Quarterly Report • Nov 15, 2018
Quarterly Report
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Company announcement – No. 28 / 2018
Copenhagen, November 15, 2018 – Zealand Pharma A/S ("Zealand") (Nasdaq: ZEAL) (Company reg. No. 20 04 50 78), a Copenhagen-based biotechnology company focused on the discovery and development of innovative peptide-based medicines, today announced its financial results for the first nine months of 2018.
"The third quarter was transformative for Zealand. With the sale of future royalties and milestones, we became a financially stronger company with the funding and focus to bring our fully owned late-stage candidates to market," said Britt Meelby Jensen, the Company's President and Chief Executive Officer. "We gained even more confidence in dasiglucagon as a potential best-in-class rescue treatment for severe hypoglycemia after receiving the strong results from the pivotal Phase 3 trial. In addition, three Phase 3 trials were initiated, including the pivotal trial for glepaglutide as treatment for short bowel syndrome. Our focus is now to ensure that the clinical trials are progressing with high speed and quality and on entering into selected partnerships in line with our strategy."
First patients enrolled in pivotal Phase 3 trial with Glepaglutide, a long-acting GLP-2 analog for treatment of short bowel syndrome (SBS)
GLP-1/Glucagon dual agonist for once-weekly treatment of obesity/Type 2 diabetes successfully completed Phase 1a trial and was advanced into Phase 1b by Boehringer Ingelheim
Zealand maintains its financial guidance for full-year 2018 as announced in the Company's 2017 Annual Report.
Net operating expenses3 in 2018 are still expected to be within the range of DKK 475-495 million (USD 73-77 million1 ). Most of the spend is related to the increased clinical development costs associated with Phase 3 trials of the Company's glepaglutide and dasiglucagon programs.
As the Company has sold future royalties and milestones from Sanofi for sales of Soliqua® 100/33/ Suliqua® and Lyxumia®/Adlyxin® no further royalties or milestones are expected in 2018.
Glepaglutide is a long-acting GLP-2 analog with an effective half-life of approximately 50 hours. The pivotal Phase 3 trial was initiated in early October 2018. The trial is a randomized, double-blind and placebo-controlled study, with both once- and twice-weekly dosing regimens. The trial is expected to enroll 129 patients at multiple sites across the United States, Europe and Canada.
The U.S. FDA has granted orphan drug designation for glepaglutide for the treatment of SBS. The preceding glepaglutide Phase 2 trial in patients with SBS demonstrated increases in intestinal absorption following only 3 weeks of treatment.
Dasiglucagon is a potential first-in-class glucagon analog with a unique stability profile in liquid formulation. Zealand is pursuing several indications where a stable profile would provide new treatment options:
The ready-to-use dasiglucagon rescue pen, the HypoPal®, is designed to offer people with diabetes a fast treatment solution for severe hypoglycemia. In the pivotal Phase 3 efficacy trial, all primary and key secondary endpoints were successfully achieved. 99% of patients on dasiglucagon recovered from low blood glucose within 15 minutes, and the median time to plasma glucose recovery was 10 minutes with dasiglucagon.
A pediatric trial was initiated in September 2018 with readout in H1 2019 and we anticipate a New Drug Application (NDA) filing Q4 2019.
We are developing dasiglucagon as a potential treatment option for CHI, a rare disease, which affects mainly newborns and toddlers with devastating consequences including brain damage and which often requires surgical intervention, pancreatectomy, to manage the condition. Initiation of the first Phase 3 trial is expected in Q4 2018. This is slightly later than earlier communicated due to additional comments from FDA, which Zealand believes will simplify and improve the program.
A next-generation artificial pancreas pump system, the iLetTM containing both insulin and glucagon (dasiglucagon) is in development by our partner Beta Bionics. The addition of dasiglucagon to the pump system provides the means to elevate blood sugar levels with potential to control these more accurately than with insulin alone.
In May 2018, Beta Bionics received an Investigational Device Exemption (IDE) approval from FDA, allowing them to use the iLetTM pump in clinical trials. In June, Zealand and Beta Bionics met with the FDA to discuss Phase 2b and the path towards Phase 3 initiation. As a consequence, the planned Phase 2b trial has been reduced in scope to provide bridging data in the iLet™ pump before potential Phase 3 initiation. The Phase 2b trial is expected to complete in H1 2019.
The glucagon/GLP-1 dual agonist activates two key gut hormone receptors simultaneously and may offer better blood sugar and weight-loss control than current single-hormone receptor agonist treatments. Based on encouraging Phase 1a clinical trial results, a Phase 1b trial with the once-weekly GLP1/Glu dual agonist for treatment of diabetes/obesity was initiated by Boehringer Ingelheim in August. Results from that trial are expected in H1 2019.
Boehringer Ingelheim is funding all research, development and commercialization activities related to the treatment. Zealand is eligible to receive up to EUR 386 million in milestone payments (of which EUR 365 million is outstanding) and royalties on global sales.
The current once-weekly amylin analog lead molecule for treatment of diabetes/obesity has been replaced by a stronger back-up candidate with improved pharmaceutical properties. This new lead is anticipated to enter Phase 1 clinical testing in H1 2019. In pre-clinical studies, Zealand and Boehringer Ingelheim observed that the novel, long-acting amylin analog may prevent the development of obesity in pre-clinical models, suggesting its potential use in treating obesity and obesity-related comorbidities.
Boehringer Ingelheim is funding all research, development and commercialization activities related to the treatment. Zealand is eligible to receive up to EUR 295 million in milestone payments (of which EUR 283 million is outstanding) and royalties on global sales.
ZP7570 is a potential first-in-class dual agonist peptide therapeutic to treat patients with short bowel syndrome and/or other metabolic and gastrointestinal diseases. Rationale for the dual agonist builds upon clinical evidence indicating that combining the GLP-1 and GLP-2 mechanisms provides an improved outcome in some SBS patients over GLP-2 alone. The GLP-1 activity will impact gastric emptying and hyperglycemic events and could also improve the metabolism of the parenteral nutrition. Preclinical development has been completed and the candidate is ready to move into Phase 1 in 2019.
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 C3 glomerulopathy. We have identified novel peptides that are potent, selective, long-acting inhibitors of the complement cascade acting at factor C3. A clinical candidate is expected to be selected in 2019.
Zealand's management will be hosting a conference call today at 4:00 p.m. CET / 10:00 a.m. ET to present the results for the first nine months of 2018. The call will be led by President and Chief Executive Officer Britt Meelby Jensen, and Executive Vice President and Chief Financial Officer Mats Blom, with the rest of management attending. The presentation will be followed by a Q&A session.
The conference call will be conducted in English, and the dial-in numbers are: Denmark: ........................ +45 35 15 80 49 United Kingdom: ............. +44 (0)330 336 9127 United States: ................. +1 929-477-0448 Passcode ........................ 5000889
A live audio webcast of the call, including an accompanying slide presentation, will be available via the following link, https://edge.media-server.com/m6/p/wit9aekv, and also will be accessible on the Investor section of Zealand's website (www.zealandpharma.com). Participants are advised to register for the webcast approximately 10 minutes before the scheduled start.
A recording of the event and a transcript will be available on the Investor section of Zealand's website after the call.
Britt Meelby Jensen, President and Chief Executive Officer Tel.: +45 51 67 61 28, e-mail: [email protected]
Mats Blom, Executive Vice President, Chief Financial Officer Tel.: +45 31 53 79 73, e-mail: [email protected]
Zealand Pharma A/S (Nasdaq Copenhagen and New York: ZEAL) ("Zealand") is a biotechnology company focused on the discovery and development of innovative peptide-based medicines. More than 10 drug candidates invented by Zealand have advanced into clinical development, of which two have reached the market. Zealand's current pipeline of internal product candidates focus on specialty gastrointestinal and metabolic diseases. Zealand's portfolio also includes two clinical license collaborations with Boehringer Ingelheim.
Zealand is based in Copenhagen (Glostrup), Denmark. For further information about the Company's business and activities, please visit www.zealandpharma.com or follow Zealand on LinkedIn or Twitter @ZealandPharma.
The above information contains forward-looking statements that provide our expectations or forecasts of future events such as new product introductions, clinical development activities and anticipated results, product approvals and financial performance. Such forward-looking statements are subject to risks, uncertainties and inaccurate assumptions. This may cause actual results to differ materially from expectations and it may cause any or all of our forward-looking statements here or in other publications to be wrong. Factors that may affect future results include interest rate and currency exchange rate fluctuations, delay or failure of clinical trials and other development activities, production problems, unexpected contract breaches or terminations, government-mandated or market-driven price decreases for Zealand's products, introduction of competing products, Zealand's ability to successfully market both new and existing products, exposure to product liability and other lawsuits, changes in reimbursement rules and governmental laws and related interpretation thereof, and unexpected growth in costs and expenses.
Certain assumptions made by Zealand are required by Danish Securities Law for full disclosure of material corporate information. Some assumptions, including assumptions relating to sales associated with a product that is prescribed for unapproved uses, are made taking into account past performances of other similar drugs for similar disease states or past performance of the same drug in other regions where the product is currently marketed. It is important to note that although physicians may, as part of their freedom to practice medicine in the United States, prescribe approved drugs for any use they deem appropriate, including unapproved uses, at Zealand, promotion of unapproved uses is strictly prohibited.
1Translated solely for convenience into U.S. dollars at an assumed exchange rate of DKK 6.44 per USD 1.00, which was the rounded official exchange rate of such currencies at September 30, 2018.
2 Translated solely for convenience into U.S. dollars at an assumed exchange rate of DKK 6.30 per USD 1.00, which was the rounded official exchange rate of such currencies at September 30, 2017.
3 Net operating expenses consist of research, development and administrative expenses.
4 Translated solely for convenience into U.S. dollars at an assumed exchange rate of DKK 6.21 per USD 1.00, which was the rounded official exchange rate of such currencies at December 31, 2017.
| DKK thousand | ||||||
|---|---|---|---|---|---|---|
| INCOME STATEMENT AND | Note | 1.7-30.9.18 | 1.7-30.9.17 | 1.1-30.9.18 | 1.1-30.9.17 | 1.1-31.12.17 |
| COMPREHENSIVE INCOME | Restated (7) | Restated (7) | Restated (7) | |||
| Revenue | 0 | 39,089 | 24,858 | 125,799 | 136,322 | |
| Royalty expenses | 0 | -1,261 | -3,356 | -12,742 | -14,163 | |
| Research and development expenses | -84,296 | -69,059 | -300,468 | -221,204 | -324,667 | |
| Administrative expenses | -9,171 | -7,936 | -30,153 | -30,991 | -47,470 | |
| Other operating income | 1,098,952 | 9 6 |
1,099,201 | 493 | 607 | |
| Operating result | 1,005,485 | -39,071 | 790,082 | -138,645 | -249,371 | |
| Net financial items | -25,161 | -5,424 | -32,034 | -30,082 | -31,387 | |
| Result before tax | 980,324 | -44,495 | 758,048 | -168,727 | -280,758 | |
| Income tax | (1) | -56,543 | 1,375 | -53,793 | 4,125 | 5,500 |
| Net result for the period | 923,781 | -43,120 | 704,255 | -164,602 | -275,258 | |
| Comprehensive income/loss for the period | 923,781 | -43,120 | 704,255 | -164,602 | -275,258 | |
| Earnings per share - basic (DKK) | 30.10 | -1.51 | 22.95 | -6.22 | -9.88 | |
| Earnings per share - diluted (DKK) | 30.03 | -1.51 | 22.90 | -6.22 | -9.88 | |
| STATEMENT OF FINANCIAL POSITION | ||||||
| Cash and cash equivalents | 1,478,612 | 774,654 | 588,718 | |||
| Restricted cash | (2) | 0 | 5,980 | 5,892 | ||
| Securities | 0 | 0 | 75,111 | |||
| Total assets | 1,523,070 | 818,260 | 721,285 | |||
| Share capital ('000 shares) | 30,759 | 30,749 | 30,751 | |||
| Equity | 1,240,766 | 625,828 | 514,669 | |||
| Equity ratio | (3) | 0.81 | 0.76 | 0.71 | ||
| Royalty bond | 0 | 141,897 | 135,734 | |||
| CASH FLOW | ||||||
| Cash flow from operating activities | -311,465 | -172,792 | -278,746 | |||
| Cash flow from investing activities | 1,354,185 | 308,905 | 221,351 | |||
| Cash flow from financing activities | -157,563 | 326,396 | 337,930 | |||
| Purchase of property, plant and equipment | -2,657 | -3,933 | -7,226 | |||
| Free cash flow | (4) | -314,122 | -176,725 | -285,972 | ||
| OTHER | ||||||
| Share price (DKK) | 105.20 | 121.50 | 85.00 | |||
| Market capitalization (MDKK) | (5) | 3,236 | 3,736 | 2,614 | ||
| Equity per share (DKK) | (6) | 40.43 | 20.40 | 16.77 | ||
| Average number of employees | 144 | 128 | 128 |
(1) According to Danish tax legislation, Zealand is eligible to receive DKK 5.5 million in cash relating to the tax loss in 2017. As a consequence of the sale of future royalties and milestones in Q3 2018, Zealand is no longer eligible to receive up to DKK 5.5 million in income tax benefit for 2018. See Note 4 to the condensed consolidated interim financial statements.
(2) Restricted cash serves as collateral for the royalty bond issued in 2014. Zealand has redeemed the outstanding royalty bond in Q3 2018 and therefore Zealand no longer has restricted cash.
(3) Equity ratio is calculated as equity at the balance sheet date divided by total assets at the balance sheet date.
(4) Free cash flow is calculated as cash flow from operating activities less purchase of property, plant and equipment.
(5) Market capitalization is calculated as outstanding shares at the balance sheet date times the share price at the balance sheet date.
(6) Equity per share is calculated as shareholders' equity divided by total number of shares less treasury shares.
(7) Figures for the three and nine month periods ended September 30, 2017 and the years ended December 31, 2017, 2016 and 2015 have been restated due to certain misstatements. See Note 1 to the condensed consolidated interim financial statements.
(Comparative figures for the corresponding period in 2017 are shown in brackets except for the financial position which expresses the comparative figures as of December 31, 2017)
The net result for the first nine months of 2018 was a profit of DKK 704.3 million compared to a loss of DKK 164.6 million for the same period of 2017. The profit for the period is a consequence of the sale of future royalties and milestones in September 2018.
Revenue for the first nine months of 2018 amounted to DKK 24.9 million (125.8) of which DKK 17.8 million (12.0) related to royalty revenue on Sanofi's sales of Soliqua® 100/33 and DKK 7.1 million (12.8) related to royalty revenue on Sanofi's sales of Lyxumia® / Adlyxin® (lixisenatide). Zealand has recognized royalty revenue through June 30, 2018. All due and future royalties from July 1, 2018 have been sold to Royalty Pharma Investments ICAV.
Zealand received royalty revenue of 10% on Sanofi's net sales of Lyxumia® / Adlyxin® (lixisenatide) in countries with a valid IP protection for Zealand. During Q2 2018 it was determined that royalty revenue recognized from 2013 until Q1 2018 included DKK 17.1 million of royalty revenue on net sales in countries with no valid IP protection for Zealand. Such misstatement has been corrected in the first half of 2018 with retrospective impact and as such comparable periods as of and for the three and nine month periods ended September 30, 2017 and the years ended December 31, 2017, 2016 and 2015 have been restated, as presented in note 1 to the condensed consolidated interim financial statements. The restatement also includes correction of a misstatement related to royalty expenses as discussed below under "Royalty expenses".
Milestone revenue amounted to DKK 0.0 million (101.0). The milestone in the first nine months of 2017 primarily related to a USD 10 million milestone for the approval of Suliqua® in the EU and a EUR 4 million milestone from Boehringer Ingelheim related to initiation of Phase 1 with the long-acting amylin analog.
Royalty expenses for the first nine months of 2018 were DKK 3.4 million (12.7). Royalty expenses are payments by Zealand to third parties based on license payments received from Lyxumia® / Adlyxin® (lixisenatide) and Soliqua® 100/33 / Suliqua®. As a consequence of the restatement mentioned above royalty expenses from 2013 until Q1 2018 were misstated by DKK 2.3 million. Such misstatement has been corrected in the first half of 2018 with retrospective impact and as such comparable periods as of and for the three and nine month periods ended September 30, 2017 and the years ended December 31, 2017, 2016 and 2015 have been restated, as presented in note 1 to the condensed consolidated interim financial statements.
Research and development expenses for the first nine months of 2018 amounted to DKK 300.5 million (221.2), an increase of 36% versus the same period 2017. The costs mainly relates to the clinical development of the three dasiglucagon programs and of glepaglutide for short bowel syndrome, as well as pre-clinical research activities.
Administrative expenses for the first nine months of 2018 amounted to DKK 30.2 million (31.0) and consisted of expenses for administrative personnel, company premises, operating leases, investor relations, etc. The decrease is due to a change in the number and classification of employees working in R&D and Administration in comparison to the previous year.
Other operating income for the first nine months of 2018 amounted to DKK 1,099.2 million (0.5). Zealand has on September 6, 2018 sold future royalties and USD 85 million of potential commercial
milestones for Soliqua® 100/33/ Suliqua® and Lyxumia®/Adlyxin® to Royalty Pharma. Zealand received USD 205 million (DKK 1,310.2 million) upon closing of the transaction on September 17, 2018. Costs directly related to the transaction amounted to DKK 211.3 million and have been deducted from the proceeds from the sale. The costs mainly relates to royalty expenses to third parties of DKK 176.9 million and fees to advisors of DKK 34.5 million.
The operating result for the first nine months of 2018 was DKK 790.1 million (-138.7).
Net financial items consists of interest expenses on the royalty bond, amortization of costs relating to the royalty bond, interest income, banking fees and adjustments based on changes in exchange rates. Net financial items for the first nine months of 2018 amounted to DKK -32.0 million (-30.1). The increased costs in the first nine months of 2018 as compared to the same period of 2017 is a result of the repayment of the outstanding royalty bond in Q3 2018 as the remaining capitalized financing costs has been expensed.
Result before tax for the first nine months of 2018 came to DKK 758.0 million (-168.8).
As a consequence of the sale of future royalties and milestones in Q3 2018, Zealand is no longer eligible to receive up to DKK 5.5 million in income tax benefit for 2018. The tax cost regognized in the income statement for the first nine months of 2018 is calculated on the basis of the accounting profit before tax and an estimated effective tax rate for the Group as a whole for 2018. We expect an effective tax rate of about 7.1% for 2018.
No deferred tax asset has been recognized in the statement of financial position due to uncertainty as to whether tax losses carried forward can be utilized.
Net result and comprehensive result for the first nine months of 2018 amounted to DKK 704.3 million (-164.6).
Equity stood at DKK 1,240.8 million (514.7) at the end of the period, corresponding to an equity ratio of 81% (71%). The increase in equity is mainly due to the net profit for the period.
Capital expenditure for the period amounted to DKK 2.7 million (3.9).
Zealand have since December 2014 had a royalty bond financing arrangement, based on part of the royalties from lixisenatide as a stand-alone product. The bond has carried an interest rate of 9.375%.
On September 6, 2018 Zealand entered into an agreement to sell future royalties and USD 85 million of potential commercial milestones for Soliqua® 100/33/ Suliqua® and Lyxumia®/Adlyxin® to Royalty Pharma. As part of the transaction Zealand has redeemed the outstanding royalty bond of USD 24.7 million (DKK 157.6 million), after which Zealand is debt free.
As of September 30, 2018, securities, cash and cash equivalents amounted to DKK 1,478.6 million (663.8). In addition, DKK 0.0 million (5.9) was held as collateral for the royalty bond. Securities of DKK 74.2 million were sold in September and transferred to cash. The increase in cash and cash equivalents is a consequence of the net profit for the period.
Cash flow from operating activities amounted to DKK -311.5 million (-172.8) mainly driven by lower milestone revenue and higher research and development costs.
Cash flow from investing activities amounted to DKK 1,354.2 million (308.9) primarily related to the sale of future royalties and milestones.
Cash flow from financing activities amounted to DKK -157.6 million (-326.4) primarly relating to the repayment of the outstanding royalty bond.
The total cash flow for the first nine months of 2018 amounted to DKK 885.2 million (462.5).
This interim report contains forward-looking statements, including forecasts of future expenses as well as expected business related events. Such statements are subject to risks and uncertainties as various factors, some of which are beyond the control of Zealand, may cause actual results and performance to differ materially from the forecasts made in this interim report. Without being exhaustive, such factors include e.g. general economic and business conditions, including legal issues, scientific and clinical results, fluctuations in currencies, etc. A more extensive description of risk factors can be found in the 2017 Annual Report under the section Risk management and internal control.
The Board of Directors and the Executive Management have today considered and adopted the interim report of Zealand Pharma A/S for the period January 1 – September 30, 2018.
The report has been prepared in accordance with IAS 34 as endorsed by the EU and the additional Danish disclosure requirements for listed companies.
In our opinion, the interim report gives a true and fair view of the Group's assets, equity and liabilities and financial position at September 30, 2018 as well as of the results of the Group's operations and cash flow for the period January 1 – September 30, 2018.
Moreover, in our opinion, the Management's Review gives a true and fair view of the development in the Company's operations and financial conditions, of the net result for the period and the financial position while also describing the most significant risks and uncertainty factors that may affect the Group.
Copenhagen, November 15, 2018
| Britt Meelby Jensen | Mats Peter Blom |
|---|---|
| President and CEO | Executive Vice President and CFO |
| Alf Gunnar Martin Nicklasson | Rosemary Crane | Catherine Moukheibir |
|---|---|---|
| Chairman | Board member | Board member |
Alain Munoz Michael John Owen Kirsten Aarup Drejer Board member Board member Board member
Hanne Heidenheim Bak Jens Peter Stenvang Board member Board member Employee elected Employee elected
We have reviewed the condensed consolidated interim financial statements of Zealand Pharma A/S for the period January 1 – September 30, 2018, pages 13-32, which comprise the income statement, statement of comprehensive income (loss), statement of cash flows, statement of financial position and statement of changes in equity as well as notes.
Management is responsible for the preparation of the condensed consolidated interim financial statements in accordance with IAS 34, Interim Financial Reporting, as adopted by the EU and additional Danish requirements for listed companies. It is also responsible for such internal control as management determines is necessary to enable the preparation of the condensed consolidated interim financial statements that is free from material misstatement, whether due to fraud or error.
Our responsibility is to express a conclusion on the condensed consolidated interim financial statements. We conducted our review in accordance with the International Standard on Review of Interim Financial Information Performed by the Independent Auditor of the Group and additional requirements under Danish audit regulation. This requires us to conclude whether anything has come to our attention that causes us to believe that the condensed consolidated interim financial statements, taken as a whole, has not been prepared, in all material respects, in accordance with the applicable financial reporting framework. This also requires us to comply with ethical requirements.
A review of the condensed consolidated interim financial statements in accordance with the International Standard on Review of Interim Financial Information Performed by the Independent Auditor of the Group is a limited assurance engagement. The auditor performs procedures, primarily consisting of making inquiries of management and others within the Group, as appropriate, and applying analytical procedures, and evaluates the evidence obtained.
The procedures performed in a review are substantially less than those performed in an audit conducted in accordance with International Standards on Auditing. Accordingly, we do not express an audit opinion on the condensed consolidated interim financial statements.
Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated interim financial statements have not been prepared, in all material respects, in accordance with IAS 34, Interim Financial Reporting, as adopted by the EU and additional Danish requirements for listed companies.
We draw attention to note 1 of the condensed consolidated interim financial statements, which describes the effects of the restatement of prior period figures related to royalty revenue and royalty expense. Our report is not modified in respect of this matter.
Copenhagen, November 15, 2018
Statsautoriseret Revisionspartnerselskab Business Registration No 33 96 35 56
Martin Norin Faarborg Sumit Sudan State-Authorized Public Accountant State-Authorized Public Accountant MNE no mne29395 MNE no mne33716
Condensed consolidated income statements for the three and nine month periods ended September 30, 2018 and 2017 and the twelve month period ended December 31, 2017
| Restated | Restated | Restated | ||||
|---|---|---|---|---|---|---|
| DKK thousand | Note | 1.7-30.9.18 | 1.7- 30.9.17 | 1.1-30.9.18 | 1.1-30.9.17 | 1.1-31.12.17 |
| Revenue | 2 | 0 | 39,089 | 24,858 | 125,799 | 136,322 |
| Royatly expenses | 0 | -1,261 | -3,356 | -12,742 | -14,163 | |
| Research and development expenses | -84,296 | -69,059 | -300,468 | -221,204 | -324,667 | |
| Administrative expenses | -9,171 | -7,936 | -30,153 | -30,991 | -47,470 | |
| Other operating income | 3 | 1,098,952 | 9 6 |
1,099,201 | 493 | 607 |
| Operating result | 1,005,485 | -39,071 | 790,082 | -138,645 | -249,371 | |
| Financial income | 1,196 | 1,016 | 10,132 | 2,252 | 2,122 | |
| Financial expenses | 8 | -26,357 | -6,440 | -42,166 | -32,334 | -33,509 |
| Result before tax | 980,324 | -44,495 | 758,048 | -168,727 | -280,758 | |
| Income tax | 4 | -56,543 | 1,375 | -53,793 | 4,125 | 5,500 |
| Net result for the period | 923,781 | -43,120 | 704,255 | -164,602 | -275,258 | |
| Basic earnings per share | 6 | 30.10 | -1.51 | 22.95 | -6.22 | -9.88 |
| Diluted earnings per share | 6 | 30.03 | -1.51 | 22.90 | -6.22 | -9.88 |
Condensed consolidated statements of comprehensive income (loss) for the three and nine month periods ended September 30, 2018 and 2017 and the twelve month period ended December 31, 2017
| DKK thousand | Note | 1.7-30.9.18 | Restated 1.7- 30.9.17 |
1.1-30.9.18 | Restated 1.1-30.9.17 |
Restated 1.1-31.12.17 |
|---|---|---|---|---|---|---|
| Net result for the period | 923,781 | -43,120 | 704,255 | -164,602 | -275,258 | |
| Other comprehensive income | 0 | 0 | 0 | 0 | 0 | |
| Comprehensive result for the period | 923,781 | -43,120 | 704,255 | -164,602 | -275,258 |
Condensed consolidated statements of cash flow for the nine month periods ended September 30, 2018 and 2017
| Restated | |||
|---|---|---|---|
| DKK thousand | 1.1-30.9.18 | 1.1-30.9.17 | |
| Net result for the period | 704,255 | -164,602 | |
| Adjustments for non-cash items | 54,376 | 35,855 | |
| Change in working capital | 218,192 | -24,926 | |
| Financial income received | 4,080 | 1,262 | |
| Financial expenses paid | -15,847 | -20,381 | |
| Sale of future royalties and milestones | 3 | -1,276,521 | 0 |
| Cash flow from operating activities | -311,465 | -172,792 | |
| Transfer to restricted cash related to the |
|||
| royalty bond | 8 | 0 | -60,675 |
| Transfer from restricted cash related to the | |||
| royalty bond | 8 | 6,124 | 365,795 |
| Transfer from restricted cash for royalty bond | |||
| interest payments | 0 | 7,637 | |
| Sale of future royalties and milestones | 3 | 1,276,521 | 0 |
| Change in deposit | -33 | -39 | |
| Sale of securities | 74,230 | 0 | |
| Purchase of property, plant and equipment | -2,657 | -3,933 | |
| Sale of fixed assets | 0 | 120 | |
| Cash flow from investing activities | 1,354,185 | 308,905 | |
| Proceeds from issue of shares related to |
|||
| exercise of warrants | 748 | 6,572 | |
| Proceeds from initial public offering | 0 | 567,076 | |
| Costs related to initial public offering | 0 | -70,892 | |
| Repayment of royalty bond | 8 | -158,311 | -176,360 |
| Cash flow from financing activities | -157,563 | 326,396 | |
| Decrease/increase in cash and cash equivalents | 885,157 | 462,509 | |
| Cash and cash equivalents at beginning of period | 588,718 | 323,330 | |
| Exchange rate adjustments | 4,737 | -11,185 | |
| Cash and cash equivalents at end of period | 1,478,612 | 774,654 |
Condensed consolidated statements of financial position as of September 30, 2018 and December 31, 2017
| Restated | |||
|---|---|---|---|
| DKK thousand | Note | September 30, 2018 |
December 31, 2017 |
| ASSETS | |||
| Non-current assets | |||
| Plant and machinery | 13,266 | 14,855 | |
| Other fixtures and fittings, tools and equipment | 1,910 | 953 | |
| Leasehold improvements | 217 | 304 | |
| Deposits | 2,762 | 2,729 | |
| Restricted cash | 0 | 5,892 | |
| Other investments | 10 | 9,662 | 9,312 |
| Total non-current assets | 27,817 | 34,045 | |
| Current assets | |||
| Trade receivables | 13 | 5,679 | |
| Prepaid expenses | 8,779 | 7,253 | |
| Income tax receivable | 5,500 | 5,500 | |
| Other receivables | 2,349 | 4,979 | |
| Securities | 10 | 0 | 75,111 |
| Cash and cash equivalents | 7 | 1,478,612 | 588,718 |
| Total current assets | 1,495,253 | 687,240 | |
| Total assets | 1,523,070 | 721,285 | |
| EQUITY AND LIABILITIES | |||
| Share capital | 5 | 30,759 | 30,751 |
| Share premium | 11 | 1,981,033 | 1,959,199 |
| Retained loss | -771,026 | -1,475,281 | |
| Equity | 1,240,766 | 514,669 | |
| Royalty bond | 8 | 0 | 132,986 |
| Non-current liabilities | 0 | 132,986 | |
| Trade payables | 24,511 | 29,428 | |
| Tax payables | 53,793 | 0 | |
| Royalty bond | 8 | 0 | 2,748 |
| Other liabilities | 9 | 204,000 | 41,454 |
| Current liabilities | 282,304 | 73,630 | |
| Total liabilities | 282,304 | 206,616 | |
| Total equity and liabilities | 1,523,070 | 721,285 |
| Share | Share | Retained | ||
|---|---|---|---|---|
| DKK thousand | capital | premium | loss | Total |
| (restated) | ||||
| Equity at January 1, 2017 | 26,142 | 1,441,263 | -1,189,211 | 278,194 |
| Restatement | 0 | 0 | -10,813 | -10,813 |
| Comprehensive loss for the period | ||||
| Net loss for the period | 0 | 0 | -164,602 | -164,602 |
| Warrants compensation expenses | 0 | 20,293 | 0 | 20,293 |
| Capital increase | 4,607 | 569,041 | 0 | 573,648 |
| Costs related to capital increase | 0 | -70,892 | 0 | -70,892 |
| Equity at September 30, 2017 | 30,749 | 1,959,705 | -1,364,626 | 625,828 |
| Equity at January 1, 2018 | 30,751 | 1,959,199 | -1,461,482 | 528,468 |
| Restatement | 0 | 0 | -13,799 | -13,799 |
| Comprehensive loss for the period | ||||
| Net profit for the period | 0 | 0 | 704,255 | 704,255 |
| Warrant compensation expenses | 0 | 21,094 | 0 | 21,094 |
| Capital increase | 8 | 740 | 0 | 748 |
| Equity at September 30, 2018 | 30,759 | 1,981,033 | -771,026 | 1,240,766 |
Equity at January 1, 2017 and 2018 have been restated due to certain misstatements. See Note 1 to the condensed consolidated interim financial statements.
The condensed consolidated interim financial statements of Zealand Pharma A/S ("the Company") have been prepared in accordance with IAS 34, Interim Financial Reporting, as adopted by EU and the additional Danish requirements for submission of interim reports for companies listed on Nasdaq Copenhagen. The condensed consolidated interim financial statements are presented in Danish kroner (DKK) which is the functional currency of the parent company.
The accounting policies used in the condensed consolidated interim financial statements are consistent with those used in the Company's Annual report for the year ended December 31, 2017, except for clarification to the accounting policy on 'Other operating income', included below, and all new, amended or revised accounting standards and interpretations endorsed by the EU effective for the accounting period beginning on January 1, 2018, being IFRS 9 'Financial Instruments' and IFRS 15 'Revenue from contracts with customers'.
Other operating income comprises the sale of future royalties and milestones, net of directly related costs to the sale, research funding from business partners and government grants. The sale of future royalties and milestones is recognized in accordance with contract terms and on the date which the sale occured. 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. 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.
The Group's implementation of IFRS 9 'Financial Instruments', that replaces IAS 39 'Financial Instruments: Recognition and Measurement', has lead to the implementation of a new impairment model that requires the recognition of impairment provisions based on the "expected credit loss model" rather than the "incurred-loss model." The majority of Zealand's receivables are receivables from sales with its strategic partners, Boehringer Ingelheim and Sanofi, and due to the low credit risk in the Group, the new rules have not had a significant impact on the valuation of trade receivables. In the annual report for 2017, Management indicated an expected increase of DKK 5 million to financial liabilities. Based on further analyses, Management has concluded that the current accounting treatment is in line with IFRS 9 'Financial Instruments', hence no impact is recognized as the cost of the amendment to the royalty bond from March 2017 is considered transaction costs, which are deducted in financial liabilities.
The Group has implemented IFRS 15 'Revenue from Contracts with Customers' using the modified retrospective approach. IFRS 15 replaces the current standards on revenue (IAS 11 'Construction Contracts' and IAS 18 'Revenue'). There is no significant effect on the interim financial statements related to the implementation of IFRS 15 'Revenue from Contracts with Customers'. Extended disclosures will be provided in the 2018 Annual report.
In the preparation of the condensed consolidated interim financial statements, Management makes several accounting estimates that form the basis for the presentation, recognition and measurement of the Company's assets and liabilities.
In the application of the Company's accounting policies, the Management is required to make judgments, estimates and assumptions 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 results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. The estimates used are based on assumptions assessed as reasonable by Management; however, estimates are inherently uncertain and unpredictable. The
assumptions can be incomplete or inaccurate, and unexpected events or circumstances might occur. Furthermore, the Company is subject to risks and uncertainties that might result in deviations in actual results compared with estimates.
For further information regarding significant accounting estimates and assessments related to revenue recognition and employee incentive programs, please see Note 1 in the Annual Report 2017.
No significant changes have been made in accounting estimates and assessments in the period January 1 – September 30, 2018.
The Company has been eligible to receive royalty revenue of 10% on Sanofi's net sales of Lyxumia® / Adlyxin® (lixisenatide) in countries with a valid IP protection for Zealand and potentially up to USD 100 million in commercial milestones.
During Q2 2018 it was determined that royalty revenue from Sanofi recognized from 2013 until Q1 2018 included DKK 17.1 million of royalty revenue on net sales in countries with no valid IP protection for Zealand and therefore revenue has been overstated in this period. As a consequence of this, royalty expenses from 2013 until Q1 2018 were misstated by DKK 2.3 million and therefore royalty expense has been overstated in this same period. Such misstatements have been corrected with retrospective impact and thus comparable periods as of and for the three and nine month periods ended September 30, 2017 and the years ended December 31, 2017, 2016 and, 2015 have been restated to reflect this impact.
The nature and impact of each restatement is described below, including tickmarks linking the descriptions to the restated condensed consolidated income statements and condensed consolidated statement of financial position for Zealand.
Royalty revenue has been restated as Zealand has previously recognized royalty revenue on net sales in countries with no valid IP protection.
Royalty expenses comprise contractual amounts due to third parties that are derived from royalty revenue earned from the corresponding collaboration agreements. The restatement on royalty revenue therefore leads to a corresponding restatement of royalty expenses.
C) Trade receivables and other liabilities
The restatement related to trade receivables and other liabilities corresponds to the restatement on royalty revenue and royalty expenses, as discussed in tickmark A and B.
The restatement related to net loss for the period amounts to the combined impact of the restatements on royalty revenue and royalty expenses from 2013 through December 2017.
The impact of the restatement on the statement of cash flow is solely a reclassification between "Net loss for the period" and "Change in working capital". The restatement related to net loss for the period amounts to the net impact of the restatements for the respective years on royalty revenue and royalty expenses while the restatement related to working capital for the period amounts to the net impact of the misstatements in trade receivables and other liabilities in the statement of financial position. Hence, there is no impact on the cash flow from operating activities. Based on the above outlined factors, the
Company deemed irrelevant to present restated statements of cash flow for the three and nine month periods ended September 30, 2017 and the years ended December 31, 2017, 2016 and 2015.
| As originally reported, September |
Restate | Amount as adjusted, September 30, |
||
|---|---|---|---|---|
| DKK thousand | 30, 2017 | ment | Tickmark | 2017 |
| Revenue | 40,079 | -990 | A | 39,089 |
| Royalty expenses | -1,395 | 134 | B | -1,261 |
| Research and development expenses | -69,059 | 0 | -69,059 | |
| Administrative expenses | -7,936 | 0 | -7,936 | |
| Other operating income | 9 6 |
0 | 9 6 |
|
| Operating loss | -38,215 | -856 | -39,071 | |
| Financial income | 1,016 | 0 | 1,016 | |
| Financial expenses | -6,440 | 0 | -6,440 | |
| Loss before tax | -43,639 | -856 | -44,495 | |
| Income tax benefit | 1,375 | 0 | 1,375 | |
| Net loss for the period | -42,264 | -856 | -43,120 | |
| Loss per share - basic (DKK) | -1.48 | -0.03 | -1.51 | |
| Loss per share - diluted (DKK) | -1.48 | -0.03 | -1.51 |
DKK thousand
| Net loss for the period | -42,264 | -856 | -43,120 |
|---|---|---|---|
| Other comprehensive income (loss) | 0 | 0 | 0 |
| Net loss for the period | -42,264 | -856 | -43,120 |
| As originally reported, September 30, |
Restate | Amount as adjusted, September 30, |
||
|---|---|---|---|---|
| DKK thousand | 2017 | ment | Tickmark | 2017 |
| Revenue | 128,500 | -2,701 | A | 125,799 |
| Royalty expenses | -13,107 | 365 | B | -12,742 |
| Research and development expenses | -221,204 | 0 | -221,204 | |
| Administrative expenses | -30,991 | 0 | -30,991 | |
| Other operating income | 493 | 0 | 493 | |
| Operating loss | -136,309 | -2,336 | -138,645 | |
| Financial income | 2,252 | 0 | 2,252 | |
| Financial expenses | -32,334 | 0 | -32,334 | |
| Loss before tax | -166,391 | -2,336 | -168,727 | |
| Income tax benefit | 4,125 | 0 | 4,125 | |
| Net loss for the period | -162,266 | -2,336 | -164,602 | |
| Loss per share - basic (DKK) | -6.13 | -0.09 | -6.22 | |
| Loss per share - diluted (DKK) | -6.13 | -0.09 | -6.22 |
| DKK thousand | |||
|---|---|---|---|
| Net loss for the period | -162,266 | -2,336 | -164,602 |
| Other comprehensive income (loss) | 0 | 0 | 0 |
| Net loss for the period | -162,266 | -2,336 | -164,602 |
| As originally reported, |
Amount as adjusted, |
|||
|---|---|---|---|---|
| December 31, | Restate | December 31, | ||
| DKK thousand | 2017 | ment | Tickmark | 2017 |
| Revenue | 139,775 | -3,453 | A | 136,322 |
| Royalty expenses | -14,629 | 466 | B | -14,163 |
| Research and development expenses | -324,667 | 0 | -324,667 | |
| Administrative expenses | -47,470 | 0 | -47,470 | |
| Other operating income | 607 | 0 | 607 | |
| Operating loss | -246,384 | -2,987 | -249,371 | |
| Financial income | 2,122 | 0 | 2,122 | |
| Financial expenses | -33,509 | 0 | -33,509 | |
| Loss before tax | -277,771 | -2,987 | -280,758 | |
| Income tax benefit | 5,500 | 0 | 5,500 | |
| Net loss for the period | -272,271 | -2,987 | -275,258 | |
| Loss per share - basic (DKK) | -9.77 | -0.11 | -9.88 | |
| Loss per share - diluted (DKK) | -9.77 | -0.11 | -9.88 |
| DKK thousand | |||
|---|---|---|---|
| Net loss for the period | -272,271 | -2,987 | -275,258 |
| Other comprehensive income (loss) | 0 | 0 | 0 |
| Net loss for the period | -272,271 | -2,987 | -275,258 |
| As originally reported, December 31, |
Restate | Amount as adjusted, December 31, |
||
|---|---|---|---|---|
| DKK thousand | 2016 | ment | Tickmark | 2016 |
| Revenue | 234,778 | -3,914 | A | 230,864 |
| Royalty expenses | -31,459 | 528 | B | -30,931 |
| Research and development expenses | -268,159 | 0 | -268,159 | |
| Administrative expenses | -52,503 | 0 | -52,503 | |
| Other operating income | 1,697 | 0 | 1,697 | |
| Operating loss | -115,646 | -3,386 | -119,032 | |
| Financial income | 592 | 0 | 592 | |
| Financial expenses | -44,356 | 0 | -44,356 | |
| Loss before tax | -159,410 | -3,386 | -162,796 | |
| Income tax benefit | 5,500 | 0 | 5,500 | |
| Net loss for the period | -153,910 | -3,386 | -157,296 | |
| Loss per share - basic (DKK) | -6.33 | -0.14 | -6.47 | |
| Loss per share - diluted (DKK) | -6.33 | -0.14 | -6.47 |
| DKK thousand | |||
|---|---|---|---|
| Net loss for the period | -153,910 | -3,386 | -157,296 |
| Other comprehensive income (loss) | 0 | 0 | 0 |
| Net loss for the period | -153,910 | -3,386 | -157,296 |
| As originally reported, December 31, |
Restate | Amount as adjusted, December 31, |
||
|---|---|---|---|---|
| DKK thousand | 2015 | ment | Tickmark | 2015 |
| Revenue | 187,677 | -5,104 | A | 182,573 |
| Royalty expenses | -22,267 | 689 | B | -21,578 |
| Research and development expenses | -217,741 | 0 | -217,741 | |
| Administrative expenses | -41,824 | 0 | -41,824 | |
| Other operating income | 12,828 | 0 | 12,828 | |
| Operating loss | -81,327 | -4,415 | -85,742 | |
| Financial income | 3,889 | 0 | 3,889 | |
| Financial expenses | -42,394 | 0 | -42,394 | |
| Loss before tax | -119,832 | -4,415 | -124,247 | |
| Income tax benefit | 5,875 | 0 | 5,875 | |
| Net loss for the period | -113,957 | -4,415 | -118,372 | |
| Loss per share - basic (DKK) | -4.94 | -0.19 | -5.13 | |
| Loss per share - diluted (DKK) | -4.94 | -0.19 | -5.13 |
| DKK thousand | |||
|---|---|---|---|
| Net loss for the period | -113,957 | -4,415 | -118,372 |
| Other comprehensive income (loss) | 0 | 0 | 0 |
| Net loss for the period | -113,957 | -4,415 | -118,372 |
| DKK thousand | As originally reported, December 31, 2017 |
Restate ment |
Tickmark | Amount as adjusted, December 31, 2017 |
|---|---|---|---|---|
| ASSETS | ||||
| Non-current assets | ||||
| Plant and machinery | 14,855 | 14,855 | ||
| Other fixtures and fittings, tools and equipment | 953 | 953 | ||
| Leasehold improvements | 304 | 304 | ||
| Deposits | 2,729 | 2,729 | ||
| Restricted cash | 5,892 | 5,892 | ||
| Other investments | 9,312 | 9,312 | ||
| Total non-current assets | 34,045 | 0 | 34,045 | |
| Current assets | ||||
| Trade receivables | 21,632 | -15,953 | C | 5,679 |
| Prepaid expenses | 7,253 | 7,253 | ||
| Income tax receivable | 5,500 | 5,500 | ||
| Other receivables | 4,979 | 4,979 | ||
| Securities | 75,111 | 75,111 | ||
| Cash and cash equivalents | 588,718 | 588,718 | ||
| Total current assets | 703,193 | -15,953 | 687,240 | |
| Total assets | 737,238 | -15,953 | 721,285 | |
| EQUITY AND LIABILITIES | ||||
| Share capital | 30,751 | 30,751 | ||
| Share premium | 1,959,199 | 1,959,199 | ||
| Retained loss | -1,461,482 | -13,799 | D | -1,475,281 |
| Equity | 528,468 | -13,799 | 514,669 | |
| Royalty bond | 132,986 | 132,986 | ||
| Non-current liabilities | 132,986 | 0 | 132,986 | |
| Trade payables | 29,428 | 29,428 | ||
| Royalty bond | 2,748 | 2,748 | ||
| Other liabilities | 43,608 | -2,154 | C | 41,454 |
| Current liabilities | 75,784 | -2,154 | 73,630 | |
| Total liabilities | 208,770 | -2,154 | 206,616 | |
| Total equity and liabilities | 737,238 | -15,953 | 721,285 |
| As originally reported, December 31, |
Restate | Amount as adjusted, December 31, |
||
|---|---|---|---|---|
| DKK thousand | 2016 | ment | Tickmark | 2016 |
| ASSETS | ||||
| Non-current assets | ||||
| Plant and machinery | 12,081 | 12,081 | ||
| Other fixtures and fittings, tools and equipment | 1,154 | 1,154 | ||
| Leasehold improvements | 408 | 408 | ||
| Deposits | 2,690 | 2,690 | ||
| Restricted cash | 305,120 | 305,120 | ||
| Total non-current assets | 321,453 | 0 | 321,453 | |
| Current assets | ||||
| Trade receivables | 11,510 | -11,510 | C | 0 |
| Prepaid expenses | 13,837 | 13,837 | ||
| Income tax receivable | 5,500 | 5,500 | ||
| Other receivables | 5,379 | 5,379 | ||
| Restricted cash | 13,617 | 13,617 | ||
| Cash and cash equivalents | 323,330 | 323,330 | ||
| Total current assets | 373,173 | -11,510 | 361,663 | |
| Total assets | 694,626 | -11,510 | 683,116 | |
| EQUITY AND LIABILITIES | ||||
| Share capital | 26,142 | 26,142 | ||
| Share premium | 1,441,263 | 1,441,263 | ||
| Retained loss | -1,189,211 | -10,813 | D | -1,200,024 |
| Equity | 278,194 | -10,813 | 267,381 | |
| Royalty bond | 328,878 | 328,878 | ||
| Non-current liabilities | 328,878 | 0 | 328,878 | |
| Trade payables | 19,739 | 19,739 | ||
| Royalty bond | 3,365 | 3,365 | ||
| Other liabilities | 64,450 | -697 | C | 63,753 |
| Current liabilities | 87,554 | -697 | 86,857 | |
| Total liabilities | 416,432 | -697 | 415,735 | |
| Total equity and liabilities | 694,626 | -11,510 | 683,116 | |
| As originally reported, |
Amount as adjusted, |
|||
|---|---|---|---|---|
| December 31, | Restate | December 31, | ||
| DKK thousand | 2015 | ment | Tickmark | 2015 |
| ASSETS | ||||
| Non-current assets | ||||
| Plant and machinery | 14,672 | 14,672 | ||
| Other fixtures and fittings, tools and equipment | 1,153 | 1,153 | ||
| Leasehold improvements | 628 | 628 | ||
| Deposits | 2,666 | 2,666 | ||
| Total non-current assets | 19,119 | 0 | 19,119 | |
| Current assets | ||||
| Trade receivables | 158,158 | -8,587 | C | 149,571 |
| Prepaid expenses | 2,430 | 2,430 | ||
| Income tax receivable | 5,875 | 5,875 | ||
| Other receivables | 10,427 | 10,427 | ||
| Restricted cash | 21,403 | 21,403 | ||
| Cash and cash equivalents | 418,796 | 418,796 | ||
| Total current assets | 617,089 | -8,587 | 608,502 | |
| Total assets | 636,208 | -8,587 | 627,621 | |
| EQUITY AND LIABILITIES | ||||
| Share capital | 24,353 | 24,353 | ||
| Share premium | 1,263,179 | 1,263,179 | ||
| Retained loss | -1,035,301 | -7,428 | D | -1,042,729 |
| Equity | 252,231 | -7,428 | 244,803 | |
| Royalty bond | 312,951 | 312,951 | ||
| Non-current liabilities | 312,951 | 0 | 312,951 | |
| Trade payables | 21,676 | 21,676 | ||
| Other liabilities | 49,350 | -1,159 | C | 48,191 |
| Current liabilities | 71,026 | -1,159 | 69,867 | |
| Total liabilities | 383,977 | -1,159 | 382,818 | |
| Total equity and liabilities | 636,208 | -8,587 | 627,621 |
| Restated | Restated | Restated | |||
|---|---|---|---|---|---|
| DKK thousand | 1.7-30.9.18 | 1.7-30.9.17 | 1.1-30.9.18 | 1.1-30.9.17 | 1.1-31.12.17 |
| Sanofi-Aventis Deutschland GmbH | 0 | 0 | 0 | 69,603 | 69,603 |
| Boehringer Ingelheim International GmbH | 0 | 29,750 | 0 | 29,750 | 29,750 |
| Protagonist Therapeutics, Inc. | 0 | 0 | 0 | 1,662 | 1,662 |
| Total license and milestone revenue | 0 | 29,750 | 0 | 101,015 | 101,015 |
| Sanofi-Aventis Deutschland GmbH | 0 | 9,339 | 24,858 | 24,784 | 35,307 |
| Total royalty income | 0 | 9,339 | 24,858 | 24,784 | 35,307 |
| Total revenue | 0 | 39,089 | 24,858 | 125,799 | 136,322 |
Milestone revenue amounted to DKK 0.0 million (101.0) in the first nine months of 2018. The milestone revenue in the first nine months of 2017 primarily related to a USD 10 million milestone for the approval of Suliqua® in the EU in January 2017 and a EUR 4 million milestone from Boehringer Ingelheim related to initiation of Phase 1 with the long-acting amylin analog.
DKK 17.8 million (12.0) related to royalty revenue on Sanofi's sales of Soliqua® 100/33 and DKK 7.1 million (12.8) related to royalty revenue on Sanofi's sales of Lyxumia® / Adlyxin™ (lixisenatide).
| DKK thousand | 1.7-30.9.18 | 1.7-30.9.17 | 1.1-30.9.18 | 1.1-30.9.17 | 1.1-31.12.17 |
|---|---|---|---|---|---|
| Sale of future royalties and milestones | 1,310,237 | 0 | 1,310,237 | 0 | 0 |
| Royalty expenses regarding sale o f future royalties |
|||||
| and milestones | -176,882 | 0 | -176,882 | 0 | 0 |
| Fee, advisors regarding sale o f future royalties and |
|||||
| milestones | -34,453 | 0 | -34,453 | 0 | 0 |
| Research funding | 0 | 2 7 |
0 | 4 0 |
4 0 |
| Governments grants | 5 0 |
6 9 |
299 | 453 | 567 |
| Total other operating income | 1,098,952 | 9 6 |
1,099,201 | 493 | 607 |
Zealand has on September 6, 2018 entered into an agreement to sell future royalties and USD 85.0 million of potential commercial milestones for Soliqua® 100/33/ Suliqua® and Lyxumia®/Adlyxin® to Royalty Pharma. Zealand has received USD 205.0 million (DKK 1,310.2 million) upon closing of the transaction on September 17, 2018. Royalty expenses to third parties amounts to 13.5% or DKK 176.9 million and fees to advisors amounts to DKK 34.5 million. Zealand has also redeemed the outstanding royalty bond of USD 24.7 million (DKK 157.6 million), after which Zealand is debt free. Zealand will remain eligible for a payment from Sanofi of up to USD 15.0 million, expected in 2020 (see note 12).
As a consequence of the sale of future royalties and milestones in Q3 2018, Zealand is no longer eligible to receive up to DKK 5.5 million in income tax benefit for 2018. The tax cost recognized in the income statement for the first nine months of 2018 is calculated on the basis of the accounting profit before tax and an estimated effective tax rate for the Group as a whole for 2018. We expect an effective tax rate of about 7.1% for 2018.
As a consequence of tax losses from previous years, no deferred net tax assets have been recognized. Deferred tax reductions (tax assets) have not been recognized in the statement of financial position due to uncertainty as to when and whether they can be utilized.
| September 30, | December 31, | |
|---|---|---|
| 2018 | 2017 | |
| Breakdown of unrecognized deferred tax assets: | ||
| Tax losses carried forward (available indefinitely) | 457,463 | 873,515 |
| Research and development expenses | 155,103 | 210,148 |
| Rights | 37,642 | 43,019 |
| Non-current assets | 51,699 | 67,590 |
| Other | 101,462 | 104,377 |
| Total temporary differences | 803,369 | 1,298,649 |
| Tax rate | 22% | 22% |
| Calculated potential deferred tax asset at local tax rate | 176,741 | 285,703 |
| Write-down of deferred tax asset | -176,741 | -285,703 |
| Recognized deferred tax asset | 0 | 0 |
The following changes have occurred in the share capital during the respective interim periods:
| No. of shares | |
|---|---|
| Share capital at January 1, 2017 | 26,142,365 |
| Capital increase on March 23, 2017 | 9,500 |
| Capital increase on April 13, 2017 | 22,000 |
| Capital increase on May 30, 2017 | 5,000 |
| Capital increase on June 15, 2017 | 8,537 |
| Capital increase on August 14, 2017 | 4,375,000 |
| Capital increase on August 18, 2017 | 156,250 |
| Capital increase on September 1, 2017 | 1,500 |
| Capital increase on September 22, 2017 | 28,675 |
| Share capital at September 30, 2017 | 30,748,827 |
| Share capital at January 1, 2018 | 30,751,327 |
| Capital increase on September 14, 2018 | 7,500 |
| Share capital at September 30, 2018 | 30,758,827 |
The earnings and weighted average number of ordinary shares used in the calculation of basic and diluted earnings per share are as follows:
| Restated | Restated | Restated | |||
|---|---|---|---|---|---|
| DKK thousand | 1.7-30.9.18 | 1.7-30.9.17 | 1.1-30.9.18 | 1.1-30.9.17 | 1.1-31.12.17 |
| Net result for the period Net result used i n the calculation o f basic and diluted |
923,781 | -43,120 | 704,255 | -164,602 | -275,258 |
| earnings per share | 923,781 | -43,120 | 704,255 | -164,602 | -275,258 |
| Weighted average number of ordinary shares | 30,752,713 | 28,811,622 | 30,751,794 | 26,947,290 | 27,918,271 |
| Weighted average number of treasury shares | -64,223 | -334,160 | -64,223 | -485,468 | -64,223 |
| Weighted average number of ordinary shares used in the calculation of basic earnings per share |
30,688,490 | 28,477,462 | 30,687,571 | 26,461,822 | 27,854,048 |
| Weighted average number of ordinary shares used in the calculation of diluted earnings per share |
30,760,559 | 28,477,462 | 30,759,640 | 26,461,822 | 27,854,048 |
| Basic earnings per share (DKK) | 30.10 | -1.51 | 22.95 | -6.22 | -9.88 |
| Diluted earnings per share (DKK) | 30.03 | -1.51 | 22.90 | -6.22 | -9.88 |
The following potential ordinary shares are dilutive at September 30, 2018 (anti-dilutive at September 30, 2017 and December 31, 2017) and are therefore included in the weighted average number of ordinary shares for the purpose of diluted earnings per share:
| September 30, 2018 |
September 30, 2017 |
December 31, 2017 |
|
|---|---|---|---|
| Outstanding warrants under the 2010 Employee incentive program | 246,359 | 647,167 | 429,784 |
| Outstanding warrants under the 2015 Employee incentive program | 2,005,000 | 1,442,000 | 1,424,000 |
| Total outstanding warrants | 2,251,359 | 2,089,167 | 1,853,784 |
| - out of which these warrants are dilutive - out of which these warrants are anti-dilutive |
1,201,609 1,049,750 |
0 2,089,167 |
0 1,853,784 |
| September 30, | December 31, | |
|---|---|---|
| DKK thousand | 2018 | 2017 |
| DKK | 1,184,754 | 12,824 |
| USD | 260,447 | 252,884 |
| EUR | 33,411 | 323,010 |
| Total cash and cash equivalents | 1,478,612 | 588,718 |
As of September 30, 2018, Zealand had cash and cash equivalents of DKK 1,478.6 million (December 31, 2017: DKK 588.7 million). In addition, DKK 0.0 million (December 31, 2017: DKK 5.9 million) are held as collateral for the royalty bond. The total cash position, including restricted cash, as of September 30, 2018 is DKK 1,478.6 million (December 31, 2017: DKK 594.6 million).
In December 2014, Zealand entered into a USD 50 million royalty bond financing arrangement, based on part of the royalties from lixisenatide as a stand-alone product. The bond carried an interest rate of 9.375%. As security for the royalty bond, certain milestone payments relating to lixisenatide was held as collateral in the form of restricted cash. On March 15, 2017, Zealand used restricted cash of USD 25 million (DKK 175 million) to repay half of the outstanding bond. Furthermore, additional restricted cash of USD 25 million (DKK 175 million) held as collateral for the bond was released to Zealand in exchange for a parent company guarantee.
On September 6, 2018 Zealand entered into an agreement to sell future royalties and USD 85 million of potential commercial milestones for Soliqua® 100/33/ Suliqua® and Lyxumia®/Adlyxin® to Royalty Pharma. Zealand has received USD 205.0 million (DKK 1,310.2 million) upon closing of the transaction on September 17, 2018. Zealand has also redeemed the outstanding royalty bond of USD 24.7 million (DKK 157.6 million), after which Zealand is debt free. Zealand will remain eligible for a payment from Sanofi up to USD 15.0 million, expected in 2020 (see note 12).
For further information regarding the royalty bond please see note 20 in the Annual Report for 2017.
| Restated | ||
|---|---|---|
| September 30, | December 31, | |
| 2018 | 2017 | |
| Severance payment | 1,417 | 896 |
| Employee benefits | 17,440 | 28,165 |
| Royalty payable to third party | 179,466 | 763 |
| Interest payable on royalty bond | 0 | 4,295 |
| Other payables | 5,677 | 7,335 |
| Total other liabilities | 204,000 | 41,454 |
As of September 30, 2018 and December 31, 2017, the following financial instruments are carried at fair value:
| September 30, 2018 |
December 31, 2017 |
|
|---|---|---|
| Securities | 0 | 75,111 |
| Other investments | 9,662 | 9,312 |
| Financial assets measured at fair value | 9,662 | 84,423 |
The fair value of securities is based on Level 1 in the fair value hierarchy.
The fair value of other investments is based on level 3 in the fair value hierarchy.
Below shows the fair value hierarchy for financial instruments measured at fair value in the balance sheet. The financial instruments in question are grouped into levels 1 to 3 based on the degree to which the fair value is observable.
The carrying amount of financial assets and financial liabilities approximates the fair value.
On May 22, 2018, Zealand granted 615,500 new warrants to the Company's Executive Management, Corporate Management and employees. The warrants give the holders the right to subscribe for 615,500 new Zealand shares with a nominal value of DKK 1 each, corresponding to 2.0% of the Company's total outstanding share capital. The exercise price is fixed at DKK 100.80, reflecting the closing price of Zealand's shares on Nasdaq Copenhagen on May 18, 2018.
The total number of new warrants granted has a combined market value of DKK 21.1 million calculated on the basis of the Black–Scholes model, including a five-year historic volatility of 42.6%, a five-year historic risk-free interest rate of 0.05% and a share price of DKK 100.80.
The 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 who are subject to the act.
Warrants expire automatically after five years. Warrants are considered vested at grant date and may be exercised after three years. The exercise of the warrants may take place four times a year during a four-week period starting from the time of the publication of Zealand's annual report or quarterly or semi-annual reports.
For the nine month periods ended September 30, 2018 and 2017, the fair value of warrants recognized in the income statement amounted to DKK 21.1 million (20.3), of which DKK 5.9 million (6.5) related to the Executive Management.
| DKK thousand | 1.1-30.9.18 | 1.1-30.9.17 |
|---|---|---|
| Research and development expenses | 13,761 | 12,261 |
| Administrative expenses | 7,334 | 8,036 |
| Total | 21,094 | 20,297 |
Zealand is eligible for a payment from Sanofi of up to USD 15.0 million, expected in 2020. However, it is Management's opinion that the amount of any payment cannot be determined on a sufficiently reliable basis, and therefore not recognized an asset in the financial position of the Group.
On October 15, 2018, Zealand granted 40,000 new warrants to the Company's Senior Vice President of Corporate and Business Development, Marino Garcia.
The warrants give the holder the rights to subscribe for up to 40,000 new Zealand shares with a nominal value of DKK 1 each, corresponding to 0.13% of the Company's total outstanding share capital. The exercise price is DKK 90.00, calculated as the closing price of Zealand's shares on Nasdaq Copenhagen on Friday October 12, 2018.
The warrants will vest monthly over a three year period, and the exercise of the warrants may take place, in whole or in part, in defined time windows from October 15, 2021 up to and including October 15, 2023. Zealand may under the contract decide to offer settlement of these 40,000 warrants in cash.
The total new warrants granted have a combined market value of DKK 1,313,395.86 calculated on the basis of the Black-Scholes model, including a five-year historic volatility of 42.5%, a five-year risk-free interest rate of -0.03% and a share price of DKK 90.00.
Except as noted above, no other significant events have occurred after the end of the reporting period.
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