Company Quick10K Filing
Quick10K
Forward Pharma
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$1.09 48 $52
20-F 2018-12-31 Annual: 2018-12-31
20-F 2017-12-31 Annual: 2017-12-31
20-F 2016-12-31 Annual: 2016-12-31
20-F 2015-12-31 Annual: 2015-12-31
AXS Axis Capital Holdings 4,770
CSOD Cornerstone Ondemand 3,190
RXN Rexnord 3,020
ABCB Ameris Bancorp 1,740
SNR New Senior Investment Group 511
WSR Pillarstone Capital REIT 503
HCAP Harvest Capital Credit 64
GNUS Genius Brands 20
MLSS Milestone Scientific 15
NAOV Nanovibronix 13
FWP 2018-12-31
Part I
Item 1. Identity of Directors, Senior Management and Advisers
Item 2. Offer Statistics and Expected Timetable
Item 3. Key Information
Item 4. Information on The Company
Item 4A. Unresolved Staff Comments
Item 5. Operating and Financial Review and Prospects
Item 6. Directors, Senior Management and Employees
Item 7. Major Shareholders and Related Party Transactions
Item 8. Financial Information
Item 9. The Offer and Listing
Item 10. Additional Information
Item 11. Quantitative and Qualitative Disclosures About Risk
Item 12. Description of Securities Other Than Equity Securities
Part II
Item 13. Defaults, Dividend Arrearages and Delinquencies
Item 14. Material Modifications To The Rights of Security Holders and Use of Proceeds
Item 15. Controls and Procedures
Item 16A. Audit Committee Financial Expert
Item 16B. Code of Ethics
Item 16C. Principal Accountant Fees and Services
Item 16D. Exemptions From The Listing Standards for Audit Committees
Item 16E. Purchases of Equity Securities By The Issuer and Affiliated Purchasers
Item 16F. Change in Registrant's Certifying Accountant
Item 16G. Corporate Governance
Item 16H. Mine Safety Disclosure
Part III
Item 17. Financial Statements
Item 18. Financial Statements
Item 19. Exhibits
EX-8.1 a2237546zex-8_1.htm
EX-12.1 a2237546zex-12_1.htm
EX-12.2 a2237546zex-12_2.htm
EX-13.1 a2237546zex-13_1.htm
EX-15.1 a2237546zex-15_1.htm

Forward Pharma Earnings 2018-12-31

FWP 20F Annual Report

Balance SheetIncome StatementCash Flow

20-F 1 a2237546z20-f.htm 20-F

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TABLE OF CONTENTS
Index to Consolidated Financial Statements

Table of Contents

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 20-F

(Mark One)    

o

 

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

ý

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2018

OR

o

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

o

 

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report

Commission file number 001-36686

Forward Pharma A/S
(Exact name of Registrant as specified in its charter)

Forward Pharma A/S
(Translation of Registrant's name into English)

Denmark
(Jurisdiction of incorporation or organization)

Østergade 24A, 1st floor
1100 Copenhagen K
Denmark
(Address of principal executive offices)

Claus Bo Svendsen
Chief Executive Officer
Østergade 24A, 1st floor
1100 Copenhagen K
Denmark
Tel: +45 3344 4242
E-mail: investors@forward-pharma.com
(Name, Telephone, E-mail and/or Facsimile Number and Address of Company Contact Person)

            Securities registered or to be registered pursuant to Section 12(b) of the Act.

Title of each class   Name of each exchange on which registered
Ordinary shares, nominal value 0.01 DKK(1)   Nasdaq Global Select Market

(1)
Each ADS represents two ordinary shares

    Securities registered or to be registered pursuant to Section 12(g) of the Act.

    Not Applicable
    (Title of Class)

    Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

    Not Applicable
    (Title of Class)

            Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report.

Ordinary shares: 95,073,864

            Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o Yes    ý No

            If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. o Yes    ý No

            Note—Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

            Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ý Yes    o No

            Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ý Yes    o No

            Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of "accelerated filer," "large accelerated filer," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o   Accelerated filer o   Non-accelerated filer ý

Emerging growth company ý

            If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. o

            †The term "new or revised financial accounting standard" refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

            Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP o        International Financial Reporting Standards as issued by        Other o
the International Accounting Standards Board ý

            If "Other" has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

            o Item 17                o Item 18

            If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes                ý No

            (APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

            Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

o Yes                o No

   


Table of Contents


Forward Pharma A/S

TABLE OF CONTENTS

 
  Page

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

    1

PART I

    2

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

    2

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

    2

ITEM 3. KEY INFORMATION

    2

A. Selected Financial Information

    2

B. Capitalization

    3

C. Reason for the Offering

    3

D. Risk Factors

    3

ITEM 4. INFORMATION ON THE COMPANY

    24

A. History and Development of the Company

    24

B. Business Overview

    25

C. Organizational Structure

    35

D. Property, Plant and Equipment

    35

ITEM 4A. UNRESOLVED STAFF COMMENTS

    35

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

    35

A. Operating Results Overview

    36

B. Liquidity and Capital Resources

    51

C. Research and Development and Patents

    53

D. Trend Information

    53

E. Off-balance Sheet Arrangements

    53

F. Tabular Disclosure of Contractual Obligations

    54

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

    55

A. Directors and Senior Management

    55

B. Compensation

    60

C. Board Practices

    64

D. Employees

    64

E. Share ownership

    64

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

    65

A. Major Shareholders

    65

B. Related Party Transactions

    67

C. Interests of Experts and Counsel

    68

ITEM 8. FINANCIAL INFORMATION

    68

A. Consolidated Statements and Other Financial Information

    68

B. Significant Changes

    68

ITEM 9. THE OFFER AND LISTING

    68

A. Offering and Listing Details

    68

B. Plan of Distribution

    68

C. Markets

    69

D. Selling Shareholders

    69

E. Dilution

    69

F. Expenses of the Issue

    69

ITEM 10. ADDITIONAL INFORMATION

    69

A. Share Capital

    69

B. Memorandum and Articles of Association

    69

C. Material Contracts

    70

D. Exchange Controls

    71

E. Taxation

    71

F. Dividends and Paying Agents

    79

Table of Contents

 
  Page

G. Statement by Experts

    79

H. Documents on Display

    80

I. Subsidiary Information

    80

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT RISK

    80

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

    81

A. Debt Securities

    81

B. Warrants and Rights

    81

C. Other Securities

    81

D. American Depositary Shares

    81

PART II

    83

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

    83

A. Defaults

    83

B. Arrears and Delinquencies

    83

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

    83

ITEM 15. CONTROLS AND PROCEDURES

    83

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

    84

ITEM 16B. CODE OF ETHICS

    85

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

    85

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

    85

ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

    85

ITEM 16F. CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT

    85

ITEM 16G. CORPORATE GOVERNANCE

    85

ITEM 16H. MINE SAFETY DISCLOSURE

    86

PART III

    87

ITEM 17. FINANCIAL STATEMENTS

    87

ITEM 18. FINANCIAL STATEMENTS

    87

ITEM 19. EXHIBITS

    87

        Unless otherwise indicated or the context otherwise requires, all references in this Annual Report on Form 20-F (the "Annual Report") to "Forward Pharma A/S" or the "Parent" refer to Forward Pharma A/S and all references in this report to the "Group" refer to Forward Pharma A/S, together with its subsidiaries. All references in this report to "Forward Pharma," the "Company," "we," "our," "ours," "us" or similar terms refer to Forward Pharma A/S or Forward Pharma A/S together with its subsidiaries, as required by the context.




Table of Contents


CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

        This Annual Report contains statements that constitute forward-looking statements. Many of the forward-looking statements contained in this Annual Report can be identified by the use of forward-looking words such as "anticipate," "believe," "could," "expect," "may," "should," "plan," "intend," "estimate," "will," "would," and "potential," among others.

        Forward-looking statements appear in a number of places in this Annual Report and include, but are not limited to, statements regarding our intent, belief or current expectations. Forward-looking statements are based on our management's beliefs and assumptions and on information currently available to our management. Such statements are subject to risks and uncertainties, and actual results may differ materially from those expressed or implied in the forward-looking statements due to various factors. These risks and uncertainties include, but are not limited to, factors relating to:

    whether and when we will receive any additional payments under our Settlement and License Agreement with two subsidiaries of Biogen Inc.;

    the timing, outcome and impact of administrative, court and other proceedings, including any appeals, related to the patents and intellectual property associated with the Company, including the European Patent Office opposition proceeding with Biogen Inc. relating to EP2801355;

    our ability to successfully protect, defend and enforce the intellectual property associated with the Company;

    our estimates regarding expenses, future revenues, capital requirements and the need for additional financing;

    our ability to defend our tax filing position in any tax audits;

    our ability to hire and retain qualified personnel;

    our ability to continue as a going concern; and

    other risk factors identified under "Risk Factors."

        Forward-looking statements speak only as of the date they are made, and except as required by law, we do not undertake any obligation to update them in light of new information or future developments or to release publicly any revisions to these statements in order to reflect later events or circumstances or to reflect the occurrence of unanticipated events.

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Table of Contents


PART I

ITEM 1.    IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

        Not applicable.

ITEM 2.    OFFER STATISTICS AND EXPECTED TIMETABLE

        Not applicable.

ITEM 3.    KEY INFORMATION

A. Selected Financial Information

        The selected financial information set forth below for the years ended December 31, 2018, 2017 and 2016, and as of December 31, 2018 and 2017, is derived from our audited consolidated financial statements included elsewhere in this Annual Report. The selected financial information set forth below for the years ended December 31, 2015 and 2014, and as of December 31, 2016, 2015 and 2014, is derived from our audited consolidated financial statements not included in this Annual Report. We prepare our audited consolidated financial statements in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB. This financial information should be read in conjunction with our "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our audited consolidated financial statements, including the notes thereto, included in this Annual Report.

Consolidated Statement of Profit or Loss Data

 
  Year ended December 31,  
(USD in thousands, except per share data)
  2018   2017   2016   2015   2014  

Revenue from the License Agreement

        1,250,000              

Cost of the Aditech Pharma AG patent agreement

        (25,000 )            

Research and development costs

    (2,748 )   (20,496 )   (41,052 )   (33,727 )   (10,547 )

General and administrative costs

    (9,535 )   (17,107 )   (14,382 )   (15,852 )   (9,154 )

Operating (loss) income

    (12,283 )   1,187,397     (55,434 )   (49,579 )   (19,701 )

Fair value adjustment to net settlement obligations to shareholder warrants

                    (968 )

Fair value adjustment to convertible loans

   
   
   
   
   
(3,823

)

Exchange rate gain (loss), net

    2,713     (241 )   598     11,933     5,589  

Interest income from available-for-sale financial assets

        227     389     438     63  

Interest expense

                    (416 )

Other finance income (expense)

    644     (2,895 )   (92 )   (132 )   (10 )

(Loss) income before tax

    (8,926 )   1,184,488     (54,539 )   (37,340 )   (19,266 )

Income tax benefit (expense)

    204     (267,395 )   21,203     336     250  

Net (loss) income for the year

   
(8,722

)
 
917,093
   
(33,336

)
 
(37,004

)
 
(19,016

)

Net (loss) income per share(1)(2)

                               

Basic

    (0.09 )   2.41     (0.06 )   (0.07 )   (0.05 )

Dilutive

    (0.09 )   2.30     (0.06 )   (0.07 )   (0.05 )

Weighted-average shares outstanding used to calculate net (loss) income per share

   
 
   
 
   
 
   
 
   
 
 

Basic

    94,671     380,133     540,650     537,614     396,635  

Dilutive

    94,671     398,943     540,650     537,614     396,635  

(1)
During August 2017, the Company's shareholders approved a 10 for 1 share split, or Share Split. All share and per share information disclosed above, as well as throughout this Annual Report, has been

2


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    adjusted to reflect the Share Split as if it had occurred at the beginning of the earliest period presented. Following the Share Split, the nominal value of an ordinary share of the Company is 0.01 DKK. In addition, as discussed in more detail elsewhere in this Annual Report, there was a capital reduction that was effected by the annulment of 80% of the ordinary shares outstanding and was deemed, for IFRS purposes, to have been at a 15% premium, or 15% Premium. For purposes of computing the per share amounts only, the 15% Premium has been accounted for in a manner similar to the Share Split and reflected in the above per share amounts as if it had occurred at the beginning of the earliest period presented. The combined effect of the Share Split and the 15% Premium is as if a 11.5 for 1 share split had occurred at the beginning of the earliest period presented. See Notes 3.5 and 5.1 of the audited consolidated financial statements of the Company for additional information.

(2)
During 2014, certain shareholders of the Company received a preferential distribution in the form of additional shares of Company stock in consideration for amendments to certain contractual rights held by such shareholders. The additional shares of Company stock had a fair value of $42.7 million. For purposes of computing the loss per share for 2014, the preferential distribution increased the net loss used to compute the per share amount by $42.7 million. The preferential distribution had no effect on cash or cash flows of the Company.

Consolidated Statement of Financial Position Data

 
  As of December 31,  
(USD in thousands)
  2018   2017   2016   2015   2014  

Cash, cash equivalents and available-for-sale financial assets

    82,542     109,554     138,723     176,652     223,484  

Working capital(3)

    82,212     89,706     132,465     93,590     90,480  

Total assets

    83,332     111,008     163,143     182,904     225,309  

Accumulated deficit

    (5,686 )   (2,373 )   (147,400 )   (131,175 )   (107,712 )

Total shareholders' equity

    82,214     89,680     155,802     176,693     222,394  

(3)
Working capital is defined as total current assets less total current liabilities.

Exchange Rate Information

        Our business is primarily conducted in Denmark. The functional currency of Forward Pharma A/S is the Danish Kroner, or DKK, the functional currency of Forward Pharma FA ApS is the DKK, the functional currency of Forward Pharma Operations ApS is the DKK, the functional currency of Forward Pharma GmbH is the Euro and the functional currency of Forward Pharma USA, LLC is the United States, or U.S., Dollar. Forward Pharma A/S reports its consolidated financial statements in U.S. Dollars.

B. Capitalization

        Not applicable.

C. Reason for the Offering

        Not applicable.

D. Risk Factors

        Our business faces significant risks and uncertainties. You should carefully consider all of the information set forth in this Annual Report on Form 20-F and other documents we file with or furnish to the SEC, including the following risk factors, before deciding to invest or making any decision with respect to your investment in any of our securities. Our business, financial condition or results of operations could be materially and adversely affected if any of these risks occurs. This Annual Report also contains

3


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forward-looking statements that involve risks and uncertainties. See "Cautionary Note Regarding Forward-Looking Statements." Our actual results could differ materially and adversely from those anticipated in these forward-looking statements as a result of certain factors.

Risks Related to Our Business and Industry

There can be no assurance that we will prevail in the opposition proceeding involving our EP2801355 patent after any appeals or, if we do prevail, that the resulting claims of our EP2801355 patent will be royalty bearing under the Settlement and License Agreement with Biogen.

        We are involved in an opposition proceeding regarding EP2801355, or EP'355 patent, with several opponents including a subsidiary of Biogen Inc. (all subsidiaries of Biogen Inc., together with Biogen Inc., hereafter collectively referred to as "Biogen"), or the Opposition Proceeding. On January 29, 2018, the European Patent Office, or EPO, revoked the EP'355 patent following the oral hearing in the Opposition Proceeding. On March 22, 2018, the Opposition Division issued its written decision with detailed reasons for the decision. On May 7, 2018, the Company submitted its notice of appeal, and on August 1, 2018, the Company submitted the detailed grounds for the appeal. The duration of the appeal process is estimated to be approximately three years; however, delays can occur that would extend the estimated duration of the appeal process. There can be no assurance that we will be successful in the Opposition Proceeding after any appeals. If the Company is unsuccessful in the Opposition Proceeding, the Company would not be entitled to future royalties on Biogen's net sales outside the U.S. If the Company prevails in such appeal, we expect the Technical Board of Appeal to remand the case to the Opposition Division, in order for the Opposition Division to resolve the remaining elements of the original opposition.

Even if we prevail, after any appeals, in the Opposition Proceeding, there can be no assurance that we will receive additional payments under the License Agreement with Biogen.

        Even if we prevail, after any appeals, in the Opposition Proceeding, there can be no assurance that any of the conditions for payment of a royalty under our Settlement and License Agreement, dated as of January 17, 2017, or the License Agreement, with two subsidiaries of Biogen that became effective on February 1, 2017, will be satisfied or that we will receive any additional payments. For example, we could prevail in the Opposition Proceeding, after any appeals, but fail as a result of that proceeding to obtain issuance of a patent with a claim that covers treatment for multiple sclerosis, or MS, by orally administering 480 mg per day of dimethyl fumarate, or DMF, in which case we would not be entitled to any royalties from Biogen with respect to sales outside of the U.S. Moreover, even if we prevail, after any appeals, in the Opposition Proceeding, we will only be eligible to receive royalties outside of the U.S. if one or more of our patent(s) remains valid and would (but for the License Agreement) be infringed, at relevant times and on a country-by-country basis, by Biogen's sales outside the U.S. of DMF-containing products indicated for treating MS and other conditions of the License Agreement are satisfied.

        In addition, we may be required in any arbitration or suit brought in the County of New York in the State of New York according to the dispute resolution provisions of the License Agreement, to incur significant expense to prove, on a country-by-country basis, that any DMF-containing products indicated for treating MS sold by Biogen would (but for the License Agreement) infringe our patent(s) existing at that time. Additionally, among the conditions that need to be satisfied for any royalty to be payable by Biogen to the Company in a particular country is the absence of generic entry in that country having a particular impact as defined in the License Agreement. Even if our royalty-eligible patents were to remain valid, there can be no assurance that we would obtain royalties beyond 20 years from their effective filing date. In particular, there can be no assurance that we will receive or maintain Supplementary Protection Certificates, or SPCs, for any of our European patents.

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We are likely to derive all or a significant portion of our future revenues, if any, from Biogen and our future success depends on continued market acceptance of Tecfidera® as well as continued performance by Biogen of its obligations under the License Agreement.

        We anticipate that all or a significant portion of our future revenues, if any, may consist of royalties from Biogen from sales of Tecfidera® outside of the U.S. We have no control over the sales efforts of Biogen, and its future marketing of Tecfidera® might not be successful. Reductions in the sales volume or average selling price of Tecfidera® for any reason could have a material adverse effect on our business. We also depend on Biogen to perform all of its non-royalty payment obligations under the License Agreement.

Failure to materially comply with the terms and conditions of the License Agreement could result in a loss of future royalty revenues.

        Under the terms of the License Agreement, we are required to perform certain obligations, including maintaining sufficient capital to continue the Company's operations as a going concern and solvent entity. Failure by the Company to materially comply with its obligations under the License Agreement could cause the Company to lose its potential right to royalties from Biogen under the License Agreement.

Our future growth and ability to compete depend on retaining our key personnel and recruiting additional qualified personnel.

        Our success depends upon the continued contributions of our management. These individuals currently include the members of our board of directors, consisting of our Chairman, Florian Schönharting, as well as Torsten Goesch, Grant Hellier Lawrence, Jakob Mosegaard Larsen, and Duncan Moore. Additionally, our Chief Executive Officer, Claus Bo Svendsen, and our Vice President, Finance and Controller, Forward Pharma USA, LLC, Thomas Carbone.

        The loss of directors or key executives could have a material adverse effect on our business. In addition, the competition for qualified personnel in the biopharmaceutical field is intense, and our future success may depend upon our ability to attract, retain and motivate managerial employees and consultants. We face competition for personnel from other companies, universities, public and private research institutions and other organizations. If our recruitment and retention efforts are unsuccessful, it may be difficult for us to implement our business strategy, which could have a material adverse effect on our business.

Changes in privacy laws could have an adverse effect on our business.

        The regulatory framework for privacy and cybersecurity issues worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable future. In May 2016, the European Union adopted the General Data Protection Regulation, or GDPR, which imposes more stringent data protection requirements and will provide for greater penalties for noncompliance. We may be required to incur significant costs to comply with privacy and data security laws, rules and regulations, including the GDPR. Any inability to adequately address privacy and security concerns or comply with applicable privacy and data security laws, rules and regulations could have an adverse effect on our business prospects, results of operations and/or financial position.

Our business and operations may be materially adversely affected in the event of computer system failures or security breaches.

        Despite the implementation of security measures, our internal computer systems, and those of any third-party vendor on which we rely from time to time, are vulnerable to damage from computer viruses, unauthorized access, cyber-attacks, natural disasters, fire, terrorism, war and telecommunication

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and electrical failures. If such an event were to occur and interrupt our operations, it could result in a material disruption to our operations. To the extent that any disruption or security breach results in a loss of or damage to our data or applications, loss of trade secrets or inappropriate disclosure of confidential or proprietary information, including protected health information or personal data of employees or former employees, we could incur liability. We may also be vulnerable to cyber-attacks by hackers or other malfeasance. This type of breach of our cybersecurity may compromise our confidential information or our financial information and adversely affect our business or result in legal proceedings.

Risks Related to Intellectual Property

We no longer have full control over the licensed intellectual property associated with the Company.

        Pursuant to the License Agreement, in 2017 we effected a corporate restructuring whereby we transferred our intellectual property to FWP IP ApS, a Danish limited liability company. The capital stock of FWP IP ApS was subsequently transferred to and is now held by FWP HoldCo ApS, a Danish limited liability company, which is owned and controlled by FWP Fonden, a newly formed independent Danish foundation. The boards of directors of FWP Fonden, FWP HoldCo ApS and FWP IP ApS are identical and each consist of three members, comprised of one independent member and one member appointed by each of Forward Pharma and Biogen. All actions of FWP Fonden, FWP HoldCo ApS and FWP IP ApS require the unanimous approval of their respective boards of directors. As a result, we no longer have full control over the licensed intellectual property associated with the Company. Even though we have agreed with Biogen and FWP IP ApS that FWP IP ApS will be required to take actions with respect to the transferred intellectual property, which now consists only of the non-U.S. intellectual property associated with the Company, in accordance with the provisions of the License Agreement, there can be no assurance that it will do so or that the prosecution of the intellectual property will be pursued in a manner that maximizes the value of the intellectual property over time. Further, in the event that FWP IP ApS, which holds the transferred intellectual property, would materially breach its obligations under the License Agreement, Biogen would have a right to purchase all of the issued and outstanding shares of FWP IP ApS at a price corresponding to its intrinsic value at the time of exercise. Finally, in the event FWP Fonden were to file for bankruptcy, a bankruptcy trustee would have substantial discretion to transfer or sell the assets of the foundation. In either such event, we could lose any right to control the transferred intellectual property, which could have a materially adverse effect on our business.

There can be no assurance that even if we are successful in the opposition and appeal proceedings involving the patents associated with the Company currently pending before the EPO, we will not be subject to subsequent or parallel invalidity proceedings involving these same or other patents associated with the Company before a national court in any of the European Patent Convention member states where the patents were validated, which subsequent or parallel proceedings could result in the challenged patents being subject to continued uncertainty as to their validity until such proceedings have been fully concluded. We cannot at this time anticipate how long any such proceedings may last or when, if at all, the patents currently under challenge will finally be declared to be valid or not.

        The possibility of parallel validity proceedings in national courts and in the EPO is inherent in the legal arrangements under the European Patent Convention under which the EPO was established. If a third party files an opposition to a European patent with the EPO and also, in parallel, initiates a revocation action (also called a "nullity action" or "validity proceeding") against the same patent before a national court, certain national courts may exercise their discretion to either (i) stay the national proceedings, in order to await the outcome of the EPO opposition proceedings, or (ii) allow the revocation proceedings to go ahead, without awaiting the outcome of the EPO proceedings. The rules and practices differ from country to country within the member states of the European Patent

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Convention. For example, certain countries will stay the main proceeding until a final decision has been reached by the EPO whereas in other countries a stay is not automatic, and in such cases the courts may continue the proceedings notwithstanding the opposition. In Germany, for example, national nullity proceedings cannot be started before the German Federal Patent Court until the EPO opposition proceedings have been concluded or the opposition period has expired. As a result, it is possible that certain of the patents now subject to opposition proceedings before the EPO will, even if we are ultimately successful before the EPO, again become subject to a revocation action in a country like Germany, which means the challenged patents could be subject to continued uncertainty in the EU as to their validity until such proceedings have been fully concluded. We cannot at this time anticipate how long any such proceedings may last or when, if at all, the patents currently under challenge will finally be declared to be valid or not. Furthermore, even if we are successful in the Opposition Proceeding, we will only be eligible to receive royalties outside of the U.S. if the patent(s) remain valid at relevant times on a country-by-country basis, provided that other conditions of the License Agreement are satisfied.

We rely on Biogen for the filing, prosecution and maintenance of certain of the non-U.S. licensed intellectual property and if Biogen fails to adequately protect such intellectual property, our rights to the intellectual property associated with the Company and our ability to receive future royalties from Biogen may be harmed.

        Under the License Agreement, Biogen has assumed the filing, prosecution and maintenance of all of the non-U.S. licensed intellectual property associated with the Company, except for the EP'355 patent. While Biogen is obligated to take all reasonable measures to diligently file, prosecute and maintain the non-U.S. licensed intellectual property for which it is responsible, there can be no assurances that Biogen will protect the intellectual property to the same degree as the Company. If Biogen fails to adequately protect the non-U.S. licensed intellectual property, the Company could lose such intellectual property rights. Additionally, if the non-U.S. licensed intellectual property is harmed, any future royalty payments from Biogen on the non-U.S. licensed intellectual property may be negatively impacted.

We may be required to pay significant fees to the EPO and our attorneys to file, prosecute, maintain and defend certain of the licensed intellectual property with no assurance of receiving future royalties from Biogen.

        In certain circumstances under the License Agreement, the Company may assume the filing, prosecution and maintenance of certain of the Company's non-U.S. licensed intellectual property in order to protect its interests in such intellectual property, including participating in European opposition proceedings, unless and until Biogen either re-assumes the filing, prosecution and maintenance of such non-U.S. licensed intellectual property or exercises its option to purchase all of the Company's non-U.S. licensed intellectual property. To do so, the Company would have to incur significant fees, including attorneys' fees, to file, prosecute and maintain such non-U.S. licensed intellectual property and may not be entitled to receive any royalties from Biogen.

We may become involved in lawsuits to protect, defend and enforce the patents or other intellectual property associated with the Company, which could be expensive, time-consuming and, if unsuccessful, could result in issued patents covering our product candidate being found invalid or unenforceable.

        Competitors may infringe the patents or other intellectual property associated with the Company. To counter such infringement, we may file claims or be required to join or assist claims filed by Biogen, and any related litigation and/or prosecution of such claims may be expensive and time-consuming. Any claims asserted against perceived infringers could provoke these parties to assert claims alleging that we infringe their intellectual property. In addition, in a patent infringement proceeding, or a parallel opposition, nullity or cancellation proceeding, it may be decided that a patent associated with the Company is invalid in whole or in part, unenforceable, or construes the patent's claims narrowly

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allowing the other party to commercialize competing products on the grounds that the patents associated with the Company do not cover such products.

        Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses and could distract our personnel from their normal responsibilities. Such litigation or proceedings could substantially increase our operating expenses. We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their substantially greater financial resources. The effects of patent litigation or other proceedings could, therefore, have a material adverse effect on our ability to compete in the marketplace.

Third parties may claim rights including ownership rights in the intellectual property associated with the Company.

        None of the named inventors on the patent and patent applications associated with the Company were our employees at the time of the filing of the Core Composition Patent family that we acquired from Aditech Pharma AB (together with its successor-in-interest, Swiss company Aditech Pharma AG, or Aditech). Two of the named inventors of the priority applications in the Core Composition Patent family were consultants of Aditech and, while obligated under their consulting agreements to assign their rights in the Core Composition Patent family to Aditech, were employed by other institutions at the time they were named as inventors. While such institutions have not made any claims to ownership, there can be no assurance they will not do so in the future.

        Later-filed patent families were filed by us, but some of the named inventors were acting only in a consultant capacity to us. Some of these consultants, while obligated under their consulting agreements to assign their rights in such patent families to us, were employed by other institutions prior to or at the time they made their inventions. While such institutions have not made any ownership claims to the inventions disclosed in the later-filed patent families, there can be no assurance they will not do so in the future.

        Named inventors on our patent applications, whether filed by us or acquired from Aditech, could also challenge whether their property rights were properly assigned. Further, other individuals (including persons not known to us or their employers) could make claims or assertions that they are inventors and/or owners of the intellectual property associated with the Company.

        Under mandatory Danish law, a salaried employee having made a patentable invention (and products that may be registered as utility models) through his service with an employer has the rights to such invention, provided, however, that the rights to the patentable invention upon the employer's request must be transferred to the employer, to the extent not otherwise agreed, provided that the use of such patentable invention falls within the "working area" of the employer or it is a result of a specific assignment given by the employer to the employee. Following notification from the employee of the invention, the employer has four months to decide whether to apply for a patent, in whole or in part, for the invention in the employer's name. Such a transfer of the invention to the employer entitles the employee to a "reasonable compensation." The fee will be fixed considering the value of the invention and its consequences for the employer, the employee's terms of employment and the impact that the employee's service has had for the invention. In the event that the value of the invention does not exceed what the employee, taking his working conditions as a whole into account, reasonably could be expected to achieve, the employee is not entitled to any fee. The compensation payable by the employer is not subject to any maximum amount and may be paid either as a lump sum or as a continuing royalty payment based on, for example, the number of items produced based on the invention. An employee's claim for compensation may become time-barred or forfeited due to the employee's passive behavior. The general relative time-barring deadline under Danish law is five years

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with respect to claims based on employment matters, whereas the general absolute deadline for such claims is 10 years.

        Some of the named inventors on the newer applications associated with the Company (not the Core Composition Patent or Erosion Matrix Patent) are or were employees of our German subsidiary, Forward Pharma GmbH, and thus are subject to German employment law. German employment law governs the transfer/assignment of any intellectual property rights generated by such employees. In particular, any inventions eligible for patent protection made by such employees are subject to the provisions of the German Act on Employees' Inventions (Gesetz über Arbeitnehmererfindungen), which regulates the ownership of, and compensation for, inventions made by employees. The law provides for a formal procedure for the transfer of an employee's rights to patentable inventions which result from performance of the tasks the employee is charged with at the employer or which are based to a significant extent on the experiences or works of the employer, upon the employer's request within a certain period of time after notification by the employee.

        We believe that all inventive contributions made by employees of Forward Pharma GmbH were made after the amended version of the German Act on Employees' Inventions came into force on October 1, 2009, and thus the amended version of the law exclusively applies to such inventions. Prior to October 1, 2009, such formal procedure had been susceptible to faults. The amendments to the law facilitate the transfer of rights in employees' inventions to the employer by replacing the former opt-in approach with an opt-out approach.

        Following the transfer of rights, an employee is entitled to a claim for "reasonable compensation" to be calculated on an individual basis (e.g., revenue achieved through protection of the patent). In addition, the German Act on Employees' Invention provides for certain obligations on the employer including the obligation to apply for patent protection in Germany, the obligation to release the invention for application in those countries where the employer does not want to apply for a patent and the obligation to offer to the employee granted patents or pending patent applications if the employer intends to abandon rights in any country.

        We face the risk that disputes can occur between us and employees or ex-employees of Forward Pharma GmbH pertaining to alleged non-adherence to the provisions of this act. Such disputes may be costly to defend and take up our management's time and efforts whether we prevail or fail in such dispute. If we are required to pay additional compensation or face other disputes under the German Act on Employees' Inventions, in particular in case of a failed transfer of rights, our results of operations could be adversely affected.

Intellectual property rights have limitations and may not adequately protect our business.

        The degree of future protection afforded by the intellectual property rights associated with the Company is uncertain because intellectual property rights have limitations, and may not adequately protect our business. The following examples are illustrative:

    Others may be able to commercialize DMF-containing products that are not covered by the claims of the patents or patent applications associated with the Company.

    Others may independently develop similar or alternative technologies or otherwise circumvent any of our technologies without infringing the patents or patent applications that we own, license or will own or license.

    We might not have been the first to conceive and reduce to practice the inventions covered by the patents or patent applications that we own, license or will own or license.

    We might not have been the first to file patent applications on the inventions disclosed in those applications.

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    It is possible that the pending patent applications associated with the Company will not lead to issued patents.

    Issued patents that we own, license or will own or license may not provide us with any competitive advantage, or may be held invalid or unenforceable, as a result of legal challenges by our competitors.

    Our competitors might conduct research and development activities in countries where we do not have patent rights, or in countries where research and development safe harbor laws exist, and then use the information learned from such activities to develop competitive products for sale in our major commercial markets.

    Ownership of the patents or patent applications associated with the Company may be challenged by third parties.

    The patents of third parties or pending or future applications of third parties, if issued, may have an adverse effect on our business.

Changes in patent laws or patent jurisprudence could diminish the value of patents in general, thereby impairing our ability to protect our products or product candidates.

        The complexity and uncertainty of European patent laws have increased in recent years. In Europe, a new unitary patent system may soon be introduced, which would significantly impact European patents, including those granted before the introduction of such a system. In addition, the European patent system is relatively stringent in the type of amendments that are allowed during prosecution and opposition proceedings. Changes in patent law or patent jurisprudence could limit our ability or the ability of FWP IP ApS to obtain new patents in the future that may be important for our business.

We may not be able to adequately prevent disclosure of trade secrets and protect other proprietary information.

        We consider proprietary trade secrets and/or confidential know-how and unpatented know-how to be important to our business. We may rely on trade secrets and/or confidential know-how to protect proprietary technology, especially where patent protection is believed by us to be of limited value. However, trade secrets and/or confidential know-how can be difficult to maintain as confidential.

        To protect this type of information against disclosure or appropriation by competitors, our policy is to require our employees, consultants, contractors and advisors to enter into confidentiality agreements with us. However, current or former employees, consultants, contractors and advisors may unintentionally or willfully disclose our confidential information to competitors, and confidentiality agreements may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. Enforcing a claim that a third party obtained illegally and is using trade secrets and/or confidential know-how is expensive, time-consuming and unpredictable. The enforceability of confidentiality agreements may vary from jurisdiction to jurisdiction.

        Failure to obtain or maintain trade secrets and/or confidential know-how could adversely affect our competitive position. Moreover, our competitors may independently develop substantially equivalent proprietary information and may even apply for patent protection in respect of the same. If successful in obtaining such patent protection, our competitors could limit our use of trade secrets and/or confidential know-how.

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Risks Related to Our Financial Position and Capital Needs

With the exception of 2017, we have a history of operating losses and we may not achieve or sustain profitability.

        Since the Company's inception, with the exception of 2017 when we received a nonrecurring cash fee of $1.25 billion, or Non-refundable Fee, from Biogen in connection with the License Agreement, we have incurred net losses and negative cash flows from operations. We expect to incur net losses and negative cash flows from operations through at least 2020 and possibly longer. There is no assurance that we will ever have operating revenues, net income or positive cash flows from operations in the future. The Group's ability to generate future operating revenue is currently limited to royalties that are contingently due the Company under the License Agreement only if we prevail, including all appeals, in the Opposition Proceeding. If we fail to prevail in the Opposition Proceeding, it is highly unlikely we will have operating revenues and our ability to continue as a going concern long-term would be uncertain.

        Historically, we have financed our operations through our initial public offering completed in October 2014, private placements of equity securities, a government grant, and debt financing arrangements. We have never generated and do not anticipate generating any revenues from our own product sales. We believe that our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements beyond the next twelve months. Should the Company experience unforeseen expenses or other usages of cash, the effect would negatively impact management's ability to fund operations and continue as a going concern. If the Company were to need to raise capital to fund ongoing operations, there can be no assurances that such funding would be available on acceptable terms, if at all. The long-term success of the Company will be based on successfully defending the intellectual property associated with the Company in the Opposition Proceeding. There can be no assurance that the Company will successfully defend the intellectual property, achieve or sustain positive cash flows from operations or become profitable.

        Even if we do generate revenue, including from future royalties on sales, we may never achieve or sustain profitability on a consistent basis or at all. Our failure to sustain profitability could depress the market price of our ordinary shares and American Depositary Shares, or ADSs, and could impair our ability to raise capital or continue our operations. A decline in the market price of our ordinary shares and ADSs also could cause you to lose all or a part of your investment.

Negative results from tax audits could result in additional taxes, interest and penalties becoming due that could negatively impact our financial position and results of operations

        The Company's Danish, German and United States tax returns are subject to periodic audit by the local tax authorities. Such audits could result in the tax authorities disagreeing with the tax filing positions taken by the Group. Currently, the Danish and German tax authorities are conducting a joint tax audit of out Danish and German tax returns and we expect their audit will focus on, amongst other things, intercompany transactions where the tax authorities could challenge whether pricing of such transactions were at arm's length. In addition, the Company made certain cash payments to equity award holders during the year ended December 31, 2017 that totalled 36.2 million EUR ($43.4 million based on the December 31, 2017 exchange rate). Management believes these payments are tax deductible expenses; however, the tax authorities could disagree. Management believes that appropriate tax filing provisions have been taken by the Company and its subsidiaries; however, if the Group is unable to defend the tax filing positions taken, additional taxes, interest and penalty would be assessed against the Group and such amounts could have a material adverse effect on our financial position and results of operations.

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We may be required to raise additional capital to fund our operations, and we may not be able to do so on terms acceptable to us, or at all.

        We are required under the terms of the License Agreement to maintain sufficient capital to continue the Company as a going concern and a solvent entity, plus an additional $5.0 million until such time as the Company has complied with certain obligations under the License Agreement. While we currently believe we have sufficient resources to enable us to comply with our obligations under the License Agreement and continue as a going concern beyond the next twelve months, unforeseen events could negatively affect our estimates and assumptions about how much capital will be required for us to meet our near and long-term obligations under the Licensing Agreement and to continue as a going concern. If our current estimates and assumptions prove to be wrong and we need to raise additional capital to meet our obligations under the License Agreement and remain a going concern, we cannot assure you that we will be able to raise additional working capital as needed on terms acceptable to us, if at all. If we are unable to raise capital as needed, we may be required to reduce the scope of our operations, which could harm our financial condition and operating results, or cease our operations entirely. In addition, if we fail to prevail in the Opposition Proceeding, including all appeals, future revenues are unlikely and the Company's ability to continue as a going concern long-term would be uncertain.

        In the event we need to seek additional funds, we may raise additional capital through the sale of equity or convertible debt securities. In such an event, the ownership interests of our existing equity holders will be diluted, and the terms of any new securities may include liquidation or other preferences that adversely affect the rights of our existing equity holders. In addition, the issuance of additional equity securities by us, or the possibility of such issuance, may cause the market price of our ADSs to decline. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions such as, but not limited to, incurring additional debt, making capital expenditures, declaring and paying dividends or making capital reductions.

Exchange rate fluctuations or abandonment of the Euro currency may materially affect our results of operations and financial condition.

        Due to the international scope of our operations and the fact that a substantial amount of our cash is currently denominated in U.S. Dollars and Euros, fluctuations in exchange rates, particularly between the Danish Kroner, the Euro, British Pound and the U.S. Dollar, may adversely affect us. Although we are based in Denmark, we have sourced many services from several countries outside Denmark where the transactions are settled in currencies that are not the Danish Kroner. Further, potential future revenue may be derived from abroad. As a result, our business is affected by fluctuations in foreign exchange rates between the Danish Kroner, the Euro, British Pound, the U.S. Dollar or other currencies, and the effects could have a significant impact on our reported results of operations and cash flows from period to period. For example, in the years ended December 31, 2018, 2017 and 2016, we recognized foreign exchange gains (losses) of $2.7 million, ($241,000) and $598,000 respectively. While the we benefited from changes in foreign exchange rates in 2018 and 2016, it is possible that the foreign exchange losses we experienced in 2017 could reoccur. Any reoccurrences of foreign exchange losses would negatively affect the Group and the effect could be material. Currently, we do not have any exchange rate hedging arrangements in place and do not currently have plans to implement any hedging arrangements. Losses incurred by the Company, including those caused by foreign exchange, could have a negative effect on the trading price of the ADSs.

Developments relating to Biogen, Tecfidera®, our competitors or their products could materially and adversely affect our business, results of operations, business prospects and the market price of our ADSs.

        In the event that our competitors or others in the pharmaceutical industry, including Biogen, experience developments relating to their business, products or product candidates, our business, results

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of operations, business prospects and the market price of our ADSs could suffer. In particular, if we are eligible to receive royalties on sales of Tecfidera®, our future success will depend on the continued market acceptance of Tecfidera® and adverse events, or the perception of adverse events, relating to Biogen or Tecfidera® would have material adverse effects on us. For example, on July 24, 2015, Biogen announced that it was revising its previous annual financial guidance for 2015 with respect to its expected revenue growth in 2015 compared to 2014 from a range of 14%-16% to a range of 6%-8%, based largely on revised expectations for the growth of Tecfidera®, including moderated patient growth in the U.S. market, lower-than-anticipated reimbursement rates in Europe and lower pricing in Germany. The day of Biogen's announcement, the price of our ADSs dropped by approximately 18%. As a result of entering into the License Agreement, we expect that the market price of our ADSs will become more significantly affected by announcements made by Biogen, over which we have no control. Additionally, cases of progressive multifocal leukoencephalopathy have been reported in patients being treated with Tecfidera®, which could raise safety concerns and harm the market profile of DMF-containing treatments for MS, including Tecfidera®. Similarly, developments relating to other competitors of Biogen and their products could have significant adverse effects on our business prospects and the market price of our ADSs. For example, competitors may offer their products at reduced prices or with discounts or rebates that increase pricing pressure with respect to therapies for the treatment of MS.

Related party transactions may be challenged by tax authorities.

        The jurisdictions in which we conduct or will conduct business, and in particular Denmark, Germany and the U.S., have detailed transfer pricing rules which require that all transactions with related parties be priced using arm's-length pricing principles. The taxation authorities in these jurisdictions could challenge our arm's-length related-party transfer pricing practices. For example, prior to the consummation of the License Agreement with Biogen, Forward Pharma GmbH and Forward Pharma A/S terminated their internal license agreement and agreed that Forward Pharma GmbH should be paid an arm's-length compensation for said termination. International transfer pricing is an area of taxation that depends heavily on the underlying facts and circumstances and generally involves a significant degree of judgment. The Danish and German tax authorities have commenced a joint tax audit of the Group's Danish and German tax returns covering the five-year period ending December 31, 2017. It is uncertain when, or if, a tax audit will commence in the United States. Any audits conducted by the tax authorities will focus on the intercompany recognition of revenue and expense to ensure that such transactions were conducted at arm's length. While Management believes that the tax positions taken with regard to intercompany transactions are in accordance with tax regulations and that appropriate tax provisions have been made in the Company's financial statements, there is no assurance that the Company and/or Forward Pharma GmbH will successfully defend the tax positions taken and that additional taxes, interest or penalties will not be incurred. There is also the risk that the tax authorities could impose additional taxable income or disallow the deductibility of expenses on intercompany cross-border transactions resulting in higher tax obligations in one or more tax jurisdictions. Management's experience has been that the tax authorities can be aggressive in taking positions that would increase taxable income and/or disallow deductible expenses reported. If the local tax authorities are successful in increasing taxable income and/or disallowing the deduction of expenses in one or more localities, it would result in the Group experiencing a higher effective tax rate that could be material. The imposition of additional taxes, interest and/or penalties resulting from a tax audit would negatively impact the Company's financial position, operating results and cash flows and the impact could be material.

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We may need to return the proceeds of a government grant if it is found that we did not fully comply with all terms and conditions

        As part of the project for the development of new or innovative products and procedures in the Free State of Saxony, Germany, the Sächsische Aufbaubank—Förderbank, or SAB, awarded Forward Pharma GmbH a grant, or the Grant, of €3.8 million ($4.4 million based on the December 31, 2018 exchange rate) that subsidized certain product development costs incurred by Forward Pharma GmbH, during the period from March 2007 to December 2008. While the SAB has conducted an audit of the use of proceeds and confirmed that Forward Pharma GmbH had complied with all the terms and conditions of the Grant, the SAB maintains the right to revoke the Grant and demand repayment of the Grant, plus interest, in the event the SAB in the future determines that Forward Pharma GmbH failed to fully comply with all the terms and conditions of the Grant. While we believe that Forward Pharma GmbH is in full compliance with all the terms and conditions of the Grant, there is always a risk that the SAB in the future could disagree and demand repayment of the Grant plus interest. If we were required to repay the Grant, it would have a material negative effect on our financial position and operating results.

If we fail to retain accounting and financial staff with appropriate experience, our ability to maintain the financial controls required of a public company may be adversely affected.

        We currently rely on employed and third-party accounting professionals to assist us with our financial accounting and compliance obligations. If we are unable to retain financial professionals with appropriate experience to maintain our financial control and reporting obligations as a public company, our business may be adversely impacted.

Risks Related to Our Ordinary Shares and ADSs

Holders of our ADSs have different rights than holders of our ordinary shares.

        We have issued to our security holders ADSs and ordinary shares, each of which afford their holders different rights. Currently, only our ADSs are publicly traded (on the Nasdaq Global Select Market). An ADS holder will not be treated as one of our shareholders and will not have shareholder rights. Danish law governs shareholder rights. Our depositary, Bank of New York Mellon, is the holder of the ordinary shares underlying outstanding ADSs. Holders of ADSs only have ADS holder rights. The deposit agreement among us, the depositary and ADS holders sets out ADS holder rights as well as the rights and obligations of the depositary.

The market price of the ADSs may be volatile and may fluctuate due to factors beyond our control.

        The price of equity securities of publicly traded emerging biopharmaceutical and drug discovery and development companies has been highly volatile and is likely to remain highly volatile in the future. The market price of the ADSs may fluctuate significantly due to a variety of factors, including:

    developments in the Opposition Proceeding;

    developments concerning proprietary rights, including patents and litigation matters;

    technological innovations or commercial product introductions by our competitors;

    changes in government regulations;

    public concern relating to the commercial value or safety of Tecfidera®;

    financing or other corporate transactions;

    publication of research reports or comments by securities or industry analysts;

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    general market conditions in the pharmaceutical industry or in the economy as a whole; or

    other events and factors beyond our control.

        In addition, the stock market in general has recently experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of individual companies. Broad market and industry factors may materially affect the market price of companies' equity securities, including ours, regardless of actual operating performance.

        Our ADSs are currently listed for trading on the Nasdaq Global Select Market. Nasdaq Listing Rule 5450(a)(1) requires that we maintain a minimum bid price of our ADSs of $1.00 per ADS for continued listing. Our ADSs in the past have traded below $1.00 and while the recent trading price of our ADSs has been above $1.00, there is no assurance that the trading price will stay above $1.00. We actively monitor the price of our ADSs and will consider available options, including, but not limited to, changing the ADS ratio, to maintain compliance with the continued listing standards of Nasdaq. We cannot assure that we will stay in compliance with Nasdaq's continued listing standards. If we fail to comply with the continued listing standards of the Nasdaq Stock Market, we will not be able to remain listed on that stock exchange, which could have a material adverse effect on the price of our ADSs.

If we fail to maintain the listing of our ADSs with a U.S. national securities exchange, the liquidity of our ADSs could be adversely affected.

        If our ADSs are delisted by Nasdaq, our ADSs may be eligible to trade on the OTC Bulletin Board or another over-the-counter market. Any such alternative would likely result in it being more difficult for us to raise additional capital through the public or private sale of equity securities and for investors to dispose of, or obtain accurate quotations as to the market value of, our ADSs. In addition, there can be no assurance that our ADSs would be eligible for trading on any such alternative exchange or markets.

There may be a lack of liquidity and market for our ordinary shares and ADSs.

        A lack of liquidity in the markets may develop for our ADSs, which would negatively affect the ability of the holders to sell our ADSs or the price at which holders of our ADSs will be able to sell them. Future trading prices of our ADSs will depend on many factors including, among other things, prevailing interest rates, our operating results and the market for similar securities.

        Our ordinary shares underlying the ADSs are not listed on any public securities exchange. Future sales by our existing shareholders could limit the ability of an ADS holder to sell the ADSs at the price and time such holder desires. Any such limited trading market may also increase the price volatility of the ADSs or the ordinary shares underlying the ADSs.

Our ordinary shares are controlled by insiders, who could have significant influence over the outcome of corporate actions requiring board and shareholder approval.

        Our Chairman, Florian Schönharting, and director, Torsten Goesch, indirectly beneficially own approximately 73% of our ordinary shares, of which approximately 54% is beneficially owned by Mr. Schönharting. With such concentrated control, Messrs. Schönharting and Goesch, acting individually or in concert, have significant influence over the outcome of corporate actions requiring board and shareholder approval, including the election of directors, certain decisions relating to our capital structure, amendments to our Articles of Association, and the approval of mergers and other significant corporate actions or transactions. The interests of these insiders may not always coincide with our interests or the interests of our other shareholders or holders of the ADSs and those other shareholders and holders of the ADSs may have no effective voice in the management of the Company.

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Certain of our principal shareholders as well as NB FP Investment II K/S have entered into a shareholders' agreement under which they have agreed to take certain actions that may be adverse to the interests of other shareholders and holders of ADSs.

        Certain of our principal shareholders as well as NB FP Investment II K/S have entered into a shareholders' agreement, under which they have agreed to take certain actions, including with respect to the ability of certain principal shareholders to nominate directors to the board of directors and the obligation to increase share capital in certain circumstances. The shareholders that are party to the shareholders' agreement control a majority of the voting power of our ordinary shares, and the actions taken under or pursuant to the shareholders' agreement may conflict with the interests of other shareholders and holders of ADSs.

ADS holders may not be able to exercise their right to vote the ordinary shares underlying the ADSs.

        Holders of ADSs may exercise voting rights with respect to the ordinary shares represented by the ADSs only in accordance with the provisions of the deposit agreement and not as direct shareholders in the Company. The deposit agreement provides that, upon receipt of notice of any meeting of holders of our ordinary shares, the depositary will fix a record date for the determination of ADS holders who shall be entitled to give instructions for the exercise of voting rights. Upon timely receipt of notice from us, if we so request, the depositary shall distribute to the holders as of the record date (1) the notice of the meeting or solicitation of consent or proxy sent by us and (2) a statement as to the manner in which instructions may be given by the holders. However, we may not request the depositary to distribute this information, which could effectively limit the ability of ADS holders to direct the voting of the ordinary shares underlying their ADSs.

        ADS holders may instruct the depositary of their ADSs to vote the ordinary shares underlying their ADSs. Otherwise, ADS holders will not be able to exercise their right to vote, unless they withdraw the ordinary shares underlying the ADSs. However, ADS holders may not know about the meeting far enough in advance to withdraw those ordinary shares. If we ask for ADS holders' instructions, the depositary, upon timely notice from us, will notify ADS holders of the upcoming vote and arrange to deliver our voting materials to ADS holders. We cannot guarantee ADS holders that they will receive the voting materials in time to ensure that they can instruct the depositary to vote the ordinary shares underlying the ADSs held by them or to withdraw the ordinary shares underlying the ADSs so that the ADS holder can vote them. If the depositary does not receive timely voting instructions from the ADS holder, it may give a proxy to a person designated by us to vote the ordinary shares underlying the ADSs. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for the manner of carrying out voting instructions. This means that ADS holders may not be able to exercise any right to vote, and there may be nothing ADS holders can do if the ordinary shares underlying their ADSs are not voted as requested.

ADS holders' rights to participate in any future preferential subscription rights or to elect to receive dividends in shares may be limited, which may cause dilution to their holdings.

        According to Danish law, if we issue additional securities for cash, current shareholders will have preferential subscription rights for these securities on a pro rata basis unless (i) they waive those rights at a meeting of our shareholders (if issued at market value, by at least two-thirds of the votes cast and the share capital represented at such meeting), (ii) such rights are waived individually by each shareholder, or (iii) the additional securities are issued pursuant to an authorization granted to our board of directors including a waiver of preemptive rights. However, our ADS holders in the United States will not be entitled to exercise or sell such rights related to the ordinary shares which they represent unless we register the rights and the securities to which the rights relate under the Securities Act of 1933, as amended, or the Securities Act, or an exemption from the registration requirements is available. In addition, the deposit agreement provides that the depositary will not make rights available

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to our ADS holders unless the distribution to ADS holders of both the rights and any related securities are either registered under the Securities Act or exempted from registration under the Securities Act. Further, if we offer holders of our ordinary shares the option to receive dividends in either cash or shares, under the deposit agreement the depositary may require satisfactory assurances from us that extending the offer to holders of ADSs does not require registration of any securities under the Securities Act before making the option available to holders of ADSs. We are under no obligation to file a registration statement with respect to any such rights or securities or to endeavor to cause such a registration statement to be declared effective. Moreover, we may not be able to establish an exemption from registration under the Securities Act. Accordingly, ADS holders may be unable to participate in our rights offerings or to elect to receive dividends in shares and may experience dilution in their holdings. In addition, if the depositary is unable to sell rights that are not exercised or not distributed or if the sale is not lawful or reasonably practicable, it will allow the rights to lapse, in which case our ADS holders will receive no value for these rights.

ADS holders may be subject to limitations on the transfer of their ADSs and the withdrawal of the underlying ordinary shares.

        ADSs, which may be evidenced by American Depositary Receipts, or ADRs, are transferable on the books of the depositary. However, the depositary may close its books at any time or from time to time when it deems expedient in connection with the performance of its duties. The depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary think it is advisable to do so because of any requirement of law, government or governmental body, or under any provision of the deposit agreement, or for any other reason subject to each ADS holder's right to cancel such holder's ADSs and withdraw the underlying ordinary shares. Temporary delays in the cancellation of ADSs and withdrawal of the underlying ordinary shares may arise because the depositary has closed its transfer books or we have closed our transfer books, the transfer of ordinary shares is blocked to permit voting at a shareholders' meeting or we are paying a dividend on our ordinary shares. In addition, ADS holders may not be able to cancel their ADSs and withdraw the underlying ordinary shares when they owe money for fees, taxes and similar charges and when it is necessary to prohibit withdrawals in order to comply with any laws or governmental regulations that apply to ADSs or to the withdrawal of ordinary shares or other deposited securities.

Future sales, or the perception of future sales, of a substantial number of our ordinary shares or ADSs could adversely affect the price of the ADSs, and actual sales of our equity will dilute shareholders and ADS holders.

        Future sales of a substantial number of our ordinary shares or ADSs, or the perception that such sales will occur, could cause a decline in the market price of the ADSs. If shareholders sell substantial amounts of shares or ADSs in the public market, or the market perceives that such sales may occur, the market price of the ADSs and our ability to raise capital through an issue of equity securities in the future could be adversely affected. We have entered into a registration rights agreement pursuant to which we have agreed under certain circumstances to file a registration statement to register the resale of the shares held by certain of our existing shareholders, as well as to cooperate in certain public offerings of such shares. In addition, we have registered ordinary shares and ADSs that we may issue under our 2014 Omnibus Equity Incentive Plan and may register shares under other equity compensation plans. As a result, these ordinary shares can be freely sold in the public market or otherwise upon issuance, subject to volume limitations applicable to affiliates and lock-up agreements.

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We do not expect to pay dividends or other shareholder distributions in the foreseeable future.

        While we distributed the proceeds from the Capital Reduction (as defined below) to our ADS holders and shareholders in September 2017, we do not expect to pay dividends or other shareholder distributions in the foreseeable future. Even if future operations lead to significant levels of distributable profits, any earnings may be reinvested in our business and dividends or other shareholder distributions, if any, may not be paid until we have an established revenue stream to support such continuing dividends or other shareholder distributions. Payment of future dividends or other shareholder distributions, if at all, will effectively be at the discretion of our board of directors, after taking into account various factors including our business prospects, cash requirements and financial performance. In addition, payment of future dividends may be made only if our shareholders' equity exceeds the sum of share capital plus the reserves required to be maintained by the License Agreement, Danish law or by our Articles of Association. Accordingly, investors cannot rely on income from dividends or other shareholder distributions and any returns on an investment in the ADSs may depend entirely upon any future appreciation in the price of the ADSs.

We were an emerging growth company during the period covered by this Annual Report, and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies will make our ordinary shares less attractive to investors.

        We qualified as an "emerging growth company," as defined in the Jumpstart Our Business Startups Act, or the JOBS Act, for the fiscal year ended December 31, 2018. As an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find the ADSs less attractive because we have relied on these exemptions. If some investors find the ADSs less attractive as a result, there may be a less active trading market for the ADSs and the price of the ADSs may be more volatile.

We are a foreign private issuer and, as a result, we will not be subject to U.S. proxy rules and will be subject to Exchange Act reporting obligations that, to some extent, are more lenient and less frequent than those of a U.S. domestic public company.

        We will report under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as a non-U.S. company with foreign private issuer status. Because we qualify as a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies, including (i) the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act; (ii) the sections of the Exchange Act requiring insiders to file public reports of their share ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and (iii) the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial and other specified information, or current reports on Form 8-K, upon the occurrence of specified significant events. In addition, foreign private issuers are not required to file their annual report on Form 20-F until 120 days after the end of each fiscal year, while U.S. domestic issuers that are accelerated filers are required to file their annual report on Form 10-K within 75 days after the end of each fiscal year. Foreign private issuers are also exempt from Regulation Fair Disclosure, aimed at preventing issuers from making selective disclosures of material information. As a result of the above, our shareholders and ADS holders may not have the same protections afforded to shareholders of companies that are not foreign private issuers.

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We may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses.

        The determination of foreign private issuer status is made annually on the last business day of an issuer's most recently completed second fiscal quarter. Accordingly, we will next make a determination with respect to our foreign private issuer status on June 30, 2019. There is a risk that we will lose our foreign private issuer status in the future.

        We would lose our foreign private issuer status if, for example, more than 50% of our assets are located in the U.S. and we continue to fail to meet additional requirements necessary to maintain our foreign private issuer status. As of December 31, 2018, approximately $321,000 of our assets were located in the U.S., although this may change if we expand our operations in the U.S. The regulatory and compliance costs to us under U.S. securities laws as a U.S. domestic issuer may be significantly greater than the costs we incur as a foreign private issuer. If we are not a foreign private issuer, we will be required to file periodic reports and registration statements on U.S. domestic issuer forms with the SEC, which are more detailed and extensive in certain respects than the forms available to a foreign private issuer. We would be required under current SEC rules to prepare our financial statements in accordance with U.S. GAAP and modify certain of our policies to comply with corporate governance practices associated with U.S. domestic issuers. Such conversion and modifications would involve additional costs. In addition, we may lose our ability to rely upon exemptions from certain corporate governance requirements on U.S. stock exchanges that are available to foreign private issuers, which could also increase our costs.

If we fail to establish and maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a result, shareholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of the ADSs.

        Effective internal control over financial reporting is necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, is designed to detect and/or prevent errors and fraud. Any failure to maintain current controls or implement, on a timely basis, new or improved controls, or difficulties encountered in their implementation, could cause us to fail to meet our reporting obligations. In addition, any testing by us conducted in connection with Section 404 of the Sarbanes-Oxley Act of 2002, or work performed by our independent registered accounting firm as part of their audit of our financial statements may reveal deficiencies in our internal control over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our financial statements or identify other areas for further attention or improvement. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of the ADSs.

        We are required to disclose changes made in our internal control over financial reporting and procedures and our management is required to assess the effectiveness of these controls annually. An independent assessment of the effectiveness of our internal control over financial reporting could detect problems that our management's assessment might not. Undetected material weaknesses in our internal control over financial reporting could lead to financial statement restatements and require us to incur the expense of remediation and could adversely affect the price of our ADSs.

Failure to maintain effective internal control over financial reporting could result in material misstatements in our financial statements which could negatively impact the price of our ADSs.

        In connection with the preparation of our consolidated financial statements for each of the years ended December 31, 2018 and 2017, we carried out an evaluation of the effectiveness of our internal controls over financial reporting and concluded that there was a material weakness as described in

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"Item 15. Controls and Procedures" herein. We cannot assure you that our internal control over financial reporting will be effective in the future or that additional material weakness will not be discovered.

        As a consequence of this material weakness, management concluded that our internal control over financial reporting and, consequently, our disclosure controls and procedures, were not effective as of December 31, 2018 and 2017. Our management believes that the consolidated financial statements included in this annual report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.

        We have taken actions, or Actions, to remediate the causes of the material weakness; However, since the material weakness was associated with specific transactions that did not occur subsequent to implementing the Actions, there has been no opportunities for us to monitor and test that the Actions taken were sufficient to mitigate the material weakness. The lack of objective evidence to support that the material weakness has been remediated, necessitates that we continue to report that the material weakness has not been remediated. Failure to effectively remediate the causes of this material weakness or establish and maintain effective internal control over financial reporting could result in material misstatements in our financial statements or a failure to meet our reporting obligations. This, in turn, could negatively impact the Company's financial position, operating results and cash flows, the market price of our ADSs and our ability to remain listed on the Nasdaq Global Select Market.

Failure to comply with Section 404 of the Sarbanes-Oxley Act could negatively affect our business including the price of our ADSs.

        Under the Sarbanes-Oxley Act, we are required to maintain effective disclosure controls and procedures and internal control over financial reporting and to make a formal assessment of the effectiveness of our internal control over financial reporting. We concluded that our disclosure controls and procedures and internal controls over financial reporting were not effective as of December 31, 2018 and 2017, and there is no assurance that we will be able remediate the material weakness and maintain adequate disclosure controls and procedures and internal controls in the future. We may experience situations in the future where our evaluation and testing processes required by Section 404 of the Sarbanes-Oxley Act, or work performed by independent registered accountants, may identify one or more material weaknesses in our internal controls over financial reporting that will result in our inability to assert that our internal control over financial reporting is effective. If we cannot maintain adequate internal controls over financial reporting that provide reasonable assurance of the reliability of the financial reporting and preparation of our financial statements for external use, we could suffer harm to our reputation, fail to meet our public reporting requirements by providing timely and accurate financial statements, be required to restate our prior period financial statements, or we may be unable to comply with applicable stock exchange listing requirements, any of which could adversely affect the price of our ADSs.

If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research about our business, the price of the ADSs and our trading volume could decline.

        The trading market for the ADSs depends in part on the research and reports that securities or industry analysts publish about us or our business. Presently, the Company is not covered by any analysts. If we are covered by securities or industry analysts in the future and such analysts downgrade our ADSs or publish inaccurate or unfavorable research about our business, the price of our ADSs would likely decline. If one or more such analysts ceased coverage of our company or failed to publish reports on us regularly, demand for the ADSs could decrease, which might cause the price of our ADSs and trading volume to decline.

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We believe that we were classified as a passive foreign investment company, or a PFIC, from 2014 to 2018 and may be classified as a PFIC in future years. If we are a PFIC for any taxable year, this could result in adverse U.S. federal income tax consequences to U.S. Holders of our ADSs.

        Under the U.S. Internal Revenue Code of 1986, as amended, or the Code, we will be a PFIC for any taxable year in which, after the application of certain "look-through" rules with respect to subsidiaries, either (i) 75% or more of our gross income consists of "passive income," or (ii) 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." Passive income generally includes interest, dividends, rents, certain non-active royalties and capital gains. We believe that we were a PFIC for each of the five years in the period ended December 31, 2018, and may be classified as a PFIC in future years. Whether we will be a PFIC in any year depends on the composition of our income and assets, and the relative fair market value of our assets from time to time, which we expect may vary substantially over time. Because (i) we currently own a substantial amount of passive assets, including cash, and (ii) the value of our assets, including our intangible assets, that generate non-passive income for PFIC purposes, is uncertain and may vary substantially over time, it is uncertain whether we will be or will not be a PFIC in future years.

        If we are a PFIC for any taxable year during which a U.S. Holder, as defined below, holds ADSs, a U.S. Holder may be subject to adverse tax consequences, including (i) if a mark-to-market election or a qualified electing fund, or QEF, election has not been made with respect to its ADSs, a U.S. Holder may incur significant additional U.S. federal income taxes on income resulting from distributions on, or any gain from the disposition of, such ADSs, as such income generally would be allocated over the U.S. Holder's holding period for its ADSs and would be subject to tax at the highest rates of U.S. federal income taxation in effect for such years, with an interest charge then imposed on the resulting taxes in respect of such income, and (ii) dividends paid by us would not be eligible for preferential individual rates of U.S. federal income tax. In addition, U.S. Holders that own an interest in a PFIC are required to comply with certain reporting requirements.

        A U.S. Holder may in certain circumstances mitigate adverse tax consequences of the PFIC rules by filing an election to treat the PFIC as a QEF, or, if shares of the PFIC are "marketable stock" for purposes of the PFIC rules, by making a mark-to-market election with respect to the shares of the PFIC. However, we are not obligated to comply with the reporting requirements necessary to permit U.S. Holders to elect to treat us as a QEF and accordingly U.S. Holders may not be able to make QEF elections to avoid the adverse tax consequences of the PFIC rules. Furthermore, if a U.S. Holder were able to make a mark-to-market election with respect to its ADSs, the U.S. Holder would be required to include annually in its U.S. federal taxable income an amount reflecting any year-end increase in the value of its ADSs (which may not be matched by cash distributions). Mark-to-market elections will not be available for any of our subsidiaries that are also PFICs. For further discussion of the adverse U.S. federal income tax consequences of our classification as a PFIC, see "Item 10. Additional Information—Taxation—U.S. Federal Income Tax Considerations for U.S. Holders."

Risks Related to Danish Law and Our Operations in Denmark

Preemptive rights may not be available to non-Danish shareholders, and any inability of non-Danish shareholders to exercise preemptive rights in respect of shares issued in any offering by us will cause their proportionate interests to be diluted.

        Under Danish law, existing shareholders will have preemptive rights to participate on the basis of their existing share ownership in the issuance of any new shares for cash consideration, unless those rights are waived by a resolution of the shareholders or the shares are issued pursuant to an authorization granted to the board of directors including a waiver of preemptive rights. The preemptive rights of the shareholders may be waived by two-thirds of the votes cast and of the share capital

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represented at the general meeting if the share capital increase is made at market price, or, if the share capital increase is made at below market price, by nine-tenths of the votes cast and of the share capital represented at the general meeting. Certain non-Danish shareholders may not be able to exercise preemptive rights for their shares due to restrictions included in securities laws of certain countries, including those applicable in the U.S. To the extent that shareholders are not able to exercise their preemptive rights in respect of the shares in any offering by us, such shareholders' proportional interests will be diluted.

We are a Danish company with limited liability. The rights of our shareholders may be different from the rights of shareholders in companies governed by the laws of U.S. jurisdictions.

        We are a Danish company with limited liability. Our corporate affairs are governed by our Articles of Association and by the laws governing companies incorporated in Denmark. The rights of shareholders and the responsibilities of members of our board of directors may be different from the rights and obligations of shareholders and boards of directors in companies governed by the laws of U.S. jurisdictions. In the performance of its duties, our board is required by Danish law to consider the interests of our Company, its shareholders, its employees and other stakeholders, in all cases with due observation of the principles of reasonableness and fairness. It is possible that some of these parties will have interests that are different from, or in addition to, the interests of our shareholders.

We are, as a foreign private issuer, not obligated to and do not comply with all the corporate governance requirements of Nasdaq. This may affect the rights of our shareholders.

        We are a foreign private issuer for purposes of U.S. federal securities laws. As a result, in accordance with the listing requirements of Nasdaq, we rely on home country governance requirements and certain exemptions thereunder rather than relying on the corporate governance requirements of Nasdaq. In accordance with Danish law and generally accepted business practices, our Articles of Association do not provide quorum requirements generally applicable to general meetings of shareholders. To this extent, our practice varies from the requirement of Nasdaq Listing Rule 5620(c), which requires an issuer to provide in its bylaws for a generally applicable quorum, and that such quorum may not be less than one-third of the outstanding voting shares. Although we must provide shareholders with an agenda and other relevant documents in advance of a general meeting of shareholders, Danish law does not have an applicable regulatory regime for the solicitation of proxies, and thus our practice will vary from the requirement of Nasdaq Listing Rule 5620(b). Accordingly, our shareholders may not have the same protections afforded to shareholders of companies that are subject to these Nasdaq requirements.

        As a Danish company we must comply with the Danish Companies Act, or DCA. The DCA contains binding provisions for the board of directors, shareholders and general meetings of shareholders; and financial reporting, auditor, disclosure, compliance and enforcement standards. Certain provisions apply to our board of directors (e.g., in relation to role, composition, conflicts of interest and independency requirements and remuneration), shareholders and the general meeting of shareholders (e.g., regarding our obligations to provide information to our shareholders). Further, certain sections of the DCA only apply to Danish companies listed on a regulated market within the European Economic Area, or EEA, and accordingly do not apply to us. This may affect the rights of our shareholders.

We have historically filed our Danish tax returns on a standalone basis; however, due to certain changes to our ownership structure made at the start of 2013, as of January 2013, we began to file our Danish tax returns as part of joint taxation schemes.

        During the period January 19, 2013 to December 31, 2015, we were subject to a Danish joint taxation scheme with Tech Growth Invest ApS and entities under Tech Growth Invest ApS's control,

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collectively referred to hereafter as Tech Growth. From the establishment of Forward Pharma FA ApS on December 3, 2015, Forward Pharma FA ApS was part of the joint taxation scheme with Tech Growth. A subsidiary of Tech Growth Invest ApS experienced a change in ownership on December 31, 2015. The effect of the change in ownership resulted in the year ended December 31, 2015 being the final year that the Company and Forward Pharma FA ApS were part of the joint taxation group with Tech Growth. On January 1, 2016, the Company and Forward Pharma FA ApS became members of a new Danish joint taxation group with NB FP Investment General Partner ApS (collectively the "2016 Tax Group"). Upon their inception during 2017, Forward Pharma Operations ApS and FWP IP ApS (through the date of the sale of FWP IP ApS (November 22, 2017) to FWP HoldCo ApS, which is owned and controlled by FWP Fonden) became members of the 2016 Tax Group. The Company remains liable with other entities in the joint taxation group with Tech Growth Invest ApS for Tech Growth's Danish tax liabilities that can be allocated to the period January 19, 2013 to December 31, 2015 and the Company is liable with other entities in the 2016 Tax Group for Danish tax liabilities that can be allocated to the three-year period ended December 31, 2018.

        All members of a Danish tax group are jointly and severally liable for the group's Danish tax liabilities. However, Danish law requires taxing authorities to look primarily to the administration company and its wholly owned entities to satisfy Danish tax liabilities and to look to partially owned entities (such as us) only on a secondary basis. While we do not believe Tech Growth, NB FP Investment General Partner ApS or any other member of the joint taxation scheme has any material Danish tax liabilities, there can be no assurance that it does not have any such material liabilities, that it will not incur such material liabilities in the future, or that it will fulfill any such obligations. If Tech Growth Invest ApS, NB FP Investment General Partner ApS or any other entity that is a member of any of the joint taxation groups has any material Danish tax liabilities that are not satisfied by them or if they, while being members of the respective joint taxation group, incur any such liabilities in the future, we may be responsible for the payment of such taxes, which could have an adverse effect on our results of operations.

U.S. federal and/or state income tax may apply to us in the future.

        We have taken the position that we are not currently subject to U.S. federal or state income tax. Our Vice President, Finance and Controller, Thomas Carbone, is employed by Forward Pharma USA, LLC. Pursuant to the U.S. tax laws and the income tax treaty between Denmark and the U.S., we will not be subject to U.S. tax in connection with any of such employees' activities unless there is a U.S. trade or business being conducted in connection with a permanent establishment. While we have taken the position that the functions such employees fulfill do not give rise to U.S. tax liability for us, there can be no assurance that the U.S. tax authorities will agree with such position. If the U.S. Internal Revenue Service disagrees with our position, and/or if the functions of such employees are expanded in the future, and/or we engage additional personnel located in the U.S. whose functions are sufficiently broad, we may be or may become subject to U.S. federal and/or state income tax, which might have a material adverse effect on us and our results of operations.

Claims of U.S. civil liabilities may not be enforceable against us.

        Forward Pharma A/S is incorporated under the laws of Denmark, and three of its subsidiaries, Forward Pharma Operations ApS, Forward Pharma GmbH and Forward Pharma FA ApS, are incorporated under the laws of Denmark, Germany and Denmark, respectively. Substantially all of our assets are located outside the U.S. On a combined basis, the majority of our directors and officers reside outside the U.S. As a result, it may not be possible for investors to effect service of process within the U.S. upon such persons or to enforce judgments against them or us in U.S. courts, including judgments predicated upon the civil liability provisions of the federal securities laws of the U.S.

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        The U.S. does not have a treaty with Denmark or Germany providing for reciprocal recognition and enforcement of judgments, other than arbitration awards, in civil and commercial matters. Accordingly, a final judgment for the payment of money rendered by a U.S. court based on civil liability will not be directly enforceable in Denmark or Germany. However, if the party in whose favor such final judgment is rendered brings a new lawsuit in a competent court in Denmark, that party may submit to the Danish court the final judgment that has been rendered in the U.S. A judgment by a federal or state court in the U.S. will neither be recognized nor enforced by a Danish court, but such judgment may serve as evidence in a similar action in such court. In addition, the final judgment of a U.S. court may be recognized and enforced in Germany in compliance with certain requirements including petitioning a German court to recognize and declare such judgment enforceable. Also, general reciprocity in respect of the mutual recognition of judgments between Germany and the U.S. court that rendered the concerned judgment must be guaranteed, and the judgment must not violate German (international) public policy.

ITEM 4.    INFORMATION ON THE COMPANY

A. History and Development of the Company

        Forward Pharma A/S is a Danish biopharmaceutical company that until recently was actively developing FP187®, a proprietary formulation of DMF, for the treatment of MS and other inflammatory and neurological indications. DMF is an immunomodulator that can be used as a therapeutic to improve the health of patients with MS and immune disorders.

        On February 1, 2017, our License Agreement with Biogen became effective. Pursuant to the License Agreement, Biogen paid us a non-refundable cash fee of $1.25 billion. The License Agreement provided Biogen with a co-exclusive license in the U.S. and an exclusive license outside the U.S., to the Company's intellectual property.

        Under the terms of the License Agreement, we effected a corporate restructuring in 2017. For more, see "—B. Business Overview—Our Company—Restructuring."

        On March 25, 2019, we received notice from Biogen of their exercise of the option to purchase the intellectual property in the U.S. associated with the Company pursuant to the License Agreement. We and Biogen have consummated the assignment of the U.S. intellectual property to Biogen upon the execution of assignment agreements and the payment of a nominal amount by Biogen to FWP IP ApS, and Biogen has assumed ownership and responsibility for the assigned U.S. intellectual property. In addition, we are no longer able to develop or commercialize any therapy for the treatment of any human disease or condition using DMF, including FP187®. For more, see "—B. Business Overview—Our Company—License Agreement with Biogen." As discussed throughout this Annual Report, we have permanently discontinued our development of DMF formulations, including FP187®.

        We are a Danish public limited liability company founded in 2005. Our principal executive offices are located at Østergade 24A, 1st Floor, 1100 Copenhagen K, Denmark. Our telephone number at this address is +45 33 44 42 42.

        In 2004, Aditech, controlled by Nordic Biotech General Partner ApS (an affiliate of one of our largest shareholders), assessed the potential for DMF to become a significant global product. Aditech specifically focused on the development of an improved DMF formulation, with the goal of simplifying the product compared to then-existing DMF-containing treatments and limiting the side effects typically associated with such treatments.

        We were founded for the purpose of developing such an improved DMF formulation while protecting, defending and enforcing a patent family Aditech filed relating to, among other things, formulations and dosing regimens of DMF. In 2010, we acquired this patent family from Aditech. Under our agreement with Aditech, we obtained, among other things, Aditech's patents and associated

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know-how related to formulations and dosing regimens of DMF. For more, see "—Material Agreements—Aditech Agreements."

        We have not made any significant capital expenditures or divestures during the last three financial years, and do not have any significant capital expenditures or divestitures currently in progress.

B. Business Overview

Our Company

        We have focused on DMF's potential as an immunomodulating drug to improve the health of patients with immune disorders for over 10 years, during which time we assembled a significant intellectual property portfolio. As a result of entering into the License Agreement, combined with the recently announced unsuccessful outcome in the Interference Proceeding and Biogen's purchase of the intellectual property in the U.S. associated with the Company, we have permanently discontinued our development of a DMF formulation, except for maintaining our files and records for previously completed research and development work. We completed an organizational realignment in 2017 to focus on the deliverables under the License Agreement and reduce operating expenses.

        On August 2, 2017, the Company's shareholders approved a 10 for 1 share split and a capital reduction of EUR 917.7 million, or $1.1 billion, which we refer to as the Capital Reduction. The Capital Reduction was effected by a distribution to shareholders in September 2017, or the Shareholder Distribution. The Capital Reduction was executed through the annulment of 80% of the ordinary shares outstanding post-Share Split. Following the Share Split and the Capital Reduction, each ADS was modified to represent two ordinary shares with a nominal value of 0.01 DKK each. Except if disclosed otherwise, all share and per share information contained this Annual Report as well as the accompanying financial statements has been adjusted to reflect the Share Split as if it had occurred at the beginning of the earliest period presented. See Notes 3.5 and 5.1 in the accompanying financial statements for additional information.

    License Agreement with Biogen

        On February 1, 2017, our License Agreement with Biogen and certain additional parties became effective. The License Agreement provided Biogen with a co-exclusive license in the U.S., and an exclusive license outside the U.S., to the Company's intellectual property, effective as of February 9, 2017.

        In accordance with the License Agreement, Biogen paid the Company the Non-refundable Fee of $1.25 billion and could be obligated to pay the Company royalties in the future subject to the outcome of certain matters discussed below.

        The License Agreement did not resolve the Interference Proceeding or the Opposition Proceeding. The Company and Biogen entered into the License Agreement with the intention to permit the PTAB and the Federal Circuit, as applicable, and the EPO, and the Technical Board of Appeal and the Enlarged Board of Appeal, as applicable, to make final determinations in the proceedings before them.

        Because the Company was unsuccessful in the Interference Proceeding after all appeals, pursuant to the License Agreement, Biogen had the option to elect to obtain an exclusive license to the intellectual property in the U.S. associated with the Company or to purchase the intellectual property in the U.S. associated with the Company for a nominal price.

        On March 25, 2019, we received notice from Biogen of their exercise of the option to purchase the intellectual property in the U.S. associated with the Company pursuant to the License Agreement. We and Biogen have consummated the assignment of the U.S. intellectual property to Biogen upon the execution of assignment agreements and the payment of a nominal amount by Biogen to FWP IP ApS,

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and Biogen has assumed ownership and responsibility for the assigned U.S. intellectual property. In addition, we are no longer able to develop or commercialize any therapy for the treatment of any human disease or condition using DMF, including FP187®. Because we were unsuccessful in the Interference Proceeding after all appeals, the Company will not be entitled to future royalties on Biogen's net sales in the U.S. Therefore, sources of revenue derived from customers in the U.S., including product sales of any DMF formulation, are not expected.

        If the Company is successful in the Opposition Proceeding (i.e., the Company obtains, as a result of the Opposition Proceeding, and any appeals therefrom, a patent with a claim covering oral treatment of MS with 480 mg per day of DMF), it will be eligible beginning on January 1, 2021 to collect a 10% royalty (increasing to 20% from January 1, 2029) until the earlier of the expiration or invalidation of the patents defined in the License Agreement, on a country-by-country basis on Biogen's net sales outside the U.S. of DMF-containing products indicated for treating MS that, but for the rights granted under the License Agreement, would infringe a Company patent, provided that other conditions of the License Agreement are satisfied within the time period set forth in the License Agreement. Among the conditions that need to be satisfied for any royalty to be payable by Biogen to the Company is the absence of generic entry in a particular country having a particular impact as defined in the License Agreement. If the Company is unsuccessful in the Opposition Proceeding, the Company would not be entitled to future royalties on Biogen's net sales outside the U.S.

    Restructuring

        Under the terms of the License Agreement, the Company restructured its operations on June 30, 2017 whereby the Company transferred to Forward Pharma Operations ApS (a newly created and wholly owned Danish limited liability company) certain assets and liabilities, including the legal and beneficial rights, title and interest to defined intellectual property, and Forward Pharma Operations ApS transferred the intellectual property to FWP IP ApS (a newly created and wholly owned Danish limited liability company). The final step in the restructuring was completed on November 22, 2017 when the capital stock of FWP IP ApS was sold to FWP HoldCo ApS, a newly formed Danish limited liability company that is owned and controlled by FWP Fonden, a newly formed independent Danish foundation. FWP HoldCo ApS paid Forward Pharma Operations ApS 336,000 DKK ($54,000 based on the December 31, 2017 exchange rate) as consideration for the capital stock of FWP IP ApS. FWP Fonden's three-member board includes one independent director and one director appointed from each of the Company and Biogen. Accordingly, the Company does not control FWP Fonden. During the year ended December 31, 2017, the Company contributed 5 million DKK ($805,000 based on the December 31, 2017 exchange rate) as the initial capitalization of FWP Fonden and is obligated to pay 100,000 DKK ($15,000 based on the December 31, 2018 exchange rate) annually to FWP IP ApS in exchange for FWP IP ApS agreeing to hold, prosecute and maintain the transferred intellectual property, which now consists only of the non-U.S. intellectual property associated with the Company, in accordance with certain agreements. In connection with the initial capitalization of FWP Fonden, the Company's annual funding obligations to FWP IP ApS and the sale of the capital stock of FWP IP ApS to FWP HoldCo ApS, the Company incurred a net expense of $759,000 that is included in general and administrative expenses for the year ended December 31, 2017. In the future, the Company is only obligated to remit the annual funding of 100,000 DKK to FWP IP ApS through the last to expire, or invalidation of, the licensed patents underlying the transferred intellectual property; however, the Company's obligation to remit the annual funding would be discontinued earlier if certain events, as defined in the License Agreement, occur. In addition to its annual funding obligations, the License Agreement requires the Company to fund the cost to file, prosecute and maintain European patent EP 2801355 (until the date on which the Opposition Proceeding has reached a final, unappealable conclusion) and to participate in an intellectual property advisory committee. The Company was required to fund the cost to file, prosecute and maintain the U.S. patents associated with the Company prior to Biogen purchasing such intellectual property.

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    Key Intellectual Property Involved in Interference Proceeding

        One of the key patent applications previously associated with the Company in the U.S. is the '871 application. The '871 application claims the use of 480 mg of DMF per day as a treatment for MS. On April 13, 2015, an administrative patent judge at the PTAB, declared an interference between our '871 application and Biogen's '514 patent, which has claims that also cover a method of treating MS using about a 480 mg daily dose of DMF. The oral argument for the Interference Proceeding took place on November 30, 2016. On March 31, 2017, the PTAB issued a decision in the Interference Proceeding in favor of Biogen. The PTAB ruled that the claims of the '871 application are not patentable due to a lack of adequate written description. The Company appealed the decision to the Federal Circuit. The Federal Circuit appeal was concluded in Biogen's favor on January 9, 2019, thereby ending the Interference, and resulting in the termination of the prosecution of the '871 application, as all options for appeal according to the License Agreement have been exhausted.

    Key Intellectual Property Involved in Opposition Proceeding

        European patent EP2801355, or the EP'355 patent, covers, among other things, the treatment of MS with 480 mg per day of DMF using pH-controlled compositions that have an enteric coating. The EPO completed their review of this application and issued this patent on May 20, 2015. This patent was opposed by several parties in an opposition proceeding, which is a special proceeding heard by the EPO where one or more third parties request that the patent, or a part thereof, be revoked. On January 29, 2018, the European Patent Office, or EPO, revoked the EP'355 patent on one of the alleged grounds of invalidity following the oral hearing in the Opposition Proceeding. On March 22, 2018, the Opposition Division issued its written decision with detailed reasons for the decision. On May 7, 2018, the Company submitted its notice of appeal, and on August 1, 2018, the Company submitted detailed grounds for the appeal. The duration of the appeal process is estimated to be approximately three years; however, delays can occur that would extend the estimated duration of the appeal process.

        There can be no assurance that we will be successful in the Opposition Proceeding after any appeals. If the Company is unsuccessful in the Opposition Proceeding, the Company would not be entitled to future royalties on Biogen's net sales outside the U.S. If the Company prevails in the appeal against the decision of January 29, 2018, we expect the Technical Board of Appeal to remand the case to the Opposition Division, in order for the Opposition Division to resolve the remaining elements of the original opposition. While the appeal and any remanded issues have not been resolved, the decision of the Opposition Division to revoke the EP'355 patent is "frozen." Assuming that the patent is ultimately maintained following the final conclusion of the Opposition Proceeding, including any appeals, the EP'355 patent has a maximum duration until October 2025 (subject to possible SPC extension—see below).

    Our Product Development Strategy

        Historically, the Company's product development efforts were focused on advancing unique formulations and dosing regimens of DMF, an immunomodulator, as a therapeutic to improve the health of patients with immune disorders, including psoriasis and MS. Prior to entering into the License Agreement, we were actively developing FP187 ®, a proprietary formulation of DMF, for the treatment of MS patients. On March 1, 2017, we announced plans to complete the research and development work that was in process prior to the effective date of the License Agreement and pursue an organizational realignment to reduce personnel and operating expenses, including the suspension of further development of FP187®. This organizational realignment was substantially completed by September 30, 2017. We do not currently have any commercialized products on the market nor under development. As a result of entering into the License Agreement, combined with the recently announced unsuccessful outcome in the Interference Proceeding and Biogen's purchase of the

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intellectual property in the U.S. associated with the Company, our research and development efforts involving DMF products, including FP187®, have been permanently discontinued.

    Our Intellectual Property Strategy

        We believe the patents and patent applications associated with the Company are valuable assets. To the extent required or permitted by the License Agreement, we intend to protect, defend and/or enforce the intellectual property associated with the Company.

        The intellectual property associated with the Company includes patents and patent applications in Europe and certain countries in Asia. We divide the intellectual property portfolio associated with the Company primarily into two patent families, which we refer to as the "Core Composition Patent" family and the "Erosion Matrix Patent" family.

        The Core Composition Patent family, based on international application PCT/DK2005/000648, filed on October 7, 2005, with priority to October 8, 2004, discloses, among other things, formulations and dosing regimens of DMF, including the use of a dose of 480 mg of DMF per day to treat MS. As described under "Risk Factors" and elsewhere in this Annual Report, whether the Core Composition Patent family discloses the use of a dose of 480 mg of DMF per day to treat MS has been challenged in some European Opposition Proceedings.

        The Erosion Matrix Patent family, based on international application PCT/EP2010/050172, filed on January 8, 2010, with priority to January 9, 2009, discloses, among other things, delayed and slow-release formulations of DMF in FP187® as used in our set of Phase 1 clinical trials and a Phase 2 clinical trial.

        The following table highlights key aspects of the current status of certain applications and patents within the Core Composition Patent and Erosion Matrix Patent families:

Patent / Application
  Patent Family   Status
EP2801355   Core Composition   Revoked on January 29, 2018 by the EPO Opposition Division. The Company has appealed this decision (see below). Contains claims directed to the treatment of MS with 480 mg per day of DMF using pH-controlled compositions that have an enteric coating.

EP1799196

 

Core Composition

 

Revoked on September 18, 2018 by the EPO Opposition Division. The written decision was received on February 15, 2019 and the two-month deadline to appeal the decision ends on April 15, 2019.

EP2965751

 

Core Composition

 

Pending (contains claims directed to compositions containing DMF wherein the daily dosage is from 480 to 600 mg and the DMF is released depending on pH for the treatment of a number of diseases). The EPO issued a notice of intention to grant this patent on June 26, 2018. A request for further processing was granted on March 13, 2019.

EP2801354

 

Core Composition

 

Granted (contains claims directed to controlled-release compositions that release DMF according to a specific in vitro release profile). Oppositions to this patent have been filed by third parties with the EPO. An oral hearing has been scheduled for May 7, 2019.

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Patent / Application
  Patent Family   Status
EP2792349   Core Composition   Pending (contains claims directed to controlled-release compositions containing DMF wherein the daily dosage is 480 mg for use in treatment of a number of diseases). The EPO has issued notices of intention to grant this patent on September 13, 2017, May 30, 2018, and February 27, 2019.

EP2316430

 

Core Composition

 

Revoked by EPO Technical Board of Appeal on May 3, 2018.

EP3093012

 

Core Composition

 

Pending (contains claims directed to pharmaceutical compositions comprising DMF in an amount of 50 to 90% by weight of the composition). The EPO has issued notices of intention to grant this patent on May 8, 2017, February 15, 2018, and November 21, 2018.

JP2018-017332

 

Core Composition

 

Pending (contains claims directed to controlled-release pharmaceutical compositions comprising one or more of fumaric acid esters such as DMF and/or MMF).

EP2379063

 

Erosion Matrix

 

Granted (contains claims directed to matrix formulations with a thin enteric coating). Oppositions filed by third parties were rejected by the EPO in the first instance and the patent was maintained. A number of opponents have appealed, and the oral proceedings for the appeal have been scheduled for April 18, 2019.

EP3295936

 

Erosion Matrix

 

Pending (contains claims directed to a pharmaceutical formulation in the form of an erosion matrix tablet having a particular composition). The application published on March 21, 2018. A reply to the preliminary written search and opinion was filed on September 20, 2018.

EP2564839

 

Erosion Matrix

 

Granted (contains claims directed to a pharmaceutical formulation in the form of an erosion matrix tablet having a particular composition). The patent was maintained following the hearing of the Opposition Division on June 7, 2018. The opponent has appealed against this decision. A reply to the appeal was filed on January 11, 2019.

JP5788331

 

Erosion Matrix

 

Granted (contains claims directed to a pharmaceutical formulation in the form of an erosion matrix tablet having a particular composition).

JP2015-149886

 

Erosion Matrix

 

Pending (contains claims directed to a pharmaceutical formulation in the form of an erosion matrix tablet having a particular composition).

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Core Composition Patent Family

    European Intellectual Property

        European Patent EP2801355.    The EP'355 patent covers, among other things, the treatment of MS with 480 mg per day of DMF using pH-controlled compositions that have an enteric coating. The EPO completed its review of this application and issued this patent on May 20, 2015. This patent was opposed by several parties in opposition proceedings, which are special proceedings heard by the EPO where one or more third parties request that the patent, or a part thereof, be revoked. On January 29, 2018, the European Patent Office, or EPO, revoked the EP'355 patent on one of the alleged grounds of invalidity following the oral hearing in the Opposition Proceeding. On March 22, 2018, the Opposition Division issued its written decision with detailed reasons for the decision, on May 7, 2018, the Company submitted its notice of appeal, and on August 1, 2018, the Company submitted the detailed grounds for the appeal. The duration of the appeal process is estimated to be approximately three years; however, delays can occur that would extend the estimated duration of the appeal process. There can be no assurance that we will be successful in the Opposition Proceeding after any appeals. If the Company is unsuccessful in the Opposition Proceeding, the Company would not be entitled to future royalties on Biogen's net sales outside the U.S. If the Company prevails in the appeal against the decision of January 29, 2018, we expect the Technical Board of Appeal to remand the case to the Opposition Division, in order for the Opposition Division to resolve the remaining elements of the original opposition. While the appeal and any remanded issues have not been resolved, the decision of the Opposition Division to revoke the EP'355 patent is "frozen." Assuming that the patent is ultimately maintained following the final conclusion of the Opposition Proceeding, including any appeals, the EP'355 patent has a maximum duration until October 2025 (subject to possible SPC extension—see below). This is the first issued patent associated with the Company covering the use of 480 mg per day of DMF to treat MS. Although Biogen may not challenge the validity of the EP'355 patent in national proceedings, the validity of the national parts of the EP'355 patent could be challenged by other third parties in the respective national courts, and in some countries these validity challenges can run in parallel with EPO opposition and appeal proceedings. See "Risk Factors—Risks Related to Intellectual Property—There can be no assurance that even if we are successful in the opposition and appeal proceedings involving the patents associated with the Company currently pending before the EPO, we will not be subject to subsequent or parallel invalidity proceedings involving these same or other patents associated with the Company before a national court in any of the European Patent Convention member states where the patents were validated, which subsequent or parallel proceedings could result in the challenged patents being subject to continued uncertainty as to their validity until such proceedings have been fully concluded. We cannot at this time anticipate how long any such proceedings may last or when, if at all, the patents currently under challenge will finally be declared to be valid or not."

        SPC Applications.    In a number of countries in the EU, we have applied for national SPCs in reliance on the EP'355 patent and the EU marketing authorization for Biogen's product Tecfidera®. If these applications are successful, the resultant SPCs will effectively extend the duration of the EP'355 patent, insofar as it covers Tecfidera®, from October 2025 until January 2029. So far, the SPC applications have been granted in Cyprus, France, Greece, Hungary, Ireland, Italy, Latvia, Luxembourg, Slovenia, Spain and Sweden. This is possible because the case law of the Court of Justice for the European Union currently allows patent holders to obtain SPCs in reliance on marketing authorizations held by third parties. If the case law were to change such that this is no longer a possibility, we would expect any such SPCs granted in our favor to be revoked. Further, if an EU national court were to hold (subject to any appeal) that the claims of the EP'355 patent do not cover Tecfidera®, we would expect the national court to revoke any SPC granted in our favor in that country.

        European Patent EP1799196.    The European patent EP1799196 associated with the Company, or the EP'196 patent, covers, among other things, controlled release compositions that release DMF

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according to a specific in vitro release profile. The patent was granted on June 22, 2016. Oppositions to this patent have been filed by third parties with the EPO. On September 18, 2018, the EPO revoked the EP'196 Patent following an oral hearing in the opposition proceedings. The written decision was received on February 15, 2019 and the two-month deadline to appeal the decision ends on April 15, 2019.

        European Patent Application EP2965751.    Another key patent application in the EU is EP2965751, formerly EP15166243.4, or the EP'751 application. The EP'751 application covers, among other things, compositions containing DMF where the daily dosage is 480 to 600 mg and the DMF is released depending on pH. The EPO has completed its initial review of this application and issued a negative search report on January 13, 2016. We responded to the search report on July 13, 2016. A third-party observation was filed on September 20, 2016. We responded to the third-party observation on November 16, 2016. A negative office action was issued on February 10, 2017, which we understood to have been the result of a clerical error. We responded on August 10, 2017 to correct the error. The EPO issued a notice of intention to grant this patent on June 26, 2018. A request for further processing was granted on March 13, 2019.

        European Patent EP2801354.    A key patent in the EU is EP2801354, or the EP'354 patent. The EP'354 patent covers, among other things, controlled-release compositions that release DMF according to a specific in vitro release profile. The patent was granted on February 8, 2017. Oppositions to this patent have been filed by third parties with the EPO. An oral hearing has been scheduled for May 7, 2019.

        European Patent Application EP2792349.    Another key patent application in the EU is EP2792349, formerly EP14172396.5, or the EP'349 application. The EP'349 application covers, among other things, controlled-release compositions containing DMF where the daily dosage is 480mg for use in treatment of a number of diseases. The EPO has issued notices of intention to grant this patent on September 13, 2017, May 30, 2018 and February 27, 2019.

        European Patent EP2316430.    The European patent EP2316430 associated with the Company covered DMF formulations with certain in vitro dissolution profiles. By a decision issued in July 2015, the Opposition Division of the EPO revoked EP2316430, in particular, for the reason that the claims allegedly contain subject matter not directly and unambiguously derivable from the original application as filed. The Opposition Division of the EPO did not adjudicate on the issues of novelty or inventive step. This patent was revoked by the EPO Technical Board of Appeal on May 3, 2018. No further appeal is possible.

        European Patent Application EP3093012.    Another key patent application in the EU is EP3093012, formerly EP16001391.8, or the EP'012 application. The EP'012 application covers, among other things, controlled-release pharmaceutical compositions comprising DMF in an amount of 50 - 90% by weight of the composition. The EPO has issued notices of intention to grant this patent on May 8, 2017, February 15, 2018 and November 21, 2018.

Erosion Matrix Patent Family

        European Patent EP2379063.    A patent from the Erosion Matrix Patent family associated with the Company, EP2379063 (covering matrix formulations with a thin enteric coating), has been granted by the EPO. Multiple third parties, including Biogen, opposed this patent before the EPO. Those oppositions were rejected by the EPO and the patent was maintained in its entirety at a hearing on April 5, 2016. The decision has been appealed and oral proceedings for the appeal have been scheduled for April 18, 2019. The Preliminary Opinion of the Board of Appeal was communicated on March 12, 2019 and the preliminary, non-binding opinion of the Board was that the patent lacked an inventive step.

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        European Patent EP2564839 (containing claims directed to a pharmaceutical formulation in the form of an erosion matrix tablet having a particular composition).    The EPO issued this patent on May 11, 2016. The patent was maintained following the hearing of the Opposition Division on June 7, 2018. The opponent has appealed against this decision. A reply to the appeal was filed on January 11, 2019.

        European Patent Application EP3295936.    A pending application (containing claims directed to a pharmaceutical formulation in the form of an erosion matrix tablet having a particular composition) was published on March 21, 2018 under publication number EP3295936. A reply to the preliminary written search and opinion was filed on September 20, 2018.

Clinical Development Summary

        Since inception, the focus of our clinical development was on a DMF formulation for the treatment of MS. As a result of entering into the License Agreement, combined with the recently announced unsuccessful outcome in the Interference Proceeding and Biogen's purchase of the intellectual property in the U.S. associated with the Company, we have permanently discontinued our development of a DMF formulation, except for maintaining our files and records for previously completed research and development work.

Material Agreements

    Biogen License Agreement

        As discussed above, on February 1, 2017, our License Agreement with Biogen and certain additional parties became effective. The License Agreement provided Biogen with a co-exclusive license in the U.S., and an exclusive license outside the U.S., to the Company's intellectual property, effective as of February 9, 2017.

        In accordance with the License Agreement, Biogen paid the Company a non-refundable cash fee of $1.25 billion and could be obligated to pay the Company royalties provided that other conditions of the License Agreement are satisfied. See "—Our Company—License Agreement with Biogen."

        On March 25, 2019, we received notice from Biogen of their exercise of the option to purchase the intellectual property in the U.S. associated with the Company pursuant to the License Agreement. We and Biogen have consummated the assignment of the U.S. intellectual property to Biogen upon the execution of assignment agreements and the payment of a nominal amount by Biogen to FWP IP ApS, and Biogen has assumed ownership and responsibility for the assigned U.S. intellectual property. In addition, we are no longer able to develop or commercialize any therapy for the treatment of any human disease or condition using DMF, including FP187®.

    Aditech Agreements

        In 2004, Aditech, controlled by Nordic Biotech General Partner ApS (an affiliate of one of our largest shareholders), began developing and filing patents for, among other things, formulations and dosing regimens of DMF. In 2005, we entered into a patent license agreement with Aditech to license this patent family from Aditech. In 2010, we acquired this patent family from Aditech pursuant to a patent transfer agreement that replaced the patent license agreement. Under our agreement with Aditech, we obtained, among other things, Aditech's patents and associated know-how related to formulations and dosing regimens of DMF, subject to both diligence and minimum annual expenditure (EUR 1.0 million per year) obligations on our part.

        In connection with our execution of the License Agreement, we entered into an addendum to the patent transfer agreement with Aditech pursuant to which Aditech agreed to waive its rights to, among other things, terminate the patent transfer agreement (which rights gave Aditech an option to receive back, for no consideration, all of our DMF-related assets in the event of the Company's liquidation or

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bankruptcy, material breach by the Company of the patent transfer agreement or the Company's failure to meet its obligations with respect to the development and commercialization of the patent rights as set forth in the patent transfer agreement).

        In addition, the addendum to the patent transfer agreement, or the Addendum, clarifies the royalties payable to Aditech in connection with any proceeds received by the Company from Biogen under the License Agreement. The Addendum specifies that Aditech is entitled to 2% of the Non-refundable Fee (or $25 million). This was paid to Aditech in 2017. The Addendum further specifies that Aditech is entitled to additional compensation should the Company receive royalties from Biogen under the License Agreement. If royalties are paid to the Company in accordance with the License Agreement, Aditech will be entitled to receive a cash payment equal to 2% of the same base amount with respect to which the Company's royalty percentage is calculated, accruing from the same period of time as any royalty payment payable by Biogen to the Company (prior to taking into account taxes, duties and VAT, if any).

Competition

        We are engaged in segments of the pharmaceutical and biotechnological industries that are highly competitive and rapidly changing. Large pharmaceutical, specialty pharmaceutical and biotechnology companies, academic institutions, governmental agencies and other public and private research organizations are commercializing or pursuing the development of products that target multiple sclerosis. Our future success may depend on the continued market acceptance of Tecfidera®. We expect approved MS treatments, such as Tecfidera®, will continue to face intense and increasing competition as new and improved products enter the MS markets and advanced technologies become available. Competition from any newly approved products (whether branded, generics or biosimilars) may reduce Tecfidera® sales, which in turn may reduce possible royalties payable by Biogen to us. Several companies are developing additional treatments for multiple sclerosis, and late-stage clinical candidates include, but are not limited to, generic versions of existing medications and Celgene's ozanimod. Competition among products approved for sale is based, among other things, on safety and effectiveness, the timing and scope of regulatory approvals, the availability and cost of supply, marketing and sales capabilities, reimbursement coverage, price, patent position and other factors.

Environmental, Health and Safety

        Our operations are subject to a number of environmental acts and regulations. We believe that we are materially in compliance with all applicable environmental laws and regulations. Currently, there are no pending environmental issues that we believe could reasonably be expected to have a material adverse effect on our business, financial position, results of operations or future growth prospects.

        We consider it important to maintain a good working environment and comply with the regulatory requirements regarding working environment. This consists of the physical and psychological working environment, including heating, ventilation, air conditioning and air circulation and exhaust systems, as well as office furniture and equipment design and functionality, and other general health and safety systems, including control of the facility. We are from time to time subject to inspections by the Danish Working Environment Authority for compliance with the Danish Working Environment Act.

Facilities

        Our corporate headquarters are located at Østergade 24A, 1st floor, 1100 Copenhagen K, Denmark where we lease approximately 2,400 square feet of office space from Nordic Biotech Advisors ApS, an affiliate of certain of our principal shareholders, for administrative activities. In 2018, we paid 601,000 DKK (approximately $95,000), including value added tax, or VAT, for such premises. Forward Pharma FA ApS and Forward Pharma Operations ApS, our Danish subsidiaries, are also located at

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Østergade 24A, 1st floor, 1100 Copenhagen K, Denmark. For more information, see "—Related Party Transactions—Leased Premises."

        Forward Pharma GmbH, our German subsidiary, had approximately 700 square feet of office space for administrative activities in Leipzig, Germany until its lease cancellation effective March 31, 2018. In 2018, we paid EUR 6,000 (approximately $7,000) for such premises (excluding fees paid for electricity and cleaning fees).

        Forward Pharma USA, LLC, our U.S. subsidiary, is located in Suffern, New York and has office space of approximately 140 square feet. In 2018, we paid $10,000 for such premises. Until March 31, 2018, Forward Pharma USA, LLC had an office space of approximately 450 square feet in Hawthorne, New York. Our lease payments for 2018 for these premises were $9,000.

        The Company's long-term office lease commitments are not material.

Employees

        As of March 31, 2019, we had five employees. At each date shown, we had the following employees, broken out by department and geography:

 
  At December 31,   At March 31,  
 
  2016   2017   2018   2019  

Function:

                         

Clinical and regulatory affairs

    3     0     0     0  

Engineering and production

    3     1     1     1  

Management and administration

    7     4     4     4  

Total

    13     5     5     5  

Geography:

                         

Germany

    4     2     1     1  

Denmark

    6     2     3     3  

United States

    3     1     1     1  

Total

    13     5     5     5  

        One of our employees is represented by a labor union. We have never experienced any work stoppages.

        All other operational tasks are or have been outsourced to consultant experts or consulting service companies, such as patent and legal experts. We engage approximately 15 individuals and firms as consultants and experts.

        In the U.S., our activities and personnel are focused on U.S. public company accounting, reporting and compliance, and related administrative functions to support Forward Pharma A/S.

Insurance

        We maintain all insurance coverage required under applicable law, including in relation to our previous research and pre-clinical and clinical development.

        We believe that we currently maintain appropriate insurance coverage, and that our current insurance coverage is in line with insurance coverage for comparable companies.

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Legal Proceedings

        We may, from time to time, become involved in legal proceedings in the ordinary course of business. Except for the Opposition Proceeding, we are not currently a party to, and have not been in the recent past subject to any material legal proceeding (including proceedings pending or threatened) that we believe could have an adverse effect on our business, operating results or financial condition. See "Item 5. Operating and Financial Review and Prospects—Operating Results Overview—Intellectual Property Proceedings and the License Agreement—Interference Proceeding" for more information on the Interference Proceeding.

        Opposition proceedings and appeals therefrom against four of the European patents associated with the Company are currently ongoing and in addition we are involved in the Opposition Proceeding concerning EP'355, including any appeals. There can be no assurance that these patent proceedings or other future legal proceedings will not have an adverse effect on our business, operating results or financial condition. See "Item 5. Operating and Financial Review and Prospects—Operating Results Overview—Intellectual Property Proceedings and the License Agreement—Opposition Proceeding" for more information on the Opposition Proceeding.

C. Organizational Structure

        The registrant corporation, Forward Pharma A/S, has two wholly owned subsidiaries, Forward Pharma USA, LLC, incorporated in the state of Delaware, and Forward Pharma Operations ApS, incorporated in Denmark. Forward Pharma Operations ApS has two wholly owned subsidiaries, Forward Pharma FA ApS, incorporated in Denmark, and Forward Pharma GmbH, incorporated in Germany. All of our operations are conducted within Forward Pharma A/S or one of our directly or indirectly owned subsidiaries.

D. Property, Plant and Equipment

        See "—Business Overview—Facilities" for a description of our leased premises. Our equipment includes computers, office equipment, furniture and manufacturing equipment with a net book value at December 31, 2018 and 2017, of zero and $12,000, respectively. In connection with winding down of research and development efforts in 2017, our manufacturing equipment was deemed impaired and accordingly during the year ended December 31, 2017 the book value of our manufacturing equipment was reduced to zero. None of our equipment is leased and there are no liens or encumbrances on our equipment.

        We currently do not have any material commitments to acquire fixed assets nor are there plans to acquire fixed assets in the future; however, we may, from time to time, need to replace office equipment such as computers. The estimated cost to replace office equipment, if needed, is not expected to be significant. We currently do not have any long-term supply agreements with our vendors.

ITEM 4A.    UNRESOLVED STAFF COMMENTS

        None.

ITEM 5.    OPERATING AND FINANCIAL REVIEW AND PROSPECTS

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        You should read the following discussion and analysis of our financial condition and results of operations together with the information under "Selected Financial Information" and our audited consolidated financial statements, including the notes thereto, included in this Annual Report. The following discussion is based on our consolidated financial information prepared in accordance with IFRS as issued

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by the IASB, which might differ in material respects from generally accepted accounting principles in other jurisdictions. The following discussion includes forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to those described under "Risk Factors" and elsewhere in this Annual Report.

A. Operating Results Overview

Overview

        Forward Pharma A/S is a Danish biopharmaceutical company that was founded in 2005 to advance unique formulations and dosing regimens of DMF, an immunomodulator, as a therapeutic to improve the health of patients with immune disorders, including MS. We are a company with a limited number of employees and outsource the majority of our activities to external service providers. We are currently composed of a Danish incorporated parent company, Forward Pharma A/S, its two wholly owned subsidiaries, Forward Pharma USA, LLC, incorporated in the state of Delaware, and Forward Pharma Operations ApS, incorporated in Denmark, and two wholly owned subsidiaries of Forward Pharma Operations ApS, Forward Pharma GmbH, incorporated in Germany and Forward Pharma FA ApS, incorporated in Denmark. During 2017, as part of the restructuring that is discussed below, FWP IP ApS was established on June 30, 2017 as a wholly owned subsidiary of Forward Pharma Operations ApS and sold on November 22, 2017. As discussed in more detail elsewhere herein, the Company entered into the License Agreement with Biogen that became effective on February 1, 2017. Prior to entering into the License Agreement, the Company was actively developing FP187®, a proprietary formulation of DMF, for the treatment of MS. The Company announced on March 1, 2017 plans to complete the remaining research and development efforts of FP187 ® and pursue an organizational realignment to reduce personnel and operating expenses by mid-year 2017. The organizational realignment was substantially completed by September 30, 2017. As a result of entering into the License Agreement, combined with the recently announced unsuccessful outcome in the Interference Proceeding and Biogen's purchase of the intellectual property in the U.S. associated with the Company, we have permanently discontinued our development of DMF formulations, including FP187®. Therefore, sources of revenue derived from customers in the United States, including product sales of a DMF formulation, are not expected.

        The Company currently estimates that there will be adequate liquidity to continue as a going concern beyond the next twelve months; however, unforeseen events could negatively affect this estimate and the impact could be material. If the Company fails to prevail in the Opposition Proceeding, including all appeals, future revenues are unlikely, the Company's ability to continue as a going concern long-term would be uncertain and management would consider, amongst other things, an orderly wind-down of operations. Management currently estimates that the duration of the Opposition Proceeding is approximately three years, or longer. During the coming years, until such time as the Opposition Proceeding is concluded, management estimates that operating activities of the Company will remain at current levels, or decline slightly, as we continue to defend and protect the intellectual property associated with the Company and evaluate possible further cost reductions.

        Currently, there are no plans for future distributions of funds to our shareholders.

Restructuring

        Under the terms of the License Agreement, the Company restructured its operations on June 30, 2017 whereby the Company transferred to Forward Pharma Operations ApS (a newly created and wholly owned Danish limited liability company) certain assets and liabilities, including the legal and beneficial rights, title and interest to defined intellectual property, and Forward Pharma Operations ApS transferred the intellectual property to FWP IP ApS (a newly created and wholly owned Danish

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limited liability company). The final step in the restructuring was completed on November 22, 2017 when the capital stock of FWP IP ApS was sold to FWP HoldCo ApS, a newly formed Danish limited liability company that is owned and controlled by FWP Fonden, a newly formed independent Danish foundation. FWP HoldCo ApS paid Forward Pharma Operations ApS 336,000 DKK ($54,000 based on the December 31, 2017 exchange rate) as consideration for the capital stock of FWP IP ApS. FWP Fonden's three-member board includes one independent director and one director appointed from each of the Company and Biogen. Accordingly, the Company does not control FWP Fonden. During the year ended December 31, 2017, the Company contributed 5 million DKK ($805,000 based on the December 31, 2017 exchange rate) as the initial capitalization of FWP Fonden and is obligated to pay 100,000 DKK ($15,000 based on the December 31, 2018 exchange rate) annually to FWP IP ApS in exchange for FWP IP ApS agreeing to hold, prosecute and maintain the transferred intellectual property, which now consists only of the non-U.S. intellectual property associated with the Company, in accordance with certain agreements. In connection with the initial capitalization of FWP Fonden, the Company's annual funding obligations to FWP IP ApS and the sale of the capital stock of FWP IP ApS to FWP HoldCo ApS, the Company incurred a net expense of $759,000 that is included in general and administrative expenses for the year ended December 31, 2017. In the future, the Company is only obligated to remit the annual funding of 100,000 DKK to FWP IP ApS through the last to expire, or invalidation of, the licensed patents underlying the transferred intellectual property; however, the Company's obligation to remit the annual funding would be discontinued earlier if certain events, as defined in the License Agreement, occur. In addition to its annual funding obligations, the License Agreement requires the Company to fund the cost to file, prosecute and maintain the European patent EP 2801355 (until the date on which the Opposition Proceeding has reached a final, unappealable conclusion) and to participate in an intellectual property advisory committee. The Company was required to fund the cost to file, prosecute and maintain the U.S. patents associated with the Company prior to Biogen purchasing such intellectual property.

Share Split and Shareholder Distribution

        On August 2, 2017, the Company's shareholders approved 10 for 1 share split and a capital reduction of EUR 917.7 million, or $1.1 billion. The Capital Reduction was effected by a distribution to shareholders in September 2017. The Capital Reduction was executed through the annulment of 80% of the ordinary shares outstanding post Share Split. Following the Share Split and the Capital Reduction, each ADS was modified to represent two ordinary shares. Each ordinary share subsequent to the Share Split has a nominal value of 0.01 DKK. See Notes 3.5 and 5.1 in the accompanying financial statements for additional information.

Amendment to the Company's Articles of Association

        In November 2017, the shareholders of the Company approved an amendment to the Company's articles of association, which modified the terms of certain outstanding options and warrants granted by the Company to mitigate the dilution to such awards caused by the Shareholder Distribution. In November 2017, a similar amendment was approved by the board of directors of the Company in respect to certain deferred share awards granted by the Company (the amended options, warrants and deferred shares are collectively referred to as the "Awards" and the amendments of the Awards are collectively referred to as the "Amendment"). The overall effect of the Amendment provided for cash payments to Award holders of EUR 36.2 million ($43.4 million based on the December 31, 2017 exchange rate) and a reduction in the number of outstanding Awards by 28.8 million. As a result of the Amendment, the Company recognized during 2017 compensation expense of $11.7 million and a reduction to shareholder equity of $32.2 million. See Notes 3.3 and 5.1 in the accompanying financial statements for additional information.

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Intellectual Property Proceedings and the License Agreement

        On February 1, 2017, the License Agreement with Biogen and certain additional parties became effective. The License Agreement provided Biogen with a co-exclusive license in the United States, and an exclusive license outside the United States, to the IP, effective as of February 9, 2017.

        In accordance with the License Agreement, Biogen paid the Company a non-refundable fee of $1.25 billion ("Non-refundable Fee") in February 2017.

        On March 25, 2019, we received notice from Biogen of their exercise of the option to purchase the intellectual property in the U.S. associated with the Company pursuant to the License Agreement. We and Biogen have consummated the assignment of the U.S. intellectual property to Biogen upon the execution of assignment agreements and the payment of a nominal amount by Biogen to FWP IP ApS, and Biogen has assumed ownership and responsibility for the assigned U.S. intellectual property. In addition, we are no longer able to develop or commercialize any therapy for the treatment of any human disease or condition using DMF, including FP187®.

Background

        On April 13, 2015, an administrative patent judge at the United States Patent Trial and Appeal Board ("PTAB") declared Patent Interference No. 106,023 (the "Interference Proceeding") between the Company's United States Patent Application No. 11/567,871 and United States Patent No. 8,399,514B2 held by a subsidiary of Biogen Inc. The License Agreement did not resolve the Interference Proceeding between the Company and Biogen or the pending opposition proceeding against the Company's European patent EP2801355 (the "Opposition Proceeding"). Rather, the PTAB and the United States Court of Appeals for the Federal Circuit (the "Federal Circuit"), as applicable, and the Opposition Division, the Technical Board of Appeal and the Enlarged Board of Appeal of the European Patent Office (the "EPO"), as applicable, will make or have made final determinations in the Interference Proceeding and Opposition Proceeding, respectively. As discussed further below, the final determinations in the proceedings would determine whether future royalties are due the Company in accordance with the License Agreement. An unsuccessful outcome in the Interference Proceeding would result in the Company not being entitled to royalties based on Biogen's future net sales in the United States, as defined in the License Agreement, and an unsuccessful outcome in the Opposition Proceeding would result in the Company not being entitled to royalties on Biogen's future net sales outside the United States, as defined in the License Agreement.

Interference Proceeding

        On March 31, 2017, the PTAB issued a decision in the Interference Proceeding in favor of Biogen. The PTAB ruled that the claims of the Company's United States Patent Application No. 11/567,871 are not patentable due to a lack of adequate written description. On May 30, 2017, the Company filed a notice of appeal with the Federal Circuit seeking to have the PTAB's decision overturned and the Interference Proceeding reinstated. On October 24, 2018, the Federal Circuit affirmed the PTAB's decision. On November 21, 2018, the Company filed a petition for rehearing of the Federal Circuit's decision. The rehearing request was denied on January 2, 2019 and the Federal Circuit's decision became final on January 9, 2019. The Federal Circuit's final decision ends the Interference Proceeding in favor of Biogen.

        Because the Company was unsuccessful in the Interference Proceeding after all appeals, pursuant to the License Agreement, Biogen had the option to elect to obtain an exclusive license to the intellectual property in the U.S. associated with the Company or to purchase the intellectual property in the U.S. associated with the Company for a nominal price.

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        On March 25, 2019, we received notice from Biogen of their exercise of the option to purchase the intellectual property in the U.S. associated with the Company pursuant to the License Agreement. We and Biogen have consummated the assignment of the U.S. intellectual property to Biogen upon the execution of assignment agreements and the payment of a nominal amount by Biogen to FWP IP ApS, and Biogen has assumed ownership and responsibility for the assigned U.S. intellectual property. In addition, we are no longer able to develop or commercialize any therapy for the treatment of any human disease or condition using DMF, including FP187®. Because we were unsuccessful in the Interference Proceeding after all appeals, the Company will not be entitled to future royalties on Biogen's net sales in the U.S. Therefore, sources of revenue derived from customers in the U.S., including product sales of any DMF formulation, are not expected.

Opposition Proceeding

        If the Company is successful in the Opposition Proceeding (i.e., the Company obtains, as a result of the Opposition Proceeding, and any appeals therefrom, a patent with a claim covering oral treatment of MS with 480 mg/day of DMF), it would be eligible beginning on January 1, 2021 to collect a 10% royalty (increasing to 20% from January 1, 2029) until the earlier of the expiration or invalidation of the patents defined in the License Agreement, on a country-by-country basis on Biogen's net sales outside the United States of DMF-containing products indicated for treating MS that, but for the license granted under the License Agreement, would infringe a Company patent, provided that other conditions of the License Agreement are satisfied. Among the conditions that need to be satisfied for any royalty to be payable by Biogen to the Company is the absence of generic entry in a particular geography having a particular impact as defined in the License Agreement. If the Company is unsuccessful in the Opposition Proceeding and any appeals therefrom, the Company would not be entitled to future royalties on Biogen's net sales outside the United States.

        On January 29, 2018, the Opposition Division of the EPO concluded the oral proceeding concerning patent EP2801355 and issued an initial decision in the Opposition Proceeding. The Opposition Division revoked patent EP2801355 after considering third-party oppositions from several opponents. On March 22, 2018, the Opposition Division issued its written decision with detailed reasons for the decision, on May 7, 2018, the Company submitted its notice of appeal, and on August 1, 2018, the Company submitted the detailed grounds for the appeal. If the Company prevails in such appeal, it is expected that the Technical Board of Appeal will remand the case to the Opposition Division, in order for the Opposition Division to resolve the remaining elements of the original opposition. The duration of the appeal process is estimated to be approximately three years. However, delays can occur that would extend the estimated duration of the appeal process.

Trend Information

        We do not have any commercialized products on the market. As a result of entering into the License Agreement, combined with the recently announced unsuccessful outcome in the Interference Proceeding and Biogen's purchase of the intellectual property in the U.S. associated with the Company, we have permanently discontinued our development of DMF formulations, including FP187®. At this time, the Company's only potential source of future revenue is contingent on a favorable outcome of the Opposition Proceeding. A successful outcome in the Opposition Proceeding is highly uncertain, but if it were to occur, the Company would be entitled to royalties, provided other conditions are met, based on Biogen's net sales of Tecfidera® outside the U.S. as defined by the License Agreement. Accordingly, we expect any trends in the biopharmaceutical market to have an impact on our business, particularly, trends that effect the market for, or price of, Tecfidera® sales outside the U.S.

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Financial Operations Overview

Revenue

        As discussed further below, the Company's only source of operating revenue to date has come from the License Agreement and we will likely not generate operating revenue in the future unless we prevail in the Opposition Proceeding. The Company's ability to generate operating revenues in the future is highly uncertain and it is possible that we may never recognize operating revenue in the future.

        The Company elected to adopt IFRS 15 Revenue from Contracts with Customer, or IFRS 15, on January 1, 2017. Under IFRS 15 the Company recognizes revenue to reflect the transfer of goods or services to customers in an amount that reflects the consideration to which the Company expects to receive in exchange for such goods or services. Prior to entering to the License Agreement, the Company did not have revenue from contracts with customers that were within the scope of IFRS 15 and therefore the initial adoption of IFRS 15 had no effect on previously reported financial statements nor was an adjustment made to the Company's accumulated deficit at January 1, 2017. The only contract that the Company is party to that is within the scope of IFRS 15 is the License Agreement.

        Management concluded that the Non-refundable Fee should be recognized as revenue in full in 2017. In reaching this conclusion, various judgments were made, including the identification of the Company's performance obligations within the License Agreement and whether these performance obligations are distinct. Management concluded that the performance obligations in the License Agreement were related to the right granted to Biogen to use the licensed intellectual property both in the United States as well as in the rest of the world and concluded that these performance obligations were met at the time the License Agreement was consummated, as Biogen was granted full use of the licensed intellectual property whether under a co-exclusive license or an exclusive license. At the time the License Agreement became effective, the Company was required to (i) to fund the cost to file, prosecute and maintain the United States patents and European patent EP 2801355 associated with the Company, (ii) to participate in an intellectual property advisory committee and (iii) to provide the annual funding of 100,000 DKK (collectively "Defense Costs"). Effective upon Biogen purchasing the U.S. patents previously associated with the Company, the Company is no longer required to fund the cost to file, prosecute and maintain such intellectual property. The period the Company is obligated to fund the Defense Costs is defined in the License Agreement and could include the period from the effective date of the License Agreement through the last to expire, or invalidation of, the licensed patents; however, the Company's obligation to fund Defense Costs would be discontinued earlier if certain events, as defined in the License Agreement, occur. Management concluded that the Company's obligation to defend the intellectual property does not represent a separate performance obligation as such activities are deemed to be costs to protect the value of the license granted to Biogen. Since Biogen received full unrestricted use of the Company's intellectual property at the time the License Agreement was consummated and since the Company currently has no plans to nor is it obligated to further develop the underlying licensed intellectual property, the License Agreement is deemed to provide Biogen with a right to use the Company's intellectual property upon the consummation of the License Agreement.

Research and development costs

        Historical research and development costs related primarily to the development of DMF formulations for the treatment of psoriasis and MS, and they consist primarily of:

    salaries for research and development staff and fees to consultants, as well as expenses incurred by all such personnel; expenses related to share-based compensation to employees and others; the costs of our extensive use of external third-party experts (e.g., consultants for the relapsing forms of MS indication) for our product development efforts; and the outsourcing of specific development tasks to contract manufacturing organizations, or CMOs;

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    costs for formulation, development and production of tablets in new doses for use in clinical trials; and production of DMF by our external CMOs, including the costs of testing related to increasing the batch sizes and manufacturing capability of our CMOs in order for us to be able to scale to anticipated next level or later commercial production levels and the costs of limited initial testing of new tablet strengths and forms for the treatment of relapsing forms of MS;

    fees and other costs paid to clinical research organizations, or CROs, in connection with pre-clinical testing, formulation and product testing of tablets; and the fees and costs associated with the performance of clinical trials in relapsing forms of MS and psoriasis, that were outsourced to CROs, in anticipation of planning and running the clinical trials for us, and helping us to gather and maintain all required clinical data for regulatory purposes; and

    fees and expenses incurred to prepare and file patent applications and other intellectual property claims, responding to patent office actions, and conducting patent opposition and interference proceedings and other activities aimed at enhancing and protecting our intellectual property estate provided such fees and expenses relate to intellectual property-related activities that reside within the USPTO, EPO or other country-specific patent registry offices (collectively referred to as "Patent Fees"). If expenses incurred are associated with the Company's intellectual property-related activities carried out in the courts to protect, defend and enforce granted patent rights against third parties (not residing within the USPTO, EPO or other country-specific patent registry offices) they are classified within general and administrative expenses.

        As a result of entering into the License Agreement, combined with the recently announced unsuccessful outcome in the Interference Proceeding and Biogen's purchase of the intellectual property in the U.S. associated with the Company, we have permanently discontinued our research and development efforts involving DMF products, including FP187®. Prospectively, research and development activities will primarily relate to Patent Fees; however, we do expect to incur minor costs to meet remaining regulatory requirements associated with the wind-down of our research and development efforts.

General and administrative costs

        Our general and administrative costs consist primarily of:

    salaries and expenses for employees other than research and development staff, as well as expenses related to share-based compensation awards granted to certain employees;

    professional fees for auditors, legal counsel and other consulting expenses not related to research and development activities;

    in 2017, costs of the restructuring;

    cost of facilities, communication and office expenses;

    investor relations and other costs associated with our public listing of our ADSs on Nasdaq;

    information technology related expenses; and

    expenses associated with intellectual property-related activities carried out in the courts to protect, defend and enforce patent rights granted against third parties (not residing within the USPTO, EPO or other country-specific patent registry offices).

        We incur significant costs as the result of our public listing including the cost to maintain and enhance our infrastructure in order to comply with regulatory requirements including disclosure controls and procedures. Such costs include maintaining an organization of internal and external professionals who have the necessary experience and skills to address the complex rules and regulations we are required to comply with. The professionals we engage include legal and accounting advisors, auditors and investor relations firms amongst others. There are many other costs we incur to maintain our public listing such as liability insurance and depositary and stock exchange fees.

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Non-operating income and (expenses)

        Components of non-operating income and (expenses) consisted primarily of:

    gains/losses from changes in foreign exchange rates related to certain financial assets and liabilities

    interest income earned on available-for-sale financial assets and USD cash holdings; and

    bank fees, including negative interest on Euro and DKK cash holdings.

Results of Operations

Comparison of the years ended December 31, 2018 and 2017

 
  Year ended December 31,  
 
  2018   2017   Change
favorable
(unfavorable)
 
 
  (USD in thousands)
 

Revenue from the License Agreement

        1,250,000     (1,250,000 )

Cost of the Aditech Pharma AG patent transfer agreement

        (25,000 )   25,000  

Research and development costs

    (2,748 )   (20,496 )   17,748  

General and administrative costs

    (9,535 )   (17,107 )   7,572  

Operating (loss) income

    (12,283 )   1,187,397     (1,199,680 )

Exchange rate gains (losses)

    2,713     (241 )   2,954  

Interest income from available-for-sale financial assets

        227     (227 )

Other finance costs

    644     (2,895 )   3,539  

(Loss) income before tax

    (8,926 )   1,184,488     (1,193,414 )

Income tax benefit (expense)

    204     (267,395 )   267,599  

Net (loss) income

    (8,722 )   917,093     (925,815 )

Revenue from License Agreement for the years ended December 31, 2018 and 2017

        During the year ended December 31, 2017, the Company recognized as revenue the $1.25 billion nonrecurring Non-refundable Fee that was received during February 2017. During the year ended December 31, 2018, the Group did not earn any revenues under the License Agreement nor from other sources. Accordingly, there were no revenues recognized during the year ended December 31, 2018.

        The License Agreement does not obligate Biogen to remit additional amounts to the Company unless the Company prevails in the Opposition Proceeding, including any appeals, and certain other conditions of the License Agreement are satisfied. It is highly uncertain whether the Company will prevail in the Opposition Proceeding and therefore it is possible that additional revenues may not be realized from the License Agreement or any other source. In the event the Company does prevail in the Opposition Proceeding, Biogen would be obligated to remit future royalties to the Company as defined in the License Agreement, provided that other conditions of the License Agreement are satisfied. If the Company fails to prevail in the Opposition Proceeding, future revenues are unlikely and the long-term ability of the Company to continue as a going concern is uncertain. See Note 1.2 to the financial statements for additional information.

Cost of the Aditech Pharma AG agreement for the years ended December 31, 2018 and 2017

        The terms of the agreement between Aditech Pharma AG ("Aditech") and the Company, including the addendum to the agreement ("Addendum") executed in January 2017, provided for Aditech to

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receive a royalty equal to 2% of the Non-refundable Fee, which equaled $25 million. During the year ended December 31, 2018, there were no amounts due Aditech.

        Should the Company prevail in the Opposition Proceeding, additional compensation may be due to Aditech. Such additional compensation will equal 2% of the same base amount with respect to which the Company's royalty percentage is calculated, accruing from the same period of time as any royalty payment payable by Biogen to the Company (prior to taking into account taxes, duties and VAT, if any.) See Note 6.2 to the financial statements for additional information.

Research and development costs for the years ended December 31, 2018 and 2017

        Research and development costs for the years ended December 31, 2018 and 2017 were $2.7 million and $20.5 million, respectively. The decrease in research and development costs for the year ended December 31, 2018 of $17.7 million is the result of lower costs incurred in connection with the Interference and Opposition Proceedings, lower share-based compensation and the wind-down of our development efforts of FP187 ®. Fees to patent advisors and other patent-related costs decreased from $2.7 million in the year ended December 31, 2017 to $826,000 in the year ended December 31, 2018. The decrease is the result of reduced activities subsequent to the PTAB's issuance of the decision in the Interference Proceeding in favor of Biogen on March 31, 2017 and the conclusion of the oral proceeding before the Opposition Division of the EPO concerning patent EP2801355 where the Opposition Division revoked patent EP2801355 on January 29, 2018. Share-based compensation, including the effect of the Amendment of Awards, as discussed above, decreased from $14.4 million in the year ended December 31, 2017 to $1.5 million in the year ended December 31, 2018. The decrease in share-based compensation resulted in part from the non-reoccurrence of $9.5 million of expenses recognized in 2017 in connection with the Amendment of Awards, the nonrecurring benefit of $1.8 million recognized in 2017 in connection with equity awards that were forfeited by terminated employees and the balance relates to equity awards that were issued during the years ended December 31, 2017, 2016 and 2015 that included graded vesting provisions resulting in expense recognition that decreases in the latter years of vesting. The balance of the decrease in research and development cost during the year ended December 31, 2018 is the result of winding down FP187 ® development activities including all preclinical, clinical and contract manufacturing activities that were in process prior to the effective date of the License Agreement.

        We currently expect that our research and development costs will remain at, or slightly below, current levels in the future; however, considering the high level of uncertainty associated with estimating the nature and timing of costs to be incurred to continue the Opposition Proceeding, including any appeals, it is possible that unforeseen events could occur that could have a material effect on our estimated expenditures. Prospectively, research and development activities will primarily relate to Patent Fees and we expect to incur minor costs to comply with regulatory requirements associated with the wind-down of the research and development efforts of earlier product candidates. We may experience significant fluctuations in our expenses, period-to-period, as the result of the varying nature of the services expected to be provided by our patent advisor in connection with the Opposition Proceeding.

General and administrative costs for the years ended December 31, 2018 and 2017

        General and administrative costs for the years ended December 31, 2018 and 2017 were $9.5 million and $17.1 million, respectively. The decrease in general and administrative costs in the year ended December 31, 2018 of $7.6 million resulted primarily from a decrease in legal and accounting costs, lower patent advisory fees incurred in connection with the Interference Proceeding, the absence in 2018 of nonrecurring costs incurred in connection with the formation of FWP IP ApS in 2017 and an overall reduction in overhead costs. Legal and accounting fees were $6.9 million in the year ended December 31, 2017 compared to $2.2 million for the year ended December 31, 2018. During the year

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ended December 31, 2017, the Company had significant nonrecurring needs for legal and accounting advice in connection with entering into and complying with the License Agreement. There was no similar need for such services during the year ended December 31, 2018. Patent advisory fees incurred in connection with the Interference Proceeding were $1.2 million in the year ended December 31, 2017 compared to $453,000 for the year ended December 31, 2018. The reduction in patent advisory fees reflects less demand for such services in 2018. During the year ended December 31, 2017, we incurred a nonrecurring charge of $759,000 in connection with the formation of FWP IP Aps as discussed above. Share-based compensation, including the effect of the Amendment of Awards, as discussed above, increased from $4.4 million in the year ended December 31, 2017 to $4.6 million in the year ended December 31, 2018. The increase in share-based compensation resulted from a number of offsetting items, including the nonrecurring benefit of $5.8 million recognized in 2017 in connection with equity awards that were forfeited by terminated employees, net of the non-reoccurrence of $2.2 million of expenses recognized in 2017 in connection with the amendment of equity awards and the impact of equity awards that were issued during the years ended December 31, 2017, 2016 and 2015 that included graded vesting provisions resulting in expense recognition that decreases in the latter years of vesting. The balance of the decrease in general and administrative cost during the year ended December 31, 2018 is the result of cost-cutting measures put in place.

        We currently expect that our general and administrative costs will remain at current levels; however, unforeseen events could occur that could have a material effect on our estimated expenditures.

Non-operating income (expense) for the years ended December 31, 2018 and 2017

        During the year ended December 31, 2018, the Group recognized a foreign exchange gain of $2.7 million. The $2.7 million foreign exchange gain resulted primarily from the strengthening of the USD compared to the DKK during the period that is reflected as a non-cash foreign exchange gain when the USD cash is converted to the functional currency of the Parent and Operations at December 31, 2018. During the year ended December 31, 2017, the Company recognized a foreign exchange loss of $241,000. The $241,000 foreign exchange loss resulted primarily from the negative effect of the weakening of the USD to the DKK during the period that is reflected as a non-cash foreign exchange loss when the USD cash and cash equivalents are converted to DKK at December 31, 2017.

        During the year ended December 31, 2017, the Company recognized interest income from available-for-sale financial assets of $227,000. During the year ended December 31, 2018, the Company did not hold available-for-sale financial assets.

        Other finance income (expense) primarily includes interest income on USD cash deposits net of bank fees ("negative interest") on EUR and DKK cash deposits. The favorable change during the year ended December 31, 2018 is the result of lower bank fees incurred in 2018 on lower EUR cash holdings during 2018 subsequent to the Capital Reduction in September 2017 and increased interest income on USD cash deposits resulting from higher rates in 2018.

Income tax (benefit) expense for the years ended December 31, 2018 and 2017

        The tax benefit recognized during the year ended December 31, 2018 of $204,000 results in part from a change in estimate of $161,000 and the balance relates to changes in deferred tax balances during the year. The effective tax rate for the year ended December 31, 2018 was 2.3%, which is lower than the Danish statutory tax rate of 22.0%. The lower effective tax rate in 2018 is primarily the result of unrecognized deferred tax assets that do not meet the recognition requirement as discussed below. The income tax expense for the year ended December 31, 2017 totaled $267.4 million. The tax expense for the year ended December 31, 2017 resulted from the receipt of the Non-refundable Fee, partially

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offset by operating expense, resulting in pretax income of $1.2 billion. The effective tax rate for the year ended December 31, 2017 was 22.6%, which is slightly higher than the Danish statutory tax rate of 22.0%. The difference between the effective tax rate and the statutory tax rate is primarily derived from a higher tax rate in Germany, where the Group has taxable nexus in addition to Denmark, and certain nondeductible items related to share-based compensation and the Shareholder Distribution.

        Since there is significant uncertainty as to whether the Group will have taxable income in the future, deferred tax assets that are available at December 31, 2018 do not meet the criteria for financial statement recognition and accordingly have not been recognized in the accompanying consolidated financial statements.

        There is an ongoing joint tax audit being conducted by the Danish and German tax authorities of the Group's Danish and German tax returns for each of the five years in the period ending December 31, 2017. While management believes the tax filing positions taken were correct, there is always the risk that the tax authorities could disagree resulting in additional taxes, interest and penalty being assessed and the amount could be material. See below as well as Note 3.4 to the financial statements for additional information.

Comparison of the years ended December 31, 2017 and 2016

 
  Year ended December 31,  
 
  2017   2016   Change
favorable
(unfavorable)
 
 
  (USD in thousands)
 

Revenue from the License Agreement

    1,250,000         1,250,000  

Cost of the Aditech Pharma AG patent transfer agreement

    (25,000 )       (25,000 )

Research and development costs

    (20,496 )   (41,052 )   20,556  

General and administrative costs

    (17,107 )   (14,382 )   (2,725 )

Operating income (loss)

    1,187,397     (55,434 )   1,242,831  

Exchange rate (losses) gains

    (241 )   598     (839 )

Interest income

    227     389     (162 )

Other finance costs

    (2,895 )   (92 )   (2,803 )

Income (loss) before tax

    1,184,488     (54,539 )   1,239,027  

Income tax (expense) benefit

    (267,395 )   21,203     (288,598 )

Net income (loss)

    917,093     (33,336 )   950,429  

Revenue from License Agreement for the years ended December 31, 2017 and 2016

        During the year ended December 31, 2017, the Company recognized as revenue the $1.25 billion nonrecurring Non-refundable Fee that was received during February 2017. Prior to entering into the License Agreement, the Company did not have contracts with customers and, accordingly, there was no revenue recognized during the year ended December 31, 2016 or since the Company was founded in 2005.

Cost of Aditech Pharma AG agreement for the years ended December 31, 2017 and 2016

        The terms of the patent transfer agreement between Aditech and the Company, including the Addendum executed in January 2017, provided for Aditech to receive a payment equal to 2% of the Non-refundable Fee, or $25 million, during the year ended December 31, 2017. During the year ended December 31, 2016, there were no amounts due Aditech.

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Research and development costs for the years ended December 31, 2017 and 2016

        Research and development costs for the years ended December 31, 2017 and 2016 were $20.5 million and $41.1 million, respectively. The decrease in research and development costs for the year ended December 31, 2017 of $20.6 million is the result of lower costs incurred in connection with the Interference Proceeding, lower share-based compensation and the winding down of our development efforts of FP187®. The decrease was offset by $9.5 million of additional compensation expense recognized during the year ended December 31, 2017 in connection with the Amendment of Awards as discussed above. Fees to patent advisors and other patent-related costs decreased from $16.3 million in the year ended December 31, 2016 to $2.7 million in the year ended December 31, 2017. Fees to patent advisors and other patent-related costs include the cost to conduct the Interference Proceeding. The decrease is the result of reduced activities subsequent to the oral argument on November 30, 2016 for the Interference Proceeding and the PTAB's issuance of the decision in the Interference Proceeding in favor of Biogen on March 31, 2017. Share-based compensation decreased from $8.0 million in the year ended December 31, 2016 to $4.9 million in the year ended December 31, 2017 in connection with the vesting of equity awards issued during the years ended December 31, 2016 and 2015 that included graded vesting provisions resulting in expense recognition that decreases in the latter years of vesting combined with the favorable effect related to the benefit recognized during the year ended December 31, 2017 in connection with equity awards that were forfeited as the result of employee terminations where the forfeited equity awards were initially expected to vest in full. The balance of the decrease in research and development cost during the year ended December 31, 2017 is the result of winding down FP187® development costs including all preclinical, clinical and contract manufacturing efforts that were in process prior to the effective date of the License Agreement.

General and administrative costs for the years ended December 31, 2017 and 2016

        General and administrative costs for the years ended December 31, 2017 and 2016 were $17.1 million and $14.4 million, respectively. The increase in general and administrative costs in the year ended December 31, 2017 of $2.7 million resulted from increased legal and accounting costs, compensation expense and costs related to the restructuring. A decrease in share-based compensation offset these increases. Legal and accounting fees were $6.9 million in the year ended December 31, 2017 compared to $4.4 million in the year ended December 31, 2016. The increase in legal and accounting fees is related to the License Agreement and the restructuring. During the year ended December 31, 2017, the Company recognized $2.2 million of additional compensation expense in connection with the Amendment of Awards and $759,000 in connection with the formation of the foundation, FWP Fonden, and the sale of FWP IP ApS as discussed above. Share-based compensation decreased from $6.3 million in the year ended December 31, 2016 to $2.2 million in the year ended December 31, 2017. The favorable change was related to the benefit recognized during the year ended December 31, 2017 in connection with equity awards that were forfeited as the result of employee terminations where the forfeited equity awards were initially expected to vest in full.

Non-operating (expense) income for the years ended December 31, 2017 and 2016

        During the year ended December 31, 2017, the Company recognized a foreign exchange loss of $241,000. The $241,000 foreign exchange loss resulted primarily from the negative effect of the weakening of the USD to the DKK during the period that is reflected as a non-cash foreign exchange loss when the USD cash and cash equivalents are converted to DKK at December 31, 2017. During the year ended December 31, 2016, the Company recognized a foreign exchange gain of $598,000. The $598,000 non-cash foreign exchange gain resulted primarily from the strengthening of the USD compared to the DKK during the period that is reflected as a non-cash foreign exchange gain when the

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USD cash, cash equivalents and available-for-sale financial assets are converted to DKK at December 31, 2016.

        During the years ended December 31, 2017 and 2016, the Company recognized interest income from available-for-sale financial assets of $227,000 and $389,000, respectively. The decrease in the year ended December 31, 2017 is the result of lower amounts invested in available-for-sale financial assets during the period. Subsequent to October 2017, the Company did not hold available-for-sale financial assets.

        Other finance expense includes bank fees ("negative interest") that increased in the year ended December 31, 2017 as the result of the Company holding significant cash deposits during the period.

Income tax expense (benefit) for the years ended December 31, 2017 and 2016

        Income tax expense for the year ended December 31, 2017 totaled $267.4 million. During the year ended December 31, 2016, the Company recognized a tax benefit of $21.2 million. The tax expense for the year ended December 31, 2017 resulted from the receipt of the Non-refundable Fee, partially offset by operating expenses, giving rise to pretax income of $1.2 billion. The effective tax rate for the period is 22.6%, which is slightly higher than the Danish statutory tax rate of 22.0%. The difference between the effective tax rate and the statutory tax rate is primarily the result of higher tax rate in Germany, where the Company has taxable nexus in addition to Denmark, and certain nondeductible items related to share-based compensation and the Shareholder Distribution. Taxable profits are not assured beyond the year ending December 31, 2017; therefore, temporary differences that will be available to offset taxable profits after December 31, 2017 do not meet the criteria for financial statement recognition and therefore the related deferred tax assets have not been recognized. The income tax benefit for the year ended December 31, 2016 resulted from the recognition of deferred tax assets that prior to 2016 did not meet the criteria for recognition.

Government, Economic, Fiscal, Monetary or Political Initiatives That May Materially Affect Our Operations

        We have not identified any current government, economic, fiscal, monetary or political initiatives that would be expected to materially affect our operations.

Critical Accounting Policies

        Our management's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which we have prepared in accordance with IFRS as issued by the IASB. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the revenues and expenses reported during each period. Actual results may differ from these estimates under different assumptions or conditions.

        While our significant accounting policies are more fully described in the notes to our audited consolidated financial statements appearing elsewhere in this Annual Report, we believe that the following accounting policies are the most critical to aid you in understanding and evaluating our financial condition and results of operations.

    Share-based compensation

        The fair value of equity awards (the share-based compensation arrangements we have historically used have included deferred shares, share options and warrants) issued to our employees, board members, consultants and non-employee consultants in connection with their services provided to us

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are recognized by us as compensation expenses over the applicable service period which is also the vesting period.

        The Company determines the initial fair value and subsequent accounting for equity awards granted to the Company's employees, consultants and directors using an option pricing model (Black-Scholes) that requires management to use many subjective assumptions. The subjective nature of the assumptions requires management to use significant judgment, and small changes in any individual assumption or in combination with other assumptions may yield significantly different results. The most significant assumptions included the following: the expected period an equity award will be outstanding and the peer group we use to determine volatility. Before the Company's ADSs were quoted on an active market, the underlying fair value share price used to value equity awards was determined by applying a discounted cash flow, or DCF, model based on estimated long-term future cash flows that are inherently uncertain. Subsequent to the Company's IPO, determining the initial fair value and subsequent accounting for equity awards will continue to require significant judgment regarding expected life and volatility of an equity award; however, as a public listed company there is objective evidence of the fair value of an ordinary share on the date an equity award is granted and therefore DCF valuations are not used subsequent to our IPO in October 2014. As a public listed entity, in the future after there has been an extended period of historical trading activity of the Company's ADSs, the Company will determine the fair value of an equity award using an option valuation model that incorporates the historical trading attributes of the Company's ADSs including the volatility and the expected life of an equity award.

    Income taxes

        We recognize deferred tax assets, including the tax base of tax loss carry forwards, if our management assesses that these taxes can be offset against positive taxable income within a foreseeable future. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized based upon the likely timing and level of future taxable profits together with future tax planning strategies. Such a judgment will be made on an ongoing basis and is based on historical results of operations, budgets and business plans, including any planned commercial activities. Prior to December 31, 2016, we did not recognize deferred tax assets, since we historically have experienced recurring losses and there was uncertainty of future taxable income. However, considering the License Agreement, it became probable at December 31, 2016 that the Company would have taxable income in 2017 thereby enabling the Company to recognize certain deferred tax assets that historically did not meet the criteria for recognition. In reaching the conclusion to recognize deferred tax assets at December 31, 2016, numerous judgments were made including the close proximity of the date the License Agreement was executed to December 31, 2016 and the magnitude of the Non-refundable Fee compared to the projected total expenses in 2017. The deferred tax benefit recognized during the year ended December 31, 2016 was primarily related to net operating loss carry forwards. Taxable profits are not assured beyond the year ending December 31, 2017; therefore, temporary differences that will be available to offset taxable profits after December 31, 2017 do not meet the criteria for financial statement recognition and therefore the related deferred tax assets have not been recognized.

        We are subject to income taxes in Denmark and Germany. Significant judgment is required in determining the timing of recognition of current taxes payable as well as deferred tax assets and liabilities. There are transactions and calculations for which the ultimate tax determination is uncertain. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made. The Company's Danish, German and U.S. tax returns are subject to periodic audit by the local tax authorities. Such audits could result in the tax authorities disagreeing with the tax filing positions taken by the Group that would expose the Group to additional taxes being

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assessed, including interest and penalties, that could be material. There are numerous transactions between the Company, Forward Pharma Operations ApS, FWP IP ApS, Forward Pharma GmbH and Forward Pharma USA, LLC where the tax authorities could challenge whether pricing of such transactions were at arm's length. Management believes that appropriate tax filing provisions have been taken by the Company and its subsidiaries; however, there is always a risk that the tax authorities could disagree with the tax filing positions taken resulting in additional taxes, interest and penalty becoming due and such amount could be material.

        We have taken the position that we are not subject to U.S. federal or state income tax. In reaching this conclusion, significant judgment was used in evaluating the nature of our operations in the U.S., the interpretation of the U.S. and Danish tax laws, and the income tax treaty between the U.S. and Denmark. Management believes that the tax filing provisions taken in the U.S. and Denmark regarding Forward Pharma USA, LLC are correct; however, there is always a risk that the U.S. or Danish tax authorities could disagree with the tax filing positions taken resulting in additional taxes, interest and penalty becoming due and such amount could be material.

        As a result of the receipt of the Non-refundable Fee and the resulting taxable income in 2017, the Danish and German tax authorities have commenced tax audits of the Group's Danish and German tax returns covering the five-year period ending December 31, 2017. The tax audits are expected to focus on the intercompany recognition of revenue and expense to ensure that such transactions were conducted at arm's length. There is a risk that the tax authorities could impose additional taxable income or disallow the deductibility of expenses on intercompany cross-border transactions resulting in higher tax obligations in one or more tax jurisdictions. Management's experience has been that the taxing authorities can be aggressive in taking positions that would increase taxable income and/or disallow deductible expenses reported. If the tax authorities are successful in increasing taxable income and/or disallowing deductible expenses in one or more jurisdictions, it would result in the Group experiencing a higher effective tax rate that could be material. Management believes that the tax positions taken with regards to intercompany transactions are in accordance with tax regulations and that appropriate tax provisions have been made in the accompanying financial statements; however, there is always a risk that the Danish and/or the German tax authorities could disagree with the tax filing positions taken resulting in additional taxes, interest and penalty becoming due and such amount could be material. The Danish and German tax authorities are conducting a joint tax audit of the Group's Danish and German tax returns. Conducting a joint tax audit is expected to reduce the burden and cost to the Group of undergoing two audits that address similar transactions and to accelerate the resolution of disagreements through the mutual agreement procedure ("MAP") by early involvement of Competent Authorities, if necessary. There is no assurance that the joint audit will achieve expected benefits.

        During the year ended December 31, 2017, the Company made certain cash payments (the "Deduction") to equity award holders in accordance with amendments to the Company's article of association that were approved by the Company's shareholders and board of directors (See Note 3.3 to the financial statements for additional information.) The Company believes the Deduction, that totaled 36.2 million EUR ($43.4 million based on the December 31, 2017 exchange rate), represents, for tax reporting purposes, compensation for services rendered to the Company and is tax deductible for Danish tax purposes for the year ended December 31, 2017. Management believes that the tax positions taken with regards to the Deduction is in accordance with tax regulations and that appropriate tax provisions have been made in the accompanying financial statements; however, there is always a risk that the Danish authorities could disagree with the tax filing positions taken resulting in additional taxes, interest and penalty becoming due and such amount could be material. There were similar cash payments made to equity award holders during the year ended December 31, 2018 that totaled 650,000 EUR ($761,000); however, such amounts have been accounted for as unrecognized

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deductible temporary differences at December 31, 2018 and reflected in the accompanying financial statements as unused tax losses in Denmark.

        As of December 31, 2018, we have unused tax loss carry forwards in Denmark and Germany of 27.9 million DKK ($4.3 million based on the December 31, 2018 exchange rate) and EUR 12.0 million ($13.8 million based on the December 31, 2018 exchange rate) respectively. The Danish and German tax loss carry forwards have no expiry date. For Danish tax purposes, the Company's ability to use tax loss carry forwards in any one year is limited to 100% of the first 8.2 million DKK ($1.3 million based on the December 31, 2018 exchange rate) of taxable income plus 60% of taxable income above 8.2 million DKK. For German tax purposes, Forward Pharma GmbH's ability to use tax loss carry forwards in any one year is limited to 100% of the first EUR 1 million ($1.1 million based on the December 31, 2018 exchange rate) of taxable income plus 60% of taxable income above EUR 1 million.

        For more, see "Risk Factors—Risks Related to Danish Law and Our Operations in Denmark" and Note 3.4 in the accompanying financial statements for additional information.

Recent Accounting Pronouncements

    Standards effective in 2018:

        The IASB issued new standards, amendments to standards and interpretations that were effective in 2018, or the 2018 New Standards. None of the 2018 New Standards affected the Company's consolidated financial statements.

    Standards issued but not yet effective:

        The IASB issued new standards, amendments to standards and interpretations that become effective on or after January 1, 2019 (collectively "New Standards"). None of the New Standards are currently expected to have a material effect on the Group's financial statements; including, as discussed below, the future adoption of IFRS 16 Leases ("IFRS 16").

        IFRS 16 introduces a single lessee accounting model and requires a lessee to recognize assets and liabilities for all leases with a term of more than twelve months, unless the underlying asset is of low value. A lessee is required to recognize a right-of-use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments. IFRS 16 has an effective date of January 1, 2019. The Group does not have long-term leases that are material and therefore the future adoption of IFRS 16 will not have a material effect on the Group's consolidated financial statements.

JOBS Act Exemptions

        On April 5, 2012, the JOBS Act was signed into law in the U.S. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for an emerging growth company. As an emerging growth company, we have elected to take advantage of the following exemptions:

    not providing an auditor attestation report on our internal control over financial reporting; and

    not providing all of the compensation disclosure that is required of non-emerging growth public companies under the U.S. Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

        The JOBS Act permits an emerging growth company such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We are choosing to "opt out" of this provision and, as a result, we are complying with new or revised

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accounting standards as required when they are adopted. This decision to opt out of the extended transition period under the JOBS Act is irrevocable.

        Subsequent to December 31, 2018, we no longer qualify as an emerging growth company under the JOBS Act.

B. Liquidity and Capital Resources

Comparison of the Years ended December 31, 2018 and 2017

        The table below summarizes our consolidated statement of cash flows for each of the years ended December 31, 2018 and 2017:

 
  Year ended
December 31,
 
 
  2018   2017  
 
  (USD in thousands)
 

Net cash flows (used in) provided by operating activities

    (14,787 )   939,947  

Net cash flows provided by investing activities

    3     85,365  

Net cash flows (used in) financing activities

    (8,120 )   (1,118,691 )

Net (decrease) in cash and cash equivalents

    (22,904 )   (93,379 )

Net foreign exchange differences

    (4,108 )   145,035  

Cash and cash equivalents beginning of year

    109,554     57,898  

Cash and cash equivalents end of year

    82,542     109,554  

        Net cash flows used in operating activities for the year ended December 31, 2018 totaled $14.8 million compared net cash flows provided by operating activities for the year ended December 31, 2017 of $939.9 million. The cash flows used in operating activities for the year ended December 31, 2018 were due to the loss incurred for the year combined with the payment of liabilities recognized at the end of 2017, including tax obligations, offset by non-cash share-based compensation of $6.2 million. The cash flows provided by operating activities for the year ended December 31, 2017 were due to the receipt of the nonrecurring Non-refundable Fee of $1.25 billion offset by operating costs and income taxes.

        The cash inflow provided by investing activities of $3,000 for the year ended December 31, 2018 is the receipt of a rent security deposit associated with vacated office space. The net cash flows provided by investing activities of $85.4 million for the year ended December 31, 2017 reflects the cash inflows from the maturity of available-for-sale financial assets of $85.4 million offset by the purchase of equipment of $3,000.

        Cash flows used in financing activities for the year ended December 31, 2018 totaled $8.1 million. Such use of cash was the result of cash outflows for the repurchase of equity awards, of $8.1 million, offset by the receipt of $1,000 in connection with the exercise of warrants. Cash flows used in financing activities for the year ended December 31, 2017 totaled $1.1 billion. Such use of cash was the result of cash outflows for the Shareholder Distribution, of $1.1 billion, and the repurchase of equity awards, of $24.8 million, offset by the receipt of $49,000 in connection with the exercise of warrants.

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Comparison of the Years ended December 31, 2017 and 2016

        The table below summarizes our consolidated statement of cash flows for each of the years ended December 31, 2017 and 2016:

 
  Year ended
December 31,
 
 
  2017   2016  
 
  (USD in thousands)
 

Net cash flows provided by (used in) operating activities

    939,947     (34,105 )

Net cash flows provided by investing activities

    85,365     41,170  

Net cash flows (used in) provided by financing activities

    (1,118,691 )   114  

Net (decrease) increase in cash and cash equivalents

    (93,379 )   7,179  

Net foreign exchange differences

    145,035     (1,550 )

Cash and cash equivalents beginning of year

    57,898     52,269  

Cash and cash equivalents end of year

    109,554     57,898  

        Net cash flows provided by operating activities totaled $939.9 million in the year ended December 31, 2017 compared to net cash flows used in operating activities of $34.1 million in the year ended December 31, 2016. The increase in 2017 in cash flows provided by operating activities is due to the receipt of the Non-refundable Fee of $1.25 billion offset by the consideration paid to Aditech Pharma AG of $25 million, other operating costs and income taxes.

        The net cash flows provided by investing activities relate to cash inflows from the maturity of available-for-sale financial assets of $85.4 million and $41.2 million for the years ended December 31, 2017 and 2016, respectively. In addition, there were cash outflows for the purchase of equipment in the years ended December 31, 2017 and 2016 of $3,000 and $31,000, respectively.

        Cash flows used in financing activities for the year ended December 31, 2017 totaled $1.1 billion. Such use of cash was the result of cash outflows for the Shareholder Distribution, of $1.1 billion, and the repurchase of equity awards, of $24.8 million, offset by the receipt of $49,000 in connection with the exercise of warrants. The cash inflows provided by financing activities for the year ended December 31, 2016 totaled $114,000 and were the result of the proceeds received in connection with the exercise of warrants and issuance of deferred shares.

    Funding Requirements and Capital Resources

        We believe that our cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements beyond the next twelve months. We currently estimate that our use of cash for the year ending December 31, 2019 will range from $4 million to $6 million. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect. There is a high level of uncertainty in estimating the costs we will incur to continue the Opposition Proceeding and to defend and protect the intellectual property associated with the Company. There are other uncertainties that could negatively affect our estimated cash spend in 2019 including, but not limited to, an unforeseen negative outcome of the joint tax audit in process in Denmark and Germany (see Note 3.4 to the financial statements for additional information). Accordingly, our estimated use of cash for the year ending December 31, 2019 could change near-term and the change could be material. We have no long-term financial commitments, such as lines of credit or guarantees, which are expected to affect our liquidity, other than an office rental lease, which we consider immaterial.

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        Our present and future funding requirements will depend on many factors, including, among other things:

    the outcome of the Opposition Proceeding, including any appeals;

    our efforts to secure and protect the intellectual property associated with the Company with the objective of obtaining and maintaining royalty-bearing patents;

    the joint tax audit of our Danish and German tax returns; and

    the costs to maintain the infrastructure necessary for a publicly listed company.

    Capital Expenditures

        Our capital expenditures in the past have not been significant and we currently do not have any significant capital expenditures planned for 2019 or thereafter.

C. Research and Development and Patents

        See "Item 4. Information on the Company—B. Business Overview" and "Item 5.A. Operating results."

D. Trend Information

        See "Item 5.A. Operating results."

E. Off-balance Sheet Arrangements

        In 2004, a private company Aditech Pharma AB (together with its successor-in-interest Aditech Pharma AG, "Aditech"), controlled by NB FP Investment K/S and its affiliates (a related party), began developing and filing patents for, among other things, formulations and dosing regimens of DMF. In 2005, the Company entered into a patent license agreement with Aditech to license this patent family from Aditech. In 2010, the Company acquired this patent family from Aditech pursuant to a patent transfer agreement (the "Transfer Agreement") that replaced the patent license agreement. Under the Transfer Agreement, the Company obtained, among other things, Aditech's patents and associated know-how related to DMF formulations and delivery systems (the "Aditech IP"). In connection with the License Agreement, the Company and Aditech executed an addendum to the Transfer Agreement (the "Addendum"). The Addendum clarified certain ambiguities with respect to the compensation due to Aditech in the event the Company would enter into the License Agreement and also provided for Aditech to waive certain rights under the Transfer Agreement. The Addendum specifies that Aditech receives 2% of the Non-refundable Fee (or $25 million) and is entitled to additional compensation should the Company receive royalties from Biogen under the License Agreement. If royalties are paid to the Company in accordance with the License Agreement, Aditech will be entitled to receive a cash payment equal to 2% of the same base amount with respect to which the Company's royalty percentage is calculated, accruing from the same period of time as any royalty payment payable by Biogen to the Company (prior to taking into account taxes, duties and VAT, if any).

        Under the terms of the License Agreement, and as discussed in more detail elsewhere herein, the Company restructured its operations on June 30, 2017. The restructuring provided for, among other things, the transfer of certain assets and liabilities to Forward Pharma Operations ApS, including the legal and beneficial rights, title and interest to certain intellectual property, for Forward Pharma Operations ApS to transfer such intellectual property to FWP IP ApS and for Forward Pharma Operations ApS to sell FWP IP ApS to FWP HoldCo ApS. In connection therewith, a number of agreements were executed between the Company, Biogen, Forward Pharma Operations ApS and

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FWP IP ApS including the IPR Services, Administration, Funding and Novation Agreement, or IPR Agreement.

        The IPR Agreement requires Forward Pharma Operations ApS to pay an annual fee to FWP IP ApS of 100,000 DKK ($15,000 based on the December 31, 2018 exchange rate) as consideration for FWP IP ApS agreeing to hold, prosecute and maintain the transferred intellectual property. Forward Pharma Operations ApS is obligated to remit the annual fee through the last to expire, or invalidation of, the licensed patents underlying the transferred intellectual property; however, Forward Pharma Operations ApS' obligation to remit the annual fee would be discontinued early if certain events occur as defined in the License Agreement.

        Forward Pharma USA, LLC has a twelve-month office lease that expires on March 31, 2020. The monthly rent is approximately $1,150.

        Forward Pharma A/S has entered into a lease with Nordic Biotech Advisors ApS for certain office space that houses the Company's corporate headquarters in Copenhagen, Denmark. The amount payable under the lease is variable based on a defined formula and the agreement can be cancelled by either party with six months' prior written notice. For the year ended December 31, 2018, we paid 601,000 DKK (approximately $92,000 based on the December 31, 2018 exchange rate), including VAT, for the use of such premises and we estimate that amounts due under the lease for 2019 will not be materially different.

F. Tabular Disclosure of Contractual Obligations

Contractual Obligations and Commitments

        The table below sets forth our contractual obligations and commercial commitments as of December 31, 2018.

 
  Payments due by period  
 
  Less than
1 year
  Between
1 and 2 years
  Between
2 and 5 years
  More than
5 years
  Total  
 
  (USD in thousands)
 

Non-cancellable contractual obligations*

  $ 17   $ 17   $ 48   $ 93   $ 175  

Operating lease obligations

  $ 51   $ 3           $ 54  

Total

  $ 68   $ 20   $ 48   $ 93   $ 229  

(*)
Includes the annual fee of 100,000 DKK due to FWP IP assuming a conversion rate to U.S. Dollars of 6.5195 as quoted by the Danish National Bank for December 31, 2018. The annual fee has been estimated through the end of 2029; however, such obligation to fund could be terminated earlier or later as defined in the License Agreement.

        The table above does not include amounts that would be payable to Aditech if we collect royalties from Biogen in accordance with the License Agreement. The amount, if any, and timing of potential payments to Aditech cannot be estimated at this time but could be material. See Note 6.2 in the accompanying financial statements for additional information.

        The table above excludes $967,000 that is contingently payable to certain employees, including the CEO, directors and a consultant if certain service requirements are met as defined in the underlying agreements. If the service requirements are met, the amounts due accrue pro rata through May 2020 and under certain conditions, the amounts could be paid sooner. In addition, the table also excludes $890,000 that is contingently payable, as defined in the underlying agreements, to the CEO and a consultant if there is a favorable outcome in the Opposition Proceeding and certain service requirements are met. We are unable to estimate when or if there will be favorable outcome of the Opposition Proceeding. See Note 3.3 in the accompanying financial statements and the disclosure above regarding the Amendment for additional information.

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ITEM 6.    DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A. Directors and Senior Management

        The following table sets forth information regarding our board of directors and senior management. Unless otherwise stated, the business address for our executive officers and directors is Østergade 24A, 1st floor, 1100 Copenhagen K, Denmark.

Name
  Age   Position
Florian Schönharting   50   Chairman
Claus Bo Svendsen   42   Chief Executive Officer
Thomas Carbone   61   Vice President, Finance and Controller, Forward Pharma USA, LLC
Torsten Goesch   59   Director
Grant Hellier Lawrence   57   Director
Jakob Mosegaard Larsen   46   Director
Duncan Moore   60   Director

Florian Schönharting, Chairman

        Mr. Schönharting is currently the chairman of our board of directors and has served on the board since our incorporation in July 2005. Mr. Schönharting is our co-founder. He has also founded or co-founded several other biopharmaceutical companies, including Genmab A/S, Veloxis A/S (f/k/a Life Cycle Pharma A/S) and Zealand Pharma A/S. Mr. Schönharting has more than 25 years of investment executive experience in public and private equity funds involved in the biopharmaceutical industry. He actively managed BI Healthcare SICAV and BI Bioteknologi SICAV for eight years. Mr. Schönharting currently manages the following funds and certain affiliates of these funds: NB Public Equity K/S, Nordic Biotech K/S, Nordic Biotech Opportunity Fund K/S (NBOF), NB FP Investment I K/S (NBFPI) and NB FP Investment II K/S (NBFPII). Mr. Schönharting is also manager of Tech Growth Invest ApS. Mr. Schönharting has an M.Sc. (Econ) from Copenhagen Business School.

Claus Bo Svendsen, Chief Executive Officer (Principal Executive Officer & Principal Financial Officer)

        Dr. Svendsen has served as our Chief Executive Officer since March 2017. Within Forward Pharma, his previous role as Executive Vice President included responsibility for corporate functions, portfolio strategy, regulatory interactions and medical and scientific input across all phases of clinical trials. Prior to joining Forward Pharma in 2015, he held positions of increasing seniority in the Danish pharmaceutical company Novo Nordisk A/S, including roles of Global Medical Director for Victoza® (liraglutide) and for Saxenda® in its regulatory and pre-launch phase for weight management. From 2007 to 2009, he worked as a Medical Analyst in Nordic Biotech Advisors ApS, dealing with due diligence of potential investment opportunities. He received a M.D. from University of Copenhagen in 2003, and additionally completed a Ph.D. in sarcoidosis pathobiology in 2009. He has worked in several countries with a clinical background mainly in internal medicine, and is a recipient of a Young Investigator Award from the Foundation for Sarcoidosis Research in 2009. Dr. Svendsen is an author of 27 publications in international, peer-reviewed journals and over 50 abstracts presented at international congresses on pathobiology of sarcoidosis, methods in molecular biology, and medical treatment of diabetes and obesity.

Thomas Carbone, Vice President, Finance and Controller, Forward Pharma USA, LLC (Principal Accounting Officer)

        Mr. Carbone has served as the Vice President, Finance and Controller of Forward Pharma USA, LLC since August 2014. Prior to joining us, he spent over 30 years providing auditing and

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accounting services to a diversified client base of public and private companies, including many in the biotechnology and pharmaceutical industries. Mr. Carbone has extensive experience with the reporting requirements for publicly listed companies and the complex rules and regulations that public companies must comply with. He has been involved in numerous public offerings of debt and equity securities, including many initial public offerings. His most recent role was Partner at a nationally recognized public accounting firm.

Torsten Goesch, Director

        Dr. Goesch has served on our board of directors since June 2006. He has also been the director of Rosetta Capital I, LP a secondary life sciences investor since 2002. In this function, Dr. Goesch is responsible for the management of several Rosetta Capital I, LP investments and has served as a member of the board of directors of many biopharmaceutical companies, including Enobia Ltd and Cytochroma Ltd. Dr. Goesch is also the founder and former Managing Director of TRG Invest, a Munich-based consulting business serving companies in the life science sector. Additionally, Dr. Goesch served as the General Manager for the German Speaking Countries at Biogen from 1997 to 1999, and before that was the Commercial Head of Merck KGaA's worldwide generics drug business, Merck Generics. He practiced as a physician of internal medicine at the University Hospital Hamburg-Eppendorf from 1988 to 1990, focusing on nephrology, immunology and oncology. Dr. Goesch has a Master of Management from the J.L. Kellogg Graduate School of Management at Northwestern University, as well as an M.D. and Ph.D. from Heinrich Heine University Dusseldorf.

Grant Hellier Lawrence, Director

        Mr. Lawrence has served on our board of directors since July 2015. Mr. Lawrence is currently Managing Director and CFO at Nunc A/S, a Thermo Fisher Scientific company. He has more than 15 years of financial and information technology management experience within global Life Science manufacturing and commercial companies, where he has provided overall leadership and strategic direction with a proven record of driving sustained business and financial performance. Prior to joining Thermo Fisher Scientific, Mr. Lawrence worked for FMC and Pioneer Electronic Corporation. Mr. Lawrence holds a Diploma in Mechanical Engineering (1984) and graduated from the University of South Africa with a Bachelor of Commerce Degree in Accounting and Business Administration (1989).

Jakob Mosegaard Larsen, Director

        Mr. Larsen has served on our board of directors since July 2015. Mr. Larsen is currently a partner at Copenhagen-based law firm Mazanti-Andersen Korsø Jensen Law Firm LLP. Prior to January 1, 2016, Mr. Larsen was a Partner at Copenhagen-based the law firm Nielsen Nørager Law Firm LLP. Mr. Larsen serves as a trusted advisor of Danish and international private equity and venture fund managers. He has several years of experience acting as a legal adviser of biotech and life science companies. Mr. Larsen is chairman of the Danish Venture Capital and Private Equity Association's (DVCA) Legal Committee and serves as DVCA's representative on Invest Europe's Legal and Regulatory Committee. He graduated from Copenhagen University with a Master's Degree in Law and holds an executive MBA from Copenhagen Business School. From 2005 to December 31, 2015 (or for those entities that were established after 2005, since their inception), Nielsen Nørager Law Firm LLP acted as our Danish legal counsel and legal counsel to the Nordic Biotech funds that currently are our shareholders, and the advisory company and the general partners of those funds. Subsequent to December 31, 2015, Mazanti-Andersen Korsø Jensen Law Firm LLP has become our Danish legal counsel and legal counsel to the Nordic Biotech funds, the advisory company and the general partners of those funds. As a former partner in Nielsen Nørager Law Firm LLP and now as a partner at Mazanti-Andersen Korsø Jensen, Mr. Larsen has been and remains extensively involved in the

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provision of these legal services. Since 2011, Mr. Larsen has also served as a member of the board of directors of the advisory company of two of the Nordic Biotech funds that currently are our shareholders. Mr. Larsen serves on our board of directors in his individual capacity and not as a representative of any of the law firms.

Duncan Moore, Director

        Dr. Moore has served on our board of directors since May 2016. Dr. Moore is a partner at East West Capital Partners since May 2008. Previously, Dr. Moore was a top-ranked pharmaceutical analyst at Morgan Stanley from 1991 to 2008 and was a Managing Director from 1997 to 2008 leading the firm's global healthcare equity research team. Whilst at the University of Cambridge he co-founded a medical diagnostics company called Ultra Clone with two colleagues which led to the beginnings of a 20-year career in healthcare capital markets analysis. In 1986, he was involved in setting up the BankInvest biotechnology funds and was on its scientific advisory board. Dr. Moore was educated in Edinburgh and went to the University of Leeds where he studied Biochemistry and Microbiology. He has a M.Phil. and Ph.D. from the University of Cambridge where he was also a post-doctoral research fellow. Currently, he is an active investor in biomedical companies as Chairman of Lamellar Biomedical, Oncology Ventures and StepJockey. In addition, he has board positions at Cycle Pharma and Braidlock.

Composition and Practices of the Board of Directors

        The board of directors has the overall responsibility for our corporate management. The board of directors determines our policies regarding business strategy, organization, accounting and finance, and the board of directors appoints and supervises our executive officers. The majority of the members of the board of directors must be directors who are not executive officers, and no executive officer may be chairman or vice-chairman of the board of directors. The chairman is elected among and by the directors.

        According to the Articles of Association, the board of directors must consist of not less than three and no more than seven members. Following the annual general meeting of shareholders of the Company on May 3, 2017, the size of the board was reduced to five members. All members of the board of directors are elected by our shareholders at the general meeting for one-year terms. At the end of each term, they are eligible for re-election. The board of directors plans to meet at least two times each year, and meetings can be called when deemed necessary by any of our directors or executive officers or by our auditor.

        Under the shareholders' agreement that certain of our shareholders entered into prior to our initial public offering, the shareholders party to such agreement have agreed that NBFPI will have the right to nominate four directors, Nordic Biotech K/S and NBOF will jointly have the right to nominate one director, and NBFPII shall have the right to nominate one director to the board.

        The Danish Companies Act requires granting employees in Danish companies a right of representation on the board of directors in companies with at least 35 employees. This requirement does not currently apply to us because, as of March 31, 2019, we only have 5 employees.

        The board of directors conducts its business in accordance with the Danish Companies Act and its own rules of procedure. The rules of procedure set out, among other things, that the board of directors shall establish our strategy, policies and activities to achieve its objective in accordance with the Articles of Association. It also establishes the responsibilities of the board of directors, e.g., that the board of directors shall ensure that our bookkeeping, accounting, asset management, information technology systems, budgeting and internal controls are properly organized. The rules of procedure also provide guidelines for the division of responsibilities between the board of directors, the executive officers and the audit committee. The rules of procedure may be amended by a simple majority vote of the board.

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        A majority of the directors, including our chairman, must be present to constitute a quorum. Unless otherwise set forth in our Articles of Association, decisions of the board of directors are decided by a simple majority of votes cast. In the event of a tie vote of the members of the board of directors, the chairman shall have a casting vote.

Executive Officer

        Our Chief Executive Officer Dr. Claus Bo Svendsen is responsible for our day-to-day business and operations.

Board Committees

Audit Committee

        We have an audit committee, which was established on August 8, 2014, under our board of directors consisting of Mr. Grant Hellier Lawrence and Dr. Duncan Moore. Mr. Grant Hellier Lawrence has served on the audit committee since his election to the board of directors in July 2015, and Dr. Duncan Moore has served on the audit committee since his election to the board of directors in May 2016. Since there are no specific requirements under Danish law on the composition of our audit committee, we do not comply with Rule 5605(c) of the Nasdaq Marketplace Rules that requires the audit committees of U.S. companies to have a minimum of three independent directors. Mr. Grant Hellier Lawrence and Dr. Duncan Moore satisfy the director and audit committee "independence" requirements of each of the Nasdaq Marketplace Rules and Section 10A(m)(3)(B)(i) of the Exchange Act.

        The board has adopted a written charter for the audit committee, a copy of which is available on our website at www.forward-pharma.com. As set forth in the written charter, the principal duties and responsibilities of our audit committee are as follows:

    making recommendations on the appointment and retention of our independent registered public accounting firm which will audit our consolidated financial statements, overseeing the independent registered accounting firm's work and advising on the determination of the independent registered accounting firm's compensation;

    reviewing in advance all audit services and non-audit services to be provided to us by our independent registered accounting firm;

    recommending procedures for the receipt, retention and treatment of complaints received by us regarding accounting, internal accounting controls, auditing or compliance matters, as well as for the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters;

    reviewing and discussing with management and our independent registered accounting firm the results of the annual audit;

    conferring with management and our independent registered accounting firm about the scope, adequacy and effectiveness of our internal accounting controls, the objectivity of our financial reporting and our accounting policies and practices;

    overseeing regulatory compliance and related matters; and

    reviewing related party transaction matters.

        We do not have a compensation committee or a nominations committee, nor is independent director involvement required in the selection of director nominees or in the determination of executive compensation. Our home country practice differs from Rule 5605 of the Nasdaq Marketplace Rules regarding independent directors' involvement in these areas, because there are no specific requirements

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under applicable Danish law on the establishment of compensation committees or nominations committees, and neither are there any requirements under applicable Danish law on independent directors' involvement in the selection of director nominees nor in the determination of executive compensation.

Scientific Advisors

        We have historically engaged a number of scientific advisors, and we have regularly sought advice and input from these experienced scientific leaders on matters related to our research and development programs and may continue to do so in the future in relation to our business. Our scientific advisors are experts across a range of key disciplines relevant to our programs and science.

Code of Business Conduct

        We have adopted a written code of business conduct, or code of conduct, which outlines the principles of legal and ethical business conduct under which we do business. The code of conduct applies to all of our board members and employees. The full text of the code of conduct is available on our website at www.forward-pharma.com. Any amendments or waivers from the provisions of the code of conduct will be made only after approval by our audit committee and will be disclosed on our website promptly following the date of such amendment or waiver.

Exemptions from Certain Corporate Governance Requirements of Nasdaq

    As a foreign private issuer, we are not required to have an audit committee comprised of at least three members. Our audit committee is comprised of two members.

    As a foreign private issuer, we are not required to have a board the majority of which is comprised of independent directors.

    As a foreign private issuer, we are not required to adopt a formal written charter or board resolution addressing the process for the nomination of directors. We do not have a nominations committee, nor have we adopted a board resolution addressing the nominations process.

    As a foreign private issuer, we are not required to hold regularly scheduled board meetings at which only independent directors are present.

    As a foreign private issuer, no quorum requirement will apply to our meetings of shareholders.

    As a foreign private issuer, we are not required to obtain shareholder approval for material revisions to our share-based incentive plans.

    As a foreign private issuer, we are not required to solicit proxies or provide proxy statements to Nasdaq pursuant to Nasdaq corporate governance rules or Danish law. Consistent with Danish law and as provided in our Articles of Association, we will notify holders of our ordinary shares of meetings with at least two weeks' but not more than four weeks' notice. This notification will contain, among other things, information regarding business to be transacted at the meeting. In addition, our Articles of Association provide that shareholders must give us not less than six weeks' advance notice to properly introduce any business at an annual meeting of shareholders.

        Other than as noted above, we are in compliance with other Nasdaq corporate governance standards applicable to U.S. domestic issuers.

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B. Compensation

Compensation of Executive Officers and Board

        For the year ended December 31, 2018, the aggregate compensation paid to our executive officer and members of our board of directors (including share-based compensation) was $4,314,000. This amount includes $329,000 that was deemed to be the repurchase of equity awards for financial reporting purposes and accounted for as a reduction in shareholders' equity. A description of the underlying equity awards that were granted to our executive officer and members of our board of directors during the year ended December 31, 2017 is set forth below under "—Warrant and Other Equity Incentive Programs—Director and Officer Awards Granted under the Share Plan and Outside the Share Plan." During the year ended December 31, 2018, there were no equity awards granted to our executive officer or members of our board of directors.

        None of our directors are employees of Forward Pharma A/S or its wholly owned subsidiaries, Forward Pharma USA, LLC and Forward Pharma Operations ApS, or Forward Pharma Operations ApS' wholly owned subsidiaries, Forward Pharma GmbH and Forward Pharma FA ApS, and accordingly, we do not have any written agreements with them providing for benefits upon termination.

        Mr. Larsen, a member of our board of directors, acts as our Danish legal counsel. See "—Director and Officer Awards Granted Under the Share Plan and Outside the Share Plan" and "Related Party Transactions—Legal Services Provided by Mazanti-Andersen Korsø Jensen Law Firm LLP."

Service and Employment Agreements

        We have entered into a written service agreement with our Chief Executive Officer Dr. Claus Bo Svendsen, which contains provisions that we believe are standard for a company in our industry regarding non-competition, confidentiality of information and assignment of inventions.

        Our Vice President, Finance and Controller, Thomas Carbone, commenced working for Forward Pharma USA, LLC on August 18, 2014. Mr. Carbone's agreement contains, among other things, provisions regarding non-competition, confidentiality of information, and assignment of inventions.

Warrant and Other Equity Incentive Programs

        Our employees, consultants and non-employee directors are eligible to participate in our warrant and other equity incentive programs, including our 2014 Omnibus Equity Incentive Compensation Plan described below. Most of our award agreements have specific provisions intended to protect the participant from any dilution to the financial value of his or her ownership interest that may occur as a result of a distribution or dividend. In some cases, this may cause or require us to pay cash compensation to the holders of such awards. In addition, we may choose to pay cash compensation to holders of other awards that do not include such provisions in connection with a distribution or dividend.

    2014 Omnibus Equity Incentive Compensation Plan

        Our 2014 Omnibus Equity Incentive Compensation Plan, or Share Plan, was approved by our board of directors and shareholders on July 24, 2014, and certain technical amendments to the Share Plan were subsequently approved by our board and shareholders on August 11, 2014. Our employees, consultants and non-employee directors are eligible to receive awards under the Share Plan.

        Share Reserve and Limitations.    The maximum number of ordinary shares currently available for awards pursuant to the Share Plan is 9,936,057 ordinary shares, of which a maximum of 50% may be granted to an individual participant during a single year. The ordinary shares available for awards under the Share Plan may be new shares that we issue and/or existing shares, if any, we acquire.

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        Administration.    The Share Plan is administered by our board of directors or, if and when established, a compensation committee appointed by our board of directors. The board of directors (or the committee, if applicable) has the power to: (i) select the employees, consultants and non-employee directors who will receive awards pursuant to the Share Plan; (ii) determine the type or types of awards to be granted to each participant; (iii) determine the number of ordinary shares to which an award will relate, the terms and conditions of any award granted under the Share Plan (including, but not limited to, restrictions as to vesting, transferability or forfeiture, exercisability or settlement of an award and waivers or accelerations thereof, and waivers of or modifications to performance conditions relating to an award, based in each case on such considerations as the board of directors (or the committee, if applicable) determines) and all other matters to be determined in connection with an award; (iv) determine whether, to what extent, and under what circumstances an award may be canceled, forfeited, or surrendered; (v) determine whether, and to certify that, the performance goals to which the settlement of an award is subject are satisfied; (vi) correct any defect or supply any omission or reconcile any inconsistency in the Share Plan, and adopt, amend and rescind such rules and regulations as, in its opinion, may be advisable in the administration of the Share Plan; and (vii) construe and interpret the Share Plan and make all other determinations as it may deem necessary or advisable for the administration of the Share Plan. It may delegate some or all of its powers to any executive officer of our company or any other person, other than its authority to grant awards to certain specified executives.

        Types of Awards.    Awards that can be granted under the Share Plan include ordinary shares, deferred shares, restricted shares and options.

        Ordinary Shares.    For awards of ordinary shares, a participant receives or subscribes for a grant of ordinary shares that are not subject to any restrictions on transfer or other vesting conditions. Upon the grant date, the participant will have all of the customary rights of a shareholder with respect to such shares, including the right to vote such shares and to receive dividends with respect to such shares.

        Deferred Shares.    For awards of deferred shares, we agree to deliver, subject to certain conditions, a fixed number of our ordinary shares to the participant or allow the participant to subscribe for such fixed number of our ordinary shares at the end of a specified deferral period or periods. During such period or periods, the participant will have no rights as a shareholder with respect to any such shares. Except as provided in an award agreement, no dividends will be paid with respect to deferred shares during the applicable deferral period, and the participant will have no future right to any dividend paid during such period. However, most of our award agreements have specific provisions requiring the board of directors (or the committee, if applicable) to adjust the number of shares and exercise or grant price relating to those awards in the event of a dividend which are intended to protect the participant from any dilution of the financial value of his or her ownership interest that may occur as a result of a distribution or dividend.

        Restricted Shares.    For awards of restricted shares, a participant receives or subscribes for a grant of our ordinary shares that are subject to certain restrictions, including forfeiture of such shares upon the occurrence of certain events. During the restriction period, holders of restricted shares will have the right to vote such shares. During the restriction period, any dividends or distributions paid with respect to any restricted shares are subject to the same restrictions as apply to such restricted shares and will be paid to the participant only if and when the applicable restriction period lapses.

        Share Options.    Share options granted under the Share Plan may be either incentive stock options or non-qualified options. The exercise price of an option (whether to subscribe for new shares or purchase existing shares we hold) will be determined by the board of directors (or the committee, as applicable), but, except as provided in an award agreement, must be at least 100% of the fair market value of our ordinary shares on the date of the grant (110% in the case of an incentive stock option granted to a 10% shareholder). Except as provided in an award agreement, no dividends will be paid

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with respect to share options, and the participant will have no future right to any dividend paid prior to exercise of the share options. However, most of our award agreements have specific provisions requiring the board of directors (or the committee, as applicable) to adjust the number of shares and exercise or grant price relating to those awards in the event of a dividend which are intended to protect the participant from any dilution to the financial value of his or her ownership interest that may occur as a result of a distribution or dividend.

        Effects of a Change in Control.    Upon the occurrence of a change in control, the board of directors (or the committee, as applicable) may, in its discretion: (i) cancel any outstanding options in exchange for a cash payment of an amount (including zero) equal to the difference between the then fair market value of the option less the applicable option price; (ii) after having given the participant a chance to exercise any vested outstanding options, terminate any or all of the participant's unexercised options; (iii) cause the surviving corporation to assume all outstanding options or replace all outstanding options with economically comparable awards; or (iv) take such other action as the board of directors (or the committee, as applicable) determines appropriate; provided that such action substantially preserves the economic value of such options determined as of immediately prior to such change in control.

        Effects of Certain Corporate Transactions.    In the event of a recapitalization, forward or reverse stock split, reorganization, dissolution, division, merger, consolidation, spin-off, combination, share exchange, or other corporate transaction or event that affects our ordinary shares, the board of directors (or the committee, as applicable) will adjust, recapitalize or modify (i) the number and kind of shares, including any ADRs and ADSs in respect of any such shares, which may thereafter be issued in connection with awards, (ii) the number and kind of ordinary shares, including any ADRs and ADSs in respect of any such shares, issuable in respect of outstanding awards, (iii) the aggregate number and kind of ordinary shares, including any ADRs and ADSs in respect of any such shares, available under the Share Plan, and (iv) the exercise or grant price relating to any award. Notwithstanding the foregoing, no such adjustment will take place merely as a result of the issuance of awards pursuant to the Share Plan in the normal course (even if, to the extent permitted by the Share Plan, such awards have an exercise price less than fair market value of the underlying shares, or other shares, including, without limitation, any ADRs and ADSs in respect of any such shares, on the grant date). In the event of a change in our capital structure by reason of (i) a capital increase (including, without limitation, the issuance of additional ordinary shares or other shares in us, warrants to subscribe for our shares, or awards under the Share Plan), (ii) a capital decrease (including, without limitation, any repurchase of our shares or the cancellation or termination of warrants to subscribe for our shares or the cancellation or termination of awards under the Share Plan), (iii) our issuance of bonus or compensatory shares, (iv) our issuance of convertible debt instruments or (v) dividends, neither the purchase price or exercise price of awards under the Share Plan nor the number of shares which may be subscribed or purchased pursuant to the Awards under the Share Plan may be adjusted unless otherwise specifically provided for in an award agreement, in all cases, even if the transaction giving rise to such change in our capital structure takes place at a price below the fair market value of our shares at time of the transaction. However, most of our award agreements have specific provisions requiring the board of directors (or the committee, if applicable) to adjust the number of shares and exercise or grant price relating to those awards in the event of a dividend or the issuance of bonus shares to all of the Company's shareholders on a pro rata basis which are intended to protect the participant from any dilution of the financial value of his or her ownership interest that may occur as a result of a change in the Company's capital structure.

        Clawback.    Any award granted under the Share Plan, including an award of ordinary shares, will be subject to mandatory repayment by the participant to our company pursuant to the terms of any company "clawback" or recoupment policy that is directly applicable to the Share Plan and set forth in an award agreement or required by law to be applicable to the participant.

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        Transfer Restrictions.    No award or other right or interest of a participant under the Share Plan may be pledged, encumbered, or hypothecated to, or in favor of, or subject to any lien, obligation, or liability of such participant to, any party, other than us, or assigned or transferred by such participant otherwise than by will or the laws of descent and distribution, and such awards and rights will be exercisable during the lifetime of the participant only by the participant or his or her guardian or legal representative. Notwithstanding the foregoing, the board of directors, in its discretion, may provide that awards or other rights or interests of a participant granted pursuant to the Share Plan be transferable, without consideration, to immediate family members, to trusts for the benefit of such immediate family members and to partnerships in which such family members are the only partners. In addition, a participant may, in the manner established by the board of directors, designate a beneficiary to exercise the rights of the participant, and to receive any distribution, with respect to any award upon the death of the participant.

    Director and Officer Awards Granted Under the Share Plan and Outside the Share Plan

        In June 2017, the Company granted 990,000 options (after adjusting for the Share Split and the Capital Reduction) that have an exercise price of 0.01 DKK (after adjusting for the Share Split and the Capital Reduction) to certain directors and employees of the Company. The 990,000 options include:

    600,000 options granted to Claus Bo Svendsen;

    240,000 options granted to Thomas Carbone; and

    50,000 options granted to each of Jakob M. Larsen, Grant H. Lawrence and Duncan Moore (the 990,000 options are collectively referred to as the "2017 Awards").

        The 2017 Awards vest monthly over 36 months commencing on June 1, 2017; however, each award contains a provision whereby the option holder cannot exercise prior to a defined date. Vesting and/or exercise periods are accelerated under certain defined situations, including a change in control. The terms of the 2017 Awards include antidilution protection to the holders in the event there is a distribution to the shareholders as defined in the underlying award agreements.

        As a result of the Capital Reduction and the antidilution protection, the holders of the 2017 Awards received a total of 371,000 EUR ($434,000) during the year ended December 31, 2018, including $263,000 to Claus Bo Svendsen, $105,000 to Thomas Carbone and $22,000 to each of Jakob M. Larsen, Grant H. Lawrence and Duncan Moore. As of December 31, 2018, the Company's remaining obligation to the 2017 Award holders as the result of the antidilution provision, if vesting occurs in full, is 526,000 EUR ($601,000 based on the December 31, 2018 exchange rate) including $365,000 due Claus Bo Svendsen, $146,000 due Thomas Carbone and $30,000 due each of Jakob M. Larsen, Grant H. Lawrence and Duncan Moore. The remaining obligation due to the 2017 Award holders, assuming vesting occurs in full, is payable semi-annually on a pro rata basis over the remaining vesting period that ends on May 31, 2020. See Note 3.3 in the accompanying financial statements for additional information. The 2017 Awards granted to Mr. Carbone were awarded under the Share Plan and the balance of the 2017 Awards were granted outside the Share Plan but governed, in all respects, as if they were awarded under the Share Plan.

Insurance and Indemnification

        We have entered into indemnification agreements with our executive officers, certain other employees and members of our board of directors, undertaking to indemnify them, including with respect to liabilities resulting from our initial public offering to the extent that these liabilities are not covered by insurance. In addition, we have entered into insurance policies that insure our directors, executive officers and certain other employees for certain actions taken in their professional capacity

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and a separate insurance policy insuring our directors and officers against liabilities resulting from our initial public offering, subject to specified exceptions.

C. Board Practices

        See "Item 6. Directors, Senior Management and Employees—A. Executive Officers and Directors" and "—B. Compensation."

D. Employees

        As of December 31, 2018, we had five employees of which four are in Europe and one is in the U.S. One employee holds an M.D. and a Ph.D. degree. One of our employees is represented by a labor union while none of our employees are covered under a collective bargaining agreement. We consider our relations with our employees to be good.

E. Share ownership

        The following table sets forth information with respect to the beneficial ownership of our ordinary shares and ADSs by our directors and executive officers as of April 1, 2019.

Directors and Executive Officers
  # of Shares   % of issued
Shares(1)
 

Florian Schönharting(2)

    51,647,900     54.32 %

Torsten Goesch(3)

    17,576,400     18.49 %

Jakob M. Larsen(4)

    178,280     *  

Grant H. Lawrence(5)

    178,280     *  

Duncan Moore(6)

    265,662     *  

Claus Bo Svendsen(7)

        *  

*
Represents less than 1%.

(1)
Ordinary shares which may be acquired upon exercise of options or warrants which are currently exercisable or which become exercisable within 60 days after April 1, 2019 (i.e., May 31, 2019) are deemed beneficially owned by the holders of such options or warrants and are deemed outstanding for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage of ownership of any other person. As of April 1, 2019, we had 95,073,864 ordinary shares outstanding.

(2)
Consists of ordinary shares held by Nordic Biotech K/S, Nordic Biotech Opportunity Fund K/S, NB FP Investment K/S and NB FP Investment II K/S. Through his ownership of Holdingselskabet af 1 januar 2016 ApS and Tech Growth Invest ApS, Mr. Schönharting controls 45% of the ownership interests in Nordic Biotech General Partner ApS (which is the general partner of both Nordic Biotech K/S and Nordic Biotech Opportunity Fund K/S). In addition, he is the sole member of the Investment Committee of NB FP Investment K/S and NB FP Investment II K/S, and therefore Mr. Schönharting may be deemed to share beneficial ownership of the securities beneficially owned by Nordic Biotech K/S, Nordic Biotech Opportunity Fund K/S, NB FP Investment K/S and NB FP Investment II K/S. Mr. Schönharting disclaims beneficial ownership of such securities except to the extent of his pecuniary interest therein.

(3)
Consists of ordinary shares held by Rosetta Capital I, LP. Mr. Goesch has full investment and voting power over all of the shares held by Rosetta Capital I, LP (an affiliate of BioScience Managers Limited), and so may be deemed to share beneficial ownership of the securities owned by the fund. The address for Rosetta Capital I, LP is c/o Corporation Service Company, 2711 Centerville Road, Suite 400, Wilmington, County of New Castle, Delaware, U.S. Mr. Goesch

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    disclaims beneficial ownership of such securities except to the extent of his pecuniary interest therein.

(4)
Includes options to purchase up to 178,280 shares at an exercise price of $6.92 per share that may be exercised during the period from July 1, 2018 to June 30, 2021 (absent a discontinuation of service). Excludes options to purchase up to 50,000 shares at an exercise price of 0.01 DKK per share that, to the extent they become exercisable by continued service, may be exercised only during the period from June 20, 2020 to June 19, 2023 (absent a change in control of the Company or discontinuation of service).

(5)
Includes options to purchase up to 178,280 shares at an exercise price of $6.92 per share that may be exercised during the period from July 1, 2018 to June 30, 2021 (absent a discontinuation of service). Excludes options to purchase up to 50,000 shares at an exercise price of 0.01 DKK per share that, to the extent they become exercisable by continued service, may be exercised only during the period from June 20, 2020 to June 19, 2023 (absent a change in control of the Company or discontinuation of service).

(6)
Includes options to purchase up to 265,662 shares at an exercise price of 0.01 DKK per share that may be exercised during the period from May 1, 2019 to April 30, 2022 (absent a change in control of the Company or discontinuation of service). Excludes options to purchase up to 50,000 shares at an exercise price of 0.01 DKK per share that, to the extent they become exercisable by continued service, may be exercised only during the period from June 20, 2020 to June 19, 2023 (absent a change in control of the Company or discontinuation of service). Also excludes 121,207 deferred shares that will not become exercisable until October 10, 2020 (absent a change in control of the Company).

(7)
Excludes options to purchase 240,000 shares at an exercise price of $4.51 per share that, to the extent they become exercisable by continued service, may be exercised only during the period June 1, 2019 to May 31, 2021 (absent a change in control of the Company or discontinuation of service). Further excludes options to purchase 469,519 shares at an exercise price of 0.01 DKK per share that, to the extent they become exercisable by continued service, may be exercised only during the period from November 30, 2020 to November 29, 2022 (absent a change in control of the Company or discontinuation of service) and options to purchase 120,000 shares at an exercise price of $2.24 per share that, to the extent they become exercisable by continued service, may be exercised only during the period from March 1, 2021 to February 28, 2023 (absent discontinuation of service). Also excludes options to purchase 600,000 shares at an exercise price of 0.01 DKK per share that, to the extent they become exercisable by continued service, may be exercised only during the period from June 20, 2020 to June 19, 2023 (absent a change in control of the Company or discontinuation of service) and 40,000 deferred shares that will not become exercisable before May 31, 2019 (absent a change in control of the Company).

        See "Item 6. Directors, Senior Management and Employees—B. Compensation" above for information with respect to the 2014 Omnibus Equity Incentive Compensation Plan and options held by our directors and executive officers.

ITEM 7.    MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A. Major Shareholders

        The following table sets forth information with respect to the beneficial ownership of our ordinary shares and ADSs by our major shareholders, which means shareholders that beneficially own 5% or more of our ordinary shares, as of April 1, 2019, April 1, 2018 and April 1, 2017, each being the most

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recent practicable date before reporting for the last three fiscal years based on information available to the Company.

 
  2017   2018   2019  
Name
  # of Shares   % of issued
Shares
  # of Shares   % of issued
Shares
  # of Shares   % of issued
Shares*
 

Nordic Biotech K/S(1)

    12,125,340     25.87 %   24,250,680     25.70 %   24,250,680     25.51 %

Nordic Biotech Opportunity Fund K/S(1)

    10,588,990     22.59 %   21,177,980     22.44 %   21,177,980     22.28 %

NB FP Investment K/S(2)

    2,507,360     5.35 %   5,014,720     5.31 %   5,014,720     5.27 %

Rosetta Capital I, LP

    8,788,200     18.75 %   17,576,400     18.63 %   17,576,400     18.49 %

The Bank of New York Mellon(3)

    11,342,130     24.20 %   22,968,570     24.34 %   22,968,570     24.16 %

The Baupost Group, L.L.C.(4)

    5,367,300     11.54 %       %       %

BVF Partners L.P. and its affiliates(5)

        %   10,642,834     11.30 %   18,092,758     19.03 %

*
Based on 95,073,864 ordinary shares outstanding as of April 1, 2019.

(1)
Nordic Biotech General Partners ApS is the general partner of Nordic Biotech K/S and Nordic Biotech Opportunity Fund K/S and has voting and dispositive power with respect to, and may be deemed to be the beneficial owner of, the shares held by Nordic Biotech K/S and Nordic Biotech Opportunity Fund K/S. Florian Schönharting controls 45% of the ownership interests in Nordic Biotech General Partner ApS and therefore may be deemed to share beneficial ownership of the securities beneficially owned by Nordic Biotech General Partners ApS, including the shares held by Nordic Biotech K/S and Nordic Biotech Opportunity Fund K/S.

(2)
Mr. Schönharting is the sole member of the Investment Committee of NB FP Investment K/S, and as such has voting and dispositive power with respect to, and may be deemed to be the beneficial owner of, shares held by NB FP Investment K/S.

(3)
The Bank of New York Mellon is acting as depositary bank in our ADS-program and is holding the shares in such capacity. Shares represented by ADSs that are beneficially owned by other major holders are also included in The Bank of New York Mellon's reported ownership.

(4)
The information in the table and this note is derived from a Schedule 13G and Schedule 13G/A filed by The Baupost Group L.L.C., SAK Corporation and Seth A. Klarman with the SEC on November 10, 2014 and February 9, 2018, respectively. Based on information contained in the Schedule 13G and Schedule 13G/A, each of The Baupost Group L.L.C., SAK Corporation and Seth A. Klarman share voting and dispositive power over all ADSs they are deemed to beneficially own. The ordinary shares underlying these ADSs are held by The Bank of New York Mellon as depositary and are also included within this table as shares held by The Bank of New York Mellon. Per the Schedule 13G/A filed on February 9, 2018, The Baupost Group L.L.C., SAK Corporation and Seth A. Klarman are no longer major shareholders of the Company. The business address of each of The Baupost Group L.L.C., SAK Corporation and Seth A. Klarman is 10 St. James Avenue, Suite 1700, Boston, Massachusetts, 02116.

(5)
The information in the table and this note is derived from a Schedule 13G/A filed by jointly by BVF Partners L.P. ("Partners"), BVF Inc., Mark N. Lampert, Biotechnology Value Fund, L.P. ("BVF"), Biotechnology Value Fund II, L.P. ("BVF2"), Biotechnology Value Trading Fund OS LP ("Trading Fund OS"), BVF Partners OS Ltd. ("Partners OS" and together with Partners, BVF, BVF2 and Trading Fund OS, the "BVF Entities") with the SEC on February 14, 2019. Based on information contained in the Schedule 13G/A, as of December 31, 2018 (i) BVF beneficially owned 8,494,376 shares, (ii) BVF2 beneficially owned 6,507,411 shares, and (iii) Trading Fund OS beneficially owned 1,407,948 shares. Partners OS, as the general partner of Trading Fund OS, may be deemed to beneficially own the 1,407,948 Shares beneficially owned by Trading Fund OS. Partners, as the general partner of BVF, BVF2, the investment manager of Trading Fund OS, and the sole member of Partners OS, may be deemed to beneficially own the 18,092,758 Shares beneficially owned in the aggregate by BVF, BVF2, Trading Fund OS, and certain Partners managed accounts (the "Partners Managed Accounts"), including 1,683,023 Shares, of which 514,342 are represented by ADSs, held in the Partners Managed Accounts. BVF Inc., as the general partner of Partners, may be deemed to beneficially own the 18,092,758 Shares beneficially owned by Partners. Mr. Lampert, as a director and officer of BVF Inc., may be deemed to beneficially own the 18,092,758 Shares beneficially owned by BVF Inc. Partners OS disclaims beneficial ownership of the Shares beneficially owned by Trading Fund OS. Each of Partners, BVF Inc. and Mr. Lampert disclaims beneficial ownership of the Shares beneficially owned by BVF, BVF2, Trading Fund OS, and the Partners Managed Accounts. The ordinary shares underlying these ADSs are held by The Bank

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    of New York Mellon as depositary and are also included within this table as shares held by The Bank of New York Mellon. The business address of each of BVF, BVF2, Partners, BVF Inc. and Mark N. Lampert is 1 Sansome Street, 30th Floor, San Francisco, California 94104. The business address of each of Trading Fund OS and Partners OS is PO Box 309 Ugland House, Grand Cayman, KY1-1104, Cayman Islands.

        As of April 1, 2019, there were a total of 17 holders of record of our ordinary shares, including the Bank of New York Mellon who is acting as depositary bank for our ADS program. Seven holders of record of our ordinary shares had addresses in the U.S., representing 44.46% of our ordinary shares. As of April 1, 2019, there were a total of two holders of record of our ADSs, both of which had addresses in the U.S.

        Our shareholders do not have different voting rights. We are not aware of any arrangement that may, at a subsequent date, result in a change in control of our company.

B. Related Party Transactions

        The following is a description of the related party transactions that we have entered into since January 1, 2017 with any of the members of our board of directors, our executive officers, our major shareholders or our affiliates.

Leased Premises

        We sublease our headquarters in Copenhagen, Denmark from the management company of two of our major shareholders, Nordic Biotech Advisors ApS. In 2018 and 2017, we paid 601,000 DKK ($95,000 based on the average exchange rate for the year) and 567,000 DKK ($85,000 based on the average exchange rate for the year), including VAT, respectively, for such premises.

Employment Agreements and Equity Grants

        We have entered into employment agreements with our executive officers, and issued warrants, deferred shares and share options to our executive officers and members of our board of directors. See "Item 6. Directors, Senior Management and Employees" for more information.

Indemnification Agreements

        We have entered into indemnification agreements with members of our board of directors and certain officers.

Legal Services Provided by Mazanti-Andersen Korsø Jensen Law Firm LLP

        Mazanti-Andersen Korsø Jensen Law Firm LLP acts as our Danish legal counsel and legal counsel to the Nordic Biotech funds that currently are our shareholders, and the advisory company and the general partners of those funds. Mr. Larsen, a member of our board of directors, is a partner at Mazanti-Andersen Korsø Jensen Law Firm LLP. Mazanti-Andersen Korsø Jensen Law Firm LLP charged us for services it rendered on an hourly basis and expenses incurred. For the year ended December 31, 2018, we incurred legal expenses for services rendered by Mazanti-Andersen Korsø Jensen Law Firm LLP of 2,504,000 DKK (approximately $396,000 based on the exchange rate for the year ended December 31, 2018). Mr. Larsen is also a member of the board of directors of the advisory company of two of the Nordic Biotech funds that currently are our shareholders.

Consulting Agreements with Certain Directors

        We have entered into a consulting agreement with Dr. Duncan Moore who is a member of our board of directors.

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        Pursuant to the consulting agreement with Dr. Moore, Dr. Moore will act as an advisor for the chairman of the board of directors and will perform director-level consulting services as requested by the board of directors from time to time. The consulting agreement with Dr. Moore expires on October 10, 2020. As compensation for the consulting services, the Company granted Dr. Moore a deferred share award with respect to 121,207 shares (following the Share Split and the Capital Reduction). The deferred shares vest over a period of four years, with 25% of the shares vesting on the first four anniversaries of October 10, 2016. In addition, subject to Dr. Moore's continuing service to the Company as a consultant, 100% of the unvested deferred shares will vest and be issued to Dr. Moore immediately prior to a change in control.

        Dr. Moore is not entitled to any compensation under his consulting agreement other than the deferred share awards discussed above.

Aditech Agreements

        In 2010, we entered into a patent transfer agreement with Aditech, and in January 2017, we entered into an addendum to this agreement. See "Item 4. Information on the Company—Business Overview—Material Agreements" for more information.

IPR Agreement.

        The IPR Agreement requires Forward Pharma Operations ApS, our wholly owned subsidiary, to pay an annual fee to FWP IP ApS, which was a wholly owned subsidiary of Forward Pharma Operations ApS until November 22, 2017, of 100,000 DKK ($15,000 based on the December 31, 2018 exchange rate) as consideration for FWP IP ApS agreeing to hold, prosecute and maintain the transferred intellectual property. Forward Pharma Operations ApS is obligated to remit the annual fee through the last to expire, or invalidation of, the licensed patents underlying the transferred intellectual property; however, Forward Pharma Operations ApS' obligation to remit the annual fee would be discontinued early if certain events occur as defined in the License Agreement.

C. Interests of Experts and Counsel

        Not applicable.

ITEM 8.    FINANCIAL INFORMATION

A. Consolidated Statements and Other Financial Information

        See "Item 18. Financial Statements," which contains our financial statements prepared in accordance with IFRS.

B. Significant Changes

        No matters to report.

ITEM 9.    THE OFFER AND LISTING

A. Offering and Listing Details

        See "Item 9. C. Markets" for information regarding our ADSs.

B. Plan of Distribution

        Not applicable.

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C. Markets

        ADSs representing our ordinary shares began trading on the Nasdaq Global Select Exchange on October 15, 2014 under the symbol FWP. Effective as of September 11, 2017, the Company changed the ADS ratio from one ADS per one ordinary share to one ADS per two ordinary shares.

D. Selling Shareholders

        Not applicable.

E. Dilution

        Not applicable.

F. Expenses of the Issue

        Not applicable.

ITEM 10.    ADDITIONAL INFORMATION

A. Share Capital

        Not applicable.

B. Memorandum and Articles of Association

        Since October 14, 2014, our Articles of Association were amended as follows:

    on November 14, 2014, the Company's nominal share capital was increased from 4,581,376 DKK to 4,651,374 DKK;

    on March 24, 2015, to add the terms applicable to warrants previously granted to certain of our directors and employees;

    on April 13, 2015, to increase the share capital in connection with the issuance of 142,150 shares to Joel Sendek;

    on April 20, 2015, to extend the exercise period for warrants that allow for the subscription of 333,720 shares and to increase the board of directors' authorization to issue warrants to employees and consultants by 1.7 million warrants and underlying shares;

    on June 23, 2015, to implement the terms applicable to warrants granted to a number of persons engaged or employed with the Company or a subsidiary of the Company, issue of shares to two warrant holders that had exercised their warrants and amendments due to lapse of certain warrants;

    on November 24, 2015, to implement the terms applicable to warrants granted to a number of persons engaged or employed with the Company or a subsidiary of the Company;

    on May 6, 2016, to increase the allowable maximum number of board members, to increase and amend the board of directors' authorization to issue warrants and to reduce the board of directors' authorization to increase the company's share capital;

    on June 1, 2016, to implement the terms applicable to warrants granted to a number of persons engaged or employed with the Company or a subsidiary of the Company, to issue shares to a warrant holder that had exercised its warrants and amendments due to lapse of certain warrants;

    on July 29, 2016, to increase the share capital in connection with the issuance of 142,155 shares to Joel Sendek;

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    on August 30, 2016, to implement the terms applicable to warrants granted to a person employed with the Company;

    on March 29, 2017, to implement the terms applicable to warrants granted to Claus Bo Svendsen and to issue shares to a warrant holder that had exercised its warrants;

    on May 3, 2017, to reflect that the Company's statutory Danish annual report is prepared and presented in English;

    on August 2, 2017, to make a share split in the ratio 1/10 (the Share Split);

    on September 1, 2017, to decrease the share capital at a premium rate and pay the proceeds to the shareholders at a rate of EUR 19.45 per share of nominally 0.10 DKK (corresponding to EUR 2.43125 per share of nominally 0.01 DKK that was annulled) (the Capital Reduction);

    on November 21, 2017, to adopt principles for the adjustment of certain award terms and compensation of certain award holders due to the changes in the Company's capital structure etc. resolved on the Company's extraordinary general meeting on August 2, 2017;

    on November 28, 2017, to implement the terms applicable to warrants granted to employees, board members and a consultant of the Company (the June 2016 Warrants);

    on April 4, 2018, to implement the terms applicable to warrants granted to Claus Bo Svendsen;

    on June 12, 2018, to issue shares to two warrant holders that had exercised their warrants, include Jan van de Winkel, a former director of the Company; and

    On September 18, 2018, to implement the terms applicable to warrants granted to an employee of the Company and to issue shares to a warrant holder that had exercised its warrants.

        Except as set forth above, the description of our Articles of Association as in effect upon the closing of our IPO contained in the prospectus dated October 14, 2014 that forms part of our registration statement on Form F-1 (File No. 333-198013) originally filed with the SEC on August 11, 2014, as amended, is incorporated by reference into this Annual Report on Form 20-F. Such description sets forth a summary of certain provisions of our Articles of Association as currently in effect.

C. Material Contracts

        Except for the agreements and contracts described below and elsewhere in this Annual Report, including under the sections "Item 4. Information on the Company—B. Business Overview—Material Agreements" and "Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions," we are not currently, and have not been in the last two years, party to any material contract, other than contracts entered into in the ordinary course of business.

Registration Rights

        Certain holders of our ordinary shares, including those ordinary shares that were issued upon conversion of our Class A shares and Class B shares, are entitled to certain rights with respect to registration of such shares under the Securities Act. These shares are referred to as Registrable Securities. The holders of these Registrable Securities possess the registration rights pursuant to the terms of a registration rights agreement dated as of September 11, 2014.

        The registration of ordinary shares pursuant to the exercise of registration rights would enable the holders to trade these shares without restriction under the Securities Act when the applicable registration statement is declared effective. Unless our ordinary shares are listed on a national securities exchange or trading system and a market for our ordinary shares not held in the form of ADSs exists, any Registrable Securities sold pursuant to an exercise of the registration rights will be

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sold in the form of ADSs. Subject to any limitations under Danish law, we will pay the registration expenses, other than underwriting discounts, selling commissions and share transfer taxes, of the shares registered pursuant to the demand, piggyback and Form F-3 registrations provided for in the registration rights agreement.

September 2014 Shareholders' Agreement

        In connection with the consummation of our initial public offering, Nordic Biotech K/S, NBOF, NBFPI and NBFPII, which were holders of approximately 55% of our ordinary shares outstanding after consummation of our initial public offering, entered into a new shareholders' agreement dated September 8, 2014.

        The key terms of the shareholders' agreement are as follows:

    Appointment of the Board: Providing NBFPI with the right to nominate four directors (including the chairman), NBOF and Nordic Biotech K/S, collectively with the right to nominate one director, and NBFPII with the right to nominate one director;

    Veto rights of NBFPI: Prohibiting the other parties to the shareholders' agreement from voting in favor of certain key decisions without the approval of NBFPI;

    No dividends: Providing that dividends are not expected to be paid prior to an exit event as set forth in the shareholders' agreement;

    Drag-along rights: Providing NBFPI with drag-along and exit rights in certain situations; and

    Capital increases: Providing NBFPI with the right to cause the other parties to approve an increase in share capital in certain situations.

D. Exchange Controls

        There are no governmental laws, decrees, regulations or other legislation in the Kingdom of Denmark that affect or restrict the import or export of capital (including foreign exchange control), the remittance of dividends, interest or other payments to non-resident holders of our ordinary shares or ADSs.

E. Taxation

        The following summary contains a general description of certain Danish and U.S. federal income tax consequences of the acquisition, ownership and disposition of the ADSs, but it does not purport to be a comprehensive description of all the tax considerations that may be relevant to a decision to acquire or dispose of ADSs. The summary is based upon the tax laws of Denmark and regulations thereunder and on the tax laws of the U.S. and regulations thereunder as of the date hereof, which are subject to change.

Danish Tax Considerations

        The following discussion is a summary of the material Danish tax considerations relating to the purchase, ownership and disposition of the ADSs.

Taxation in Denmark

        This summary is for general information only and does not purport to constitute exhaustive tax or legal advice. The information is summarized based on the tax laws of Denmark in effect and applied as at the date hereof and is subject to change as a result of changes in Danish legislation, including legislation that could have a retroactive effect, or new legislation. It is specifically noted that the description does not address all possible tax consequences of an investment in our ADSs. Therefore,

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this summary may not be relevant, for example, to investors subject to the Danish Act on Pension Investment Return Taxation (i.e. pension savings) and professional investors, certain institutional investors, insurance companies, pension companies, banks, stockbrokers and individuals and companies carrying on business of purchasing and selling shares to whom special tax rules apply. The summary only sets out the tax position of the direct owners of the ADSs and further assumes that the direct owners are the beneficial owners of the ADSs and any dividends thereon. Sales are assumed to be sales to a third party.

        Current and prospective investors in our ADSs are advised to consult their tax advisers regarding the applicable tax consequences of acquiring, holding and disposing of our ADSs based on their circumstances. Current and prospective investors who may be affected by the tax laws of other jurisdictions should also consult their tax advisers with respect to the tax consequences applicable to their particular circumstances as such consequences may differ significantly from those described herein.

        The following summary is based on the Danish tax law as applied and interpreted by Danish tax courts and as published and in effect on the date hereof, without prejudice to any amendments introduced at a later date and implemented with or without retroactive effect.

        For the purpose of this paragraph, "Danish Taxes" means taxes of whatever nature levied by or on behalf of Denmark or any of its subdivisions or taxing authorities.

Taxation of Shareholders Resident in Denmark

        When considering the taxation of Danish tax resident holders of the ADSs (companies and individuals), it is assumed that for tax purposes Danish resident holders of the ADSs should be treated as holders of unlisted shares in Forward Pharma A/S. It is currently not clear under the Danish tax legislation or case law how the listed ADSs are to be treated for tax purposes. For the purpose of the below comments, it is assumed that the ADSs listed in the U.S. should be treated as non-listed shares.

Purchase of ADSs

        The purchase of ADSs has no tax effect.

Sale of ADSs—Individuals

        Gains on the sale of shares are taxed at a rate of 27% on the first 52,900 DKK in 2018 (for cohabiting spouses a total of 105,800 DKK), and at a rate of 42% on share income over 52,900 DKK (for cohabiting spouses a total of 105,800 DKK). In 2019, the sale of shares will be taxed as share income at a rate of 27% on the first 54,000 DKK (for cohabiting spouses a total of 108,000 DKK), and at a rate of 42% on share income over DKK 54,000 (for cohabiting spouses a total of 108,000 DKK). All amounts are subject to annual adjustments and include all share income derived by the individual or cohabiting spouses, respectively.

        Gains and losses on the sale of shares are made up as the difference between the purchase price and the sales price. The purchase price is based on the average purchase price for the shares in that particular company. Losses on non-listed shares may be offset against other share income derived by the individual and must be offset against cohabiting spouses' share income before the share income becomes negative. In case the share income becomes negative, a negative tax on the share income will be calculated and offset against the individual's other final taxes. Unused negative tax on share income will be offset against a cohabiting spouse's final taxes. If the negative tax on share income cannot be offset against a cohabiting spouse's final taxes, the negative tax can be carried forward indefinitely and offset against future year's taxes.

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Sale of ADSs—Companies

        A distinction is made between "Subsidiary Shares," "Group Shares," "Tax-exempt Portfolio Shares" and "Taxable Portfolio Shares" with respect to taxation of capital gains derived from the sale of the ADSs.

    "Subsidiary Shares" are generally defined as shares held by a shareholder with a direct holding of 10% or more of the share capital of a company.

    "Group Shares" are generally defined as shares held in a company in which the shareholder of the company and the company are subject to Danish joint taxation or meet the criteria for international taxation under Danish law, usually implying that they control, directly or indirectly, more than 50% of the votes.

    "Tax-exempt Portfolio Shares" are shares of unlisted companies not falling within the definitions of "Subsidiary Shares" or "Group Shares" (for example, if the shareholder holds less than 10% and the Shares are not Group Shares), provided that the shares are not owned by a life insurance company.

    "Taxable Portfolio Shares" are shares that do not qualify as Subsidiary Shares, Group Shares or Tax-exempt Portfolio Shares.

        It is noted that the above ownership thresholds are applied on the basis of the nominal value of all shares issued by Forward Pharma A/S, and not on the basis of the nominal value of ADSs issued.

        Capital gains derived from the sale of Subsidiary Shares, Group Shares and Tax-exempt Portfolio Shares are exempt from taxation, irrespective of the holding period.

        Losses on Subsidiary Shares, Group Shares and Tax-exempt Portfolio Shares are not tax deductible.

        Special anti-avoidance rules apply to certain holding companies holding Subsidiary Shares, Group Shares or Tax-exempt Portfolio Shares. Further, certain anti-avoidance rules apply to the treatment of Tax-exempt Portfolio Shares, in case the assumed nature of the Portfolio Shares changes. These rules are not described herein.

        Capital gains from the sale of Taxable Portfolio Shares are taxable at the corporate income tax rate of 22% irrespective of ownership periods in 2017 and 2018 Losses on such shares are deductible only against gains on taxable Portfolio Shares unless the mark-to-market principle is applied.

Dividends—Individuals

        Dividends paid to private individuals who are tax residents of Denmark are taxed as share income at the applicable rates. It must be noted that all share income must be included when calculating whether the amounts mentioned above in "Sale of ADSs—Individuals" are exceeded.

        Dividends paid to individuals are generally subject to withholding tax, which is the responsibility of the company, at a rate of 27%.

Dividends—Companies

        The distinction described above among "Subsidiary Shares," "Group Shares," "Tax-exempt Portfolio Shares" and "Taxable Portfolio Shares" as set forth in "Sale of Offer ADSs—Companies" above, is also made with respect to taxation of dividends on shares.

        Dividends paid to companies are generally subject to corporate tax at a current rate of 22%. However, no corporate tax is levied on dividends derived from Subsidiary Shares and Group Shares. The 22% rate applies to dividends derived from Taxable Portfolio Shares and Tax-exempt Portfolio

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Shares. However, only 70% of dividends from Tax-exempt Portfolio Shares are taxable whereby the effective tax rate is 15.4%.

Taxation of Shareholders Resident Outside Denmark

Purchase of ADSs

        The purchase of ADSs has no tax effect.

Sale of ADSs

        A non-resident of Denmark, irrespective of whether the non-resident is a private individual or corporate shareholder, will normally not be subject to Danish tax on any capital gains realized on the sale of shares irrespective of the holding period. Where a non-resident of Denmark holds shares that can be attributed to a permanent establishment in Denmark, such gains are taxable pursuant to the rules applying to a Danish tax resident.

Dividends

        Under Danish law, dividends paid in respect of shares are generally subject to Danish withholding tax at a rate of 27%, irrespective of whether the non-resident shareholder is a private individual or a company. Non-residents of Denmark are not subject to additional Danish income tax in respect of dividends received on the shares.

        With respect to dividends distributed to a foreign company as the beneficial owner, no tax is withheld on dividends derived from Subsidiary Shares or Group Shares as defined in "Taxation of Shareholders Resident in Denmark—Sale of ADSs—Companies" above. In respect of subsidiary shares, the 0% withholding tax rate on dividends is conditional upon that tax must be eliminated or reduced according to Council Directive 2011/96/EEC (EU Parent Subsidiary Directive) or a double tax treaty with the jurisdiction in which the dividend receiving company is tax resident. With respect to Group Shares, it is a requirement that the company receiving the dividends is a resident of an EU or EEA country and that withholding taxes on dividends would have been eliminated or reduced according to Council Directive 2011/96/EEC (EU Parent Subsidiary Directive) or a double tax treaty with the jurisdiction in which the dividend receiving company is resident, if Group Shares had been Subsidiary Shares.

        Corporate shareholders of Taxable or Tax-exempt Portfolio Shares and individuals who receive dividends are subject to Danish tax on such dividends at a rate of 27%. In respect of companies the effective tax rate is 22%, i.e. 5% can be reclaimed. If the shareholder (corporate or individual) holds less than 10% of the nominal share capital in the company and the shareholder is resident in a jurisdiction that has a double taxation treaty convention or other agreement on exchange of information in tax cases, dividends are generally subject to a tax rate of 15% (a lower rate may be applicable under the double taxation treaty in question). If the shareholder is tax resident outside the EU, it is an additional requirement for eligibility for the 15% tax rate that the shareholder (together with affiliates shareholders) holds less than 10% of the nominal share capital of the company. As a result of the 27% withholding, shareholders eligible for the 15% tax rate would need to claim a refund on the excess amount withheld.

        If a foreign shareholder is a tax resident within the EU/EEA or in a country that has a double tax treaty with Denmark, and the shares held by the company are allocated to a Danish permanent establishment, then the dividends should be tax-exempt if the shares held fall within the definition of Group Shares and Subsidiary Shares as defined in "Taxation of Shareholders Resident in Denmark—Sale of ADSs—Companies" above. If a foreign shareholder is not a tax resident within the EU/EEA or in a country that has a double tax treaty with Denmark, or if the dividends are derived from Taxable

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Portfolio Shares and Tax-exempt Portfolio Shares, the 22% rate applies. However, only 70% of any dividends from Tax-exempt Portfolio Shares are taxable, resulting in an effective tax rate of 15.4%.

        Denmark has executed double tax treaties with approximately 90 countries, including the U.S. and almost all members of the EU (excluding France and Spain). If Denmark has entered into a double tax treaty with the country in which the shareholder is resident, the shareholder may, through certain certification procedures, seek a refund from the Danish tax authorities of the tax withheld in excess of the tax (typically 15%) to which Denmark is entitled under the relevant tax treaty, by completing the relevant online request to the Danish tax authorities. The treaty between Denmark and the U.S. generally provides for a 15% rate.

Share Transfer Tax

        No Danish share transfer tax is payable.

U.S. Federal Income Tax Considerations for U.S. Holders

        The following is a description of the material U.S. federal income tax consequences to the U.S. Holders described below of owning and disposing of the ADSs. It is not a comprehensive description of all tax considerations that may be relevant to a particular person's decision to acquire or dispose of securities. This discussion applies only to a U.S. Holder that holds the ADSs as capital assets for tax purposes. In addition, it does not describe all of the tax consequences that may be relevant in light of a U.S. Holder's particular circumstances, including alternative minimum tax consequences and tax consequences applicable to U.S. Holders subject to special rules, such as:

    insurance companies;

    banks or certain financial institutions;

    dealers or traders in securities who use a mark-to-market method of tax accounting;

    governmental organizations;

    persons holding the ADSs as part of a hedging transaction, "straddle," wash sale, conversion transaction or integrated transaction or persons entering into a constructive sale with respect to the ADSs;

    regulated investment companies;

    real estate investment trusts, grantor trusts or other trusts;

    persons whose "functional currency" for U.S. federal income tax purposes is not the U.S. Dollar;

    brokers or dealer in securities or currencies;

    individuals who are former U.S. citizens or former long-term residents;

    tax-exempt entities, including "individual retirement accounts" and "Roth IRAs" and other tax-deferred accounts;

    partnerships, S corporations or other entities or arrangements classified as partnerships for U.S. federal income tax purposes or persons holding ADSs through any such entities;

    persons liable for alternative minimum tax;

    persons that own or are deemed to own either 10% or more of our voting shares or 10% of the value of our shares; and

    persons holding the ADSs in connection with a trade or business conducted outside the U.S.

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        If an entity that is classified as a partnership for U.S. federal income tax purposes holds the ADSs, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. Partnerships holding the ADSs and partners in such partnerships are encouraged to consult their own tax advisers as to the particular U.S. federal income tax consequences of holding and disposing of the ADSs.

        The discussion is based on the Code, its legislative history, administrative pronouncements and published rulings, judicial decisions, final, temporary and proposed U.S. Treasury Regulations, and the income tax treaty between Denmark and the U.S., or the "Treaty," all as of the date hereof, changes to any of which may affect the tax consequences described herein—possibly with retroactive effect.

        A "U.S. Holder," for purposes of the U.S. federal income tax discussion below, is a beneficial owner of the ADSs as capital assets within the meaning of Section 1221 of the Code, who is eligible for the benefits of the Treaty and is:

            (1)   an individual who is a citizen or resident of the U.S. for U.S. federal income tax purposes;

            (2)   a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the U.S., any state therein or the District of Columbia;

            (3)   an estate, the income of which is subject to U.S. federal income tax regardless of its source; or

            (4)   a trust, if (A) a U.S. court is able to exercise its primary supervision over the trust's administration and one or more U.S. persons (as such term is defined under the Code) have authority to control all substantial decisions of the trust, or (B) the trust has a valid election in place under all applicable U.S. Treasury Regulations to treat the trust as a U.S. person (as such term is defined under the Code).

        For U.S. federal income tax purposes, U.S. Holders of ADSs will be treated as the beneficial owners of the underlying shares represented by the ADSs and an exchange of ADSs for our ordinary shares will not be subject to U.S. federal income tax.

        U.S. Holders are encouraged to consult their own tax advisers concerning the U.S. federal, state, local and foreign tax consequences of owning and disposing of the ADSs in their particular circumstances.

Taxation of Distributions

        Subject to the PFIC rules described below, distributions paid on the ADSs, other than certain pro rata distributions of the ADSs, will generally be treated as dividends to the extent paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). Because we do not maintain calculations of our earnings and profits under U.S. federal income tax principles, we expect that distributions generally will be reported to U.S. Holders as dividends. Under certain situations, subject to applicable limitations, dividends paid to certain non-corporate U.S. Holders may be taxable at preferential rates applicable to long-term capital gains. The amount of a dividend will include any amounts withheld by us in respect of Danish income taxes. The amount of the dividend will be treated as foreign-source dividend income to U.S. Holders and will not be eligible for the dividends-received deduction generally available to U.S. corporations under the Code. Dividends will be included in a U.S. Holder's income on the date the U.S. Holder receives the dividend. The amount of any dividend income paid in Euros will be the U.S. Dollar amount calculated by reference to the exchange rate in effect on the date of actual or constructive receipt, regardless of whether the payment is in fact converted into U.S. Dollars. If the dividend is converted into U.S. Dollars on the date of receipt, a U.S. Holder should not be required to recognize foreign currency gain or loss in

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respect of the dividend income. A U.S. Holder may have foreign currency gain or loss if the dividend is converted into U.S. Dollars after the date of receipt.

        Subject to applicable limitations, some of which vary depending upon the U.S. Holder's particular circumstances or how long the ADSs have been held, Danish income taxes withheld from dividends on the ADSs (or ordinary shares underlying the ADSs) at a rate not exceeding the rate provided by the Treaty will be creditable against the U.S. Holder's U.S. federal income tax liability. The rules governing foreign tax credits are complex and U.S. Holders should consult their tax advisers regarding their particular circumstances. In lieu of claiming a foreign tax credit, U.S. Holders may, at their election, deduct foreign taxes, including any Danish income tax, in computing their taxable income, subject to generally applicable limitations under U.S. law. An election to deduct foreign taxes instead of claiming foreign tax credits applies to all foreign taxes paid or accrued in the taxable year.

        Corporations will not be entitled to claim a dividends-received deduction with respect to distributions made by us. Dividends may constitute foreign source passive income for purposes of the U.S. foreign tax credit rules. U.S. Holders should consult their own tax advisors as to their ability, and the various limitations on their ability, to claim foreign tax credits in connection with the receipt of dividends.

Sale or Other Taxable Disposition of the ADSs

        Subject to the PFIC rules described below, gain or loss realized on the sale or other taxable disposition of the ADSs will be capital gain or loss, and will be long-term capital gain or loss if the U.S. Holder held the ADSs for more than one year. The amount of the gain or loss will equal the difference between the U.S. Holder's tax basis in the ADSs disposed of and the amount realized on the disposition, in each case as determined in U.S. Dollars. This gain or loss will generally be U.S.-source gain or loss for foreign tax credit purposes. The deductibility of capital losses is subject to limitations.

Passive Foreign Investment Company Rules

        Under the Code, we will be a PFIC for any taxable year in which, after the application of certain "look-through" rules with respect to subsidiaries, either (i) 75% or more of our gross income consists of "passive income," or (ii) 50% or more of the average quarterly value of our assets consist of assets that produce, or are held for the production of, "passive income." Passive income generally includes interest, dividends, rents, certain non-active royalties and capital gains. Whether we will be a PFIC in any year depends on the composition of our income and assets, and the relative fair market value of our assets from time to time, which we expect may vary substantially over time. Because (i) we currently own a substantial amount of passive assets, including cash, and (ii) the values of our assets, including our intangible assets, that generate non-passive income for PFIC purposes, is uncertain and may vary substantially over time, it is uncertain whether we will be a PFIC in any year. We believe, however, that we were a PFIC for each of the years ended December 31, 2017, 2016, 2015 and 2014, and may be classified as a PFIC in future years. If we are a PFIC for any year during which a U.S. Holder holds the ADSs, we generally would continue to be treated as a PFIC with respect to that U.S. Holder for all succeeding years during which the U.S. Holder holds the ADSs, unless we ceased to meet the threshold requirements for PFIC status and that U.S. Holder made a qualifying "deemed sale" election with respect to the ADSs. If such election is made, the U.S. Holder will be deemed to have sold the ADSs it holds at their fair market value on the last day of the last taxable year in which we qualified as a PFIC, and any gain from such deemed sale would be subject to the consequences described below. After the deemed sale election, the ADSs with respect to which the deemed sale election was made will not be treated as shares in a PFIC unless we subsequently become a PFIC.

        If we are a PFIC for any taxable year during which a U.S. Holder holds the ADSs, the U.S. Holder may be subject to adverse tax consequences. Generally, gain recognized upon a disposition

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(including, under certain circumstances, a pledge) of the ADSs by the U.S. Holder would be allocated ratably over the U.S. Holder's holding period for such ADSs. The amounts allocated to the taxable year of disposition and to years before we became a PFIC would be taxed as ordinary income. The amount allocated to each other taxable year would be subject to tax at the highest rate in effect for that taxable year for individuals or corporations, as appropriate, and would be increased by an additional tax equal to interest on the resulting tax deemed deferred with respect to each such other taxable year. Further, to the extent that any distribution received by a U.S. Holder on its ADSs exceeds 125% of the average of the annual distributions on such ADSs received during the preceding three years or the U.S. Holder's holding period, whichever is shorter, that distribution would be subject to taxation in the same manner described immediately above with respect to gain on disposition.

        If we are a PFIC for any taxable year during which any of our non-U.S. subsidiaries is also a PFIC, a U.S. Holder of ADSs during such year would be treated as owning a proportionate amount (by value) of the shares of the lower-tier PFIC for purposes of the application of these rules to such subsidiary. U.S. Holders should consult their tax advisers regarding the tax consequences if the PFIC rules apply to any of our subsidiaries.

        Alternatively, if we are a PFIC and if our ADSs are "regularly traded" on a "qualified exchange," a U.S. Holder may be eligible to make a mark-to-market election that would result in tax treatment different from the general tax treatment described above. Our ADSs would be treated as "regularly traded" in any calendar year in which more than a de minimis quantity of the ADSs are traded on a qualified exchange on at least 15 days during each calendar quarter. Nasdaq is a qualified exchange for this purpose. Additionally, because a mark-to-market election cannot be made for equity interests in any lower-tier PFIC that we may own, a U.S. Holder that makes a mark-to-market election with respect to us may continue to be subject to the PFIC rules with respect to any indirect investments held by us that are treated as an equity interest in a PFIC for U.S. federal income tax purposes. If a U.S. Holder makes the mark-to-market election, the U.S. Holder generally will recognize as ordinary income any excess of the fair market value of the ADSs at the end of each taxable year over their adjusted tax basis, and will recognize an ordinary loss in respect of any excess of the adjusted tax basis of the ADSs over their fair market value at the end of the taxable year (but only to the extent of the net amount of income previously included as a result of the mark-to-market election). If a U.S. Holder makes the election, the U.S. Holder's tax basis in the ADSs will be adjusted to reflect these income or loss amounts. Any gain recognized on the sale or other disposition of ADSs in a year when we are a PFIC will be treated as ordinary income and any loss will be treated as an ordinary loss (but only to the extent of the net amount of income previously included as a result of the mark-to-market election).

        If a U.S. Holder makes a mark-to-market election it will be effective for the taxable year for which the election is made and all subsequent taxable years unless the ADSs are no longer regularly traded on a qualified exchange or the IRS consents to the revocation of the election. U.S. Holders are urged to consult their tax advisers about the availability of the mark-to-market election, and whether making the election would be advisable in their particular circumstances.

        Alternatively, a U.S. Holder of stock in a PFIC may make a so-called "Qualified Electing Fund" election to avoid the PFIC rules regarding distributions and gain described above. U.S. Holders should be aware, however, that we are not required to satisfy the record- keeping and other requirements that would permit U.S. Holders to make qualified electing fund elections.

        In addition, if we are a PFIC or, with respect to particular U.S. Holders, are treated as a PFIC for the taxable year in which we paid a dividend or for the prior taxable year, the preferential rates discussed above with respect to dividends paid to certain non-corporate U.S. Holders would not apply.

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U.S. Holders should consult their tax advisers regarding the potential application of the PFIC rules.

Net Investment Income Tax

        In general, a U.S. Holder that is an individual, an estate, or a trust that does not fall into a special class of trusts that is exempt from such tax, is subject to a 3.8% tax on the lesser of (1) the U.S. Holder's "net investment income" for the relevant taxable year and (2) the excess of the U.S. Holder's modified adjusted gross income for the taxable year over a certain threshold (which in the case of individuals will be between $125,000 and $250,000, depending on the individual's filing status). A holder's net investment income will include its gross dividend income and its net gains from the disposition of ADSs, unless such dividends or net gains are derived in the ordinary course of the conduct of a trade or business (other than a trade or business that consists of certain passive or trading activities). If you are a U.S. Holder that is an individual, estate or trust, you are encouraged to consult your tax advisers regarding the applicability of the net investment income tax to your income and gains in respect of your investment in the ADSs.

Information Reporting and Backup Withholding

        Payments of dividends and sales proceeds received on the sale of other distributions of ADSs that are made within the U.S. or through certain U.S.-related financial intermediaries generally are subject to information reporting, and may be subject to backup withholding, unless (i) the U.S. Holder is a corporation or other exempt recipient or (ii) in the case of backup withholding, the U.S. Holder provides a correct taxpayer identification number and certifies that it is not subject to backup withholding, and otherwise complies with the applicable backup withholding rules.

        Backup withholding is not an additional tax. The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a credit against the holder's U.S. federal income tax liability and may entitle the U.S. Holder to a refund, provided that the required information is timely furnished to the IRS.

        If a U.S. Holder owns ADS during any year in which we are a PFIC, such U.S. Holder (including, potentially, indirect holders) generally must file an IRS Form 8621 with such holder's federal income tax return for that year. Certain U.S. Holders who are individuals may be required to report information relating to their ownership of an interest in certain foreign financial assets, including shares of a non-U.S. person, generally on Form 8938, subject to exceptions (including an exception for shares held through a U.S. financial institution).

        U.S. Holders should consult their tax advisers regarding their reporting obligations with respect to the ADSs.

        THE DISCUSSION ABOVE IS A GENERAL SUMMARY. IT DOES NOT COVER ALL TAX MATTERS THAT MAY BE OF IMPORTANCE TO A CURRENT OR PROSPECTIVE INVESTOR. EACH CURRENT OR PROSPECTIVE INVESTOR IS URGED TO CONSULT ITS OWN TAX ADVISER ABOUT THE TAX CONSEQUENCES TO IT OF AN INVESTMENT IN ADSs IN LIGHT OF THE INVESTOR'S OWN CIRCUMSTANCES, INCLUDING THE APPLICABILITY AND EFFECT OF THE TAX LAWS OF ANY STATE, LOCAL OR NON-U.S. JURISDICTION AND INCLUDING ESTATE, GIFT, AND INHERITANCE LAWS.

F. Dividends and Paying Agents

        Not applicable.

G. Statement by Experts

        Not applicable.

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H. Documents on Display

        We are subject to the informational requirements of the Exchange Act. Accordingly, we are required to file reports and other information with the SEC, including annual reports on Form 20-F and reports on Form 6-K in limited circumstances; however, we may elect to make additional information available on Form 6-K. The SEC maintains an Internet website that contains reports and other information about issuers, like us, that file electronically with the SEC. The address of that website is www.sec.gov. We make our reports available on our internet website, free of charge, as soon as reasonably practicable after such material is electronically filed with the SEC. The address of our website is www.forward-pharma.com. No portion of our website is incorporated by reference into this Annual Report.

I. Subsidiary Information

        Not applicable.

ITEM 11.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT RISK

Quantitative and Qualitative Disclosures about Market Risk

        We are exposed to a variety of financial risks: foreign exchange risk, credit risk and liquidity risk.

Market Risk

Foreign currency exchange rate risk

        We are exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the USD, GBP, and the Euro.

        Forward Pharma A/S's, Forward Pharma Operations ApS' and Forward Pharma FA ApS' functional currency is the DKK, Forward Pharma GmbH's functional currency is the Euro, and Forward Pharma USA, LLC's functional currency is the USD. Our expenses to date have been largely denominated in GBP, USD, DKK, and in Euro and therefore we are impacted by changes in foreign currency exchange rates. Our revenue from the License Agreement and our obligation to Aditech were denominated in USD. It is very common for a group company to conduct cross-border transactions where the functional currency is not always used, including purchases from vendors in the United Kingdom, where the GBP is used, and the United States, where the USD is used. In addition, the Company and Forward Pharma Operations ApS, who each use the DKK as their functional currency, have large cash holdings in Euros and USD. Accordingly, future changes in the exchange rates of the DKK, the Euro, the USD and/or the GBP will expose us to currency gains or losses that will impact the reported amounts of assets, liabilities, income and expenses and the impact could be material. For the years ended December 31, 2018, 2017 and 2016, we recognized foreign exchange gains (losses) of $2.7 million, ($241,000) and $598,000 respectively. While we benefited from changes in foreign exchange rates in 2018 and 2016, it is possible that the foreign exchange losses experienced in 2017 could reoccur. Any reoccurrences of foreign exchange losses would negatively affect us and the effect could be material.

        We do not believe there is currently a need to enter into specific contracts to reduce the exposure to changes in foreign exchange rates, such as by entering into options or forward contracts. We may in the future consider using options or forward contracts to manage currency transaction exposures.

        We estimate a 10% increase in the value of the U.S. Dollar relative to the Euro and the DKK would have decreased our net loss for the year ended December 31, 2018 by $310,000. A 10% decrease in the value of the U.S. Dollar relative to the Euro and the DKK would have increased our net loss for the year ended December 31, 2018 by a similar amount.

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Credit Risk

        As of December 31, 2018, our cash and cash equivalents are held primarily at two banks that have Moody's long term debt ratings of Aa3 or better. We do not invest in equity instruments or derivatives. Our investment criteria require preservation of capital and diversification in high credit rated financial institutions.

Liquidity Risk

        As of December 31, 2018, we held cash and cash equivalents totaling $82.5 million, which we believe will be sufficient to provide adequate funding to allow us to meet our planned operating activities in the normal course of business beyond the year ending December 31, 2019. Unforeseen events could negatively affect our ability to fund planned operations in the future.

        We currently estimate that there will be adequate liquidity to continue as a going concern beyond the next twelve months; however, if we do not prevail in the Opposition Proceeding, including all appeals, future revenues are unlikely and our ability to continue as a going concern long-term would be uncertain and management would consider, amongst other things, an orderly wind-down of operations.

        We currently have no significant planned capital expenditures nor are there plans to make cash distributions to shareholders.

ITEM 12.    DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

A. Debt Securities

        Not applicable.

B. Warrants and Rights

        Not applicable.

C. Other Securities

        Not applicable.

D. American Depositary Shares

        Pursuant to the terms of the deposit agreement, the holders of ADSs will be required to pay the following fees:

Persons depositing or withdrawing ordinary shares or ADSs must pay:
  For:

$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)

 

Issue of ADSs, including issues resulting from a distribution of ordinary shares or rights or other property

 

Cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates

$0.05 (or less) per ADS

 

Any cash distribution to the holder

A fee equivalent to the fee that would be payable if securities distributed to you had been ordinary shares and the shares had been deposited for issue of ADSs

 

Distribution of securities distributed to holders of deposited securities which are distributed by the depositary to the holder

$0.05 (or less) per ADS per calendar year

 

Depositary services

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Persons depositing or withdrawing ordinary shares or ADSs must pay:
  For:

Registration or transfer fees

 

Transfer and registration of ordinary shares on our share register to or from the name of the depositary or its agent when a holder deposits or withdraws shares

Expenses of the depositary

 

Cable, telex and facsimile transmissions (when expressly provided in the deposit agreement)

 

Converting foreign currency to U.S. Dollars

Taxes and other governmental charges the depositary or the custodian have to pay on any ADS or share underlying an ADS, for example, share transfer taxes, stamp duty or withholding taxes

 

As necessary

Any charges incurred by the depositary or its agents for servicing the deposited securities

 

As necessary

        The depositary collects its fees for delivery and surrender of ADSs directly from investors depositing ordinary shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cash distributions or by directly billing investors or by charging the book-entry system accounts of participants acting for them. The depositary may collect any of its fees by deduction from any cash distribution payable to ADS holders that are obligated to pay those fees. The depositary may generally refuse to provide for-fee services until its fees for those services are paid.

        From time to time, the depositary may make payments to us to reimburse or share revenue from the fees collected from ADS holders, or waive fees and expenses for services provided, generally relating to costs and expenses arising out of establishment and maintenance of the ADS program. In performing its duties under the deposit agreement, the depositary may use brokers, dealers or other service providers that are affiliates of the depositary and that may earn or share fees or commissions.

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PART II

ITEM 13.    DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

A. Defaults

        No matters to report.

B. Arrears and Delinquencies

        No matters to report.

ITEM 14.    MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

        No matters to report.

ITEM 15.    CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

        We maintain a set of disclosure controls and other procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act are recorded, processed, summarized and reported, within the time periods specified and in accordance with the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act are accumulated and communicated to our management, including our principal executive and financial officer, as appropriate to allow timely decisions regarding required disclosure. Our management, with the participation of our principal executive and financial officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2018.

        It should be noted that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment and makes assumptions about the likelihood of future events. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. Based on the evaluation of our disclosure controls and procedures as of December 31, 2018, our principal executive and financial officer concluded that, as of such date, our disclosure controls and procedures were not effective, as a result of the material weakness in internal controls over financial reporting described below.

Management's Annual Report on Internal Control over Financial Reporting

        Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our evaluation under this framework, our management concluded that our internal control over financial reporting was not effective as of December 31, 2018 due to the material weakness described below.

        A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

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        Based on the evaluation performed as of December 31, 2017, in accordance with the COSO criteria, management identified a material weakness in our internal control over financial reporting due to the ineffective design of review controls in place related to the appropriate accounting treatment of complex, non-routine transactions and ineffective segregation of duties over the recording of non-routine transactions primarily as a result of limited resourcing. While management took actions to remediate the material weakness ("Actions") during the year ended December 31, 2018, as discussed below, no complex non-routine transactions occurred during the year ended December 31, 2018. Therefore, management was not able to monitor and test whether the Actions taken were sufficient to remediate the material weakness. As a result of the lack of objective evidence that the Actions taken were sufficient to remediate the material weakness, management must conclude that the material weakness has not been remediated. Accordingly, based on the evaluation performed as December 31, 2018, in accordance with the COSO criteria, management continues to disclose a material weakness in our internal control over financial reporting due to the ineffective design of review controls in place related to the appropriate accounting treatment of complex, non-routine transactions and ineffective segregation of duties over the recording of non-routine transactions.

        After considering the Company's current situation and expectations of future operations, management does not expect that a complex non-routine transaction will occur in the foreseeable future. Without a complex non-routine transaction, management will be unable to monitor or test that the Actions taken were sufficient to remediate the material weakness. Consequently, it is likely that the material weakness reported herein will continue to be reported in future periods.

Attestation Report of the Registered Public Accounting Firm

        This Annual Report does not include an attestation report of our registered public accounting firm due to the exemption from this requirement for emerging growth companies established by the JOBS Act.

Changes in Internal Control Over Financial Reporting

        As discussed above, management took actions to remediate the material weakness, including the hiring of an outside advisor ("Advisor") to evaluate the current design of our internal control environment and suggest steps to enhance processes. The Advisor's suggestions have been implemented. In addition, we also hired an experienced professional who has many years of financial reporting experience working at a subsidiary of a US listed company as well as over ten years of experience working at a large, international accounting firm. The newly hired professional ("Professional") holds a senior position within the Company's finance department and is involved in overseeing all the activities of the finance department in Denmark. The Professional reports to the Vice President, Finance and Controller and has direct access to the Company's Chief Executive Officer. Should the Group enter into a complex non-routine transaction in the future, the Professional will independently evaluate the technical aspects, in accordance with IFRS, and financial statement implications of such transaction, and ensure that such transaction is correctly accounted for and disclosed in the Company's consolidated financial statements. The Professional's role within our system of internal control over financial reporting affords management the ability to enhance segregation of duties by redefining roles and responsibilities of staff to increase oversight and review capabilities.

ITEM 16A.    AUDIT COMMITTEE FINANCIAL EXPERT

        Our board of Directors has determined that Grant Hellier Lawrence is an audit committee financial expert, as that term is defined by the SEC, and is independent in accordance with Nasdaq rules.

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ITEM 16B.    CODE OF ETHICS

        We have adopted a Code of Business Conduct and Ethics, which applies to all of our board members and employees, including our principal executive and financial officer, Claus Bo Svendsen, and principal accounting officer, Thomas Carbone. Our Code of Business Conduct and Ethics is intended to meet the definition of "code of ethics" under Item 16B of Form 20-F under the Exchange Act.

        Our Code of Business Conduct and Ethics is available on our website at www.forward-pharma.com. The information contained on our website is not incorporated by reference in this Annual Report.

        Any amendments or waivers from the provisions of our Code of Business Conduct and Ethics will be made only after approval by our audit committee and will be disclosed on our website promptly following the date of such amendment or waiver.

ITEM 16C.    PRINCIPAL ACCOUNTANT FEES AND SERVICES

        Our auditors, Ernst & Young P/S, have performed the following services for the Company during the past two years:

 
  2018   2017  
 
  (USD in
thousands)

 

Audit

  $ 333   $ 1,096  

Audit related

         

Total

  $ 333   $ 1,096  

        All services provided to the Company by Ernst & Young P/S are reviewed and approved by our audit committee in advance of commencement of services. The amount for 2017 has been revised for changes that occurred subsequent to the filing of our 2017 Form 20-F.

ITEM 16D.    EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

        Not applicable.

ITEM 16E.    PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

        In 2018, no purchases of our equity securities were made by or on behalf of the Company or any affiliated purchaser.

ITEM 16F.    CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT

        Not applicable.

ITEM 16G.    CORPORATE GOVERNANCE

        Our ADSs are listed on the Nasdaq Global Select Market. However, as a foreign private issuer, we are permitted to follow the corporate governance practices of our home country in lieu of certain provisions of the Nasdaq Listing Rules.

        The material ways in which our corporate governance practices differ from those applicable to U.S. companies under the Nasdaq Listing Rules are:

    We are not required to have an audit committee comprised of at least three members, and our audit committee is currently comprised of only two members.

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    A majority of the members of our board of directors are not required to be "independent directors" as defined in the Nasdaq Listing Rules, and a majority of the members of our board of directors are not "independent directors."

    We are not required to adopt a formal written charter or board resolution addressing the process for the nomination of directors. We do not have a nominations committee, nor have we adopted a board resolution addressing the nominations process.

    We are not required to hold regularly scheduled board meetings at which only independent directors are present.

    No quorum requirement applies to our meetings of shareholders.

    We are not required to obtain shareholder approval for material revisions to our share-based incentive plans.

    We are not required to solicit proxies or provide proxy statements to Nasdaq pursuant to Nasdaq corporate governance rules or Danish law. Consistent with Danish law and as provided in our Articles of Association, we will notify our holders of our ordinary shares of meetings with at least two weeks' but not more than four weeks' notice. This notification will contain, among other things, information regarding business to be transacted at the meeting. In addition, our bylaws provide that shareholders must give us not less than six weeks' advance notice to properly introduce any business at an annual meeting of shareholders.

        Other than as noted above, we are in compliance with other Nasdaq Listing Rules applicable to U.S. domestic issuers.

ITEM 16H.    MINE SAFETY DISCLOSURE

        Not applicable.

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PART III

ITEM 17.    FINANCIAL STATEMENTS

        We have responded to Item 18 in lieu of this item.

ITEM 18.    FINANCIAL STATEMENTS

        The Financial Statements filed as part of this Annual Report begin on page F-1.

ITEM 19.    EXHIBITS

Exhibit Index

Exhibit Number   Description
  1.1 (9) English translation of Amended and Restated Articles of Association, dated September 18, 2018.

 

2.1

(2)

Registration Rights Agreement, dated September 11, 2014, between Forward Pharma A/S and each of the investors listed on Schedule A thereto.

 

2.2

(3)

Deposit Agreement between the Registrant and The Bank of New York Mellon, as depositary, dated October 14, 2014.

 

2.3

(3)

Form of American Depositary Receipt (included in Exhibit 2.2).

 

2.4

(2)

Shareholders' Agreement, dated September 8, 2014, between Nordic Biotech K/S, Nordic Biotech Opportunity Fund K/S, NB FP Investment K/S and NB FP Investment II K/S.

 

4.1

(1)

Patent Transfer Agreement, dated May 4, 2010, between Forward Pharma A/S and Aditech Pharma AG.

 

4.2

(6)

Addendum to Patent Transfer Agreement, dated January 17, 2017, between Forward Pharma A/S and Aditech Pharma AG.

 

4.3

(1)

Form of Director and Officer Indemnification Agreement.

 

4.4

(1)

Indemnification Agreement with Joel Sendek.

 

4.5

(4)

Forward Pharma A/S 2014 Omnibus Equity Incentive Compensation Plan.

 

4.6

(5)

Settlement and License Agreement, dated January 17, 2017, between Forward Pharma A/S, Biogen Swiss Manufacturing GmbH, Biogen International Holding Ltd. and certain other parties named therein.

 

4.7

(6)

Letter Agreement regarding the Settlement and License Agreement, dated January 17, 2017, between Forward Pharma A/S, Biogen Swiss Manufacturing GmbH, Biogen International Holding Ltd. and certain other parties named therein.

 

4.8

(6)

Letter Agreement regarding the Addendum to Patent Transfer Agreement, dated January 17, 2017, between Forward Pharma A/S and Aditech Pharma AG.

 

4.9

(6)

Form of Shareholders Commitment Agreement.

 

4.10

(8)

Call Option Agreement, dated as of November 22, 2017, by and among Forward Pharma A/S, FWP HoldCo ApS and Biogen Swiss Manufacturing GmbH.

 

4.11

(8)

Pledge Agreement, dated as of November 22, 2017, by and among Forward Pharma A/S, FWP HoldCo ApS and Biogen Swiss Manufacturing GmbH.

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Exhibit Number   Description
  4.12 (8) Share Purchase Agreement, dated as of November 22, 2017, by and between Forward Pharma Operations ApS and FWP HoldCo ApS.

 

4.13

(7)

Asset Contribution Agreement, dated as of June 30, 2017, by and between Forward Pharma A/S and Forward Pharma Operations ApS.

 

4.14

(7)

IPR Services, Administration, Funding and Novation Agreement, dated as of June 30, 2017, by and among Forward Pharma A/S, Forward Pharma Operations ApS, FWP IP ApS, Biogen Swiss Manufacturing GmbH and Biogen International Holding Limited.

 

8.1

 

List of Subsidiaries.

 

12.1

 

Certification of Principal Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.

 

12.2

 

Certification of Principal Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.

 

13.1

 

Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

15.1

 

Consent of Ernst & Young P/S, Independent Registered Public Accounting Firm.

 

101.1

 

Interactive Data Files (XBRL-Related Documents).

(1)
Incorporated by reference from the Registrant's Registration Statement on Form F-1 (Registration No. 333-198013) filed with the SEC on August 11, 2014.

(2)
Incorporated by reference from the Registrant's Amendment No. 1 to Registration Statement on Form F-1 (Registration No. 333-198013) filed with the SEC on September 12, 2014.

(3)
Incorporated by reference from the Registrant's Annual Report on Form 20-F filed with the SEC on March 25, 2015.

(4)
Incorporated by reference from the Registrant's Registration Statement on Form S-8 (Registration No. 333-203312) filed with the SEC on April 9, 2015.

(5)
Incorporated by reference from the Registrant's Annual Report on Form 20-F filed with the SEC on April 18, 2017.

(6)
Incorporated by reference from the Registrant's Current Report on Form 6-K filed with the SEC on January 17, 2017.

(7)
Incorporated by references from the Registrant's Current Report on Form 6-K filed with the SEC on September 26, 2017.

(8)
Incorporated by references from the Registrant's Current Report on Form 6-K filed with the SEC on November 22, 2017.

(9)
Incorporated by references from the Registrant's Current Report on Form 6-K filed with the SEC on September 18, 2018.

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SIGNATURE

        The Registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

    FORWARD PHARMA A/S

 

 

By:

 

/s/ CLAUS BO SVENDSEN

        Name:   Claus Bo Svendsen
        Title:   Chief Executive Officer

Date: April 4, 2019

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Forward Pharma A/S

Index to Consolidated Financial Statements

F-1


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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Forward Pharma A/S

Opinion on the Financial Statements

        We have audited the accompanying consolidated statements of financial position of Forward Pharma A/S (the Company) as of December 31, 2018 and 2017, the related consolidated statements of profit or loss, other comprehensive (loss) income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2018, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Basis for Opinion

        These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

        We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

        Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young P/S

We have served as the Company's auditor since 2005.

Copenhagen, Denmark

April 4, 2019

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Consolidated Statement of Financial Position

as of December 31, 2018 and 2017

 
   
  December 31,  
 
  Notes   2018   2017  
 
   
  USD '000
  USD '000
 

Assets

                   

Equipment

    4.1         12  

Other non-current asset

    6.2     2     5  

Total non-current assets

          2     17  

Prepayments

    4.2     340     502  

Other receivables

    4.3     266     518  

Income tax receivable

    3.4     182     417  

Cash and cash equivalents

    5.2     82,542     109,554  

Total current assets

          83,330     110,991  

Total assets

          83,332     111,008  

 

 
   
  December 31,  
 
  Notes   2018   2017  
 
   
  USD '000
  USD '000
 

Equity and Liabilities

                   

Share capital

    5.1     152     151  

Other components of equity:

                   

Foreign currency translation reserve

          87,748     91,902  

Accumulated deficit

          (5,686 )   (2,373 )

Equity attributable to shareholders of the Parent

          82,214     89,680  

Total equity

          82,214     89,680  

Non-current liabilities:

                   

Deferred tax

    3.4         43  

Total non-current liabilities

              43  

Trade payables

    5.4     428     1,203  

Income tax payable

    3.4     68     7,039  

Accrued liabilities

    4.4     622     13,043  

Total current liabilities

          1,118     21,285  

Total equity and liabilities

          83,332     111,008  

   

See accompanying notes to these consolidated financial statements

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Consolidated Statement of Profit or Loss

for the years ended December 31, 2018, 2017 and 2016

amounts in thousands except per share amounts

 
   
  Year ended December 31,  
 
  Notes   2018   2017   2016  
 
   
  USD
  USD
  USD
 

Revenue from settlement and license agreement

  1.2         1,250,000      

Cost of the Aditech Pharma AG agreement

  1.2, 6.2         (25,000 )    

Research and development costs

  3.2, 3.3, 4.1     (2,748 )   (20,496 )   (41,052 )

General and administrative costs

  3.2, 3.3, 4.1, 6.1     (9,535 )   (17,107 )   (14,382 )

Operating (loss) income

        (12,283 )   1,187,397     (55,434 )

Exchange rate gain (loss), net

        2,713     (241 )   598  

Interest income from available-for-sale financial assets

            227     389  

Other finance income (expense)

  5.3     644     (2,895 )   (92 )

(Loss) income before tax

        (8,926 )   1,184,488     (54,539 )

Income tax benefit (expense)

  3.4     204     (267,395 )   21,203  

Net (loss) income for the year

        (8,722 )   917,093     (33,336 )

Net (loss) income for the year attributable to:

                       

Equity holders of the Parent

        (8,722 )   917,093     (33,336 )

Per share amounts:

                       

Net (loss) income per share basic

  3.5     (0.09 )   2.41     (0.06 )

Net (loss) income per share diluted

  3.5     (0.09 )   2.30     (0.06 )

   

See accompanying notes to these consolidated financial statements

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Consolidated Statement of Other Comprehensive (Loss) Income

for the years ended December 31, 2018, 2017 and 2016

 
   
  Year ended December 31,  
 
  Notes   2018   2017   2016  
 
   
  USD '000
  USD '000
  USD '000
 

Net (loss) income for the year

          (8,722 )   917,093     (33,336 )

Other comprehensive (loss) income to be reclassified to profit or loss in subsequent periods:

                         

Change in fair value of available-for-sale financial assets

    2.1         (218 )   116  

Exchange differences on translation of foreign operations

    2.1     (4,154 )   129,673     (4,896 )

Net other comprehensive (loss) income to be reclassified to profit or loss in subsequent periods

          (4,154 )   129,455     (4,780 )

Other comprehensive (loss) income

          (4,154 )   129,455     (4,780 )

Total comprehensive (loss) income

          (12,876 )   1,046,548     (38,116 )

Attributable to:

                         

Equity holders of the parent

          (12,876 )   1,046,548     (38,116 )

   

See accompanying notes to these consolidated financial statements

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Consolidated Statement of Changes in Shareholders' Equity

for the years ended December 31, 2016, 2017 and 2018

 
  Notes   Share
capital
  Share
premium
  Foreign
currency
translation
reserve
  Fair value
adjustment
available-for-
sale financial
assets
  Accumulated
deficit
  Total
equity
 
 
   
  USD '000
  USD '000
  USD '000
  USD '000
  USD '000
  USD '000
 

At January 1, 2016

          796     339,845     (32,875 )   102     (131,175 )   176,693  

Net loss for the year

                          (33,336 )   (33,336 )

Other comprehensive (loss) income

                  (4,896 )   116         (4,780 )

Total comprehensive (loss) income

                  (4,896 )   116     (33,336 )   (38,116 )

Issuance of deferred shares

    5.1     2                     2  

Exercise of warrants

    5.1     2     110                 112  

Share-based payment costs

    3.3                     14,288     14,288  

Tax benefit resulting from share-based payment costs

    3.4