Annual Report (ESEF) • Mar 11, 2021
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Zealand Pharma Annual Report 2020 About Zealand Pharma We intend to be a leader in specialty medicines focusing on metabolic and gastrointestinal diseases and other rare disease areas with significant unmet medical needs 2Zealand Pharma ∞ Annual Report 2020 Overview 4 Zealand Pharma in short 5 Financial and sustainability highlights 6 Letter from the Chairman 7 Letter from the CEO 9 2020 Achievements 12 Consolidated key figures 13 2021 Outlook and objectives 14 Zealand Pharma’s first independent launch 15 Established US Platform 17 Leveraging market presence 19 Five in 25 21 Zealand Pharma’s R&D platform and pipeline 22 Peptide platform and pre-clinical programs 23 Pre-Clinical Programs 25 Clinical Pipeline Overview 27 Three patient stories 28 Severe Hypoglycemia in diabetes 29 Congenital Hyperinsulinism 31 Type 1 Diabetes management 34 Other Hypoglycemic conditions 35 Obesity / Type 2 Diabetes 36 Short bowel syndrome 37 Corporate matters 40 Corporate governance 41 Corporate responsibility 44 Our People and culture 46 Risk management and internal control 48 Financial review 50 Shareholder information 53 Board of Directors 55 Corporate Management 58 Financial statements Consolidated financial statements 60 Income statement 62 Statement of comprehensive income 62 Statement of financial position 63 Statement of cash flows 64 Statement of changes in equity 64 Business overview 65 Notes 66 Financial statements of the parent company 100 Income statement 101 Statement of comprehensive income 101 Statement of financial position 102 Statement of cash flows 103 Statement of changes in equity 103 Notes 104 Alternative performance measures for the group (non-audited) 117 Statement of the Board of Directors and Executive Management 118 Independent auditor’s report 119 Other information 123 Sources 124 Addresses (company information) 124 Management review Contents CEO Letter Read more on page Patient stories Read more on page See our pipeline Read more on page 3Zealand Pharma ∞ Annual Report 2020 Contents Overview Zealand Pharma in short 5 Financial and sustainability highlights 6 Letter from the Chairman 7 Letter from the CEO 9 2020 Achievements 12 Consolidated key figures 13 2021 Outlook and objectives 14 4Zealand Pharma ∞ Annual Report 2020 Overview Zealand Pharma in short Every day we work to pursue our mission of transforming patients’ lives through peptide innovations and novel treatment solutions. Our ambition is to be a leading provider of innovative peptide therapeutics and novel treatment solutions to address the unmet medical needs of patients. We have a unique peptide research platform that we leverage to discover, develop and commercialize innovative treatments focusing on metabolic and gastrointestinal diseases, including rare disease areas. This platform has enabled us to develop a broad pipeline of both clinical and pre-clinical programs. Headquartered in Copenhagen, we are a global company with locations in Boston and Marlborough, MA, and New York, NY. In , we established our commercial organization in the U.S., where today we market the V-Go ® insulin delivery device. By , we plan to have five products on the market and are working to make a number of our pipeline candidates available to patients, beginning with the dasiglucagon auto-injector and pre- filled syringe for severe hypoglycemia this year, pending regulato- ry approval by the U.S. Food and Drug Administration (FDA). Zealand Pharma at a glance 5x25 5 commercialized products by 2025 Fully integrated biotech with U.S. commercial presence 329 Employees Oces in Copenhagen, DK; New York City, NY; Boston and Marlborough, MA. 2020 Commercial operation established Commercial platform in place to launch metabolic and gastrointestinal franchises 2 Strategic partnerships Boehringer Ingelheim and Alexion Pharmaceuticals 4 Late stage assets Three late-stage assets for metabolic diseases, one for GI diseases Innovation peptide research platform and robust pipeline Find out more about Zealand at zealandpharma.com/about-us 5Zealand Pharma ∞ Annual Report 2020 ZP in short Restricted cashSecurities Cash and equivalents Jan 2020 Dec 2020Jul 2020 150 200 250 300 440 642 664 1,160 1,380 1.257 Find out more at zealandpharma.com/investor-relations Financial and sustainability highlights R&D investment, DKK Revenue, DKK Net operating expenses, DKK ZEAL share price, DKK at Dec. , 220.60 (-6% since Dec. 31, 2019) Cash position, DKKm 353.3 m (+756% v. 2019) 604.1 m +8% (v. 2019) Employees (average) 297 53% in R&D Administrative expenses, DKK 203.5 m (+200% v. 2019) 1,092.1 m (+74% v. 2019) Share price, DKK 6Zealand Pharma ∞ Annual Report 2020 Financial and sustainability highlights Letter from the Chairman The start of a new era 2020 marked Zealand Pharma’s transformation from a small research and development-focused company to a fully integrated biopharmaceutical company. 7Zealand Pharma ∞ Annual Report 2020 Letter from the chairman When two visionary scientists founded the company in 1998, it was only a dream that Zealand Pharma would become an integrated biopharmaceutical company. Today it is on the verge of its first poten- tial independent product launch, has an established commercial presence in the US, a broad and medi- cally meaningful clinical pipeline, several promising pre-clinical programs and a proven track record of developing approved medicines. Thanks to a long- term bold vision, exceptional global employees, agility in an ever-evolving field and an unwavering commitment to scientific discovery and patients, Zealand Pharma is well positioned for success in a new era. Strength of our people Zealand Pharma’s success is based on the collective contributions from our talented employees, past and present. Their creativity, teamwork, perseverance, and ability to execute on our plans over the years have contributed to our success. This really came into focus in 2020, when we progressed against our goals despite challenges presented by the COVID-19 pandemic. I am proud of and impressed by our grow- ing team of talented professionals, who have chosen to pursue their careers at Zealand Pharma. Unique peptide platform Our competitive and distinguishing advantage is our unique peptide platform that allows us to design and engineer highly innovative peptide or peptide-like medicines. Since its inception, Zealand Pharma has developed and commercialized two such medicines, and in 2021, we expect to potentially achieve the launch of dasiglucagon auto-injector and pre-filled syringe for severe hypoglycemia by Zealand’s own commercial subsidiary in the US. We are determined to continue to build on our position of strength. The courage to invest Courage, boldness, and confidence are other influen- tial elements that have transformed Zealand Pharma into what it is today. In 2015, we made the bold de- cision to rely less on partnerships so we could more independently control our assets — and thereby our future. We have demonstrated the courage to invest significantly in our people and the R&D pipeline, as well as our commercial capabilities in the US by ac- quiring Valeritas. The journey continues While it has been a remarkable journey for Zealand Pharma so far, our success is also built on a drive for continual advancement. We feel an obligation to always do more and create more value for patients, shareholders, and society. We have significant poten- tial, and we will continue to invest in developing new medicines, expanding our research and development eorts into new disease areas, and making our prod- ucts available to as many patients as possible. On behalf of the Board of Directors, I thank our shareholders for your belief and support. I also thank the CEO, Emmanuel Dulac, the Management team and the rest of the organization for their fantastic contributions and achievements in 2020. I look for- ward to our continued collaboration to grow Zealand Pharma even further. Martin Nicklasson Chairman of the Board of Directors Our competitive and distinguishing advantage is our unique peptide platform that allows us to design and engineer highly innovative peptide or peptide-like medicines. Martin Nicklasson Chairman of the Board of Directors 8Zealand Pharma ∞ Annual Report 2020 Letter from the CEO Ready to execute on our potential first independent launch and pursue our 2025 ambition Zealand Pharma demonstrated the resilience, energy, and innovative thinking that makes our company unique as we faced the unprecedented challenges presented by the global pandemic in 2020. Thanks to our employees’ dedication, we kept our company, labs, and trials running, and also started our transformation into a fully integrated biopharmaceutical company with a commercial presence in the US. We are now set up for our potential first independent product launch in the first half of 2021. 9Zealand Pharma ∞ Annual Report 2020 Letter from the CEO It is with a great sense of pride that we at Zealand Pharma reflect on 2020. Like so many other com- panies across the globe, we encountered numerous challenges due to the COVID-19 pandemic. Yet, we worked to overcome them and pursue our strategic objectives to transform into a fully integrated bio- pharmaceutical company. Today we are in a strong position as we approach the historical milestone of independently launching our first product with the anticipated launch of the dasiglucagon auto-injector and pre-filled syringe for severe hypoglycemia in the US in the first half of 2021 (pending approval). This launch will also be an important step towards achieving our 2025 vision. In the coming four years, we aim to build on all of our earlier accomplishments and leverage our platform and investments to expand our leadership in peptides, conduct research and development in new indications, and launch several products as we build a high-performing commercial organization. Addressing COVID-19 The pandemic and the associated pressure on health care systems, shutdowns, and restrictive health care measures presented challenges to all facets of our business. From the outset, our priority has been to keep our employees, patients, business, and clinical partners safe, while also supporting our communi- ties’ eorts to reduce the transmission of COVID-19. We quickly adapted to a much more virtual way of working and managed to keep our company, labs, and trials running. We took measures to secure our discovery activities, minimizing the impact of COVID-19 on our research activities. Employees who could work from home did so, while team members in laboratory facilities worked in shifts to reduce the number of people gathered at one time. We continued our clinical trials while working with authorities, investigators, trial sites, and contract research organizations to mini- mize site visits and ensure optimal trial follow-ups. We minimized business travel and relied on digital technologies to meet virtually rather than in person. Virtual meetings, trainings, and support also trans- formed our engagement with health care providers and patients, with whom we met less in person. Progressing our clinical programs Despite the circumstances of 2020, we accomplished a lot, thanks to the resilience, energy, and innovative thinking from our dedicated employees. For the first time ever, we independently submitted a US Food and Drug Administration (FDA) New Drug Applica- tion (NDA) — for the dasiglucagon auto-injector and pre-filled syringe for severe hypoglycemia — which the FDA accepted in May. We are hopeful and excited that, if approved, the dasiglucagon auto-injector and pre-filled syringe for severe hypoglycemia can be- come an important option for people with diabetes and their caregivers to treat severe hypoglycemia. Pending approval, the dasiglucagon auto-injector and pre-filled syringe for severe hypoglycemia is expected to become the first dasiglucagon–based medicine made available to patients. We are also developing dasiglucagon in Congenital Hyperinsu- linism, a devastating ultra-rare disease, and we were able to carry through the first Phase 3-trial in 2020, with the next trial expected to read out this year. For the bi-hormonal artificial pancreas pump, which also uses dasiglucagon, we plan to initiate the pivotal Phase 3-trial in 2021. On behalf of the Management team, and all my other Zealand Pharma colleagues, I extend my thanks to our partners and patients for trusting us. We are committed to fulfilling the significant potential of Zealand Pharma and realizing our mission to transform patients’ lives through peptide innovations and novel treatment options. Emmanuel Dulac President and Chief Executive Ocer Our partner, Boehringer Ingelheim (BI), progressed the clinical development of BI-456909 with the initi- ation of a Phase 2-trial in type 2 diabetes and obesity, and plans to also pursue development in non-alco- holic steatohepatitis (NASH). We also made progress in the clinical development of our gastrointestinal programs. Though the pan- 10Zealand Pharma ∞ Annual Report 2020 demic impacted patient recruitment for our Phase 3 trial with glepaglutide in Short Bowel Syndrome (SBS), we kept the trial running. We also completed the first Phase 1 trial with dapiglutide, a potential next gener- ation of SBS treatment, and initiated another Phase 1 trial to move the program forward. Expanding and advancing our early pipeline In addition to our many clinical development pro- grams, Zealand Pharma also has a broad pre-clinical pipeline that gives us opportunities to grow our drug portfolio candidates by expanding into new indica- tions. We made strong progress in our early pipeline dur- ing 2020. We regained the worldwide rights to the amylin-analog program from BI, and we expect to start clinical development for this program in 2021. In our GIP-program, which has potential for devel- opment in multiple major diseases and compris- es mono-, dual-, and triple-agonists, we selected the lead molecule and progressed towards clinical development. We also progressed our Alpha4Be- ta7-program, which has the potential to provide our first-ever oral peptide therapeutic. We are excited by this prospect, as oral delivery could potentially ease the use of peptide treatments for patients. It could also make administering peptides easier and possibly improve treatment and compliance. Transforming to a fully integrated biopharmaceutical company While successfully driving our research and devel- opment activities, we also managed to complete our strategic objective of building our own commercial platform in the US, thus transforming Zealand Phar- ma into a fully integrated, global biopharmaceutical company. We integrated sta and assets from Valer- itas, growing our total number of employees world- wide by approximately 50%, and gaining the V-Go ® wearable insulin device. Through V-Go ® , which is al- ready on the market, Zealand has expanded its team with a seasoned salesforce, laying the groundwork for the potential launch of the dasiglucagon auto-in- jector and pre-filled syringe for severe hypoglycemia. Securing a strong financial position With so many activities and achievements, we have maintained a high level of investments across our company. This is made possible by our strong financial position, enhanced through a record-breaking capital raise in Zealand’s history in June, raising DKK 658m. This means we can continue to allocate adequate resources, to ensure we achieve the highest value of our assets. Growing as a leader in peptide therapeutics While 2020 was a successful year of transformation for Zealand Pharma, we are focused and continue the work needed to prepare to progress several products as we build a high performing commercial organiza- tion. 2021 will be a year of execution as we set out to achieve our 2025 ambition to expand our leadership in peptides, conduct research and development in new indications. Five years ago, we were solely a Research & Development- company with an early stage-pipeline. Today, we have our own commercial presence in the US, we have filed our first own marketing applica- tion, are ready for our first ever independent product launch and have a broad late-stage pipeline. This year may be the end of the beginning for Zealand Pharma as we enter yet another transformational year for the company. On behalf of the Management team, and all my other Zealand Pharma colleagues, I extend my thanks to our partners and patients for trusting us. We are committed to fulfilling the significant potential of Zealand Pharma and realizing our mission to trans- form patients’ lives through peptide innovations and novel treatment options. Emmanuel Dulac President and Chief Executive Ocer 11Zealand Pharma ∞ Annual Report 2020 2020 Achievements In 2020, we took a transformational step by acquiring and integrating our US footprint, including our commercialized product V-Go. Achievement Built Zealand Pharma U.S. and advanced launch readiness • Established Boston-area oce for Zealand Pharma US operations • Built US organization with key hires and through Valeritas acquisition • Established launch readiness program for dasiglucagon auto-injector and pre-filled syringe for severe hypoglycemia Executed on the clinical pipeline • Dasiglucagon auto-injector and pre-filled syringe for severe hypoglycemia: Submitted NDA to US FDA in Q1 • Dasiglucagon for congenital hyperinsulinism: First Phase 3 study completed, and second Phase 3 study initiated • Dasiglucagon for bi-hormonal artificial pancreas pump: End of Phase 2 meeting conducted • Glepaglutide for short bowel syndrome: Patient enrolment in Phase 3 study advanced • Dapiglutide for short bowel syndrome: Single Ascending Dose (SAD) executed, Multiple Ascending Dose (MAD) trial initiated as part of Phase 1 program advancement Advanced our early pipeline • Advanced four programs in pre-clinical development towards Phase 1 initiation (ZP8396 Amylin analog; complement C3 inhibitor 1 , ZP 10000 α4β7 integrin inhibitor; ZP6590 GIP; ZP 9830 Kv1.3 ion channel blocker) Expanded our strong financial and organizational position • Completed the acquisition of Valeritas, with successful integration of US organization and our commercialized product V-Go • Boehringer-Ingelheim advanced our GLP-1/GLU to Phase II in type 2/Obesity and decided to initiate a second program in non-alcoholic steatohepatitis (NASH) triggered a EUR 20 million milestone payment • Secured a total of DKK 795 million in private placement over two rounds ¹ Partnered with Alexion Pharmaceuticals. In addition, we advanced our pipeline programs, most prominently submitting our first NDA for the dasiglucagon auto-injector and pre-filled syringe for severe hypoglycemia. During the year we successfully kept our operations running with a highly engaged work force through the COVID-19 health crisis. Find out more about Zealand at zealandpharma.com/about-us 12Zealand Pharma ∞ Annual Report 2020 2020 Achievements Consolidated key figures DKK ’ Income statement and comprehensive income Revenue , , , , , Gross margin , , , , , Research and development expenses -, -, -, -, -, Sales and Marketing expenses -, Administrative expenses -, -, -, -, -, Net operating expenses -,, -, -, -, -, Operating result -, -, , -, -, Net financial items -, , -, -, -, Result before tax -, -, , -, -, Income tax¹ -, , -, , , Net result for the period -, -, , -, -, Comprehensive result for the period -, -, , -, -, Earnings/loss per share – basic/diluted (DKK) -. -. . -. -. Statement of financial position Cash and cash equivalents , ,, , , , Marketable securities , , , , Cash, cash equivalents and Marketable securities ,, ,, ,, , , Other assets , , , , , Total assets ,, ,, ,, , , Share capital (' shares) , , , , , Equity ,, ,, ,, , , Equity ratio² . . . . . DKK ’ 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 * The acquisition of the business from Valeritas is only reflected in key figures covering the period since April 2, 2020 being the acquisition date. ¹ Zealand expects to be eligible to receive up to DKK 5.5 million in Danish corporate tax benefit related to R&D expenses incurred for 2020, of which DKK 5.5 million has been recognized for the period ended December 31, 2020. ² Equity ratio is calculated as equity at the balance sheet date divided by total assets at the balance sheet date. ³ Free cash flow is calculated as the sum of cash flows from operating activities and purchase of property, plant and equip- ment. 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. 13Zealand Pharma ∞ Annual Report 2020 Consolidated key figures 2021 Outlook and Objectives We expect 2021 to be a year where we continue to develop as a fully integrated biopharmaceutical company, by launching our first product and thereby having two marketed assets in the US We will mobilize resources and galvanize our teams to find ways to accelerate our late stage programs, advance our early candidates and identify novel treatment targets. Financial guidance In 2021, Zealand Pharma expects net product reve- nue from the sales of its commercial products of DKK 220 million +/-10% compared to 2020 of DKK 161.3 million. In 2021, Zealand Pharma expects revenue from exist- ing license agreements. However, since such reve- nue is uncertain in terms of size and timing, Zealand Pharma does not intend to provide guidance on such revenue. Net operating expenses in 2021 are expected to be DKK 1,250 million +/-10% compared to 2020 of DKK 1,092.1 million. Objectives Launch Dasiglucagon auto-injector and pre-filled syringe and optimize commercialization • Deliver on net revenue targets for V-Go and the dasiglucagon auto-injector and pre-filled syringe for severe hypoglycemia (assuming FDA approval in March 2021) Execute on the clinical pipeline • Dasiglucagon auto-injector and pre-filled syringe for severe hypoglycemia: Receive approv- al from US FDA • Dasiglucagon for congenital hyperinsulinism: Deliver second Phase 3 study and prepare NDA/MAA for execution in 2022 • Dasiglucagon for bi-hormonal artificial pancreas pump: Initiate Phase 3 study • Glepaglutide for short bowel syndrome: Finalize patient enrollment in Phase 3 study • Dapiglutide for short bowel syndrome: Complete MAD Phase 1 program and decide on Phase 2 study protocol Enrich early pipeline and develop our next generation platform • Advance pre-clinical drug candidates towards Phase 1 • Initiate new pre-clinical projects • Develop our next generation peptide platform Maintain a strong financial and organizational position • Ensure disciplined financial management and productive investments • Focus company on operational performance and organizational health 14Zealand Pharma ∞ Annual Report 2020 2021 Outlook Zealand Pharma’s first independent launch Established US Platform 17 Leveraging market presence 19 Five in 25 21 "We are excited about the prospect of launching dasiglucagon auto-injector and pre-filled syringe for severe hypoglycemia as we work tirelessly to deliver better treatments to patients. With a diversified pipeline and many late-stage assets, we believe ‘Five in 25’ is possible." Frank Sanders President of Zealand Pharma U.S. 15Zealand Pharma ∞ Annual Report 2020 ZPs first independent launch - Indhold Zealand Pharma’s first independent launch With an established US platform and commercial presence, we are ready to introduce the dasiglucagon auto-injector and pre-filled syringe for severe hypoglycemia to patients pending US FDA approval. Dasiglucagon auto-injector and pre-filled syringe for severe hypoglycemia could potentially become the first of five commercial products to be launched by 2025. 16Zealand Pharma ∞ Annual Report 2020 Zealand Pharma’s first independent launch Established US Organization In line with our strategy of independently commercializing our medicines, Zealand Pharma has established its own fully-fledged commercial operation in the US, preparing us not only for the dasiglucagon launch but for the additional launches expected by 2025. In 2020, Zealand Pharma transformed from a primar- ily R&D-focused company to a fully integrated bio- tech company with an established footprint in the US diabetes market. The establishment of our US com- mercial platform is a pivotal element in our strategy, and this transformation will allow us to independently launch and market the medicines we develop on the world’s biggest pharmaceutical market. Accelerating commercial build-up In April of 2020, we closed on a transaction with US- based Valeritas Holdings, Inc., in which we acquired all of the company’s assets including the marketed V-Go ® wearable insulin delivery device, providing us with a commercial infrastructure and accelerating our plans for build-up in the US. As part of the trans- action, we gained an existing commercial organi- zation and 110 employees, including approximately 75 sales representatives, all supporting systems, processes, and the majority of established contracts, US-based in Marlborough, Massachusetts 110 employees including approximately 75 sales representatives V-Go ® One marketed product – a wearable insulin delivery device Acquired US activities in brief as well as an operations site in Marlborough, Massa- chusetts. In parallel with the acquisition, we achieved an- other historical milestone with the filing of our first ever New Drug Application (NDA) with the US Food and Drug Administration for the dasiglucagon auto-injector and pre-filled syringe for severe hypo- glycemia. Pending approval, the dasiglucagon au- to-injector and pre-filled syringe for severe hypogly- cemia will be the first product ever we launch on our own, leveraging our US commercial platform. By acquiring the already marketed V-Go ® wearable insulin delivery device, we immediately became a commercially active company in the US, interacting with key stakeholders in the diabetes space, including patients, physicians and payors. Many of the these stakeholders will also be essential for the successful launch of the dasiglucagon auto-injector and pre- 17Zealand Pharma ∞ Annual Report 2020 Established US Platform filled syringe. On top of its strategic value, V-Go ® generates revenue that helps finance our significant investments across commercial and Research & De- velopment activities. Successful integration Due to the pandemic, the undertaking of integrating our new colleagues and assets into Zealand Phar- ma was done virtually with a very limited number of physical meetings. We are proud to have risen to the challenge and navigated this already complex task, successfully completing the integration – increasing the total number of employees by close to 50% – according to plans and deadlines. We also strengthened the US leadership team with the appointment of Frank Sanders as President of Zealand Pharma US. Having more than 25 years of experience within commercial operations, Frank joined from a position as general manager of the US Commercial team at Sage Therapeutics and is a member of Zealand Pharma’s global Corporate Man- agement team. We further expanded our operations in the US in July of 2020 by opening a new oce in Boston, where commercial operations are headquartered. V-Go ® wearable insulin delivery device Designed to deliver insulin like the body does—gradually, during the day and night—and replace both long-acting basal insulin and multiple meal- time insulin injections, V-Go delivers a continuous basal insulin rate over hours that mimics the body’s natural approach to all-day-and-night blood sugar control. With a continuous, preset rate of fast-acting insulin along with convenient, on-demand dosing at mealtimes (bolus dosing). V-Go is designed to meet insulin needs throughout the day. Studies have shown that V-Go provides better control of blood sugar levels than multi- ple daily insulin injections.¹ ¹ Lajara R, Nikkel C. Poster presented at: the International Society for Pharmacoeconomics and Outcomes Research nd Annual International Meeting; May ; Boston, MA. 18Zealand Pharma ∞ Annual Report 2020 For illustration onlyDasiglucagon Leveraging market presence for the dasiglucagon auto-injector and pre-filled syringe for severe hypoglycemia launch With V-Go ® marketed in the US, we are well positioned with patients, physicians and payors, to execute an eective launch of dasiglucagon auto-injector and pre-filled syringe for severe hypoglycemia pending approval. Zealand Pharma is in a position of strength ahead of the anticipated launch of the dasiglucagon auto-injector and pre-filled syringe for severe hypoglycemia, pending approval from the US Food and Drug Administration. We plan to launch in late June of 2021, following our PDUFA date of March 27, 2021. With V-Go ® already on the market, we will be able to hit the ground running with the dasiglucagon launch. Our sales representatives currently interact with potential dasiglucagon prescribers including endo- crinologists and diabetologists, covering the most densely populated areas of the US. Underdeveloped market Dasiglucagon will address a US market where hy- poglycemia is the most common cause for Emer- gency Room (ER) visits for adults with diabetes, with 235,000 ER visits/year, of which 57,000 resulted in hospitalizations 1 . Our highly experienced team of sales, medical aairs, and market access profes- sionals have a strong and active presence with US medical opinion leaders, endocrinologists and diabe- tologists, and major national and regional payors and pharmacy benefit managers. Foundational marketing, patient support, and commercial operations infra- structure are being optimized ahead of the launch of dasiglucagon. ~10% annual market growth following new entrant launches in 2019 New entrants have captured approximately ~40% volume market share in 2020 Market volume largely driven by Type 1 Diabetes utilization (80% of TRx), with additional penetration potential across both Type 1 and Type 2 Diabetes patients at risk of severe hypoglycemic events $300M total Gross Market Value (excluding rebates & discounts) Symphony Health, December TRx Quantity share and Integrated WAC Sales ¹ Centers for Disease Control (CDC). Diabetes Statistics Report. . 19Zealand Pharma ∞ Annual Report 2020 Leveraging market presence for dasiglucagon m.v. 2017 2019 2020 20212018 USDm Gross sales (WAC level) 0 50 100 150 200 250 300 350 * Assuming % market growth. Source: Symphony, as referenced for previous actuals. Dasiglucagon auto-injector and pre-filled syringe launches in growing market Severe hypoglycemia is an underdeveloped market. While approximately 675,000 glucagon prescriptions were filled in 2020, there are more than 8.2 million adults on insulin therapy in the US. The significant growth potential is already starting to materialize, supported by introductions of new treatment solutions. The launch of dasiglucagon in this growing market, may increase awareness of the benefits of the new treatment options for this acute, life-threatening condition. 20Zealand Pharma ∞ Annual Report 2020 Five in 25 Zealand Pharma’s broad pipeline provides the potential to build a diversified product portfolio with five marketed products by 2025. NDA submission, established US commercial organization, strengthened US leadership, opened Boston oce Accelerating late stage development Robust pipeline including three late stage programs Approaching commercialization Establishing operations in the US Dasiglucagon auto-injector and pre-filled syringe for severe hypo- glycemia NDA submission for dasiglucagon auto-injector and pre-filled syringe for severe hypoglycemia US leadership, commercial, medical and corporate infrastructure Opened Boston facility Dasiglucagon for congenital hyperinsulinism Glepaglutide for short bowel syndrome Dasiglucagon bi-hormonel artificial pancreas Establishing our Peptide Platform Founded World-leading peptide platform with two medicines brought to market Licensed partnerships - potential product launches in years The anticipated launch of dasiglucagon auto-injector and pre-filled syringe for severe hypoglycemia in the US is potentially just the first of a number of launches of new medicines from Zealand Pharma in the coming years. Our goal is to have five commercialized products in the US by 2025. Dasiglucagon for severe hypoglycemia is the first product in our franchise built on the dasiglucagon molecule. The next potential launch is a continuous infusion for the treatment of Congenital Hyperinsulin- ism (CHI), a rare disease with often devastating conse- quences for patients and their families. We expect our second Phase 3 trial to readout in 2021. We are also planning to start a Phase 3 trial with dasiglucagon used in a fully automated bi-hormonal pump, in collaboration with Beta Bionics. This "bionic" pancreas has been shown in Phase 2 studies to achieve more stable levels of blood glucose levels, while reducing hypoglycemia. If successful, this opportunity constitutes another potential launch of dasiglucagon in the coming years. In the gastrointestinal field we have the potential to launch a new treatment for patients with Short Bowel Syndrome (SBS). Glepaglutide, a long-acting GLP-2 analog, is being developed in an auto-injector with potential for convenient weekly administration. It is currently in Phase 3 and has been granted orphan drug designation by the US FDA. We are excited about the our first independent launch of dasiglucagon for severe hypoglycemia and the prospect of having multiple additional potential new product launches in the metabolic and gastrointestinal disease areas over the next 5 years. 21Zealand Pharma ∞ Annual Report 2020 Five in 25 Zealand Pharma’s R&D platform and pipeline Peptide platform and pre-clinical programs 23 Pre-Clinical Programs 25 Clinical Pipeline Overview 27 Three patient stories 28 Severe Hypoglycemia in diabetes 29 Congenital Hyperinsulinism 31 Type 1 Diabetes management 34 Other Hypoglycemic conditions 35 Obesity / Type 2 Diabetes 36 Short bowel syndrome 37 “Our R&D ambition is to establish the next-generation peptide therapeutic platform and a commitment to continue building a high value pipeline.” Adam Steensberg CMO and Head of R&D. 22Zealand Pharma ∞ Annual Report 2020 Zealand Pharma’s R&D platform and pipeline Find out more in our movie on zealandpharma.com/peptide-platform-video Protein Peptide Peptide Amino acid Peptide platform Zealand Pharma’s peptide platform allows us to engineer peptide analogs with enhanced biological activity, extended duration of action and increased stability to provide innovative and better treatments for a range of dierent diseases. Since our founding in 1998, Zealand Pharma’s sole focus has been on the discovery and development of peptide-based medicines to harness the power of native peptides and enhancing their eects. We have a unique peptide platform and design pro- cess built around a deep understanding of peptide chemistry, formulation know-how and intellectual property rights combined with advanced computer science. This allows us to engineer peptide analogs with enhanced biological activity, extended duration Validated peptide platform and design process Peptides What do we want? • Agonist/Antagonist of biological function • Mono/Dual pharmacology • Inhibition of protein:protein interactions (PPI) Peptide Therapeutics Chemistry & Formulation Peptide starting points • Rational design • Libraries of venoms • Libraries with linear or cyclic peptides Designed properties • Potency • Short or long-acting • Physical stability • Chemical stability • Solubility • Pharmacokinetics of action and increased stability to provide innovative and better treatments for a range of diseases. Our peptide platform is validated by the fact that Zealand Pharma has now advanced more than ten novel peptide-analogs into clinical development, two of which are currently marketed. 2021 will hopefully see the approval of a third Zealand Pharma mole- cule; dasiglucagon as the active ingredient in the dasiglucagon auto-injector and pre-filled syringe for severe hypoglycemia. ZP Peptide Properties Patient Benefits High potency Small volume, subcutaneous High stability Ready-to-use Extended half-life Reduced dosing frequency High specificity Reduced side eects 23Zealand Pharma ∞ Annual Report 2020 Peptide platform and pre-clinical programs Vital to human health Peptides are produced by all living organisms and humans have peptides in every cell and tissue. They can function as biological messengers (hormones) carrying information between cells or organs and thereby perform a wide range of essential functions, e.g., regulating appetite and blood glucose and stimulating tissue growth. This makes peptides vital to keeping us functioning and healthy. Native peptides are composed of amino acids (fifty or less) in a linear or cyclic form, have powerful biological functions but are inherently unstable and short-lived in the bloodstream. To convert these native peptides into eective peptide therapeutics 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 amino acid. Nature’s own inventions Zealand Pharma uses its unique in-depth understand- ing of peptide chemistry and biology 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, GLP-2 and GIP. Enhancing their natural properties or combining their activities in single pep- tides present multiple therapeutic opportunities. Our peptide platform in brief 10 novel peptide- analogs in clinical development Dasiglucagon is a Zealand Pharma molecule; the active ingredient in the dasiglucagon auto-injector and pre-filled syringe for severe hypoglycemia 23 years of experience where Zealand Pharma’s sole focus has been on the discovery and development of peptide-based medicines We base our research and development on endog- enous peptides found in humans and peptides from venoms from various animals. We also manipulate bacteria to produce peptide libraries. In other words, we make broad use of nature’s own inventions to improve human health and quality of life. In line with Zealand’s strategy to access cutting-edge technology, we have a range of research collabo- rations providing us with access to novel peptide libraries or new technologies for peptide stabilization and delivery. Because of their unique features – specificity, phys- ical size and attractive risk profile – peptide-based medicines may allow us to in the future treat diseases that we can’t treat today. Furthermore, they may ena- ble us to treat more patients, initiate treatment earlier and ensure better treatment compliance, all of which could improve health outcomes. 24Zealand Pharma ∞ Annual Report 2020 Find out more in our movie on zealandpharma.com/peptide-platform-video Pre-Clinical Programs New technologies and scientific advancements within peptides enable Zealand Pharma to continuously optimize our peptide platform. Our Research and Development capabilities and current pre-clinical programs provide opportunities to grow our scientific and medical presence by expanding into new indications like obesity and inflammatory diseases. Our pre-clinical pipeline contains programs focused on analogs of endogenous peptide hormones, as well as programs with innovative peptide candidates acting on components of the complement cascade, ion channels and other target classes. Long-acting amylinanalog Amylin is derived from B-cells in the pancreas and is co-secreted with insulin. It both regu- lates blood glucose by delaying gastric empty- ing after meal ingestion and directly mod- ulates satiety signals in the brain. Preclinical studies also suggest that amylin, like glucagon, can increase energy expenditure, contributing to its weight loss eect. Our lead molecule, ZP, is a long-acting analog of amylin designed to allow for co-for- mulation with other anti-obesity treatments. It has demonstrated significant weight loss in pre-clinical models of obesity. We plan on Initiating Phase clinical testing In . Long-acting GIP analogs Glucose-dependent insulinotropic peptide (GIP) is synthesized by K cells, which are found in the proximal intestine. GIP receptors are expressed in many organs and tissues includ- ing the central nervous system, enabling GIP to influence regulation of appetite and satiety, while showing antiemetic eects. Thus, GIP can contribute to the ecacy of other an- ti-obesity peptides by both a complementary eect and by providing an improved thera- peutic window of the other peptide. Our lead molecule, ZP, has shown addi- tive eects when co-administered with a GLP- RA in pre-clinical obese models. We expect to bring the analog to Phase in . Kumanyika S et al., N Engl J Med () :- Programs focusing on obesity The global prevalence of obesity has tripled since the mid-1970s with 650 million adults and 124 million children and adolescents suering from obesity. In the US alone, more than 40% of the population are considered obese 1 . We hope to address the obesety pandemic with peptide molecules with built-in dual-acting pharmacology or molecules with mono pharmacology that can be combined or co-formulated with other anti- obesity treatments 25Zealand Pharma ∞ Annual Report 2020 Pre-Clinical Programs Integrin αβ inhibitor ZP is being developed as an orally delivered peptide drug to target integrin αβ, which is involved in the pathogenesis of in- flammatory bowel disease (IBD). Specific bind- ing to surface αβ on the T cells prevents the interaction with MAdCAM- on the endothelial cells, which plays a critical role in immune cell recruitment to the intestinal tissue. This mode of action has been clinically validated in IBD by vedolizumab, an approved injection-only αβ integrin inhibitor antibody. ZP is a peptide ligand that selectively binds to αβ, and its ecacy has been demonstrated in vivo in IBD models. ZP has binding proper- ties on par with marketed antibodies as well as oral bioavailability as demonstrated in vivo. We are currently exploring the optimal oral formulation for this compound while we pro- gress the program towards clinical testing. Kv. ion channel blockers Kv. is a potassium conducting ion channel, which is selectively upregulated on T eector memory cells. T eector memory cells play a key role in autoimmunity and chronic inflammation by releasing pro-inflammatory cytokines, which drives tissue damage. The anti-inflammatory eects of blocking the Kv. ion channel have been demonstrated in multiple pre-clinical models of autoimmune diseases. The specific and selective location of the Kv. on the eector memory T cells makes it an attractive pharmaceutical target, as blocking preserves the protective eects of the rest of the immune system. ZP is a potent and selective Kv. blocker with potential to treat a broad range of T cell driven autoimmune diseases. Currently we are progressing the molecule into IND enabling toxicity studies and aim to target inflammatory bowel diseases as a first indication, with the expectation to initiate Phase in . Complement C inhibitor The complement system is a part of the innate immune system and a central component of the complement cascade is the C protein. Altered activation of the complement cascade is implicated in many immune-mediated diseases and in particular rare diseases such as paroxysmal nocturnal hemoglobinuria, cold agglutinin disease, myasthenia gravis and C glomerulopathy. There is currently only one approved drug to treat complement mediated diseases: an antibody that blocks the comple- ment cascade C, the final step in comple- ment activation. We have selected a candidate molecule that acts on C, upstream of C and thus oering potential dierentiation and broader utility than the current therapy. The candidate peptide is potent, selective, and long-acting and has the potential to be best- in-class, which we are currently progressing into the next stage of development in collabo- ration with Alexion. Programs focusing on chronic inflammatory diseases Peptide medicines have proven their eectiveness in other therapeutic areas such as type 2 diabetes and obesity and we believe that they represent a great opportunity for new innovation in the chronic inflammatory diseases area. The programs we are progressing represent high-profile peptide targets that have shown to be dicult to address with small molecules and antibodies or orally available peptides against disease targets that have already been clinically proven with injectable antibodies. 26Zealand Pharma ∞ Annual Report 2020 Clinical Pipeline overview Zealand has a robust clinical pipeline with programs across all stages of development, including two ongoing Phase 3 programs and another expected to be initiated in 2021. Product Candidate Phase Phase Phase Registration Marketed Dasiglucagon auto-injector and pre-filled syringe Read more page 29 Dasiglucagon S.C. Continuous Infusion Read more page 31 Dasiglucagon Bi-Hormonal Artificial Pancreas Pump Read more page 34 Dasiglucagon Adjustable Mini-Dose Read more page 34 BI GLP-/GLU Dial Agonist Read more page 36 Glepaglutide GLP- Analog Read more page 37 Dapiglutide GLP-/GLP- Dual Agonist Read more page 37 Type Diabetes management Congenital hyperinsulinism Severe hypoglycemia MetabolicGI & Inflammatory PBH/ TD exercise- induced hypo Short Bowel Syndrome (SBS) SBS+ Obesity/TD/NASH 27Zealand Pharma ∞ Annual Report 2020 Clinical Pipeline Overview Three patient stories Each story provides a backdrop for how a disease can aect everyday life for a patient, their family and caregivers, and illustrates why we are committed to delivering next generation therapeutics to help change lives. Severe hypoglycemia Robert lives with type diabetes. Despite wearing an insulin delivery device, he has had multiple experiences with severe hypoglycemia and he worries every day about the risk of yet again being put in this situation by his disease. Robert tells about what it feels like when you have a critical drop in blood glucose levels. Read more on page Congenital Hyperinsulinism Crosby was born with congenital hyperinsulinism. His parents were warned that having a CHI baby was ”going to be a really tough journey.” They tell about the challenges they have faced: from receiving a rare prenatal diagnosis of the condition, trying to manage his volatile blood glucose levels. Read more on page Short bowel syndrome Dependent on parenteral support to survive, Mike must con- nect to infusion equipment for eight hours a day, six days a week. He tells about how reducing the complexity – and time spent – for parenteral support enables him to make his disease a smaller part of his life, and avoid that the disease defines him in any way. Read more on page 28Zealand Pharma ∞ Annual Report 2020 Three patient stories Find out more about Zealand at zealandpharma.com/dasiglucagon-rescue Severe Hypoglycemia in diabetes Severe hypoglycemia is an acute, life-threatening condition resulting from a critical drop in blood glucose levels. Unpredictable and among the most feared complications of diabetes treatment, severe hypoglycemia requires another person for rescue. ~8 million people With diabetes are on insulin therapy in the US³ ~235,000 Emergency Room Visits Occur annualy in the US due to severe hypoglycemia³ Dasiglucagon auto-injector and pre-filled syringe The dasiglucagon auto-injector is a ready-to-use auto-injec- tor containing . mg dasiglucagon, designed to oer people with diabetes fast, eective and reliable treatment for severe hypoglycemia. Achievements In March , Zealand Pharma submitted the New Drug Application (NDA) for the dasiglucagon auto-injector and pre- filled syringe for severe hypoglycemia to the US Food and Drug Administration (FDA), which accepted the submission for review in May . The NDA is based on the clinical program which was conclud- ed in . In the pivotal and confirmatory Phase trials, the primary and all key secondary endpoints were successfully achieved with a median time to blood glucose recovery of minutes. Results from a pediatric Phase trial demonstrated that the median time to blood glucose recovery was also minutes in this patient population. Next steps Under the Prescription Drug User Fee Act (PDUFA), the FDA has set a target action date of March , . Pending approval, Zealand Pharma expects to launch dasiglucagon auto-injector and pre-filled syringe for severe hypoglycemia later in . This will be our first independent product launch. 2021 PDUFA date March 27 phase 3-trials met all primary and key secondary endpoints 10 minutes median time to recovery in all three phase 3-trials Preferred mode of administration by patients, care givers and HCPs⁴ Strandberg RB, et al. Diabetes Res Clin Pract. :-. El-Menyar A, et al. J Emerg Trauma Shock. :-. Centers for Disease Control (CDC). Diabetes Statistics Report. . ⁴ Zealand Pharma commissioned market research. 3 29Zealand Pharma ∞ Annual Report 2020 Severe Hypoglycemia in diabetes Robert Floyd Robert was diagnosed with type diabetes about years ago. Every- day he has to deal with the chal- lenges of the disease. When Robert was diagnosed and started taking insulin, the company he worked for had complaints about him checking his blood sugar and doing insulin shots. There are still things Robert can’t do anymore because of his diabetes, things he used to do all the time. As part of living with type diabe- tes, Robert has also experienced hypoglycemia multiple times. Mild hypoglycemia is blood glucose less than mg/dL, moderate hypogly- cemia is blood glucose less than mg/dL, and severe hypoglycemia is defined as having low blood glucose levels that requires assistance from another person to treat. Read more of Robert’s story at zealandpharma.com/roberts-story "It hit me like a ton of bricks. No warnings, one minute I was fine, next minute I wasn’t." Robert Floyd Living with type 2 diabetes, on the experience of severe hypoglycemia 30Zealand Pharma ∞ Annual Report 2020 Congenital Hyperinsulinism Congenital hyperinsulinism (CHI) is an ultra-rare and devastating congenital disorder in newborns. It is caused by a defect in pancreatic beta cells, resulting in insulin overproduction. This leads to persistently and dangerously low blood sugar levels (hypoglycemia). Orphanet. https://www.orpha.net/consor/cgi-bin/Disease_Search.php?lng=EN&data_id=&Disease_Disease_Search_diseaseGroup=Congenital-hyperinsulini%E%%A. Accessed March , Congenital Hyperinsulinism International. https://congenitalhi.org/congenital-hyperinsulinism/. Accessed March , . 1/25,000-1/50,000 is the ratio of births in which CHI occurs in most countries. It is the most frequent cause of severe, persistent hypoglycemia in newborn babies and children¹. Next Steps A second Phase trial with children with CHI from days up to one year of age is ongoing, with topline results expected in . Achievements The first Phase trial with children with CHI aged months to years completed enrollment in August, with topline results announced in December. The trial showed that dasi- glucagon, on top of standard of care (SOC), did not significantly reduce the rate of hypoglycemia compared to SOC alone when assessed by intermittent self-measured plasma glucose (primary endpoint). However, hypoglycemia was reduced by –% with dasiglucagon as compared to SOC alone when assessed by blinded continuous glucose monitoring (explora- tory analysis). Dasiglucagon treatment was assessed to be safe and well tol- erated in the study, and out of patients chose to continue into the long-term extension study. Substantial burden of disease² • High resistance to existing medical treatment • High risk of seizures and permanent brain injury • Most severe cases require pancreatic surgery • Prolonged hospitalization and intolerable burden to patients, families, caregivers, and healthcare systems Dasiglucagon Subcutaneous Continuous Infusion Dasiglucagon is a potential first-in-class glucagon analog for the treatment of children with CHI. The potential of chronic dasiglucagon infusion delivered via a pump to prevent hypoglycemia in children with CHI is being evaluated in a Phase program. The aim is to reduce or eliminate the need for intensive hospital treatment, reduce the frequency of severe hypo glycemia and need for constant feeding, and to potentially delay or eliminate the need for pancreatectomy. The US Food and Drug Administration and the European Commission both granted orphan drug designation to dasiglucagon for the treatment of CHI. 31Zealand Pharma ∞ Annual Report 2020 Congenital Hyperinsulinism Phase 3 program spanning newborns to 12-year-olds Trial 17109 – Completed Trial 17103 – Ongoing Open-label extension study 17106 –Ongoing 32 patients, age 3 months-12 years. Trial completed Hypo-prone, maximum therapy, incl. pancreatic surgery 8 weeks of treatment (4 weeks follow-up) 25 days of treatment (4 weeks follow-up) Allows for long-term data Newly diagnosed, dependent on IV glucose Patients from 17109 and 17103 with ongoing positive benefit/risk 12 patients, age 7 days-12 months. First patients enrolled; phase 3 trial readout expected in 2021 Maximum 44 patients, age 1 month onwards 32Zealand Pharma ∞ Annual Report 2020 Phase 3 program spanning newborns to 12-year-olds Crosby Julie and her husband, Leighton, al- ready knew during pregnancy that their first child, Crosby, would be born with CHI. The disorder may cause Crosby to have cognitive and physical disabilities if not treated adequately. “I can close my eyes and easily remember sitting on the couch in our one- bedroom apartment, bawling hysterically, trying to tell my mother what's going on, not able to speak about it” Julie, mother of Crosby, who has CHI Read more of Crossby’s story at zealandpharma.com/crosbys-story 33Zealand Pharma ∞ Annual Report 2020 Type 1 diabetes management In spite of newer insulins and better administration systems, the vast majority of people with Type 1 diabetes are unable to reach glycemic goals as defined by the American Diabetes Association.¹ Maintaining good control of blood glucose levels for a person with type 1 diabetes requires continuous in- tervention with insulin. The amount of insulin admin- istered 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. Despite progress with faster acting modern insu- lins and novel insulin pumps connected to glucose sensors, current therapies require considerable eort by people with diabetes and their caregivers. As such, Type 1 diabetes remains one of the most burdensome diseases to manage. Achievements Beta Bionics initiated the pivotal insulin-only iLet trial in people with type diabetes. Late in the year we had the End-of- Phase meeting with the FDA to agree on the scope of the bi-homonal iLet. Next Steps Together with Beta Bionics we expect to initiate the pivotal bi-hormonal phase -trial with dasiglucagon in . Pettus et al., Diabetes Care () ():–. Russell S et al. . Conference. DIABETES TECHNOLOGY & THERAPEUTICS. Page A-. The iLet ® bionic pancreas is an investigational device limited by law to investigational use. Not available for sale. iLet™ A pocket-sized, dual- chamber, autonomous, glycemic control system (investigational device) Dasiglucagon for bi-hormonal artificial pancreas pump systems Zealand is developing a ml cartridge containing mg/ml dasiglucagon, intended for use in bi-hormonal 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. The iLet is the world’s first autonomous bionic pancreas device — a bi-hormonal system leveraging lifelong machine learning and artificial intelligence to deliver insulin and glucagon analogs for the autonomous treatment of type diabetes. Top-line results from a phase -trial in patients with type diabetes demonstrated that the bi-hormonal iLet using dasiglucagon provided superior glycemic control over the insulin-only iLet. During the bi-hormonal period, % of participants had a mean CGM glucose level of < mg/dL, corresponding to the glycemic target recommended by the ADA. The corresponding number for the insulin-only system was %. Importantly these glycemic targets were achieved while time spent with blood glucose levels < mg/ dL was only .% in the bihormonal and .% in the insulin-only arm.² 34Zealand Pharma ∞ Annual Report 2020 Type 1 Diabetes management Other Hypoglycemic conditions People with Type 1 diabetes often experience hypoglycemia after exercise and people who have undergone bariatric surgery as a treatment for obesity, experience reactive hypoglycemia after eating a meal. Today there are no approved treatment options for these conditions. Next Steps Initiation of a Phase outpatient study in people with Type diabetes and in people with post-bariatric hypoglycemia in . The studies will utilize a durable mini-dose pen, being developed by Zealand Pharma. Achievements We reported positive results in from a Phase trial in with dasiglucagon in PBH in March . The results demonstrated a single mini-dose injection of dasiglucagon in post bariatric hypoglycemic patients significantly reduced meal-induced hypoglycemia compared to placebo in individuals who have undergone gastric bypass bariatric surgery. We also initiated a Phase low-dose dasiglucagon trial for the prevention of insulin-induced hypoglycemia in Type diabetes in . Dasiglucagon mini doses Mini-dose dasiglucagon may provide an attractive treatment solution for people who experience hypoglycemic events such as Type diabetics or those who experience post bariatric hypoglycemia. ¹ Salehi M et al. JCEM ; ():-. ² Riddel MC et al. Lancet Diabetes Endocrinol. ;():-. Post-bariatric hypoglycemia Post-bariatric hypoglycemia can be severe and disabling. The prevalence is believed to be between -% of people who un- dergo bariatric surgery¹. There are no approved treatments for these people and as such there is a large unmet medical need. Exercise-induced hypoglycemia Many people with Type diabetes experience episodes of hypoglycemia during or after physical activity. This can result in improper diabetes management, with many people not getting to their recommended long-term glycemic targets². We believe their is a high unmet medical need for novel treatment oppor- tunities in this setting. 35Zealand Pharma ∞ Annual Report 2020 Other Hypoglycemic conditions Next Steps Two additional Phase -trials — one in obesity, one in NASH — are planned for initiation in . The first Phase trial in type diabetes is expected to complete this year. Achievements A Phase trial in patients with type diabetes was initiated in , based on the safety, tolerability, and favorable weight loss potential in individuals with a BMI up to kg/m² observed in Phase . This triggered a EUR million milestone payment to Zealand Pharma. Long-acting GLP-/GLU dual agonist (BI ) The GLP-/glucagon dual agonist activates two key hormone receptors simultaneously and may oer better blood sugar and weight-loss control than current single-hormone receptor agonist treatments. The lead molecule, BI , is targeting treatment of obesity, type diabetes and non-alcoholic steatohepatitis (NASH). Clinical development is carried out by Boehringer Ingelheim with whom Zealand Pharma has a long and productive partnership. Boehringer Ingelheim has a track record of excellence in research and development in cardiometabolic diseases which has resulted in important breakthroughs in recent years, especially in thromboembolic diseases and type diabetes. Under the terms of the agreement, Boehringer Ingelheim funds all research, development and commercialization activities. Zealand Pharma is entitled to receive up to EUR million in outstanding milestone payments. The agreement also carries high-single digit to low-double digit percentage royalties on global sales. Obesity / Type 2 diabetes Excessive weight and obesity are among the leading risk factors for heart disease, ischemic stroke, liver diseases and type 2 diabetes as well as for a number of cancers. There are insucient therapeutic options available, resulting in a high unmet medical need for safe and eective treatments that achieve significant weight loss. Include reference next to “Excessive weight and obesity…” (subtitle): Hruby A et al. Am J Public Health. ; (): –. 36Zealand Pharma ∞ Annual Report 2020 Obesity / type 2 diabetes Short bowel syndrome Patients with Short bowel syndrome (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 dam- age or trauma, and recurrent intestinal obstruction or congenital disorders.¹ , ² , ³ SBS aects an estimated 20,000-40,000 people in the US and Europe.⁴ SBS patients cannot absorb adequate fluids and nutri- tion taken orally, and those most severely aected 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 impairment including liver and kidney damage.² 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.⁵ 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 demonstrated an increase in the absorptive ca- pacity of the remaining intestine, thereby making the patients less dependent on parenteral support with some gaining full enteral autonomy. 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 eective, less complex and better tolerated treatments tailored to the needs of SBS patients. Achievements Worked diligently to support the patients and investigators in the Pivotal Phase trial to accommodate the constraints Imposed by Covid-. While recruitment into the trial was impaired in we have started to see patient enrolment increasing towards pre-Covid levels after the Introduction of vaccinations. Next Steps We continue to work closely with investigators on recruiting participants and progressing the Phase trial. Pending a continued positive development in enrolment we expect the results of the trial in . Pironi L et al. Clin Nutr ;:– Jeppesen P. Expert Opinion Orphan Drugs ;:– Bielawska B. Nutrients ;:– Transparency Market Research; Short Bowel Syndrome Market, Torres C. Current Paediatr ;:–; Bielawska B. Nutrients ;:–; Pironi L et al. Clin Nutr ;:–; Hofstetter S et al. Curr Med Res Opin ;:– Glepaglutide Glepaglutide is a long-acting GLP- analog being developed in an auto-injector with potential for convenient weekly administration. GLP- molecules stimulate the growth of intestinal tissue, increase nutrient and fluid absorption, increase intestinal blood flow, and reduce gastric secretion and emptying. 37Zealand Pharma ∞ Annual Report 2020 Short bowel syndrome Achievements We completed the first Phase a single-ascending dose, safety and tolerability trial in healthy volunteers in Q . Dapiglu- tide was found to have a good safety and tolerability profile, and we observed a plasma half-life, of approximately hours, allowing for once weekly dosing. We initiated and dosed the first subjects in the Phase b multiple-ascending dose safe- ty and tolerability trial in November. Next Steps We expect to complete the Phase b-trial in with the aim of initiating Phase -development in . Dapiglutide Dapiglutide is a potential first-in-class and long-acting GLP-R/ GLP-R dual agonist. It’s designed to improve management of SBS beyond what is achievable with regular GLP- treatments and may represent a next level of innovation for helping SBS patients to further realize the full potential for enteral autono- my. The gastrointestinal tract – in a healthy person and in a SBS patient Normal person Length of gastrointestinal tract ~8.5 m / ~25 ft SBS patient Length of gastrointestinal tract <2 m / ~6.5 ft 38Zealand Pharma ∞ Annual Report 2020 Short bowel - case Mike Mike was born with an abnormal cluster of veins in his small bow- el. When that cluster had ruptured, Mike 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. Reducing the complexity – and time spent – for parenteral support enables this driven college football coach to get back in the game. “I want it (SBS) to be a small part of my life. I don’t want it to define me in any way.” Mike, Living with short bowel syndrome Read more of Mike's story at zealandpharma.com/mikes-story 39Zealand Pharma ∞ Annual Report 2020 Corporate matters Corporate governance 41 Corporate responsibility 44 Our People and culture 46 Risk management and internal control 48 Financial review 50 Shareholder information 53 Board of Directors 55 Corporate Management 58 “2020 has been a year of unparalleled growth and transformation for Zealand and we will continue to be financially strong by eciently managing the investments we make in our research and development and commercial organizations.” Matt Dallas Senior Vice President and Chief Financial Ocer 40Zealand Pharma ∞ Annual Report 2020 Corporate matters Corporate Governance Zealand’s approach to corporate governance is founded on ethics and integrity, and forms the basis of our eorts to ensure strong confidence from our shareholders, partners, employees and other stakeholders. As a company incorporated under the laws of Den- mark, and with its shares admitted to trading and ocial 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 applicable legislations, standards and other regulations for pub- licly traded companies. These include Danish and US securities law and the recommendations on corpo- rate governance issued by the Danish Committee on Corporate Governance (in the below ‘‘the Recom- mendations’’). Management structure Zealand has a two-tier management structure com- posed of the Board of Directors (“the Board”) and the Corporate Management. The Board is responsible for the overall visions, strategies and objectives, the fi- nancial and managerial supervision of Zealand as well as for regular evaluation of the work of the Corporate Management. In addition, the Board provides general oversight of Zealand's activities and ensures that it is managed in a manner and in accordance with appli- cable law and Zealand's articles of association. The Board approves the policies and procedures, and Corporate Management is responsible for the day-to-day management of Zealand in compliance with the guidelines and directions set by the Board of Directors. The allocation of responsibilities between the Board and the Corporate Management is stipulat- ed in the Rules of Procedure. Corporate governance structure Annual General Meeting Board of Directors Nomination Committee¹ Corporate Management Organization ¹ The full board acts as its own nomination committee. Remuneration Committee Audit Committee 41Zealand Pharma ∞ Annual Report 2020 Corporate Governance 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 eleven times in 2020. Board Committees The Board has established a number of committees to support the Board in its duties: Audit Committee, Remuneration and Compensation Committee, and a Nomination Committee. Audit Committee The Audit Committee assists the Board of Directors with oversight of financial reporting, internal con- trol and risk management systems, external auditing of the annual report, and control of the auditor’s independence, including oversight of non-audit services and other activities delegated by the Board of Directors. Specific topics discussed in 2020 included account- ing treatment of acquisition of certain assets from Overview of meetings in 2020 Attended Absent Audit Remuneration Nomination Board Committee Committee Committee Martin Nicklasson Kirsten A. Drejer - - Jerey Berkowitz - Bernadette Connaughton - Alain Munoz - Leonard Kruimer - Michael J Owen - Jens Peter Stenvang - - Hanne Heidenheim Bak - - - Frederik Barfoed Beck - - - Gertrud Koefoed Rasmussen - - - Iben Louise Gjelstrup - - - retired as board member afterr AGM started as board member after AGM 42Zealand Pharma ∞ Annual Report 2020 CM - COVER The charter of the Audit Committee is available at: zealandpharma.com/audit-committee/ The charter of the Remuneration Committee, the re- muneration report, the remuneration policy and the guidelines for incentive pay are available at: zealandpharma.com/remuneration-committee The rules of procedure of the Nomination-Commit- tee are available at: zealandpharma.com/nomination-committee/ Valeritas Holdings Inc., election of new external au- ditor, auditor’s reports, accounting policies, internal controls, including SOX (Sarbanes-Oxley Act) com- pliance, risk management, insurance policy, year-end issues and external financing. The Audit Committee met ten times in 2020. Remuneration Committee The Remuneration Committee proposes the remu- neration policy and general guidelines for incentive pay for the Board of Directors and the CEO of Zea- land as well as targets for company-operated per- formance-related incentive programs. These policies and guidelines set out the various components of the remuneration, including fixed and variable remuner- ation such as pension schemes, benefits, retention bonuses, severance and incentive schemes as well as the related bonus and evaluation criteria. Specific topics discussed in 2020 included long-term incentive programs for management and Board of Directors, company goals, compensation policy for eligible employees, CEO and Board compensation and development of Zealand peer group. The Remuneration Committee met virtually five times in 2020. Nomination committee The Nomination Committee make recommendations for decisions to the Board of Directors regarding board and CEO positions and identifies and recom- mend candidates for the Board of Directors. Specific topics discussed in 2020 included the com- position of the independent members of the Board of Directors. One potential candidate was considered but no formal vote was taken with respect to the nomination of new members. The Nomination Committee met after each board meeting in 2020. Evaluation of the Board of Directors In an independent vendor, PWC, evaluat- ed the Board of Directors. The process included electronic ques- tionnaires and one on one interviews with members of the Board and members of the Corporate Management. There were also one on one meetings between the chairman and each board member. In general, there was a good level of satis- faction reported with the operation of the Board and its interaction with members of the Corporate Management. The evaluation, in general, revealed a good performance by the Board of Directors as well as good collabora- tion between the Board of Directors and the Corporate Management. Compliance with the Corporate Governance Recommendations Zealand complies with the Recommenda- tions on Corporate Governance issued by the Danish Committee on Corporate Governance, November , , with one exception: . Board committees (Recommendation, section ..): The Remuneration and Com- pensation 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 capacities: as advisers to the Executive Management and to the Remunera- tion Committee. 43Zealand Pharma ∞ Annual Report 2020 CM - Corporate Governance Corporate Responsibility As we work toward realizing our ambition of becoming a fully integrated biopharmaceutical company, to improve care for patients and deliver value for our shareholders, we further recognize the importance of protecting the world around us. We believe in operating as a responsible company that serves broader economic, societal, and environmental interests. We have incorporated selected UN Sustainable De- velopment Goals that are aligned to our business to further connect Zealand’s eorts with those of other companies to address global challenges. Zealand’s CSR policy focuses on areas most relevant to our core business: • Working environment, employee well-being, and diversity, • Quality in relation to research, development, and supply chain activities, • Patient-centric approach, • Environmental sustainability and climate, and • Business ethics. Commitment to Sustainable Development Goals Zealand is committed to addressing global challeng- es through support of the Sustainable Development Goals established by the United Nations. Six goals that are relevant to our business were placed into fo- cus last year, and we continue to identify and imple- ment initiatives and metrics to evaluate our progress in these areas. 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 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. Overall Zealand is made For the statutory reporting on corporate social responsibility, gender distribution and diversity in management cf. the Danish Financial Statement Act §a, §b and §d, please see the Corporate Social Responsibility Report at zealandpharma.com/csr 44Zealand Pharma ∞ Annual Report 2020 Corporate Responsibility 2020 2019 Men Women % 64 (67) 36 (33) up of 58% females (2019: 58%) and is regarded to be an even gender distribution. As of December 31, 2020, the Board of Directors consisted of four women and seven men, giving a female representation of 36% (2019: 33%). 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 eca- 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 Board of Directors as of December 31, 2020: 4 women and 7men giving a female representation of 36% (2019: 33%). Zealand Board of Directors 45Zealand Pharma ∞ Annual Report 2020 42 (42) 58 (58) 2020 2019 Men Women % Our People and culture Our team's well-being, competency development, and engagement are key to realizing our ambitious business goals. We strive to cultivate a diverse, unique, energizing, and respectful environment for all employees, regardless of their background. Engagement We are proud that close to 100% of employees across all geographies and functional areas believe in the future of Zealand, according to our 2020 engage- ment survey results. Our people are as dedicated and ambitious as ever, helping to achieve major organiza- tional goals despite the global COVID-19 pandemic. We aspire to maintain this level of engagement as we continue our journey. Talent Zealand strives to be among the very best employers in our industry as we continue our strategic focus on building a world-class, fully integrated biophar- maceutical organization. While building on Zealand’s unique strengths and culture, Zealand is increasing- ly diversifying our workforce to meet tomorrow's demands and keep our innovation power to attract "Everyday, our team approaches discovery and research projects with a unique combination of curiosity, determination and enthusiasm. This is the core of Zealand's success." Rie Schultz Hansen Vice President, Discovery and Innovation Zealand total 46Zealand Pharma ∞ Annual Report 2020 Our People and culture and retain global talent, we refreshed our company DNA in 2020 and values to reflect a global organ- ization and the values we represent. Through the co-business ownership of our employees, we can continue to grow a company with highly specialized employees committed to changing lives by evolving our business and our pipeline In 2020, the executive management team and board of directors engaged in talent and succession planning discussions to ensure business continuity and health. Through the co-business ownership of our employees, we can continue to grow a com- pany with highly specialized employees committed to evolving our business and our pipeline, who also share our dedication to changing lives. Safe work environment Zealand works systematically to maintain a safe and healthy work environment. We maintain 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. 47Zealand Pharma ∞ Annual Report 2020 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. 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 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 ecient manner. 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 Commercial activities – products in research and development Research and development Risk Risks relating to the sales of V-Go ® , market size, competition, develop- ment time and costs, partner interest and pricing of products in development. Research and develop- ment of new pharma- ceutical medicines is inherently a high-risk activity. The probabil- ity of discovering and developing an ecient and safe new medicine with strong IP protection is very low. Mitigation Zealand maintains a reporting system for V-Go ® to monitor the product and will establish a similar system for future launches. 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. In order to cope with the restrictions imposed by COVID- Zealand has adapted its marketing ac- titives to protect its sta and patients. Throughout the research and development pro- cess, Zealand regularly assesses these risks by means of a quarterly risk assessment of all the Company’s research and development projects, conducted by Manage- ment 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 mile- stones. It analyzes the individual risks of each project and prioritizes the project portfolio. 48Zealand Pharma ∞ Annual Report 2020 Risk management and internal control Zealand risk and mitigation – continued Clinical trials Intellectual property Regulatory Future partnerships Financial IT Risk Our product candidates will need to undergo time-con- suming and expensive trials to document ecacy 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 e- cacy to the FDA, the EMA and other comparable regulatory authorities, Zealand may incur additional costs or experi- ence 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 parties, an adverse outcome could subject Zealand or its part- ners to significant liabilities to such third parties. This could lead Zealand or its partners to curtail or cease the develop- ment 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 approval for their internal or outli- censed product candidates, Zealand’s business could be substantially harmed. 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 risks relate to cash and treasury management, liquidity forecasts and financ- ing opportunities. The company’s information technology systems are key to its operations and need protection from intrusion from unauthorized entry. Mitigation 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 select- ed due to their extensive ex- perience within their field of expertise, receive training and are continuously developed to fulfill requirements. Zea- land also engages in meetings with regulatory authorities to ensure that there is alignment on the regulatory strategy and trial requirements. Zealand’s patent department works closely with external patent counsels and partners’ patent counsels to minimize the risk of patent infringe- ment claims as well as to prepare any patent defense 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 de- partment works closely with external consultants and regulatory agents to develop regulatory strategies and frequently interacts with regulatory agencies. Zealand has taken a decision to increase its focus on pro- prietary programs in order to decrease its dependence on partners in the development process and capture more of the value of its projects. Partnerships may still be relevant in the future and, to maximize the value of such partnerships, Zealand strives to foster a close and open dialogue with its partners, thereby building strong part- nerships that work eectively. Financial risks are managed in accordance with the Finance Policy, regularly assessed by the Company’s Management and reported to the Audit Committee and the Board of Directors. During and Zealand has worked to design and implement an In- ternal Control Framework to respond to the requirements of the Sarbanes- Oxley Act as a result of the US listing.See also p. , note - Financial risks. The company employs qualified IT professionals who use external assistance from qualified vendors to provide advice on cyber- security and systems security were relevant. All members of sta are trained in IT security and its IT systems use authentication systems to reduce the risk of unauthorized entry into its systems. It has appropriate protection from viruses and malware. Its most sensitive data is encrypted and subject to restricted internal use. 49Zealand Pharma ∞ Annual Report 2020 CM - Corporate responsibility Financial review Financial review for the period January 1 – December 31, 2020. Comparative figures for the corresponding period in 2019 are shown in brackets except for the financial position, which expresses the comparative figures as of December 31, 2019. Financial results Revenue, cost of goods sold, and gross margin re- ported for V-Go are as of the closing of the Valeritas Asset Purchase on April 2, 2020 and do not include figures from the first quarter of 2020. Revenue ∆ in DKK million ∆ percent Sale of goods . . % License and milestone revenue . . . % Total revenue . . . % Revenue was driven by net sales of the V-Go wear- able insulin delivery device, the phase 2 milestone payment triggered in June 2020 from our partnership agreement with Boehringer Ingelheim and revenue recognition related to our collaboration with Alexion. Gross margin ∆ in DKK million ∆ percent Gross margin . . . % The increase in gross margin is due to V-Go sales in 2020 and the revenue incurred as a result of the Boehringer Ingelheim phase 2 milestone. Research and development expenses ∆ in DKK million ∆ percent Research and development expenses . . . % The increase in research and development expenses mainly relates to the regulatory eorts to support the NDA filing for the dasiglucagon auto-injector and pre-filled syringe for severe hypoglycemia, the on- going clinical development of the dasiglucagon and glepaglutide programs, as well as pre-clinical and re- search activities for the Zealand early stage pipeline. The R&D share of the personnel expenses for the year ended December 31, 2020 was DKK 204.2 million (178.1). The increase is mainly related to an increase in the number of employees in the clinical development organization. Sales and marketing expenses ∆ in DKK million ∆ percent Sales and marketing expenses . . % Zealand’s commercial activities commenced in 2020 with the acquisition of the Valeritas business in April 2020. 50Zealand Pharma ∞ Annual Report 2020 Financial review Administrative expenses ∆ in DKK million ∆ percent Administrative expenses . . . % The primary increase in administrative expenses is a result of the expansion of the company through the Valeritas acquisition including consulting and legal costs related to the transaction, new compensation expenses for employees brought on board as part of the acquisition, and administrative support for the V-Go program. Operating result ∆ in DKK million ∆ percent Operating result -. -. -. -% The operating result reflects gross margin, research and development expenses, sales and marketing and administrative expenses, as discussed above and oth- er operating expenses explained in note 7. Financial income and financial expenses ∆ in DKK million ∆ percent Net financial items -. . -. -% Financial income and financial expenses, which we refer to collectively as net financial items, consist of interest income and expense, dividend, banking fees and impact from adjustments from changes in currencies. The decrease is primarily driven by un- favorable changes in currencies by DKK 39.5 million and unfavorable impact from fair value adjustment by DKK 2.1 million. Result before tax ∆ in DKK million ∆ percent Result before tax -. -. -. -% Result before tax reflects the operating result and net financial items, as discussed above. Income tax ∆ in DKK million ∆ percent Income tax -. . -. -% The net income tax benefit is mainly impacted by DKK 5.5 million related to the Danish tax credit scheme (Skattekreditordningen) under which compa- nies may annually obtain payment of the tax base of losses originating from R&D expenses of up to DKK 25.0 million (tax value of DKK 5.5 million) and oset by income tax expenses in USA. No deferred tax asset regarding the Danish parent company has been recognized in the statement of financial position due to uncertainty as to whether tax losses carried forward can be utilized within the near term. Net result ∆ in DKK million ∆ percent Net result -. -. -. -% The increase is primarily a result of the increases in Research and development and sales and marketing expenses. 51Zealand Pharma ∞ Annual Report 2020 Liquidity and capital resources Equity Dec. Dec. ∆ in DKK million , , ∆ percent Equity ,. ,. -. -% Equity ratio % % N/A N/A Equity ratio is calculated as equity at the balance sheet date divided by total assets at the balance sheet date. The decrease in equity is driven by the loss for the period oset by the costs from the direct issue and private placement in June of DKK 657.7 million, the private placement in March of DKK 137.2 million, and issue of shares related to exercise of warrants of DKK 31.8 million oset by the loss for the period and costs incurred in connection with the capital increas- es. Cash, cash equivalents and Marketable securities Dec. Dec. ∆ in DKK million , , ∆ percent Cash, cash equivalents and Marketable securities ,. ,. . -% The year over year decrease in cash and cash equiv- alents is partially due by the increase in cash used for operations as well as the USD 24.5 million payment for the Valeritas asset purchase agreement oset by capital increases resulting from a private placement in March, a financing completed in June as well as the EUR 20.0 million Boehringer Ingelheim milestone triggered in June. Cash flow ∆ in DKK million ∆ percent Cash used in operating activities -. -. -. % Cash used in investing activities -. -. -. % Cash flow from financing activities . . . % Net cash flow -. -. -. % The increase in cash used in operating activities from the same period in 2019 is mainly related to our research and development and sales and market- ing expenses increasing as a result of the regulatory and pre-commercial activities for the dasigluca- gon auto-injector and pre-filled syringe for severe hypoglycemia as well as the commercial activities and support for the V-Go wearable insulin delivery device. Cash used in operating activities was positive- ly impacted by the upfront payment from the Alexion license agreement received in 2019. Cash used in investing activities in 2020 related mainly to the acquisition of Valeritas business of DKK 167.7 million. Cash flow from investing activities for 2019 was primarily related to the Beta Bionics investment and the payment from Royalty Pharma for royalty expenses related to the sale of future royalty and milestones (remainder balance from the 2018 transaction). Cash from financing activities increased primarily as a result of the March private placement and June financing in an aggregate amount of DKK 794.9 million. Cash from financing activities for 2019 was mainly related to a capital increase as part of the agreement with Alexion and a private placement completed in 2019. 52Zealand Pharma ∞ Annual Report 2020 20 (43) 31 (22) 38 (2) 5 (11) 1 (7) 0 (6) 5 (9) % Denmark United Kingdom Sweden France Rest of Europe Rest of World United States 2020 2019 Shareholder information Zealand is dual listed on Nasdaq Copenhagen and Nasdaq Global Select Market, New York, under the ticker symbol ZEAL. At December 31, 2020, the nominal value of Zealand’s share capital was DKK 39,799,706, divided into 39,799,706 shares with a nominal value of DKK 1 each. Zealand Pharma completed a capital increase in January 2021, following the registration of the new shares, Zealand's nominal share capital amounts to DKK 43,400,547 divided into 43,400,547 shares with a nominal value of DKK 1 each. In 2020 the share capital increased by a nominal value of DKK 3.7 million through two directed issues and private placements (DKK 3.4 million in total) and exercise of employee warrants (DKK 0.3 million). All Zealand shares are ordinary shares and belong to one class. Each share listed by name in Zealand’s share- holder register represents one vote at the annual general meeting and other shareholders’ meetings. Change in number of shareholders during 2020 The number of registered shareholders in Zealand Pharma increased to 17,677 at December 31, 2020, from 14,567 at December 31, 2019. In addition, 1,742,842 shares were represented by ADSs traded on Nasdaq Global Select Market, New York. At March 8, 2021, Zealand had 19,248 registered shareholders, representing a total of 39,546,329 shares. Institutional shares by geography Ownership The following shareholders are registered in Zealand Pharma’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 2, 2021: • Van Herk Investments, Netherlands (16.8% of votes/16.8% of capital). 'See note for information on ownership per December , 53Zealand Pharma ∞ Annual Report 2020 Shareholder information Index January February March April May June July August September October November December 60 70 80 90 100 110 120 130 140 Zealand Pharma OMX Copenhagen Mid Cap NASDAQ Biotech Share price performance The price of Zealand’s shares decreased by 6% during 2020 with a share price at year-end of DKK 220.6, compared to DKK 235.4 at year-end 2019. As of January 4, 2021, Zealand Pharma moved to the Large Cap from the Mid Cap segment at Nasdaq Copenhagen. The Large Cap segment includes com- panies with a market value of EUR 1 billion or more. Nasdaq charting 2020 of Zealand's share price Annual General Meeting The annual general meeting is scheduled to be held on Thursday, April 15, 2021 at 3:00 PM CET, at Zealand Pharma, Sydmarken 11, DK-2860 Søborg. Additional information will become available at www. zealandpharma.com/annual-general-meeting no lat- er than 3 weeks before the annual general meeting. Financial calendar Date Event April Annual General Meeting May Interim report for Q August Interim report for H November Interim report for Q All dates are subject to NASDAQ deadlines and reporting re- quirements and are subject to change. Find out more about our investor relations at zealandpharma.com/investor-relations Analyst coverage Zealand is followed by the financial institutions and analysts listed below: Institution Analyst’s name US Guggenheim Etzer Darout Morgan Stanley David N. Lebowitz Needham Joseph Stringer United Kingdom Goldman, Sachs & Co. Graig C. Suvannavejh Jeeries Peter Welford France Bryan, Garnier & Co Eric Le Berrigaud Netherlands Kempen Suzanne van Voorthuizen Denmark Carnegie Jesper Ilsøe Danske Bank Thomas Bowers Nordea Michael Novod Core share data Denmark U.S. Number of shares ,, ,, and ADSs at Dec. , Listing Nasdaq Nasdaq Global Select Copenhagen Market, New York Ticker symbol ZEAL ZEAL Index memberships Nasdaq STOXX Europe Copenhagen TMI Pharm Large Cap 54Zealand Pharma ∞ Annual Report 2020 CM - Financial review Board of Directors and Corporate Management Martin Nicklasson Kirsten A. Drejer Jerey Berkowitz Position Chairman Vice Chairman Board member Year of birth 1955 1956 1966 Nationality Swedish Danish American Gender Male Female Male First elected 2015 2018 2019 Committee AuC, RemCo chair and NomCo chair NomCoo AuC, NomCo Independent Yes Yes Yes Special competencies Extensive general management and research and development experience from AstraZeneca Plc and Swedish Orphan Biovitrum AB. More than years of interna- tional experience in the phar- maceutical and biotech industry. Before co-founding Symphogen A/S in , held several scientific and managerial positions at Novo Nordisk A/S. Global executive with extensive branded and generic pharmaceu- tical, retail pharmacy, wholesale drug distribution, specialty, payor and healthcare services leadership experience in P&L accountable roles. Current positions Chairman of the board of Kymab Ltd. Board member of Basilea Pharmaceutica Ltd. Chairman of the board of Bioneer A/S, Antag Therapeutics ApS, and ResoTher Pharma ApS. Board member of Bioporto A/S, Lyhne & Co, and Alligator Bioscience. Advisory board member of The Faculty of Pharmaceutical Scienc- es, Univ. of Copenhagen, and DTU Bioengineering. Expert panel member for InnoBooster grants. Member of the Board of Directors of H. Lundbeck A/S, Esperion Theraptics, Inc. and Uniphar PLC. Zealand shares at December 31, 2020 2,570 800 200 Zealand warrants at December 31, 2020 0 0 0 Change in owner- ship in 2020 +1,570 +300 +200 Zealand Board of Directors at March 11, 2021 Find out more about the Board of Directors at zealandpharma.com/ board-of-directors-and-nomination-committee 55Zealand Pharma ∞ Annual Report 2020 Board of Directors and Corporate Management Bernadette Connaughton Leonard Kruimer Alain Munoz Michael John Owen Position Board member Board member Board member Board member Year of birth 1958 1958 1949 1951 Nationality American Dutch French British Gender Female Male Male Male First elected 2019 2019 2005¹ 2012 Committee AuC, NomCo AuC Chair, NomCo RemCo, NomCo RemCo, NomCo Independent Yes Yes No Yes Special competencies More than years of global strategic, commercial and leadership expertise, and a broad perspective on the strategy, capabilities and governance required for successful execution in U.S. and interna- tional markets. More than years of experience in corporate finance, planning and strategy, including years in senior executive positions in private and publicly listed biotechnology companies. Physician qualified cardiology and intensive care. Experience in the pharma- ceutical industry at senior management level. Served as SVP for international development in the Sanofi Group and in the pharmaceutical division of Fournier Laboratories. Research experience focusing on the immune system and more than publi- cations. Has held several leading positions at GlaxoSmithKline, most recently as SVP and head of biopharmaceuticals research. Current positions Board member of Halozyme Therapeu- tics, Inc. and Syneos Health, Inc. Chairman of the Board of BioInvent International AB and independent board member of Oncolytics. Member of the investment advisory council of Karmijn Kapitaal. Director AI Global Investments (Netherlands) PCC Ltd. Independent board member of Amryt Pharma, Auris Medical and Oxthera. Member of the Scientific advisory board of Valneva SE. Chairman of the board of Ossianix Inc. Member of the board of Avacta Group plc, ReNeuron Group plc, Sareum Holdings plc, Iksuda Therapeutics and GammaDelta Therapeutics. Adviser to the CRT Pioneer Fund. Zealand shares at December 31, 2020 500 4,000 5,250 300 Zealand warrants at December 31, 2020 0 0 0 0 Change in owner- ship in 2020 0 0 0 0 ¹ Resigned in 2006 and re-elected in 2007. ² Employee-elected board members are elected for a period of four years. Zealand Board of Directors at March 11, 2021, continued 56Zealand Pharma ∞ Annual Report 2020 Frederik Barfoed Beck Gertrud Koefoed Rasmussen Iben Louise Gjelstrup Jens Peter Stenvang Position Employee-elected board member¹ Employee-elected board member¹ Employee-elected board member¹ Employee-elected board member ¹ Year of birth 1967 1972 1977 Nationality Danish Danish Danish Danish Gender Male Female Female Male First elected 2020 2020 2020 Committee Independent No No No No Special competencies Current positions Senior Outsourcing Manager Director, Clinical Operations, GI and Translational Development Principal Laboratory Technologist Senior Application Specialist Zealand shares at December 31, 2020 4,798 0 840 , Zealand warrants at December 31, 2020 9,700 10,750 2,750 , Change in owner- ship in 2020 +2,000 0 +100 +, ¹ Employee-elected board members are elected for a period of four years.. Zealand Board of Directors at March 11, 2021, continued 57Zealand Pharma ∞ Annual Report 2020 Emmanuel Dulac Matthew Dallas Adam Steensberg Ivan Møller Position Executive Management President and Chief Executive Ocer Executive Management Senior Vice President and Chief Financial Ocer Executive Management Executive Vice President, Research and Development, and Chief Medical Ocer Senior Vice President, Technical Development and Operations Year of birth 1969 1975 1974 1972 Nationality French American Danish American/Danish Gender Male Male Male Male Joined Zealand 2019 2019 2010 2018 Experience Prior to joining Zealand Pharma, Emmanuel was Chief Commercial Ocer for Alny- lam Pharmaceuticals, a biopharmaceutical company based in Boston, where he was responsible for establishing country opera- tions and building commercial capabilities to successfully launch their first commercial drug. Emmanuel is a board member of Proteosta- sis Therapeutics, Inc. Prior to joining Zealand Pharma, Matt served as chief financial ocer at Aveo Pharmaceu- ticals, leading finance for the publicly traded biotechnology company and was addi- tionally responsible for investor relations, facilities and information technology. He was previously CFO at CoLucid Pharmaceuticals, which was acquired by Eli Lilly. His earlier career included positions at Genzyme, NEN Life Science Products, and Kimberly Clark. Prior to joining Zealand, Adam led clini- cal research teams as medical director at Novo Nordisk and worked as a clinician at Rigshospitalet, University of Copenhagen. Adam was a medical and scientific advisor in the areas of endocrinology, cardiology, gastroenterology and rheumatology, and has significant experience of leading regulatory strategies. Adam is a board observer at Beta Bionics, Inc. and a board member of Cessatech ApS. Prior to joining Zealand, Ivan worked for Novartis in both generics and pharmaceu- tical manufacturing, as well as in strategy, quality assurance, contract manufacturing and supply chain leadership in Germany, the US and Switzerland. Earlier, Ivan was project leader at Boston Consulting Group in the pharmaceutical R&D and manufacturing areas. Zealand shares at December 31, 2020 0 0 0 0 Zealand warrants at December 31, 2020 113,848 51,275 208,286 81,420 Zealand PSUs at December 31, 2020 8,835 0 5,065 2,803 RSUs at December 31, 2020 6,657 4,019 3,990 3,018 Change in ownership in 2020 0 0 -17,011 0 Zealand Corporate Management at March 11, 2021 58Zealand Pharma ∞ Annual Report 2020 Corporate management Marino Garcia Frank Sanders Position Senior Vice President, Business Development, International Commercial and New Product Planning Senior Vice President, President Zealand Pharma US, Inc. Year of birth 1966 1969 Nationality Canadian/Spanish American Gender Male Male Joined Zealand 2018 2020 Experience Marino has almost years of global pharma and biotech experience in senior com- mercial, corporate strategy, and business development roles. He has held various US. and international leadership positions of increasing responsibility at pharmaceutical companies, including Synergy Pharma, Apta- lis Pharma, Vifor Pharma, Aspreva Pharma- ceuticals, Pfizer and Eli Lilly & Co. Frank has an accomplished career with over years of experience in the pharmaceutical industry. Prior to Zealand, Frank was Senior Vice President, US Commercial for Sage Therapeutics, a biopharma- ceutical company based in Cambridge, Massachusetts. At Sage, he had direct General Manager responsibility for Sales, Account Man- agement, Marketing, Patient Services and Commercial Operations and was responsible for the design, build, and overall performance of the US commercial function. Prior to joining Sage, Frank served as Vice President, Market Access Strategic Account Management at Janssen Pharmaceutical Companies of Johnson & Johnson and held a wide range of leadership roles for GlaxoSmithKline including Vice President, Customer Strategy and Vice President, Field Sales. Zealand shares at December 31, 2020 0 0 Zealand warrants at December 31, 2020 80,711 43,217 Zealand PSUs at December 31, 2020 3,062 0 RSUs at December 31, 2020 3,918 5,864 Change in ownership in 2020 0 0 59Zealand Pharma ∞ Annual Report 2020 Financial statements 60Zealand Pharma ∞ Annual Report 2020 Financial statements Notes 1 Significant accounting policies, and significant accounting estimates and assessments 66 2 Revenue 71 3 Royalty expenses 75 4 Research, development and administrative expenses 76 5 Fees to auditors appointed at the Annual General Meeting 76 6 Information on sta and remuneration 76 7 Other operating, net 81 8 Financial income 82 9 Financial expenses 82 10 Income tax 83 11 Basic and diluted earnings per share 84 12 Impairment 85 13 Intangible assets 86 14 Property, plant and equipment 87 15 Right-of-use assets and lease liabilities 89 16 Inventory 90 17 Other investments 91 18 Trade receivables 91 19 Prepaid expenses 91 20 Other receivables 92 21 Marketable securities 92 22 Cash and cash equivalents 92 23 Share capital 92 24 Deferred revenue 93 25 Provision 93 26 Other liabilities 94 27 Contingent assets, liabilities and other contractual obligations 94 28 Financial risks 94 29 Business combinations 97 30 Related parties 99 31 Adjustments for non-cash items 99 32 Change in working capital 99 33 Significant events after the balance sheet date 99 34 Approval of the annual report 99 Contents – consolidated financial statements Consolidated financial statements Income statement 62 Statement of comprehensive income 62 Statement of financial position 63 Statement of cash flows 64 Statement of changes in equity 64 Business overview 65 61Zealand Pharma ∞ Annual Report 2020 Con Fin – Content Consolidated statements of comprehensive income for the years ended December , , and DKK thousand Note Net result for the year -846,729 -571,541 581,278 Other comprehensive income Items that will be reclassified to income statement when certain conditions are met: Exchange dierences on translation of foreign operations 8,977 0 0 Comprehensive result for the year -837,752 -571,541 581,278 Total comprehenvise income attributable to shareholders of Zealand Pharma A/S -837,752 -571,541 581,278 The Business overview on page and the accompanying notes on pages to form an integral part of these financial statements. Consolidated income statement for the years ended December , , and DKK thousand Note Revenue 353,314 41,333 37,977 Cost of goods sold -90,565 0 0 Royalty expenses 0 -415 -3,356 Gross margin 262,749 40,918 34,621 Research and development expenses , -604,081 -561,423 -438,219 Sales and marketing expenses ,, -285,256 0 0 Administrative expenses , -202,770 -67,881 -43,543 Operating expenses -1,092,107 -629,304 -481,762 Other operating items, net 36,997 444 1,099,526 Operating result -792,361 -587,942 652,385 Financial income 2,022 14,655 9,988 Financial expenses -49,314 -3,390 -37,322 Result before tax -839,653 -576,677 625,051 Income tax (expense) benefit -7,076 5,136 -43,773 Net result for the period -846,729 -571,541 581,278 Earnings/(loss) per share – basic (DKK) -22.07 -16.91 18.94 Earnings/(loss) per share - diluted (DKK) -22.07 -16.91 18.94 Net result attributable to shareholders of Zealand Pharma A/S -846,729 -571,541 581,278 Consolidated financial statements 62Zealand Pharma ∞ Annual Report 2020 Con Fin – Income Statement Consolidated statements of financial position as of December , and DKK thousand Note Assets Non-current assets Intangible assets , 57,485 2,480 Property, plant and equipment 85,040 39,708 Right-of-use assets 127,998 85,632 Deposits 16,650 9,012 Corporate tax receivable 1,268 0 Prepaid expenses 13,117 0 Deferred tax assets 8,370 0 Other investments 32,333 35,632 Total non-current assets 342,261 172,464 Current assets Inventories 65,040 0 Trade receivables 46,484 751 Prepaid expenses 35,156 30,755 Corporate tax receivable 5,500 7,101 Other receivables 9,942 7,935 Marketable securities 297,345 299,448 Cash and cash equivalents 960,221 1,081,060 Total current assets 1,419,688 1,427,050 Total assets 1,761,949 1,599,514 DKK thousand Note Liabilities and equity Share capital 39,800 36,055 Share premium 3,470,787 2,650,142 Currency translation reserve 8,977 0 Accumulated loss -2,290,253 -1,443,524 Shareholders' equity 1,229,311 1,242,673 Deferred revenue 44,587 83,639 Other liabilities 16,744 0 Lease liabilities 116,047 78,068 Non-current liabilities 177,378 161,707 Trade payables 70,384 57,533 Corporate tax payables 30,394 614 Lease liabilities 14,072 7,692 Deferred revenue 53,182 56,251 Discount and rebate provision 36,673 0 Other liabilities 150,555 73,044 Current liabilities 355,260 195,134 Total liabilities 532,638 356,841 Total shareholder' equity and liabilities 1,761,949 1,599,514 Consolidated financial statements 63Zealand Pharma ∞ Annual Report 2020 Con Fin – Financial position Consolidated statements of cash flows for the years ended December , , and DKK thousand Note Net result for the year -846,729 -571,541 581,278 Bargain purchase -36,395 0 0 Adjustments for other non-cash items 143,138 9,207 101,930 Change in working capital 97,818 10,873 12,785 Interest received 895 5,413 4,263 Interest paid -4,562 -3,390 -16,705 Deferred revenue -42,881 139,890 0 Sale of future royalties and milestones 0 0 -1,105,471 Income tax paid/received 0 93 -39,500 Cash flow from operating activities -688,716 -409,455 -461,420 Acquisition of Valeritas business, net of cash acquired -167,791 0 0 Transfer from restricted cash related to royalty bond 0 0 6,124 Sale of future royalties and milestones 0 0 1,275,802 Royalty expenses regarding sale of future royalty and milestones 0 0 -170,331 Change in deposits -3,972 -6,250 -33 Purchase of other investments and marked securities 0 -22,803 -225,719 Purchase of property, plant and equipment -25,044 -21,036 -4,038 Purchase of intangible assets 0 -2,480 0 Sale of property, plant and equipment 0 25 0 Dividends on securities 0 878 1,020 Cash flow from investing activities -196,807 -51,666 882,925 Proceeds from issuance of shares related to exercise of share based compensation 41,363 52,468 2,884 Proceeds from issuance of shares 791,503 645,145 0 Costs related to issuance of shares -42,706 -14,444 -22 Lease installments -29,219 -8,689 -158,311 Cash flow from financing activities 760,941 674,480 -155,449 Decrease/increase in cash and cash equivalents -124,582 213,359 266,056 Cash and cash equivalents at beginning of period 1,081,060 860,635 588,718 Exchange rate adjustments 3,743 7,066 5,861 Cash and cash equivalents at end of period 960,221 1,081,060 860,635 Consolidated statements of changes in shareholders' equity at December , , and Share Share Translation Retained DKK thousand capital premium reserve losses Total Equity at January , 36,055 2,650,142 0 -1,443,524 1,242,673 Other comprehensive income 0 0 8,977 0 8,977 Net result for the year 0 0 0 -846,729 -846,729 Share based compensation 0 30,485 0 0 30,485 Capital increases 3,745 832,866 0 0 836,611 Cost related to capital increases 0 -42,706 0 0 -42,706 Equity at December , 39,800 3,470,787 8,977 -2,290,253 1,229,311 Equity at January , 30,787 1,957,477 0 -871,983 1,116,281 Other comprehensive income 0 0 0 0 0 Net result for the year 0 0 0 -571,541 -571,541 Share based compensation 0 14,764 0 0 14,764 Capital increases 5,268 692,345 0 0 697,613 Cost related to capital increases -14,444 0 0 -14,444 Equity at December , 36,055 2,650,142 0 -1,443,524 1,242,673 Equity at January , 30,751 1,937,179 0 -1,453,261 514,669 Other comprehensive income 0 0 0 0 0 Net result for the year 0 0 0 581,278 581,278 Share based compensation 0 17,472 0 0 17,472 Capital increases 36 2,826 0 0 2,862 Equity at December , 30,787 1,957,477 0 -871,983 1,116,281 Consolidated financial statements 64Zealand Pharma ∞ Annual Report 2020 Con Fin – Cash Flow Con Fin – Equity Consolidated financial statements Business overview Zealand (the “Company”, the “Group”, “Zealand” and “we”) was founded in and is a bio- technology company focused on the discovery and development of innovative peptide-based medicines. More than drug candidates invented by Zealand have advanced into clinical de- velopment, of which two have reached the market. Zealand’s current pipeline of internal prod- uct candidates focus on specialty gastrointestinal and metabolic diseases. Zealand’s portfolio also includes two clinical license collaborations with Boehringer Ingelheim and one discover and develop collaboration with Alexion Pharmaceuticals. In September we entered into an agreement with Royalty Pharma to transfer all the royal- ties that we were due to earn from our agreement with Sanofi in exchange for an upfront one-time payment of USD million. Excluded from this agreement was a potential milestone payment from Sanofi of up to USD million. In April , we acquired substantially all of the medical technology business from Valeritas Holdings, Inc. Refer to note . Please refer to page for an overview of our Pipeline. Owner- Voting Company summary Domicile ship rights Zealand Pharma A/S subsidiaries ZP Holding SPV K/S Denmark % % ZP General Partner ApS Denmark % % Zealand Pharma US Inc. United States % % Zealand Pharma California US, LLC. United States % % Encycle Therapeutics Inc. Canada % % ZP SPV K/S Denmark % % ZP General Partner ApS Denmark % % ZP Holding SPV K/S subsidiaries ZP SPV K/S Denmark % % ZP General Partner ApS Denmark % % 65Zealand Pharma ∞ Annual Report 2020 Con Fin – Business overview Notes Note – 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 (class D). The Board of Directors considered and approved the Annual Report of Zealand on March , . The Annual Report will be submitted to the shareholders of Zealand for approval at the Annual General Meeting on April , . The consolidated financial statements are presented on a historical cost basis, except for cer- tain financial assets and liabilities measured at fair value. 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 , or 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 observable 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 Parent Company. In the narrative sections of the financial statements, comparative figures for and are shown in brackets if not indicated otherwise. Implementation of new and revised standards and interpretations A few amendments apply for the first time in , but do not have an impact on the consoli- dated financial statements of the Group. Amendments to IFRS : Definition of a Business The amendment to IFRS clarifies that to be considered a business, an integrated set of activ- ities and assets must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output. Furthermore, it clarified that a business can exist without including all of the inputs and processes needed to create outputs. Amendments to IFRS , IFRS and IAS : Interest Rate Benchmark Reform The amendments to IFRS , IFRS and IAS Financial Instruments: Recognition and Meas- urement provide a number of reliefs, which apply to all hedging relationships that are directly aected by interest rate benchmark reform. A hedging relationship is aected if the reform gives rise to uncertainties about the timing and or amount of benchmark-based cash flows of the hedged item or the hedging instrument. Amendments to IAS and IAS : Definition of Material The amendments provide a new definition of material that states “information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity.” The amendments clarify that materiality will depend on the nature or magnitude of informa- tion, either individually or in combination with other information, in the context of the financial statements. A misstatement of information is material if it could reasonably be expected to influence decisions made by the primary users. 66Zealand Pharma ∞ Annual Report 2020 Con Fin – Note 1 Notes Note – Significant accounting policies, and significant accounting estimates and assessments (continued) Standards and interpretations issued, but not yet applied IASB has issued a number of new and amended standards which are not yet eective. None of these new standards or amendments are expected to impact the Group. Accounting policies The Group has applied new accounting policies to the following areas as a consequence of the acquisition of the Valeritas business as disclosed in note . • Revenue (extended) • Cost of goods sold • Sales and marketing expenses (extended) • Impairment testing (Extended) • Inventories • Trade receivables write-down (extended) • Discount and rebate provision • Business combinations The accounting policies are apart from the line items above unchanged from last year. The accounting policies for specific line items and transactions are included in the respective notes to the financial statements except for basis and principles of consolidation, foreign currency translation, classification of income statement, segment reporting, classification of financial assets 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 aect 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. 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. Functional currency A functional currency is determined for each Group entity. The functional currency is the cur- rency used in the primary financial environment in which the individual Group entity operates. Foreign currency translation Transactions denominated in currencies other than the transacting entity's functional currency are translated at the exchange rates on the transaction dates. Exchange dierences 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 statement of financial position date are translated by applying the ex- change rates at the statement of financial position date. Dierences arising between the rate at the statement of financial position date and the rate at the date on which the receivable or pay- able arose are recognized in the income statement as financial income and financial expenses. Recognition in the consolidated financial statements On preparation of the consolidated financial statements, the income statements of entities with a functional currency dierent from DKK are translated at the average exchange rate for the pe- riod, and balance sheet items are translated at the exchange rate ruling at the reporting date. Foreign exchange dierences arising on translation of the equity of foreign entities and on translation of receivables considered part of net investment are recognised directly in other comprehensive income. Foreign exchange dierences arising on the translation of income statements from the average exchange rate for the period to the exchange rate ruling at the reporting date are also recog- nised in other comprehensive income. Adjustments are presented under a separate translation reserve in equity. Materiality in financial reporting In preparing the Annual Report, Management seeks to improve the information value of the consolidated financial statements, the notes to the statements and other measures disclosed by presenting the information in a way that supports the understanding of the Group’s perfor- mance in the reporting period. This objective is achieved by presenting fair transactional aggregation levels on line items and other financial information, emphasising information that is considered of material importance to the user and making relevant rather than generic descriptions throughout the Annual Report. 67Zealand Pharma ∞ Annual Report 2020 Notes Note – Significant accounting policies, and significant accounting estimates and assessments (continued) All disclosures are made in compliance with the International Financial Reporting Standards, the Danish Financial Statements Act and other relevant regulations, ensuring a true and fair view throughout the Annual Report. Consolidated financial statements Income statement The expenses recognized in the income statement is presented as an analysis using a classifica- tion based on their function. Cost of goods sold Cost of goods sold includes raw materials, labor costs, manufacturing overhead expenses and reserves for anticipated scrap and inventory obsolescence. Segment reporting The Group is managed by a Corporate Management team reporting to the Chief Executive Ocer. The Corporate Management team, including the Chief Executive Ocer, represents the chief operating decision maker (CODM). No separate business areas or separate business units have been identified in connection with line of business, product candidates or geographical markets. Consequently, there is no segment reporting concerning business areas or geograph- ical areas. Statement of financial position Financial assets Financial assets include receivables, marketable securities and cash. Financial assets are divided into categories of which the following are relevant for the Group: . Financial assets at amortized 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. . Financial assets at fair value through the income statement, which are marketable securities categorized as equity instruments are held for trading and classified at fair value through profit and loss. . Equity investments. These investments are measured at fair value through the profit and loss. Financial assets are assigned to the dierent 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 operating result for the year. The statement shows the cash flows broken down into operating, investing 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. The cash flow statement cannot be derived directly from the balance sheet and income statement. 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 operating result adjusted for depreciation and amortization, 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 milestone relating to the Sanofi license, purchase and sale of property, plant and equipment, in- vestments and deposits, net cashflow from acquisition of Valertias activities, 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 proceeds from issuance of new ordinary shares, proceeds from issuance of shares related to exercise of sharebased compensation. and related costs, finance lease installments and loan financing. Cash and cash equivalents Cash and cash equivalents comprise cash and bank balances. Cash and cash equivalents are instruments with original maturities of days or less. The Company does not have any cash equivalents for the years ended December , and . Information on COVID- Our business, operations and clinical studies were, of course, impacted by the eects of COVID-. Although our clinical studies continued without interruption during , there were delays and increased total costs arising from the implications of COVID-. However, we have not recognized any write-os, impairments of assets, or losses to onerous contracts due to COVID-. The impairment of V-Go IP as explained in note was due to 68Zealand Pharma ∞ Annual Report 2020 Notes Note – Significant accounting policies, and significant accounting estimates and assessments (continued) Managements decision to allocate resources to support future product launches while limiting the investment in the V-Go product. The COVID- pandemic is also having an eect on other aspects of our business, including: our third-party manufacturers, and other third parties; albeit with no material eect or impact. The COVID- pandemic may, in the long-term, aect the productivity of our sta; our ability to attract, integrate, manage and retain qualified personnel or key employees; our global supply chains and relationships with vendors and other parties; significant disruption of global financial markets; and reduced ability to secure additional funding. We continuously monitor the COVID- pandemic and its potential impact on our business and financials. Significant accounting estimates and judgments The preparation of the consolidated financial statements requires Management to make judg- ments and estimates that aect the reported amounts of revenues, expenses, assets and liabil- ities, and the accompanying disclosures. In applying our accounting policies, Management is required to make judgements and estimates about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual re- sults may dier 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 aects only that period, or in the period of the revision and future periods if the revision aects 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. Please refer to the table below to see in which note the accounting estimates and judgements are presented. Notes including management’s estimates and judgements Estimates Judgements – Revenue X X – Employee incentive programs X – Encycle Therapeutics, Inc. acquisition X – Discount and rebate provision X X – Business Combinations X X Additional description of Management estimates and judgements made are described below Revenue recognition (management estimate and judgement) Revenue comprises license payments, milestone payments, product revenue and royalty in- come. 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. 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. When entering into licensing and development agreements, a critical judgment relates to whether the customer could continue development of the Intellectual Property (IP) to the stage promised by Zealand under the promise to provide R&D services. If this is not the case, the IP and the R&D services are considered a single perfor- mance obligation. Milestone payments are related to the collaborative research agreements with commercial partners and are recognized when it is highly probable that Zealand Pharma will become enti- tled to the milestone which is generally when the milestone is achieved. Royalty 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 cus- tomer simultaneously with delivery is recognized along with delivery of the services. Employee incentive programs (management estimates) In accordance with IFRS , 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 over the vesting period. The fair value of each warrant granted during the year is 69Zealand Pharma ∞ Annual Report 2020 Notes Note – Significant accounting policies, and significant accounting estimates and assessments (continued) estimated 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 selection of the risk-free interest rate, which is determined as the interest rate on Danish government bonds with a maturity equal to the expected term • The duration of the warrants, which is assumed to be until the middle of the exercise period The total fair value of the warrants is recognized in the income statement over the vesting period. An adjustment is made to reflect an expected attrition rate during the vesting period. 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. Discount and rebate (management estimate and judgement) Provisions regarding sales rebates and discounts granted to government agencies, wholesal- ers, retail pharmacies, managed care and other customers are recorded at the time the related revenues are recorded or when the incentives are oered. For both managed care rebates and the medicare part D rebates, the key assumptions relate to the rebate percentages by each pharmacy as determined in each pharmacy's contract with the Company and forecasted number of prescriptions that will be filled by each pharmacy (re- ferred to as payor mix). For co-pay card redemptions, the key assumptions relate to expected settlement rate for sales units remaining in the channel that have yet to be presented under co-pay terms. These assumptions are made based on historical actuals, which are used to es- timate forecasted trends, including payor mix and settlement rates, which are used to estimate the expected settlement of managed care rebates and medicare part D rebates, and co-pay card redemption, and the specific terms in the individual agreements. Unsettled rebates are recognized as provisions when the timing or amount is uncertain. Where absolute amounts are known, the rebates are recognized as provisions.Please refer to note for further information on sales rebates and provisions. Encycle Therapeutics, Inc. acquisition (management judgement) As of October , Zealand acquired all outstanding shares in Encycle Therapeutics, Inc. and all its intellectual property, including all rights to develop and commercialize the lead asset. Zealand did not acquire any infrastructure or personnel costs with this transaction. The total future consideration for the acquisition could potentially reach USD million in one-time contingent value rights (“earn-outs”), of which USD million in earn-outs could be payable up to the successful completion of a Phase study. All earn-outs are payable in cash and/or Zea- land equity at Zealand’s discretion, are linked to the lead asset only, and contingent on certain future successful development, regulatory, and commercial-related milestones. There is also a potential mid-single digit royalty on global net sales from the lead asset. The acquistion has been measured based on the overall cost of the transaction less the fair value of the cash balance and trade payables also acquired. The fair value of the contingent considerations related to Encycle Therapeutics was assessed to be zero as per the acquisition date based on the significant uncertainty of the outcome of the development to be performed by Zealand. Business Combinations (management estimates and judgements) In applying the acquisition method of accounting, estimates are an integral part of assessing fair values of several identifiable assets acquired and liabilities assumed, as observable market prices are typically not available. Valuation techniques where estimates are applied typically relate to determining the present value of future uncertain cash flows or assessing other events in which the outcome is uncer- tain at the date of acquisition. More significant estimates are typically applied in accounting for Intellectual properties, cus- tomer relationships, trade receivables, deferred tax and debt. The calculation of the fair value of intangible assets is most sensitive to the revenue and gross margin growths. Please refer to note for further information on Business Combinations. As a result of the uncertainties inherent in fair value estimation, measurement period adjust- ments may be applied. 70Zealand Pharma ∞ Annual Report 2020 Notes Note – Revenue Accounting policies Revenue comprises license payments, milestone payments, royalty income and sale of goods. 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 related to the collaborative research agreements with commercial partners are recognized when it is highly probable that Zealand Pharma will become entitled to the milestone which is generally when the milestone is achieved. Royalty 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 having a single performance obligation. Revenue is recognized based on the percentage of completion of the R&D services, which is estimated based on the expenses incurred during that period. Zealand applies the output based method (budget cost) when determining the timing of satisfaction of performance obliga- tions as the development services are performed by an indeterminate number of acts over the development timeline and accordingly, time elapsed and budget costs as an output measure is considered to be the unit which most appropriately depicts the transfer of control of services to Alexion In total. Trade receivables are recognised as services delivered are invoiced to the customer and are not adjusted for any financing components as credit terms are short – typically between to days – and the financing component therefore insignificant. Where services delivered have yet to be invoiced and invoices on services received from vendors have still to be received, con- tract assets and accrued cost of services are recognised at the reporting date. Revenue from sale of goods Revenue from sale of goods is recognized at a point in time when control of the goods are transferred to the customer and recorded net of adjustments for managed care rebates, whole- sale distributions fees, cash discounts, prompt pay discounts, and co-pay card redemptions, all of which are established at the time of sale. In order to prepare the consolidated financial statements, the company is required to make es- timates regarding the amounts earned or to be claimed on the related product sales, including the following: • Managed care and Medicare rebates, which are based on the estimated end user pay or mix and related contractual rebates; • distribution fees, prompt pay discounts and other discounts, which are recorded based on specified payment terms, and which vary by customer and other incentive programs; and • Co-pay card redemption charges which are based on the net transaction costs of prescrip- tions filled via a company-subsidized card program and other incentive programs. Zealand believes rebates and co-pay card redemptions related to sales in the U.S. are complex in nature and establishing appropriate provisions requires assessment of multiple factors as well as significant judgement and estimation by management as not all conditions are known at the time of sale. The Group has concluded that it is the principal in this revenue arrangements since it controls the goods before transferring them to the customer. Return Reserve We record allowances for product returns as a reduction of revenue at the time product sales are recorded. Several factors are considered in determining whether an allowance for product returns is required, including the customers’ return rights and our historical experience with returns and the amount of product sales in the distribution channel not consumed by patients and subject to return. Management replies on historical return rates to estimate returns. In the future, as any of these factors and/or the history of product returns change, adjustments to the allowance for product returns will be reflected Revenue from Alexion In , we recognized DKK . million (: . million) as income from the license, research and development agreement signed in March reflecting the progress on the lead project. Under the agreement DKK . million is accounted for as deferred revenue at December , . In , DKK . million of other revenue is recognized related to other projects with Alexion. No revenue was recognized in . Revenue from Sanofi No revenue was recognized in or . In , we recognized DKK . million as roy- alty income, reflecting milestones related to sales of Lyxumia® of EUR . million and sales of Soliqua ® / of EUR . million. No milestone revenue was received. 71Zealand Pharma ∞ Annual Report 2020 Con Fin – Note 2 Notes Note – Revenue (continued) Revenue from Boehringer Ingelheim (BI) In , we recognized DKK . million as income from milestone payments from BI related to the initiation of the Phase trial for the long-acting GLP-/glucagon. No revenue was recognized from BI in or , as no milestone event was achieved. Revenue from sale of goods In , we recognized DKK . million as net sales from goods sold generated from our V-Go product. The rights to the V-Go product was acquired on April , as part of the busi- ness combination described in note . Thus Revenue from sale of the V-Go product recog- nized in solely relates to the period April - December . Revenue from other agreements In , we recognized zero revenue from other agreements. In and , we recognized DKK . million and DKK . million, respectively, in revenues from a milestone payment and license option payments, respectively, from undisclosed coun- terparties relating to two Material Transfer Agreements. In , we recognized DKK . million in revenue from milestone payments from Protagonist Therapeutics in connection with the start of Phase with the novel hepcidin mimetic PTG-. Zealand is managed and operated as one business unit, which is reflected in the organizational structure and internal reporting. No separate lines of business or separate business entities have been identified with respect to any of the product candidates or geographical markets and no segment information is currently disclosed in the internal reporting. Information about Geographical Areas Net revenue in Germany comprise DKK . million in milestone revenue whereas net sales in US comprise DKK . million including license revenues and sale of goods. No other country accounts for more than % of the net total sales. In we had significant customers with revenue from sale of goods. Customer A, amounted to DKK . million (: DKK million), Customer B amounted to DKK . million (: DKK million) and Customer C DKK . mil- lion (: DKK million). Of the Company’s non-current assets, which comprise intangible assets, property, plant and equipment, right-of-use assets and prepayments, DKK . million is located in Denmark and DKK . million in US. Recognized revenue can be specified as follows for all agreements: DKK thousand Boehringer Ingelheim International GmbH , Alexion Pharmaceuticals Inc. , , Undisclosed counterpart , , Protagonist Therapeutics, Inc. , Total license and milestone revenue , , , Sanofi-Aventis Deutschland GmbH , Total royalty revenue , V-Go gross sales , Reductions* -, Total revenue from sale of goods , Total revenue , , , Royalty revenue can be specified as follows: Soliqua ® , Lyxumia ® , Total royalty revenue , Total revenue recognized over time , , Total revenue recognized at a point in time , , , * Discounts and rebates are specified below and discussed further in note .. Sales gross-to-net reconciliation DKK thousand V-Go gross sales , Customer and Contractual price reductions -, Returns and sales reductions -, Net sales , 72Zealand Pharma ∞ Annual Report 2020 Notes Note – Revenue (continued) Accounting for the Alexion Pharmaceuticals, Inc. Agreement In March , Zealand entered into a license, research and development agreement with Alexion Pharmaceuticals, Inc. (Alexion) to develop novel therapies to treat complement medi- ated diseases. This agreement provided Zealand an immediate cash injection as well as further external validation of Zealand’s peptide platform. The collaboration with Alexion is not limited to C but oers the potential to work on identifi- cation of peptide inhibitors to up to three additional components of the complement cascade. Zealand will have responsibility for the C project and other targets up to IND and Alexion will then progress the peptides into clinical development. Under the Alexion license, research and development agreement, Zealand has received an upfront non-refundable payment of USD million for the C program and a concurrent USD million equity investment in Zealand at a premium to the market price. The agreement also provides the potential for development-related milestones of up to USD million, as well as up to USD million in sales-related milestones and high single- to low double-digit royalty payments. The additional programs will provide further non-refundable upfront payments (USD million each), development and sales milestone and royalties. Accounting treatment The non-refundable up-front fee was allocated to the combined license, research and devel- opment services, and is being recognized as revenue along with provision of the research and development services under the lead program. Expenses to provide the services is being recog- nized when incurred. Further, the premium over the market share price on the Zealand shares subscribed by Alexion, DKK . million, is attributed to the Agreement as further consideration and consequently also recognized over the period over which the R&D services are provided. , Alexion has paid USD million, corresponding to DKK . million that as of December , has aected equity by DKK . million, deferred revenue by DKK . million, and reve- nue by DKK . million in . Hence the cash flow from operating activities was DKK . million and the cash flow from financing activities was DKK . million. In revenue of DKK . million was recognized. Milestone payments, if any, will be recognized as revenue when the relevant milestones are achieved as they relate to performance obligations already satisfied at this stage. Royalty pay- ments, if any, will be recognized along with the underlying sales. Significant judgement applied (performance obligations and revenue recognition) Determination of whether the license transferred and the research and development services constitute separate performance obligations, or form part a single performance obligation comprising a combined output has a significant impact on the accounting treatment. Zealand has applied significant judgment to determine whether the promised services are distinct and concluded that Alexion cannot benefit from the license alone. It is Zealand assessment that the R&D services under this agreement requires specific Zealand know-how and expertise which cannot be easily identified or sourced externally. Therefore, Alexion would not in the absence of the contractual provisions have had the practical ability to engage a third-party R&D service provider to provide the agreed R&D services. Judgments and estimates in respect of output is made when entering the agreement and is based on research and development budgets and plans. The planned service periods (output) and budget costs for the respective research and development projects are assessed on an ongoing basis. If the expected service period is changed significantly, this will require a reas- sessment. All Zealand’s revenue-generating transactions have been subject to such evaluation by man- agement. As the nature of the collaboration with Alexion may aect the accounting treatment of the agreement, Zealand has considered whether the agreement takes the form of a collaborative partnership with Alexion rather than a customer-vendor agreement. After consideration of all facts and circumstances, Zealand has assessed that the agreement takes the form of a custom- er-vendor relationship. Accordingly, the agreement is treated under the guidelines of IFRS Revenue from Contracts with Customers. As any additional programs are optional and paid for separately, they are not considered part of the initial agreement. It has been considered whether the options for additional compo- nents represent a material right and, thus, a separate performance obligation under the initial agreement to which a portion of the initial upfront payment should be allocated. Zealand has determined that the probability of exercising the option is low and in combination with the fact that the development is significantly less advanced than the lead target, we have determined that the options do not represent a material right. Accounting for the Sanofi License Agreement In , 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- 73Zealand Pharma ∞ Annual Report 2020 Notes Note – Revenue (continued) 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 eect. Under the Sanofi License Agreement, Zealand were eligible to receive remaining milestone payments relating to commercialized products of up to USD 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 AdlyxinR in the U.S. and as LyxumiaR in the EU and in other countries) plus a % royalty on global net sales of a combination of lixisenatide and insulin glargine units/ml (LantusR) marketed under the brand name SoliquaR / in the U.S. and as SuliquaR in the EU. In , Sanofi challenged the validity of certain patents owned by a competitor, AstraZeneca (and its aliates), 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 R //SuliquaR. The amount and timing of any such reductions of future revenue are not currently known, but they will not exceed USD million in total. Zealand pays Alkermes plc % of all payments received on lixisenatide while lixisenatide is sub- ject to a commercialization agreement such as the Sanofi License Agreement. Zealand also pay one of the inventors of the Structure Induced Probe (SIP) technology employed in lixisensatide a .% 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. All future royalties and all but up to USD million of future milestone payments relating to the Sanofi License Agreement were sold to Royalty Pharma in September . Refer to note . Accounting for the Boehringer Ingelheim License Agreements In , Zealand entered into a license, research and development collaboration agreement with Boehringer Ingelheim International GmbH (BI) to advance novel GLP-/glucagon dual- acting peptide receptor agonists (GGDAs) for the treatment of patients with type diabetes and obesity. Under the terms of the BI License Agreement, BI paid a fixed amount per full-time employee and other costs related to all research, development and commercialization in re- spect of the compounds covered by the agreement. Zealand is eligible to receive license and milestone payments of up to EUR million, of which EUR million was outstanding at December , , 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 , Zealand entered into a second global license, research and development collaboration agreement with BI (the 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 , BI selected a novel peptide thera- peutic to be advanced into preclinical development under this agreement. No product candidates out licensed 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 , Zealand recognized revenue related to a Material Transfer Agreement with an undis- closed counterpart. The revenue related to a license option has been recognized in the period in which the services were rendered. In , 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. Milestone payments are recognized as revenue when the relevant milestones are achieved. 74Zealand Pharma ∞ Annual Report 2020 Notes Note – Research, development, sales, marketing and administrative expenses Accounting policies Research expenses comprise salaries, share-based compensation, contributions to pension schemes and other expenses, including patent expenses, as well as depreciation and amortiza- tion directly attributable to the Group’s research activities. Research expenses are recognized in the income statement as incurred. Development expenses comprise salaries, share-based compensation, 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 state- ment as incurred, except where the capitalization criteria is met. No indirect costs that are not directly attributable to research and development activities are included in the disclosure of research and development expenses recognized in the income statement. Overhead expenses have been allocated to research and development or adminis- trative expenses based on the number of employees in each department, determined accord- ing to the respective employees’ associated undertakings. Judgment applied 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 eect 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 sucient 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 , or . Note – 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 royalties to Elan – now Alkermes plc, as successor in interest to a termination agreement between us and the Elan entities – including % of future payments we receive in respect of lixisenatide under the Sanofi License Agreement. In addition, we have agreed to pay a royalty of .% 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 , the royalty expenses relate to mentioned inventor. In , the royalty expenses related to royalties from sales of Lyxumia ® and Soliqua ® / and milestone payments received from Sanofi. The arrangement was settled in as part of transferring the right to future royalty and milestone payments under the Sanofi agreement. 75Zealand Pharma ∞ Annual Report 2020 Con Fin – Note 3-4 Notes Note – Fees to auditors appointed at the Annual General Meeting DKK thousand Audit , , , Audit-related services and other assurance engagements , , Tax advice Other Total fees , , , The fee for audit-related services and other assurance engagements and other services provid- ed to the Group by EY godkendt Revisionspartnerselskab in consisted of Audit of Annual Report, Audit of -F SEC filing, including SOX b attestation procedures, quarterly reviews, other auditor’s reports on various statements for public authorities, and other accounting advi- sory services. (Deloitte Statsautoriseret Revisionspartnerselskab in and ) Note – Information on sta and remuneration DKK thousand Total sta costs can be specified as follows: Wages and salaries , , , Sharebased payment costs , , , Pension schemes (defined contribution plans) , , , Other payroll and sta-related costs , , , Total , , , The amount is charged as: Research and development expenses , , , Sale and marketing expenses , Administrative expenses , , , Cost of goods sold , Inventory , Total , , , Average number of employees Note – Research, development, sales, marketing and administrative expenses (continued) DKK thousand Sta costs (note ) -, -, -, Depreciation and impairment losses, property, plant and equipment and right-of-use assets (note ,) -, -, -, Other external research and development costs -, -, -, Total research and development costs -, -, -, Sale and Marketing expenses Sales and marketing expenses include expenses for sales personnel and expenses related to company premises in the US used for sales activities. Other significant expenses include prod- uct demonstration samples, trade show expenses, professional fees for our contracted cus- tomer support center and other consultants, insurance, facilities and information technology expenses. Overhead expenses have been allocated to sales and marketing expenses according to the number of employees in each department, based on the respective employees’ associat- ed undertakings. Administrative expenses Administrative expenses include expenses for administrative personnel, expenses related to company premises, depreciation on tangible assets and right-of-use assets, 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. 76Zealand Pharma ∞ Annual Report 2020 Con Fin – Note 5-6 Notes Note – Information on sta and remuneration (continued) Base Committee Total Base Committee Total Base Committee Total DKK thousand board fee fees fees board fee fees fees board fee fees fees Remuneration to the Board of Directors Martin Nicklasson Kirsten Drejer¹ Alain Munoz Michael Owen Bernadette Mary Connaughton Jerey Berkowitz Leonard Kruimer Jens Peter Stenvang² Gertrud Koefoed Rasmussen² Frederik Barfoed Beck² Iben Louise Gjelstrup² Hanne Heidenheim Bak⁵ Rosemary Crane⁴ Catherine Moukheibir⁴ Helle Haxgart² , ³ Total , , , , , , Kirsten Drejer was appointed vice chairman at the General Meeting on April in . Employee-elected board members; the table only includes remuneration for board work. This board member resigned from the Board in . These board members resigned from the Board in . These board members resigned from the Board in . The disclosed remuneration for board members excludes minor mandatory social security costs paid by the company. It also excludes reimbursed expenses incurred in connection with board meetings, such as travel and accomodation. 77Zealand Pharma ∞ Annual Report 2020 Notes Note – Information on sta and remuneration (continued) Other Sharebased Pension short term compensation DKK thousand Base salary Bonus contribution benefits expenses Total Remuneration to the Executive Management Emmanuel Dulac¹ , , , , Adam Sinding Steensberg² , , , , Matthew Donald Dallas³ , , , , Total , , , , , Total Other Coporate Management⁵ , , , , Total , , , , , , Remuneration to the Executive Management Emmanuel Dulac¹ , , , Adam Sinding Steensberg² , , , , Matthew Donald Dallas³ , Britt Meelby Jensen⁴ , , Mats Blom⁴ , , Total , , , , , , Total other Corporate Management⁵ , , , , Total , , , , , , Remuneration to the Executive Management Britt Meelby Jensen , , , Mats Blom , , , , Total , , , , Total Other Coporate Management⁵ , , , , , Total , , , , , , ¹ Emmanuel Dulac was appointed as CEO at April , . ² Former Interim CEO Adam Sinding Steensberg was appointed EVP, R&D and CMO at April , . ³ Matthew Donald Dallas was appointed CFO at October , . ⁴ Former CEO Britt Meelby Jensen and former CFO Mats Blom resigned from Zealand at February , and March , , respectively. ⁵ Other Corporate Management in comprised three members (: three and : four.) Accounting policies The value of services received as consider- ation for granted warrants is measured at the fair value of the warrant. The fair value of equity settled share based compensa- tion 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 osetting entry to this is recognized under equity. An estimate is made of the number of warrants expected to vest. Subsequently, an adjust- ment 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 and Monte Carlo model in programs with value caps whereas the average share price prior to grant is used for RSU and PSUs 78Zealand Pharma ∞ Annual Report 2020 Notes Note – Information on sta and remuneration (continued) The employee incentive programs of Warrant programs existing during the period Maximum years of options granted years years years Method of settlement equity- settled Outstanding at the beginning of the period ,, , Granted during the period , , Forfeited during the period -, Exercised during the period -, -, Expired during the period -, Outstanding at the end of the period , ,, Exercisable at the end of the period , Warrants outstanding at the end of the period Range of exercise prices . .- .- . . Weighted-average remaining contractual life . . Number held by Executive Management , Outstanding at the beginning of the period ,, , Granted during the period , Forfeited during the period -, Exercised during the period -, -, Expired during the period Outstanding at the end of the period ,, , Exercisable at the end of the period , , Warrants outstanding at the end of the period Range of exercise prices .- .- . . Weighted-average remaining contractual life . . Number held by Executive Management , Warrants exercised during the period Weighted-average share price at the date of exercise . . Weighted-average exercise price for expired during the period . Weighted-average exercise price for forfeited during the period . . Weighted-average exercise price for outstanding at period end . . Determination of fair value of the warrants granted during the period The exercise price is determined by the closing price of Zealand’s shares on Nasdaq Copenha- gen on the day prior to the grant date. For warrants granted before April , , 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 %. Warrants granted prior to April , expire automatically after five years. Warrants vest either after years of service, with / each month from the grant date, or with / after one year, / after two years and / after three years. The service cost is recognized over the respective vesting periods. Warrants granted from April , and going forward expires automatically after 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. Dividend is not expected. For warrants granted before January , , the volatility rate used is based on the -year historical volatility of the Zealand share price. For warrants granted after January , , the volatility rate used is based on a historical volatility of the Zealand share price calculated as the vesting period of years plus % of the exercise period (: years, : years). 79Zealand Pharma ∞ Annual Report 2020 Notes Note – Information on sta and remuneration (continued) The fair value of the warrants compensation granted in was determined using the Black- Scholes and Monte Carlo model using the following inputs as at day of grant and using average fair market value for RSUs and PSUs: Grant year Type RSUs Warrants PSU Warrants Warrants Term months Up to months Up to Up to months months months Weighted average . . . . . share price (DKK) to . to . to . to . Exercise price (DKK) . . . to . to . Volatility (%) N/A . N/A . . to . to . to . Risk-free interest rate (%) N/A -. N/A -. -. to -. to -. to . Exercise period to-from N/A Apr' N/A Jun' May to Apr' to Dec' to Oct' No granted , , , , , Cost price (DKK) . . . . . to . to . to . to . Expense arising from share-based payment transactions Research and development expenses , , , Sale and Marketing expenses , Administrative expenses , , , Total , , , Eect on income statement In , the fair value of Warrants, RSU and PSUs recognized in the income statement amounts to DKK . million in total of which DKK . million relate to PSUs and DKK . million relate to RSUs (: DKK . million and : DKK . million). DKK . million relate to the Execu- tive Management (: DKK . million and : DKK . million) is recognized in the income statement.. Fair value RSUs The number of restricted share units granted in totals ,, of which , is granted on April , and , granted on September , . For the , granted on April , , the value is determined based on the simple average of the closing price of the Compa- ny's share on Nasdaq Copenhagen A/S for a period of five trading days following the publica- tion of the annual report of the Company for . For the , granted on September , , the value is determined based on the simple average of the closing price of the Compa- ny's share on Nasdaq Copenhagen A/S for a period of five trading days prior to the grant date. The programs granted in are initially valued at DKK . million. Fair value PSUs The number of performance share units granted is , determined based on the average share price of the shares of the Company for the three-day trading period following the latest open trading window preceding the allotment. The program is initially valued at DKK . million. Employee warrant programs In order to motivate and retain key employees and encourage the achievement of common goals for employees, Management and shareholders, the Group has established an incentive plan based on warrant programs. Incentive programs have been oered in , and in the - period. 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 eorts 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 employment 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. employee incentive program This program was established in for Zealand’s Board of Directors, Executive Management, employees and consultants. 80Zealand Pharma ∞ Annual Report 2020 Notes The Board of Directors was authorized to issue up to ,, warrants in the period until No- vember , . The program has expired and a total of ,, warrants have been granted. As of December , , ,, warrants have been exercised, The total proceeds amount to DKK . million (: DKK . million and : DKK . million). As of December , , zero warrants can still be exercised. employee incentive program This program was established in for Zealand’s Executive Management and employees. The Board of Directors was authorized to issue up to ,, warrants in the period un- til April, . As of December , , ,, warrants have been granted, ,, warrants have been exercised, , have expired and , warrants have forfeited. The program has expired and no further warrants can be granted. The total proceeds amount to DKK . million (: DKK . million and : DKK . million). As of December , , ,, warrants can still be exercised. employee incentive program This program was established in for Zealand’s Executive Management and employees. The Board of Directors was authorized to issue up to , warrants in the period until April, . As of December , , , warrants have been granted, This means that the re- maining number of warrants that can be granted is ,. The total proceeds amount to DKK . million (: DKK . million and : DKK . million). As of December , , zero warrants can be exercised. long-term incentive program (LTIP) for Corporate Management This program was established in for Zealand’s Corporate Management. Under the LTIP, the Executive Management and Other Corporate Management are eligible to receive a number of performance share units (“PSUs”) at no cost, as determined by the Board of Directors. Thereafter, PSUs are expected to be granted annually (together with any share-based long-term incentive program, up to a maximum of % of Zealand’s share capital). The targets for the first PSUs granted on June , under the LTIP are related to Zealand's filing of a submission for a New Drug Approval ("NDA") to the Food and Drug Administration ("FDA") in the United States and Zealand's receipt of an approval letter from the FDA for this NDA application. The PSUs will vest over a three-year period. The PSUs that have not vested will lapse without any compensation. Each vested PSU entitles the holder to receive one share in Zealand at no cost provided that the targets are met. Note – Information on sta and remuneration (continued) No of PSUs Number of shares At January , Granted during the year , Vested during the year Forfeited during the year -, At December , , No of RSUs Number of shares At January Granted during the year , Vested during the year Forfeited during the year At December , Note – Other operating items, net Accounting policies Other operating items 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 performed and government grants are recognized periodically when the work supported by the grant has been reported. Bargain purchase are recognized when the purchase price allocation is finalized.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. 81Zealand Pharma ∞ Annual Report 2020 Con Fin – Note 7 Notes Note – Other operating items, net (continued) DKK thousand Government grants Gain from Bargain Purchase, cf, note , 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 -, Total other operating income , ,, Zealand entered in September into an agreement to sell future royalties and USD . mil- lion of potential commercial milestones for Soliqua ® // Suliqua ® and Lyxumia ® / Adlyxin ® to Royalty Pharma. Under the agreement, all rights and obligations under the Sanofi Licensing agreement apart from potential payments from Sanofi of up to USD . million, expected in and have been transferred to the buyer. Zealand had in received USD . million (DKK ,. million) upon closing of the transaction on September , . In , royalty expenses to third parties amounted to .% or DKK . million and fees to advisors amounted to DKK . million. The Sanofi license agreement was classified as an intangible as- set upon adoption of IFRS , and the agreement with Royalty Pharma was treated as a sale of this license. The payment to the third parties was considered 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 Boehringer Ingelheim ('BI'), BI is responsible for con- ducting preclinical and clinical development, as well as for commercializing the products stemming from the agreement and funding all activities under the agreement. In addition, Zealand received government grants in , and . A gain from the Bargain purchase of DKK million is recognized as part of the acquistion explained in note . Note – Financial income Accounting policies Financial income includes interest from trade receivables, as well as realized and unrealized ex- change rate adjustments, fair value adjustments of other investments and marketable securities and dividends from marketable securities. Interest income is recognized in the income statement in accordance with the eective interest rate method. DKK thousand Interest income from financial assets measured at amortized costs , , Fair value adjustments of other investments and marketable securities, cf. note , Exchange rate adjustments , , Dividend, Marketable securities , Total financial income , , , Note – Financial expenses Accounting policies Financial expenses include interest expenses, as well as realized and unrealized exchange rate adjustments, interest on lease obligations and fair value adjustments of securities. In addition, expenses related to the royalty bond until settlement in September were amortized over the expected duration of the bond and recognized as financial expenses until it was settled in September . Interest expense is recognized in the income statement in accordance with the eective inter- est rate method. DKK thousand Interest expenses from liabilities at amortized costs , , , Amortization of financing costs , Fair value adjustments of marketable securities, cf. note , , Loss on sale of marketable securities, cf. note Other financial expenses , , Exchange rate adjustments , Total financial expenses , , , 82Zealand Pharma ∞ Annual Report 2020 Con Fin – Note 8-9 Notes Note – Income tax 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 dierences between the carrying amount and the tax base of assets and liabilities. Deferred tax liabilities are generally recognized for all taxable temporary dierences, and de- ferred tax assets are recognized to the extent that it is probable that taxable profits will be avail- able against which deductible temporary dierences can be utilized. Such deferred tax assets and liabilities are not recognized if the temporary dierence arises from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that aects neither the taxable profit nor the accounting profit. In addition, deferred tax liabilities are not recognized if the temporary dierence arises from the initial recognition of goodwill. Deferred tax liabilities are recognized for taxable temporary dierences arising on investments in subsidiaries except where the Group is able to control the reversal of the temporary dier- ence and it is probable that the temporary dierence will not be reversed in the foreseeable future. Deferred tax assets arising from deductible temporary dierences associated with such investments and interest are only recognized to the extent that it is probable that there will be sucient taxable profits against which to utilize the benefits of the temporary dierences and they are expected to be reversed in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each statement of financial position date and reduced to the extent that it is no longer probable that sucient taxable profits will be available to allow all or part of the asset to be recovered. In case of ongoing tax disputes a provisions for are included as part of deferred tax assets, tax receivables and tax payables. 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. 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 , . (None recognized in .) Deferred tax assets and liabilities are oset when there is a legally enforceable right to set o current tax assets against current tax liabilities, they relate to income taxes levied by the same taxation authority and the Group 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 statement of financial position date.Deferred tax from business combinations is initially recognized at fair value. Income tax receivables are recognized in accordance with the Danish tax credit scheme (Skat- tekreditordningen). 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 million (tax value of DKK . million). Under Danish tax legislation, Zealand is eligible to receive DKK . million in (DKK . million in and DKK . million ) in cash relating to the surrendered tax loss of DKK million (DKK million in and DKK million for ) based on qualifying research and development expenses. These tax receipts comprise the entire current tax benefit in and , respectively. The income from sale of future royalties and milestones in resulted in a positive net re- sult, meaning that Zealand was not in eligible for similar tax income based on qualifying research and development expenses, but was able to utilize a portion of the unrecognized deferred tax asset When considering tax and duties disputes, Management applies significant estimates of the likely outcome based on the knowledge available of the actual substance of the disputes, including opinions and estimates by external tax experts and case law, if available. The resolution of disputes may take several years, and the outcome is subject to considerable uncertainty. 83Zealand Pharma ∞ Annual Report 2020 Con Fin – Note 10 Notes Note – Income tax (continued) DKK thousand Net result for the year before tax -, -, , Corporate tax rate in Denmark .% .% .% Expected tax benefit/(expenses) , , -, Adjustment for foreign tax rates - Adjustment for non-deductible expenses , - - Adjustment for non-taxable income -, Adjustment for exercised warrants , -, -, Adjustment for R&D extra deduction -, , , Tax eect on exercise of warrants -, , Tax eect on expired warrants - Warrant - share price development -, , Adjustment to prior year Change in tax assets (not recognized) -, -, , Total income tax expense/benefit -, , -, DKK thousand Specification of deferred tax assets: Tax losses carried forward (available indefinitely) ,, , , Research and development expenses , , , Intangible assets , , , Non-current assets , , , Liabilities , , Other , , , Total temporary dierences ,, ,, , Calculated potential deferred tax asset at local tax rate , , , Deferred tax asset not expected to be utilized -, -, -, Recognized deferred tax asset , Note – Basic and diluted earnings per share Accounting policies 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. This includes the treasury shares held by the company. 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 eect 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/losses 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) -. -. . 84Zealand Pharma ∞ Annual Report 2020 Con Fin – Note 11 Notes Note – Basic and diluted earnings per share (continued) The following potential ordinary shares are anti-dilutive at December , (anti-dilutive at December , and dilutive December , ) and are therefore not included in the weighted average number of ordinary shares for the purpose of diluted earnings per share: DKK thousand Outstanding warrants under the employee incentive program , , Outstanding warrants under the employee incentive program ,, ,, ,, Outstanding Restricted Share Units (RSUs) under the LTIP program , Outstanding Performance Share Units (PSUs) under the LTIP program , , Outstanding warrants under the employee incentive program , Total outstanding warrants ,, ,, ,, - out of which these are dilutive , - out of which these are anti-dilutive ,, ,, ,, Note – Impairment Accounting policies Assets with indefitie usefull time are annually assesed for impairment whereas assets with defi- nite usefull lifetime are assessed for impairment indicators. Each year, the assets are reviewed in order to assess whether there are indications of impair- ment. If such indications exist, the recoverable amount, determined as the higher amount of the fair value of the asset adjusted for expected costs to sell and the value in use of the asset, is calculated. The value in use is calculated based on the estimated future cash flows, discounted by using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. If the recoverable amount of an asset or its cash-generating unit is lower than the carrying amount, an impairment charge is recognized in respect of the asset. The impairment loss is recognized in the income statement. In addition, for goodwill and other intangible assets with indefinite useful lives, impairment tests are performed at each balance sheet date, regardless of whether there are any indications of impairment. For acquisitions, the first impairment test is performed before the end of the year of acquisition. Key assumptions in the impairment test The impairment assessment for identified a need for impairment on the V-Go related Intellectual property of DKK . million. The impairment loss was primarily related to Man- agement’s decision to allocate resources to support future product launches while limiting the investment in the V-Go product. No impairment indicators were identified in . Through the assessment of impairment indicators regarding the V-Go intellectual property, Management identified impairment indicators and an impairment test was performed by calcu- lating recoverable amount of the V-Go intellectual property. The recoverable amount was determined based on a value in use calculation using cash flow and projections for subsequent years up to and including , equivalent to the expected useful life of the intangible asset. The expected future net cash flows are determined based on budgets and business plans approved by Management Board. From onwards, a perpetual cash flow decreasing by the terminal growth rate of -% is used. The pre-tax discount rate applied to the cash flow projections was %. The analysis showed a need of an impairment of DKK . million regarding the V-Go Intellectual property. The amount is recognized as sales and marketing expenses in the income statement. Due to the full impairment of the V-Go related intellectual property, no additional sensitivity analysis is performed. 85Zealand Pharma ∞ Annual Report 2020 Con Fin – Note 12 Notes Note – Intangible assets Accounting policies Separately acquired licenses, rights and patents are initially measured at cost. Licenses, rights and patents acquired in connection with the purchase of a legal entity where substantially all of the fair value of the gross assets acquired is concentrated in a single asset are considered an asset acquisition and initially recognized at cost at the acquisition date. The cost accumulation model has been applied for accounting for contingent considerations, whereby all further con- sideration is added when incurred, to the cost of the asset initially recorded. The acquired intangibles have a finite useful life and are subsequently carried at cost less accumulated amortizations using the straight-line method over the estimated useful life and impairment losses. The amortization periods are as follows: • License, rights and patents: Based on lifetime of patent etc. • Intellectual property: 10 years • Physician relationsship: 8 years Amortizations will recognized in the income statement as R&D expenses when the intangibles are available for use based on the determined useful life. Useful lifetime is assessed continuous- ly for all new acquried assets. If circumstances or changes in Zealand's operations indicate that the carrying amount of the intangibles may not be recoverable, Management will review the intangibles for impairment. Refer to note . At December , , licenses, rights and patents comprise a right that will be included in a future development project originating from the acquisition of Encycle Therapeutics in October and the intangible assets arising from the acquisition of Valertias activities. The right has been measured based on the overall cost of the transaction less the fair value of the cash balance and trade payables also acquired. The fair value of the contingent consider- ations related to Encycle Therapeutics was assessed to be zero as per the acquisition date due to Zealand applying the cost accumulation model for accounting for contingent considera- tions, whereby all further consideration is added when incurred, to the cost of the asset initially recorded. Physician relationships and IP rights acquired through business combinations are measured at fair value at the acquisition date and amortized on a systematic basis over their useful life and years respectively (unless the asset has an indefinite useful life, in which case it is not amortized). Licenses rights Intellectual Physician DKK thousand and patents property relationship Cost at January , , Additions due to business combinations, cf. note , , Additions Currency translation -, Cost at December , , , , Amortization at January , Amortization for the year , Impairment, cf. note , Currency translation - Amortization at December , , , Carrying amount at December , , , Amortization and impairment for the financial year has been charged as: Research and development expenses Administrative expenses Sale and marketing expenses , , Total , , Cost at January , Additions , Cost at December , , Amortization at January , Amortization at December , Carrying amount at December , , Amortization for the financial year has been charged as: Research and development expenses Sale and marketing expenses Administrative expenses Total 86Zealand Pharma ∞ Annual Report 2020 Con Fin – Note 13 Notes Note – Property, plant and equipment 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. Tangible assets under construction are recorded as work in progress until construction has been completed and use of asset commenced. 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: • Buildings 5-13 years • Plant and machinery 5-10 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 dierence 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, Sale and marketing expenses and Administrative expenses. At the end of each reporting period, the Group 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 suered an impairment loss. If any such indication exists, the 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 Group 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. No impairments to property. plant and equipment have been recognized for , and . 87Zealand Pharma ∞ Annual Report 2020 Con Fin – Note 14 Notes Plant and Other fixtures Building Assets under DKK thousand machinery and fittings improvements construction Cost at January , , , , Transfer - Additions , , , , Retirements -, - - Cost at December , , , , , Accumulated depreciation at January , , , , Transfer - Depreciation for the year , , Retirements -, - - Accumulated depreciation at December , , , , Carrying amount at December , , , , , Depreciation for the financial year has been charged as: Research and development expenses , Administrative expenses Sale and marketing expenses Total , , Note – Property, plant and equipment (continued) Plant and Other fixtures Building Assets under DKK thousand machinery and fittings improvements construction Cost at January , , , , , Transfer , -, Addition from business combinations , , , , Additions , , , Retirements -, - -, Currency translation -, - - - Cost at December , , , , , Accumulated depreciation at January , , , , Transfer Depreciation for the year , , , Retirements -, - -, Currency translation - , - Accumulated depreciation at December , , , , Carrying amount at December , , , , , Depreciation for the financial year has been charged as: Research and development expenses -, -, -, Administrative expenses - - - Sale and marketing expenses - Total -, -, -, 88Zealand Pharma ∞ Annual Report 2020 Notes Note – Right-of-use assets and lease liabilities Accounting policies The Group leases an oce buildings, equipment and vehicles. The rental contract for the HQ oce building has been made for a minimum period of years (terminable by the landlord after years). Management has assessed the lease period to be years. The rental contract for the US oce site has been made for a minimum period of years. Equipment and vehicles are leased over a period of - years with no extension option. Contracts may contain both lease and non-lease components. The group allocates the con- sideration in the contract to the lease and non-lease components according to the specific pricing of the services in the agreements. Lease terms are negotiated on an individual basis and contain a wide range of dierent terms and conditions. The lease agreements do not impose any covenants other than the security interests in the leased assets that are held by the lessor. Until the financial year, all leases were classified as operating leases, but are from January , recognized as a right-and-use asset and corresponding liability at the date at which the asset is available for use by Zealand. IFRS determines whether a contract contains a lease on the basis of whether the customer has the right to control the use of an identified asset for a pe- riod of time in exchange for consideration. Zealand applies the definition of a lease and related guidance set out in IFRS to all contracts entered into or changed on or after January , . Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments: • fixed payments less any lease incentives receivable • variable lease payment that are based on an index or a rate, initially measured using the index or rate as at the commencement date Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability. Short-term and low value leases are also recognized as right-of-use assets. The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the case for leases in the Group, the Group’s incremental borrowing rate is used, being the rate that the group would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions. The Group is exposed to potential future increases in variable lease payments based on an in- dex or rate, which are not included in the lease liability until they take eect. When adjustments to lease payments based on an index or rate take eect, the lease liability is reassessed and adjusted against the right-of-use asset. Lease payments are allocated between principal and finance cost. The finance cost is charged to the income statement over the lease period to ensure a constant periodic rate of interest on the remaining balance of the liability for each period. Right-of-use assets are measured at cost comprising the following: • the amount of the initial measurement of lease liability • any lease payments made at or before the commencement date less any lease incentives received • any initial direct costs and restoration costs. Right-of-use assets are generally depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis. If the Group is reasonably certain to exercise a purchase option, the right-of-use asset is depreciated over the underlying asset’s useful life. Amounts recognized in the statement of financial position The statement of financial position shows the following amounts relating to right-of-use assets: Other Oce fixtures and DKK thousand Buildings fittings As at January , , , Additions due to business combination, cf. note , Additions , Retirements -, - Reversal of depreciations , Depreciation expense -, - Currency translation -, As at December , , , As at January , , , Additions , Depreciation expense -, -, As at December , , , Set out below are the carrying amounts of lease liabilities and the movements during the period. 89Zealand Pharma ∞ Annual Report 2020 Con Fin – Note 15 Notes Note – Right-of-use assets and lease liabilities (continued) As at January , , Additions due to business combinations, cf. note , Additions , , Accretion of interest , Payments -, -, Currency translation -, As at December , , Current , , Non-current , , The following are the amounts recognised in income statement: Depreciation expense of right-of-use assets -, -, Interest expense on lease liabilities -, Total amount recognised in profit and loss -, -, Cashflow -, -, Total cash outflow for leases -, -, Depreciation for the financial year has been charged as: Research and development expenses -, -, Administrative expenses -, -, Sale and marketing expenses Total -, -, Note – Inventories Accounting policies Raw materials, work in progress and finished goods are stated at the lower of cost and net realizable value. Cost is determined on a first in, first out basis and comprises direct materials, direct labor and an appropriate proportion of variable and fixed overhead expenditure, the latter being allocated on the basis of normal operating capacity. Costs of purchased inventory are determined after deducting rebates and discounts. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimat- ed costs necessary to make the sale. Inventory manufactured prior to regulatory approval (prelaunch inventory) is capitalised but immediately provided for, until there is a high probability of regulatory approval for the product. A write-down is made against inventory, and the cost is recognised in the income statement as research and development costs. Once there is a high probability of regulatory approval being obtained, the write-down is reversed, up to no more than the original cost. We review our inventory for excess or obsolescence and write down inventory that has no alternative uses to its net realizable. Economic conditions, customer demand and changes in purchasing and distribution can aect the carrying value of inventory. As circumstances war- rant, we record provisions for potentially obsolete or slow moving inventory and lower of cost or net realizable value inventory adjustments. In some instances, these adjustments can have a material eect on the financial results of an annual or interim period. In order to determine such adjustments, we evaluate the age, inventory turns, future sales forecasts and the estimated fair value of inventory. Inventories comprise: DKK thousand Raw materials , Work in process , Finished goods , Total , Direct costs , Indirect production costs , 90Zealand Pharma ∞ Annual Report 2020 Con Fin – Note 16 Notes Note – Trade receivables Accounting policies On initial recognition, receivables are measured at fair value. The Group holds the trade receiv- ables with the objective to collect the contractual cash flows and therefore measures them subsequently at amortized cost. Trade receivables are written down for expected credit losses. The Group applies the simplified approach in IFRS to measuring expected credit losses which uses a lifetime expected loss allowance for trade receivables and contract assets. A write-down is recognized in sales and marketing expenses. There are no material overdue receivables and the write-down for expected credit losses is not material. At December , and , Zealand had no trade receivables related to milestone pay- ments. Note – Prepaid expenses Accounting policies Prepaid expenses comprise amounts paid in respect of goods or services to be received in subsequent financial periods. Clinical trials, which are outsourced to Clinical Research Organ- izations (“CROs”), take several years to complete. As such, Management is required to make estimates based on the progress and costs incurred to-date for the ongoing trials. Judgements are made in determining the amount of costs to be expensed during the period, or recognized as prepayments or accruals on the statement of financial position. Other receivables are measured at amortized cost less impairment. Prepayments include ex- penditures related to future financial periods and are measured at nominal value The increase by DKK . million from (DKK . million) to (DKK . million) is primarily related to an increase in prepaid insurance, taken as a result of higher insurance costs because of the increased premiums required for Director & Ocer insurance. Note – Inventories (continued) Write downs recognized on inventories were reflected in the cost of goods sold. They were comprised as follows: DKK thousand Accumulated write downs, January Addition from business combination, cf. note -, Write downs in the reporting period Reversals or utilization of write downs , Exchange dierences Accumulated write downs, December -, DKK . million is recognized as cost of goods sold during . Note – Other investments Accounting policies Other investments are measured on initial recognition at cost, 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 . million (: USD . 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 .% (:.%) ownership of Beta Bionics, Inc., and is recorded at a fair value of DKK . million as of December , (DKK . million as of December , ). In determining fair value, Zealand considered the impact of any recent share capital issuances by Beta Bionics as an indicator of the fair value of the shares. In particular, Beta Bionics under- took a capital oering in June and subsequent infliction points was used as the basis for determining fair value. Measurement is considered a level measurement. A fair value adjustment of DKK . million and currency conversion impact of DKK -. million, respectively, have been recognized in financial income in (: DKK . million and DKK . million respectively). 91Zealand Pharma ∞ Annual Report 2020 Con Fin – Note 17-19 Notes Note – Other receivables Accounting policies Other receivables are measured on initial recognition at cost and subsequently at amortized cost. DKK thousand VAT , , Other , , Total other receivables , , Note – Marketable securities Accounting policies The Group’s Marketable securities portfolio comprises a investmetn in a bond portfolio. The investment is categorized as equity instruments held for trading. Consequently, the securities are classified at fair value through profit or loss. Refer to note , Financial risks. A net fair value adjustment of DKK -. million from marketable securities have been recog- nized in financial expenses, respectively, in (: DKK . million in financial income. Note – Cash and cash equivalents Accounting policies Cash is measured on initial recognition at cost. DKK thousand DKK , , USD , , EUR , , Total cash and cash equivalents , ,, Note – Share capital Accounting policies Consideration paid and proceeds from selling treasury shares recognized directly in equity within retained losses. Capital reductions through cancellation of treasury shares reduce the share capital by an amount equal to the original cost price of the shares. Dividend payments are recognized as a deduction of equity and a corresponding liability when declared. No, of shares (thousand) January , , Increase due to issue of new shares , , December , , The share capital solely consists of one class of ordinary shares all issued of DKK each and all shares rank equally. The shares are negotiable instruments with no restrictions on their trans- ferability. All shares have been fully paid. At the annual general meeting on April , Zealand was authorized to increase the nominal share capital by nominally DKK ,, during the period until April , . At December , nominally DKK ,, of the authorization remains. Further please refer to note for the capital increase made in January . On June , a total of ,, new shares have been subscribed through a private and direct shares issue with a net proceeds pf DKK . million. On March , a total of , new shares have been subscribed through a private share issue to US based investors with a net proceeds of DKK . million. The cost of share issues amounts to DKK . million. On March , , a total of , new shares have been subscribed through a direct share issue to Alexion Pharmaceuticals, Inc. in connection with entering into the license agreement with Zealand Pharma A/S with net proceeds of DKK . million, including costs of DKK million. On September , , a total of ,, new shares have been subscribed through a private placement and directed share issue to existing shareholder Van Herk Investments B.V. with net proceeds of DKK . million, including costs of DKK . million. Other capital increases in and related to exercise of warrant programs. Expenses directly related to capital increases are deducted from equity. At December , , there were , treasury shares (: ,), equivalent to .% (: .%) of the share capital and corresponding to a market value of DKK . million (: DKK . million). , treasury shares have been allocated to performance shares units (PSUs) as part of Zealand Pharma’s long-term incentive program (LTIP) granted June , . Of these a total of , PSU’s remain. See note for a further description of the LTIP program. 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. 92Zealand Pharma ∞ Annual Report 2020 Con Fin – Note 20-23 Notes Note – Deferred revenue The Group has recognized the following liabilities related to contracts with customers. DKK thousand Deferred revenues at January , Customer payment received, cf. note . , Revenue recognized during the year -, -, Total deferred revenue , , Non-current deferred revenue , , Current deferred revenue , , , , Deferred revenue occurred in connection with the agreement with Alexion Pharmaceuticals, Inc. as disclosed in Note . An up-front payment of DKK . million was received of which DKK . million has been recognized during and DKK . million in . Management expects that approx. DKK million of the up-front payment received will be rec- ognized as revenue during . The remaining payment is expected to be recognized during and according to the progress of the development project. Note – Provision Provision Provision for sales for product DKK thousand rebates returns total total Provision at the beginning of the year Addition due to acquisition cf note , , , Adjustments for the year , , Utilization during the period -, -, -, Reversal of provisions from previous years -, -, Currency translation adjustments -, - -, Provision at year-end , , Provisions comprise current sales rebates and discounts granted to government agencies, wholesalers, retail pharmacies, Managed Care and other customers, which are recorded at the time the related revenues are recorded or when the incentives are oered. Provisions are calculated based on historical experience and the specific terms in the individ- ual agreements. Unsettled rebates are recognised as provisions when the timing or amount is uncertain. Where absolute amounts are known, the rebates are recognised as other liabilities. Please refer to note and note for further information on sales rebates and provisions and managements estimates and judgements. Zealand Pharma issues credit notes for expired goods as a part of normal business. Where there is historical experience or a reasonably accurate estimate of expected future returns can other- wise be made, a provision for estimated product returns is recorded. The provision is measured at gross sales value. Accounting policies Provisions are recognized when the Company has an existing legal or constructive obligation as a result of events occurring prior to or on the balance sheet date, and it is probable that the uti- lization of economic resources will be required to settle the obligation. Provisions are measured at management’s best estimate of the expenses required to settle the obligation. 93Zealand Pharma ∞ Annual Report 2020 Con Fin – Note 24-25 Notes Note – 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 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 sucient 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 evaluated that there is no material transaction exposure or exchange rate risk regarding trans- actions 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. Currency exposure regarding our US activities are managed by having revenue and expenses in the same currency. As Zealand conducts clinical trials and toxicology studies around the world, Zealand will be exposed to exchange rate risks associated with the denominated currency, which is primarily USD based on volume and fluctuations against DKK. To date, Zealand’s policy has been to man- age 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 - months and thus match- ing Zealand’s assets with its liabilities. As of December , , Zealand holds DKK . million (: DKK . million) of its cash in USD. Note – Other liabilities Accounting policies Financial liabilities are recognized initially at cost less transaction costs. In subsequent periods, financial liabilities are measured at amortized cost corresponding to the capitalized value using the eective interest method. DKK thousand Employee benefits , , Royalty payable to third party , , Development project costs , , Other payables , , Total other liabilities , , Current , , Non-current , Note – 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), milestone payments and lease commitments. Accounting policies Contingent assets and liabilities are disclosed, unless the possibility of an inflow or outflow of resources embodying economic benefits is virtually certain. Contingent Assets At December , , Zealand is still eligible for a payment from Sanofi of up to USD . mil- lion, of which DKK . million is expected in and DKK . million in . However, it is Management’s opinion that the amount of any payment cannot be determined on a suciently reliable basis, and therefore have not recognized an asset in the statement of financial position of the Group. Contingent liabilities and Contractual obligations At December , , total contractual obligations related to agreements with CROs amount- ed to DKK . million (DKK . million for and DKK . million for the years up to and including ). Zealand may be required to pay future development, regulatory and commercial milestones related to the acquisition of Encycle Therapeutics. Refer to note . 94Zealand Pharma ∞ Annual Report 2020 Con Fin – Note 26-28 Notes Interest rate risk Zealand has a policy of avoiding financial instruments that expose the Group to any unwanted financial risks. As of December , , Zealand only has Lesae liabilities as interest bearing debt amounting to DKK . million. Up until the redemption in September , Zealand had a fixed rate royalty bond. During , 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 since , while USD accounts have generated a low level of interest income. During and , Zealand has invested in low risk marketable securities. The Group’s mar- ketable securities portfolio comprises bonds in Danish kroner. The average weighted duration of the bond portfolio on the statement of financial position date was years in both years. 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 and wholesalers. 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 sucient 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 eect on profit/loss and equity of reasonably likely changes in the financial variables in the statement of financial position. DKK thousand Fluctuation Eect Fluctuation Eect USD +/-% , +/-% , Note – Financial risks (continued) 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. With the exception of leasing, 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 months - Years > Years Total Trade payables , , Leasing , , , , Other liabilities , , , Total financial liabilities at December , , , , , Trade payables , , Leasing , , , , Other liabilities , , Total financial liabilities at December , , , , , All cash flows are non-discounted and include all liabilities under contracts. 95Zealand Pharma ∞ Annual Report 2020 Notes DKK thousand Categories of financial instruments Deposits , , Trade receivables , Other receivables , , Cash and cash equivalents , ,, Financial assets at amortized costs ,, ,, Marketable securities , , Other investments , , Financial assets measured at fair value through profit or loss , , Lease liabilities , , Trade payables , , Other liabilities , , Financial liabilities measured at amortized cost , , The fair value of marketable securities is based on Level in the fair value hierarchy. The fair value of other investments is based on level in the fair value hierarchy. Refer to note . There were no transfer between levels , and for recurring fair value measurement during the period ended December , or . The carrying amount of financial assets and financial liabilities approximated the fair value. Note – Financial risks (continued) Capital Management Zealand’s goal is to maintain a strong capital base to maintain investor, creditor and market confidence, and a continuous advancement of Zealand’s product pipeline and business in general. Zealand is primarily financed through capital increases and partnership collaboration income and had, as of December , , a cash position of DKK . million (: ,. million). The cash position supports the advancement of our product pipeline and operations. The adequacy of our available funds will depend on many factors, including progress in our research and development programs, the magnitude of those programs, our commitments to existing and new clinical collaborators, our ability to establish commercial and licensing arrangements, our capital expenditures, market developments, and any future acquisitions. Ac- cordingly, we may require additional funds and may attempt to raise additional funds through equity or debt financings, collaborative agreements with partners, or from other sources. The Board of Directors monitors the share and capital structure to ensure that Zealand’s capital resources support the strategic goals. There was no change in the group’s approach to capital management procedures in . Neither Zealand Pharma A/S nor any of its subsidiaries are subject to externally imposed capital requirements. 96Zealand Pharma ∞ Annual Report 2020 Notes Note – Business combinations Accounting policy Business combinations are accounted for using the acquisition method of accounting. At the date of the acquisition, the Company initially recognizes the fair value of the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquired business. The consideration transferred is measured at fair value at the date of acquisition and the excess of the consideration transferred over the fair value of net identifiable assets of the business acquired is recorded as goodwill. In circumstances where the consideration transferred is less than the fair value of net identifiable assets of the business acquired, the dierence is recog- nized directly in the consolidated statement of profit or loss as a bargain purchase. Where the settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value. Contingent consideration is classified either as eq- uity or a financial liability and is recognized at fair value on the acquisition date. Amounts clas- sified as a financial liability are subsequently remeasured to fair value in accordance with IFRS (Financial Instruments), with changes in fair value recognized in the consolidated statement of comprehensive loss as an administrative expense. Business combinations require management making an assessment of the fair value of the net assets acquired as well as an assessment regarding whether control exists. Management judgement is particularly involved in the recognition and measurement of the following items at fair value: • intellectual property: this may include patents, licenses, trademarks and similar rights for currently marketed products, and also the rights and scientific knowledge associated with projects that are currently in research or development phases, and requires the projection of estimated future cash inflows and outflows and relevant risks, the terminal value of these assets, discount rates and weighted average costs of capital, • working capital items such as trade receivables, inventory (raw materials, work in process, parts and finished goods), prepaid expenses, trade payables, and fixed assets • Guarantees, warranties, indemnities, rights, claims, counterclaims etc. set o against third parties relating to the acquired assets or assumed liabilities, including rights under vendors’ and manufacturers’ warranties, indemnities, guaranties and avoidance claims and causes of action under any applicable Law, employee liabilities and other contingencies In all cases, management makes an assessment based on the underlying economic substance of the items concerned, and not only on the contractual terms, in order to fairly present these items. In making these assessments, management relies to a significant extent on the work of valuation experts. However, the assessments are highly subjective and sensitive to the assump- tions used. In accordance with IFRS , if a business combination indicates a bargain gain all applied as- sumptions will be reassessed by Management before recognition. Directly attributable acquisition-related costs are expensed as incurred within the consolidated statement of comprehensive loss. Customer relationships and IP rights acquired through business combinations are measured at fair value at the acquisition date and amortized on a systematic basis over their useful life and years respectively (unless the asset has an indefinite useful life, in which case it is not amortized). Acquisition of medical technology business from Valeritas, Inc. On April , (or “the acquisition date”) Zealand acquired substantially all of the medical technology business from Valeritas Holdings, Inc. (or “Valeritas”) pursuant to the terms of the stalking horse asset purchase agreement previously entered into with Valeritas and following approval by the U.S. Bankruptcy Court for the District of Delaware on March , . Valeritas was a U.S. based commercial-stage company whose activities comprised develop- ment, production and sale of wearable disposable insulin pumps and has therefore been ac- quired to accelerate Zealand’s plans for establishing U.S. operations to support the anticipated launch of the auto-injector and pre-filled syringe for severe hypoglycemia. The acquisition comprises all medical technology business related tangible and intangible assets that pursuant to the Bankruptcy Code was transferred to Zealand free and clear of all claims, liabilities and encumbrances including the Valeritas workforce. Additionally, the acquisi- tion includes most of the working capital assets and selected liabilities. Under IFRS , Business Combinations, the acquisition has been accounted for as a business combination using the acquisition method. The consolidated financial statements include the results of Valeritas for the from the acquisition date. The consideration transferred was DKK . million (USD . million), and the fair values of the identifiable assets and liabilities of Valeritas as at the date of acquisition were: 97Zealand Pharma ∞ Annual Report 2020 Con Fin – Note 29 DKK thousand Fair value recognized on acquisition Assets Physician Relationship , V-Go IP , Property, plant and equipment , Right-of-use assets , Inventories , Trade receivables , Other assets , Cash and cash equivalents Liabilities Deferred tax liability -, Trade payables -, Lease liabilities -, Other liabilities -, Total identifiable net assets at fair value , Bargain purchase recognized -, Purchase consideration transferred , Analysis of cash flows on acquisition: Net cash acquired (included in cash flows from investing activities) Cash paid -, Net cash flow on acquisition -, The fair value attributable to intangible assets (DKK . million as of the acquisition date) consists of the value arising from the existing Valeritas physician network and relationships, valued at DKK . million which is based on the estimated cost it would require to establish similar network and relationships, or a so-called with/without valuation method, and intel- lectual property related to the V-Go technology, valued at DKK . million using an excess earnings model. (Subsequently impaired. Refer to note ) The valuations is calculated using cash flow projections from financial budget approved by Corporate Management covering a year period. The discount rate applied to the cash flow projections is %. The growth rate used to extrapolate the cash flows of the unit beyond the year period is -% which reflects Note – Business combinations (continued) our estimate of the expected lifetime of the product of years with a significant decrease in revenues afterwards. The calculation of the fair value of intangible assets is most sensitive to the revenue and gross margin growths.Revenue and gross margin: Revenue and gross margin are based on historical trends. The revenue growth applied in the calculation is between -% in the -year budget period with the first years having the highest revenue growth in percentage.Operating costs: Operating costs are based on historical trends and industry knowledge. Operating costs over the -year budget period has been adjusted to incorporate the allocation related to shared eorts of future product launches. Trade receivables have been measured at the contractual amount expected to be received which approximates the fair value of DKK . million. The amounts have not been discounted, as maturity on receivables is generally very short and the discounted eect therefore immate- rial. The acquisition resulted in a bargain purchase gain of DKK . million which was recognized within other operating income in the consolidated income statement. The gain arose as the fair value of the net assets acquired (DKK . million) exceeded the fair value of the purchase consideration (DKK . million). The gain is primarily attributable to the Company purchasing the medical technology business of Valeritas out of bankruptcy. Valeritas encountered opera- tional and financial diculties in late and filed for Bankruptcy in February .Specifically, the fair value of the tangible and financial assets acquired (DKK . million), such as invento- ries, trade receivables, and property, plant and equipment, represents a significant component of the purchase price prior to consideration of the fair value of the identified intangible assets. Acquisition-related costs of DKK . million have been expensed and are included in adminis- trative expenses in profit or loss and are part of operating cash flows in the statement of cash flows have all been incurred in the three months period ended March , .Adjustments may be applied to the various net asset categories when full alignment to Zealand accounting policies is finalized. Consequently, adjustments may be applied for a period of up to twelve months from the acquisition date in accordance with IFRS . The Valeritas business acquisition has contributed with net revenues of approximately DKK . million in net revenue and profit and loss of approximately DKK -. million to the Group for the period ending December , since the acquisition on April , . If the acquisition had occurred on January , the consolidated pro forma revenue and operating result of Zealand Pharma Group for the period ended December would have been approximately DKK . million and DKK -. million, respectively. 98Zealand Pharma ∞ Annual Report 2020 Notes Note – Change in working capital DKK thousand (Increase)/decrease in receivables -, -, - (Increase)/decrease in Inventory -, Increase/(decrease) in payables and other liabilities , , , Adjustment for non-cash investing activities -, Cash outflow for investment in Beta Bionics , Change in working capital , , , Note – Significant events after the balance sheet date On January , a total of ,, new shares have been subscribed through a private share issue with gross proceeds of DKK million. No other significant events have occurred after the end of the reporting period. Note – 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 , . Note – Related parties Zealand has no related parties with controlling interest. Zealand’s other related parties comprise the Company’s Board of Directors and Corporate Management. Remuneration to the Board of Directors and Corporate Management is disclosed in note . No further transactions with related parties were conducted during the year. Ownership The following shareholder is registered in Zealand’s register of shareholders as owning min- imum % of the voting rights or minimum % of the share capital ( share equals vote) at December , : • Van Herk Investments, Rotterdam, Netherlands Note – Adjustments for non-cash items DKK thousand Depreciation, amortization and impairment , , , Sharebased compensation expenses , , , Income tax income -, -, Income tax expense , , Financial income -, -, Financial expenses , , , Non paid royalty expenses regarding sale of future royalties and milestones , Exchange rate adjustments , -, , Total adjustments , , , 99Zealand Pharma ∞ Annual Report 2020 Con Fin – Note 30-34 Notes 1 Significant accounting policies, and significant accounting estimates and assessments 104 2 Revenue 104 3 Fees to auditors appointed at the Annual General Meeting 105 4 Information on sta and remuneration 105 5 Financial income 108 6 Financial expenses 108 7 Other operating items 108 8 Income tax 108 9 Basic and diluted earnings per share 109 10 Intangible assets 109 11 Property, plant and equipment 110 12 Right-of-use assets and lease liabilities 111 13 Inventories 112 14 Investments in subsidiaries 113 15 Other investments 113 16 Prepaid expenses 114 17 Other receivables 114 18 Cash and cash equivalents 114 19 Share capital 114 20 Other liabilities 114 21 Contingent assets, liabilities and other contractual obligations 114 22 Financial risks 115 23 Transactions with related parties 116 24 Adjustments for non-cash items 116 25 Change in working capital 116 26 Allocation of result 116 27 Significant events after the balance sheet date 116 28 Approval of the annual report 116 Contents – Parent company Financial statements of the parent company Income statement 101 Statement of comprehensive income 101 Statement of financial position 102 Statement of cash flows 103 Statement of changes in equity 103 100Zealand Pharma ∞ Annual Report 2020 Par Fin – Contents Income statement DKK thousand Note Revenue , , Cost of goods sold -, Gross margin , , Research and development expenses -, -, Sale and marketing expenses -, Administrative expenses , -, -, Other operating items , Operating result -, -, Income from subsidiaries Financial income , , Financial expenses -, -, Result before tax -, -, Corporate tax , , Net result for the year -, -, Earnings per share – DKK Basic earnings/loss per share -. -. Diluted earnings/loss per share -. -. Statement of comprehensive income DKK thousand Note Net result for the year -, -, Other comprehensive income (loss) Comprehensive result for the year -, -, Financial statements of the parent company 101Zealand Pharma ∞ Annual Report 2020 Par Fin – Income Statement DKK thousand Note Liabilities and equity Share capital , , Share premium ,, ,, Retained loss -,, -,, Shareholders' equity ,, ,, Deferred revenue , , Other liabilities , Lease liabilities , , Non-current liabilities , , Trade payables , , Payables to subsidiaries , Lease liabilities , , Deferred revenue , , Other liabilities , , Current liabilities , , Total liabilities , , Total shareholders' equity and liabilities ,, ,, Financial statements of the parent company Statement of financial position at December DKK thousand Note Assets Non-current assets Intangibles (Intellectual property) , Property, plant and equipment , , Right of use asset/lease liabilities , , Investment in subsidiaries , , Intercompany , Corporate tax receivable , Deposits , , Prepaid expenses , Other investments , , Total non-current assets , , Current assets Trade receivables Inventory , Receivables from subsidiaries , Prepaid expenses , , Corporate tax receivable , , Other receivables , , Marketable securities , , Cash and cash equivalents , ,, Total current assets ,, ,, Total assets ,, ,, 102Zealand Pharma ∞ Annual Report 2020 Par Fin – Financial position Statement of cash flows DKK thousand Note Net result for the year -, -, Adjustments for non-cash items , , Change in working capital , , Financial income received , Financial expenses paid -, -, Deferred revenue -, , Income tax receipt Cash inflow/outflow from operating activities -, -, Change in deposit -, Investment in subsidiaries -, -, Purchase of other investments -, Purchase of intangible assets -, Dividends on marketable 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 issuance of shares , , Costs related to issuance of shares -, -, Leasing installments -, -, Cash inflow from financing activities , , Decrease/increase in cash and cash equivalents -, , Cash and cash equivalents at January ,, , Exchange rate adjustments , , Cash and cash equivalents at December , ,, Statement of changes in equity Share Share Retained DKK thousand capital premium loss Total Equity at January , , ,, -,, ,, Comprehensive income for the year Net result for the year -, -, Warrant compensation expenses , , Capital increases , , , Costs related to capital increases -, -, Equity at December , , ,, -,, ,, Equity at January , , ,, -, ,, Comprehensive income for the year Net result for the year -, -, Warrant compensation expenses , , Capital increases , , , Costs related to capital increases -, -, Equity at December , , ,, -,, ,, Financial statements of the parent company 103Zealand Pharma ∞ Annual Report 2020 Par Fin – Cash flow Par Fin – Equity Notes Note – Significant accounting policies, and significant accounting estimates and assessments 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 (Class D). The accounting policies for the financial statements of the parent company are unchanged from the previous financial year. A number of new or amended standards became applicable for the current reporting period. The parent company did not change its accounting policies as a result of the adoption of these standards. The accounting policies are the same as for the consolidated financial statements with the supplementary accounting policies for the parent described below. For a description of the accounting policies of the group, please refer to the consolidated financial statements. Note disclosures have only been included in the Parent Financial Statement where amounts dier from the Consolidation financial statement. In the narrative sections of the financial statements, comparative figures for are shown in brackets. Supplementary accounting policies for the Parent Company Other operating income Capital contributions to subsidiaries is recognized at fair value. Any gain or loss based on the dierence from the carrying amount of the assets will be recognized as other operating items provided the increase does not result in the impairment of the investment, or an expense (based on the carrying amount of the asset given away) Investments in subsidiaries Please refer to note Investments in subsidiaries. Note – Revenue Recognized revenue can be specified as follows for all agreements: DKK thousand Boehringer Ingelheim International GmbH , Alexion Phamaceuticals Inc. , , Undisclosed counterpart , ZP SPV K/S , Total license and milestone revenue , , Intercompany sales , Total revenue from good sold , Total revenue , , Total revenue recognised over time , , Total revenue recognised at a point in time , , Please refer to note in the consolidated financial statements for additional information regarding revenue. 104Zealand Pharma ∞ Annual Report 2020 Par Fin – Note 1-2 Notes Note – Fees to auditors appointed at the Annual General Meeting DKK thousand Audit , , Audit-related services and other assurance engagements , , Tax advice Other Total fees , , The fee for audit-related services and other assurance engagements and other services provid- ed to the Parent Company by EY godkendt Revisionspartnerselskab in consisted of Audit of Annual Report, Audit of -F SEC filing, including SOX b attestation procedures, quarterly reviews, other auditor’s reports on various statements for public authorities, and other account- ing advisory services. (Deloitte Statsautoriseret Revisionspartnerselskab in ) Note – Information on sta and remuneration DKK thousand Total sta salaries can be specified as follows: Wages and salaries , , Share based payment costs , , Pension schemes (defined contribution plans) , , Other payroll and sta-related costs , , Total , , The amount is charged as: Research and development expenses , , Administrative expenses , , Total , , Average number of employees For remuneration to the Board of Directors please refer to note to the consolidated financial statements and for additional information regarding sta costs. 105Zealand Pharma ∞ Annual Report 2020 Par Fin – Note 3-4 Notes Note – Information on sta and remuneration (continued) Other Warrant Pension short term compensation DKK thousand Base salary Bonus contribution benefits expenses Total Remuneration to the Executive Management Emmanuel Dulac¹ , , , , Adam Sinding Steensberg² , , , , Matthew Donald Dallas 4 Total , , , , , Total Other Corporate Management , , , , Total , , , , , , Remuneration to the Executive Management Emmanuel Dulac¹ , , , Adam Sinding Steensberg² , , , , Britt Meelby Jensen³ , , Mats Blom³ , , Total , , , , , , Total Other Coporate Management 5 , , , , Total , , , , , , ¹ Emmanuel Dulac was appointed as CEO at April , . ² Former Interim CEO Adam Sinding Steensberg was appointed EVP, R&D and CMO at April , . 3 Former CEO Britt Meelby Jensen and former CFO Mats Blom resigned from Zealand at February , and March , , respectively. 4 Matthew Dallas has tax obligations in Denmark, so a part of his salary is paid out in Denmark. 5 Other Corporate Management in comprised one member (: Three). 106Zealand Pharma ∞ Annual Report 2020 Par Fin – Note 4 Notes Note – Information on sta and remuneration (continued) The employee incentive programs of Warrant programs existing during the period Maximum term of options granted N/A Method of settlement equity-settled Outstanding at the beginning of the period ,, , Granted during the period , Forfeited during the period -, Exercised during the period -, -, Expired during the period -, Outstanding at the end of the period; and ,, Exercisable at the end of the period , Warrants outstanding at the end of the period Range of exercise prices .- .- . . Weighted-average remaining contractual life . Number held by Executive Management , Outstanding at the beginning of the period ,, , Granted during the period , Forfeited during the period -, Exercised during the period -, -, Expired during the period Outstanding at the end of the period; and ,, , Exercisable at the end of the period , , Warrants outstanding at the end of the period Range of exercise prices .- .- . . Weighted-average remaining contractual life . . Number held by Executive Management , Warrants exercised during the period Weighted-average share price at the date of exercise . . Expense arising from share-based payment transactions Research and development expenses , , Sale and marketing expenses Administrative expenses , , Total , , Eect of fair value of PSUs recognised in the income statement is DKK . (: DKK . million. Eect of fair value of RSUs recognised in the income statement is DKK . (: DKK . million. The long-term incentive program (LTIP) for Corporate Management No of PSUs Number of shares At January , Granted during the year , Vested during the year Forfeited during the year -, At December , , No of RSUs Number of shares At January Granted during the year , Vested during the year Forfeited during the year At December , 107Zealand Pharma ∞ Annual Report 2020 Notes Note – Financial income DKK thousand Interest income from financial assets measured at amortized costs , Interest income , Fair value adjustments of Other investments and marketable securities , Dividend, marketable securities Exchange rate adjustments , Total financial income , , Please refer to note in the consolidated financial statements for additional information regarding financial income. Note – Financial expenses DKK thousand Other financial expenses , , Fair value adjustments of Marketable securities , Interest on financial assets , Exchange rate adjustments , Total financial expenses , , Please refer to note in the consolidated financial statements for additional information regarding finacial expenses. Note - Other operating items DKK thousand Government grants Contributed IP rights to Zealand Pharma SPV K/S , Other Total other operating items , Please refer to note in the consolidated financial statements for additional information regarding other operating items. Note – Income tax DKK thousand Net result for the year before tax -, -, Corporate tax rate in Denmark .% .% Expected tax benefit/(expenses) , , Adjustment for non-deductible expenses , - Adjustment for non-taxable income -, Adjustment for exercised warrants , -, Adjustment for R&D extra deduction -, , Tax eect on exercise of warrants -, , Tax eect on expired warrants - Warrant - share price development -, , Adjustment to prior years -, Change in tax assets (not recognized) -, -, Total income tax expense/benefit , , DKK thousand Specification of unrecognized deferred tax assets: Tax losses carried forward (available indefinitely) ,, , Research and development expenses , , Licenses, rights and patents , , Non-current assets , , Liabilities , , Other , , Total temporary dierences ,, ,, Calculated potential deferred tax asset at local tax rate , , Deferred tax asset not expected to be utilized -, -, Recognized deferred tax asset Please refer to note in the consolidated financial statements for additional information regarding income tax. 108Zealand Pharma ∞ Annual Report 2020 Par Fin – Note 5-8 Notes Note – Intangible assets Licenses, rights DKK thousand and patents Cost at January , Additions , Retirements Cost at December , , Depreciation at January , Depreciation for the year Impairment , Depreciation at December , , Carrying amount at December , , Depreciation for the financial year has been charged as: Research and development expenses Sale and marketing expenses , Administrative expenses Total , Cost at January , Additions Cost at December , Amortization at January , Amortization at December , Carrying amount at December , Depreciation for the financial year has been charged as: Research and development expenses Administrative expenses Total Please refer to note in the consolidated financial statements for additional information regarding intangible assets. Note – 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 Net result for the year -, -, Net result used in the calculation of basic and diluted earnings/losses 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/losses per share ,, ,, Weighted average number of ordinary shares used in the calculation of basic and diluted earnings/losses per share ,, ,, Basic earning/loss per share (DKK) -. -. Diluted earning/loss per share (DKK) -. -. Regarding a specification of potential ordinary shares, which are dilutive or antidilutive, please refer to note to the consoli- dated financial statements. 109Zealand Pharma ∞ Annual Report 2020 Par Fin – Note 9-10 Notes Note – Property, plant and equipment Plant and Other fixtures Building Assets under DKK thousand machinery and fittings improvements construction Cost at January , , , , , Transfer , -, Additions , , , , Retirements -, - -, Cost at December , , , , , Accumulated depreciation at January , , , , Depreciation for the year , , , Retirements -, - -,5 Accumulated depreciation at December , , , , Carrying amount at December , , , , , Depreciation for the financial year has been charged as: Research and development expenses , , , Sale and marketing expenses Administrative expenses Total , , , Note – Property, plant and equipment (continued) Plant and Other fixtures Building Assets under DKK thousand machinery and fittings improvements construction Cost at January , , , , Transfer - Additions , , , , Retirements -, - - Cost at December , , , , , Accumulated depreciation at January , , , , Transfer - Depreciation for the year , , Retirements -, - - Accumulated depreciation at December , , , , Carrying amount at December , , , , , Depreciation for the financial year has been charged as: Research and development expenses , Administrative expenses Total , , Please refer to note in the consolidated financial statements for additional information regarding property, plant and equipment. 110Zealand Pharma ∞ Annual Report 2020 Par Fin – Note 11 Notes Note – Right-of-use assets and lease liabilities Amounts recognized in the statement of financial position The statement of financial position shows the following amounts relating to leases: Other fixtures and DKK thousand Buildings fittings As at January , , , Additions , Retirements -, - Reversal of depreciations , Depreciation expense -, - As at December , , , As at January , , , Additions , Depreciation expense -, -, As at December , , , Note – Right-of-use assets and lease liabilities (continued) Set out below are the carrying amounts of lease liabilities and the movements during the period. As at January , , Additions , , Accretion of interest , Payments -, -, As at December , , Current , , Non-current , , The following are the amounts recognised in profit and loss: Depreciation expense of right-of-use assets -, -, Interest expense on lease liabilities , Expense relating to short-term leases (included in cost of sales) Expense relating to leases of low-value assets (included in administrative expenses) Variable lease payments (included in cost of sales) Total amount recognised in profit and loss -, -, Cashflow -, -, Total cash outflow for leases -, -, Please refer to note in the consolidated financial statements for additional information re- garding right-of-use assets and lease liabilities. 111Zealand Pharma ∞ Annual Report 2020 Par Fin – Note 12 Note – Inventories Inventories were comprised as follows: DKK thousand Raw materials , Work in process , Finished goods , Total , Direct costs , Indirect production costs , Write downs recognized on inventories were reflected in the cost of goods sold. They were comprised as follows: DKK thousand Accumulated write downs, January Additions -, Write downs in the reporting period - Reversals or utilization of write downs Exchange dierences Accumulated write downs, December -, Please refer to note in the consolidated financial statements for additional information regarding inventory. Par Fin – Note 13 112Zealand Pharma ∞ Annual Report 2020 Notes Note – Investments in subsidiaries Accounting policies 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. DKK thousand Cost at January , , Additions , Cost at December , , Value adjustments at January , Value adjustments for the year Value adjustments at December , . Carrying amount at December , , Cost at January , Additions , Cost at December , , Value adjustments at January , Value adjustments for the year Value adjustments at December , Carrying amount at December , , Voting Company summary Domicile Ownership rights Zealand Pharma A/S subsidiaries: ZP Holding SPV K/S Denmark % % ZP General Partner ApS Denmark % % Zealand Pharma US, Inc. United States % % Zealand Pharma California US, LLC. United States % % Encycle Therapeutics, Inc. Canada % % ZP SPV K/S Denmark % % ZP General Partner ApS Denmark % % ZP Holding SPV K/S subsidiaries: ZP SPV K/S Denmark % % ZP General Partner ApS Denmark % % Pursuant to section () of the Danish Financial Statements Act, Management has chosen to submit an exemption declaration ('Undtagelseserklæring' in Danish) and has not issued annual reports for ZP SPV K/S, ZP Holding SPV K/S and ZP SPV K/S. The financial statements of the two companies are fully consolidated in the consolidated finan- cial statements of Zealand Pharma A/S. No income has been received from subsidiaries during the or . Note – Other investments Please refer to note to the consolidated financial statements. 113Zealand Pharma ∞ Annual Report 2020 Par Fin – Note 14-15 Notes Note – Prepaid expenses The increase in Prepaid expenses of DKK . million from to is primarily related to higher insurance coverage for Management and Board members due to increase liability risk. Please refer to note in the consolidated financial statements for additional information regarding prepaid expenses. Note – Other receivables DKK thousand VAT , , Other , , Total other receivables , , Please refer to note in the consolidated financial statements for additional information regarding other receivables. Note – Cash and cash equivalents DKK thousand DKK , , USD , , EUR , , Total cash and cash equivalents , ,, Please refer to note in the consolidated financial statements for additional information re- garding cash and cash equivalents. Note – Share capital Please refer to note to the consolidated financial statements. Note – Other liabilities DKK thousand Employee benefits , , Development project costs , , Other payables , , Total other liabilities , , Current: , , Non-currenct , Please refer to note in the consolidated financial statements for additional information regarding other liabilities. Note – Contingent assets, 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 to the consolidated financial statements for information on contractual obligations. 114Zealand Pharma ∞ Annual Report 2020 Par Fin – Note 16-21 Notes Note – Financial risks Please refer to note to the consolidated financial statements. 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 months - Years > years Total Trade payables , , Leasing , , , , Other liabilities , , Total financial liabilities at December , , , , , Trade payables , , Leasing , , , , Other liabilities , , Total financial liabilities at December , , , , , All cash flows are undiscounted and include all liabilities under contracts. DKK thousand Categories of financial instruments Deposits , , Trade receivables Receivables from subsidiaries , , Other receivables , , Cash and cash equivalents , ,, Financial assets measured at amortized cost ,, ,, Marketable securities , , Other investments , , Financial assets measured at fair value through profit or loss , , Trade payables , , Payables to subsidiaries , Lease liabilities , , Other liabilities , , Financial liabilities measured at amortized cost , , The fair value of marketable securities is based on Level in the fair value hierarchy. The fair value of other investments is based on level in the fair value hierarchy. At December , and , the carrying amount of other financial assets and financial liabilities approximated the fair value. 115Zealand Pharma ∞ Annual Report 2020 Par Fin – Note 22 Notes Note – Transactions with related parties ‘Zealand Pharma A/S' related parties are the board of directors, executive management, and close members of the family of these persons. Refer to note in the consolidated financial statements for remuneration of Board of Directors. Refer to note in these parent company financial statements for remuneration of the executive management team. The parent company had the following transactions with subsidiaries: Revenue: DKK million (DKK million) Other income: DKK . million (DKK million) Sale and marketing costs: DKK . million (DKK million) Receivables: DKK . million (DKK , million) Payables: DKK . million (DKK , million) Note – 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 – Change in working capital DKK thousand Increase/decrease in receivables -, -, Increase/decrease in inventory -, Increase/decrease in payables , , Increase/decrease in other liabilities , Adjustment for non-cash investing activities -, Adjustment for cash outflow for investment in Beta Bionics , Change in working capital , , Note – Allocation of result The Board of Directors proposes that the parent company’s net result of DKK -. million (: net result of DKK -. million) be carried forward to next year by transfer to retained loss. Note – Significant events after the balance sheet date Please refer to note in the consolidated financial statements. Note – Approval of the annual report Please refer to note in the consolidated financial statements. 116Zealand Pharma ∞ Annual Report 2020 Par Fin – Note 23-28 Free cash flow Free cash flow is calculated as the sum of cash flows from operating activities less 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 or capital raises 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 rec- onciliation of free cash flow for , and : DKK thousand Cash (outflow)/inflow from operating activities -, -, -, Less purchase of property, plant and equipment -, -, -, Free cash flow -, -, -, Alternative performance measures for the Group (non-audited) 117Zealand Pharma ∞ Annual Report 2020 Par Fin – Alternative performance measures 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 – December , . 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 , , and of the results of the Group’s and the Executive Management Emmanuel Dulac President and Chief Executive Ocer Matthew Douglas Dallas Senior Vice President and Chief Financial Ocer Board of Directors Alf Gunnar Martin Nicklasson Chairman Kirsten Aarup Drejer Vice Chairman parent company’s operations and cash flows for the financial year January – December , . 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. Søborg, March , Bernadette Connaughton Board member Leonard Kruimer Board member Alain Munoz Board member Jens Peter Stenvang Board member Employee elected Iben Louise Gjelstrup Board member Employee elected Jerey Berkowitz Board member Adam Sinding Steensberg Executive Vice President, Research & Development, and Chief Medical Ocer Michael John Owen Board member Frederik Barfoed Beck Board member Employee elected Gertrud Koefoed Rasmussen Board member Employee elected 118Zealand Pharma ∞ Annual Report 2020 Statement – Management Independent auditor’s report To the shareholders of Zealand Pharma A/S Report on the audit of the Consolidated Financial Statements and Parent Company Financial Statements Opinion We have audited the consolidated financial state- ments and the parent company financial statements of Zealand Pharma A/S for the financial year January 1 – December 31, 2020, which comprise income statement, statement of comprehensive income, statement of financial position, statement of changes in equity, cash flow statement and notes, including accounting policies, for the Group and the Parent Company. The consolidated financial statements and the parent company financial statements are prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IASB) and as adopted by the EU and additional requirements of the Danish Financial Statements Act. In our opinion, the consolidated financial statements and the parent company financial statements give a true and fair view of the financial position of the Group and the Parent Company at December 31, 2020 and of the results of the Group's and the Parent Company's operations and cash flows for the finan- cial year January 1 – December 31, 2020 in accord- ance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IASB) and as adopted by the EU and additional requirements of the Danish Financial Statements Act. Our opinion is consistent with our long-form au- dit report to the Audit Committee and the Board of Directors. Basis for opinion We conducted our audit in accordance with Inter- national Standards on Auditing (ISAs) and 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 company financial statements" (hereinafter collectively referred to as "the financial statements") section of our report. We believe that the audit evi- dence we have obtained is sucient and appropriate to provide a basis for our opinion. Independence We are independent of the Group in accordance with the International Ethics Standards Board for Account- ants' Code of Ethics for Professional Accountants (IESBA Code) and additional requirements applicable in Denmark, and we have fulfilled our other ethical responsibilities in accordance with these rules and requirements. To the best of our knowledge, we have not provided any prohibited non-audit services as described in article 5(1) of Regulation (EU) no. 537/2014. Appointment of auditor We were initially appointed as auditor of Zealand Pharma A/S on April 2, 2020 for the financial year 2020. 119Zealand Pharma ∞ Annual Report 2020 Statement – Independent auditor Key audit matters Key audit matters are those matters that, in our pro- fessional judgement, were of most significance in our audit of the financial statements for the financial year 2020. These matters were addressed during our audit of the financial statements as a whole and in forming our opinion thereon. We do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. We have fulfilled our responsibilities described in the "Auditor's responsibilities for the audit of the financial statements" section, including in relation to the key audit matters below. Accordingly, our audit includ- ed the design and performance of procedures to respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the financial state- ments. Valeritas business combination and bargain purchase gain As disclosed in Note 29 to the consolidated financial statements, on April 2, 2020, Zealand Pharma A/S acquired substantially all the medical technology business from Valeritas Holding, Inc. a U.S. based commercial-stage company. The consideration transferred was DKK 167.7 million. The acquisition, which was accounted for as a business combina- tion, resulted in a bargain purchase gain of DKK 36.7 million. The Company has accounted for the Valeritas business combination by applying the acquisition method of accounting, including the recognition and measurement of the identified assets acquired and liabilities assumed at the acquisition-date fair values and the recognition of the gain from the bargain purchase. Purchase price allocation is complex and bargain purchases are uncommon in nature. Auditing this matter required the involvement of valuation spe- cialists due to the highly judgmental nature of the initial and reassessed fair value assumptions. These fair value assumptions included prospective financial information relating to revenue and gross margin growth and operating expense assumptions used in the fair value measurement process of intangible assets in the form of the V-Go technology and phy- sician network and relationships. These assumptions have a significant eect on the bargain purchase. How our audit addressed the key audit matter We obtained an understanding of the processes for accounting for business combinations and evaluated the design and tested the operating eectiveness of controls relating to the measurement and valuation of the identified assets acquired and liabilities as- sumed. For example, we tested controls over man- agement’s use of external valuation specialists, man- agement’s review of the purchase price allocation, management’s reassessment of the purchase price allocation, the revenue and gross margin growth and operating expense assumptions and related prospec- tive financial information. To test the purchase price allocation, our audit procedures included, among others, evaluating the methodology used, the significant prospective financial information used in the initial fair value assumptions and reassessed fair value assumptions of the V-Go technology and physician network and relationships, and the underlying data used by the Company. We compared the assumptions used by management to historical trends and market partic- ipant expectations. For example, we evaluated man- agement’s methodology for determining revenue and gross margin growth and operating expense assump- tions compared to relevant publicly available market data, including market participant expectations, and methodology for reassessment of the purchase price allocation. We involved valuation specialists to assist with our procedures. To evaluate the fair value of acquired intangible assets, we compared the initial fair value assump- tions and reassessed fair value assumptions applied with publicly available market data and assessed any entity-specific adjustments that were applied. We also tested the completeness and accuracy of the underlying data, including the market data provided by management’s external valuation specialists. Accounting for rebates and discounts related to the Company’s sales in the United States As disclosed in Note 2 to the consolidated finan- cial statements revenue from products sold by the Company in the United States (U.S.) is impacted by estimates related to managed care rebates, medicare part D rebates, and co-pay card redemption. The estimates for managed care rebates, medicare part D rebates, and co-pay card redemption and related provisions are recognised as a reduction to gross sales in the period in which the underlying sales are recognised. As of December 31, 2020, the provi- sions for sales discounts and rebates amounts to DKK 120Zealand Pharma ∞ Annual Report 2020 36.4 million, as disclosed in Note 25 in the consoli- dated financial statements. Auditing managed care rebates and medicare part D rebates, and co-pay card redemption and related provisions is complex due to the judgmental nature of management’s estimates, which involves multi- ple assumptions, as not all conditions are known at the time of sale. For both managed care rebates and the medicare part D rebates, the key assumptions relate to the rebate percentages by each pharmacy as determined in each pharmacy's contract with the Company and forecasted number of prescriptions that will be filled by each pharmacy (referred to as payor mix). For co-pay card redemptions, the key assumptions relate to expected settlement rates for sales units remaining in the channel that have yet to be presented under co-pay terms. These assump- tions are made based on historical actuals, which are used to estimate forecasted trends, including payor mix and settlement rates, which are used to estimate the expected settlement of managed care rebates and medicare part D rebates, and co-pay card re- demption, and the specific terms in the individual agreements. How our audit addressed the key audit matter We gained and obtained an understanding of the Company’s processes for accounting for managed care rebates, medicare part D rebates, and co-pay card redemptions related to sales in the U.S. including the methods for which management developed their assumptions used in the estimates, such as rebate percentages and payor mix for both managed care rebates and the medicare part D rebates and expect- ed settlement rate for sales units remaining in the channel that have yet to be presented under co-pay terms for co-pay card redemptions. We obtained management’s calculation of provisions for managed care rebates, medicare part D rebates, and co-pay card redemptions and assessed the assumptions applied by management and compared them to applicable commercial policies, historical experience and the specific terms in the individu- al agreements. We further examined subsequent settlement obligations to assess completeness and accuracy of the recorded provisions. We performed an independent assessment on the key assumptions of the provisions as of December 31, 2020, including the payor mix and expected settlement rates, and compared these to the actual provisions recognised. In addition, we have assessed the adequacy of the Company’s disclosures on rebates and discounts related to the matter described above. Statement on the Management's review Management is responsible for the Management's review. Our opinion on the financial statements does not cover the Management's review, and we do not ex- press any form of assurance conclusion thereon. In connection with our audit of the financial state- ments, our responsibility is to read the Manage- ment's review and, in doing so, consider whether the Management's review is materially inconsistent with the financial statements or our knowledge obtained during the audit, or otherwise appears to be material- ly misstated. Moreover, it is our responsibility to consider whether the Management's review provides the information required under the Danish Financial Statements Act. Based on the work we have performed, we conclude that the Management's review is in accordance with the 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's review. Management's responsibilities for the financial statements Management is responsible for the preparation of consolidated financial statements and parent compa- ny financial statements that give a true and fair view in accordance with International Financial Report- ing Standards as adopted by the EU and additional requirements of the Danish Financial Statements Act and for such internal control as Management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, Management is responsible for assessing the Group's and the Parent Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of ac- counting in preparing the financial statements unless Management either intends to liquidate the Group or the Parent Company or to cease operations, or has no realistic alternative but to do so. 121Zealand Pharma ∞ Annual Report 2020 Auditor's responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance as to whether the 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 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 the financial statements. As part of an audit conducted in accordance with ISAs and additional requirements applicable in Den- mark, we exercise professional judgement and main- tain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstate- ment of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks and obtain audit evidence that is sucient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than 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 eectiveness of the Group's and the Parent Com- pany'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 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 Company's ability to continue as a going concern. If we conclude that a material uncertain- ty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are in- adequate, 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 conditions may cause the Group and the Parent Company to cease to continue as a going concern. • Evaluate the overall presentation, structure and contents of the financial statements, including the note disclosures, and whether the financial state- ments represent the underlying transactions and events in a manner that gives a true and fair view. • Obtain sucient 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 were of most significance in the audit of the consol- idated financial statements and the parent company 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 regula- tion precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on compliance with the ESEF Regulation As part of our audit of the financial statements of Zealand Pharma A/S we performed procedures to express an opinion on whether the annual report for the financial year January 1 – December 31, 2020 with the file name [name of file] is prepared, in all 122Zealand Pharma ∞ Annual Report 2020 material respects, in compliance with the Commis- sion Delegated Regulation (EU) 2019/815 on the European Single Electronic Format (ESEF Regulation) which includes requirements related to the prepara- tion of the annual report in XHTML format and iXBRL tagging of the Consolidated Financial Statements. Management is responsible for preparing an annual report that complies with the ESEF Regulation. This responsibility includes: The preparing of the annual report in XHTML format; The selection and application of appropriate iXBRL tags, including extensions to the ESEF taxonomy and the anchoring thereof to elements in the taxonomy, for financial information required to be tagged using judgement where necessary; Ensuring consistency between iXBRL tagged data and the Consolidated Financial Statements presented in human readable format; and For such internal control as Management determines necessary to enable the preparation of an annual report that is compliant with the ESEF Regulation. Our responsibility is to obtain reasonable assurance on whether the annual report is prepared, in all mate- rial respects, in compliance with the ESEF Regulation based on the evidence we have obtained, and to issue a report that includes our opinion. The nature, timing and extent of procedures selected depend on the auditor’s judgement, including the assessment of the risks of material departures from the require- ments set out in the ESEF Regulation, whether due to fraud or error. The procedures include: Testing whether the annual report is prepared in XHTML format; Obtaining an understanding of the company’s iXBRL tagging process and of internal control over the tag- ging process; Evaluating the completeness of the iXBRL tagging of the Consolidated Financial Statements; Evaluating the appropriateness of the company’s use of iXBRL elements selected from the ESEF taxono- my and the creation of extension elements where no suitable element in the ESEF taxonomy has been identified; Evaluating the use of anchoring of extension ele- ments to elements in the ESEF taxonomy; and Reconciling the iXBRL tagged data with the audited Consolidated Financial Statements. In our opinion, the annual report for the financial year January 1 – December 31, 2020 with the file name 549300ITBB1ULBL4CZ12-2020-12-31_en.zip is pre- pared, in all material respects, in compliance with the ESEF Regulation. Copenhagen, March 11, 2021 EY Godkendt Revisionspartnerselskab Christian Schwenn Johansen Rasmus Bloch Jespersen State Authorised State Authorised Public Accountant Public Accountant mne33234 mne35503 123Zealand Pharma ∞ Annual Report 2020 Other information 124Zealand Pharma ∞ Annual Report 2020 Other – COVER Sources Company information Zealand Pharma A/S Sydmarken Søborg Denmark CVR no.: Tel: + Fax: + Zealand Pharma U.S., Inc. Farnsworth Street th Floor Boston, MA [email protected] www.zealandpharma.com Established April , Registered oce Gladsaxe Auditors EY Godkendt Revisionspartnerselskab CVR no.: Transforming Peptides J. Lau and M. Dunn, Therapeutic peptides: Historical perspectives, current devel- opment trends, and future directions. Bioorganic & Medicinal Chemistry, version , issue , June , p. - Pipeline Overview Partnered with Boehringer Ingelheim. Zealand eligible for EUR m in outstand- ing milestones Partnered with Boehringer Ingelheim. Zealand eligible for EUR m in outstand- ing milestones Partnered with Aexion Pharmaceuticals. Zealand eligible for USD m in out- standing milestones Acquired with Encycle Therapeutics Severe hypoglycemia ¹ Kalra 2013, UK Hypoglycemia Study Group 2 American Diabetes Association, diabetes.org 3 cdc.gov and diabetes.org and www.diabetesselfmanagement.com/diabetes- resources/tools-tech/insulin-pumps 4 National Diabetes Statistics Report. CDC. 2014 5 Company announcement No. 23/2018, Zealand Pharma achieves primary and key secondary endpoints in pivotal Phase 3 trial with dasiglucagon for severe hypoglycemia 6 Company announcement No. 15/2019, Zealand Pharma achieves primary and key secondary endpoints in second pivotal Phase 3 trial with dasiglucagon for severe hypoglycemia 7 Company announcement No. 35/2019, Zealand Pharma achieves primary and key secondary endpoints in pediatric Phase 3 trial with dasiglucagon for severe hypoglycemia Congenital hyperinsulinism 1 https://www.orpha.net/consor/cgi-bin/ (not including transient cases due to perinatal stress or diabetic mother) 2 Congenital Hyperinsulinism International. Available at: http://congenitalhi.org 3 Thornton PS et al., J Pediatr. 2015;167(2):238-45 4 Meissner T et al., Long-term follow-up of 114 patients with congenital hyper- insulinism. Eur J Endocrinol 2003;149:43-510 5 Yorifuji et al. Pediatrics International 2014;56:467 6 Eljamel et al. Orphanet Journal of Rare Diseases 2018;13:123 Automated diabetes management ¹ ADA Section : pA 2 ADA Section : pC; pA 3 Nicole C. Foster, et al, and for the TD Exchange Clinic Network. Diabetes Technology & Therapeutics. Feb . Short bowel syndrome ¹ Pironi L et al. Clin Nutr ;:– 2 Jeppesen P. Expert Opinion Orphan Drugs ;:– 3 Bielawska B. Nutrients ;:– 4 Transparency Market Research; Short Bowel Syndrome Market, 5 Torres C. Current Paediatr ;:–; Bielawska B. Nutrients ;:–; Pironi L et al. Clin Nutr ;:–; Hofstetter S et al. Curr Med Res Opin ;:– Obesity/Type 2 diabetes ¹ Company announcement No. /, September , 2 Skarbaliene, J., Pagler, T., Eickelmann, P., and Just, R. Anti-obesity eects of the novel long-acting amylin analogue ZP in high-fat diet fed rats. Poster, the American Diabetes Association’s (ADA) th Scientific Sessions, New Orleans, 125Zealand Pharma ∞ Annual Report 2020 Other – Sources - Company info Design and production: Noted Zealand Pharma A/S Sydmarken 11 DK-2860 Søborg Denmark Tel: +45 88 77 36 00 Fax: +45 88 77 38 98 CVR no.: 20 04 50 78 zealandpharma.com 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Pharma A/SDenmarkParent and ConsolidatedDenmarkSydmarken 11. 2860 SøborgDenmarkSelskabets formål er at drive forskning, produktion, handel og dermed beslægtet virksomhed, primært indenfor medicinalbranchen.Zealand Pharma A/SZealand Pharma A/SN/AAnnual reportAuditor's report on audited financial statementsParsePort XBRL Converter2020-01-012020-12-312019-01-012019-12-31549300ITBB1ULBL4CZ12Zealand Pharma A/SReporting class D20045078Sydmarken11DK-2860SøborgDenmarkDK1997-04-01Gladsaxe+4588773600+4588773898www.zealandpharma.com2971730169Emmanuel DulacChief Executive OfficerMatthew DallasChief Financial OfficerAdam SteensbergChief Medical OfficerMartin NicklassonChairmanKirsten A. DrejerVice ChairmanJeffrey BerkowitzBoard memberBernadette ConnaughtonBoard memberLeonard KruimerBoard memberAlain MunozBoard memberMichael John OwenBoard memberFrederik Barfoed BeckEmployee-elected board memberGertrud Koefoed RasmussenEmployee-elected board memberIben Louise GjelstrupEmployee-elected board memberJens Peter StenvangEmployee-elected board member549300ITBB1ULBL4CZ1220045078Zealand Pharma A/SSydmarken 11DK-2860 SøborgOpinionBasis for OpinionCopenhagen2021-03-11Christian Schwenn JoansenState-Authorized Public Accountantmne3323430700228EY Godkendt RevisionspartnerselskabDirch Passers Allé362000FrederiksbergRasmus Bloch JespersenState-Authorized Public Accountantmne3550330700228EY Godkendt RevisionspartnerselskabDirch Passers Allé362000Frederiksberg
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