Zealand Pharma (ZLDPF) Risk Analysis

We recognized net losses of DKK 1,018,1 million, DKK 846.7 million and DKK 571.5 million for the years ended December 31, 2021, 2020 and 2019, respectively. Our ongoing source of revenue is limited to the product revenue generated from sales of the V-Go wearable insulin delivery device, the recently approved ZEGALOGUE (dasiglucagon) injection product in the US market, and certain development milestone payments under our other existing collaborations with partners. Our losses have primarily been the result of our internal and external expenditures for conducting research, preclinical studies clinical trials in respect of our internal product portfolio, pre-commercialization efforts for our late-stage clinical pipeline, as well as commercial support for V-Go and ZEGALOGUE (dasiglucagon). Our ability to generate revenue from our internal product portfolio depends on our ability, or the ability of our partners where those products have been licensed to them, to successfully develop and commercialize our product candidates, and to obtain the regulatory and marketing approvals necessary to commercialize one or more of our product candidates. Similarly, our ability to generate profits in the future depend on our ability in the US organization to penetrate and commercialize our products in the US market at proper price points and tight cost control in the organization. Our ability and our collaboration partners' ability to generate future revenue from product sales or pursuant to milestone payments depend heavily on many factors, including, but not limited to: - completing research activities and preclinical and clinical development of our out-licensed and internal product candidates;- on our own, or together with our strategic collaboration partners, obtaining regulatory approvals for our product candidates;- negotiating favorable terms of and entering further collaboration, licensing or other arrangements;- the ability of our collaboration partners to obtain the proper regulatory approval and then successfully commercialize or our ability to commercialize or co-promote our product candidates;- obtaining market access and market acceptance of our products and product candidates, if approved, on the timelines that we expect;- obtaining sales of our products in markets where there are established competing products or therapies;- maintaining or growing sales of our products or our collaboration partners' products if competitive products enter the market that offer advantages over our or our collaboration partners' products;- identifying, assessing, acquiring, in-licensing or developing new product candidates that we are successfully able to develop and then commercialize ourselves or via collaboration partners;- maintaining, protecting and expanding our portfolio of intellectual property rights, including patents, trade secrets and know-how, and our ability to develop, manufacture and commercialize our product candidates and products without infringing the intellectual property rights of others;- the ability of our US sales force to market and sell the V-Go and ZEGALOGUE (dasiglucagon) products and to use its skills to market and sell any future product launches; and - attracting, hiring, and retaining qualified personnel. In cases where we, or our collaboration partners, are successful in obtaining regulatory approvals to market one or more of our product candidates, our revenue will be dependent, in part, upon the size of the markets in the territories for which regulatory approval is granted, the price or prices at which we or our collaboration partners are able to sell such products and our ability to again acceptance for or get paid or reimbursed for such products. If the number of individuals suitable for our product candidates is not as significant as we estimate, the indications approved by regulatory authorities are narrower than we expect, or the population eligible for treatment is narrowed by competition, physician choice or other reasons, we may not generate significant revenue from the sale of such products, even if approved. If the level of revenue generated from sales of one or more of our products or product candidates or pursuant to license or milestone payments is lower than our or the market's expectations, our business, financial position, results of operations and future growth prospects could experience a material adverse effect. We expect our expenses to continue to increase and that we will continue to incur losses as we further develop our internal product portfolio. We anticipate that our expenses and losses will increase substantially if and as we: - continue the preclinical and clinical development of our internal product candidates;- expand or review the scope of or otherwise decide to repeat or materially modify our current clinical trials for our internal product candidates;- begin new clinical trials for our internal product candidates;- develop our commercial capabilities and infrastructure for our internal product candidates that have not yet been placed on the market;- seek regulatory and marketing approvals for any internal product candidates that successfully complete clinical trials;- utilize and expand our sales, marketing and distribution infrastructure for our commercial programs for V-Go and ZEGALOGUE (dasiglucagon) and any of our other product candidates that receive regulatory and marketing approvals in order to increase their commercial reach and commercial lives covered if we choose to do so;- increase pre-commercialization efforts for product candidates for which we may obtain marketing approval and for which we have not entered into a commercialization collaboration with a third party;- seek to identify and validate additional product candidates;- acquire or in-license product candidates and technologies;- maintain, protect and expand our intellectual property portfolio or defend any third-party action that relate to internal candidate for protection;- attract new and retain existing skilled personnel; and - create additional infrastructure to support our operations. Any net losses we incur may fluctuate significantly from year to year, such that a year-to-year comparison of our results of operations may not be a good indication of our future performance. In any period or periods, our operating results could be below the expectations of securities analysts or investors, which could cause the price of our American Depository Shares, or ADSs, and the price of our ordinary shares to decline. Although we have obtained approval of ZEGALOGUE (dasiglucagon) injection for the treatment of severe hypoglycemia in patients with diabetes aged 6 years and above, we are subject to pervasive and continuous regulatory obligations with respect to the promotion, manufacture, distribution and post marketing surveillance of our approved product and of the V-GO medical device. The manufacturing processes, labeling, packaging, distribution, post-approval monitoring and adverse event reporting, storage, import, export, advertising, promotion and recordkeeping of ZEGALOGUE and V-GO are subject to extensive and ongoing regulatory requirements. The FDA has significant post-market authority, including the authority to require labeling changes based on new safety information and to require post-market studies or clinical trials to evaluate safety risks related to the use of a product or to require withdrawal of the product from the market. The FDA also has the authority to require a REMS plan after approval, which may impose further requirements or restrictions on the distribution or use of an approved drug. The manufacturing facilities we use to make a future product, if any, will also be subject to periodic review and inspection by the FDA and other regulatory agencies, including for continued compliance with cGMP requirements. The discovery of any new or previously unknown problems with our third-party manufacturers, manufacturing processes or facilities may result in restrictions on the product, manufacturer or facility, including withdrawal of the product from the market. Any product promotion and advertising will also be subject to regulatory requirements and continuing regulatory review. The FDA imposes stringent restrictions on manufacturers' communications regarding use of their products. Although clinicians may prescribe products for off-label uses as the FDA and other regulatory agencies do not regulate a physician's choice of drug treatment made in the physician's independent medical judgment, they do restrict promotional communications from companies or their sales force with respect to off-label uses of products. If we promote our therapeutic candidates in a manner inconsistent with FDA-approved labeling or otherwise not in compliance with FDA regulations, we may be subject to enforcement action. If we or our existing or future collaborators, manufacturers or service providers fail to comply with applicable continuing regulatory requirements in the United States or foreign jurisdictions in which we seek to market our therapeutics, we or they may be subject to, among other things, fines, warning or untitled letters, holds on clinical trials, delay of approval or refusal by the FDA or similar foreign regulatory bodies to approve pending applications or supplements to approved applications, suspension or withdrawal of regulatory approval, product recalls and seizures, administrative detention of products, refusal to permit the import or export of products, operating restrictions, injunction, civil penalties and criminal prosecution. Subsequent discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things: - restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market or voluntary or mandatory product recalls;- fines, warning or untitled letters or holds on clinical trials;- refusal by the FDA to approve pending applications or supplements to approved applications filed by us or our strategic partners;- suspension or revocation of product license approvals;- product seizure or detention or refusal to permit the import or export of products; and - injunctions or the imposition of civil or criminal penalties. The FDA policies may change, and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our therapeutic candidates. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability, which would adversely affect our business.

Our debt facility with Oberland uses the London Interbank Offered Rate ("LIBOR") as a benchmark for establishing the interest rate. In July 2017, the Financial Conduct Authority (the "FCA") announced its intent to stop compelling banks to submit rates for the calculation of LIBOR after 2021. Regulators across the world have proposed and/or endorsed alternative reference rates to use as the alternative to the applicable Interbank Offered Rate ("IBOR") subject to that regulator's supervision for use in derivatives and other financial contracts indexed to the applicable IBOR. These reforms and other pressures may cause LIBOR to disappear entirely or to perform differently than in the past. Market participants are currently working on industry wide and company-specific transition plans as it relates to derivatives and cash markets exposed to LIBOR. In March 2021, the FCA announced that all LIBOR settings will either cease to be provided by any administrator or no longer be representative (a) immediately after December 31, 2021, in the case of all sterling, euro, Swiss franc and Japanese yen settings, and the one-week and two-month U.S. dollar setting and (b) immediately after June 30, 2023, in the case of the remaining U.S. dollar settings. In addition, in early March 2022, the U.S. Federal Reserve raised its interest rate for the first time in several years. The interest rate for our secured note with Oberland is set at 6.0% plus LIBOR or 0.25%, whichever is greater. In the event that LIBOR cannot be determined, the interest rate for the secured note will be adjusted by reference to the U.S. prime rate as quoted by the Wall Street Journal, which often adjusts in tandem with the U.S. federal reserve rate. An increase in the interest payable under our secured note could have a material adverse effect on our business, financial condition, results of operations or prospects, including as a result of any changes in the cost of our debt, disputes and other actions regarding the interpretation of current and prospective loan documentation or modifications to processes and systems.

The time required to obtain approval by the U.S. Food and Drug Administration, or the FDA, the European Medicines Agency, or the EMA, and other comparable regulatory authorities is unpredictable, but could take many years following the commencement of clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. In addition, approval policies, regulations or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate's clinical development and varies among jurisdictions. Other than the medical device authorisation that we have for V-go, we have obtained regulatory approval in the United States for only one medicinal product for which we retain full development, commercialization and marketing control, and it is possible that none of our other existing product candidates or any product candidates that we may seek to develop in the future will ever obtain regulatory approval. Our product candidates could fail to receive regulatory approval for many reasons, including, but not limited to, the following: - the FDA, the EMA or other comparable regulatory authorities may disagree with the design or implementation of our clinical trials;- we or our collaboration partners may be unable to demonstrate to the satisfaction of the FDA, the EMA or other comparable regulatory authorities that a product candidate is safe and effective for its proposed indications;- we or our collaboration partners may be unable to demonstrate that a product candidate's clinical and other benefits outweigh its safety risks;- the FDA, the EMA or other comparable regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical trials. - the data collected from clinical trials of our product candidates may not be sufficient to support the submission of a new drug application, or NDA, the submission of a supplemental NDA or other submission or to obtain regulatory approval in the United States, Europe or elsewhere;- the FDA or the EMA may be unable to inspect our manufacturing facilities due to restrictions on international travel and may not have sufficient staff to timely review our applications due to the ongoing COVID-19 pandemic;- the FDA, the EMA or any other comparable regulatory authority may fail to approve the labeled conditions for use that we or our collaboration partners propose for a product candidate;- the FDA, the EMA or other comparable regulatory authorities may require restrictions on the label for the product, may restrict the patient population that the product can be offered to or may restrict the shelf life or other storage or transportation conditions in a way that means it is less attractive to patients. - the FDA, the EMA or other comparable regulatory authorities may fail to approve the manufacturing processes or facilities of any third-party manufacturers with which we may contract for clinical and commercial supplies or such processes or facilities may not pass a preapproval inspection; and - the approval policies or regulations of the FDA, the EMA or other comparable regulatory authorities may change or differ significantly from one another in a manner rendering our clinical data insufficient for approval. This lengthy approval process, as well as the unpredictability of ongoing clinical trial results, may result in our or our collaboration partners' failure to obtain regulatory approval to market our product candidates, which would harm our business, financial position, results of operations and future growth prospects significantly. In addition, even if we or our collaboration partners were to obtain approval, regulatory authorities may approve any of our product candidates for fewer or more limited indications than requested, may grant approval contingent on the performance of costly post-marketing clinical trials, or may approve a product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate. They may also restrict the product in other ways that include the population that can be offered the product, its shelf life, the conditions its must be stored in that may make the product less attractive or more difficult to use. In certain jurisdictions, regulatory authorities may not approve the price we or our collaboration partners intend to charge for our products or may take the view that an analysis of the cost of the product versus its benefit is not favorable enough to warrant recommending its use. Any of the foregoing scenarios could materially harm the commercial prospects of our product candidates.

Under the Internal Revenue Code of 1986, as amended, or the Code, we will be a passive foreign investment company, or PFIC, for any taxable year in which (1) 75% or more of our gross income consists of passive income or (2) 50% or more of the average quarterly value of our assets consists of assets that produce, or are held for the production of, passive income, including cash. For purposes of these tests, passive income includes dividends, interest, gains from the sale or exchange of investment property and certain rents and royalties. In addition, for purposes of the above calculations, a non-U.S. corporation that directly or indirectly owns at least 25% by value of the shares of another corporation is treated as if it held its proportionate share of the assets and received directly its proportionate share of the income of such other corporation. If we are a PFIC for any taxable year during which a U.S. Holder (as defined in Item 10.E. "Taxation?-?Material U.S. Federal Income Tax Considerations for U.S. Holders") holds the ADSs, the U.S. Holder may be subject to adverse tax consequences regardless of whether we continue to qualify as a PFIC, including ineligibility for any preferred tax rates on capital gains or on actual or deemed dividends, interest charges on certain taxes treated as deferred, and additional reporting requirements. Based on our analysis of our income, assets, activities and market capitalization, we do not believe we were a PFIC for our taxable year ended December 31, 2021. We have not yet made any determination as to our expected PFIC status for the current year and, accordingly, any such expectation would be subject to change based on, among other factors, our use of cash, the source and nature of our income, and the price of our ordinary shares or ADSs. No assurances regarding our PFIC status can be provided for any past, current or future taxable years. The determination of whether we are a PFIC is a fact-intensive determination made on an annual basis and the applicable law is subject to varying interpretation. In particular, the characterization of our assets as active or passive may depend in part on our current and intended future business plans, which are subject to change. In addition, for our current and future taxable years, the total value of our assets for PFIC testing purposes may be determined in part by reference to the market price of our ordinary shares or ADSs from time to time, which may fluctuate considerably. Under the income test, our status as a PFIC depends on the composition of our income which will depend on the transactions we enter into in the future and our corporate structure. The composition of our income and assets is also affected by how, and how quickly, we spend the cash we raise in any offering. Our U.S. counsel expresses no opinion with respect to our PFIC status for our taxable year ended December 31, 2021, and also expresses no opinion with regard to our expectations regarding our PFIC status in the future. If we are a PFIC, U.S. Holders (as defined in Item 10.E. "Taxation?-?Material U.S. Federal Income Tax Considerations for U.S. Holders) of the ADSs would be subject to adverse U.S. federal income tax consequences, such as ineligibility for any preferred tax rates on capital gains or on actual or deemed dividends, interest charges on certain taxes treated as deferred, and additional reporting requirements under U.S. federal income tax laws and regulations. For further discussion of the PFIC rules and the adverse U.S. federal income tax consequences in the event we are classified as a PFIC, see Item 10.E. "Taxation?-?Material U.S. Federal Income Tax Considerations for U.S. Holders."

We are exposed to the risk of employee fraud or other misconduct and the fraud and misconduct of our collaboration partners. Misconduct by our employees or our collaboration partners could include intentional failures to: - comply with legal requirements or the requirements of the FDA, the EMA, the CMS and other comparable regulatory authorities;- provide accurate information to applicable government authorities;- comply with fraud and abuse and other healthcare laws and regulations in the United States, or similar laws in Denmark and elsewhere;- comply with the FCPA and other applicable anti-bribery laws;- report financial information or data accurately; or - disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing, bribery and other abusive practices. These laws and regulations restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Employee or collaboration partner misconduct could also involve the improper use of, including trading on, information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. We have adopted a code of conduct, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may be ineffective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any such actions are instituted against us, and we or such collaboration are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions. Further, if any actions are instituted against any of our collaboration partners and such partner fails to defend itself or assert its rights and as a result, is subjected to criminal, civil or administrative sanctions, including exclusion from government funded healthcare programs, such actions and outcomes could have a significant impact on our business.

We currently, and expect to continue to, selectively rely on public and private research institutions, medical institutions, clinical investigators, CROs, contract laboratories and collaboration partners to conduct some of our early-stage product development activities, perform data collection and analysis and carry out our clinical trials. Our development activities or clinical trials conducted in reliance on third parties may be delayed, suspended or terminated if: - the third parties do not devote a sufficient amount of time or effort to our activities or otherwise fail to successfully carry out their contractual duties or to meet regulatory obligations or expected deadlines;- we replace a third party; or - the quality or accuracy of the data obtained by third parties is compromised due to their failure to adhere to clinical protocols, regulatory requirements, the contractual requirements or for other reasons. We do not have the ability to control the performance of third parties in their conduct of development activities. Third party performance failures may increase our development costs, delay our ability to obtain regulatory approval and delay or prevent the commercialization of our product candidates. While we believe that there are alternative sources to provide these services, in the event that we seek such alternative sources, we may not be able to enter into replacement arrangements without incurring delays or additional costs.