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TABLE OF CONTENTS
Forward Pharma A/S

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, 2016

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)

Joel Sendek
Chief Financial Officer
Forward Pharma USA, LLC
914-752-3542
7 Skyline Drive, Suite 350
Hawthorne, NY 10532


(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 share, nominal value 0.10 DKK   Nasdaq Global Select Exchange

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: 47,143,889

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).

o Yes    o No

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

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

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 the International Accounting Standards Board ý
  Other o

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

  4

C. Reason for the Offering

  4

D. Risk Factors

  4

ITEM 4. INFORMATION ON THE COMPANY

  34

A. History and Development of the Company

  34

B. Business Overview

  35

C. Organizational Structure

  56

D. Property, Plant and Equipment

  57

ITEM 4A. UNRESOLVED STAFF COMMENTS

  57

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

  57

A. Operating Results Overview

  57

B. Liquidity and Capital Resources

  71

C. Research and Development and Patents

  73

D. Trend Information

  73

E. Off-Balance Sheet Arrangements

  73

F. Tabular Disclosure of Contractual Obligations

  74

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

  74

A. Directors and Senior Management

  74

B. Compensation

  81

C. Board Practices

  89

D. Employees

  89

E. Share Ownership

  89

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

  91

A. Major Shareholders

  91

B. Related Party Transactions

  92

C. Interests of Experts and Counsel

  93

ITEM 8. FINANCIAL INFORMATION

  93

A. Consolidated Statements and Other Financial Information

  93

B. Significant Changes

  93

ITEM 9. THE OFFER AND LISTING

  93

A Offering and Listing Details

  93

B. Plan of Distribution

  93

C. Markets

  93

D. Selling Shareholders

  94

E. Dilution

  94

F. Expenses of the Issue

  94

ITEM 10. ADDITIONAL INFORMATION

  94

A. Share Capital

  94

B. Memorandum and Articles of Association

  94

C. Material Contracts

  95

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  Page

D. Exchange Controls

  96

E. Taxation

  96

F. Dividends and Paying Agents

  105

G. Statement by Experts

  105

H. Documents on Display

  105

I. Subsidiary Information

  105

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT RISK

  105

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

  107

A. Debt Securities

  107

B. Warrants and Rights

  107

C. Other Securities

  107

D. American Depositary Shares

  107

PART II

  109

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

  109

A. Defaults

  109

B. Arrears and Delinquencies

  109

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

  109

ITEM 15. CONTROLS AND PROCEDURES

  109

A. Disclosure Controls and Procedures

  109

B. Management's Annual Report on Internal Control over Financial Reporting

  109

C. Attestation Report of the Registered Public Accounting Firm

  109

D. Changes in Internal Control over Financial Reporting

  110

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

  110

ITEM 16B. CODE OF ETHICS

  110

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

  110

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

  110

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

  110

ITEM 16F. CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT

  110

ITEM 16G. CORPORATE GOVERNANCE

  111

ITEM 16H. MINE SAFETY DISCLOSURE

  111

PART III

  112

ITEM 17. FINANCIAL STATEMENTS

  112

ITEM 18. FINANCIAL STATEMENTS

  112

ITEM 19. EXHIBITS

  112

        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 wholly owned 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 wholly owned subsidiaries, as required by the context.



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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:

        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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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, 2016, 2015 and 2014, and as of December 31, 2016 and 2015, 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, 2013 and 2012, and as of December 31, 2014, 2013 and 2012, 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)
  2016   2015   2014   2013   2012  

Research and development costs

    (41,052 )   (33,727 )   (10,547 )   (8,018 )   (4,445 )

General and administrative costs

    (14,382 )   (15,852 )   (9,154 )   (1,014 )   (928 )

Operating loss

    (55,434 )   (49,579 )   (19,701 )   (9,032 )   (5,373 )

Fair value adjustment to net settlement obligations to shareholder warrants

            (968 )   (6,676 )   (17,071 )

Fair value adjustment to convertible loans

            (3,823 )        

Exchange rate gain (loss), net

    598     11,933     5,589     (7 )   (3 )

Interest income

    389     438     63          

Interest expense

            (416 )   (75 )   (32 )

Other finance costs

    (92 )   (132 )   (10 )   (2 )    

Net loss before tax

    (54,539 )   (37,340 )   (19,266 )   (15,792 )   (22,479 )

Income tax benefit

    21,203     336     250     96      

Net loss for the year

    (33,336 )   (37,004 )   (19,016 )   (15,696 )   (22,479 )

Net loss per share(1)

                               

Basic and diluted(2)

    (0.71 )   (0.79 )   (1.79 )   (0.54 )   (0.80 )

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

                               

Basic and diluted

    47,013     46,749     34,490     29,004     28,124  

(1)
As discussed in more detail in the Company's audited consolidated financial statements, just prior to the Company's initial public offering in October 2014, there were a number of corporate actions taken whereby all of the Company's outstanding shares were converted into ordinary shares on a 1 for 1 basis, or Share Conversion, additional ordinary shares, or Proportional Shares, were issued to

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    all shareholders in proportion to their respective ownership interest and there was a share split of 10 for 1, or Share Split. Since the Share Conversion, issuance of Proportional Shares and Share Split (collectively referred to as the "Recapitalization") resulted in no additional consideration received by the Company nor did it change the individual ownership percentages of individual shareholders of the Company, for purposes of computing the loss per share for each of the years ended December 31, 2014, 2013 and 2012 included herein, the Recapitalization was deemed to have occurred as of the beginning of the earliest period presented. The Recapitalization was fully effected at the beginning of 2015 and therefore retrospective adjustment was not necessary in computing per share information for the years ended December 31, 2016 and 2015.

(2)
During 2014, the Company's Class B shareholders received a preferential distribution in the form of Class A shares with a fair value of $42.7 million in consideration for amendments to certain contractual rights held by the Company's Class B shareholders. 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. See Note 2.6 of the audited consolidated financial statements of the Company for additional information.

Consolidated Statement of Financial Position Data

 
  As of December 31,  
(USD in thousands)
  2016   2015   2014   2013   2012  

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

    138,723     176,652     223,484     2,955     828  

Adjusted working capital(3)

    132,465     93,590     90,480     2,317     213  

Total assets

    163,143     182,904     225,309     3,599     970  

Long-term debt, including current portion

                2,613     2,100  

Accumulated deficit

    (147,400 )   (131,175 )   (107,712 )   (51,913 )   (36,796 )

Total shareholders' equity (deficit)

    155,802     176,693     222,394     (26,415 )   (20,250 )

(3)
We define adjusted working capital as current assets minus trade and other payables. We use adjusted working capital to, among other things, evaluate our short-term liquidity requirements. We find adjusted working capital a useful metric in evaluating our short-term liquidity requirements because it eliminates the impact of certain related party transactions, including shareholder loans and liability classified shareholder warrants. Adjusted working capital is not an IFRS measure, and our definition may vary from that used by others in our industry. Accordingly, our use of adjusted working capital has limitations as an analytical tool and you should not consider it in isolation or as a substitute for analysis of our financial position as reported under IFRS.

Exchange Rate Information

        Our business is primarily conducted in Denmark and Germany. The functional currency of Forward Pharma A/S is the Danish Kroner, the functional currency of Forward Pharma FA ApS is the Danish Kroner, 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.

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        The following table presents information on the exchange rates between the Danish Kroner and the U.S. Dollar for the periods indicated, as published by the Danish Central Bank.

 
  Period-end   Average
for Period
  Low   High  
 
  (DKK per USD)
   
   
 

Year Ended December 31:

                         

2012

    5.659     5.794     5.523     6.156  

2013

    5.414     5.618     5.400     5.833  

2014

    6.121     5.619     5.349     6.121  

2015

    6.830     6.727     6.181     7.081  

2016

    7.053     6.733     6.433     7.173  

Month Ended:

                         

October 2016

    6.796     6.749     6.627     6.842  

November 2016

    6.996     6.892     6.705     7.051  

December 2016

    7.053     7.054     6.912     7.173  

January 2017

    6.915     7.006     6.915     7.159  

February 2017

    7.014     6.986     6.882     7.071  

March 2017

    6.928     6.960     6.833     7.070  

        The following table presents information on the exchange rates between the Euro and the U.S. Dollar for the periods indicated, as published by the European Central Bank.

 
  Period-end   Average
for Period
  Low   High  
 
  (EUR per USD)
   
   
   
 

Year Ended December 31:

                         

2012

    0.758     0.779     0.743     0.827  

2013

    0.725     0.753     0.724     0.783  

2014

    0.824     0.754     0.717     0.824  

2015

    0.919     0.902     0.830     0.948  

2016

    0.949     0.904     0.864     0.965  

Month Ended:

                         

October 2016

    0.914     0.907     0.890     0.920  

November 2016

    0.940     0.926     0.901     0.948  

December 2016

    0.949     0.949     0.929     0.965  

January 2017

    0.930     0.942     0.930     0.963  

February 2017

    0.944     0.940     0.925     0.951  

March 2017

    0.931     0.936     0.918     0.951  

B.  Capitalization

C.  Reason for the Offering

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

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be materially and adversely affected if any of these risks occurs. This Annual Report also contains 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 the interference proceeding between our U.S. Patent Application No. 11/576,871 and Biogen's U.S. Patent No. 8,399,514 will ultimately result in judgment against Biogen and the cancellation of its patent claims. In addition, there can be no assurance that any claims of our U.S. Patent Application No. 11/576,871 will ever issue in a patent or be royalty bearing under the Settlement and License Agreement with Biogen.

        On April 13, 2015, an administrative patent judge at the U.S. Patent Trial and Appeal Board, or PTAB, declared Patent Interference No. 106,023, or Interference Proceeding, between our U.S. Patent Application No. 11/567,871, or '871 application, and U.S. Patent No. 8,399,514, or '514 patent, held by a subsidiary of Biogen, Inc. (all subsidiaries of Biogen, Inc., together with Biogen, Inc., hereafter collectively referred to as Biogen), both of which contain claims that cover a method of treating multiple sclerosis, or MS, using about a 480 mg daily dose of dimethyl fumarate, or DMF. If the Company is successful in the Interference Proceeding after any appeals (including en banc review) to the U.S. Court of Appeals for the Federal Circuit, or Federal Circuit, it will be eligible to receive royalties starting as early as 2021 based on Biogen's net sales as defined in our Settlement and License Agreement dated as of January 17, 2017, or License Agreement, with two subsidiaries of Biogen that became effective on February 1, 2017, provided that other conditions of the License Agreement are satisfied. However, as explained below, the outcome of the Interference Proceeding is uncertain, and even if we prevail in the Interference Proceeding after any appeals to the Federal Circuit, there is no assurance that we will receive further payments from Biogen under the License Agreement.

        An interference is an administrative proceeding at the United States Patent and Trademark Office, or USPTO, to determine which party is the first to invent an invention claimed by two parties. The party with the earliest effective filing date to the common invention is designated "senior party" and is entitled to the presumption that it is the first inventor. Biogen, as the junior party in the Interference Proceeding, has the burden of proof to show a date of invention that predates our invention. During an interference, the parties can dispute the patentability of the other party's claims, challenge the senior party designation and present proof of prior invention. Interference proceedings typically involve both a "motions" phase and a "priority" phase. However, in this Interference Proceeding those two phases were combined.

        At the outset of the Interference Proceeding, the administrative patent judge accorded the Company benefit of the filing date of our Danish Application No. PA 2004 01546, filed on October 8, 2004. Biogen filed a motion in the Interference Proceeding to vacate benefit to this priority date. Although we believe we are entitled to the benefit of this priority date, and have opposed Biogen's motion, there is no assurance that the USPTO will agree with us. Biogen also filed a motion in the Interference Proceeding alleging that our claims are unpatentable under 35 U.S.C. Section 112 for lack of written description and lack of enablement. The PTAB granted this motion on March 31, 2017. While we do not believe Biogen has proven that our claims fail to satisfy Section 112 and have opposed Biogen's motion, there can be no assurance that we will be successful in appealing this decision. In addition, Biogen filed a motion for priority asserting February 19, 2004 as its date of conception of the invention claimed in its '514 patent, which is earlier than the October 8, 2004 priority date to which our '871 application has been accorded benefit. As the junior party in the Interference Proceeding, Biogen has the burden of proving an earlier date of conception and diligent reduction to practice of the invention from a date just before our earliest effective filing date through the date of Biogen's earliest alleged reduction to practice, which is currently Biogen's alleged first constructive reduction to practice

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on February 8, 2007, the date of Biogen's U.S. provisional application. Thus, Biogen must show diligence for a 28-month period from October 2004 through February 2007. While we do not believe Biogen has proven entitlement to priority and have opposed Biogen's priority motion, there can be no assurance that we will be successful in doing so.

        We filed four motions in the Interference Proceeding. Our first motion alleges that Biogen's '514 patent is unpatentable under 35 U.S.C. Sections 102 and/or 103 in view of the publication of our international application PCT/DK2005/000648. Our second motion alleges that Biogen's '514 patent claims are unpatentable under 35 U.S.C. Section 112 for lack of written description. Our third motion seeks benefit of the filing dates of our three additional Danish applications and our U.S. provisional application. Our fourth motion attacks Biogen's benefit claim to its February 8, 2007 U.S. provisional application. Biogen has opposed each of these motions and, while we believe our motions should be granted, there is no assurance we will be successful.

        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 intends to appeal the decision to the Federal Circuit. The appeal is expected to last 12 months or longer. If the Company prevails in this appeal, we expect the Federal Circuit to remand the case to the PTAB, in order for the PTAB to resolve both parties' other outstanding motions, including Biogen's priority motion. The oral argument for the inter partes review, or IPR, against Biogen's '514 patent, which was instituted in response to a request from the Coalition for Affordable Drugs (IPR No. 2015-01993), was also held on November 30, 2016. On March 21, 2017, the PTAB issued a decision in the IPR holding that the claims of Biogen's '514 patent are patentable. The Coalition for Affordable Drugs has the right to appeal this decision.

        If we ultimately prevail in the Interference Proceeding after all appeals to the Federal Circuit, we expect our '871 application to be in condition for allowance and Biogen's '514 patent to be cancelled. However, even if we prevail in the Interference Proceeding after any appeals to the Federal Circuit, there can be no assurance that we will obtain allowance of the '871 application or that, if we do obtain allowance of that application, that its claims will be royalty bearing under the License Agreement. Unless as a result of the Interference Proceeding after any appeals to the Federal Circuit we obtain issuance of a patent with a claim that covers treatment for MS by orally administering 480 mg per day of DMF, we would not be entitled to any future royalties under the License Agreement with respect to sales in the U.S.

        If Biogen is successful after any appeals to the Federal Circuit in proving that our claims are unpatentable, we would not prevail in the Interference Proceeding. Even if we can defeat Biogen's argument that our claims are unpatentable, if Biogen is successful after any such appeals in proving an earlier date of conception and diligent reduction to practice, we would not prevail in the Interference Proceeding unless we can successfully prove that Biogen's claims are unpatentable. Even if Biogen were to lose any appeal of the decision in the IPR brought by the Coalition for Affordable Drugs (IPR No. 2015-01993), we may not prevail in the Interference Proceeding. If we fail as a result of the Interference Proceeding after any appeals to the Federal Circuit to obtain issuance of a patent with a claim that covers treatment for MS by orally administering 480 mg per day of DMF, we would not be entitled to any future royalties from Biogen under the License Agreement with respect to sales in the U.S. Moreover, if Biogen prevails in the Interference Proceeding and IPR, after any appeals to the Federal Circuit, we may be prevented from commercializing our lead product candidate, FP187, for MS in the U.S. at a 480 mg per day dose. Were this to occur, we would review opportunities to develop other DMF-containing formulations and products, including generics, consistent with the terms of the License Agreement. If we are unable to commercialize FP187 or any other product for sale in the U.S., we would be unable to generate any revenue from such a product.

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Even if we prevail, after any appeals, in the Interference Proceeding, there can be no assurance that the license to Biogen in the U.S. will become exclusive.

        Under the License Agreement, Biogen was granted a perpetual, irrevocable, co-exclusive royalty-bearing license to the Company's intellectual property in the U.S. No later than 215 days after a final decision in the Interference Proceeding, after any appeals to the Federal Circuit, and if all other conditions of the License Agreement are met within the time period set forth in the License Agreement, which include the absence of legal restraints and termination or expiration of any required waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, or HSR Act, Biogen will obtain a perpetual, irrevocable, exclusive royalty-bearing license to the Company's U.S. intellectual property. Satisfying any conditions sought by regulators in connection with any HSR Act review could alter the terms of the License Agreement, which could have an adverse effect on the Company. If any regulatory conditions are not satisfied within the time period set forth in the License Agreement, and Biogen does not elect to obtain the exclusive license, then the U.S. license will remain an irrevocable co-exclusive license, under which the Company will maintain the ability to develop and commercialize medicines based on its intellectual property or to assign, on one occasion only, its co-exclusive license rights to a single third party, at the Company's discretion.

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

        We are involved in an opposition proceeding regarding EP2801355, or EP'355 patent, with several opponents including Biogen, or Opposition Proceeding. There can be no assurance that we will be successful in the Opposition Proceeding. 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.

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

        Even if we prevail, after any appeals, in the Interference Proceeding and/or Opposition Proceeding, there can be no assurance that any of the conditions for payment of a royalty under the License Agreement will be satisfied or that we will receive any additional payments. For example, we could prevail in the Interference Proceeding, after any appeals, but fail as a result of that proceeding to obtain an issued patent with a claim that covers treatment for MS by orally administering 480 mg per day of DMF, in which case we would not be eligible for any royalties from Biogen with respect to sales in the U.S. Moreover, even if we prevail, after any appeals, in the Interference Proceeding, we will only be eligible to receive royalties on sales in 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 by Biogen's sales in the U.S. of DMF-containing products indicated for treating MS, and other conditions of the License Agreement are satisfied.

        Similarly, we could prevail in the Opposition Proceeding, after any appeals, but fail as a result of that proceeding to obtain issuance of patent with a claim that covers treatment for MS by orally administering 480 mg per day of 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

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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 needs 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 obtain patent term adjustment that will fully compensate us for all time lost during prosecution of our U.S. applications, and no assurance that we will receive or maintain Supplementary Protection Certificates, or SPCs, for each of our European patents.

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®. 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 and even if we comply with the terms of the License Agreement, we could lose control of our intellectual property.

        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 right to royalties from Biogen under the License Agreement. In addition, pursuant to the License Agreement, we have agreed to use our commercially reasonable efforts to effect a corporate restructuring whereby we ultimately would transfer our intellectual property to a company owned by a self-governing independent foundation or a subsidiary that may be partially owned or controlled by Biogen or, subject to certain conditions, the shares of which may be pledged to Biogen. As a result, we will no longer have full control over our intellectual property. Even though we have agreed with Biogen that any foundation or subsidiary will be required to take actions with respect to the transferred intellectual property in accordance with the provisions of the License Agreement, there can be no assurance that it will do so. Further, in the event that the company holding 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 such company at a price corresponding to its intrinsic value at the time of exercise. Finally, in the event the foundation was 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.

If serious adverse, undesirable or unacceptable side effects occur with respect to Tecfidera® or another DMF-containing or fumaric acid-containing product, future royalties or other payments to us may be adversely affected.

        It is documented in the Tecfidera® label that the use of DMF may cause a decrease in lymphocytes (a group of white blood cells) in humans, thereby possibly increasing the potential for infection; this is also the case for other fumaric acid ester-containing products. A patient taking Tecfidera® in an

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extension study, who suffered from severe lymphopenia for more than three years, developed progressive multifocal leukoencephalopathy, or PML, a rare brain infection, and died of pneumonia. At least three other cases of PML have been reported in patients being treated with Tecfidera®, again in the presence of persistent lymphopenia. As a result, Biogen revised the U.S. label of Tecfidera® in December 2014 and February 2016 to include a warning about PML and to increase the frequency of monitoring of lymphocyte counts. To date, we are not aware of instances in which this side effect has prevented the U.S. Food and Drug Administration, or FDA, from approving DMF-containing products, although the FDA requires monitoring of the lymphocyte levels in individual patients under treatment with Tecfidera®.

        In January 2017, Biogen updated the U.S. label of Tecfidera® to include new text on the potential for liver injury under treatment with Tecfidera®. This was based on the occurrence of clinically significant cases of liver injury having been reported in patients treated with Tecfidera® in the post-marketing setting. The label update also introduced a requirement for monitoring of liver parameters before and regularly during treatment with Tecfidera®.

        We expect that the FDA is likely to require similar language in the label of any other DMF-containing products of Biogen, the Company or any assignee of our U.S. co-exclusive license rights. Any reduction in sales of Tecfidera® or another DMF-containing product due to undesirable or unacceptable side effects including, but not limited to, the side effects mentioned above, could have a material adverse effect on any royalties or other payments that might otherwise be paid to us, which could have a material adverse effect on our business, financial condition and prospects.

Our future growth and ability to compete depends 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, Jan G. J. van de Winkel, Grant Hellier Lawrence, Jakob Mosegaard Larsen, Karen Smith, Duncan Moore, and our Chief Executive Officer, Claus Bo Svendsen, our Chief Financial Officer, Joel Sendek, 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.

The Company or any assignee of our U.S. co-exclusive license rights seeking to advance FP187 or another DMF-containing formulation will be subject to extensive regulation, compliance with which is costly and time consuming, and which may delay or prevent receipt of the required approvals to commercialize the product candidate, which may delay or prevent our receipt of any royalties or other payments.

        The Company or any assignee of our U.S. co-exclusive license rights seeking to advance FP187 or another DMF-containing formulation, which we collectively refer to as a DMF Formulation, will not be permitted to market its product candidate until it receives approval from FDA. The process of obtaining FDA approval is expensive, often takes many years, and can vary substantially based upon the type, complexity, and novelty of the products involved, as well as the target indications. Approval policies or regulations may change and regulatory authorities have substantial discretion in the drug approval process, including the ability to delay, limit, or deny approval of a product candidate for many

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reasons. Despite the time and expense invested in clinical development of product candidates, regulatory approval is never guaranteed and may never be obtained.

        The FDA can delay, limit, or deny approval of a product candidate for many reasons, including:

        In addition, competitors could attempt to use the regulatory process to delay or prevent approval of the product candidate. Should any of the events described above occur, this could have a material adverse effect on our business, financial condition and results of operations.

Pre-clinical and clinical drug development involves a lengthy and expensive process with uncertain timelines and uncertain outcomes. If pre-clinical or clinical trials of a DMF Formulation are prolonged and/or delayed, we or any assignee of our U.S. co-exclusive license rights may be unable to obtain required regulatory approvals, and therefore may be unable to commercialize the product on a timely basis or at all, which would adversely affect any future revenues.

        To obtain the requisite regulatory approvals to market a DMF Formulation, we or any assignee of our U.S. co-exclusive license rights must demonstrate that it is safe and effective in humans for its intended use. This may involve extensive pre-clinical and clinical trials. The process for obtaining governmental approval to market a DMF Formulation is rigorous, time-consuming and costly. It is impossible to predict the extent to which this process may be affected by legislative and regulatory developments. Due to these and other factors, a DMF Formulation could take significantly longer to gain regulatory approval than expected or may never gain regulatory approval. This could delay or eliminate our ability to generate revenue, including any royalties or other payments to us from any such assignee, by delaying or terminating the potential commercialization of any DMF Formulation.

        Pre-clinical trials must be conducted in accordance with FDA and other applicable regulatory authorities' legal requirements, regulations or guidelines, including good laboratory practice, or GLP, an international standard meant to harmonize the conduct and quality of nonclinical studies and the reporting of findings. Pre-clinical studies including long-term toxicity studies and carcinogenicity studies in experimental animals may result in findings which may require further evaluation, which could affect the risk-benefit evaluation of clinical development, or which may even lead the regulatory agencies to delay, prohibit the initiation of or halt clinical trials or delay or deny marketing authorization applications. Failure to adhere to the applicable GLP standards or misconduct during the course of the study may invalidate the study and therefore require us, or our assignee, if any, to repeat the study.

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        Clinical trials must be conducted in accordance with FDA and other applicable regulatory authorities' legal requirements, regulations or guidelines, including good clinical practice, or GCP, an international standard meant to protect the rights and health of patients and to define the roles of clinical trial sponsors, administrators and monitors. Clinical trials are further subject to oversight by these governmental agencies and Institutional Review Boards, or IRBs, at the medical institutions where the clinical trials are conducted. In addition, clinical trials must be conducted with supplies of a DMF Formulation produced under current good manufacturing practices, or cGMP, and other requirements. Clinical trials may be conducted at multiple sites, including some sites in countries outside the U.S., which may subject us or any assignee of our U.S. co-exclusive license rights to further delays and expenses as a result of increased shipment costs, additional regulatory requirements and the potential engagement of non-U.S. and non-European Union clinical research organizations, as well as expose us to risks associated with clinical investigators who are unknown to the FDA, and with different standards of diagnosis, screening and medical care.

        Positive or timely results from pre-clinical studies and early-stage clinical trials do not ensure positive or timely results in late-stage clinical trials or product approval by the FDA.

        Products that show positive pre-clinical or early clinical results may not show sufficient safety or efficacy to obtain regulatory approvals and therefore fail in later-stage clinical trials. The FDA has substantial discretion in the approval process, and in determining when or whether regulatory approval will be obtained for any DMF Formulation. Even if the data collected from clinical trials of any DMF Formulation is believed to be promising, such data may not be sufficient to support approval by the FDA.

        Delays could be encountered if a clinical trial is suspended or terminated by the Company, our assignee, if any, by the IRBs of the institutions in which such trials are being conducted, by the Data Monitoring Committee for such trial, or by the FDA or other regulatory authorities. The Company, our assignee, if any, or such authorities may impose a suspension or termination due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, safety issues or adverse side effects, failure to demonstrate a benefit from using the drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. If we or our assignee, if any, experience delays in the completion of, or termination of, any clinical trial of any DMF Formulation, the commercial prospects of the DMF Formulation may be harmed, and our ability to generate revenue, including royalties or other payments from any assignee of our U.S. co-exclusive license rights, may be delayed.

        In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials also may ultimately lead to the denial of regulatory approval of any DMF Formulation. Significant clinical trial delays could also allow competitors to bring products to market before we or our assignee do, which could impair our ability to generate revenue, including revenue from our assignee.

Even if we or any assignee of our U.S. co-exclusive license rights seeking to advance a DMF Formulation obtain regulatory approval for such a formulation, it will be subject to continual regulatory review. The outcome of, or failure to comply with, such review could impair our ability or the ability of any assignee of ours to sell such a formulation and therefore our ability to generate revenue.

        Even if marketing authorization is obtained for a DMF Formulation, it will remain subject to continual review and therefore authorization could be subsequently withdrawn or restricted. We or any assignee of our U.S. co-exclusive license rights will be subject to ongoing obligations and oversight by regulatory authorities, including adverse event reporting requirements, marketing restrictions and,

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potentially, other post-marketing obligations, the failure to comply with which could result in regulators issuing warning and/or untitled letters to us or our assignee, if any, imposing fines on us or such an assignee, imposing restrictions on any DMF Formulation developed by us or our assignee, if any, or its manufacture, or requiring the recall or removal of a product from the market, among other things. If any of these events occurs, our ability or the ability of our assignee, if any, to sell such product may be impaired or delayed, which could impair or delay our ability to generate revenue, including revenue from such an assignee.

We may be unable to assign our co-exclusive license rights to a third party on terms that are acceptable to us, or at all.

        If Biogen maintains a co-exclusive license, our success will depend in part on our ability or the ability of any assignee of our co-exclusive license rights to develop and commercialize a DMF Formulation. If we are unable to assign our co-exclusive license rights to a third party on terms that are acceptable to us, we would be required to develop and commercialize a DMF Formulation ourselves, which will be costly and time consuming, or otherwise rely for our revenue on royalties, if any, payable by Biogen, which would be limited to a royalty of 1% of Biogen's net sales in the U.S. of DMF-containing products indicated for treating MS that would (but for the License Agreement) infringe the Company's U.S. patents provided that other conditions of the License Agreement are satisfied. Failure to successfully develop and commercialize a DMF Formulation, or the incurrence of unexpected costs and expenses in doing so, would materially adversely affect our business.

Our industry is highly competitive and rapidly changing, which may result in others discovering, developing or commercializing competing products before or more successfully than Biogen, the Company or any assignee of our U.S. co-exclusive license rights.

        The biopharmaceutical industry is highly competitive and subject to significant and rapid technological change. Our success is highly dependent on the ability of Biogen, the Company and/or any assignee of our U.S. co-exclusive license rights to market and sell a DMF-containing product, such as, in Biogen's case, Tecfidera®. We face and will continue to face intense competition from a variety of businesses, including large, fully integrated pharmaceutical companies, specialty pharmaceutical companies and biopharmaceutical companies, academic institutions, government agencies and other private and public research institutions in the U.S., the European Union, or EU, and other jurisdictions. These organizations may have significantly greater resources than those of Biogen, the Company or any assignee of our U.S. co-exclusive license rights do and may conduct similar research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and marketing of products that compete with Tecfidera®, FP187, or another DMF Formulation we or any assignee of our U.S. co-exclusive license rights may develop.

        The highly competitive nature of and rapid technological changes in the biopharmaceutical industry could render obsolete or non-competitive Tecfidera®, FP187 or another DMF-containing product brought to market by Biogen, the Company or any assignee of our U.S. co-exclusive license rights. Competitors may, among other things:

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        Should any of these factors occur, our business, financial condition and results of operations could be materially adversely affected.

The successful commercialization of Tecfidera® or any other DMF-containing product brought to market by Biogen, the Company or any assignee of our U.S. co-exclusive license rights will depend, in part, on the extent to which governmental authorities, health insurers and other third-party payors establish or maintain adequate reimbursement levels and pricing policies.

        The successful commercialization of Tecfidera® or any other DMF-containing product brought to market by Biogen, the Company, or any assignee of our U.S. co-exclusive license rights will depend, in part, on the extent to which third-party coverage and reimbursement for these products is or will be available from government and health administration authorities, private health insurers and other third-party payors.

        These bodies may deny or revoke the reimbursement status of a given drug product or establish prices for new or existing marketed products at levels that are too low to enable realization of an appropriate return on our investment in product development. Obtaining and maintaining reimbursement status is time-consuming and costly. Significant uncertainty exists as to the reimbursement status of newly approved medical products. Furthermore, rules and regulations regarding reimbursement change frequently, in some cases on short notice, and we believe that additional changes in these rules and regulations are likely. In addition, many governments and health insurers are increasingly attempting to manage healthcare costs by limiting both coverage and the level of reimbursement of new products. As a result, they may not cover or provide adequate payment for future products.

        These concerns are particularly present for drugs that use an active pharmaceutical ingredient, or API, such as DMF that is already available in other, approved drugs. Public and private payors may be willing to only provide coverage for any DMF-containing product brought to market by the Company or any assignee of our U.S. co-exclusive license rights if it can demonstrate a significant clinical advantage, or offer the drug at a price resulting in a treatment cost lower than other available drugs. Public and private payors may not be willing to grant reimbursement prices in line with our expectations.

        The unavailability or inadequacy of third-party coverage and reimbursement could have a material adverse effect on the market acceptance of any DMF Formulation brought to market by the Company or any assignee of our U.S. co-exclusive license rights and any future revenue we may expect to receive from its sales. In addition, we are unable to predict what additional legislation or regulation relating to the healthcare industry or third-party coverage and reimbursement may be enacted in the future, or what effect such legislation or regulation would have on our business.

If Biogen maintains a co-exclusive license, the Company or any assignee of our U.S. co-exclusive license rights may be restricted in its ability to commercialize and sell products under the License Agreement in a timely fashion, which would limit any revenue, including royalties or other payments, that we might otherwise be entitled to receive.

        Biogen has several issued patents and is also prosecuting a number of additional patent applications that could adversely impact the commercial efforts of the Company or any assignee of our U.S. co-exclusive license rights. These patents and applications, and those of third parties, could adversely impact the commercial efforts of the Company or any assignee of our U.S. co-exclusive license rights if, once approved by the FDA for the treatment of MS, the licensed product was found to infringe any valid patent claim issuing from any one of these applications. Further, the Company or such assignee could be required to pay substantial damages. Biogen and/or other competitors may

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initiate legal proceedings against the Company or our assignee, if any, alleging infringement of their intellectual property rights. The outcome of such potential proceedings would be unpredictable and we could be prevented from generating revenue, including receiving royalties, milestone or other revenues from any assignee of ours. Moreover, in any such proceedings brought by Biogen, the License Agreement prohibits the Company from challenging the validity or enforceability of any Biogen patent.

Risks Related to Intellectual Property

We rely on patents and other intellectual property rights to protect our rights with respect to the development and commercialization of a DMF Formulation, the attainment, defense and maintenance of which may be challenging and costly. Failure to obtain, defend or maintain these rights adequately could materially adversely impact our ability to compete and impair our business.

        Under the License Agreement, the Company has co-exclusive rights under the U.S. intellectual property to develop and commercialize a DMF Formulation in the U.S. unless and until Biogen obtains an exclusive license. If Biogen obtains an exclusive license, we would likely permanently discontinue development of a DMF Formulation in the U.S. Under the License Agreement, Biogen has exclusive rights, even as to the Company, under the intellectual property outside of the U.S. to develop and commercialize a DMF Formulation outside of the U.S.

        In the event Biogen does not obtain an exclusive license under the License Agreement, and we maintain our U.S. intellectual property rights, we could still be prevented from commercializing a DMF Formulation for MS in the U.S. at a 480 mg per day dose if, as a result of the IPR (after any appeals by the Coalition for Affordable Drugs) and Interference Proceeding, Biogen's '514 patent is upheld as valid. In such event, under the terms of the License Agreement, Biogen has the option to purchase for a nominal price all of our U.S. intellectual property, in which case we would likely permanently discontinue development of a DMF Formulation in the U.S.

        In the event Biogen does not obtain an exclusive license under the License Agreement, and the Company or any assignee of our U.S. intellectual property rights develops and commercializes a DMF Formulation in the U.S., our commercial success will depend in large part on obtaining and maintaining patents and other forms of intellectual property rights for such a formulation and/or its use, as well as on the defense and protection of such rights. Failure to protect or to obtain, maintain or extend adequate patent and other intellectual property rights could materially adversely impact our competitive advantage and impair our business.

        Our patent portfolio in the U.S. consists primarily of two basic patent families, our "Core Composition Patent" family and our "Erosion Matrix Patent" family, along with three other patent families. Our issued patents may not be sufficient to protect our intellectual property and our patent applications may not result in issued patents. Even if our patent applications issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors from competing with us or otherwise provide us with any competitive advantage. Our competitors may be able to circumvent our patents by developing similar or alternative technologies or products in a non-infringing manner or challenge the validity of our patents. In the U.S., we have one issued patent with the patent number 8,906,420, entitled "Pharmaceutical formulation comprising one or more fumaric acid esters in an erosion matrix." Our other patent families include U.S. Patent Application Nos. 14/419,031, 14/914,031 and 14/914,025 directed, among other things, to dosing regimens of DMF.

        Our pending U.S. applications may be subject to a third-party pre-issuance submission of prior art to the USPTO and/or any patents issuing thereon may become involved in derivation, IPR, post grant review, interference proceedings or other patent office proceedings or litigation challenging our patent rights. Activist investors, such as Kyle Bass of Hayman Capital, have sought to utilize the IPR process in the U.S. to challenge the validity of patents covering pharmaceutical products. Mr. Bass (acting with affiliated entities and individuals proceeding under the name of the Coalition for Affordable Drugs)

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has filed three requests for IPRs against Biogen's patents related to Tecfidera®, including Biogen's '514 patent, which is involved in the Interference Proceeding. In March 2016, the PTAB announced that it would institute an IPR against Biogen's '514 patent in response to the Coalition for Affordable Drugs' request (IPR No. 2015-01993). On March 21, 2017, the PTAB issued a decision in the IPR holding that the claims of Biogen's '514 patent are patentable. The Coalition for Affordable Drugs has the right to appeal this decision. Because anyone can challenge third-party patents in an IPR, except for certain statutory limitations, there can be no assurance that our existing and future U.S. patents will not be so challenged. In fact, third-party pre-issuance submissions were filed with the USPTO questioning two U.S. patent applications from our core composition patent family that had been allowed by the USPTO, but which we subsequently voluntarily abandoned. It is possible that similar third-party pre-issuance submissions may also be filed if our currently pending patent applications (having substantially the same claims as our earlier allowed but now abandoned applications) are allowed. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our patent rights, and allow third parties to commercialize our technology or products and compete directly with us, without payment to us. In addition, if the breadth or strength of protection provided by our patents and patent applications is threatened, it could dissuade companies from collaborating with us to protect our intellectual property or develop or commercialize a DMF Formulation.

        The issuance of a U.S. patent is not conclusive as to its inventorship, scope, validity or enforceability, and our patents may be challenged in the courts or USPTO. Such challenges may result in loss of ownership or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit the duration and scope of the patent protection of our technology and products. As a result, our patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.

        In addition, other companies may attempt to circumvent any regulatory data protection or market exclusivity that we obtain under applicable legislation, which may require us to allocate significant resources to preventing such circumvention. Such developments could enable other companies to circumvent our intellectual property rights and use our clinical trial data to obtain marketing authorizations in the U.S. Such developments may also require us to allocate significant resources to prevent other companies from circumventing or violating our intellectual property rights.

        Our attempts to prevent third parties from circumventing our intellectual property and other rights ultimately may be unsuccessful. We also may fail to take the required actions or pay the necessary fees to maintain any of our patents that issue.

Intellectual property rights of third parties could adversely affect our ability to commercialize a DMF Formulation, such that we could be required to litigate with or obtain licenses from third parties. Such litigation or licenses could be costly or not available on commercially reasonable terms, if at all.

        In the event that Biogen does not obtain an exclusive license, our commercial success will depend upon our ability or the ability of any assignee of our U.S. co-exclusive license rights, to develop, manufacture, market and sell a DMF Formulation without infringing valid intellectual property rights of third parties. If a third-party intellectual property right exists that covers the composition of a DMF Formulation, its manufacture, or the uses and dosages that the regulatory authorities approve for such a formulation, we or any assignee of ours may not be in a position to commercialize such a DMF Formulation unless we or our assignee, if any, successfully pursue litigation or administrative proceedings in the USPTO to nullify or invalidate the third-party intellectual property right concerned, or enter into a license agreement with the intellectual property right holder, which may not be available on commercially reasonable terms, if at all.

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        It is possible that we are unaware of all patents or applications relevant to the manufacture, use or commercialization of a DMF Formulation. For example, we have not conducted a recent freedom to operate search in connection with FP187 and its use to treat MS. Any freedom to operate search previously conducted may not have uncovered all relevant patents and patent applications, and there may be pending or future patent applications that, if issued, would block us from commercializing a DMF Formulation. For example, U.S. patent applications filed before November 29, 2000 remain confidential until patents issue. Typically, patent applications in the U.S. filed on or after November 29, 2000 and patent applications filed elsewhere are published approximately 18 months after the earliest filing for which priority is claimed. However, an exception exists whereby certain U.S. patent applications filed after that date that have not been filed outside the U.S. may remain confidential. Therefore, patent applications covering the composition of a DMF Formulation, its manufacture, or its use to treat MS could have been filed by others without our knowledge. In addition, pending patent applications that have been published can, subject to certain limitations, be later amended in a manner that could cover such a DMF Formulation, its manufacture, or its use. As a result, we do not know whether the manufacture, use or commercialization of a DMF Formulation will infringe any third-party patents with valid claims that have been or will in the future be issued.

        Third-party intellectual property right holders, including our competitors, may actively bring infringement claims against us. We may not be able to successfully settle or otherwise resolve such infringement claims. If we are unable to successfully settle or otherwise resolve such claims on terms acceptable to us, we may be required to engage in or continue costly, unpredictable and time-consuming litigation and we may not have sufficient resources to bring these actions to a successful conclusion. Many of our competitors have substantially greater financial resources than us, and therefore may be able to sustain the costs of complex patent litigation longer than us.

        If we are found to infringe a third party's intellectual property rights, we could face a number of costs and challenges, including:

        If we are required to obtain a license from a third party to continue developing and marketing our products and technology, we may not be able to obtain such a license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. We could be forced, including by court order, to cease marketing the infringing technology or product. In addition, we could be found liable for monetary damages, including treble damages and attorneys' fees if we are found to have willfully infringed a patent. If we are required to redesign our formulations so that they no longer infringe the other party's intellectual property rights, we may be required to conduct additional clinical trials to obtain regulatory approval for the modified formulation, which would be costly and time-consuming. As a result, a finding of infringement could prevent us from commercializing our product candidates or force us to cease some of our business operations, which could materially harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could also have a similar negative impact on our business.

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        Even if we were ultimately to prevail in an infringement or other claim, such a claim would likely require us to divert substantial financial and management resources that we would otherwise be able to devote to developing our business.

        All of the foregoing applies equally to us or any assignee of our U.S. co-exclusive license rights.

There can be no assurance that even if we are successful in the opposition proceedings involving our patents currently pending before the EPO, we will not be subject to subsequent or parallel invalidity proceedings (also called "nullity actions" or "revocation actions") involving these same or other patents of ours before a national court in any of the European Patent Convention member states where our patents were validated, which subsequent or parallel proceedings could result in our 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, our 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 practice differ from country to country within the member states of the European Patent 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 our 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 our 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, our 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 our patent(s) remain valid at relevant times on a country-by-country basis, provided that other conditions of the License Agreement are satisfied.

If we or any assignee of our U.S. co-exclusive license rights pursue a DMF-containing product that is different from the versions of FP187 used in our Phase 1 trials and Phase 2 clinical trial, such modified DMF-containing product may be considered outside the scope of our patent families and, as a result, our ability to protect our overall patent estate could be threatened.

        In connection with our Phase 1 trials and Phase 2 clinical trial, we have used and are using various versions of FP187 we believe to be within the scope of our existing patent families. There can be no assurance, however, that if we or any assignee of our U.S. co-exclusive license rights choose to pursue a DMF-containing product that is different from the versions of FP187 used in our completed Phase 1 trials and Phase 2 trial, that such DMF-containing product will not be considered outside of the scope of our patent families. In such event, such modified DMF-containing product could be subject to challenges in connection with new patent proceedings or otherwise by patent registry offices, competitors and others, the outcome of which could, if ultimately determined adversely to us or any

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assignee of our U.S. co-exclusive license rights, materially adversely affect our business, financial condition and prospects.

We may be required to pay significant fees to the USPTO and our attorneys to file, prosecute, and maintain our licensed U.S. patent applications and patents with no assurance of receiving future royalties from Biogen

        Under the License Agreement, the Company is obligated to use commercially reasonable efforts not to decline to file, prosecute or maintain its licensed U.S. patent applications and patents unless and until Biogen either assumes their prosecution and/or maintenance, obtains an exclusive license or exercises its option to purchase all of our U.S. intellectual property. However, there can be no assurance that any of these three scenarios will occur. In the event that none of these scenarios occurs, and the Company is not successful in the Interference Proceeding, after any appeals, we could be obligated to pay significant prosecution fees, both to the USPTO and in attorneys' fees, to file, prosecute and maintain our licensed U.S. patent applications and patents, but would not be entitled to receive any royalties from Biogen.

We may become involved in lawsuits to protect, defend and enforce our patents or other intellectual property, 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 our patents or other intellectual property. To counter such infringement, we or any assignee of our U.S. co-exclusive license rights 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 or our assignee, if any, 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 of ours is invalid in whole or in part, unenforceable, or construe the patent's claims narrowly allowing the other party to commercialize competing products on the grounds that our patents do not cover such products.

        Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us or any assignee of our U.S. co-exclusive license rights to incur significant expenses and could distract our technical and management personnel from their normal responsibilities. Such litigation or proceedings could substantially increase our operating expenses and reduce our resources available for development activities. We or any assignee of our U.S. co-exclusive license rights 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 or our assignee, if any, 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, including the ability of any assignee of our U.S. co-exclusive license rights, to compete in the marketplace.

Third parties may claim rights including ownership rights in our intellectual property.

        None of the named inventors on our patent and patent applications were our employees at the time of the filing of the Core Composition Patent family, which 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.

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        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 our intellectual property.

        Under mandatory Danish law, a salaried employee having made a patentable invention (and products that may be registered as a utility model) 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 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 our newer applications (not the Core Composition Patent or Erosion Matrix Patent) are employees of our wholly owned 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 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

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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 do not address all potential threats to our competitive advantage.

        The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our business, or permit us to maintain any competitive advantage we may enjoy. The following examples are illustrative:

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.

        As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and protecting patents in the biopharmaceutical industry involves both technological and legal complexity. Therefore, obtaining and protecting biopharmaceutical patents is costly, time-consuming and inherently uncertain. The U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection

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available in certain circumstances or weakening the rights of patent owners in certain situations. Such examples include:

        The Leahy-Smith America Invents Act, or AIA, was enacted in the U.S. in 2011, and includes a number of significant changes to the U.S. patent system. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, the combination of the U.S. Supreme Court decisions and AIA has created uncertainty with respect to the value of patents, once obtained. A few highlights of changes to U.S. patent law under the AIA are:

        The "first-inventor-to-file" system and the new definitions of prior art apply to U.S. patent applications with claims having an effective filing date on or after March 16, 2013. Until at least 2034, patent practice will involve both pre-AIA and AIA laws.

        Depending on actions or decisions by the U.S. Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways that could weaken our ability or the ability of any assignee of our U.S. co-exclusive license rights to obtain new patents or to protect our existing patents and future patents. Similarly, the complexity and uncertainty of European patent laws have also 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

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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 any assignee of our U.S. co-exclusive license rights 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 or any assignee of our U.S. co-exclusive license rights 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 or that of any assignee of our U.S. co-exclusive license rights. 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 or any assignee's use of our trade secrets and/or confidential know-how.

Risks Related to our Financial Position and Capital Needs

We have a history of operating losses through 2016. While we expect to report a profit in 2017, we may not achieve or sustain profitability thereafter.

        We incurred net losses of $33.3 million, $37.0 million and $19.0 million for the years ended December 31, 2016, 2015 and 2014, respectively. As of December 31, 2016, we had an accumulated deficit of $147.5 million. Our losses have resulted principally from expenses incurred in research and development of FP187, from general and administrative expenses that we have incurred while building our business infrastructure, and from fair value adjustments to certain convertible loans and net settlement obligations to shareholder warrants. On February 9, 2017, we received a non-refundable cash fee of $1.25 billion, or Non-refundable Fee, from Biogen in connection with the License Agreement, and expect to show a profit for 2017. This was a one-time payment (in addition to potential future royalty payments) and there is no assurance that we will be profitable thereafter.

        Prior to 2017, we financed our operations through our initial public offering completed in October 2014, private placements of equity securities, grants from governmental bodies and debt financing arrangements. We have never generated and do not anticipate generating any revenues from 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 12 months. 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.

        Even if we do generate revenue, including from future royalties on sales or other payments by assignees, 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, expand our business, diversify our product offerings 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.

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If future distributions to shareholders or other expenses result in the Company having insufficient cash to fund its operating expenses, 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 currently evaluating different means to deliver to our shareholders a substantial portion of the $1.25 billion payment that we received from Biogen, which may include dividends, distributions, share repurchases or other means. The amount to be distributed is unknown at this time but we estimate the dividend, distribution, share repurchase or other return of capital will occur during the second quarter of 2017. 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 intend to leave sufficient resources in the Company to enable us to comply with our obligations under the License Agreement and to continue operations until such time, if ever, as we can generate revenue on sales, including from any assignee, our estimates and assumptions about how much capital will be required could prove to be wrong and we may need to raise additional capital to fund our operations. 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 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 incurring additional debt, making capital expenditures or declaring dividends.

Future distributions to shareholders may be subject to withholding tax.

        As noted above, we are currently evaluating different means to deliver to our shareholders a substantial portion of the $1.25 billion payment that we received from Biogen, which may include a return of capital by way of a dividend, among other means currently being evaluated. Should we determine to pay a dividend to our shareholders, such dividend may be subject to withholding tax. Under Danish law, dividends paid in respect of shares are generally subject to Danish withholding tax at a rate of 27%. Withholding tax at a rate of 27% generally applies to shareholders resident outside of Denmark, irrespective of whether the non-resident is a private individual or corporate shareholder. For shareholders who are residents of Denmark, the withholding tax will generally apply to individuals, while dividends paid to companies are generally subject to corporate tax at a current rate of 22%. Additionally, while shareholders resident in countries where Denmark has entered into a tax treaty may be eligible to seek a partial refund of the tax withheld, it will be incumbent on the shareholder to seek any such refund and the Company makes no representations regarding the ability of shareholders to successfully apply for such refund(s). See "Item 10. Additional Information—E. Taxation—Danish Tax Considerations" for more information.

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 majority of our cash is currently denominated in Euros, fluctuations in exchange rates, particularly between the Danish Kroner, British Pound and the U.S. Dollar, may adversely affect us. Although we are based in Denmark, we have sourced research and development, manufacturing, consulting and other services

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from several countries. We have also invested in bonds issued by the governments of Germany, the United Kingdom and the U.S. Further, potential future revenue may be derived from abroad, particularly from the U.S. As a result, our business may be affected by fluctuations in foreign exchange rates between the Danish Kroner, the U.S. Dollar, British Pound, the Euro or other currencies, which may also 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, 2016 and 2015, we benefited from unrealized foreign exchange gains of $598,000 and $11.9 million respectively. In the future, we could experience a foreign exchange loss of equal or greater size. Currently, we do not have any exchange rate hedging arrangements in place and do not currently have plans to implement any hedging arrangements.

        In addition, the possible abandonment of the Euro by one or more members of the EU could materially affect our business in the future. Despite measures taken by the EU to provide funding to certain EU member states in financial difficulties and by a number of European countries to stabilize their economies and reduce their debt burdens, it is possible that the Euro could be abandoned in the future as a currency by countries that have adopted its use. This could lead to the re-introduction of individual currencies in one or more EU member states, or in more extreme circumstances, the dissolution of the EU. The effects on our business of a potential dissolution of the EU, the exit of one or more EU member states from the EU or the abandonment of the Euro as a currency are impossible to predict with certainty, and any such events could have a material adverse effect on our business, financial condition and results of operations.

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 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, at least four confirmed cases of PML 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® or another DMF Formulation that Biogen, the Company or any assignee of our U.S. co-exclusive license rights may develop. 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. Contemporaneous documentation must exist to support this pricing. The taxation authorities in these jurisdictions could challenge our arm's

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length related-party transfer pricing policies. For example, Forward Pharma GmbH and Forward Pharma A/S recently terminated their internal license agreement and agreed that Forward Pharma GmbH shall be paid an arm's length compensation for said termination. The German and/or Danish tax authorities could impose additional tax on either entity if they determine that the amount that is paid by Forward Pharma A/S to Forward Pharma GmbH does not satisfy transfer pricing rules. 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. Although we believe that our related-party transactions satisfy the substantive requirements of these transfer pricing rules, if any of these taxation authorities are successful in challenging our transfer pricing policies, our income tax expense may be adversely affected and we also could be subjected to interest and penalty charges. Any increase in our income tax expense and related interest and penalties could have a significant negative impact on our future earnings and future cash flows.

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 affords their holders different rights. Currently, only our ADSs are publicly traded (on NASDAQ). 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:

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        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 principal shareholders currently own, in the aggregate, approximately 73% of our ordinary shares. They are therefore able to exert significant control over matters submitted to our shareholders for approval.

        Our shareholders who own more than 5% of our outstanding shares (excluding our depositary, Bank of New York Mellon) beneficially own approximately 73% of our ordinary shares. These shareholders are able to significantly influence or even unilaterally approve matters requiring approval by our shareholders, including the election of directors, certain decisions relating to our capital structure, amendments to our Articles of Association, and the approval of mergers or other business combination transactions. The interests of these shareholders may not always coincide with our interests or the interests of our other shareholders or holders of the ADSs.

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, beneficially owns shares comprising approximately 55% of our voting power. With such concentrated control, Mr. Schönharting has influence over the outcome of corporate actions requiring board and shareholder approval, including the election of directors and any other significant corporate action or transaction. As a result, other shareholders and holders of the ADSs may have no effective voice in the management of our company.

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.

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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 a direct shareholder 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 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

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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.

We are currently evaluating the different means to deliver to our shareholders a substantial portion of the $1.25 billion payment that we received from Biogen, but have made no decision to do so and may not do so.

        We have not paid any dividends since our incorporation and may not do so in the future. Our management is currently evaluating different means to deliver to our shareholders an undetermined amount of capital, however we have made no decision to do so and may not do so. Should we decide to do so, such return of capital may involve dividends, distributions, share repurchases or other means. The final determination as to any return of capital will be at the discretion of our board of directors, after taking into account various factors including our business prospects, cash requirements, outcome of the Interference and Opposition Proceedings and our obligations under the License Agreement. Alternatively, the board may consider other options for maximizing shareholder value, which options may include further product development, licensing arrangements, acquisitions, dispositions or other strategic transactions. In addition, should the board determine that it wishes to return capital via a dividend paid in respect of shares, payment of such a dividend may be made only if our shareholders'

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equity exceeds the sum of our paid-in and called-up share capital plus the reserves required to be maintained by Danish law or by our Articles of Association. Accordingly, investors cannot rely on dividend income or other distributions and any returns on an investment in the ADSs could depend entirely upon any future appreciation in the price of the ADSs.

We are an emerging growth company, 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 are an "emerging growth company," as defined in the Jumpstart Our Business Startups Act, or the JOBS Act. For as long as we continue to be 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 may take advantage of these exemptions until we are no longer an emerging growth company. As a result of our receipt of the Non-Refundable Fee of $1.25 billion under the License Agreement, our gross annual revenue for 2017 will exceed $1.0 billion and accordingly, we will cease to be an emerging growth company on December 31, 2017. We cannot predict if investors will find the ADSs less attractive because we have relied on these exemptions and will continue to do so until the end of the current fiscal year. 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 and although we currently furnish quarterly financial information to the SEC, 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. Although we have previously filed financial results on a quarterly basis, consistent with our plan to reduce expenses, we intend to file future financial results semi-annually. 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.

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

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with respect to our foreign private issuer status on June 30, 2017. 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, 2016, approximately $1 million 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 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. As a result of the expected loss of our emerging growth company status under the JOBS Act, our independent registered public accounting firm will be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 beginning with our annual report for the fiscal year ended December 31, 2017. 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 comply with the 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. While we have concluded that our disclosure controls and procedures and internal controls over financial reporting were effective as of

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December 31, 2016, there is no assurance that we will be able to 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. In the event securities or industry analysts who cover us downgrade our ADSs or publish inaccurate or unfavorable research about our business, the price of our ADSs would likely decline. If one or more of these analysts cease coverage of our company or fail 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.

We believe that we were classified as a passive foreign investment company, or a PFIC, from 2014 to 2016 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 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. We believe that we were a PFIC for each of the years ended December 31, 2016, 2015 and 2014, 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.

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        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. To the extent that we do not distribute in 2017 substantially all of the proceeds of the Non-refundable Fee, U.S. Holders may have adverse tax consequences if we are deemed to be a PFIC in that year. 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 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

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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, auditors, 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 with 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 a joint taxation scheme.

        During the period January 19, 2013 to December 31, 2015, we have been subject to a Danish joint taxation scheme with Tech Growth Invest ApS and entities under Tech Growth Invest ApS' control, collectively referred to hereafter as Tech Growth. Since our establishment of Forward Pharma FA ApS, a wholly owned subsidiary of Forward Pharma A/S, on December 3, 2015, Forward Pharma FA ApS has also been part of the joint taxation scheme. As of December 31, 2015, certain entities have ceased to be part of the joint taxation scheme to the effect that, as of January 1, 2016, the companies included in the joint taxation with Forward Pharma A/S are Forward Pharma FA ApS and NB FP Investment General Partner ApS. The latter being the new administration company of the joint taxation scheme after Tech Growth Invest ApS has ceased to be part thereof.

        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 the joint taxation group has any material Danish tax liabilities that are not satisfied by them or if they, while being members of the 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.

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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 Chief Financial Officer, Joel Sendek, is employed by both Forward Pharma A/S and our wholly owned U.S. subsidiary, Forward Pharma USA, LLC, and 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 its two wholly owned subsidiaries, Forward Pharma GmbH and Forward Pharma FA ApS, are incorporated under the laws of 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.

        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 enforce such judgment.

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 several inflammatory and neurological indications, including MS. DMF is an immunomodulator that can be used as a therapeutic to improve the health of patients with immune disorders, including MS.

        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 provides Biogen with a co-exclusive license in the U.S. (which will be converted into an exclusive license if certain conditions are met within the time period set forth in the License Agreement), and an exclusive license outside the U.S., to the Company's intellectual property. For more, see "—B. Business Overview—Our Company—Settlement and License Agreement."

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

        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 have assembled and continue to develop our intellectual property portfolio. Our proprietary DMF Formulation is FP187. As a result of entering into the License Agreement, our development of a DMF Formulation is currently limited to finishing the research and development work that was in process prior to the effective date of the License Agreement. However, under certain circumstances described in more detail below, the Company may decide to reinitiate clinical development of FP187, or initiate the development of another DMF Formulation. We are currently undergoing an organizational realignment to reduce operating expenses to maximize shareholder value.

        On February 1, 2017, our License Agreement with Biogen and certain additional parties became effective. The License Agreement provides 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. Biogen also is required, if certain conditions are met within the time period set forth in the License Agreement, including the termination or expiration of any required waiting period under the HSR Act, to obtain an exclusive license to the Company's intellectual property in the U.S.

        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 does not resolve the Interference Proceeding or the Opposition Proceeding. The Company and Biogen intend 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. If the Company is successful in the Interference Proceeding and/or the Opposition Proceeding, as further explained below, it will be eligible to receive royalties starting as early as 2021 based on Biogen's net sales of DMF-containing products indicated for treating MS as defined in the License Agreement, provided that other conditions of the License Agreement are satisfied within the time period set forth in the License Agreement.

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        If the Company is successful in the Interference Proceeding (i.e., the Company obtains, as a result of the Interference Proceeding and any appeals therefrom to the Federal Circuit (including en banc review), a patent with a claim covering oral treatment of MS with 480 mg per day of DMF), and if Biogen obtains an exclusive license in the U.S., the Company 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 Biogen's net sales in 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. Among the conditions that needs to be satisfied for any royalty to be payable by Biogen to the Company is the absence of generic entry having a particular impact as defined in the License Agreement. If Biogen obtains an exclusive license in the U.S., we would likely permanently discontinue development of a DMF Formulation.

        If the Company is successful in the Interference Proceeding, but certain conditions are not met in the U.S., including if restraints are placed on Biogen as a result of the process under the HSR Act, and if Biogen does not obtain an exclusive license, the Company could reinitiate the development of a DMF Formulation for sale in the U.S. under a co-exclusive license with Biogen, which the Company may assign, on one occasion only, to a single third party. Under the co-exclusive license, the Company would be eligible beginning on January 1, 2023 to collect royalties of 1% on Biogen's net sales in 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. Among the conditions that needs to be satisfied for any royalty to be payable by Biogen to the Company is the absence of generic entry having a particular impact as defined in the License Agreement. If the Company is unsuccessful in the Interference Proceeding after any appeals, the Company would not be entitled to future royalties on Biogen's net sales in the U.S.

        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 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 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. Among the conditions that needs 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.

        Under the terms of the License Agreement, the Company has also agreed to use its commercially reasonable efforts to effect a corporate restructuring.

        Subject to confirmations from the Danish tax authority, or SKAT, and the Danish Business Authority that the following transactions would be tax-exempt and permissible under Danish law, the Company will effect a multistep reorganization that would result in the following (in order of occurrence):

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        In addition, following the restructuring, in the event Sub 1 materially breaches its obligations under the License Agreement, Biogen has a right to purchase all of the issued and outstanding shares of Sub 1 at a price corresponding to the intrinsic value of Sub 1 based on the most recent annual report for Sub 1 at the time of exercise. In addition, Biogen shall be granted a pledge of all of the issued and outstanding shares of Sub 1 in favor of Biogen as security for fulfilment of the purchase right.

        If Danish tax and business authorities do not approve the restructuring or determine that it is not tax-exempt, the Company will, at Biogen's election, create a wholly owned subsidiary of the Company as a Danish partnership limited by shares, or a P/S Sub, that would be structured in a manner that would enable payments to the P/S Sub to qualify for benefits under the U.S.-Danish income tax treaty. The Company would contribute its intellectual property to the P/S Sub by way of a tax-exempt business contribution and would grant Biogen a pledge in all issued and outstanding shares of the P/S Sub to secure Biogen's rights under the License Agreement. Additionally, if prior to the sale of Sub 1 to the foundation, the Company and Biogen are informed (i) by the Danish tax authorities that either of the steps preceding such sale (as summarized above) will not be approved as tax-exempt or will be only be approved as tax-exempt subject to the satisfaction of certain conditions, or (ii) by the Danish business authority that such sale or the transactions contemplated to follow such sale (as summarized above) cannot be consummated, then such sale and transactions will be automatically abandoned (unless, in the case of (ii), where such sale and transactions will only be abandoned upon Biogen's election) and, in lieu of such sale and transactions, Biogen can elect to receive a pledge of all of the issued and outstanding shares in Sub 1 to secure Sub 1's obligations under the License Agreement, purchase 50% of the issued and outstanding shares in Sub 1 at fair market value (as determined by a valuation report prepared by an auditor mutually selected by the Company and Biogen) or require the Company to consummate the P/S Sub structure described in the first two sentences of this paragraph.

        One of our key patent applications 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 administrative patent judge designated us as the senior party. Our anticipated appeal of the decision in the Interference Proceeding provides us with the opportunity to prove to the Federal Circuit that we were the first to invent the method of treating MS using about a 480 mg daily dose of DMF. Interference proceedings typically involve both a "motions" phase and a "priority" phase. However, in this Interference Proceeding these two phases have been combined. The oral argument for the Interference Proceeding took place on November 30, 2016. On March 31, 2017, the PTAB issued a

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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 intends to appeal the decision to the Federal Circuit. The appeal is expected to last 12 months or longer. If the Company prevails in this appeal, we expect the Federal Circuit to remand the case to the PTAB, in order for the PTAB to resolve both parties' other outstanding motions, including Biogen's priority motion. The oral argument for the IPR against Biogen's '514 patent, which was instituted in response to a request from the Coalition for Affordable Drugs (IPR No. 2015-01993), was also held on November 30, 2016. On March 21, 2017, the PTAB issued a decision in the IPR holding that the claims of Biogen's '514 patent are patentable. The Coalition for Affordable Drugs has the right to appeal this decision. There can be no assurance that the Interference Proceeding will ultimately result in judgment against Biogen and the cancellation of its patent claims. In addition, there can be no assurance that our '871 application will ever issue in a patent with a claim covering oral treatment of MS with 480 mg per day of DMF, which is one of the conditions required to be met for the Company to be eligible to receive future royalties on Biogen's net sales in the U.S.

        We believe our intellectual property portfolio, combined with the clinical data we have independently obtained and the discussions we have had with the FDA provide us with the opportunity to pursue the development of FP187 for the treatment of relapsing forms of MS in the U.S. We are finishing the research and development work that was in process prior to the effective date of the License Agreement and thereafter plan to suspend further development of FP187 pending the outcome of the Interference Proceeding, including any appeals to the Federal Circuit, until we determine if Biogen will maintain a co-exclusive license under the License Agreement. If Biogen maintains a co-exclusive license, we expect to either assign our co-exclusive license rights to a single third party or reinitiate clinical development of FP187, or initiate development of another DMF Formulation, in anticipation of a regulatory submission to the FDA. However, if Biogen prevails in the Interference Proceeding and IPR, after any appeals to the Federal Circuit, we may be prevented from commercializing our lead product candidate, FP187, for MS in the U.S. at a 480 mg per day dose.

        Oral drugs employing DMF as an API have been in use for over half a century. A German pharmacist discovered in the late 1950s that fumaric acid derivatives were useful for the treatment of psoriasis. Over the following years, various mixtures of fumaric acid derivatives, including DMF, were tested and used in different doses throughout Germany and, later, in other parts of Europe. Pharmacies in Germany often made their own compounded versions for the treatment of psoriasis.

        In 1994, Fumapharm AG (acquired by Biogen in 2006) received approval in Germany to market Fumaderm®, which contains DMF and three ethyl fumarate salts, for the treatment of psoriasis. Fumaderm® has not been approved outside of Germany, but it is nonetheless available throughout Europe as a prescription drug sourced from German pharmacies. DMF is also the API found in Tecfidera®, which Biogen began selling for the treatment of relapsing forms of MS following approval by the FDA in March 2013 and approval for the treatment of relapsing remitting MS by the EC in January 2014. Biogen reported that Tecfidera®, which is marketed as an oral maintenance dose of 480 mg of DMF per day (240 mg twice daily), generated global revenue of approximately $4 billion for the year ended December 31, 2016. We estimate that there have been over 500,000 patient years of exposure to drugs containing DMF.

        We have performed more than 40 pre-clinical studies since 2006, gathering data through animal testing (and in certain cases in vitro testing of DMF in cells) on FP187's pharmacological activity, toxicity profile, and on dosing level effects. Beginning in 2007, we commenced a set of Phase 1 clinical trials followed by a Phase 2 clinical trial to investigate, among other things, safety and dosing tolerability of FP187. We have successfully completed all of these clinical studies and gathered substantial positive safety and dosing data. Importantly, as of the date hereof, we have conducted no clinical trials involving patients with MS.

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        We have met with the FDA to discuss submission of a New Drug Application, or NDA, for FP187 to treat relapsing forms of MS, based on pre-clinical and clinical data we have and will have developed and independently own. We have no plans at this time to submit an NDA but we may re-engage with the FDA in the future should we retain co-exclusive license rights under the License Agreement as described above or determine in the future to develop other DMF-containing formulations and products, including generics, consistent with the terms of the License Agreement.

        We believe our patents and patent applications related to, among other things, our proprietary formulation technology, combined with our patents and patent applications claiming dosing levels of DMF, are valuable assets. To the extent required or permitted by the License Agreement, we intend to protect, defend and/or enforce our intellectual property.

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

        Our 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.

        Our Erosion Matrix Patent family, based on international application PCT/EP2010/050172, filed on January 8, 2010, with priority to January 9, 2009, covers our 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 our Core Composition Patent and Erosion Matrix Patent families:

Patent / Application
  Patent Family   Status
U.S. App. 11/576,871   Core Composition   Pending (contains claims directed to treatment of MS by administering a daily dose of 480 mg of DMF). A decision was issued by the PTAB on March 31, 2017 in favor of Biogen. We intend to appeal the decision to the Federal Circuit.

U.S. App. 14/213,399

 

Core Composition

 

Pending (contains claims directed to the use of delayed release formulations of DMF to treat MS according to an up-titration (i.e., increasing dose) regimen that reaches a total daily dose of 480 mg; claims are substantially similar to claims in U.S. App. 13/957,117, which was allowed by the USPTO but voluntarily abandoned by us).

U.S. App. 14/212,503

 

Core Composition

 

On appeal from final rejection (contains claims directed to a method of treating a MS subject with 480 mg of DMF per day, using delayed release formulations containing from 120 mg to 240 mg of DMF which, following administration, result in certain levels of monomethyl fumarate, or MMF, the main metabolite of DMF, in the bloodstream; claims are substantially similar to claims in U.S. App. 13/957,220, which was allowed by the USPTO but voluntarily abandoned by us).

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Patent / Application
  Patent Family   Status
U.S. App. 14/209,480   Core Composition   Pending (contains claims directed to pharmaceutical compositions comprising DMF in an amount of 50 - 90% by weight of the composition).

EP2801355

 

Core Composition

 

Granted (contains claims directed to the treatment of MS with 480 mg per day of DMF using pH-controlled compositions that have an enteric coating). Subject to several oppositions filed by third parties with the EPO. The first instance hearing of the Opposition Proceeding in the EPO has been scheduled for November 6 and 7, 2017.

EP1799196

 

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.

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 has issued a search report to which we responded on July 13, 2016. A third party observation was filed on September 20, 2016, which we responded to on November 16, 2016. The EPO issued a negative office action on February 10, 2017, which we understand to be the result of a clerical error.

EP2801354

 

Core Composition

 

Granted (contains claims directed to the treatment of MS with 480 mg per day of DMF using a controlled-release composition with particular in vitro dissolution profiles). This patent may be opposed by third parties at the EPO at any time up to November 8, 2017.

EP2792349

 

Core Composition

 

Pending (contains claims directed to treatment of MS with 480 mg per day of DMF using controlled-release compositions). The EPO has issued a notice of intention to grant the patent.

EP2316430

 

Core Composition

 

Revoked by decision of July 10, 2015; under appeal to the EPO Board of Appeal.

EP3093012

 

Core Composition

 

Pending (contains claims directed to pharmaceutical compositions comprising DMF in an amount of 50 - 90% by weight of the composition).

JP2015-139809

 

Core Composition

 

Pending (contains claims directed to controlled release pharmaceutical compositions comprising one or more of DMF or MMF).

U.S. Patent No. 8,906,420

 

Erosion Matrix

 

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

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Patent / Application
  Patent Family   Status
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 appeal is currently pending.

EP2564839

 

Erosion Matrix

 

Granted (contains claims directed to a pharmaceutical formulation in the form of an erosion matrix tablet having a particular composition). An opponent has filed a notice of opposition with the EPO.

JP 5788331

 

Erosion Matrix

 

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

Core Composition Patent Family

        U.S. Patent Application No. 11/576,871.    One of our key patent applications in the U.S. is the '871 application. The '871 application stems from the international application PCT/DK2005/000648 filed on October 7, 2005, and claims the benefit of an earlier-filed U.S. provisional application and four Danish applications. 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 Proceeding between the '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, and which expires in 2028.

        An interference is an administrative proceeding at the USPTO to determine which party is the first to invent an invention claimed by two parties. The party with the earliest effective filing date to the common invention is designated "senior party" and is entitled to the presumption that it is the first inventor. Biogen, as the junior party in the Interference Proceeding, has the burden of proof to show a date of invention that predates our invention. During an interference, the parties can dispute the patentability of the other party's claims, challenge the senior party designation and present proof of prior invention. Interference proceedings typically involve both a "motions" phase and a "priority" phase. However, in this Interference Proceeding those two phases were combined.

        At the outset of the Interference Proceeding, the administrative patent judge accorded the Company benefit of the filing date of our Danish Application No. PA 2004 01546, filed on October 8, 2004. Biogen filed a motion in the Interference Proceeding to vacate benefit to this priority date, which we have opposed. Biogen also filed a motion in the Interference Proceeding alleging that our claims are unpatentable under 35 U.S.C. Section 112 for lack of written description and lack of enablement, which we have opposed. The PTAB granted this motion on March 31, 2017. In addition, Biogen filed a motion for priority asserting February 19, 2004 as its date of conception of the invention claimed in its '514 patent, which is earlier than the October 8, 2004 priority date to which our '871 application has been accorded benefit. As the junior party in the Interference Proceeding, Biogen has the burden of proving an earlier date of conception and diligent reduction to practice of the invention from a date just before our earliest effective filing date through the date of Biogen's earliest alleged reduction to practice, which is currently Biogen's alleged first constructive reduction to practice on February 8, 2007, the date of Biogen's U.S. provisional application. Thus, Biogen must show diligence for a 28-month period from October 2004 through February 2007. We have opposed Biogen's priority motion.

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        We filed four motions in the Interference Proceeding. Our first motion alleges that Biogen's '514 patent is unpatentable under 35 U.S.C. Sections 102 and/or 103 in view of the publication of our international application PCT/DK2005/000648. Our second motion alleges that Biogen's '514 patent claims are unpatentable under 35 U.S.C. Section 112 for lack of written description. Our third motion seeks benefit of the filing dates of our three additional Danish applications and our U.S. provisional application. Our fourth motion attacks Biogen's benefit claim to its February 8, 2007 U.S. provisional application. Biogen has opposed each of our motions.

        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 intends to appeal the decision to the Federal Circuit. The appeal is expected to last 12 months or longer. If the Company prevails in this appeal, we expect the Federal Circuit to remand the case to the PTAB, in order for the PTAB to resolve both parties' other outstanding motions, including Biogen's priority motion. The oral argument for the inter partes review, or IPR, against Biogen's '514 patent, which was instituted in response to a request from the Coalition for Affordable Drugs (IPR No. 2015-01993), was also held on November 30, 2016. On March 21, 2017, the PTAB issued a decision in the IPR holding that the claims of Biogen's '514 patent are patentable. The Coalition for Affordable Drugs has the right to appeal this decision.

        If we prevail in the Interference Proceeding after any appeals to the Federal Circuit, we expect our '871 application to be in condition for allowance and Biogen's '514 patent to be cancelled. If, however, Biogen is successful in proving that our claims are unpatentable, we would not prevail in the Interference Proceeding. Even if we can defeat Biogen's argument that our claims are unpatentable, if Biogen is successful in proving an earlier date of conception and diligent reduction to practice, we would not prevail in the Interference Proceeding unless we can successfully prove that Biogen's claims are unpatentable. See "Risk Factors—Risks Related to Our Business and Industry—There can be no assurance that the Interference Proceeding between our U.S. Patent Application No. 11/576,871 and Biogen's U.S. Patent No. 8,399,514 will ultimately result in judgment against Biogen and the cancellation of its patent claims. In addition, there can be no assurance that any claims of our U.S. Patent Application No. 11/576,871 will ever issue in a patent or be royalty bearing under the Settlement and License Agreement with Biogen."

        If we prevail in the Interference Proceeding after any appeals to the Federal Circuit, we further expect our '871 application, if ultimately issued, would be entitled to patent term adjustment extending the patent term to compensate the Company for time lost during prosecution and the interference which the Company estimates would result in patent expiration in 2029 or later. However, there can be no assurance that we would obtain patent term adjustment that would fully compensate us for all such time lost.

        U.S. Patent Application No. 14/213,399.    A second key patent application in the U.S. is Application No. 14/213,399, or the '399 application. The '399 application claims the use of delayed release formulations of DMF to treat MS according to an up-titration (i.e., increasing dose) regimen that reaches a total daily dose of 480 mg. On April 1, 2015, a USPTO patent examiner issued a "final rejection" of this application, but we appealed this decision to the PTAB. On October 31, 2016, the patent examiner withdrew her prior rejections that were the subject of the appeal, and issued a non-final rejection based on new grounds. A response to the office action is due by April 30, 2017. The claims of the '399 application are substantially similar to claims in another application of ours, No. 13/957,117, which were found allowable by the USPTO, but which we voluntarily abandoned.

        U.S. Patent Application No. 14/212,503.    A third key patent application in the U.S. is Application No. 14/212,503, or the '503 application. The '503 application claims a method of treating a MS subject with 480 mg of DMF per day, using delayed release formulations containing from 120 mg to 240 mg of

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DMF which, following administration, result in certain levels of MMF, the main metabolite of DMF, in the bloodstream. On April 17, 2015, a USPTO patent examiner issued a "final rejection" of this patent application but we have appealed this decision and the PTAB may ultimately find our '503 application to be allowable. These claims are substantially similar to claims in another application of ours, No. 13/957,220, which were found allowable by the USPTO, but which we voluntarily abandoned.

        U.S. Patent Application No. 14/209,480.    A fourth key patent application in the U.S. is Application No. 14/209,480, or the '480 application. The '480 application contains claims directed to pharmaceutical compositions comprising DMF in an amount of 50 - 90% by weight of the composition. On April 11, 2017, the patent examiner issued a non-final rejection of the claims.

        European Patent EP2801355.    Our issued 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 has been opposed by several parties. The first instance hearing of the Opposition Proceeding in the EPO has been scheduled for November 6 and 7, 2017. Opposition proceedings are special proceedings heard by the EPO where one or more third parties request that the patent, or a part thereof, be revoked. Assuming we successfully defend the patent during the Opposition Proceeding, the EP'355 patent has a maximum duration until October 2025 (subject to possible SPC extension—see below). This is our first issued patent covering the use of 480 mg per day of DMF to treat MS. The EPO examiner allowed our 480 mg per day patent claims (meaning that the examiner determined that our claims met the statutory requirements for patentability) after considering two anonymous third-party observations that requested the EPO to decline to grant the application as well as to suspend its examination. 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 proceedings. See "Risk Factors—There can be no assurance that even if we are successful in the opposition proceedings involving our patents currently pending before the EPO, we will not be subject to subsequent or parallel invalidity proceedings (also called "nullity actions" or "revocation actions") involving these same or other patents of ours before a national court in any of the European Patent Convention member states where our patents were validated, which subsequent or parallel proceedings could result in our 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, our 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, our SPC applications have been granted in Cyprus, France, Greece, Italy, 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.    Our European patent EP1799196, or the EP'196 patent, covers, among other things, controlled release compositions that release DMF according to a specific in vitro

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release profile. The patent was granted on June 22, 2016. Oppositions to this patent have been filed by third parties with the EPO.

        European Patent Application EP2965751.    Another key patent application in the EU is EP2965751, formerly EP15166243.4, or the '751 application. The '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 understand to have been the result of a clerical error.

        European Patent EP2801354.    A key patent in the EU is EP2801354, or the EP'354 patent. The EP'354 patent covers, among other things, the treatment of MS with 480 mg per day of DMF using a controlled-release composition with particular in vitro dissolution profiles. The patent was granted on February 8, 2017. Third parties may oppose the grant of the patent at any point up until November 8, 2017.

        European Patent Application EP2792349.    Another key patent application in the EU is EP2792349, formerly EP14172396.5, or the '349 application. The '349 application covers, among other things, the treatment of MS with 480 mg per day of DMF using controlled-release compositions. On February 8, 2017, the EPO issued a notice of intention to grant the patent.

        European Patent EP2316430.    Our European patent EP2316430 covers DMF formulations with certain in vitro dissolution profiles. By a decision issued in July 2015, an Opposition Division of the European Patent Office 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 European Patent Office did not adjudicate on the issues of novelty or inventive step. We have filed an appeal against this decision. Thus, the revocation will only become effective if and when confirmed by the Technical Board of Appeal. As in any legal proceeding, there can be no assurance that we will be successful in our appeal. The claims of this patent are different from the claims of both the '871 application (the U.S. patent application that is currently in the Interference Proceeding), as well as the EP'355 European patent. However, the EP'355 patent and European patent EP2316430 are divisionals of the same original application.

        European Patent Application EP3093012.    Another key patent application in the EU is EP3093012, formerly EP16001391.8, or the '012 application. The '012 application covers, among other things, controlled release pharmaceutical compositions comprising DMF in an amount of 50 - 90% by weight of the composition.

Erosion Matrix Patent Family

        A patent from our erosion matrix patent family, 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.

        We also have 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. An opponent has filed a notice of opposition with the EPO.

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        In the U.S., the USPTO reviewed the European oppositions to EP2379063 and has since issued our patent application 13/143,498 covering FP187, which is entitled "Pharmaceutical formulation comprising one or more fumaric acid esters in an erosion matrix." The application issued as U.S. Patent No. 8,906,420 on December 9, 2014, and will expire at the latest in January 2030.

Other Patent Families

        Beyond our core composition patent and erosion matrix patent families, our other patent families include U.S. Patent Application Nos. 14/419,031, 14/914,031 and 14/914,025, directed, among other things, to dosing regimens of DMF.

        MS is a chronic disorder of the central nervous system, or CNS, involving brain, spinal cord and optic nerves, and is characterized clinically by recurring episodes of neurological dysfunction. MS is immune-mediated, driven by autoreactive lymphocytes that attack the covering surrounding nerve cells, or myelin sheath. This autoimmune response results in destruction of the myelin sheath, termed demyelination, and nerve damage. The CNS destruction caused by autoreactive lymphocytes can lead to debilitating clinical symptoms such as numbness, difficulty walking, visual loss, loss of coordination and muscle weakness.

        The Multiple Sclerosis International Foundation estimates that approximately 2.3 million people suffer from MS worldwide. It is estimated that between 60% and 65% of MS patients have what is referred to as relapsing remitting MS, or RRMS, characterized by recurrent acute exacerbations of neurological dysfunction followed by variable degrees of recovery with clinical stability between relapses, which would mean approximately 1.5 million people worldwide suffer from RRMS. The majority of patients are diagnosed with MS between the ages of 20 and 40. Almost half of relapses result in incomplete recovery of neurological function and leave permanent disability and impairment that accumulates over time. Owing to the complications of chronic disability, life span for patients with MS is typically shortened by approximately 7 years.

        The early onset and progressive nature of relapsing forms of MS highlights the need for treatment options that are effective, convenient and tolerable. This unmet need is particularly important for sufferers in the workforce or those raising families. The inevitability of both relapse and disease progression also results in the prescription of the newest medications that offer increased levels of efficacy and differing risk/benefit profiles. As new efficacious and safe treatments are approved, MS patients will have more options for treatment in earlier stages of the disease.

        Our clinical development strategy, if we reinitiate development of a DMF Formulation in the U.S., will be designed with a view towards satisfying marketing approval requirements in the U.S. We have conducted an extensive pre-clinical program and have completed several Phase 1 clinical trials and one Phase 2 clinical trial. We are currently finishing additional Phase 1 clinical trials, but have no current plan to pursue Phase 3 development of FP187.

        FP187 for the treatment of psoriasis is a round tablet, 8 mm in diameter and 5 mm in height, that contains DMF in an erosion matrix; each erosion matrix tablet core is covered by a thin enteric coating. A new, elongated tablet was being developed for FP187 for the treatment of relapsing forms of MS. The tablet would also use an erosion matrix and would be covered by the same thin enteric coating. Several formulations with the elongated tablet have been produced and have been investigated in Phase 1 pharmacokinetic and tolerability studies.

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        Historically, a single contract manufacturing organization, or CMO, provided us with our main supply of DMF, which is our API for FP187. The manufacturing process for API operated by this CMO has been validated for a 120 kg batch size in 2013 and for a 650 kg batch size in 2016. A secondary API supplier has been identified and the technology transfer of the process at the smaller scale was successfully performed in 2016. The analytical methods and procedures used for the control of the process and the product are validated in both CMOs.

        Formulation development and clinical manufacture of our FP187 tablets have been performed by two different CMOs, depending on the process of manufacture. The first production procedure has been validated at a 30 kg batch size, and was scaled-up to a larger batch size in 2016. Several batches have consistently been produced under cGMP conditions for use in our Phase 1 program and potential use in Phase 3. An alternative manufacturing process has been established in a second CMO and clinical trial material manufactured for use in our Phase 1 studies. Scaling-up work was initiated. A technology transfer of the alternative tablet manufacturing process with a second supplier has been ongoing, with capabilities to handle both processes at commercial-scale.

        All the facilities undergo inspections and audits by regulatory authorities and the Company further has audited these facilities to ensure compliance with regulatory requirements. These CMOs have supplied us with DMF and FP187 tablets pursuant to individual work orders for development and clinical supply.

        As discussed above, on February 1, 2017, our License Agreement with Biogen and certain additional parties became effective. The License Agreement provides 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. Biogen also is required, if certain conditions are met within the time period set forth in the License Agreement, including the termination or expiration of any waiting period under the HSR Act, to obtain an exclusive license to the Company's intellectual property in the U.S. 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—Settlement and License Agreement with Biogen."

        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 (€ 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 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).

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        In addition, the addendum to the patent transfer agreement 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 will receive 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. The additional compensation due to Aditech will be determined based on whether Biogen has an exclusive or a co-exclusive license with the Company (on a country-by-country basis). If royalties are paid to the Company while Biogen has an exclusive license, 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). If Biogen has a co-exclusive license, Aditech will receive a cash payment equal to 20% of the royalty remitted to the Company by Biogen and any third party to which the Company may assign its U.S. co-exclusive license rights. Should the Company not assign its U.S. co-exclusive license rights to a third party but instead utilize the co-exclusive rights to develop a DMF-containing product on its own, the Company will, as was also the case prior to entry into the addendum, be required to pay Aditech a royalty of 2% of the net sales of such a product.

        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. If Biogen obtains an exclusive license in the U.S., our future success will 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) in the U.S. or EU may reduce Tecfidera® sales, which in turn may reduce possible royalties payable by Biogen to us. Furthermore, if Biogen does not obtain an exclusive license and we reinitiate the development of a DMF Formulation for sale in the U.S. under a co-exclusive license with Biogen, either on our own or through any assignee of our U.S. co-exclusive license rights, or we determine in the future to develop other DMF-containing formulations and products, including generics, consistent with the terms of the License Agreement, competition with Biogen and others may reduce possible royalties or other payments owed to us. Several companies are developing additional treatments for multiple sclerosis, and late stage clinical candidates include, but are not limited to, Roche's Ocrevus® 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.

        Our industry is subject to extensive government regulation. Regulation by governmental authorities in the U.S, the EU and other jurisdictions is a significant factor in the development, manufacture and marketing of any drugs and in ongoing research and development activities. Any products developed, manufactured or marketed by us, Biogen or others are subject to rigorous pre-clinical and clinical trials and other pre-marketing approval requirements by the FDA, the EMA and other regulatory authorities in the U.S., and the EU.

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United States

        In the U.S., the FDA regulates drugs under the Food, Drug and Cosmetic Act, or FDC Act, and regulations implemented by the agency. If we or any assignee of our U.S. co-exclusive license rights fails to comply with the applicable U.S. requirements at any time during the product development process, including non-clinical testing, clinical testing, the approval process or after approval, we or such assignee may become subject to administrative or judicial sanctions. These sanctions could include, but are not limited to, the FDA's refusal to allow us to proceed with clinical testing, refusal to approve pending applications, withdrawal of an approval, warning or untitled letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties and criminal prosecution.

        The process required by the FDA before a drug may be marketed in the U.S. generally involves satisfactorily completing each of the following:

        Satisfaction of FDA pre-market approval requirements typically takes many years and the actual time required may vary substantially based on the type, complexity and novelty of the product or disease.

        Pre-clinical tests include laboratory evaluations of product chemistry, formulation and stability, as well as studies to evaluate toxicity in animals, in order to assess the potential safety and efficacy of the product. The conduct of the pre-clinical tests and formulation of the compounds for testing must comply with federal regulations and requirements. The results of the pre-clinical tests, together with manufacturing information and analytical data, are submitted to the FDA as part of an IND application. The IND becomes effective 30 days after receipt by the FDA, unless the FDA raises concerns or questions about the conduct of the proposed clinical trial, including concerns that human research subjects will be exposed to unreasonable health risks. In that case, the IND sponsor and the FDA must resolve any outstanding FDA concerns before the clinical trials can begin. Submission of the IND may result in the FDA not allowing the trials to commence, either on the terms originally

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specified in the IND, or at all. If the FDA raises concerns or questions either during this initial 30-day period or at any time during the IND process, they may choose to impose a partial or complete clinical hold. This order issued by the FDA would delay either a proposed clinical study or cause suspension of an ongoing study, until all outstanding concerns have been adequately addressed and the FDA has notified the company that investigations may proceed. This could cause significant delays or difficulties in completing planned clinical studies in a timely manner.

        Clinical trials involve the administration of the investigational product to human subjects under the supervision of qualified investigators. Clinical trials are conducted in accordance with federal regulations and under protocols detailing, among other things, the objectives of the study, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. Each protocol involving U.S. patients and subsequent protocol amendments must be submitted to the FDA as part of the IND. An independent IRB must also review and approve the clinical trial before it can begin and monitor the study until it is completed. The IRB will consider, among other things, clinical trial design, patient informed consent, ethical factors, and the safety of human subjects. The FDA, the IRB or the sponsor may suspend or discontinue a clinical trial at any time. In addition, the FDA may impose sanctions for various reasons, including a finding that the clinical trial is not being conducted in accordance with FDA requirements or the subjects are being exposed to an unacceptable health risk. Clinical testing also must satisfy extensive Good Clinical Practice rules, an international standard meant to protect the rights and health of patients and to define the roles of clinical trial sponsors, administrators and monitors, including the requirements for informed consent.

        Clinical trials typically are conducted in three sequential phases, but the phases may overlap. Additional studies may be required after approval.

        In some cases, the FDA may approve an NDA for a product with the sponsor's agreement to conduct additional clinical trials to further assess the drug's safety and effectiveness after NDA approval. Such post-approval trials are typically referred to as Phase 4 clinical trials. These studies are used to gain additional experience from the treatment of patients in the intended therapeutic indication and to document a clinical benefit in the case of drugs approved under accelerated approval

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regulations. If the FDA approves a product while a company has ongoing clinical trials that were not necessary for approval, a company may be able to use the data from these clinical trials to meet all or part of any Phase 4 clinical trial requirement. Failure to promptly conduct Phase 4 clinical trials could result in withdrawal of approval for products.

        The results of product development, pre-clinical testing and clinical trials are submitted to the FDA as part of an NDA, submitted under Sections 505(b)(1) or 505(b)(2) of the FDC Act. The NDA also must contain extensive manufacturing information and detailed information on the composition of the product and proposed labeling as well as payment of a user fee. Currently, the application fee is approximately $2.0 million, and the manufacturer and/or sponsor under an approved new drug application are also subject to annual product and establishment user fees, currently approximately $97,750 per product and $512,200 per establishment. These fees are typically adjusted annually. Once the submission has been accepted for filing, the FDA begins an in-depth review of the NDA. Under the goals and policies agreed to by the FDA under the most recent iteration of the Prescription Drug User Fee Act, or the PDUFA, the FDA has 10 to 12 months in which to review a standard NDA and respond to the applicant, and six to eight months for a priority NDA. The FDA does not always meet its PDUFA goal dates for standard and priority NDAs. The review process is often significantly extended by FDA requests for additional information or clarification. The review process and the PDUFA goal date may be extended by three months to consider certain late-submitted information, or information intended to clarify information already provided in the submission. The FDA may also refer the NDA to an advisory committee for review, evaluation and recommendation as to whether the application should be approved. The FDA is not bound by the recommendation of the advisory committee, but it generally follows such recommendations. The FDA may deny approval of an NDA if the applicable regulatory criteria are not satisfied, or it may require additional clinical data or an additional pivotal Phase 3 clinical trial. Even if such data are submitted, the FDA may ultimately decide that the NDA does not satisfy the criteria for approval.

        Before approving an NDA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP. Additionally, the FDA will inspect the facility or the facilities at which the drug is manufactured. FDA will not approve the product unless compliance with cGMP is satisfactory and the NDA contains data that provide substantial evidence that the drug is safe and effective in the indication studied.

        At the conclusion of the FDA's review, it will issue an action letter. If the FDA's evaluations of the NDA and the clinical and manufacturing procedures and facilities are favorable and there are no outstanding issues, the FDA will issue an approval letter. If the application is not approved, the FDA will issue a complete response letter, which will contain the conditions that must be met in order to secure final approval of the NDA, and when possible will outline recommended actions the sponsor might take to obtain approval of the application. Sponsors that receive a complete response letter may submit to the FDA information that represents a complete response to the issues identified by the FDA. If, or when, those deficiencies have been addressed to the FDA's satisfaction in a resubmission of the NDA, the FDA will issue an approval letter. FDA has committed to reviewing such resubmissions in two or six months depending on the type of information included. Once issued, the FDA may withdraw a drug approval if ongoing regulatory requirements are not met or if safety problems occur after the drug reaches the market. In addition, the FDA may require further testing, including Phase 4 clinical trials, and surveillance programs to monitor the effect of approved drugs that have been commercialized.

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        As a condition of NDA approval, the FDA may require a risk evaluation and mitigation strategy, or REMS, to help ensure that the benefits of the drug outweigh the potential risks. REMS can include medication guides, communication plans for healthcare professionals, and elements to assure safe use, or ETASU. ETASU can include, but are not limited to, special training or certification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring, and the use of patient registries. The requirement for a REMS can materially affect the potential market and profitability of the drug.

        The FDA has the power to prevent or limit further marketing of a drug based on the results of these post-marketing programs. Drugs may be marketed only for the approved indications and in accordance with the provisions of the approved label. Further, if there are any modifications to a drug, including changes in indications, labeling or manufacturing processes or facilities, the sponsor may be required to submit and obtain FDA approval of a new NDA or NDA supplement, which may require the sponsor to develop additional data or conduct additional pre-clinical studies and clinical trials. There is no assurance that any additional approval for new indications for any product will be approved by the FDA.

        The FDA has several programs that are intended to facilitate and expedite development and review of new drugs to address unmet medical need in the treatment of serious or life-threatening conditions. These programs are intended to help ensure that therapies for serious conditions are available as soon as it can be concluded that the therapies' benefits justify their risks. These programs include breakthrough therapy designation, fast track designation, priority review and accelerated approval.

        In seeking approval for a drug through an NDA, applicants are required to list with the FDA each patent whose claims cover the applicant's product. Upon approval of a drug, each of the patents listed in the application for the drug is then published in the FDA's Approved Drug Products with Therapeutic Equivalence Evaluations, commonly known as the Orange Book. Drugs listed in the Orange Book can, in turn, be cited by potential generic competitors in support of approval of an abbreviated new drug application, or ANDA. An ANDA provides for marketing of a drug product that has the same active ingredients in the same strengths and dosage form as the listed drug and has been shown through bioequivalence testing to be therapeutically equivalent to the listed drug. Other than the requirement for bioequivalence testing, ANDA applicants ordinarily are not required to conduct, or submit results of, pre-clinical or clinical tests to prove the safety or effectiveness of their drug product.

        The ANDA applicant is required to certify to the FDA concerning any patents listed for the approved product in the FDA's Orange Book. Specifically, the applicant must certify that: (i) the required patent information has not been filed; (ii) the listed patent has expired; (iii) the listed patent has not expired, but will expire on a particular date and approval is sought after patent expiration; or (iv) the listed patent is invalid or will not be infringed by the new product. The ANDA applicant may also elect to submit a statement certifying that its proposed ANDA label does not contain (or carves out) any language regarding the patented method-of-use, known as a section viii statement, rather than certify to a listed method-of-use patent. If the applicant does not challenge the listed patents, the ANDA application will not be approved until all the listed patents claiming the referenced product have expired.

        A certification that the new product will not infringe the already approved product's listed patents, or that such patents are invalid, is called a Paragraph IV certification. If the ANDA applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the NDA and patent holders once the ANDA has been accepted for filing by the FDA. The NDA and patent holders may then initiate a patent infringement lawsuit in response

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to the notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within 45 days of the receipt of a Paragraph IV certification automatically prevents the FDA from approving the ANDA until the earlier of 30 months, expiration of the patent, settlement of the lawsuit, or a decision in the lawsuit that is favorable to the ANDA applicant.

        The ANDA application also will not be approved until any applicable non-patent exclusivity listed in the Orange Book for the referenced product has expired.

        Most drug products obtain FDA marketing approval pursuant to an NDA or an ANDA. A third alternative is a special type of NDA, commonly referred to as a Section 505(b)(2) NDA, which enables the applicant to rely, in part, on the FDA's previous approval of a similar product, or published literature, in support of its application.

        Section 505(b)(2) NDAs often provide an alternate path to FDA approval for new or improved formulations or new uses of previously approved products. Section 505(b)(2) permits the filing of an NDA where at least some of the information required for approval comes from studies not conducted by, or for, the applicant and for which the applicant has not obtained a right of reference. If the Section 505(b)(2) applicant can establish that reliance on FDA's previous approval is scientifically appropriate, it may eliminate the need to conduct certain pre-clinical or clinical studies of the new product. The FDA may also require companies to perform additional studies or measurements to support the change from the approved product. The FDA may then approve the new product candidate for all, or some, of the label indications for which the referenced product has been approved, as well as for any new indication sought by the Section 505(b)(2) applicant.

        To the extent that the Section 505(b)(2) applicant is relying on studies conducted for an already approved product, the applicant is required to certify to the FDA concerning any patents listed for the approved product in the Orange Book to the same extent that an ANDA applicant would. Thus approval of a Section 505(b)(2) NDA can be stalled until all the listed patents claiming the referenced product have expired, until any non-patent exclusivity, such as exclusivity for obtaining approval of a new chemical entity, listed in the Orange Book for the referenced product has expired, and, in the case of a Paragraph IV certification and subsequent patent infringement suit, until the earlier of 30 months, settlement of the lawsuit or a decision in the infringement case that is favorable to the Section 505(b)(2) applicant.

        Upon NDA approval of a new chemical entity, or NCE, which is a drug that contains no active moiety that has been approved by the FDA in any other NDA, that drug receives five years of marketing exclusivity during which the FDA cannot receive any ANDA seeking approval of a generic version of that drug or a Section 505(b)(2) NDA that references the drug. Certain changes to a drug that require a clinical trial to support the FDA approval, such as the addition of a new indication to the package insert, are associated with a three-year period of exclusivity during which the FDA cannot approve an ANDA or Section 505(b)(2) NDA for a drug that includes the change.

        An ANDA or Section 505(b)(2) NDA may be submitted one year before NCE exclusivity expires if a Paragraph IV certification is filed. If there is no listed patent in the Orange Book, there may not be a Paragraph IV certification, and, thus, no ANDA may be filed before the expiration of the NCE exclusivity period.

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        If regulatory approval for marketing of a product or new indication for an existing product is obtained, we or any assignee of our U.S. co-exclusive license rights will be required to comply with all regular post-approval regulatory requirements as well as any post-approval requirements that the FDA may impose as part of the approval process.

        For instance, the FDA closely regulates the post-approval marketing and promotion of drugs, including standards and regulations for direct-to-consumer advertising, off-label promotion, industry-sponsored scientific and educational activities and promotional activities involving the internet. Drugs may be marketed only for the approved indications and in accordance with the provisions of the approved labeling.

        We or any assignee of our U.S. co-exclusive license rights will be required to report certain adverse reactions and production problems to the FDA, provide updated safety and efficacy information and comply with requirements concerning advertising and promotional labeling requirements. Drug manufacturers and certain of their subcontractors are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with ongoing regulatory requirements, including cGMP regulations, which impose certain procedural and documentation requirements upon drug manufacturers. Accordingly, we or any assignee of our U.S. co-exclusive license rights and any third-party manufacturers must continue to expend time, money and effort in the areas of production and quality control to maintain compliance with cGMP regulations and other regulatory requirements. Discovery of problems with a product after approval for marketing may result in restrictions on a product, manufacturer, or holder of an approved NDA, including withdrawal of the product from the market.

        Sponsors of clinical trials of FDA regulated products, including drugs, are required to register and disclose certain clinical trial information. Information related to the product, patient population, phase of investigation, study sites and investigators, and other aspects of the clinical trial is then made public as part of the registration. Sponsors are also obligated to discuss the results of their clinical trials after completion. Disclosure of the results of these trials can be delayed until the new product or new indication being studied has been approved. Competitors may use this publicly available information to gain knowledge regarding the progress of development programs.

Pharmaceutical Pricing and Reimbursement

        Significant uncertainty exists as to the coverage and reimbursement status of any drug products for which we or any assignee of our U.S. co-exclusive license rights obtain regulatory approval. Sales of a DMF Formulation, if approved, will depend to a significant degree on the extent to which the costs of the products will be covered by third-party payors, including government health programs such as Medicare and Medicaid, commercial health insurers and managed care organizations. The process for determining whether a payor will provide coverage for a drug product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the drug product once coverage is approved. Third-party payors may limit coverage to specific drug products on an approved list, or formulary, which might not include all of the approved drugs for a particular indication.

        In order to secure coverage and reimbursement for any product that might be approved for sale, we or any assignee of our U.S. co-exclusive license rights may need to conduct pharmacoeconomic studies to demonstrate the medical necessity and cost-effectiveness of the product, in addition to the costs required to obtain FDA or other comparable regulatory approvals. A DMF Formulation may not be considered medically necessary or cost-effective. A payor's decision to provide coverage for a drug

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product does not imply that an adequate reimbursement rate will be approved. Third-party reimbursement may not be sufficient to enable us to maintain price levels high enough to realize an appropriate return on our investment in product development.

        The containment of healthcare costs has become a priority of governments, and the prices of drugs have been a focus in this effort. Third-party payors are increasingly challenging the prices charged for medical products and services and examining the medical necessity and cost-effectiveness of medical products and services, in addition to their safety and efficacy. If these third-party payors do not consider our products to be cost-effective compared to other available therapies, they may not cover our products after approval as a benefit under their plans or, if they do, the level of payment may not be sufficient to allow us to sell our products at a profit. The U.S. government, state legislatures and non-U.S. governments have shown significant interest in implementing cost containment programs to limit the growth of government-paid health care costs, including price controls, restrictions on reimbursement and requirements for substitution of generic products for branded prescription drugs. Adoption of such controls and measures, and tightening of restrictive policies in jurisdictions with existing controls and measures, could limit payments for pharmaceuticals such as the product that we or any assignee of our U.S. co-exclusive license rights may develop and could adversely affect our net revenue and results.

        Pricing and reimbursement schemes vary widely from country to country. Some countries provide that drug products may be marketed only after a reimbursement price has been agreed. Some countries may require the completion of additional studies that compare the cost-effectiveness of a particular product to currently available therapies. For example, the EU provides options for its member states to restrict the range of drug products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. EU member states may approve a specific price for a drug product or may instead adopt a system of direct or indirect controls on the profitability of the company placing the drug product on the market. Other member states allow companies to fix their own prices for drug products, but monitor and control company profits. The downward pressure on health care costs in general, particularly prescription drugs, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products. In addition, in some countries, cross-border imports from low-priced markets exert competitive pressure that may reduce pricing within a country. There can be no assurance that any country that has price controls or reimbursement limitations for drug products will allow favorable reimbursement and pricing arrangements for any of our products.

        The marketability of any products for which we or any assignee of our U.S. co-exclusive license rights may receive regulatory approval for commercial sale may suffer if the government and third-party payors fail to provide adequate coverage and reimbursement. In addition, emphasis on managed care in the U.S. has increased and we expect will continue to increase the pressure on drug pricing. Coverage policies, third-party reimbursement rates and drug pricing regulation may change at any time. In particular, the Patient Protection and Affordable Care Act was enacted in the U.S. in March 2010 and contains provisions that may reduce the profitability of drug products, including, for example, increased rebates for drugs sold to Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatory discounts for certain Medicare Part D beneficiaries and annual fees based on pharmaceutical companies' share of sales to federal health care programs. Even if favorable coverage and reimbursement status is attained for one or more products for which we or any assignee of our U.S. co-exclusive license rights receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.

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.

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        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 2016, we paid DKK 574,000 (approximately $85,000), including value added tax, or VAT, for such premises. Forward Pharma FA ApS, our wholly owned Danish subsidiary, is also located at Østergade 24A, 1st Floor, 1100 Copenhagen K, Denmark. For more information, see "Related Party Transactions—Leased Premises."

        Forward Pharma GmbH, our wholly owned German subsidiary, has approximately 700 square feet of office space for administrative and operational activities in Leipzig, Germany. In 2016, we paid €25,000 (approximately $28,000) for such premises (excluding fees paid for electricity and cleaning fees).

        Forward Pharma USA, LLC, our wholly owned U.S. subsidiary, is located in Hawthorne, New York and has office space of approximately 450 square feet. Our lease payments for 2016 for these premises were $28,000.

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

        As of March 31, 2017, we had 12 employees. At each date shown, we had the following employees, broken out by department and geography:

 
  At December 31,   At March 31,  
 
  2014   2015   2016   2017  

Function:

                         

Clinical and regulatory affairs

    2     4     3     2  

Engineering and production

    1     3     3     3  

Management and administration

    6     7     7     7  

Total

    9     14     13     12  

Geography:

                         

Germany

    4     6     4     4  

Denmark

    2     5     6     5  

United States

    3     3     3     3  

Total

    9     14     13     12  

        None of our employees is represented by a labor union or covered under a collective bargaining agreement, and we have never experienced any work stoppages.

        All other operational tasks are outsourced to consultant experts, such as formulation and quality assurance/cGMP experts, or consulting service companies, such as regulatory, patent and legal experts. We engage approximately 25 individuals and firms as consultants and experts.

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        As a result of entering into the License Agreement, our development of a DMF Formulation will currently be limited to finishing the research and development work that was in process prior to the effective date of the License Agreement and we have announced plans to pursue an organizational realignment to reduce personnel and operating expenses by mid-year 2017. This activity is currently ongoing.

        In the U.S., our activities and personnel are primarily focused on U.S. public company legal and accounting reporting and compliance, investor relations 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 research, pre-clinical and clinical development. In the future, unless and until Biogen obtains an exclusive license, we may be required to obtain additional insurance to cover potential product liability and other risks which are inherent in the manufacturing, marketing and the commercialization and use of drugs. There can be no assurance that such insurance will be available on commercially reasonable terms or at all.

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

Legal Proceedings

        We may, from time to time, become involved in legal proceedings in the ordinary course of business. We have not been a party to or paid any fees or damages in connection with any litigation, including any of our patent opposition actions pending before the EPO, that has had a material adverse effect on our business or financial position. On November 18, 2014, we filed a lawsuit against Biogen Idec GmbH, Biogen Idec International GmbH and Biogen Idec Ltd. in the Regional Court in Dusseldorf, alleging infringement of our German Utility Model DE 20 2005 022 112 due to Biogen's marketing of Tecfidera® in Germany. The case was expanded on May 26, 2015, to include infringement of our European patent EP2801355. On July 15, 2015, Biogen initiated cancellation proceedings against Utility Model DE 20 2005 022 112 before the German Patent and Trademark Office. Pursuant to the License Agreement, we agreed to withdraw with prejudice and no right to refile the litigation related to our German Utility Model DE 20 2005 022 112 and European patent EP2801355. Biogen has also requested the withdrawal of the Utility Model cancellation action.

        Opposition proceedings against three of our European patents are currently pending and we are involved in the Opposition Proceeding and the Interference Proceeding. There can be no assurance that these patent proceedings or other future legal proceedings will not have a material adverse effect on our financial position. See "Risk Factors—Risks Related to Our Business and Industry—There can be no assurance that the Interference Proceeding between our U.S. Patent Application No. 11/576,871 and Biogen's U.S. Patent No. 8,399,514 will ultimately result in judgment against Biogen and the cancellation of its patent claims. In addition, there can be no assurance that any claims of our U.S. Patent Application No. 11/576,871 will ever issue in a patent or be royalty bearing under the License Agreement."

C.  Organizational Structure

        The registrant corporation, Forward Pharma A/S, has three wholly owned subsidiaries, Forward Pharma GmbH, our subsidiary in Germany, Forward Pharma USA, LLC, our subsidiary in the U.S., and Forward Pharma FA ApS, our subsidiary in Denmark. All of our operations are conducted within Forward Pharma A/S or one of our subsidiaries.

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D.  Property, Plant and Equipment

        See "—B. 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, 2016 and 2015, of $268,000 and $352,000, respectively. Our manufacturing equipment was acquired in 2015, and is owned by the Company and placed in service for the use by a Company vendor who has been providing contract manufacturing services to the Company. The net book value of our manufacturing equipment at December 31, 2016 was $248,000. 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 tangible fixed assets; however, it is possible that if we reinitiate the development of a DMF Formulation for sale in the U.S. under a co-exclusive license with Biogen or we determine in the future to develop other DMF-containing formulations and products, including generics, consistent with the terms of the License Agreement, we may need to acquire additional manufacturing equipment that would be placed in service at a contract manufacture's facility to be used on our behalf to manufacture tablets for such DMF Formulation. It is uncertain at this time what, if any, manufacturing equipment we may need to acquire. The timing and amount of any manufacturing equipment purchases we make in the future will be determined based on the terms and conditions of any long-term supply contracts we may enter into with our contract manufacturers. We currently do not have any long-term supply agreements with our vendors.

ITEM 4A.    UNRESOLVED STAFF COMMENTS

        Not applicable

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 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 consultants and suppliers. We are comprised of a Danish incorporated parent company, Forward Pharma A/S, a wholly owned subsidiary incorporated in Germany, Forward Pharma GmbH, a wholly owned subsidiary formed in the state of Delaware, Forward Pharma USA, LLC, and a wholly owned subsidiary organized in Denmark, Forward Pharma FA ApS. 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

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treatment of MS. As a result of entering into the License Agreement, the future development and sale by us of a DMF Formulation is uncertain at this time and will be determined based on the outcome of matters discussed further below. Under certain conditions, the Company may decide to reinitiate the development of FP187, or initiate the development of another DMF Formulation; currently, development of a DMF Formulation for the U.S. market will be limited to finishing the research and development work that was in process prior to the effective date of the License Agreement.

        The Company announced, on March 1, 2017, plans to finish its remaining research and development efforts and pursue an organizational realignment to reduce personnel and operating expenses by mid-year 2017.

        On February 1, 2017, our License Agreement with Biogen and certain additional parties became effective. The License Agreement provides 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. Biogen also is required, if certain conditions are met within the time period set forth in the License Agreement, including the termination or expiration of any waiting period under the HSR Act, to obtain an exclusive license to the Company's intellectual property in the U.S.

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

        The License Agreement does not resolve the Interference Proceeding or the Opposition Proceeding. The Company and Biogen intend 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. Only if the Company is successful in the Interference Proceeding and/or the Opposition Proceeding will it be eligible to receive royalties starting as early as 2021 based on Biogen's net sales of DMF-containing products indicated for treating MS as defined in the License Agreement, provided that other conditions of the License Agreement are satisfied within the time period set forth in the License Agreement, including the absence of legal restraints and termination or expiration of any required waiting period under the HSR Act.

        If the Company is successful in the Interference Proceeding (i.e., the Company obtains, as a result of the Interference Proceeding, and any appeals therefrom to the Federal Circuit (including en banc review), a patent with a claim covering oral treatment of MS with 480 mg per day of DMF), and if Biogen obtains an exclusive license in the U.S., the Company may 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 Biogen's net sales in 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. Among the conditions that needs to be satisfied for any royalty to be payable by Biogen to the Company is the absence of generic entry having a particular impact as defined in the License Agreement. If Biogen obtains an exclusive license in the U.S., we would likely permanently discontinue development of a DMF Formulation.

        If the Company is successful in the Interference Proceeding, but certain conditions are not met in the U.S., including if restraints are placed on Biogen as a result of the process under the HSR Act, and if Biogen does not obtain an exclusive license, the Company could reinitiate the development of a DMF Formulation for sale in the U.S. under a co-exclusive license with Biogen, which the Company may, on one occasion only, assign to a single third party. Under the co-exclusive license, the Company would be eligible beginning on January 1, 2023 to collect royalties of 1% on Biogen's net sales in the

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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. Among the conditions that needs to be satisfied for any royalty to be payable by Biogen to the Company is the absence of generic entry having a particular impact as defined in the License Agreement. If the Company is unsuccessful in the Interference Proceeding after any appeals, the Company would not be entitled to future royalties on Biogen's net sales in the U.S. Moreover, if Biogen prevails in the Interference Proceeding and IPR, after any appeals to the Federal Circuit, we may be prevented from commercializing our lead product candidate, FP187, for MS in the U.S. at a 480 mg per day dose. Were this to occur, we would review opportunities to develop other DMF-containing formulations and products, including generics, consistent with the terms of the License Agreement. If we are unable to commercialize FP187 or any other product for sale in the U.S., we would be unable to generate any revenue from such a product.

        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 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 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. Among the conditions that needs 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.

        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 intends to appeal the decision to the Federal Circuit.

        Under the terms of the License Agreement, the Company has also agreed to use its commercially reasonable efforts to effect a corporate restructuring.

        Subject to confirmations from the Danish tax authority, or SKAT, and the Danish Business Authority that the following transactions would be tax-exempt and permissible under Danish law, the Company will effect a multistep reorganization that would result in the following (in order of occurrence):

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        In addition, following the restructuring, in the event Sub 1 materially breaches its obligations under the License Agreement, Biogen has a right to purchase all of the issued and outstanding shares of Sub 1 at a price corresponding to the intrinsic value of Sub 1 based on the most recent annual report for Sub 1 at the time of exercise. In addition, Biogen shall be granted a pledge of all of the issued and outstanding shares of Sub 1 in favor of Biogen as security for fulfilment of the purchase right.

        If Danish tax and business authorities do not approve the restructuring or determine that it is not tax-exempt, the Company will, at Biogen's election, create a wholly owned subsidiary of the Company as a Danish partnership limited by shares, or a P/S Sub, that would be structured in a manner that would enable payments to the P/S Sub to qualify for benefits under the U.S.-Danish income tax treaty. The Company would contribute its intellectual property to the P/S Sub by way of a tax-exempt business contribution and would grant Biogen a pledge in all issued and outstanding shares of the P/S Sub to secure Biogen's rights under the License Agreement. Additionally, if prior to the sale of Sub 1 to the foundation, the Company and Biogen are informed (i) by the Danish tax authorities that either of the steps preceding such sale (as summarized above) will not be approved as tax-exempt or will be only be approved as tax-exempt subject to the satisfaction of certain conditions, or (ii) by the Danish business authority that such sale or the transactions contemplated to follow such sale (as summarized above) cannot be consummated, then such sale and transactions will be automatically abandoned (unless, in the case of (ii), where such sale and transactions will only be abandoned upon Biogen's election) and, in lieu of such sale and transactions, Biogen can elect to receive a pledge of all of the issued and outstanding shares in Sub 1 to secure Sub 1's obligations under the License Agreement, purchase 50% of the issued and outstanding shares in Sub 1 at fair market value (as determined by a valuation report prepared by an auditor mutually selected by the Company and Biogen) or require the Company to consummate the P/S Sub structure described in the first two sentences of this paragraph.

Trend Information

        We do not currently have any commercialized products on the market. As a result of entering into the License Agreement, the future development and sale of a DMF Formulation in the U.S. is uncertain at this time. We expect any trends in the biopharmaceutical market to have a direct impact on our business, including, in particular, trends that effect the market for or price of Tecfidera®.

        Over the past few years, there has been increasing pressure to reduce drug prices as a consequence of political initiatives and regulations aiming to curb continuous increases in healthcare spending. We expect this trend to continue in the years ahead and accordingly any revenue we may earn in the future will likely be negatively affected by such political initiatives and regulations. However, we believe spending in the healthcare industry, as compared to many other industries, is less linked to economic trends. Furthermore, while falling drug prices in the mature drug markets such as the U.S. and the EU are having a negative impact on general sales growth levels for the biopharmaceutical industry as a whole in those markets, we expect such sales growth to continue at higher levels in emerging markets. We also expect that demographic developments, increased treatment penetration, especially in newly established drug markets, and better diagnostic tools to enable the tailoring of drugs to specific needs, will result in continuing growth in overall global drug sales.

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Financial Operations Overview

Revenue

        Prior to entering into the License Agreement, we had not generated any operating revenue.

Research and Development Costs

        Historical research and development costs relate primarily to the development of FP187 for the treatment of psoriasis and MS, and they consist primarily of:

        In 2016, 2015 and 2014, we incurred research and development expenses of approximately $41.1 million, $33.7 million and $10.5 million respectively. Our research and development costs vary substantially from period to period based on numerous factors, many of which are not within the control of the Company. We expect that our research and development costs will decrease in the future as we pursue an organizational realignment to reduce personnel and operating expenses. If Biogen does not obtain an exclusive license under the License Agreement and we reinitiate the development of a DMF Formulation for sale in the U.S. under a co-exclusive license with Biogen, either on our own or through any assignee of our U.S. co-exclusive license rights, or we determine in the future to develop other DMF-containing formulations and products, including generics, consistent with the terms of the License Agreement, we may incur increased research and development costs. At this time, we cannot estimate whether or when we will reinitiate development of a DMF Formulation and, if reinitiated, the level of expenditure that will be required to fully develop and commercialize a DMF Formulation.

        At this time, it is uncertain whether we would proceed either on our own or through any assignee of our U.S. co-exclusive license rights, or not at all, with the development of a DMF Formulation

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consistent with the terms of the License Agreement and what the outcome of any such development might be. Consequently, we cannot reasonably estimate the nature, timing and estimated costs of the effort that would be necessary to finish the development of, or the period in which we may begin to recognize revenues from, any DMF Formulation. This is due to numerous risks and uncertainties associated with developing drugs, any of which could result in a significant change in the costs and timing associated with the development of a DMF Formulation.

        In addition, the nature, timing and amount of legal costs we incur to protect, defend and enforce our intellectual property rights cannot be estimated and will affect the magnitude and timing of costs to develop a DMF Formulation should we do so or to receive royalties, if any, under the License Agreement. If we are unable to protect, defend or enforce our intellectual property rights, it could delay or prohibit our ability to commercialize a DMF Formulation and/or negatively affect our ability to obtain and maintain royalty-bearing patents.

General and Administrative Costs

        Our general and administrative costs consist primarily of:

        As a public company, we will incur costs associated with operating as a public company. This includes costs related to external and internal personnel and systems related to our financial reporting processes and internal controls in Germany, the U.S. and Denmark. Other costs related to our being a public company will include expenses related to personnel we will need to retain in connection with both administrative and operational activities, legal and compliance fees, accounting and audit fees, liability insurance premiums, and costs related to general investor relations. In addition, general and administrative expenses will include costs associated with granting share-based compensation awards to key management personnel and other employees and consultants.

Non-operating income and (expenses)

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

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Results of Operations

Comparison of the years ended December 31, 2016 and 2015

 
  Year ended December 31,  
 
  2016   2015   Change
(increase)
decrease
 
 
  (USD in thousands)
 

Total revenue

             

Research and development costs

    (41,052 )   (33,727 )   (7,325 )

General and administrative costs

    (14,382 )   (15,852 )   1,470  

Operating loss

    (55,434 )   (49,579 )   (5,855 )

Exchange rate gains (losses)

    598     11,933     (11,335 )

Interest income

    389     438     (49 )

Other finance costs (net)

    (92 )   (132 )   40  

Net loss before tax

    (54,539 )   (37,340 )   (17,199 )

Income tax benefit

    21,203     336     20,867  

Net loss

    (33,336 )   (37,004 )   3,668  

        Research and development costs for the years ended December 31, 2016 and 2015 were $41.1 million and $33.7 million, respectively. The increase in research and development costs for the year ended December 31, 2016 of $7.3 million was primarily related to increased costs to register and safeguard our intellectual property and higher share-based compensation. These increases were partially offset by a reduction in the use of contract manufacturers and clinical research organizations during our evaluation of options for an alternative Phase 3 clinical plan for FP187 in relapsing forms of MS. Fees to patent advisors and other patent-related costs increased from $8.9 million in the year ended December 31, 2015 to $16.3 million in the year ended December 31, 2016. Fees to patent advisors and other patent-related costs include the cost to conduct the Interference Proceeding. Share-based compensation increased from $6.0 million in the year ended December 31, 2015 to $8.0 million in the year ended December 31, 2016 as the result of the vesting of equity awards granted during the years ended December 31, 2016 and 2015 to employees and consultants involved in research and development activities. Our research and development costs overall are estimated to decrease in 2017 compared to 2016 as our development efforts of FP187 will be limited to finishing the research and development work that was in process prior to the effective date of the License Agreement. We currently estimate that unless we decide to reinitiate development of a DMF Formulation in the U.S. under a co-exclusive license agreement with Biogen or we determine in the future to develop other DMF-containing formulations and products, including generics, consistent with the terms of the License Agreement, our research development costs will remain below historical levels. If we decide to reinitiate development of a DMF Formulation for sale in the U.S., our research and development expenses will likely increase to or exceed historic levels. At this time, we cannot estimate whether or when we will reinitiate development of a DMF Formulation and, if reinitiated, the level of expenditure that will be required to fully develop and commercialize a DMF Formulation (whether on our own or through any assignee of our U.S. co-exclusive license rights).

        General and administrative costs for the year ended December 31, 2016 and 2015 were $14.4 million and $15.9 million, respectively. The decrease in general and administrative costs in the year ended December 31, 2016 of $1.5 million resulted principally from a reduction in share-based

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compensation from $7.5 million in the year ended December 31, 2015 to $6.3 million in the year ended December 31, 2016 in connection with the vesting of equity awards issued during the years ended December 31, 2015 and 2014 that included graded vesting provisions resulting in expense recognition that decreases in the latter years of vesting. We expect that our general and administrative costs will remain at current levels; however, expenses associated with protecting, defending and enforcing our patent rights that occur in the courts could increase in future periods. Whether we experience increased costs in the future to protect, defend and enforce our intellectual property rights and the amount of any such increase, which could be material, cannot be estimated at this time.

        During the years ended December 31, 2016 and 2015, the Company recognized foreign exchange gains of $598,000 and $11.9 million respectively. The foreign exchange gain in each of the years resulted primarily from Forward Pharma A/S (the "Parent") holding cash and available-for-sale financial assets denominated in U.S. Dollars, or USD, while the Parent's functional currency is the Danish Kroner, or DKK. The gain is the direct result of the strengthening of the USD compared to the DKK during the year that is reflected as a non-cash foreign exchange gain when the cash and available-for-sale financial assets denominated USD are converted to DKK at year end.

        During the years ended December 31, 2016 and 2015, the Company recognized interest income from available-for-sale financial assets of $389,000 and $438,000, respectively.

        During the years ended December 31, 2016 and 2015, the Company recognized tax benefits of $21.2 million and $336,000, respectively. The income tax benefit for the year ended December 31, 2016 resulted from Management concluding that it was probable the Company would have taxable profits 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 likelihood and magnitude of the Company's estimated taxable income for the year ending December 31, 2017 considering the License Agreement. The deferred tax benefit recognized during the year ended December 31, 2016 was primarily related to net operating loss carryforwards that will be utilized in 2017. 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, 2015 includes $158,000 that resulted from the Company's participation in a joint taxation scheme with Tech Growth whereby the Company recorded a tax benefit for Tech Growth's utilization of the Company's tax losses at the applicable corporate tax rate to the extent that the tax losses reduced the taxable income of the joint taxation group. The balance of the income tax benefit recognized in 2015, resulted from an application made with the Danish tax authorities whereby the Danish tax authorities approved a refundable tax credit of $178,000 related to the Company's research and development efforts after reducing the Company's tax loss carry forward. The joint taxation with Tech Growth ceased on January 1, 2016, and, consequently, the Company will not receive any tax benefit from losses utilized in the joint taxation scheme in future periods. See Note 2.5 in the accompanying financial statements for additional information.

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Comparison of the years ended December 31, 2015 and 2014

 
  Year ended December 31,  
 
  2015   2014   Change
(increase)
decrease
 
 
  (USD in thousands)
 

Total revenue

             

Research and development costs

    (33,727 )   (10,547 )   (23,180 )

General and administrative costs

    (15,852 )   (9,154 )   (6,698 )

Operating loss

    (49,579 )   (19,701 )   (29,878 )

Fair value adjustment to net settlement obligations to shareholder warrants

        (968 )   968  

Fair value adjustment to convertible loans

        (3,823 )   3,823  

Exchange rate gains (losses)

    11,933     5,589     6,344  

Interest income

    438     63     375  

Interest expense

        (416 )   416  

Other finance costs (net)

    (132 )   (10 )   (122 )

Net loss before tax

    (37,340 )   (19,266 )   (18,074 )

Income tax benefit

    336     250     86  

Net loss

    (37,004 )   (19,016 )   (17,988 )

Research and development costs for the years ended December 31, 2015 and 2014

        Research and development related costs for the years ended December 31, 2015 and 2014 were $33.7 million and $10.5 million, respectively. The increase in research and development costs in 2015 of $23.2 million was largely attributable to an increase in our clinical and pre-clinical activities, costs for which rose from $4.0 million in 2014 to $17.1 million in 2015. Clinical and pre-clinical costs increased during the year ended December 31, 2015 as we expanded our development activities to include several pre-clinical studies, including long-term carcinogenicity studies, and Phase 1 trials as well as beginning preparations for our planned Phase 3 trial of FP187 in RRMS. These increased costs were principally related to services provided by clinical research organizations who collaborate with us to plan, prepare and conduct clinical trials on our behalf and contract manufacturers that are responsible for supplying DMF as well as the formulation and finishing of FP187 tablets to be used for research purposes. In addition, expenses for patent advisers and other patent-related costs incurred to register our intellectual property and to conduct the Interference Proceeding, as well as the Opposition Proceeding, increased from $4.7 million in 2014 to $8.9 million in 2015. Share based compensation increased in 2015 to $6.0 million from $1.8 million in 2014 as the result of equity awards granted or modified during the year ended December 31, 2015 to employees and consultants involved in research and development activities.

General and administrative costs for the years ended December 31, 2015 and 2014

        General and administrative costs for the years ended December 31, 2015 and 2014 were $15.9 million and $9.2 million, respectively. The increase in general and administrative costs in 2015 of $6.7 million resulted from an increase in share-based compensation from $4.2 million in 2014 to $7.5 million in 2015 in connection with equity awards issued or modified, an increase in legal fees incurred in 2015 in connection with patent litigation against Biogen of $602,000 as well as an increase in costs during the year ended December 31, 2015 compared to the year ended December 31, 2014 associated with becoming a publicly listed company in the U.S. including insurance, investor relations, legal and accounting costs. Offsetting the 2015 increases were costs we incurred during the year ended

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December 31, 2014 related to preparing for our IPO that totaled $2.0 million. No IPO costs were incurred in 2015.

Non-operating income (expense) for the years ended December, 2015 and 2014

        During the years ended December 31, 2015 and 2014, the Company recognized a foreign exchange gain of $11.9 million and $5.6 million respectively. The foreign exchange gain in each of the years resulted primarily from the Parent holding cash and available-for-sale financial assets denominated in USD and British Pounds, or GBP, while the Parent's functional currency is the DKK. The gain is the direct result of the strengthening of the USD and GBP compared to the DKK during the period that is reflected as a non-cash foreign exchange gain when USD and GBP cash and available-for-sale financial assets are converted to DKK at year end.

        The fair value adjustment to the settlement obligation of our shareholder warrants was a loss of $1 million for the year ended December 31, 2014. The adjustment in the fair value of the shareholder warrants was the result of the underlying value of the Company's shares increasing in value from December 31, 2013 to March 15, 2014, the settlement date. During the year ended December 31, 2015, the Company did not have outstanding shareholder warrants that were required to be carried at fair value and accordingly there is no corresponding gain or loss to be recorded during 2015.

        During August and September 2014, the Company borrowed under two convertible loans €8.35 million and $10 million, respectively (collectively the "Loans"). The Loans were carried at fair value and the fair value adjustment of the Loans from the date of issuance to the date the Loans converted to ordinary shares was $3.8 million. The terms of the Loans required automatic conversion to ordinary shares in connection with our IPO. Accordingly, at the time of the Company's IPO in October 2014, the Loans converted into 1.2 million ordinary shares. During 2015, the Company did not have outstanding debt.

        During the years ended December 31, 2015 and 2014, the Company recognized interest income from available-for-sale financial assets of $438,000 and $63,000 respectively. The increase in interest income in 2015 of $375,000 was the result of holding the available-for-sale financial assets for the full year while in 2014 the available-for-sale financial assets were held for only two months.

        Interest expense recognized on outstanding interest-bearing debt, including the Loans, for the year ended December 31, 2014 totaled $416,000. The Company had no interest-bearing debt outstanding during the year ended December 31, 2015.

Income tax benefit for the years ended December 31, 2015 and 2014

        During the years ended December 31, 2015 and 2014, the Company accrued a tax benefit of $336,000 and $250,000, respectively. The income tax benefit for the years ended December 31, 2015 and 2014 is the result of the Company's participation in a joint taxation scheme with Tech Growth of $158,000 and $250,000, respectively. Under the scheme, the Company recorded a tax benefit for Tech Growth's utilization of the Company's tax losses at the applicable corporate tax rate to the extent that the tax losses reduced the taxable income of the joint taxation group. Also included in the tax benefit for the year ended December 31, 2015 was the favorable result from an application made in 2015 with the Danish tax authorities whereby the Danish tax authorities approved a refundable tax credit of $178,000 related to the Company's research and development efforts after reducing the Company's tax loss carry forward. See Note 2.5 in the accompanying financial statements for additional information.

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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 expenses during the reporting periods. 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.

Research and development costs

        Research expenses are recognized when expenses are incurred. Costs incurred on development projects are recognized as intangible assets as of the date that it can be established that it is probable that we will recognize future economic benefits attributable to the relevant project, considering factors including the technological and commercial feasibility of the project. Specifically, intangible assets arising from our development projects are recognized on our balance sheet if all of the following criteria are met:

        Development costs incurred are capitalized as of the date when these criteria are met. In other words, until such criteria are met, development costs incurred are recognized as an expense.

        A development project involves a single product candidate undergoing a high number of tests to illustrate its safety profile and the effect on humans prior to obtaining the necessary final approval of the product from the appropriate authorities. The future economic benefits associated with our individual development projects, if any, are dependent on obtaining such approval. Considering the significant risk and duration of the development period related to the development of biopharmaceutical products, management has concluded that the future economic benefits associated with FP187 cannot be estimated with sufficient certainty until research and development efforts are finalized and the necessary regulatory final approvals have been obtained. Further, as a result of entering into the License Agreement, it is uncertain whether we will continue to develop a DMF Formulation. Accordingly, given the current stage of the development of FP187, no development expenditures have yet been capitalized.

        Intellectual property-related costs for patents are included in expenses for our research and development projects. Therefore, associated registration costs for patents are expensed when incurred

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as long as the research and development project concerned does not meet the criteria for capitalization.

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 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 no longer used. 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 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 many 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 Company that would expose the Company to additional taxes being assessed, including interest and penalties, that could be material. There are numerous transactions between Forward Pharma A/S, Forward Pharma GmbH and Forward Pharma USA, LLC where the tax authorities could challenge whether transfer pricing of such transactions were at arm's length. The Company's failure to successfully support arm's length pricing could result in additional taxes being assessed, including interest and penalties, that could be material. As of December 31, 2016, there are no tax audits in process nor has management been notified of any pending tax audit. As of December 31, 2016, the tax years that remain open for audit by the Danish, German and U.S. tax authorities include 2013 through 2016.

        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

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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 year-end that the Group would have taxable income in 2017 thereby enabling the Group 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 that will be utilized in 2017. 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.

        As of December 31, 2016, we have unused tax loss carry forwards of $103.2 million ($22.7 million tax effected) in Denmark and $43.1 million ($13.4 million tax effected) in Germany. We currently estimate that tax loss carry forwards of $103.2 million ($22.7 million tax effected) in Denmark and $29.8 million ($9.3 million tax effected) in Germany will be used to offset taxable income in 2017. The tax losses can be carried forward indefinitely in time. For Danish tax purposes, only the first $1.1 million of taxable income in any one year may be fully offset by tax loss carry forwards as income exceeding $1.1 million may only be reduced by 60% by tax loss carry forwards. For German tax purposes, the ability of Forward Pharma GmbH to use tax loss carry forwards in any one year is also limited based on a formula not materially different from the limit used in Denmark.

        Forward Pharma A/S is currently subject to joint taxation in Denmark. For more, see "Risk Factors—Risks Related to Danish Law and Our Operations in Denmark." Forward Pharma A/S has historically filed Danish tax returns on a standalone basis; however, since January 2013, Forward Pharma A/S has filed its Danish tax returns as part of a Danish tax group, controlled by Tech Growth Invest ApS, a Danish private limited liability company, or Tech Growth. The joint income taxation with Tech Growth ceased as of January 1, 2016, and the entities included in the joint taxation with Forward Pharma A/S beginning on January 1, 2016 include Forward Pharma FA ApS, (a 100% owned subsidiary of the Company) and NB FP Investment General Partner ApS.

Recent Accounting Pronouncements

Standards effective in 2016:

        New standards and amendments to standards and interpretations (collectively "Amendments") were issued by the IASB that became effective during 2016 or subsequent to December 31, 2016. None of the Amendments effective during 2016 had an effect on the Group's financial statements.

Standards issued but not yet effective:

        The future adoption of the Amendments that become effective on or after January 1, 2017 are currently not expected to have a material effect on the Group's financial statements; however, as discussed below, the future adoption of IFRS 9 Financial Instruments ("IFRS 9"), IFRS 15 Revenue from Contracts with Customers ("IFRS 15") and/or IFRS 16 Leases ("IFRS 16") could have a material effect on the Group's financial statements. Management's current expectation is that Amendments will be adopted by the Group when mandated; however, Management is evaluating whether to adopt IFRS 15 on January 1, 2017.

        IFRS 9: This standard addresses the accounting for financial assets and liabilities including their classification and measurement, impairment and hedge accounting. The Group does not anticipate

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adopting IFRS 9 before the mandatory effective date of January 1, 2018. The impact on the Group's financial statements of the future adoption of IFRS 9 will be determined based on facts and circumstances that exist at the time of adoption that cannot be predicted currently. The only financial instruments held by the Group at December 31, 2016 that would be affected by IFRS 9 are the available-for-sale financial assets that are currently measured each reporting period at fair value through other comprehensive income. Management's preliminarily position is that the available-for-sale financial assets held at December 31, 2016 would meet the definition under IFRS 9 to be accounted for under the amortized cost category. In reaching this preliminary position, management considered the Group's historic investment activity, current investment policies and intent to not sell the available-for-sale financial assets prior to maturity and believes that the appropriate business model assessment would result in the conclusion that the Group's financial assets are held to collect contractual cash flows. The effect of using amortized cost to account for the Group's available-for-sale financial assets at December 31, 2016 would eliminate the need to carry such assets at fair value resulting in a reversal of cumulative fair value beneficial adjustment of the available-for-sale assets with a corresponding reduction in other components of equity of $218,000. In addition, the benefit reflected in the statement of comprehensive loss for the year ended December 31, 2016 from the change in fair value of the available-for-sale financial assets would be eliminated. The future adoption of IFRS 9 is not expected to have an effect on the Group's reported net loss or cash flows.

        IFRS 15: This standard addresses the accounting and disclosure requirements for revenue contracts with customers. The effective date is January 1, 2018. There will be no impact on the Group's consolidated financial statements presented herein upon the future adoption of IFRS 15 as the Group has no revenue from customers. Management is in the process of evaluating the effect the License Agreement will have on the Group's financial statements in the future, including the effects of adopting IFRS 15. Until the evaluation is completed, an estimate of the future effect the License Agreement will have on the Group's financial statements cannot be made.

        IFRS 16: This standard 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 impact on the Group's financial statements from the future adoption of IFRS 16 will be determined based on facts and circumstances that exist at the time of adoption that cannot be predicted currently. As of December 31, 2016, the Group only has leases with terms of less than twelve months and therefore had the adoption of IFRS 16 occurred at December 31, 2016 the effect on the Group's consolidated financial statements would be immaterial. Management's current expectation is that IFRS 16 will be adopted by the Group when mandated.

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:

        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.

        As a result of the receipt of the Non-refundable Fee of $1.25 billion in February 2017, the year ended December 31, 2016 will be the final year the Company qualifies as an emerging growth company under the JOBS Act and receives the benefits from the exemptions noted above. The receipt of the Non-refundable Fee in 2017 will result in revenues exceeding $1.0 billion in annual revenue which is one of the criteria under the JOBS Act for losing emerging growth company status. Accordingly, for the year ending December 31, 2017, the Company will be required to obtain an auditor's attestation report on our internal control over financial reporting and we will need to provide the additional compensation disclosures required under the U.S. Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

B.  Liquidity and Capital Resources

Comparison of the Years ended December 31, 2016 and 2015

        The table below summarizes our consolidated statement of cash flows for each of the years ended December 31, 2016 and 2015:

 
  Year ended
December 31,
 
 
  2016   2015  
 
  (USD in thousands)
 

Net cash flows used in operating activities

    (34,105 )   (35,127 )

Net cash flows provided by investing activities

    41,170     43,030  

Net cash flows from financing activities

    114     155  

Net increase in cash and cash equivalents

    7,179     8,058  

Net foreign exchange differences

    (1,550 )   (1,138 )

Cash and cash equivalents beginning of year

    52,269     45,349  

Cash and cash equivalents end of year

    57,898     52,269  

        Net cash flows used in operating activities decreased to $34.1 million in the year ended December 31, 2016, from $35.1 million in the year ended December 31, 2015. The decrease resulted primarily from the favorable effect of changes in working capital offset in part by an increase in operating expenses in connection with the research and development efforts to commercialize FP187 and to secure and protect our intellectual property.

        The net cash flows provided by investing activities primarily relates to cash inflows resulting from the maturity of available-for-sale financial assets of $41.2 million and $43.4 million for the years ended December 31, 2016 and 2015, respectively. In addition, there were cash outflows for the purchase of equipment in the years ended December 31, 2016 and 2015 of $31,000 and $382,000, respectively.

        The net cash flows from financing activities for the year ended December 31, 2016 were $114,000 and included the receipt of $2,000 in connection with the issuance of 142,000 ordinary shares upon the vesting of deferred shares and the receipt of $112,000 in connection with the exercise of 130,000 warrants. The net cash flows from financing activities for the year ended December 31, 2015 were $155,000 and included the receipt of $2,000 in connection with the issuance of 142,000 ordinary shares upon the vesting of deferred shares and the receipt of $153,000 in connection with the exercise of 216,000 warrants.

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Comparison of the Years ended December 31, 2015 and 2014

        The table below summarizes our consolidated statement of cash flows for each of the years ended December 31, 2015 and 2014:

 
  Year ended
December 31,
 
 
  2015   2014  
 
  (USD in thousands)
 

Net cash flows used in operating activities

    (35,127 )   (9,460 )

Net cash flows provided by (used in) investing activities

    43,030     (191,121 )

Net cash flows from financing activities

    155     237,571  

Net increase in cash and cash equivalents

    8,058     36,990  

Net foreign exchange differences

    (1,138 )   5,404  

Cash and cash equivalents beginning of year

    45,349     2,955  

Cash and cash equivalents end of year

    52,269     45,349  

        Net cash flows used in operating activities increased to $35.1 million in the year ended December 31, 2015, from $9.5 million in the year ended December 31, 2014, primarily due to an increase in operating expenses in connection with the research and development efforts to commercialize FP187 and to secure and protect our intellectual property.

        The net cash flows provided by or (used in) investing activities primarily relate to the cash outflow to purchase available-for-sale financial assets of $191.1 million in 2014 and the cash inflow resulting from the maturity of available-for-sale financial assets of $43.4 million in 2015. In addition, there were cash outflows for the purchase of equipment in the years ended December 31, 2015 and 2014 of $382,000 and $6,000 respectively.

        The net cash flows from financing activities for the year ended December 31, 2015 were $155,000 and included the receipt of $2,000 in connection with the issuance of 142,000 ordinary shares upon the vesting of deferred shares and the receipt of $153,000 in connection with the exercise of 216,000 warrants. Net cash flows from financing activities for the year ended December 31, 2014 were $237.6 million and included the net proceeds received from our IPO of $214.3 million and from the issuance of two convertible loans amounting to $21.3 million.

Funding Requirements and Capital Resources

        We believe that the cash, cash equivalents and available-for-sale financial assets will enable us to fund our operating expenses and capital expenditure requirements beyond the next 12 months. 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. 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. We recently received the Non-refundable Fee in connection with the License Agreement. We are currently evaluating different means to deliver to our shareholders a substantial portion of the Non-refundable Fee, net of taxes and other payment obligations. The amount to be distributed is unknown at this time but we estimate the dividend, distribution, share repurchase or other return of capital will occur during the second quarter of 2017.

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

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Capital Expenditures

        Our capital expenditures in the past have not been significant and we currently do not have any significant capital expenditures planned for 2017.

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, Aditech 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 (€ 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 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 clarifies the royalties payable to Aditech in connection with any proceeds received by the Company from Biogen under the License Agreement.

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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, 2016.

 
  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*

  $ 26,929               $ 26,929  

Operating lease obligations

  $ 30   $ 8           $ 38  

Total

  $ 26,959   $ 8           $ 26,967  

(*)
Includes $25 million due Aditech in accordance with an addendum, dated January 17, 2017, to the Patent Transfer Agreement. See Note 5.2 to the financial statements.

        Contracts with our venders that allow us to cancel the contract on short notice without financial penalty are excluded from the above table. In addition, 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 5.2 to the financial statements.

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

    48   Chairman

Claus Bo Svendsen

    40   Chief Executive Officer

Peder Møller Andersen

    65   Chief Operating Officer

Joel Sendek

    50   Chief Financial Officer

Rupert Sandbrink

    53   Executive Vice President, Multiple Sclerosis/Neurology and Immunology

Andrzej Jan Stano

    52   Executive Vice President, Pharmaceutical Development and Production

Thomas Carbone

    59   Vice President, Finance and Controller, Forward Pharma USA, LLC

Torsten Goesch

    57   Director

Jan G. J. van de Winkel

    56   Director

Grant Hellier Lawrence

    55   Director

Jakob Mosegaard Larsen

    44   Director

Karen Smith

    49   Director

Duncan Moore

    58   Director

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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 23 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

        Dr. Svendsen has served as our Chief Executive Officer since March 1, 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 PhD 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.

Peder Møller Andersen, Chief Operating Officer

        Dr. Andersen has served as our Chief Operating Officer since May 2012, and previously served as our Chief Executive Officer from August 4, 2014 through February 28, 2017. He has been in charge of our clinical development program for FP187 since 2009. Dr. Andersen has more than 25 years of experience in the pharmaceutical industry. He also has worked for CROs and small biopharmaceutical companies as an external consultant. Dr. Andersen also has several years of business development experience, generic and proprietary, in Europe with PLIVA, Croatia and AWD, Germany. He also has founded a successful Nordic-based pharmaceutical company. Dr. Andersen has a degree from Copenhagen Medical School and trained in surgery, anesthesiology and internal medicine for six years.

Joel Sendek, Chief Financial Officer

        Mr. Sendek has served as our Chief Financial Officer since August 2014. He also holds the position of Chief Financial Officer of Forward Pharma USA, LLC. Mr. Sendek has more than 25 years of experience in the life sciences sector, including 18 years as a senior research analyst covering biotechnology. Prior to joining us, Mr. Sendek was a Managing Director, Healthcare Equity Research, at Stifel Financial Corp., where he served as head of Stifel's healthcare equity research group. Prior to that he was a Managing Director and Senior Biotechnology Analyst at each of Lazard Capital Markets and Lazard, where he established the healthcare equity research effort in 2000. Previously, he was Senior Director, Corporate Development at Progenics Pharmaceuticals, Inc. and, prior to that, an investment banking analyst at Goldman, Sachs & Co. He graduated from Rice University with a B.A. in biochemistry in 1989.

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Rupert Sandbrink, Executive Vice President Multiple Sclerosis /Neurology and Immunology

        Dr. Sandbrink, M.D., Ph.D., joined the Company on March 1, 2016 as our Executive Vice President Multiple Sclerosis /Neurology and Immunology. He has more than 17 years of expertise in the pharmaceutical industry in all stages of clinical development including product launch and medical affairs. Dr. Sandbrink holds a degree in biochemistry from the University of Hanover, Germany, and a Ph.D. in molecular biology from the University of Heidelberg, Germany. He also received his medical degree from the University of Heidelberg, with further training in psychiatry and human genetics in Mannheim and Heidelberg, and he is a board-certified Clinical Pharmacologist. Prior to joining us, Dr. Sandbrink was Vice President and Therapeutic Area Head in Medical/Clinical Development and Clinical Sciences positions at Schering AG and later Bayer AG, with a focus on MS and other neurologic diseases and auto-immune disorders as well as ophthalmology, but also for other therapeutic areas covering a broad range of indications including hematology, dermatology, gynecology and rare diseases.

Andrzej Jan Stano, Executive Vice President Pharmaceutical Development and Production

        Dr. Stano has served as our Executive Vice President Pharmaceutical Development and Production since October 2015. During Dr. Stano's approximately 30 years in the pharmaceutical industry, he has focused on the development and production of a wide variety of drug products, including early research and development through to commercialization, with extensive expertise in solid oral technology. Dr. Stano has degrees in Chemistry and in Pharmaceutical Sciences, and a Ph.D., from Kings College, London University. Most recently, Dr. Stano was Director in Product Development, Research and Development at Glaxo Smith Kline PLC, or GSK. Previously, Dr. Stano held various positions at GSK, including roles in formulation development, a global quality initiative and the development of an outsourcing strategy within research and product development.

Thomas Carbone, Vice President, Finance and Controller, Forward Pharma USA, LLC

        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 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.

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Jan G. J. van de Winkel, Director

        Dr. van de Winkel has served on our board of directors since August 2014. He is a co-founder of Genmab and served as President, Research & Development and Chief Scientific Officer of Genmab until his appointment as its President and Chief Executive Officer in June 2010. Dr. van de Winkel has over 20 years of experience in the therapeutic antibody field and served as Vice President and Scientific Director of Medarex Europe prior to co-founding Genmab. He is the author of over 300 scientific publications and has been responsible for over 70 patents and pending patent applications. Dr. van de Winkel holds a professorship in Immunology at Utrecht University. He is chairman of the board of directors of Regenesance and member of the board of directors of ISA Pharmaceuticals and Celdara Medical, the scientific advisory board of Thuja Capital Healthcare Fund and the advisory board of Capricorn Health-tech Fund. Dr. van de Winkel holds M.S. and Ph.D. degrees from the University of Nijmegen.

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 a member of the Danish Venture Capital and Private Equity Association's (DVCA) Legal Committee and serves as DVCA's representative on Invest Europe's Tax, Legal and Regulatory Committee. He graduated from Copenhagen University with a Master 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 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.

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Karen Smith, Director

        Dr. Smith has served on our board of directors since May 2016. Dr. Smith is currently Global Head of Research and Development and Chief Medical Officer at Jazz Pharmaceuticals plc. From January 2011 to March 2015, she was Senior Vice President, Global Medical Affairs and Global Therapeutic Area Head (Dermatology) for Allergan, Inc., a multi-specialty healthcare company. From October 2007 to December 2010, Dr. Smith served initially as Vice President, External Medical Relations, then Vice President, Global Development at AstraZeneca LP, a global innovation-driven biopharmaceutical company. From 2002 to 2007, Dr. Smith held a variety of management and medical roles with Bristol-Myers Squibb Company, a global biopharmaceutical company, in Australia, Canada, and the U.S., most recently as Head of US Clinical Operations. In 2001, Dr. Smith was Chief Executive Officer of Boron Molecular, a specialist chemicals manufacturing company. Dr. Smith holds a B.A.Sc. and a B.Sc. from the Curtin University of Technology, a M.D. from the University of Warwick, a Ph.D. in oncology molecular genetics from the University of Western Australia, a M.B.A. from the University of New England (Australia) and a LL.M. in medical law from the University of Salford.

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 Bank Invest 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 an 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 not more than seven 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 four 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, 2017, we only have 12 employees.

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        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.

        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.

Management

        Our executive officers are responsible for our day-to-day business and operations and include Dr. Claus Bo Svendsen, our Chief Executive Officer, Dr. Peder Møller Andersen, our Chief Operating Officer, Joel Sendek, our Chief Financial Officer and Rupert Sandbrink, our Executive Vice President Multiple Sclerosis /Neurology and Immunology.

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 4350(d) 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 each 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. As set forth in the its written charter, the principal duties and responsibilities of our audit committee are as follows:

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        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 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 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. Our scientific advisors are experts across a range of key disciplines relevant to our programs and science. Two of our scientific advisors, Messrs. Reich and Mrowietz described below, own warrants to subscribe for some of our ordinary shares.

        All of our scientific advisors are employed by or have consulting arrangements with other entities and devote only a small portion of their time to us. Our current advisors are:

 
  Name   Title
MS advisors   Fred Lublin, MD   Professor of Neurology and the Director of the Corinne
        Goldsmith Dickinson Center for MS
        Mount Sinai Medical Center
        New York, New York
    Giancarlo Comi, MD   Director of the Post-Degree School in Neurophysiopathology
        University Vita-Salute San Raffaele
        Milan, Italy
    Jerry Wolinsky, MD   Professor Emeritus,
        University of Texas Medical School
        Houston, Texas
    Per Soelberg Sørensen, MD   Professor of Neurology, Rigshospitalet
        University of Copenhagen and Copenhagen University Hospital
        Copenhagen, Denmark

Psoriasis advisors

 

Kristian Reich, MD

 

Professor of Dermatology, Göttingen University Partner, Dermatologikum Hamburg
        Hamburg, Germany
    Ulrich Mrowietz, MD   Head and Founder of the Psoriasis-Center Kiel
        University Medical Center Schleswig-Holstein, Campus Kiel
        Kiel, Germany

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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

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

B.  Compensation

Compensation of Executive Officers and Board

        For the year ended December 31, 2016, the aggregate compensation paid to our executive officers and members of our board of directors (including health insurance, contributions to a defined contribution retirement plan and share based compensation) was $8,221,000. Included in the aggregate compensation for the year ended December 31, 2016 were amounts set aside or accrued by us to provide health insurance and contributions to a defined contribution retirement plan for our executive officers of $46,000 and $11,000 respectively. For the year ended December 31, 2016, we also granted share options to an executive officer and members of our board of directors offering the ability to subscribe for in the aggregate 463,549 ordinary shares as detailed below. A description of the warrants, options and deferred share awards granted to our executive officers and members of our board of directors is set forth below under "—Warrant and Other Equity Incentive Program—Director and

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Officer Awards Granted under the Share Plan" and "—Director and Officer Awards Granted Outside the Share Plan."

        None of our directors are employees of Forward Pharma A/S or its wholly owned subsidiaries, Forward Pharma GmbH, Forward Pharma USA, LLC 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 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 which we believe are standard for a company in our industry regarding non-competition, confidentiality of information and assignment of inventions.

        We have entered into an amended and restated service agreement with our Chief Operating Officer, Dr. Peder Andersen, which contains provisions which we believe are standard for a company in our industry regarding non-competition, confidentiality of information and assignment of inventions.

        We have entered into a written employment agreement with our Chief Financial Officer, Joel Sendek, who commenced working for us on August 5, 2014. Mr. Sendek's employment agreement contains, among other things, provisions regarding non-competition, confidentiality of information and assignment of inventions.

        We have entered into a written employment agreement with our Executive Vice President, Multiple Sclerosis/Neurology and Immunology, Rupert Sandbrink who commenced working for us on March 1, 2016. Dr. Sandbrink's employment agreement contains, among other things, provisions regarding non-competition, confidentiality of information and assignment of inventions.

        We have entered into a written employment agreement with our Executive Vice President Pharmaceutical Development and Production, Andrzej Jan Stano who commenced working for us on October 19, 2015. Dr. Stano's employment agreement contains, among other things, provisions 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.

        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

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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 available for awards pursuant to the Share Plan is 3,109,384 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.

        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

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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 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. We expect that if Biogen obtains an exclusive license in the U.S., such event will be considered a change in control of the Company.

        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

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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.

        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.

        In order to provide employees, consultants and a board member of the Company with the ability to forgo exercising approximately 1.7 million warrants or share options that expired on or before January 1, 2016, or Expiring Awards, (i) our board of directors, during the period from January 2015 to April 2015, approved the granting of 1,364,870 share options or warrants, or Replacement Awards, to replace 1,404,980 Expiring Awards and (ii) our shareholders, at our ordinary general meeting in April 2015, approved the extension of the period during which holders may exercise 333,720 Expiring Awards, or Extended Awards. Further, in order to incentivize holders of Expiring Awards to remain engaged with us, our board of directors, during the period from January 2015 to April 2015, approved the granting of additional share options or warrants to holders of Expiring Awards to subscribe for an aggregate of 361,767 ordinary shares, 22,285 of which are at an exercise price of DKK 160.88, and the balance of which are at an exercise price of $30.54, or Additional Awards. The Replacement Awards have substantially similar terms as the Expiring Awards, except the expiration date for 84,670 Replacement Awards was extended to March 2017, the expiration date for 22,285 Replacement Awards was extended to December 2020, and the expiration date for the balance of the Replacement Awards was extended to March 2021. The expiration date for 166,860 of the Extended Awards was extended to June 2018, while the expiration date for the balance of the Extended Awards was extended to November 2018. If individual holders exercise their Expiring Awards, then the Replacement Awards and the Additional Awards held by such holders provide for immediate expiration and cancellation of such Replacement Awards and the Additional Awards for no compensation. Replacement Awards have the same exercise prices as Expiring Awards ranging from $0.67 to $1.43 per share. Replacement Awards are fully vested on the date of grant while Additional Awards vest over a period of three years. Replacement Awards and Additional Awards cannot be exercised prior to March 2018; however, Replacement Awards and Additional Awards vest and can be exercised immediately in the event there is a change in control, as defined in the award agreements. We granted 153,140 of the Replacement Awards and Additional Awards under the Share Plan. The remaining Replacement Awards and

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Additional Awards, totaling 1.6 million, were granted outside the Share Plan but are governed in all respects as if they were awarded under the Share Plan.

        Andrzej Jan Stano Deferred Share Award.    On October 19, 2015, we granted Andrzej Jan Stano a deferred share award with respect to 5,000 ordinary shares under the Share Plan. The deferred shares became fully exercisable on July 31, 2016.

        Jan G. J. van de Winkel Grant of Warrants.    On August 13, 2014, upon his election as one of our directors, we granted Jan G. J. van de Winkel warrants to subscribe for Class A shares, which converted upon the consummation of our initial public offering into warrants to purchase 89,140 ordinary shares at an exercise price of DKK 64.954 per share. Subject to Dr. van de Winkel's continued service as a director, the warrants will vest and become exercisable in equal monthly installments over a period of four years from the date of issuance of the warrants. Subject to Dr. van de Winkel's continuing service as a director, the warrants will become vested and exercisable with respect to 100% of the underlying ordinary shares immediately prior to a change in control of the Company. The warrants will expire on the fifth anniversary of their issuance date.

        Thomas Carbone Share Option Award.    Upon the consummation of our initial public offering, we granted Thomas Carbone a non-qualified option under the Share Plan to subscribe for 80,230 ordinary shares at an exercise price per share of $21.00. The share option became exercisable with respect to 25% of the shares on each of August 18, 2015 and 2016, and, subject to Mr. Carbone's continuing employment by Forward Pharma USA, LLC, will vest and become exercisable with respect to an additional 25% of the underlying ordinary shares on each of August 18, 2017 and 2018. Subject to Mr. Carbone's continuing employment, the share option will become vested and exercisable with respect to 100% of the underlying ordinary shares immediately prior to a change in control of the Company. The share option will expire on the tenth anniversary of the share option grant date.

        Joel Sendek Deferred Share Award.    On August 12, 2014, we granted Joel Sendek a deferred share award with respect to 31,895 deferred Class A shares under the Share Plan, which converted into a deferred share award allowing for the subscription of 568,610 ordinary shares immediately after our initial public offering. On April 13, 2015 and on July 29, 2016, 25% of the deferred shares vested and, accordingly, we issued 142,150 and 142,155 ordinary shares, respectively, to Mr. Sendek on those dates and, subject to Mr. Sendek's continuing employment by us, 25% of the deferred shares will vest and be issued to Mr. Sendek on each of July 29, 2017 and 2018. In addition, subject to Mr. Sendek's continuing employment by us, 100% of the unvested deferred shares will vest and be issued to Mr. Sendek immediately prior to a change in control. Notwithstanding the foregoing, if Mr. Sendek experiences an involuntary termination of employment within six months prior to a change in control of the Company, 100% of the unvested deferred shares will vest and be issued to Mr. Sendek immediately prior to the change in control. Pursuant to the terms of his employment agreement, Mr. Sendek will also be entitled to dividend equivalent payments on the deferred shares prior to vesting and issuance to Mr. Sendek with respect to aggregate distributions by us on ordinary shares, which dividend equivalent payments will be paid to Mr. Sendek on the earliest to occur of (i) July 29, 2018; (ii) the date of Mr. Sendek's termination of employment; and (iii) the date of a change in control of the Company.

        Joel Sendek Share Option Award.    Upon the consummation of our initial public offering, we granted Mr. Sendek a non-qualified option under the Share Plan to subscribe for 379,450 ordinary shares at an exercise price per share of $21.00. The share option became exercisable with respect to 25% of the shares on April 13, 2015, an additional 25% of the shares on July 29, 2016, and, subject to Mr. Sendek's continuing employment by us, will become exercisable with respect to an additional 25% of the underlying ordinary shares on each of July 29, 2017 and 2018. Subject to Mr. Sendek's continuing employment by us, the share option will vest and become exercisable with respect to 100%

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of the underlying ordinary shares immediately prior to the change in control of the Company. Notwithstanding the foregoing, if Mr. Sendek experiences an involuntary termination of employment within six months prior to a change in control, the share option will become exercisable with respect to 100% of the underlying ordinary shares immediately prior to a change in control of the Company. Pursuant to the terms of his Employment Agreement, Mr. Sendek will also be entitled to dividend equivalent payments on the underlying shares prior to his exercising the share option with respect to aggregate distributions by us on the ordinary shares in excess of $500,000,000, which dividend equivalent payments will be paid to Mr. Sendek on the earliest to occur of (i) July 29, 2018; (ii) the date of Mr. Sendek's termination of employment; and (iii) the date of a change in control of the Company. The share option will expire on the tenth anniversary of the share option grant date.

        Claus Bo Svendsen Grant of Options.    Upon commencement of his employment with us in June 2015, we granted Dr. Svendsen an option to purchase 120,000 ordinary shares at an exercise price of $32.03 per share. Further, upon Dr. Svendsen's promotion to Executive Vice President in December 2016, we granted Dr. Svendsen an option to purchase 200,000 ordinary shares at an exercise price of $21.95 per share and upon Dr. Svendsen's promotion to CEO in March 2017, we granted Dr. Svendsen an option to purchase 60,000 ordinary shares at an exercise price of $27.49 per share. Subject to Dr. Svendsen's continuing employment, the options will vest with respect to 1/48th of the shares on the last day of each of the first 48 calendar months following the respective grant dates. Subject to Dr. Svendsen's continuing service as an employee, the options granted in June 2015 and December 2016 will become vested and exercisable with respect to 100% of the underlying ordinary shares immediately prior to a change in control of the Company, provided however that if such change in control occurs on or prior to May 31, 2017, only 50% of the shares underlying the warrants granted in December 2016 will become vested and exercisable. Notwithstanding the vesting provisions, the share options may only be exercised during the periods of June 1, 2019 to May 31, 2021, November 30, 2020 to November 29, 2022, and March 1, 2021 to February 28, 2023, respectively (in respect of the options granted in June 2015 and December 2016, absent a change in control of the Company). The share options will expire on the sixth anniversary of the grant date. The options granted to Dr. Svendsen were granted outside of the Share Plan but are nevertheless governed in all respects as if they were awarded under the Share Plan.

        Jakob M. Larsen and Grant H. Lawrence Grant of Options.    In connection with their election as our directors, we granted each of Mr. Larsen and Mr. Lawrence an option to purchase 89,140 ordinary shares at an exercise price of $36.85 per share. Subject to their continuing service as a director, the options will vest with respect to 1/36th of the shares on the last day of each of the first 36 calendar months following the grant date of July 1, 2015. Subject to each of Mr. Larsen's and Mr. Lawrence's continuing service as a director, the options will become vested and exercisable with respect to 100% of the underlying ordinary shares immediately prior to a change in control of the Company. Notwithstanding the vesting provisions, the share option may only be exercised during the period of July 1, 2018 to June 30, 2021 (absent a change in control of the Company). The share options will expire on the sixth anniversary of the grant date. The options granted to Mr. Larsen and Mr. Lawrence were granted outside of the Share Plan but are nevertheless governed in all respects as if they were awarded under the Share Plan.

        Rupert Sandbrink Grant of Options.    Upon commencement of his employment with us, we granted Dr. Sandbrink an option to purchase 285,269 ordinary shares at an exercise price of $12.75 per share. Subject to Dr. Sandbrink's continuing employment, the options will vest with respect to 1/48th of the shares on the last day of each of the first 48 calendar months following the grant date including March 2016. Notwithstanding the vesting provisions, the share option may only be exercised during the period of March 1, 2020 to February 28, 2022 or in connection with the termination of Dr. Sandbrink's employment with the Company. The share option will expire on the sixth anniversary of the grant date. The options granted to Dr. Sandbrink were granted outside of the Share Plan but are nevertheless governed in all respects as if they were awarded under the Share Plan.

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        Andrzej Jan Stano Grant of Options.    Upon commencement of employment with us, we granted Dr. Stano an option to purchase 140,000 ordinary shares at an exercise price of $25.52 per share. Subject to Dr. Stano's continuing employment, the options will vest with respect to 1/48th of the shares on the last day of each of the first 48 calendar months following the grant date including October 2015. Notwithstanding the vesting provisions, the share option may only be exercised during the period of October 18, 2019 to October 19, 2021 or in connection with the termination of Dr. Stano's employment with the Company. The share option will expire on the sixth anniversary of the grant date. The options granted to Dr. Stano were granted outside of the Share Plan but are nevertheless governed in all respects as if they were awarded under the Share Plan.

        Peder Møller Andersen Grant of Replacement Options and Additional Options.    On April 1, 2015, we granted Peder Møller Andersen, our Chief Operating Officer, a non-qualified option to subscribe for (i) 89,140 ordinary shares at an exercise price of DKK 5.609 per share, (ii) 333,710 ordinary shares at an exercise price of DKK 8.414 per share, and (iii) 105,713 ordinary shares at an exercise price of $30.54 per share. We granted Dr. Andersen's option as part of the warrant replacement program described above, with options to purchase an aggregate of 422,850 shares granted as a replacement for previously granted warrants that were set to expire in the near term and options to purchase 105,713 granted as additional options. As a result, the share option will immediately expire if any of the warrants we previously issued to Dr. Andersen are exercised. The portions of the share option that allow for subscription of (i) 89,140 ordinary shares at an exercise price of DKK 5.609 per share and (ii) 333,710 ordinary shares at an exercise price of DKK 8.414 per share were fully vested on the date of grant. The remaining options to purchase 105,713 ordinary shares will vest with respect to 1/36th of the shares on the last day of each of the first 36 calendar months following the grant date, subject to Dr. Andersen's continued employment by us. Notwithstanding the vesting provisions, the share option may only be exercised during the period of April 1, 2018 to March 31, 2021 or in connection with the termination of Dr. Andersen's employment with the Company. The share option will expire on the sixth anniversary of the grant date. The options granted to Dr. Andersen were granted outside of the Share Plan but are nevertheless governed in all respects as if they were awarded under the Share Plan.

Investor Warrants

        On March 17, 2014, all then-outstanding warrants held by investors were exercised as follows:

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

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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, 2016, we had 12 employees of which 9 are in Europe and three are in the U.S. Six employees hold either an M.D., D.V.M. or Ph.D. degree. None of our employees are subject to a collective bargaining agreement or represented by a trade or labor union. 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, 2017.

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

Florian Schönharting(2)

    25,823,950     54.73 %

Torsten Goesch(3)

    8,788,200     18,63 %

Jan van de Winkel(4)

    63,141     *  

Jakob M. Larsen(5)

    0     *  

Grant H. Lawrence(5)

    0     *  

Duncan Moore(6)

    0     *  

Karen Smith(7)

    0     *  

Claus Bo Svendsen(8)

    0     *  

Peder Møller Andersen(9)

    0     *  

Joel Sendek(10)

    267,909     *  

Rupert Sandbrink(11)

    0     *  

*
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, 2017 (i.e., May 31, 2017) 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, 2017, we had 47,183,999 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 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

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

(4)
Includes warrants to purchase 63,141 shares at an exercise price of DKK 64.954 per share that are currently exercisable or will be exercisable on or before May 31, 2017. These warrants expire on July 31, 2019. Excludes warrants to purchase 25,999 shares at an exercise price of DKK 64.954 per share that are not exercisable before May 31, 2017. These warrants expire on July 31, 2019.

(5)
Excludes options to purchase up to 89,140 shares at an exercise price of $36.85 per share that, if they become exercisable by continued service, may be exercised only during the period from July 1, 2018 to June 30, 2021 (absent a change in control of the Company or discontinuation of service). These options expire on June 30, 2021.

(6)
Excludes options to purchase up to 89,140 shares at an exercise price of $17.99 per share that, if they become exercisable by continued service, may be exercised only during the period from May 1, 2019 to April 30, 2022 (absent a change in control of the Company or discontinuation of service). These options expire on April 30, 2022. Also excludes 12,500 deferred shares that will not become exercisable before May 31, 2017 (absent a change in control of the Company).

(7)
Excludes options to purchase up to 89,140 shares at an exercise price of $17.99 per share that, if they become exercisable by continued service, may be exercised only during the period from May 1, 2019 to April 30, 2022 (absent a change in control of the Company or discontinuation of service). These options expire on April 30, 2022. Also excludes 25,000 deferred shares that will not become exercisable before May 31, 2017 (absent a change in control of the Company).

(8)
Excludes options to purchase 120,000 shares at an exercise price of $32.03 per share that 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 200,000 shares at an exercise price of $21.95 per share that, if 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 60,000 shares at an exercise price of $27.49 per share that, if 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).

(9)
Excludes options to purchase 333,710 shares at an exercise price of DKK 8.414 per share and 89,140 shares at an exercise price of DKK 5.609 that may be exercised only during the period April 1, 2018 to March 31, 2021 (or in connection with the termination of the employment). Further excludes options to purchase 105,713 shares at an exercise price of $30.54 per share that, if they become exercisable by continued service, may be exercised only during the period from April 1, 2018 to March 31, 2021 (or in connection with the termination of the employment). These options expire on March 31, 2021.

(10)
Includes 78,184 ADSs and options to purchase 189,725 shares at an exercise price of $21.00 per share that are currently exercisable or will be exercisable on or before May 31, 2017. These options expire on July 28, 2024. Excludes options to purchase 189,725 shares at an exercise price of $21.00 per share that are not exercisable before May 31, 2017 (absent a change in control of the Company). These options expire on July 28, 2024. Also excludes 284,305 deferred shares that will not vest before May 31, 2017 (absent a change in control of the Company).

(11)
Excludes options to purchase up to 285,269 shares at an exercise price of $12.75 per share that, if they become exercisable by continued service, may be exercised only during the period from

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    March 1, 2020 to February 28, 2022 (or in connection with the termination of the employment). These options expire on February 28, 2022.

        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 March 1, 2017, March 1, 2016 and March 1, 2015, each being the most recent practicable date before reporting for the last three fiscal years.

 
  2015   2016   2017  
Name
  # of Shares   % of issued
Shares*
  # of Shares   % of issued
Shares*
  # of Shares   % of issued
Shares*
 

Nordic Biotech K/S(1)

    12,125,340     26.07 %   12,125,340     25.87 %   12,125,340     25.70 %

Nordic Biotech Opportunity Fund K/S(1)

    10,588,990     22.77 %   10,588,990     22.59 %   10,588,990     22.44 %

NB FP Investment K/S(2)

    2,507,360     5.39 %   2,507,360     5.35 %   2,507,360     5.31 %

Rosetta Capital I, LP

    8,788,200     18.89 %   8,788,200     18.75 %   8,788,200     18.63 %

The Bank of New York Mellon(3)

    11,199,980     24.08 %   11,342,130     24.2 %   11,484,285     24.34 %

The Baupost Group, L.L.C.(4)

    5,367,300     11.54 %   5,367,300     11.45 %   5,367,300     11.38 %

*
Based on 47,183,999 ordinary shares outstanding as of April 1, 2017.

(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.

(4)
The information in the table and this note is derived from a Schedule 13G filed by The Baupost Group L.L.C., SAK Corporation and Seth A. Klarman with the SEC on November 10, 2014. Based on information contained in the Schedule 13G, 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. 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.

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        As of April 3, 2017, there were a total of 11 holders of record of our ordinary shares, including the Bank of New York Mellon who is acting as depositary bank for our ADS program. 3 holders of record of our ordinary shares had addresses in the U.S., representing 44.16% of our ordinary shares. As of April 3, 2017, there were a total of three holders of record of our ADS, all of which had addresses in the U.S.

B.  Related Party Transactions

        The following is a description of the related party transactions that we have entered into since January 1, 2016 with any of the members of our board of directors, our executive officers or our major shareholders.

Leased Premises

        We sublease our headquarters in Copenhagen, Denmark from the management company of two of our major shareholders, Nordic Biotech Advisors ApS. In 2015 and 2016, we paid DKK 558,000 (approximately $83,000) and DKK 574,000 (approximately $85,000), 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, 2016, we incurred legal expenses for services rendered by Mazanti-Andersen Korsø Jensen Law Firm LLP of DKK 9,301,000 (approximately $1,377,000). 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 consulting agreements with Duncan Moore and Karen Smith, who are members of our board of directors. 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 consulting services as requested by the Company 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 12,500 shares. 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.

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        Pursuant to the consulting agreement with Dr. Smith, Dr. Smith will act as an advisor for the chairman of the board of directors and will perform consulting services as requested by the Company from time to time. The consulting agreement with Dr. Smith expires on September 14, 2019. As compensation for the consulting services, the Company granted Dr. Smith a deferred share award with respect to 25,000 shares. The deferred shares vest over a period of four years, with 25% of the shares vesting on the first four anniversaries of September 14, 2015. In addition, subject to Dr. Smith's continuing service to the Company as a consultant, 100% of the unvested deferred shares will vest and be issued to Dr. Smith immediately prior to a change in control. Neither of Drs. Moore or Smith are entitled to any compensation under their consulting agreements other than the deferred share awards discussed above.

Additech 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.

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 the price history of our stock.

B.  Plan of Distribution

        Not applicable.

C.  Markets

        ADSs representing our ordinary shares began trading on the Nasdaq Global Select Exchange on October 15, 2014 under the symbol FWP.

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        The following table sets forth the high and low sales prices of our ADSs as reported by NASDAQ for the periods indicated:

 
  High   Low  

Quarter ended March 31, 2015

  $ 29.87   $ 20.60  

Quarter ended June 30, 2015

  $ 43.34   $ 27.37  

Quarter ended September 30, 2015

  $ 40.12   $ 21.06  

Quarter ended December 31, 2015

  $ 29.41   $ 17.52  

Year ended December 31, 2015

  $ 43.34   $ 15.75  

Quarter ended March 31, 2016

  $ 19.69   $ 11.22  

Quarter ended June 30, 2016

  $ 22.86   $ 15.63  

Quarter ended September 30, 2016

  $ 23.63   $ 17.53  

Quarter ended December 31, 2016

  $ 25.74   $ 14.89  

Year ended December 31, 2016

  $ 25.74   $ 11.22  

Quarter ended March 31, 2016

  $ 33.00   $ 15.03  

October 2016

  $ 22.39   $ 19.05  

November 2016

  $ 25.74   $ 17.85  

December 2016

  $ 21.47   $ 14.89  

January 2017

  $ 32.26   $ 15.03  

February 2017

  $ 33.00   $ 27.12  

March 2017

  $ 30.44   $ 17.00  

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:

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        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 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.

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September 2014 Shareholders' Agreement

        In connection with the consummation of our initial public offering, Nordic Biotech K/S, NBOF, NBFPI and NBFPII, 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:

Shareholder Lock-Up Agreement

        In connection with our initial public offering, we entered into lock-up agreements with certain of our existing shareholders, pursuant to which they agreed not to offer, pledge, announce the intention to sell, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise dispose of, directly or indirectly, or enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the ordinary shares or such other securities for a period of 180 days after the date of our IPO, subject to certain exceptions, without the prior written consent of the underwriters in our IPO. On April 9, 2015, the holders of our ordinary shares (except for those underlying ADSs held by our depositary) entered into a separate Shareholders' Agreement pursuant to which they agreed to voluntarily lock-up their shares for an additional 365 days beyond the expiration of the original lock-up. The lock-up agreement expired on April 12, 2016.

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 the shares or the American depositary shares.

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.

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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, 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 particular 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 as Forward Pharma A/S is an unlisted company.

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 DKK 50,600 in 2016 (for cohabiting spouses a total of DKK 101,200), and at a rate of 42% on share income over DKK 50,600 (for cohabiting spouses a total of DKK 101,200). All amounts are subject to annual adjustments, and include all share income derived by the individual or cohabiting spouses, respectively. In 2017, the sale of shares will be taxed as share income at a rate of 27% on the first DKK 51,700 (for cohabiting

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spouses a total of DKK 103,400, and at a rate of 42% on share income over DKK 51,700 (for cohabiting spouses a total of DKK 103,400).

        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.

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.

        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 2016 and 2017. 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.

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        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 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 the 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

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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 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 80 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:

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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:

        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. Subject to applicable limitations, dividends paid to certain non-corporate U.S. Holders may be taxable at

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preferential rates applicable to long-term capital gain. 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 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, 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

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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 (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

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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.

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.

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F.  Dividends and Paying Agents

        Not applicable.

G.  Statement by Experts

        Not applicable.

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. You may inspect and copy reports and other information filed with the SEC at the Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. In addition, 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.

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: market risk (including foreign exchange risk and interest rate 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' and our wholly owned subsidiary Forward Pharma FA ApS' functional currency is the DKK, our wholly owned subsidiary Forward Pharma GmbH's functional currency is the Euro, and our wholly owned subsidiary 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.

        As of December 31, 2016, we had $80.8 million that was invested in interest bearing instruments in USD, GBP or Euro denominations with maturities not exceeding two years. While we intended to structure the currencies and maturities of our investments to be consistent with our projected cash requirements, the strengthening or weakening of the USD, DKK, GBP or the Euro could have a material impact, which could be negative, on our financial position and results of operations.

        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. During the year ended December 31, 2016, we experienced a gain of approximately $598,000 resulting primarily from the strengthening of the USD compared to the DKK as Forward Pharma A/S holds investments denominated in USD and uses the DKK as its functional currency. Future changes in foreign exchange rates could impact our reported operating results and the impact could be material.

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        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, 2016 by approximately $2.9 million. 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, 2016 by a corresponding amount.

        On February 9, 2017 we received the Non-refundable Fee that, at the time, increased our USD cash position to over $1.25 billion while having material obligations payable in DKK and Euros (including income tax liabilities in Denmark and Germany.) We also plan to make a dividend, distribution, share repurchase or other return of capital to our shareholders that will be payable in Euros. Our increased cash reserves combined with material obligations payable in different currencies expose the Company to even greater risk of loss in the future caused by movements in foreign exchange rates. During February and March of 2017, to reduce our exposure to changes in foreign exchange rates, we converted $1.25 billion into 1.17 billion Euros.

Interest rate risk

        Our investment strategy is to protect principal and accordingly we invest in only highly rated financial instruments with maturities not exceeding two years. We do not use financial instruments for trading or speculative purposes and plan to hold our investments until they mature. As of December 31, 2016, the Company has invested approximately $80.8 million in debt instruments issued by the governments of Germany (denominated in Euros), Great Britain (denominated in GBP) and the U.S. (denominated in USD) (collectively "Bonds") that pay interest at fixed rates. The effective yield on the Bonds is less than 1%. Should market interest rates rise in the future, it would have a negative effect on the fair value of the Bonds, which could be material, and would result in a realized loss if a Bond was sold before maturity. As of December 31, 2016, the impact on the fair value of the Bonds of a possible increase or decrease in the interest rates would be as follows:

Denomination Currency
  Possible change   As of
December 31, 2016
 
 
   
  USD '000
 

EUR

  +/–1%-point     413  

GBP

  +/–1%-point     17  

USD

  +/–1%-point     359  

Credit Risk

        Our liquid assets are invested in government issued debt instruments of Germany, Great Britain or the U.S. with maturities of two years or less. The Company's cash and cash equivalents are held primarily at three banks in Denmark with Moody's long-term credit ratings of Aa3, Aa3 and A1, respectively. The Moody's credit rating of each of the individual governments is Aa1 or better. We do not invest in equity instruments or derivatives. We intend to hold our available-for-sale financial assets until maturity; however, it is possible that we may need to dispose of an investment before maturity that could result in material losses. Our investment criteria require preservation of capital by investing in a diversified group of highly rated debt instruments.

Liquidity Risk

        We believe that our cash, cash equivalents and available for sale financial assets held at December 31, 2016, will enable us to fund our operating expenses and capital expenditure requirements beyond the next twelve months.

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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

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

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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

A.  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 principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2016.

        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, 2016, our principal executive officer and principal financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level in timely alerting them to material information required to be included in our periodic SEC reports.

B.  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. Based on our evaluation under this framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2016.

C.  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.

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D.  Changes in Internal Control Over Financial Reporting

        There were no changes in our internal control over financial reporting during the year ended December 31, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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.

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, principal financial and principal accounting officers. 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:

 
2016 2015
 
(in thousands of USD)

Audit

$ 297 $ 348

Audit related

Total

$ 297 $ 348

        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.

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 2016, 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.

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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:

        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   English translation of Articles of Association of Forward Pharma A/S dated March 29, 2017.
        
  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 (4) Deposit Agreement between the Registrant and The Bank of New York Mellon, as depositary, dated October 14, 2014.
        
  2.3 (4) 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.
        
  2.5 (1) Convertible Loan Agreement, dated May 30, 2014, between Forward Pharma A/S and NB FP Investment II K/S.
        
  2.6 (1) Convertible Loan Agreement, dated August 6, 2014, between Forward Pharma A/S and BVF Forward Pharma L.P.
        
  2.7 (3) Stock Lending Agreement among Nordic Biotech Opportunity Fund K/S, Leerink Partners and Forward Pharma A/S, dated October 16, 2014.
        
  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 (5) Forward Pharma A/S 2014 Omnibus Equity Incentive Compensation Plan.
        
  4.6   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.

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Exhibit
Number
  Description
  4.9 (6) Form of Shareholders Commitment Agreement.
        
  8.1 (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 Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
        
  13.2   Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
        
  23.1   Consent of Ernst & Young P/S, Independent Registered Public Accounting Firm

(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 Amendment No. 4 to Registration Statement on Form F-1 (Registration No. 333-198013) filed with the SEC on October 9, 2014.

(4)
Incorporated by reference from the Registrant's Annual Report on Form 20-F filed with the SEC on March 25, 2015.

(5)
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.

(6)
Incorporated by reference from the Registrant's Current Report on Form 60K filed with the SEC on January 17, 2017.

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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 18, 2017

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Forward Pharma A/S

Index to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

    F-2  

Consolidated statement of financial position as of December 31, 2016 and 2015

    F-3  

Consolidated statement of profit or loss for the years ended December 31, 2016, 2015 and 2014

    F-4  

Consolidated statement of other comprehensive loss for the years ended December 31, 2016, 2015 and 2014

    F-5  

Consolidated statement of changes in shareholders' equity for the years ended December 31, 2016, 2015 and 2014

    F-6  

Consolidated statement of cash flows for the years ended December 31, 2016, 2015 and 2014

    F-7  

Notes to Consolidated Financial Statements

    F-8  

F-1


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Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of Forward Pharma A/S

        We have audited the accompanying consolidated statements of financial position of Forward Pharma A/S as of December 31, 2016 and 2015 and the related consolidated statements of profit or loss, other comprehensive loss, changes in shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2016. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, 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. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Forward Pharma A/S at December 31, 2016 and 2015 and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2016, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Ernst & Young P/S
Copenhagen, Denmark
April 18, 2017

F-2


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Consolidated Statement of Financial Position

as of December 31, 2016 and 2015

 
   
  December 31,  
 
  Notes   2016   2015  
 
   
  USD '000
  USD '000
 

Assets

                 

Equipment

  3.1     268     352  

Available-for-sale financial assets

  4.4         82,746  

Deferred tax, net

  2.5     23,064      

Other non-current assets

  5.2     5     5  

Total non-current assets

        23,337     83,103  

Prepayments

  3.2     656     5,048  

Income tax receivable

  2.5         158  

Other receivables

  3.3     427     689  

Available-for-sale financial assets

  4.4     80,825     41,637  

Cash and cash equivalents

        57,898     52,269  

Total current assets

        139,806     99,801  

Total assets

        163,143