 245.6 million (DKK 156.4 million for 2019 and DKK 89.2 million for the years 2020 up to and including 2022). Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018 Con Fin – Note 23 84 Notes Note 22 – Contingent assets, liabilities and other contractual obligations (continued) At December 31, 2017, total contractual obligations related to agreements with CROs amount- ed to DKK 76.6 million (DKK 52.6 million for 2018 and DKK 24.0 million for the years 2019 up to and including 2020). Accounting policies Lease agreements are classified as either finance or operating leases based on the criteria in IAS 17 Leases. Lease payments under operating leases and other rental agreements are recognized in the income statement over the term of the agreements. The Group has not entered into any finance leases. DKK thousand 2018 2017 Total future minimum lease payments related to operating lease agreements: Within 1 year 1-3 years 4-5 years Total 6,945 31,098 29,464 67,507 4,292 2,593 117 7,002 Operating lease agreements include rental agreement of building, company cars and office equipment. Based on management’s analysis according to the accounting policy, all leases have been determined to be operating lease commitments. The leases are subject to terms of interminability of between 6 and 156 months. In 2018, DKK 7.9 million (2017: DKK 7.4 million and 2016: DKK 7.4 million) was recognized as an expense in the income statement, with DKK 6.7 million (2017: DKK 6.1 million and 2016: DKK 6.1 million) allocated to Research and development expenses and DKK 1.2 million (2017: DKK 1.3 million and 2016: DKK 1.3 million) to Administrative expenses. 84 Note 23 – Financial risks The objective of Zealand’s financial management policy is to reduce the Group’s sensitivity to fluctuations in exchange rates, interest rates, credit rating and liquidity. Zealand’s financial management policy has been endorsed by Zealand’s Audit Committee and ultimately approved by Zealand’s Board of Directors. Zealand receives milestone payments from its current partners in USD and EUR. Zealand is mainly exposed to research and development expenses. As such, Zealand is exposed to various financial risks, including foreign exchange rate risk, interest rate risk, credit risk and liquidity risk. Capital structure Zealand aims to have an adequate capital structure in relation to the underlying operating results and research and development projects, so that it is always possible to provide sufficient capital to support operations and long-term growth targets. The Board of Directors finds that the current capital and share structure is appropriate for the shareholders and the Group. Exchange rate risk Most of Zealand’s financial transactions are in DKK, USD and EUR. Due to Denmark’s long-standing fixed exchange rate policy vis-à-vis the EUR, Zealand has eval- uated that there is no transaction exposure or exchange rate risk regarding transactions in EUR. Zealand’s milestone payments have been agreed in foreign currencies, namely USD and EUR. However, as milestone payments are unpredictable in terms of timing, the payments are not included in the basic exchange rate risk evaluation. As Zealand from time to time conducts clinical trials and toxicology studies in the U.S., Zealand will be exposed to the exchange rate fluctuations and risks associated with transactions in USD. To date, Zealand’s policy has been to manage the transaction and translation risk associated with the USD passively, placing the revenue received from milestone payments in USD in a USD account for future payment of Zealand’s expenses denominated in USD, covering payments for the next 12-24 months and thus matching Zealand’s assets with its liabilities. Up until September 2018, a USD denominated royalty bond was outstanding which up until this point in time established a significant exchange rate risk vs. USD. After redemption of the remaining outstanding amount, USD 24.7 million, Zealand is debt free. As of December 31, 2018, Zealand holds DKK 96.5 million (2017: 252.9) of its cash in USD. Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018 Notes Note 23 – Financial risks (continued) Interest rate risk Zealand has a policy of avoiding any financial instrument that exposes the Group to any un- wanted financial risk. As of December 31, 2018, Zealand is debt free. Up until this point in the Zealand had a fixed rate royalty bond. During 2018, all cash has been held in current bank accounts in USD, EUR and DKK. Interest rates on bank deposits in DKK and EUR have been negative for most of 2018, while USD ac- counts have generated a low level of positive interest. During 2018, Zealand has invested in securities. The Group’s securities portfolio comprises bonds in Danish kroner. The average weighted duration of the bond portfolio on the balance sheet date was 3 years. The bond portfolio has fixed interest rates. Credit risk Zealand is exposed to credit risk in respect of receivables, bank balances and bonds. The max- imum credit risk corresponds to the carrying amount. Management believes that credit risk is limited, as the counterparties to the trade receivables are large global pharmaceutical compa- nies. Cash and bonds are not deemed to be subject to credit risk, as the counterparties are banks with investment- grade ratings (i.e. BBB- or higher from Standard & Poor’s). Liquidity risk The purpose of Zealand’s cash management is to ensure that the Group has sufficient and flexible financial resources at its disposal at all times. Zealand’s short-term liquidity is managed and monitored by means of the Company’s quarter- ly budget revisions to balance the demand for liquidity and maximize the Company’s interest income by matching its free cash in fixed-rate, fixed-term bank deposits and bonds with its expected future cash burn. Sensitivity analysis The table shows the effect on profit/loss and equity of reasonably likely changes in the financial variables in the statement of financial position. 8585 DKK thousand Fluctuation Effect  Fluctuation Effect  2018 2017 USD +/-10% 9,627 +/-10% 12,304 Interest rate +/-100b.p 7,974 +/-100b.p 5,562 Contractual maturity (liquidity risk) A breakdown of the Group’s aggregate liquidity risk on financial assets and liabilities is given below. The following table details the Group’s remaining contractual maturity for its financial liabilities with agreed repayment periods. The table has been prepared using the undiscounted cash flows for financial liabilities, based on the earliest date on which the Group can be required to pay. The table includes both interest and principal cash flows. To the extent that the specific timing of interest or principal flows is dependent on future events, the table has been prepared based on Management’s best estimate of such timing at the end of the reporting period. The contractual maturity is based on the earliest date on which the Group may be required to pay. There are no interest cash-flows to be included in the table below for the existing financial liabilities as they are not interest-bearing financial liabilities. DKK thousand Trade payables Other Total financial liabilities at December 31, 2018 Trade payables Royalty bond repayments Interest payments on royalty bond Other (restated) Total financial liabilities at December 31, 2017 <6  months 6<12 months  1-5 years  Total 32,652 80,864 113,516 29,428 1,401 7,249 34,242 0 0 0 0 0 0 0 1,347 7,302 0 0 132,986 35,140 0 32,652 80,864 113,516 29,428 135,734 49,691 34,242 72,320 8,649 168,126 249,095 Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018 Con Fin – Note 24 86 Notes 86 Note 23 – Financial risks (continued) Note 24 – Related parties All cash flows are nondiscounted and include all liabilities under contracts. Zealand has no related parties with controlling interest. Interest payments on the royalty bond in 2017 are calculated using the fixed interest rate (9.375%) and the expected payback time as of each balance sheet date. Zealand’s other related parties comprise the Company’s Board of Directors and Corporate Management. Zealand has redeemed the outstanding royalty bond in September, 2018. Remuneration to the Board of Directors and Corporate Management is described in note 6. Fair value measurement of financial instruments No further transactions with related parties were conducted during the year. Ownership The following shareholders are registered in Zealand’s register of shareholders as owning minimum 5% of the voting rights or minimum 5% of the share capital (1 share equals 1 vote) at December 31, 2018: • Sunstone Capital A/S, Copenhagen, Denmark • Wellington Management Company LLP, Boston, U.S. • Van Herk Investments, Rotterdam, Netherlands • Bank Julius Bär & Co. AG, Zurich, Switzerland DKK thousand Categories of financial instruments Trade receivables Other receivables Restricted cash Cash and cash equivalents Financial assets at amortised cost1) Securities Other investments Financial assets measured at fair value Royalty bond Trade payables Other liabilities Financial liabilities measured at amortized cost 1) Classified as loans and receivables under IAS 39 2018 Restated 2017 3,274 3,368 0 860,635 867,277 298,611 32,582 331,193 0 32,652 80,864 113,516 5,679 4,979 5,892 588,718 605,268 75,111 9,312 84,423 135,734 29,428 41,454 206,616 The fair value of securities is based on Level 1 in the fair value hierarchy. The fair value of other investments is based on level 3 in the fair value hierarchy. The carrying amount of financial assets and financial liabilities approximated the fair value. Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018 8787 Con Fin – Note 25-26-27-28 Notes Note 25 – Adjustments for non-cash items Note 27 – Significant events after the balance sheet date There have been no significant events between December 31, 2018 and the date of approval of these financial statements that would require a change to or additional disclosure in the consolidated financial statements. Note 28 – Approval of the annual report The Annual Report has been approved by the Board of Directors and Executive Management and authorized for issue on March 7, 2019. DKK thousand 2018 2017 2016 Depreciation Warrant compensation expenses Income tax receipt Income tax expense Financial income Financial expenses Non paid royalty expenses regarding sale of future royalties and milestones Exchange rate adjustments Total adjustments 4,508 17,468 0 43,774 0 19,736 4,757 20,156 -5,500 0 -2,048 25,610 6,575 9,865 101,926 0 -17,596 25,379 5,410 22,727 -5,500 0 -592 40,781 0 -5,141 57,685 Note 26 – Change in working capital DKK thousand Increase/decrease in receivables Increase/decrease in payables Change in working capital 2018 Restated 2017 Restated 2016 -471 13,256 12,785 1,306 -12,610 -11,304 143,212 13,626 156,838 Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018 Par Fin – Contents 88 Contents – Parent company Financial statements of the parent company Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Statement of changes in equity 89 89 90 91 91 Notes 1 Significant accounting policies, and significant 10 Other liabilities accounting estimates and assessments 2 Revenue 3 Financial income 4 Financial expenses 5 Basic and diluted earnings per share 6 Investments in subsidiaries 7 Other investments 8 Other recievables 9 Cash and cash equivalents 92 92 92 93 93 93 94 94 94 11 Contingent liabilities and other contractual obligations 12 Financial risks 13 Adjustments for non-cash items 14 Change in working capital 15 Transactions with related parties 16 Allocation of result 17 Significant events after the balance sheet date 18 Approval of the annual report 88 94 94 95 96 96 96 96 96 96 Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 20188989 Par Fin – Income Statement Financial statements of the parent company Income statement Statement of comprehensive income DKK thousand Note 2018 2017 DKK thousand Note 2018 2017 Net result for the year Other comprehensive income (loss) Comprehensive result for the year 498,516 0 498,516 -171,739 0 -171,739 Revenue Research and development expenses Administrative expenses Other operating income Operating result Income from subsidiaries Financial income Financial expenses Result before tax Income tax Net result for the year Earnings per share – DKK Basic earnings/loss per share Diluted earnings/loss per share 2 13,119 -437,951 -42,952 630 -467,154 31,412 -324,051 -46,157 607 -338,189 6 1,000,000 12,904 3 -3,512 4 542,238 173,486 1,751 -14,287 -177,239 -43,722 498,516 5,500 -171,739 5 5 16.24 16.24 -6.17 -6.17 Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018 Par Fin – Financial position 90 90 Financial statements of the parent company Statement of financial position at December 31 DKK thousand Note 2018 2017 DKK thousand Note 2018 Restated 2017 Assets Non-current assets Plant and machinery Other fixtures and fittings, tools and equipment Leasehold improvements Investment in subsidiaries Deposits Other investments Total non-current assets 13,650 1,794 186 380 2,762 32,582 51,354 6 7 Current assets Trade receivables Receivables from subsidiaries Prepaid expenses Income tax receivable Other receivables Securities Cash and cash equivalents  Total current assets 3,274 0 11,698 1,278 3,103 298,611 804,303 1,122,267 8 9 14,855 953 304 380 2,729 9,312 28,533 0 127 7,253 5,500 4,950 75,111 493,575 586,516 Total assets 1,173,621 615,049 Liabilities and equity Share capital Share premium Retained loss Equity Trade payables Payables to subsidiaries Other liabilities Current liabilities  Total liabilities Total equity and liabilities  30,787 30,751 1,976,736 1,956,514 -940,611 -1,439,127 548,138 1,066,912 32,409 546 73,754 106,709 29,424 0 37,487 66,911 10 106,709 1,173,621 66,911 615,049 Significant accounting policies, and significant accounting estimates and assessments  Contingent liabilities and other contractual obligations Financial risks  Transactions with related parties  Allocation of result Significant events after the balance sheet date  Approval of the annual report 1 11 12 15 16 17 18 Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018 Par Fin – Cash flow Par Fin – Equity 9191 Total Financial statements of the parent company Statement of cash flows Statement of changes in equity DKK thousand Note 2018 2017 Share Net result for the year Adjustments for non-cash items Change in working capital Financial income received Financial expenses paid Income tax receipt Income tax paid Cash inflow/outflow from operating activities Change in deposit Purchase of other investments Purchase of securities Sale of securities Purchase of property, plant and equipment Sale of fixed assets Cash outflow from investing activities Proceeds from issuance of shares related to exercise of warrants Proceeds from initial public offering Costs related to initial public offering Cash inflow from financing activities Decrease/increase in cash and cash equivalents Cash and cash equivalents at January 1 Exchange rate adjustments Cash and cash equivalents at December 31 13 14 498,516 58,501 11,250 4,289 -1,242 5,500 -45,000 531,814 -171,739 20,779 23,302 1,751 -730 5,500 0 -121,137 -33 0 -299,849 74,230 -4,038 0 -229,690 2,862 0 0 2,862 304,986 493,575 5,742 804,303 -39 -9,312 -75,037 0 -7,226 120 -91,494 6,790 567,076 -59,576 514,290 301,659 206,399 -14,483 493,575 DKK thousand Equity at January 1, 2018 Comprehensive income for the year Net profit for the year capital premium Share Retained loss 30,751 1,956,514 -1,439,127 548,138 0 0 498,516 498,516 Warrant compensation expenses Capital increases Equity at December 31, 2018 0 36 17,396 2,826 30,787 1,976,736 0 0 17,396 2,862 -940,611 1,066,912 Equity at January 1, 2017 Restatement1 Comprehensive loss for the year Net loss for the year Warrant compensation expenses Capital increases Costs related to capital increases Equity at December 31, 2017 1 See note 1 to the consolidated financial statements.SSS 26,142 1,438,578 -1,266,297 -1,091 0 198,423 -1,091 0 0 -171,739 -171,739 0 4,609 0 0 20,156 0 569,041 0 -71,261 30,751 1,956,514 -1,439,127 20,156 573,650 -71,261 548,138 Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018 Par Fin – Note 1-2-3 92 Notes Note 1 – Significant accounting policies, and significant accounting estimates and assessments Note 2 – Revenue Significant accounting policies Basis of preparation The financial statements of the parent company have been prepared in accordance with Inter- national Financial Reporting Standards (IFRS) as adopted by the EU and additional requirements under the Danish Financial Statements Act. The financial statements are presented in Danish kroner (DKK), which is the functional currency of the Company. In the narrative sections of the financial statements, comparative figures for 2017 are shown in brackets. Recognized revenue can be specified as follows: DKK thousand Boehringer Ingelheim International GmbH Undisclosed counterpart Protagonist Therapeutics, Inc. Total license and milestone revenue Please refer to note 2 to the consolidated financial statements. The accounting policies for the financial statements of the parent company are unchanged from the last financial year. The accounting policies are the same as for the consolidated finan- cial statements with the exception of the supplementary accounting policies. For a description of the accounting policies for the Group, please refer to the consolidated financial statements, pp 55-87. Note 3 – Financial income DKK thousand Supplementary accounting policies for the parent company are described below. Restatement During Q2 2018, it was determined that royalty revenue from Sanofi recognized from 2013 until Q1 2018, included DKK 17.1 million of royalty revenue on net sales in countries with no valid IP protection for Zealand and therefore revenue has been overstated in this period. The restate- ment for the years 2013 and 2014 had an effect on the parent company and therefore equity at the beginning of the period has been restated by DKK 1.1 million. Investments in subsidiaries Please refer to note 6 Investments in subsidiaries. Interest income from financial assets measured at amortized costs Fair value adjustments of securities Dividend, securities Exchange rate adjustments Total financial income 92 2018 2017 0 9,845 3,274 13,119 29,750 0 1,662 31,412 2018 2017 3,269 0 1,020 8,615 12,904 1,677 74 0 0 1,751 Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018 Notes Note 4 – Financial expenses Note 6 – Investments in subsidiaries DKK thousand 2018 2017 Accounting policies 9393 Par Fin – Note 4-5-6 Investments in subsidiaries are measured at cost in the parent company’s financial statements. Where the recoverable amount of the investment is lower than cost, the investments are writ- ten down to this lower value. Other financial expenses Fair value adjustments of securities Loss on sale or securities Exchange rate adjustments Total financial expenses 1,242 1,389 881 0 3,512 730 0 0 13,557 14,287 Note 5 – Basic and diluted earnings per share The result and weighted average number of ordinary shares used in the calculation of basic and diluted result per share are as follows: DKK thousand Cost at January 1, 2018 Additions Cost at December 31, 2018 Revaluation at January 1, 2018 Impairment for the year Revaluation at December 31, 2018 DKK thousand 2018 2017 Carrying amount at December 31, 2018 Net result for the year Net result used in the calculation of basic and diluted loss per share 498,516 498,516 -171,739 -171,739 Weighted average number of ordinary shares Weighted average number of treasury shares Weighted average number of ordinary shares used in the calculation of basic earnings per share Weighted average number of ordinary shares used in the calculation of basic and diluted loss per share Basic loss per share (DKK) Diluted loss per share (DKK) 30,754,948 27,918,271 -64,223 -64,223 30,690,725 27,854,048 30,696,404 27,854,048 16.24 -6.17 16.24 -6.17 Regarding a specification of potential ordinary shares, which are dilutive or antidilutive, please refer to note 11 to the consolidated financial statements. DKK thousand Cost at January 1, 2017 Additions Cost at December 31, 2017 Revaluation at January 1, 2017 Impairment for the year Revaluation at December 31, 2017 Carrying amount at December 31, 2017 380 0 380 0 0 0 380 380 0 380 0 0 0 380 Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018 Par Fin – Note 7-8-9-10-11 94 Notes Note 6 – Investments in subsidiaries (continued) Note 8 – Other receivables Company summary Domicile Ownership Voting rights DKK thousand Zealand Pharma A/S subsidiaries: ZP Holding SPV K/S ZP General Partner 1 ApS Zealand Pharma US Inc ZP Holding SPV K/S subsidiaries: ZP SPV 1 K/S ZP General Partner 2 ApS Denmark Denmark United States 100% 100% 100% 100% 100% 100% VAT Other Total other receivables  Denmark Denmark 100% 100% 100% 100% DKK thousand Note 9 – Cash and cash equivalents 94 2018 2017 2,771 332 3,103 3,359 1,591 4,950 2018 2017 309,482 95,025 399,796 804,303 10,183 247,107 236,285 493,575 2018 Restated 2017 925 34,940 22,803 15,086 73,754 896 28,165 0 8,426 37,487 Pursuant to section 146(1) of the Danish Financial Statements Act, Management has chosen to submit an exemption declaration (Undtagelseserklæring) and has not issued annual reports for ZP SPV 1 K/S and ZP Holding SPV K/S. The financial statements of the two companies are fully consolidated in the consolidated finan- cial statements of Zealand Pharma A/S. Income from subsidiaries relates to dividends from subsidiaries received during the year. Total income from subsidiaries amounts to DKK 1,000.0 million (2017: 173.5 million). Note 7 – Other investments Accounting policies Other investments are measured on initial recognition at fair value, and subsequently at fair value. Changes in fair value are recognized in the income statement under financial items. Other investments consist of a USD 5.0 million (2017 USD 1.5 million) investment in Beta Bion- ics, Inc., the developer of iLet™, a fully integrated dual-hormone pump (bionic pancreas) for au- tonomous diabetes care. The investment in Beta Bionics, Inc. is recorded at fair value through profit and loss. This investment represents 2.0% (2017: 0.9%) ownership of Beta Bionics, Inc., and is recorded at a fair value of DKK 32.6 million as of December 31, 2018 (DKK 9.3 million as of December 31, 2017). DKK USD EUR Total cash and cash equivalents Note 10 – Other liabilities DKK thousand Severance payment Employee benefits Investment in Beta Bionics Other payables Total other liabilities Note 11 – Contingent liabilities and other contractual obligations Zealand Pharma A/S is part of a Danish joint taxation. Consequently, referring to the Danish Corporation Tax Act regulations, Zealand Pharma A/S is liable for any income taxes, etc. for the jointly taxed companies and Zealand Pharma A/S is likewise liable for any obligations to with- hold tax at source on interest, royalties and returns for the jointly taxed companies. Please refer to note 22 to the consolidated financial statements. Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018 9595 Par Fin – Note 12 Notes Note 12 – Financial risks Please refer to note 23 to the consolidated financial statements. All cash flows are undiscounted and include all liabilities under contracts. Contractual maturity (liquidity risk) A breakdown of the Company’s aggregate liquidity risk on financial assets and liabilities is given below. The following table details the Company’s remaining contractual maturity for its financial liabil- ities with agreed repayment periods. The table has been prepared using the undiscounted cash flows for financial liabilities, based on the earliest date on which the Company can be required to pay. The table includes both interest and principal cash flows. To the extent that the specific timing of interest or principal flows is dependent on future events, the table has been prepared based on Management’s best estimate of such timing at the end of the reporting period. The contractual maturity is based on the earliest date on which the Company may be required to pay. There are no interest cash-flows to be included in the table below for the existing financial liabilities as they are not interest-bearing financial liabilities. DKK thousand Trade payables Other Total financial liabilities at December 31, 2018 Trade payables Other (restated) Total financial liabilities at December 31, 2017 <6 months 6<12 months 1-5 years Total 32,409 73,754 106,163 29,424 37,487 66,911 0 0 0 0 0 0 0 0 0 0 0 0 32,409 73,754 106,163 29,424 37,487 66,911 Fair value measurement of financial instruments DKK thousand Categories of financial instruments Trade receivables Receivables from subsidiaries Income tax receivable Other receivables Cash and cash equivalents Financial assets measured at amortized cost Securities Other investments Financial assets measured at fair value Trade payables Payables to subsidiaries Other liabilities Financial liabilities measured at amortized cost 2018 Restated 2017 3,274 0 1,278 3,103 804,303 811,958 298,611 32,582 331,193 32,409 546 73,754 106,709 0 127 5,500 4,950 493,575 504,152 75,111 9,312 84,423 29,424 0 37,487 66,911 The fair value of securities is based on Level 1 in the fair value hierarchy. The fair value of other investments is based on level 3 in the fair value hierarchy. At December 31, 2018 and 2017, the carrying amount of other financial assets and financial liabilities approximated the fair value. Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018 Par Fin – Alternative Performance Par Fin – Note 13-14-15-16-17-18 96 Notes Note 13 – Adjustments for non-cash items DKK thousand Depreciation Warrant compensation expenses Income tax receipt Income tax expense Financial income Financial expenses Exchange rate adjustments Total adjustments Note 14 – Change in working capital DKK thousand Increase/decrease in receivables Increase/decrease in payables Change in working capital 2018 2017 4,508 17,396 0 43,722 0 1,389 -8,514 58,501 4,757 20,156 -5,500 0 -1,751 730 2,387 20,779 2018 2017 -5,745 16,995 11,250 6,627 16,675 23,302 Note 15 - Transactions with related parties The parent company had payables to Group subsidiaries of DKK 546 thousand at December 31, 2018 (2017: receivables of DKK 127 thousand). In 2018, interest paid by the parent company to subsidiaries amounted to DKK 0 thousand (2017: DKK 0 thousand). Note 16 - Allocation of result The Board of Directors proposes that the parent company’s 2018 net result of DKK 498.5 million (2017: net result of DKK – 171.7 million) be carried forward to next year by transfer to retained loss. Note 17 – Significant events after the balance sheet date Please refer to note 27 to the consolidated financial statements. Note 18 – Approval of the annual report Please refer to note 28 to the consolidated financial statements. 96 Alternative performance measures for the Group (non-audited) Net operating expenses Net operating expenses consist of research, development and administrative expenses less other operating income (excluding net effect from sale of Sanofi royalties and milestones). Net operating expenses is used to show the total cost level, excluding costs related to revenue, i.e. royalty expenses. This is used to show the cost level that needs to be covered by revenues minus royalty expenses in order to show an operating profit. The table below shows a reconcil- iation of net operating expenses for the years ended 2018, 2017 and 2016: DKK thousand 2018 2017 2016 Research and development expenses Administrative expenses Other operating income Net operating expenses 438,215 43,542 -630 481,127 324,667 47,470 -607 371,530 268,159 52,503 -1,697 318,965 Free cash flow Free cash flow is calculated as the sum of cash flows from operating activities and purchase of property, plant and equipment. A positive free cash flow shows that the Group is able to finance its activities and that external financing is thus not necessary for the Group’s operating activities. Therefore, Executive Management believes that this non-IFRS liquidity measure provides useful information to investors in addition to the most directly comparable IFRS financial measure “Net cash flow from operating activities.” The table below shows a reconciliation of free cash flow for 2018, 2017 and 2016: DKK thousand 2018 2017 2016 Cash (outflow)/inflow from operating activities Less purchase of property, plant and equipment Free cash flow -460,400 -4,038 -464,438 -278,746 -7,226 -285,972 40,904 -2,600 38,304 Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018 9797 Statement – Management Statement of the Board of Directors and Executive Management The Board of Directors and Executive Management have today discussed and approved the Annual Report of Zealand Pharma A/S for the financial year January 1 – December 31, 2018. parent company’s operations and cash flows for the financial year January 1 – December 31, 2018. The consolidated financial statements and parent company financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the EU and additional requirements under the Danish Financial Statements Act. We consider the accounting policies used to be appropriate. In our opinion, the financial statements give a true and fair view of the Group’s and the parent company’s financial position as of December 31, 2018, and of the results of the Group’s and the In our opinion, the Management’s review includes a fair review of the development of the Group’s and the parent company’s operations and economic conditions, the results for the year, and the Group’s and the parent company’s financial position, as well as a review of the principal risks and uncertainties to which the Group and the parent company are exposed. We recommend that the Annual Report be approved at the Annual General Meeting. Glostrup, March 7, 2019 Executive Management Adam Sinding Steensberg Interim Chief Executive Officer, Executive Vice President and Chief Medical and Development Officer Mats Peter Blom Executive Vice President and Chief Financial Officer Board of Directors Alf Gunnar Martin Nicklasson Chairman Rosemary Crane Board member Kirsten Aarup Drejer Board member Catherine Moukheibir Board member Alain Munoz Board member Michael John Owen Board member Hanne Heidenheim Bak Board member Employee elected Jens Peter Stenvang Board member Employee elected Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018Statement – Independent auditor 98 98 Independent auditor’s report To the shareholders of Zealand Pharma A/S Opinion We have audited the consolidated financial state- ments and the parent financial statements of Zealand Pharma A/S for the financial year January 1 – De- cember 31, 2018 which comprise the income state- ment, statement of comprehensive income, state- ment of financial position, statement of changes in equity, statement of cash flows and notes, including a summary of significant accounting policies, for the Group as well as for the Parent. The consolidated financial statements and the parent financial state- ments are prepared in accordance with International Financial Reporting Standards as adopted by the EU and additional requirements of the Danish Financial Statements Act. Basis for opinion We conducted our audit in accordance with Interna- tional Standards on Auditing (ISAs) and the additional requirements applicable in Denmark. Our responsi- bilities under those standards and requirements are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements and the parent financial statements section of this auditor’s report. We are independent of the Group in accordance with the International Ethics Standards Board of Accountants' Code of Ethics for Professional Accountants (IESBA Code) and the additional require- ments applicable in Denmark, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evi- dence we have obtained is sufficient and appropriate to provide a basis for our opinion. In our opinion, the consolidated financial statements and the parent financial statements give a true and fair view of the Group’s and the Parent’s financial position at December 31, 2018, and of the results of their operations and cash flows for the financial year Janaury 1 – December 31, 2018 in accordance with International Financial Reporting Standards as adopted by the EU and additional requirements of the Danish Financial Statements Act. Our opinion is consistent with our audit book com- ments issued to the Audit Committee and the Board of Directors. To the best of our knowledge and belief, we have not provided any prohibited non-audit services as referred to in Article 5(1) of Regulation (EU) No 537/2014. We were first appointed auditors of Zealand Pharma A/S on April 29, 2014 for the financial year 2014. We have been reappointed annually by decision of the general meeting for a total contiguous engagement period of five years up to and including the financial year 2018. Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 20189999 Key audit matters Key audit matters are those matters that, in our pro- fessional judgement, were of most significance in our audit of the consolidated financial statements and the parent financial statements for the financial year January 1 – December 31, 2018 These matters were addressed in the context of our audit of the consol- idated financial statements and the parent financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Sale of future royalty and milestones to Royalty Pharma On September 6, 2018 Zealand Pharma A/S entered into an agreement to sell future royalties and mile- stones for Soliqua® 100/33/ Suliqua® and Lyxumia®/ Adlyxin® to Royalty Pharma. Under the agreement, Management has concluded that all rights and obli- gations under the Sanofi Licensing agreement apart from a potential payment from Sanofi of up to USD 15 million, expected in 2020 have been transferred to Royalty Pharma. Zealand Pharma A/S has received USD 205.0 million (DKK 1,310.2 million) upon clos- ing of the transaction on September 17, 2018. This income is presented in the consolidated income statement net of related royalty expenses to third parties amounting to 13.5% or DKK 176.9 million and fees to advisors amounting to DKK 34.5 million rep- resenting a net gain of DKK 1,098.9 million. Following the sale, Zealand Pharma A/S has also redeemed the outstanding royalty bond of USD 24.7 million (DKK 157.6 million). We have identified this transaction as a key audit matter as there is judgement taken by Management and as this is a significant transaction that is out of the scope of the normal business undertaken by Zea- land Pharma A/S. How the matter was addressed in the audit Based on our risk assessment procedures focused on the Group’s business process and internal controls for significant unusual transactions during the year, we tested the appropriateness of the recognition and disclosures related to the transaction. We read the Sales Agreement as well as Management’s account- ing memo and discussed it with Management and evaluated the related accounting treatment including disclosures. We obtained Management’s calculation of the accounting impact of the transaction and evaluated the validity of the calculation by testing the accuracy and completeness of the inputs to such calculation. Refer to notes 1, 2 and 7 in the consolidated financial statements. Royalty revenue from Sanofi and related restatement Royalty revenue recognized in 2018 amounted to DKK 25 million (DKK 35 million in 2017 and DKK 20 million in 2016). Royalty revenue correspond to a 10% royalty on global net sales of a combination of lix- isenatide marketed under the brand name Lyxumia® and insulin glargine 100 units/ml (Lantus®) marketed under the brand name Soliqua® 100/33 in the U.S. and as Suliqua® in the EU. Sanofi sales of Lyxumia® of EUR 9.5 million and sales of Soliqua® and Suliqua® of EUR 23.8 million generated DKK 25 million of royalty revenue for Zealand Pharma A/S in 2018. During Q2 2018, it was determined that royalty revenue from Sanofi recognized from 2013 until Q1 2018 included DKK 17.1 million of royalty revenue on net sales in countries with no valid IP protection for Zealand Pharma A/S and therefore revenue had been overstated in this period. As a consequence of this, royalty expenses from 2013 until Q1 2018 has been overstated in this same period. Such misstatements have been corrected with retrospective impact and thus comparable periods as of and for the years end- ed December 31, 2017, 2016, and 2015, have been restated. While there is limited Management judgement in de- termining the appropriateness of recognition of roy- alty revenue in 2018, we have identified this as a key audit matter as the inputs used in the calculation of royalty revenue are driven by third-party sources and as there was a restatement identified in 2018 related to current and prior period royalty revenue. How the matter was addressed in the audit Based on our risk assessment procedures focused on the Group’s business process and internal controls for royalty revenue, we tested the appropriateness of the Group’s revenue recognition. We read the Sanofi Royalty Agreement, discussed it with Management and evaluated the related accounting treatment. We Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018100 100 obtained Management’s calculation of royalty reve- nue and evaluated the validity of the calculation by testing the accuracy and completeness of the inputs to such calculation. In regards to the restatement, we performed testing on the accuracy and completeness of the restatement calculation and ensured that only countries with a valid IP protection for Zealand Phar- ma A/S was included. We also evaluated the disclo- sures in the consolidated financial statements related to royalty revenue and the related restatement. Refer to notes 1 and 2 in the consolidated financial statements. Statement on the Management review Management is responsible for the Management review. Our opinion on the consolidated financial statements and the parent financial statements does not cover the Management review, and we do not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements and the parent financial state- ments, our responsibility is to read the Management review and, in doing so, consider whether the Man- agement review is materially inconsistent with the consolidated financial statements and the parent fi- nancial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. Moreover, it is our responsibility to consider whether the Management review provides the information required under the Danish Financial Statements Act. Based on the work we have performed, we conclude that the Management review is in accordance with the consolidated financial statements and the parent financial statements and has been prepared in ac- cordance with the requirements of the Danish Finan- cial Statements Act. We did not identify any material misstatement of the Management review. Management's responsibilities for the consolidated financial statements and the parent financial statements Management is responsible for the preparation of consolidated financial statements and parent fi- nancial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the EU and additional re- quirements of the Danish Financial Statements Act, and for such internal control as Management deter- mines is necessary to enable the preparation of con- solidated financial statements and parent financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements and the parent financial statements, Management is responsible for assessing the Group’s and the Parent’s ability to continue as a going concern, for disclosing, as applicable, matters related to going concern, and for using the going concern basis of accounting in preparing the consolidated financial statements and the parent financial statements unless Management either intends to liquidate the Group or the Entity or to cease operations, or has no realistic alternative but to do so. Auditor's responsibilities for the audit of the consolidated financial statements and the parent financial statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements and the parent financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs and the additional requirements applicable in Denmark will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggre- gate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements and these parent financial statements. As part of an audit conducted in accordance with ISAs and the additional requirements applicable in Denmark, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstate- ment of the consolidated financial statements and the parent financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrep- resentations, or the override of internal control. • Obtain an understanding of internal control rele- vant to the audit in order to design audit proce- dures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s and the Parent’s internal control. • Evaluate the appropriateness of accounting pol- icies used and the reasonableness of accounting estimates and related disclosures made by Man- agement. • Conclude on the appropriateness of Management’s use of the going concern basis of accounting in preparing the consolidated financial statements and the parent financial statements, and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's and the Parent’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidat- ed financial statements and the parent financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or condi- tions may cause the Group and the Entity to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the consolidated financial statements and the parent financial statements, including the disclosures in the notes, and whether the consoli- dated financial statements and the parent financial statements represent the underlying transactions and events in a manner that gives a true and fair view. • Obtain sufficient appropriate audit evidence re- garding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with govern- ance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in in- ternal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that 101101 were of most significance in the audit of the consol- idated financial statements and the parent financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation pre- cludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our re- port because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Copenhagen, March 7, 2019 Deloitte Statsautoriseret Revisionspartnerselskab Business Registration No 33 96 35 56 Martin Norin Faarborg State-Authorized Public Accountant MNE no mne29395 Sumit Sudan State-Authorized Public Accountant MNE no mne33716 Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018Other 102 102 Other information Sources Company information 103 103 Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018103103 Other – Sources - Company info Company information Zealand Pharma A/S Smedeland 36 2600 Glostrup Denmark CVR no.: 20 04 50 78 Tel: +45 88 77 36 00 Fax: +45 88 77 38 98 Zealand Pharma U.S., Inc. 434 W 33rd Street PH Floor New York, NY 10001 info@zealandpharma.com www.zealandpharma.com Established April 1, 1997 Registered office Albertslund Auditors Deloitte Statsautoriseret Revisionspartnerselskab CVR no.: 33 96 35 56 Sources Pipeline Overview 1 Partnered with Boehringer Ingelheim. Zealand eligible for EUR 366m in outstand- ing milestones Partnered with Boehringer Ingelheim. Zealand eligible for EUR 283m in outstand- ing milestones 2 3 Partnered with Boehringer Ingelheim About short bowel syndrome 1 Pironi L et al. Clin Nutr 2016;352:247–307 2 Jeppesen P. Expert Opin Orphan Drugs 2013;1:515–25 3 Bielawska B. Nutrients 2017;9:466–60 4 Transparency Market Research; Short Bowel Syndrome Market, 2017 Glepaglutide for short bowel syndrome 1 Naimi, R., ASPEN 2018 Nutrition Science and Practice Conference (Abstract num- ber 2829969t) ZP7570 (GLP-2/GLP-1) for short bowel syndrome K.B. Madsen, C. Askov-Hansen, R.M. Naimi, C.F. Brandt, B. Hartmann, J.J. Holst, 1 P.B. Mortensen, P.B. Jeppesen, Acute effects of continuous infusions of gluca- gon-like peptide (GLP)-1, GLP-2 and the combination (GLP-1+GLP-2) on intes- tinal absorption in short bowel syndrome (SBS) patients. A placebo-controlled study, Regulatory Peptides, Volume 184, 2013, Pages 30-39, ISSN 0167-0115, https://doi.org/10.1016/j.regpep.2013.03.025. Hvistendahl, M. , Brandt, C. F., Tribler, S. , Naimi, R. M., Hartmann, B. , Holst, J. J., Rehfeld, J. F., Hornum, M. , Andersen, J. R., Henriksen, B. M., Brøbech Mortensen, P. and Jeppesen, P. B. (2018), Effect of Liraglutide Treatment on Jejunostomy Out- put in Patients With Short Bowel Syndrome: An Open-Label Pilot Study. Journal of Parenteral and Enteral Nutrition, 42: 112-121. doi:10.1177/0148607116672265 2 Design and production: Noted Dasiglucagon for severe hypoglycemia in diabetes 1 ADA Section 8 2017 2 ADA Section 6 2017: p60C; p61A; p60D 3 Kalra 2013: p9B 4 5 Cryer PE 2015: p2C 6 Lilly-rglucagon-ppi: p1A; p2A; p3A 7 GlucaGen® Instructions for use: p1A; p2A 8 International Hypoglycemia Study Group. Diabetes Care. 2015;38:1583–1591. Needle-free nasal delivery of glucagon is superior to injectable delivery in simulated hypoglycaemia rescue, ePoster # 867, EASD 2015, Stockholm. 9 National Diabetes Statistics Report. CDC. 2014. 10 Company announcement No. 23/2018, Zealand Pharma achieves primary and key secondary endpoints in pivotal Phase 3 trial with dasiglucagon for severe hypoglycemia 11 Time to plasma glucose recovery defined as first increase in plasma glucose of >/=20 mg/dL (1.1 mmol/L) from baseline without administration of rescue intravenous glucose Dasiglucagon for fully automated management of type 1 diabetes 1 ADA Section 8 2017: p71A 2 ADA Section 6 2017: p60C; p61A 3 Nicole C. Foster, et al, and for the T1D Exchange Clinic Network. Diabetes Tech- nology & Therapeutics. Feb 2019. Rare Diseases: Dasiglucagon for congenital hyperinsulinism 1 Yorifuji et al. Pediatrics International 2014;56:467 2 Welters A, Lerch C, Kummer S, Marquard J, Salgin B, Mayatepek E, Meissner T. Long-term medical treatment in congenital hyperinsulinism: a descriptive analysis in a large cohort of patients from different clinical centers. Orphanet Journal of Rare Disease. (2015) 10;150 https://www.orpha.net/consor/cgi-bin/ (not including transient cases due to perinatal stress or diabetic mother) 3 4 Congenital Hyperinsulinism International. Available at: http://congenitalhi.org Zealand Pharma ∞ Annual Report 2018Zealand Pharma ∞ Annual Report 2018Zealand Pharma A/S Smedeland 36 2600 Glostrup Denmark 

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