Annual Report 2010 Content

Annual report 2010 Content

4 Financial highlights and ratios Vision 5 Management letter Topotarget’s vision is to become a leading European biopharmaceutical 7 Belinostat company in the field of oncology. 9 Cancer and belinostat clinical trials 11 Partnerships Mission 12 Corporate Governance We are committed to the fight against 13 Risk profile and management cancer and aspire to treat cancer patients by developing and commercializing 14 The process of accounts preparation effective therapeutics. 15 Corporate social responsibility 16 Board of Directors and Management Goal 17 Shareholder information We want to become a profitable and robust business that delivers significant 21 Financial review returns to our shareholders. 22 Statement by the Board of Directors and Executive Management

23 Independent auditors’ report

24 Income statement

25 Comprehensive income for the year

26 Balance sheet

28 Cash flow

29 Equity – Group

30 Equity – Parent

31 Notes Strategy for 2011-2012

Our strategy is aiming at making belinostat one of the most successful HDAC-inhibitors in selected indications.

• We will speed up the development of belinostat in pivotal trials in selected indications where we have reasons to believe berlinostat will have efficacy.

• Subject to potential positive trial outcomes we will seek global registrations.

• We are developing and will commercialize belinostat in North America together with our partner.

• We will continue to evaluate how we can build our commercial business in the rest of the world in order to maximize shareholder value.

Francois Martelet Chief Executive Officer 4 Financial highlights and ratios Topotarget • Annual Report 2010

Financial highlights and ratios

DKK ‘ 000 2010 2009 2008 2007 2006 Financial highlights and ratios*)

Consolidated financial highlights and ratios Revenue 129,038 43,979 43,890 44,890 45,730 Research and development costs (71,608) (89,884) (146,906) (129,111) (111,843) Write down of research and development projects (189,541) (21,200) (93,500) - - Divestiture of rights in Europe to Savene® 32,473 - - - - Sales and distribution costs (19,098) (29,136) (44,796) (57,722) (29,668) Operating loss (168,447) (132,492) (294,371) (219,801) (167,903) Net financials 68,773 (10,250) (11,737) 5,754 5,438 Net loss for the year (55,689) (140,464) (301,209) (211,600) (155,003)

Basic and diluted EPS (0,42) (1,41) (4,68) (3,92) (3,76)

Consolidated balance sheets Cash, cash equivalents and sec uritied 205,068 130,145 107,998 403,617 271,610 Equity 360,216 411,798 429,376 665,068 430,650 Total assets 465,824 585,413 619,032 834,175 476,184 Investment in tangible assets (net) (1,633) 2,016 (164) (7,965) (6,019)

Consolidated cash-flow statement Cash flows from operating activities 40,102 (99,197) (169,545) (208,933) (144,558) Cash flows from investing activities 34,686 37,861 (44,366) 25,666 116,168 Cash flow from financing activities 138 118,780 (499) 332,026 135,517

Consolidated ratios Number of fully paid shares, year-end 132,652,050 132,609,020 66,304,510 61,304,510 45,684,880 Average number of shares for the period 132,640,379 99,456,765 64,323,636 53,955,186 41,260,562 Assets/equity 1.3 1.4 1.4 1.2 1.1 Market price, year-end (DKK) 3.57 2.59 3.62 16.76 36.20 Net asset value per share (DKK) 2.73 3.11 6.48 10.85 9.43 Average number of full-time employees 50 58 109 141 98

*) Figures for 2006 include Topotarget USA, Inc. from 12 July 2006. The figures for 2007 also include Topotarget Switzerland S.A. from 27 June 2007. Finally the figures for 2008 also include Topotarget Netherlands B.V. from 1 January 2008. Topotarget • Annual Report 2010 Management letter 2010 5

Management letter 2010

2010 was a year of transition for Topotarget. endeavor by top oncology-thought lead- GOG study in ovarian cancer We streamlined the organization from a ers which is in itself a sign of strong interest The Gynecologic Oncology Group (the research standpoint. At the same time we in our drug. US), supported by the National Cancer have significantly upgraded the level of Institute (the US), initiated a two-stage capabilities by adding to the management The year began with initiation of the GOG phase II evaluation of belinostat com- key members in the field of clinical devel- (the Gynecologic Oncology Group) belino bined with carboplatin (chemotherapy) opment, business development, finance, stat phase II study in ovarian cancer, and it in platinum resistant ovarian cancer. The investor and public relations. Consequent- ended with the completion of patient re- first stage was completed on 15 November, ly, we are now prepared to focus entirely cruitment to the randomized Topotarget 2010, with the enrollment of 28 patients. on the late-stage development and sponsored phase II CUP (Cancer of Un- commercialization of our lead cancer com- known Primary, CLN-17). Belinostat in CUP pound belinostat. Topotarget is the only company to seek Topotarget also presented abstracts at global registration in CUP. Clinical progress ASCO (annual meeting of the American In 2010, we spent time on designing clini- Society of Clinical Oncology) and ASH A total of 89 patients have been enrolled cal development plans aiming at unlock- (American Society of Hematology). in the phase II randomized study, inves- ing the value of belinostat which remains tigating belinostat combined with car- one of the most promising HDACi hot tar- When the year came to a close, nearly 900 boplatin and paclitaxel. Carboplatin and get for the medical and scientific oncology patients had been exposed to belinostat paclitaxel is a first-time standard of care in community. We have been assisted in this with no safty concerns and reinforcing our CUP and we aim to evaluate the effect of expectations of the compound. adding belinostat.

We have prepared Topotarget for a As a part of the collaboration with our US partner Spectrum, Topotarget has commit- robust start to 2011 ted to fund 100% of the CUP study.

TOPOTARGET TAKE-OFF 2011

belinostat BELINOSTAT Early stage acquisitions • Optimized organisation PTCL*

Savene/Totect • Prioritized late-stage pipeline Non small cell lung cancer

Unfocused early-stage pipeline • Lean development Ovarian cancer

Basic research • US partner Cancer of Unknown Primary

Discovery platform • Clear-cut strategy New undisclosed cancer indications

Curagen in and out • Basic research closed

High burn rate, 100+ employee • Enhancement of BoD and management team Serveral cancer targets

* Peripherial T-cell lymphoma

Take-off 2011 6 Management letter 2010 Topotarget • Annual Report 2010

PTCL partner, Spectrum Pharmaceuticals Inc., The new members include Anders Belinostat is currently being evaluated in to strengthen our development activi- Vadsholt (Chief Financial Officer), Axel multiple indications and one of the key ties and unlock the commercial potential Mescheder (Chief Medical Officer), Inge clinical trials is the pivotal PTCL (periph- of belinostat in North America and India. Holm Lauritzen (VP Business Develop- eral T-cell lymphoma) study. The purpose Topotarget received an upfront payment ment and Licensing/Strategic Planning), of this study is to assess efficacy and safety of USD 30mio. The total value of the deal Elisabeth V. Carstensen (Director of Phar- of belinostat in patients with relapsed or is USD 350mio. with double digit royalties. maceutial Operations) and Annette Lykke refractory PTCL, who failed at least one (Director IR & PR). In addition, the en- prior systemic therapy. Organizational changes hancements of our board are reflecting In 2010, we changed our organization to the change of focus to a more commercial The primary study endpoint is objective achieve a more lean development struc- stage of Topotarget. response rate (ORR). Approximately 120 ture and concentrate our funding on late- patients will be enrolled. Patients will be stage clinical development of belinostat. treated with 1000 mg/m² belinostat ad- The measures included: ministered as a 30-minute infusion given daily for 5 days every 3 weeks until there • Investigating and selecting late-stage is disease progression or unmanageable indications in which we may have treatment-related toxicities. strongest chance of achieving proof of concept Our US partner Spectrum has committed to fund 100% of the PTCL study. Spectrum • Closure of basic research expects to finalize the PTCL study during 2011 followed by a NDA filing. • Prioritization of our late-stage pipeline

US partnership • Strengthening our management team In early February 2010, we concluded with several new members the commercial deal with our American

BELINOSTAT KEY CLINICAL TRIALS (TOPOTARGET OR SPECTRUM)

Study Sponsor Indication Phase I Phase II Pivotal Target Status Milestone Time

BELIEF SPPI PTCL 100-120 Recruiting NDA filing H2 2011 CLN-17 TT CUP 88 Complete Top-line results H2 2011 CLN-9 TT Solid tumor 92 Complete Scientific publ. H2 2011 CLN-9 TT Lymphoma 30 Recruiting LPFV *) H1 2011 Top-line results H2 2011 CLN-14 TT Solid + STS 55 Phase I LPFV stage I H2 2011 Phase II in Phase II Results stage I H2 2011 CLN-20 SPPI/TT Drug-Drug 24 Recruiting Top-line results H2 2011 SPI-1014 SPPI/TT NSCLC 35 Initiated FPFV **) H2 2011 Bel

*) Last Patient First Visit **) First Patient First Visit Topotarget • Annual Report 2010 Belinostat 7

Belinostat

Mode of action Belinostat belongs to a class of anti-cancer Belinostat has demonstrated synergistic activity agents, the so-called histone deacetylase when used in combination chemotherapy inhibitors (HDACi), which by enzymatic process (acetylation) works to normalize the abnormal gene function pattern char- chemotherapy and almost 900 patients The favorable safety profile for both acteristic of cancer cells. have been exposed to the drug. 15 of the intravenously and orally administered trials have been sponsored by Topotarget/ belinostat and the encouraging anti- Belinostat is a strong member of the HDA- Spectrum, the rest by independant inves- tumor activity (despite treatment of mostly Ci group since it: tigators like the National Cancer Institute, advanced and extensively pre-treated US (NCI). disease) indicates a favorable risk/benefit • Has demonstrated anti-cancer activity ratio and justifies our continued develop- against a variety of human tumors Overall, patients have experienced clinical ment of belinostat in multiple solid tumor benefit from both belinostat monotherapy and hematological malignancy indications. • Is well tolerated with only a minor or no and in combination with other anti-cancer impact on bone marrow function agents, as defined by objective responses The clinical program of recently closed or or prolonged stabilization of disease. Clini- ongoing trials include the following tumors: • Can be administered both by infusion cal benefit has been observed in patients and orally with solid tumors and hematological ma- • Lung cancer lignancies. • Ovarian cancer Clinical use • Bladder cancer Following extensive testing in the labora- In addition to monotherapy activity, • Liver cancer tory and in animal models with human tu- belinostat has also demonstrated syner- • Sarcoma mors the first-in-man clinical trial was suc- gistic activity when used in combination • Thymoma cessfully completed in 2006. Belinostat chemotherapy. • Acute leukemia has since been included in 30 clinical trials • CUP both as monotherapy and in combination • Colo-retal cancer

Indications and clinical program

The final spectrum of indications is sub- the effect of belinostat monotherapy and/or based on positive results-is now jet to data and results from the many in patients with relapsed or refractory the target for a phase II trial of the ongoing trials. Four of the options have disease. combination of belinostat with cisplatin, reached the so-called phase II trials doxorubicin and cyclophosphamide. Ovarian cancer is the target for a US • Peripheral T-cell lymphoma (PTCL) NCI /GOG sponsored study of the com- CUP comprises a group of metastatic • Ovarian cancer bination of belinostat with Carbopla- cancers where the primary primary of • Thymoma tin in patients who have already been the tumor remains unknown despite • Cancer of unknown primary (CUP) proved to be resistant to platinum, a thorough investigations. The CLN-17 in- standard agent in this disease. ternational multicenter trial compares PTCL is a highly malignant lymphoma by randomization the effect of belin- of the T-cell primary. The CLN-19 in- Thymoma was studied by the NCI in a ostat + paclitaxel + carboplatin versus ternational multicenter trial examines phase I belinostat monotherapy trial paclitaxel + carboplatin. 8 Belinostat Topotarget • Annual Report 2010

Commercial perspectives Cancer represents a significant unmet During 2010 15 scientific articles were medical need. Each year, more than 11 mil- published on belinostat lion people around the world are diagnosed with cancer. The World Health Organiza- tion (WHO) projects an increase to 16 mil- In the western world the most common forms In the years ahead a continuing trend to- lion people a year over the next 15 years. of lethal cancer are prostate cancer, breast wards more targeted cancer therapies is cancer, lung cancer, and colorectal cancer. expected. Additionally, a large number of The majority of cancer patients die within more biologically specific cancer products a short time span. Seven million people The strong growth in sales of cancer thera- will reach the market, further expanding the die from cancer every year, corresponding peutics witnessed within the past few years market for cancer therapeutics. Topotarget to 13% of all deaths. The WHO projects an is primarily due to the launch of a number considers itself a key player in the cancer increase to 10 million by 2020. of new and highly specific targetted anti- therapeutics market and expects to make cancer drugs. In 2006 the global expendi- a substantial contribution to the develop- Cancer is close to overtaking the position ture for oncology drugs was USD 44 billion, ment of more effective anti-cancer drugs. of cardiovascular diseases as the disease up from USD 12 billion in 2000 and the ex- with the highest mortality rate in the west- penditure is expected to increase to USD 65 ern world. billion by 2010 and USD 72 billion in 2012.

Trial definition

The clinical trial process information about a drug candidate’s obtained, and are intended to generate Topotarget has allocated most of its pharmacokinetics and pharmacological additional information about the drug resources on drugs in the clinical trial effects should be obtained to permit candidate’s effectiveness and safety Clinicalprocess. All benefit clinical trials has must been be con -observedthe design inof well-controlled, patients with scientifi - that is required to evaluate the over- solidducted tumors by qualified and investigators hematological in ac- cally valid, malignancies Phase 2 studies. all benefit-risk relationship of the drug cordance with Good Clinical Practice’s candidate and to provide an adequate (GCP) regulations. Clinical trials are Phase II basis for labelling. The studies may in- typically conducted in three and some- Involves clinical studies conducted to clude anything from several hundred to times four sequential phases that how- evaluate the effectiveness of the drug several thousand subjects. ever often overlap or are combined and candidate for a particular indication are as scheduled below. in patients with the disease or condi- Phase IV tion under study and to determine the Phase IV trials are undertaken after a Phase I common short-term side effects and drug has been shown to work and has The drug candidate is initially intro- risks associated with the drug candi- been granted a marketing authorisa- duced into healthy human volunteer date. These studies are typically closely tion. These trials look at drugs that are subjects or patients with the disease. monitored and conducted in a relative- already available for doctors to pre- These studies are designed to deter- ly small number of patients, usually in- scribe, rather than new drugs that are mine the safety and side effects as- volving no more than several hundred still being developed. The main reasons sociated with increasing dosages, ab- patients. for running phase IV trials are to find sorption, metabolism, distribution and out more about the side effects and excretion, pharmacologic and mecha- Phase III safety of the drug, what the long term nism of action of the drug candidate in Phase III trials are performed after pre- risks and benefits are and how well the humans, and, if possible, to gain early liminary evidence suggesting effective- drug works when it’s used more widely evidence of effectiveness. Sufficient ness of the drug candidate has been than in clinical trials. Topotarget • Annual Report 2010 Cancer and belinostat clinical trials 9

Cancer and belinostat clinical trials

Ovarian cancer Ovarian cancer is the fifth-leading cause of Ovarian cancer is a growth of abnormal cancer-related deaths among women malignant cells that begins in the ovaries (women’s reproductive glands that pro- duce egg cells). Cancer that spreads to the Ongoing belinostat trials therapy for relapsed or refractory periph- ovaries but originates from another site is The GOG/NCI 0126T study is an open-label eral T-cell lymphoma (PTCL), an indication not considered ovarian cancer. Malignant single-arm phase II trial with belinostat in which it has been granted Orphan Drug cancer cells in the ovaries can metastasize in combination with carboplatin given to and Fast Track designation by the US Food in two ways: Directly to other organs in patients with ovarian cancer. The trial is and Drug Administration (FDA). the pelvis and abdomen (the more com- sponsored by the GOG with support from mon way), or through the bloodstream or the NCI. Drug supply is sponsored by Clinical activities lymph nodes to other parts of the body. Topotarget and Spectrum. PXD101-CLN-19 is a validated pivotal open- label, multicenter, single arm efficacy and Statistics Belinostat is administered as a 30-minute safety study in patients with relapsed or Ovarian cancer is the fifth-leading cause daily intravenous infusion on days 1-5, car- refractory peripheral T-cell lymphoma of cancer-related deaths among women. boplatin is administered on day 3. Treat- who have failed at least one prior systemic ment is given every 3rd week and repeated therapy. Approximately 120 patients will In 2010 more than 21,000 American and until disease progression. be enrolled. Patients will be treated with around 15,000 European women are di- 1000 mg/m² belinostat administered as a agnosed with ovarian cancer, and about The phase II trial consists of 2 stages: in the 30 minute IV infusion on days 1-5 of every 15,000 american women die of the disease 1st stage approximately 28 patients will be 3-week cycle until there is disease progres- every year. enrolled and analyzed. sion or unmanageable treatment-related toxicities. The primary study endpoint will Approximately 50% of all cases are diag- The primary objective of the first stage of be objective response rate. Our US partner nosed in women over the age of 50. Most the study is to provide an estimate of the Spectrum has committed to fund 100% of patients have advanced disease (and response rate. If 3 or more responses are the PTCL study. Spectrum expects to final- metastatic) at the time of presentation. First- seen, then the 2nd stage will be opened ize the PTCL study during 2011 followed by line therapy is chemotherapy (Carboplatin/ for enrollment with a target of enrolling a NDA filing. Paclitaxel). up to 51 patients in total. In an earlier trial (CLN-6) patients with As in other indications Topotarget is expect- either cutaneous or peripheral refrac- ing to clinically demonstrate that belino PTCL tory T-cell lymphoma were treated with stat works synergistic with existing thera- belinostat monotherapy. In the study 19 pies and improve the overall effect and Peripheral T-cell Lymphoma (PTCL) is a evaluable patients had PTCL. Amongst survival for patients. sub-type of non-Hodgkins lymphoma. It is these 19 patients 6 patients obtained a an aggressive, high-grade type of cancer. It response (31.6%), 2 had complete and 4 CLN-8 generally has a poor prognosis. had partial remission (Pohlman et al ASH Topotarget has conducted a phase I/II 2009). study (CLN-8). As a part of this study 35 Statistics female patients with recurrent ovarian PTCL is one of the smaller cancer indica- carcinoma including patients with plati- tion but with a high unmet medical need. num resistant tumors. The combination of In total approximately 12,000 new cases belinostat and paclitaxel and carbopla- (US, Japan and top-five in Europe) are tin proved tolerable and highly effective: each year diagnosed with PTCL and only Complete or partial remission was seen in 35% of patients are alive after 3–5 years. 43% of the patients with a progression-free survival of 1 to 23 months with a median of Our lead compound belinostat is currently 5 months. Further results are planned to in a registrational trial, under a Special be published during 2011. Protocol Assessment (SPA), as a mono- 10 Cancer and belinostat clinical trials Topotarget • Annual Report 2010

CUP Median survival for CUP patients Cancer of unknown primary are 6-9 months Cancer can begin in any organ or tissue of the body. The primary, or original, tumor is usually named by the part of the • Median survival for CUP patients are 6-9 treated patients with carcinoma of un- body or the type of tissue in which the months known primary. cancer originates. The disease can spread (metastasize) from the primary tumor and • Current first-line treatment is chemo- The randomized study has 2 arms: form metastatic tumors in other parts of therapy the body. A) belinostat combined with carboplatin In patients in whom the primary cancer is and paclitaxel (chemo) and Cancer of unknown primary (CUP) is the eventually found, the lung and pancreas B) the same chemotherapy without diagnosis when metastatic cancer is identi- are the most common primary cancer sites. belinostat. fied the cancer whereas the origin of (the CUP may also be traced to the breast, pro primary site) cannot be determined. state, colon, or rectum as the primary site. In total 89 patients have been randomized and the study has been closed for recruit- Statistics During recent years a heightened aware- ment. • About 2 to 4 percent of all cancer pa- ness for consistent and immediate mana tients have cancer whose primary site is gement of CUP patients has been emerging The purpose of the trial is to provide an es- never identified and previously CUP could be considered a timate of the hazard ratio of treatment ef- neglected disease with poor prognosis. fect, with the primary study endpoint being • The treatment for CUP depends on progression free survival (PFS). By the end many factors, including where the met- Clinical activity of 2010, Topotarget completed recruitment astatic cancer is found, what the cancer CLN-17 is an open-label, multinational, and top-line results is expected in H2 2011. cells look like under a microscope, and multicenter, randomized, comparative ef- the patient’s age and general health ficacy and safety study in previously un-

NSCLC

Non-small cell lung carcinoma (NSCLC) is year in US, Japan and Europe NSCLC is the • Holy Cross Hospital Florida (US); ex- any type of epithelial lung cancer other second largest cancer indication. Alone in pected enrollment is 28 patients treated than small cell lung carcinoma (SCLC). the US more than 150,000 patients dies with combinations therapy of belinostat, As a class, NSCLC is relatively insensitive from NSCLC every year, and we see a carboplatin, paclitaxel and bevacizum- to chemotherapy, compared to small cell promising potential for belinostat in com- ab. The study was initiated April 2010 carcinoma creating an unmet need for im- bination therapy. and is expected to be completed Janu- proved therapy to patients. ary 2013. Clinical activity When possible, patients are primarily Currently two small phase Ib/II investiga- • Topotarget and Spectrum have initiated treated by surgical resection with curative tor initiated trials are recruiting patients a trial in NSCLC, first patient has not yet intent, although chemotherapy is increas- with NSCLC and Topotarget and its partner been enrolled. The study is a phase I/II ingly being used both pre-operatively Spectrum are also active within NSCLC; maximum tolerated dose study of belin- (so-called “neo-adjuvant chemotherapy”) ostat in combination with paclitaxel and and post-operatively (“adjuvant chemo- • Herlev Hospital (Denmark): expected carboplatin given as first-line therapy therapy”). enrollment is 58 patients treated with to patients with stage IV NSCLC. In total belinostat and Erlotinib. The study was 35 patients are expected to be enrolled Statistics initiated December 2010 and is expected into this trial which is estimated to be With more than 350,000 new cases per to be completed August 2012. completed H2 2012. Topotarget • Annual Report 2010 Partnerships 11

Partnerships

Topotarget is actively seeking value- Spectrum Pharmaceuticals (2010) National Cancer Institute (NCI), adding collaborative relationships with – belinostat US – academic collaboration biotech and pharmaceutical companies to • Topotarget out-licensed North Ameri- Topotarget is party to a Clinical Trial Agree- maximize the value of the non-berlinostat can and Indian rights on belinostat to ment (CTA) with NCI (US) under which the pipeline products. Spectrum Pharmaceuticals in February NCI sponsors a number of clinical trials 2010 evaluating the activity of belinostat, either alone or in combination with other anti- • Spectrum Pharmaceuticals is responsible cancer therapies, for the treatment of solid for submitting an NDA on belinostat for and haematological cancers, e.g. ovarian the orphan drug indication of Peripheral cancer. T-Cell Lymphoma (PTCL) targeted in 2011

• Further indications such as cancer of unknown primary site (CUP), ovarian cancer and non-small cell lung cancer (NSCLC) are being considered

• Topotarget received an upfront payment of USD 30mio. and the right to receive further milestones of up to USD 320 mio. 12 Corporate Governance Topotarget • Annual Report 2010

Corporate Governance

In laying down the management princi- New Board members are given an intro- more detailed than what was previously the ples for Topotarget, the Board of Direc- duction to Topotarget and the new mem- case. The Board considers that Topotarget tors of Topotarget A/S (the “Board”) has ber and the Chairman of the Board will complies with the Recommendations, with followed the Recommendations on Cor- evaluate possibilities for development of however, the following exceptions: porate Governance (April 2010) that form qualifications. part of the disclosure requirements ap- Topotarget has, due to its size, not formally plicable to companies listed on NASDAQ Pursuant to Topotarget’s Articles of Associ- elected a deputy chairman. OMX Copenhagen A/S. ation, a maximum of 7 members can serve on the Board. Topotarget seeks to ensure The Chairman of the Board and the Chair- Openness and transparency that at least a majority of the Board mem- man of the Audit Committee, the Nomi- Topotarget’s current and future share- bers are independent of special interests. nation Committee and the Compensation holders as well as other stakeholders Committee are identical reasoned by the have different requirements in terms of All Board members are evaluated by the qualifications of the Chairman. corporate information. However, all rely entire Board on a yearly basis. Board mem- on the quality of the information avail- bers must retire after their 70th birthday. Topotarget offers share-based remunera- able. Openness and transparency are tion programs to Board members, the rea- therefore pivotal for evaluating Topotarget The Board has established a formal pro- son being that the company considers and its prospects and Topotarget seeks to cess for evaluating management, and share-based remuneration programs es- maintain an open communication through objectives are agreed in connection with sential and necessary tools to attract and company announcements, investor meet- the budgeting procedure and evaluated retain Board members with an international ings and company presentations. As a finally at year-end. experience and profile and to secure result, Topotarget’s annual report, interim alignment with the company strategy. reports and other company announce- The Board continuously discusses the ments are available in both Danish and goals and strategies and Topotarget’s abi Topotarget does not disclose remunera- English. Topotarget endeavors to ensure lity to implement the strategies and live up tion of Board members or managers at the timely convening of its general meet- to expectations. an individual level. Topotarget considers ings, allowing its shareholders and others this information to be private, and believes to consider the issues on the agenda for The Chairman of the Board has well de- that information at an individual level is of the general meeting. fined tasks, duties and responsibilities. limited value to shareholders. Among these to make sure the Board Composition of the Board members have the competencies need- A full decription can be find at our home- It is of key importance to Topotarget that ed in benefit of the company. The entire page Topotarget.com the Board comprises Board members with Board evaluates the Board composition various professional backgrounds and ex- to ensure that needed competencies are pertise in order to act as a constructive, in- at hand and ensures a transparent pro- spiring and controlling sounding board to cess on election of Board members at the the Topotarget’s management. General Assembly.

Members of the Board are elected for In 2010 the Board held 15 meetings (either terms of one year by the sharehold- in person/telephone or by way of written ers at the Annual General Meeting upon resolutions). the Board’s recommendations. Relevant knowledge and professional experience Exceptions are key parameters when recommending The Recommendations on Corporate Gov- Board members. Procedures are in place ernance were revised latest in April 2010 to avoid conflict of interest between Board resulting in a total of 78 separate recom- members’ professional duties. mendations, many of which were new or Topotarget • Annual Report 2010 Risk profile and risk management 13

Risk profile and risk management

Risk profile Foreign exchange risks • Topotarget is a professional organiza- The company is generally subject to the Topotarget is exposed to exchange rate tion which at all times seeks to keep same conditions as other enterprises in the changes in respect of the investment in informed about and comply with every pharmaceutical industry. Drug develop- Topotarget UK, Topotarget Germany and law affecting the company’s activities ment is a relatively risky business involv- Topotarget, US. For the time being the ing lengthy and costly lead times for new company will not perform currency hedging • Topotarget is dependent on contract products. There is a risk that one or more of ongoing cash flows to the subsidiaries. manufacturers for the manufactor of of Topotarget’s development programs Totect® and belinostat. The company is will not proceed as planned for technical, Interest rate risk continually exploring other options to scientific, commercial or financial reasons. The company’s cash holdings consist of alleviate the risk of supply issues. Therefore, there is a high degree of un- deposits held at call and listed securi- certainty as many compounds will never ties. The total interest rate risk is insignifi- make it through to marketing stage. The cant relative to the company’s combined below is a summary of Topotarget’s main operations. risk areas and a summary of how the company seeks to address these risks. Risk management A number of factors concerning Topotarget Development and scientific risks and its strategies contribute to reducing Generally there is a risk that a scientific the overall risks: hypothesis cannot be confirmed, that the company’s technology, including cancer • The company has developed an effec- models, is limited in its application, that tive technology with validated tumour inclusion of patients in clinical trials is models to evaluate the effect of its the insufficient and that lack of efficacy and rapeutics on cancer diseases. Topotarget unexpected, serious adverse events are has cross-disciplinary and complemen- registered on a drug. tary expert teams that continuously evaluate the results of studies with drug Risks related to the market candidates and optimise the develop- The development is influenced by the ment process company’s capability to attract relevant collaborators, by the progress of compet- • Topotarget collaborates with several ing products and technologies and by the scientific organizations and has a large capability of Topotarget to exploit market representation of medical expertise potentials. in the company itself ensuring bridge building between science and the treat- Risks related to legal requirements ment of patients Topotarget’s activities are also affected by legal requirements and changes from health authorities in several countries. Another risk is Topotarget’s ability to pro- tect itself in potential patent lawsuits or lawsuits related to commercial rights. 14 The process of accounts preparation Topotarget • Annual Report 2010

The process of accounts preparation

The overall responsibility for the company’s The annual audit and reporting process finance function and other key business control and risk management in relation comprise detailed planning of individual units and for IT security. to the financial reporting process, includ- assignments, planning meetings between ing compliance with applicable legislation Investor Relations, the Finance Depart- Risk assessment and other financial reporting regulations, ment and the external auditors. The audit At least annually, the Board of Directors rests with Topotarget’s Board of Directors and planning process is based on an ap- makes a general assessment of risks in and Management Board. proved audit strategy. relation to the financial reporting process.

Financial report process The annual report is prepared in close col- The objective of Topotarget’s internal risk The company has an Audit Committee laboration with key management person- management system is to maintain effec- consisting of members of the company’s nel and individuals from each business tive procedures for identification, monitor- Board of Directors. The Audit Committee unit. In addition, the auditors ensure that ing and reporting of such risks. This in- reviews and discusses auditing and ac- the financial statements provide a reliable cludes an assessment of IT security. counting matters with the company’s au- and true view of the company’s assets, ditors elected by the shareholders and the liabilities and financial position, ensur- As part of the risk assessment, the Board Management Board in accordance with ing that the annual report is presented in of Directors considers the risk of fraud and the audit committee’s terms of reference. accordance with the accounting policies the measures to be taken to reduce and/or adopted. eliminate such risk. Topotarget’s primary focus is to ensure that the financial statements are in accordance Control environment with relevant accounting legislation and The audit committee and subsequently other provisions and regulations and give the Board of Directors assess at least once a true and reliable view of the company’s a year, the group’s organizational struc- activities and financial position. ture, its risk of fraud as well as the exist- ence of in-house rules and guidelines. The preparation of the company’s financial reporting follows a planned structure The group’s control and risk management involving segregation of duties. systems may provide reasonable, but not absolute, assurance that misappropriation Topotarget has established internal of assets, losses and/or significant errors monthly reporting with a view to effec- and omissions in the financial reporting tively managing its financial status. The are avoided. reporting process involves analyses of deviations between actual results, business The Board of Directors and the Manage- plans and budgets and the most recently ment Board are responsible for estab- updated estimate for the financial year. lishing and approving general policies, The monthly report, including explana- procedures and controls in key areas in tion of deviations for the principal business relation to the financial reporting pro- areas, is reviewed by the Management cess. The Board of Directors approves the Board before it is distributed to the Board overall policies, procedures and controls, of Directors. which are maintained and monitored by the Management Board and key employ- The company’s statutory reports are pre- ees representing each business area. pared according to the same structure as the monthly reports. Topotarget has established policies and procedures for the key areas in relation to The quarterly reports are reviewed at an the financial reporting process, including Audit Committee meeting before they are business procedures for financial reporting approved at a Board meeting and subse- and planning, business procedures for the quently released for publication. Topotarget • Annual Report 2010 Corporate social responsibility 15

Corporate social responsibility

Topotarget is aware of its social respon- actively educates students and research- Topotarget is continuing to develop and sibilities consequent upon its being a ers (PhD’s). The company’s drugs under implement new operating standards and member of the oncology and hematology development are made available to inves- procedures to support and fulfil our obli- community and seeks to develop novel, tigators, co-operative cancer groups like gations to our employees and the working safe and effective cancer drugs that pro- Gynecology and Oncology Group (GOG) enviroment. long life and improve the quality of life for and research institutes like National Can- cancer patients. cer Institute (NCI) to ensure the full poten- Regardless our focus on social responsibil- tial and possible benefit can eventually be ity we have due to our organization cho- One of the company’s key values is to offered to patients. sen not to establish a formal policy in this behave responsibly in social and environ- respect. mental matters. In our everyday work we The company’s internal values, HR princi- deal with substances that can affect the ples and working conditions support the environment. Therefore we constantly and principles of respect for the individual and systematically focus on our routines ensur- encouragement of diversity. ing that we handle substances according to applicable rules and regulations and on Topotarget is vigilant in maintaining the improving processes to the benefit of our wellbeing of its employees by offering colleagues and the environment. on-going training and education programs and meaningful and interesting every-day Topotarget shares knowledge with aca- work. The employees are a balanced mix- demia through collaborative ventures and ture of age and also of both sexes. 16 Board of Directors and Management Topotarget • Annual Report 2010

Board of Directors and Management

Board of Directors Executive management

Bo Jesper Hansen, Ingelise Saunders Francois Martelet Chairman of the Board Degree in Pharmacy from the Royal Danish Chief Executive Officer School of Pharmacy and a Bachelor of MD and Master’s Degree in Business, MD, PhD from University of Copenhagen Commerce degree in Marketing. Dijon University, France Board member since 2009 Board member since 2004 Degree in Legal Medicine, Paris Rene Descartes University, France Executive Chairman of the Board of Swedish Chairman of the Board of Nordic Vaccine Orphan Biovitrum AB A/S Anders Fink Vadsholt Chief Financial Officer Board member CMC AB, Mipsalus Aps, Board member of Scandinavian Life M.Sc. from Copenhagen Business School Orphazyme and Zymenex A/S Science Invest AB, Evolva Holding SA, TD MBA from University of Melbourne Vaccines A/S, and aCROnordic A/S Anders Gersel Pedersen Axel Mescheder MD, PhD from University of Copenhagen Jeffrey H. Buchalter Chief Medical Officer Board member since 2001 MBA from Temple University MD from University of Kiel Board member since 2006 Deputy Chairman of Genmab A/S President, CEO, and board member of Board member of ALK Abelló and Bavarian Archimedes Pharma Limited Nordic Per Samuelsson Anker Lundemose M.Sc. from Institute of Technology in MD, PhD from University of Aarhus Linköping Board member since 2010 Board member since 2009 Advisor to LD Invest Board member of Algeta ASA, Biostratum Inc., Cardoz AB, Nordic Vision Clinics AS, Oncos Therapeutics Oy, and Optivy AB

Shares Warrants 2010 2009 2010 2009

Board of Directors Bo Jesper Hansen 300,000 - 50,000 - Anders Gersel Pedersen 5,000 5,000 129,097 104,097 Anker Lundemose 25,000 - 25,000 - Ingelise Saunders 25,000 - 108,278 83,278 Jeffrey H. Buchalter - - 129,097 104,097 Per Samuelsson - - - -

Executive Management “Francois Martelet - - 800,000 - “Anders Fink Vadsholt“ 25,000 - 200,000 - Axel Mescheder - - 180,000 - Topotarget • Annual Report 2010 Shareholder information 17

Shareholder information

Topotarget’s shares were listed on the registered shareholders, who held 55.4% of company that is deemed important to the Copenhagen Stock Exchange (now NASDAQ the share capital compared to 8682 reg- pricing of its shares. The company will also OMX Copenhagen) in June 2005 under istered shareholders at the end of 2009. publish quarterly reports on the com- the securities/ISIN code DK0060003556 pany’s development, including relevant and the trading symbol TOPO. The com- At 31 December 2010, the company’s 12 financial information. Topotarget also pany’s Reuters symbol is TOPO.CO and its largest shareholders held 31% of the total observes so-called ‘quiet periods’ before Bloomberg symbol is TOPO DC. Trading of share capital, and the following investors the publication of each company financial the company’s shares commenced on 10 have informed Topotarget that they hold report. During these periods, the company June 2005. more than 5% of the shares: will refrain from holding investor and ana- lyst meetings or meetings with the media. The closing price for our shares on 31 De- • HealthCap funds The company maintains an insider register cember 2010 was DKK 3.57 which was a • Avanza and will publish any changes to certain increase of 38% on the company’s share insiders’ shareholdings in accordance with price of DKK 2.59 at year-end 2009. IR Policy, goals and activities the rules that apply for NASDAQ OMX Co- Topotarget A/S aims to maintain an open penhagen. Such publication will be made The average daily trading volume for and continuous dialogue with existing and immediately after the transaction. the company’s shares in 2010 was DKK potential shareholders, other stakehold- 0.8mio. ers and the general public. The company Topotarget has also adopted in-house strives to provide transparent communica- rules, which stipulate that insiders may At 31 December 2010, Topotarget’s share tion with equal access for all stakehold- only purchase and sell shares in the com- capital was DKK 132,652,050 correspond- ers and to this end, maintains a dedicated pany during a period of six weeks after the ing to 132,652,050 shares of DKK 1 nominal Investor and Public Relations department. company’s publication of interim financial value. The company has only one class of With open communication, the company statements. shares and all shares have equal rights. aims to ensure fair pricing of the compa- Topotarget’s Articles of Association do not ny’s shares in order to reflect the compa- Any information published by the company contain provisions on limitations of own- ny’s willingness to generate higher earn- will be published in full accordance with ership or voting rights for each individual ings to its shareholders. disclosure requirements under Danish law shareholder. and all announcements are posted on the In compliance with the disclosure require- company’s website www.topotarget.com Ownership structure ments of NASDAQ OMX Copenhagen, At 31 December 2010, Topotarget had 9136 Topotarget will publish information on the

TOPOTARGET AND OTHERS SHARE PERFORMANCE 2010

10 Topotarget A/S (DK Listing) Affitech A/S (Ordinary Rebase d) 8 LifeCycle Pharma A/S (Listing Rebased) NeuroSearch A/S (Ordinary Rebased) 6 Bavarian Nordic A/S (Ordinary Rebased) Genmab A/S (Ordinary Rebased) 4

0 jan feb mar apr may jun jul aug sep oct nov dec 18 Shareholder information Topotarget • Annual Report 2010

Announcements and investor news 2010 Announcements 6 January Belinostat phase II trial in platinum-resistant ovarian cancer by GOG supported by the National Cancer Institute (US) 2 February Topotarget signs deal with potential value of USD 350mio. with Spectrum Pharmaceuticals for the development and commercialisation of belinostat in North America and India 3 February Major shareholder announcement 11 February Change in Topotarget’s pre-tax loss guidance for the 2009 year to a range of DKK 120-130mio. from earlier DKK 140-160mio. 23 February Topotarget announces new CEO to prepare commercialisation of belinostat 2 March Topotarget announces the European divestiture of Savene® to SpePharm Holding, BV and reconfirms the focus to develop and commercialise belinostat 19 March Initiation of phase I/II study of belinostat first line in combination for thymic malignancies 25 March Topotarget announces financial results for the year ended December 31, 2009 26 March Topotarget issues warrants to Executive Management 7 April Topotarget appoints Anders Fink Vadsholt as new CFO & Head of IR 7 April Notice to convene Annual General Meeting 9 April Topotarget increases its share capital by 0.03% as a result of employee warrant exercise 13 April Topotarget designates Professor Jean-Louis Misset as Chairman of its Global Medical and Scientific Advisory Board 19 April Major shareholder announcement 19 April Major shareholder announcement 22 April Topotarget announces financial guidance 2010 22 April Passing on Topotarget A/S Annual General Meeting 30 April Disclosure obligation concerning share capital and voting rights at 30 April 2010 20 May Interim report for the period 1 January to 31 March 2010 21 May Topotarget announces belinostat abstract at the 2010 annual meeting of the American Society of Clinical Oncology 25 May Report pursuant to the Danish Securities Trading Act, Section §28a 11 June Initiation of phase I study of belinostat in combination with Bortezomid for relapsed or refractory acute leukemia or myelodysplastic syndromes (MDS) 9 July Topotarget issues warrants to employees, management and the Board of Directors 19 August Topotarget announces the interim report for the period 1 January to 30 June 2010 17 September Report pursuant to the Danish Securities Trading Act, Section 28a 15 November First stage accrual of a belinostat phase II trial in platinum-resistant ovarian cancer by the Gynecologic Oncology Group (GOG) completed 17 November Belinostat abstracts to be presented at ASH 17 November Topotarget A/S adds two senior managers 18 November Topotarget announces the interim report for the period 1 January to 30 September 2010 9 December Initiation of phase I study of belinostat in combination with warfarin 22 December Topotarget publishes financial calendar for 2011 23 December Recruitment into the first randomized, controlled Phase II belinostat trial for patients with the solid tumor indication, cancer of unknown primary (CUP) has been completed 29 December Phase I/II belinostat and Tarceva® trial in patients with non-small cell lung cancer has enrolled first patient

Topotarget • Annual Report 2010 Shareholder information 19

Investor news 4 February Topotarget partner, Spectrum Pharmaceuticals, to host conference call Thursday 4 February 2010 at 19.00 CET (1:00 pm EST/10:00 am PST) 23 March Topotarget announces the time and date for the telephone conference related to the publishing of the annual report 2009 21 April Belinostat data presentation at 101st annual meeting of the American Association of Cancer Research 18 May Topotarget announces the date for the Q1 2010 interim report and a related telephone conference 13 August Topotarget announces the date for the H1 2010 interim report and a related telephone conference 15 November Topotarget announces the date for the Q3 2010 interim report and a related telephone conference 14 December Topotarget appoints Annette Lykke as new Director of Investor and Public Relations 21 December Topotarget is now a member of European Biopharmaceutical Enterprises (EBE) 20 Shareholder information Topotarget • Annual Report 2010 Topotarget • Annual Report 2010 Financial review 21

Financial review

The annual report comprises the parent Writedown of research and development ment from Spectrum and EUR 5mio. pay- company Topotarget A/S and the 5 wholly projects acquired from 3rd parties amounted ment from SpePharm for the Savene rights. owned subsidiaries: Topotarget UK Ltd., to DKK 189.5mio. (2009 DKK 21.2mio.). For Topotarget Germany AG, Topotarget USA, a more detailed decription on the individual Non current liability is reduced from DKK Inc., Topotarget Switzerland S.A. and To- projects please see note 10. 114.7mio. to DKK 14.1mio primarily due to potarget Netherlands B.V. (the Group). the reversal of the APO milestone and de- As a consequense of the write down of the ferred tax. Current liability is increased from Unless otherwise stated, the financial re- APO projects previously recognised as li- DKK 58.9mio. to DKK 91.5mio. view is based on the Group’s consolidated ability is reversed as financial income. Fur- financial information for the year ended 31 thermore, deferred tax regarding the APO- Consolidated equity December 2010 as included in this annu- project previously recognized as liability is Equity amounted to DKK 360.2mio. (2009: al report with comparative figures for the reversed. DKK 411.8). The change in equity consists Group in 2009 in brackets. of the loss for the year of DKK 55.7mio. Profit related to divestiture of rights to and share-based payment of DKK 3.9mio. A profit before tax and before writedown Savene® was DKK 32.5mio. (2009: DKK 0). aktivities of DKK 23.3mio. (2009: loss of Consolidated cash flow DKK 121.5mio.) was recorded for the year. Sales and distribution costs were DKK Topotarget’s cash flow from operating The financial performance is in line with 19,1mio. (2009: DKK 29.1mio.). The reduc- activities for 2010 was an inflow of DKK our guidance announced at the Annual tion is primarily due to the divestiture of 76mio. (2009: out-flow DKK 99mio.). The General Meeting 22 April 2010. Savene® to SpePharm Holding, BV. on 2 Group’s 2010 cash flow from investing ac- March 2010. tivities excluding the buying and selling of The Group’s net cash and cash equiva- securities was an out-flow of DKK 1mio. lents as of 31 December 2010 totalled DKK Administrative expenses were DKK 38.8mio. (2009: inflow DKK 38mio.). The Group’s 205.0mio. (2009: DKK 130.2mio.) and eq- (2009: DKK 26.1). The increase mainly due cash flow from financing activities was an uity stood at DKK 360.2mio. (2009: DKK to restructuring and termination expenses, inflow of DKK 0,1mio. (2009: DKK 119mio.). 411.8mio). recruitment cost and investor relation activities. Comparing the actual financial Consolidated income statement Net financial income was DKK 68.8mio. performance with financial guidance Topotarget recognised revenues of DKK (2009: net expense of DKK 10.2mio.). The Group recorded a pre-tax profit, be- 129mio. in 2010 (2009: DKK 44mio.). Rev- Primarily consisting of the reversal of the fore writedown activities of certain R&D enues are primarily composed of income APO provision for debt with the amount of projects, of DKK 23.3mio. The financial of DKK 90mio. from the Spectrum upfront DKK 66.5mio. as mentioned above. performance is in line with our guidance payment of USD 30mio. as well as re announced at the Annual General Meet- venues from Totect®/Savene® sales. The tax income was DKK 44.0mio. (2009: ing 22 April 2010. 2.3mio.). and relates solely to Topotarget Production costs, which amounted to DKK Switzerland S.A. Parent company financial statements 10.9mio. (2009: DKK 10.1mio.), include The parent company recorded a loss of Topotarget personnel costs related to the Topotarget recorded a loss of DKK 55.7mio. DKK 55.7mio. (2009: DKK 140.5mio.). Spectrum collaboration agreement and (2009: DKK 140.5mio.). production of Totect®/Savene®. The 2009 The parent company’s equity amounted to numbers only include production cost for Consolidated balance sheet DKK 360.2mio. (2009: DKK 411.8mio.). The Totect®/Savene®. Total assets amounted to DKK 465.8mio. change in equity consists of the loss for (2009: DKK 585.4mio.), which primar- the year of DKK 55.7mio. and share-based Research and development costs were ily consist of acquired R&D projects, cash payment of DKK 3.9mio. DKK 71.6mio. (2009: DKK 89.9mio.) The and cash equivalents, while the Group’s li- reduction is primarily due to the Spectrum abilities mainly comprise equity and trade Treatment of profit agreement as all costs for the PTCL study payables. The Board of Directors proposes that the loss are now being funded by Spectrum. The for the year be carried forward to next year. saving is partly offset by a large increase Cash and cash equivalents were DKK in activities in the CUP phase II study spon- 205.0mio. (2009: DKK 130.2mio.). The chan sored 100% by Topotarget. ge is due to the USD 30mio. upfront pay- 22 Statement by the Board of Directors and Executive Management Topotarget • Annual Report 2010

Statement by the Board of Directors and Executive Management

The Board of Directors and Executive Man- cordance with additional Danish disclosure We also believe that the management agement today discussed and adopted the requirements for listed companies. commentary contains a fair review of the annual report for 2010 of Topotarget A/S. development in the Group’s and the Par- In our opinion the consolidated finan- ent’s business and of their financial posi- The consolidated financial statements are cial statements and the parent financial tion as a whole together with a description presented in accordance with International statements give a true and fair view of the of the principal risks and uncertainties that Financial Reporting Standards as adopted Group’s and the Parent Company´s as- they face. by the EU, and the parent financial state- sets, liabilities, and financial position at 31 ments are presented in accordance with December 2010 and of the results of the The annual report will be submitted to the the Danish Financial Statements Act. Fur- Group’s and the Parent Company´s opera- general meeting for approval. ther, the annual report is prepared in ac- tions and cash flows for the year 2010.

Copenhagen, 8 March 2011

Executive Management

Francois R. Martelet, CEO Anders F. Vadsholt, CFO

Board of Directors

Bo Jesper Hansen Jeffrey Buchalter Anders Gersel Pedersen Chairman

Ingelise Saunders Per Samuelsson Anker Lundemose Topotarget • Annual Report 2010 Independent auditors’ report 23

Independent auditors’ report

To the shareholders of Topotarget A/S and applying appropriate accounting policies, Our audit has not resulted in any qualification. and making accounting estimates that are rea- Report on the consolidated financial sonable in the circumstances. Opinion statements and parent financial In our opinion, the consolidated financial state- statements Auditor’s responsibility and basis ments give a true and fair view of the Group’s of opinion financial position at 31 December 2010, and of its We have audited the consolidated financial Our responsibility is to express an opinion on financial performance and its cash flows for the statements and parent financial statements of these consolidated financial statements and financial year 1 January - 31 December 2010 in Topotarget A/S for the financial year 1 January parent financial statements based on our au- accordance with International Financial Report- - 31 December 2010, which comprise the income dit. We conducted our audit in accordance with ing Standards as adopted by the EU and addi- statement, statement of comprehensive income, Danish and International Standards on Auditing. tional Danish disclosure requirements for listed balance sheet, statement of changes in equity Those Standards require that we comply with companies. and notes, including the accounting policies, for ethical requirements and plan and perform the the Group as well as the Parent and the con- audit to obtain reasonable assurance whether Further, in our opinion, the parent financial solidated cash flow statement and the parent the consolidated financial statements and par- statements give a true and fair view of the Par- company cash flow statement. The consolidated ent financial statements are free from material ent’s financial position at 31 December 2010, and financial statements have been prepared in ac- misstatement. of its financial performance and cash flow for cordance with International Financial Reporting the financial year 1 January - 31 December 2010 Standards as adopted by the EU, and the par- An audit involves performing procedures to ob- in accordance with the Danish Financial State- ent financial statements, have been prepared tain audit evidence about the amounts and dis- ments Act and additional Danish disclosure re- in accordance with the Danish Financial State- closures in the consolidated financial statements quirements for listed companies. ments Act. Further, the consolidated financial and parent financial statements. The procedures statements and financial statements have been selected depend on the auditor’s judgement, Statement on the management prepared in accordance with additional Danish including the assessment of the risks of mate- commentary disclosure requirements for listed companies. rial misstatement of the consolidated financial statements and parent financial statements, Management is responsible for preparing a Management’s responsibility for the whether due to fraud or error. In making those management commentary that contains a fair consolidated financial statements and risk assessments, the auditor considers internal review in accordance with the Danish Financial parent financial statements control relevant to the entity’s preparation and Statements Act. Management is responsible for the preparation fair presentation of consolidated financial state- and fair presentation of consolidated financial ments and parent financial statements in order Our audit did not include the management statements and parent financial statements in to design audit procedures that are appropriate commentary, but we have read it pursuant to accordance with International Financial Report- in the circumstances, but not for the purpose the Danish Financial Statements Act. We did ing Standards as adopted by the EU in respect of expressing an opinion on the effectiveness not perform any procedures other than those of the consolidated financial statements, and of the entity’s internal control. An audit also performed during the audit of the consolidated in accordance with the Danish Financial State- includes evaluating the appropriateness of ac- financial statements and parent financial statements Act in respect of the parent financial counting policies used and the reasonableness ments. statements, and additional Danish disclosure of accounting estimates made by Management, requirements for listed companies. This respon- as well as evaluating the overall presentation of Based on this, we believe that the disclosures sibility includes: designing, implementing and the consolidated financial statements and par- in the management commentary are consistent maintaining internal control relevant to the ent financial statements. with the consolidated financial statements and preparation and fair presentation of consoli- parent financial statements. dated financial statements and parent financial We believe that the audit evidence we have ob- statements that are free from material misstate- tained is sufficient and appropriate to provide a ment, whether due to fraud or error, selecting basis for our audit opinion.

Copenhagen, 8 March 2011

Deloitte Statsautoriseret Revisionsaktieselskab

Jens Sejer Pedersen Jens Rudkjær State Authorised State Authorised Public Accountant Public Accountant 24 Financial statements Topotarget • Annual Report 2010

Income statements

Group Parent DKK ’000 Note 2010 2009 2010 2009

Revenues 2,3 129,038 43,979 111,620 35,093 Production costs 4,5 (10,932) (10,125) (10,319) (7,750) Research and development costs 4,5 (71,608) (89,884) (62,546) (76,679) Writedown of research and development projects 4 (189,541) (21,200) (11,275) - Divestiture of rights in Europe to Savene® 32,473 - 32,473 - Sales and distribution costs 4,5 (19,098) (29,136) (1,788) (11,036) Administrative expenses 4,5 (38,778) (26,126) (37,181) (23,906) Operating loss (168,447) (132,492) 20,984 (84,278)

Income after tax from investments in subsidiaries 12 - - (180,780) (51,184) Financial income 6 80,863 2,483 116,056 7,913 Financial expenses 7 (12,090) (12,733) (11,950) (12,915) Loss before tax (99,674) (142,742) (55,689) (140,464)

Tax on profit/(loss) for the year 8 43,985 2,278 - - Net loss for the year (55,689) (140,464) (55,689) (140,464)

Basic and diluted EPS (DKK) 9 (0,42) (1,41) Topotarget • Annual Report 2010 Financial statements 25

Comprehensive income for the year

Group DKK ’000 Note 2010 2009

Net loss for the year (55,689) (140,464)

Total other comprehensive income (55,689) (140,464) 26 Financial statements Topotarget • Annual Report 2010

Balance sheet – assets

Group Parent DKK ’000 Note 2010 2009 2010 2009

Acquired research and development projects 235,717 431,885 208,919 226,820 Intangible assets 4,10 235,717 431,885 208,919 226,820

Other fixtures and fittings, tools and equipment 5,991 7,044 5,973 5,547 Tangible assets 4,11 5,991 7,044 5,973 5,547

Investment in subsidiaries 0 0 27,941 36,813 Receivables from subsidiaries 0 0 26,625 121,127 Other receivables 972 1,371 787 1,187 Non-current investments 12 972 1,371 55,352 159,127

Non-current assets 242,681 440,300 270,244 391,494

Inventories – raw materials 766 942 766 942 Inventories – saleable goods 859 1,002 859 1,002 Inventories 1,625 1,944 1,625 1,944

Trade receivables 13 10,666 5,490 9,488 3,710 Other receivables 4,871 1,268 4,673 1,106 Income taxes receivable 0 24 0 0 Prepayments 913 6,242 746 5,804 Receivables 16,451 13,024 14,908 10,620

Cash and cash equivalents 205,068 130,145 165,013 120,945

Current assets 223,143 145,113 181,545 133,509

Assets 465,824 585,413 451,789 525,003 Topotarget • Annual Report 2010 Financial statements 27

Balance sheet – equity and liabilities

Group Parent DKK ’000 Note 2010 2009 2010 2009

Share capital 14 132,652 132,609 132,652 132,609 Share-based payments 15 31,222 31,140 31,222 31,140 Retained earnings 196,342 248,049 196,342 248,049 Equity 360,216 411,798 360,216 411,798

Deferred tax 8 - 43,985 - - Pension liabilities 16 - 315 - - Other payables 18 14,116 70,395 14,116 70,395 Non-current liabilities 14,116 114,695 14,116 70,395

Trade payables 16,868 37,299 17,091 19,753 Deferred income 20 63,455 - 56,804 - Debt to subsidiaries - - 82 1,623 Other payables 18 11,166 21,621 3,478 21,434 Current liabilities 91,489 58,920 77,454 42,810

Liabilities 105,605 173,615 91,570 113,205

Equity and liabilities 465,824 585,413 451,789 525,003

Changes in accounting policies and critical accounting policies 1 Financial Instruments 17 Fair value of financial assets and liabilities 18 Other commitments 19 Deferred income 20 Related parties 21 Ownership 22 Fees to auditors appointed at the Annual General Meeting 26 Accounting policies 27 28 Financial statements Topotarget • Annual Report 2010

Cash flow

Group Parent DKK ’000 Note 2010 2009 2010 2009

Operating loss (168,447) (132,490) 20,982 (84,278) Reversal of share-based payments 3,969 3,793 3,056 2,039 Reversal of pension commitments (315) 207 - - Reversal of divestment of Savene® (32,473) - (32,473) - Depreciation, amortisation and impairment losses 193,102 25,735 14,996 4,751 Working capital changes 4 31,742 (2,050) 32,981 2,152 Cash flows from operating activities before interest 27,578 (104,805) 39,542 (75,336)

Interest income etc. received 14,327 1,488 20,830 7,913 Interest expenses etc. paid (1,827) (257) (1,901) (199) Refunded income taxes 24 4,377 - - Cash flows from operating activities 40,102 (99,197) 58,471 (67,622)

Purchase of tangible assets (3,746) (97) (3,747) (94) Sale of tangible assets 2,113 2,113 475 475 Capital increase in subsidiary - - (2,050) (2,367) Change of loan to subsidiary - - (45,537) (24,141) Purchase of investments 399 550 400 416 Divesture of Savene® 35,920 - 35,920 - Sale of securities - 35,295 - 35,295 Cash flow from investing activities 34,686 37,861 (14,539) 9,584

Instalment on lease commitments - (315) - (315) Proceeds from the issuance of shares 5 138 119,095 138 119,095 Cash flows from financing activities 138 118,780 138 118,780

Increase/decrease in cash and cash equivalents 74,923 57,442 44,068 60,740 Cash and cash equivalents at 1 January 130,145 72,703 120,945 60,205 Cash and cash equivalents at 31 December 205,068 130,145 165,013 120,945

Non-cash transactions 4

Cash and cash equivalents comprise: Deposit on demand and cash 205,068 30,067 165,013 20,945 Special-term deposits - 100,078 - 100,000 Total 205,068 130,145 165,013 120,945 Topotarget • Annual Report 2010 Financial statements 29

Equity – Group

Consolidated statement of changes in equity for the period 1 January to 31 December 2010

Share Number of Share based Retained shares capital payment earnings Total DKK ’000

Equity at 1 January 2010 132,609,020 132,609 31,140 248,049 411,798

Recognition of share-based payment - - 3,969 - 3,969 Reversal of expired warrants (3,858) 3,858 0 Share capital increase through warrant exercise 43,030 43 - 95 138 Net loss for the year - - - (55,689) (55,689)

Equity at 31 December 2010 132,652,050 132,652 31,251 196,313 360,216

Consolidated statement of changes in equity for the period 1 January to 31 December 2009

Equity at 1 January 2009 66,304,510 66,305 27,347 335,725 429,377

Recognition of share-based payment - - 3,793 - 3,793 Share capital increase through non-cash payment 66,304,510 66,305 - 52,788 119,093 Net loss for the year - - - (140,464) (140,464)

Equity at 31 December 2009 132,609,020 132,609 31,140 248,049 411,798

Expenses in relation to the capital increase 2 July 2009 have been deducted in Retained earnings in the amount of TDKK 13,514.

The share capital is an undistributable reserve while the other reserves are distributable for dividend purporses subjects to the provisions of the Danish Public Companies Act. 30 Financial statements Topotarget • Annual Report 2010

Equity – Parent

Parent company statement of changes in equity for the period 1 January to 31 December 2010

Share Number of Share based Retained shares capital payment earnings Total DKK ’000

Equity at 1 January 2010 132,609,020 132,609 31,140 248,049 411,798

Equity at 31 December 2010 132,652,050 132,652 31,251 196,313 360,216

The share capital is an undistributable reserve, while the other reserves are distributable for dividend purposes subject to the provisions of the Danish Public Companies Act.

Parent company statement of changes in equity for the period 1 January to 31 December 2009

Equity at 1 January 2009 66,306,510 66,304 27,347 335,725 429,376

Recognition of share-based payment - - 3,793 - 3,793 Share capital increase through non-cash payment 66,304,510 66,305 - 52,788 119,093 Net loss for the year - - - 140,464 140,464

Equity at 31 December 2009 132,609,020 132,609 31,140 248,049 411,798

Expenses in relation to the capital increase 2 July 2009 have been deducted in Retained earnings in the amount of TDKK 13,514.

The share capital is an undistributable reserve, while the other reserves are distributable for dividend purposes subject to the provisions of the Danish Public Companies Act. Topotarget • Annual Report 2010 Financial statements 31

Notes

1. Changes in accounting policies and critical accounting policies

1.a Changes in accounting policies

Basis of preparation The annual report for Topotarget including consolidated financial statements are prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted by the EU, as well as additional Danish disclosure requirements for annual reports of listed companies. Topotarget presents its financial statements in accordance with all applicable IFRS standards. The accounting policies for the Group are unchanged from 2009. The financial statements for the parent company is prepared in accordance with the Danish Financial Statements Act (reporting class D), is unchanged from 2009.

Implementation of new and revised standards and interpretations The annual report for 2010 is presented in accordance with the new and revised standards (IFRS/IAS) and interpretations (IFRIC) which apply for financial years starting on or after 1 January 2010. New standards and interpretations have not affected recognition and measurement.

Standards and interpretations which have come into force and affected disclosures • IFRS 3, “Business Combinations” and related revisions to IAS 27, “Consolidated and Separate Financial Statements” (January 2008) • IASB’s Annual Improvements to IFRSs (issued by IASB in April 2009) which among others include amendments of IFRS 2, 5, 8, IAS 7, 18, 36, 38 and IFRIC 16 • Amendments to IFRS 2, “Share-based Payment” (June 2009)

Standards and interpretations not yet in force Standards and interpretations not yet in force at the time of publishing the present annual report, have not yet taken effect and therefore have not been incorporated into the present annual report. Management believe that implementation of new and amended standards and interpretations will not affect the financial statements for 2011.

1. b Management’s significant accounting assumptions and estimates In using the Group’s accounting policies, the management is required to use judgements, estimates and assumptions concerning the carrying amount of assets and liabilities which cannot be immediately inferred from other sources. Management’s estimates are based on historical experience and other factors, including expectations of future events based on existing events. The actual outcome may differ from these estimates.

Estimates and assumptions are re-assessed in an ongoing process. Changes to accounting estimates are recognised in the reference period in which the change occurs and in future reference periods if the change affects the period in which it is made as well as subsequent reference periods.

Areas in which the Group makes significant assumptions and estimates are described below. The Group’s accounting policies are described in note 27 to the financial statements.

Revenue recognition Revenue is recognised when it is probable that future economic benefits will flow to the company and such economic benefits can be measured reliably. In addition, recognition requires that all significant risks and rewards of ownership of the rights or services included in the transaction have been transferred to the buyer. Income from agreements with multiple components and where the individual components cannot be separated is recognised over the period of the agreement. In addition, recognition requires that all significant risks and rewards of ownership of the goods or services included in the transaction have been transferred to the buyer. If all risks and returns have not been transferred, revenue is recognised as deferred income until all components of the transaction have been completed.

2 February 2010 Topotarget entered a license and cooperation agreement with Spectrum Pharmaceuticals Inc. covering development and commercialisation of belinostat. Topotarget has received an upfront payment of USD 30.0 million. According to the agreement, the initial upfront payment concerns several components, which cannot be separated. The amount is recognised over a period of 18 months commencing 2 February 2010.

Capitalisation of development costs Capitalisation of development costs requires that the development of the technology or the product in the company’s opinion has been completed, that all necessary public registration approvals and marketing approvals have been obtained, that costs can be reliably measured and that the technology or the product can be commercialized and that the future income from the product can cover, not only production, sales and distribution costs and administrative expenses, but also development costs. As none of the company’s products have obtained the status required for capitalisation, no development costs had been capitalised at 31 December 2010. 32 Financial statements Topotarget • Annual Report 2010

Notes

1. Changes in accounting policies and critical accounting policies – continued

Impairment test of acquired research and development projects The value of acquired research and development projects recognised in the balance sheet as at 31 December 2010 consist of the Belinostat programme acquired in conjunction with the acquisition of Topotarget UK in 2002 and In April 2008 Topotarget bought back the full control of belinostat from the company´s former partner CuraGen.

In the period until a marketing approval has been obtained, the acquired research and development project is tested for impairment annually. After marketing approval has been obtained, an impairment test is performed only where events or other circumstances indicate that the carrying amount may not be recoverable.

Included in the factors taken into account when testing for impairment are, among other things, expected market size and penetration thereof, the costs of development, manufacture and sales and marketing, and the risk that development will not prove successful, all of which have an effect on the value of the amount recognised. Specially for projects in early phases such assumptions include high uncertainty.

Based on inpairment test performed a write down amounting to DKK 189.5mio. has been made. Please see note 10 for further discription of the basis for the write down.

2. Revenue Group Parent DKK ’000 2010 2009 2010 2009

Sale of goods 21,212 39,708 16,237 35,053 Sale of services 8,119 3,213 6,291 40 Up-front payments 99,707 1,058 89,092 -

Total 129,038 43,979 111,620 35,093

Divestment of Savene® is recognised as a sale of an asset (investment activity) in the cash flow statement as the sale mainly includes transfer of intelectual properties. Other net asset transferred included stock and replacement guarantees at a net amount of DKK (0.2mio.) (liability). Topotarget • Annual Report 2010 Financial statements 33

Notes

3. Segment information Develop- Non- Savene/ ment distributed Totect activities activities Total DKK ’000 2010 2010 2010 2010

Revenues 21,212 105,998 1,828 129,038 Divestiture of rights in Europe to Savene® 32,473 - - 32,473 Production costs (5,490) (5,443) - (10,932) Research and development costs - (71,608) - (71,608) Writedown of research and development projects - (189,541) - (189,541) Sales and distribution costs (19,098) - - (19,098) Administrative expenses - - (38,777) (38,777) Operating loss 29,097 (160,594) (36,949) (168,445)

Financial income - - 80,863 80,863 Financial expenses - - (12,090) (12,090) Loss before tax 29,097 (160,594) 31,823 (99,672)

Tax on profit/loss for the year - 43,985 - 43,985 Net loss for the year 29,097 (116,609) 31,823 (55,689)

The Group is not relating assets or liabilities to the individual segments.

Develop- Non- Savene/ ment distributed Totect activities activities Total DKK ’000 2009 2009 2009 2009

Revenues 39,708 - 4,271 43,979 Production costs (10,125) - - (10,125) Research and development costs - (89,884) - (89,884) Writedown of research and development projects - (21,200) - (21,200) Sales and distribution costs (29,136) - - (29,136) Administrative expenses - - (26,127) (26,127) Operating loss 447 (111,084) (21,856) (132,492)

Financial income - - 2,483 2,483 Financial expenses - - (12,733) (12,733) Loss before tax 447 (111,084) 32,106 (142,742)

Tax on profit/loss for the year - 2,277 - 2,277 Net loss for the year 447 (108,806) 32,106 (140,464) 34 Financial statements Topotarget • Annual Report 2010

Notes

3. Segment information – continued

The group’s revenue is divided geographically as follows:

Revenue DKK ’000 2010 2009

Denmark 218 1,349 Europe 7,676 25,484 USA 121,144 17,146 Total 129,038 43,979

Up-front payment from Spectrum Pharmaceuticals exeeds 10% total revenue (2009: 0%).

The Group’s assets and additions to acquired research and development projects plus other fixtures and fittings, tools and equipment are divided geographically as follows: Additions to acquired research and development projects plus other fixtures and tools Assets and equipment DKK ’000 2010 2009 2010 2009

Denmark 397,225 367,095 3,747 94 Europe 65,986 211,848 0 3 USA 2,613 6,470 0 0

Total 465,824 585,413 3,747 97

4. Depreciation, amortisation and impairment Group Parent DKK ’000 Note 2010 2009 2010 2009

Acquired research- and development projects 190,416 22,700 12,150 1,500 Other fixtures and fittings, tools and equipment 4,192 4,498 3,058 3,225 Gain/loss from sale of equipment (1,507) (1,463) (212) 26

Total 193,101 25,735 14,996 4,751

Allocated by function: Production costs 875 1,500 875 1,500 Research and development costs 1,652 1,816 2,031 2,335 Writedown of research and development projects 10 189,541 21,200 11,275 - Sales and distribution costs 265 442 48 139 Administrative expenses 768 777 768 777

Total 193,101 25,735 14,996 4,751 Topotarget • Annual Report 2010 Financial statements 35

Notes

5. Staff costs Group Parent DKK ’000 2010 2009 2010 2009

Wages and salaries 48,239 41,320 37,562 31,362 Share-based payments 3,969 3,793 3,056 2,039 Pension contributions 4,787 5,240 3,678 4,416 Other social security costs 1,718 1,386 314 118

Total 58,712 51,739 44,609 37,935

Allocated by function: Production cost 5,443 - 5,443 - Research and development costs 22,151 23,907 18,252 20,639 Sales and distribution costs 11,403 16,854 1,238 7,560 Administrative expenses 19,715 10,978 19,676 9,736

Total 58,712 51,739 44,609 37,935

Remuneration to Board of Directors* 2,067 2,256 1,918 2,256 Remuneration to Management*,** 12,194 2,722 12,194 2,722

Average number of employees 50 58 40 47

* Of this share-based payments to Board of Directors, TDKK 278 and Management, TDKK 879 in 2010 and to Board of Directors, TDKK 643 and Management, TDKK 318 in 2009. ** The figure includes compensation to the current CEO and CFO TDKK 4,125 while the remaining amount relates to compensation and severance payment to former CEO.

Share-based payments please see note 15

6. Financial income Financial income from subsidiaries - - 7,161 6,213 Exchange rate adjustment of payables and receivables in foreign currencies 11,678 995 40,987 - Financial income from securities and bank deposits 1,392 1,488 1,366 1,700 Writedown net of potential debt. 67,793 - 66,542 -

Total financial income 80,863 2,483 116,056 7,913

According to note 10 a write down of APO projects and Zemap project in Topotarget Switzerland S.A. and Topotarget Germany A.G. have been made. As a consequence of the write down of the APO and Zemap projects the capitalized potential debt and milestone payments previously recognized as a liability are reversed as financial income.

7. Financial expenses Exchange rate adjustment of payables and receivables in foreign currencies (1,836) - (1,900) (184) Amortisation of debt concerning milestone payment (10,150) (12,717) (10,050) (12,717) Other financial expenses (104) (17) - (14)

Total financial expenses (12,090) (12,734) (11,950) (12,915) 36 Financial statements Topotarget • Annual Report 2010

Notes

8. Tax on loss for the year Group Parent DKK ’000 2010 2009 2010 2009

Current tax - - - - Adjustment of deferred tax (43,985) (2,278) - -

Tax on loss for the year (43,985) (2,278) - -

Deferred tax asset, net 265,435 205,542 119,627 127,104

Deductible temporary differences are attributable to the following terms: Intangible assets (111,807) (327,013) (91,550) (77,054) Property, plant and equipment 25,966 22,652 16,607 13,762 Other temporary differences 52,546 (4,258) 52,546 (4,258) Tax losses carried forward 992,561 1,040,353 468,905 575,965

Total 959,262 731,734 446,508 508,415

Tax asset, net 265,435 205,542 111,627 127,104

Deducted liability related to intangible assets - 43,985 - -

Tax asset, not recognised, gross 265,435 249,527 111,627 127,104

It is believed that at the present time there is not sufficient evidence that the tax asset can be utilised. It is therefore believed that capitalization does not meet the requirement for recognition of assets in accordance with the accounting policies applied

Of the consolidated loss to be carried forward, DKK 993mio., (2009: DKK 1,040mio.), DKK 202mio. (2009: DKK 192mio.) is subject to foreign local restrictions with respect to application (source-of-loss restriction)

Reconciliation of the changes for the year:

Loss for the period before tax (99,674) (142,741) (55,689) (140,464)

Calculated tax (22,003) (39,775) (13,922) (35,116)

Changes in tax losses carried forward, not recognized (8,185) 54,107 (26,765) 28,851 Changes in tax assets, not recognized (32,754) (17,725) 11,288 (7,148) Other adjustments, not recognized 18,957 1,116 29,399 13,413

Total (43,985) (2,278) - - Tax rate 44.1% 1.6% - - Topotarget • Annual Report 2010 Financial statements 37

Notes

9. Basic and diluted EPS

Basic EPS Basic EPS is calculated as the net result of the period’s continuing activities, attributed to the ordinary shares of the company divided by the weighted average number of ordinary shares.

Diluted EPS Diluted EPS is calculated as the net result of the period’s continuing activities, attributed to the ordinary shares of the company divided by the weighted average number of ordinary shares adjusted for assumed dilution effect of issued equity instruments like convertible debts and issued outstanding warrants which can be converted to ordinary shares.

As the result is a net loss, no adjustment for dilution effects has been made since these are anti-diluting.

Basic and diluted EPS are as follows: Group Parent DKK ’000 2010 2009 2010 2009

Loss for the year attributable to equity holder of the parent (55,689) (140,464) (55,689) (140,464) Weighted average number of ordinary outstanding shares 132,640,379 99,456,765 132,640,379 99,456,765 Basic and diluted EPS (0,42) (1,41) (0,42) (1,41)

10. Intangible assets

Acquired research and development projects still in progress Cost at 1 January 536,384 549,180 216,620 220,552 Adjustment of acquisition value (814) (12,796) (814) (3,933) Cost at 31 December 535,570 536,384 215,806 216,619

Amortization at 1 January (114,700) (93,500) - - Write-down of research and development projects (189,541) (21,200) (11,275) - Amortization at 31 December (304,241) (114,700) (11,275) -

Carrying amount at 31 December 231,329 421,684 204,531 216,619

Acquired research and development projects available for use Cost at 1 January 15,076 15,076 15,076 15,076 Disposals (7,500) - (7,500) - Cost at 31 December 7,576 15,076 7,576 15,076

Amortization at 1 January (4,875) (3,375) (4,875) (3,375) Amortization (875) (1,500) (875) (1,500) Amortization regarding disposals for the year 2,562 2,562 Amortization at 31 December (3,188) (4,875) (3,188) (4,875)

Carrying amount at 31 December 4,388 10,201 4,388 10,201

Total acquired research and development projects 235,717 431,885 208,919 226,820 The weighted average residual term of licenses and rights is approximately (number of years) 5,75 6,75 5,75 6,75 38 Financial statements Topotarget • Annual Report 2010

Notes

10. Intangible assets – continued

Impairment test of acquired research and development projects

The value of acquired research and development projects recognized in the balance sheet as at 31 December 2010 consist of the belinostat program acquired in conjunction with the acquisition of Topotarget UK in 2002 and in April 2008 in conjunction with the purchase from the former American partner to obtain the full control of this program.

Included in the factors taken into account when testing for impairment are, among other things, expected market size and penetration thereof, the costs of development, manufacture and sales and marketing, and the risk that development will not prove successful, all of which have an effect on the value of the amount recognized.

In June 2007 APO010, APO866 and APO200 were acquired in conjunction with the acquisition of Topotarget Switzerland S.A. APO010 and APO866 have been written down in 2010 as they did not meet their clinical endpoints although they are available for out-licensing. APO200 has, after a re-evaluation of the license terms from Baylor University and license terms to Edimer Pharmaceuticals, been written down.

Topotarget holds a world-wide and exclusive license to develop Zemab® from Novartis Pharma, Switzerland. The projects current book value has been written down in 2010 after a re-evaluation of the project.

The mTOR discovery program was acquired from BioImage in 2006. The project’s current book value has been written down after a re-evaluation of the project.

Write down in 2009 DKK 21.2mio relate to write down of some non-belinostat projects as a result of belinostat being the primary focus of the Group. Topotarget • Annual Report 2010 Financial statements 39

Notes

11. Tangible assets Group Parent DKK ’000 2010 2009 2010 2009

Other fixtures and fittings, tools and equipment Cost at 1 January 15,192 18,000 22,148 23,359 Additions 3,747 97 3,747 94 Disposals (2,653) (2,905) (1,390) (1,305) Cost at 31 December 16,286 15,192 24,505 22,148

Depreciation at 1 January (8,149) (5,906) (16,601) (14,180) Depreciation (4,193) (4,497) (3,058) (3,225) Depreciation regarding disposals for the year 2,047 2,255 1,126 804 Depreciation at 31 December (10,295) (8,148) (18,532) (16,601)

Carrying amount at 31 December 5,991 7,044 5,973 5,547

12. Non-current investments

Investments in subsidiary Cost at 1 January 466,923 473,419 Adjustment of acquisition value - (8,863) Addition through capital increase in subsidiary 2,050 2,367 Cost at 31 December 468,973 466,923

Net impairment at 1 January (430,110) (396,519) Income after tax from investments in subsidiaries (180,780) (51,184) Negative equity transferred to set off against receivables from subsidiaries 169,776 15,970 Negative equity transferred to debt to subsidiaries 82 1,623 Net impairment at 31 December (441,032) (430,110)

Value at 31 December 27,941 36,813 40 Financial statements Topotarget • Annual Report 2010

Notes

12. Non-current investments – continued Ownership interest Parent DKK ’000 2010 2009

Investments in subsidiaries comprise:

Name Topotarget UK Limited, England 100% 27,682 24,354 Topotarget Germany AG, Germany 100% 265 3,604 Topotarget USA, Inc., USA 100% (85,060) (62,761) Topotarget Switzerland S.A., Switzerland 100% (147,637) 8,766 Topotarget Netherlands B.V., The Netherlands 100% 84 89 Total equity (204,666) (25,948)

Negative equity transferred to set off against receivables from subsidiaries/debt to subsidiaries 232,607 62,761 Value at 31 December 27,941 36,813

Receivables from subsidiaries Cost at 1 January 183,525 164,391 Additions 45,537 25,222 Disposals - (6,088) Cost at 31 December 229,062 183,525

Net impairment at 1 January (62,398) (45,977) Negative equity transferred to set off against receivables from subsidiaries (169,776) (15,970) Exchange adjustments etc. 29,737 (451) Net impairment at 31 December (202,437) (62,398)

Value at 31 December 26,625 121,127

Of the receivable from subsidiaries, an amount of TDKK 0 is granted as subordinated loan capital ( 2009: TDDK 121,049). Topotarget • Annual Report 2010 Financial statements 41

Notes

12. Non-current investments – continued Group Parent DKK ’000 2010 2009 2010 2009

Other receivables

Cost at 1 January 1,371 1,923 1,187 1,603 Disposals (399) (552) (400) (416) Cost at 31 December 972 1,371 787 1,187

Net impairment at 1 January - - - - Exchange adjustments etc. - - - -

Net impairment at 31 December - - - - Value at 31 December 972 1,371 787 1,187

13. Trade receivables

Trade receivables 10,666 5,490 9,488 3,710 Provision for doubtful debts - - - - Total 10,666 5,490 9,488 3,710

The table below shows the due dates of trade receivables:

Undue 6,450 3,872 4,566 2,092 Falling due within 90 days 1,755 581 1,755 581 Falling due after more tha 90 days 2,461 1,037 3,167 1,037 Total 10,666 5,490 9,488 3,710

The average credit period for trade receivables is 121 days (2009: 80 days). The company is entitled to charge interest of 5% per annum after the due date, which is 30 days from the invoice date. Provisions are made for losses based on inability to pay. Management performs analyses on the basis of customer´s expected ability to pay, historical information about payment patterns and doubtful debtors and customer concentrations, customer creditworthiness and economic conditions in the company´s sales channels. No provision has been made for overdue accounts, as experience suggests that customers, which are primarily public sector enterprises, pay the full amount. 42 Financial statements Topotarget • Annual Report 2010

Notes

14. Share capital

The share capital consists of 132,652,050 ordinary shares of 1 DKK each. Each share carries one vote. Changes in share capital in 2009 and 2010:

Date Total DKK

Share capital 01.01.2009 66,304,510

Share issue through rights issue 02.07.2009 66,304,510 Share capital 31.12.2009 132,609,020

Share issue through warrants exercise 12.4.2010 43,030 Share capital 31.12.2010 132,652,050

15. Warrants

For the purpose of motivating and retaining employees and other associated persons, the company has established share option schemes in the form of warrants for shareholders, members of the board and employees/consultants as well as the company’s advisors.

The table below shows the extent of the individual programs that are active in the financial year or the comparative year.

Subscription period – two weeks Number Time Number Time after the release of interim Estimated exercised Outstanding Exercise of issue warrants*** of grant and annual reports fair value or expired warrants price DKK ’000

Programme 1* 2001 1,652,320 26 March 2003 or later March and August 2006-2012 and March 2013 N/A 970,798 681,523 6.1 Programme 2* 2003 1,226,976 26 March 2003 or later March and August 2006-2012 and March 2013 N/A 577,424 649,552 12.2 Programme 3** 2005, March 622,501 11 March 2005 August and November 2006, March, May, August and November 2007-2012 and March 2013 5,879 622,501 - N/A Programme 4* 2005, September 793,364 16 September August 2006 and March, and August 2007-2012 7,281 150,087 643,277 17.5 Programme 4* 2005, September 688,474 16 September 2005 March and August 2007-2012 and March 2013 6,318 95,836 592,638 17.5 Programme 5* 2006, October 299,486 4 October 2006 March and August 2008-2013 and March 2014 3,707 30,293 269,193 23.8 Programme 5* 2006, October 299,486 4 October 2006 March and August 2009-2013 and March 2014 3,707 30,293 269,193 23.8 Programme 5* 2006, October 598,972 4 October 2006 March and August 2010-2013 and March 2014 7,414 60,586 538,386 23.8 Programme 5* 2007, September 388,988 27 September 2007 March and August 2009-2014 and March 2015 4,098 74.355 314.633 17.4 Programme 5* 2007, September 388.988 27 September 2007 March and August 2010-2014 and March 2015 4,098 74.355 314.633 17.4 Programme 5* 2007, September 777,975 27 September 2007 March and August 2011-2014 and March 2015 8,196 148,710 629,265 17.4 Programme 5* 2009, January 438,041 30 January 2009 August 2010-2016 and March 2017 1,028 63,006 375,036 3.2 Programme 5* 2009, January 438,041 30 January 2009 August 2010-2016 and March 2017 1,028 63,006 375,036 3.2 Programme 5 2009, January 876,083 30 January 2009 August 2010-2016 and March 2017 2,056 126,011 750,071 3.2 Programme 5 2010, March 35,687 26 March 2010 March 2012-2014 and March 2018 40 - 35,687 5.3 Programme 5 2010, March 35,688 26 March 2010 March 2012-2014 and March 2018 40 - 35,688 5.3 Programme 5 2010, March 71,375 26 March 2010 March 2012-2014 and March 2018 80 - 71,375 5.3 Programme 5 2010, July 398,062 9 July 2010 March 2012-2014 and March 2018 291 - 398,062 3.4 Programme 5 2010, July 398,062 9 July 2010 March 2012-2014 and March 2018 291 - 398,062 3.4 Programme 5 2010, July 796,126 9 July 2010 March 2012-2014 and March 2018 581 - 796,126 3.4 Programme 5 2010, December 63,750 30 December 2010 March 2012-2014 and March 2018 52 - 63,750 3.2 Programme 5 2010, December 63,750 30 December 2010 March 2012-2014 and March 2018 52 - 63,750 3.2 Programme 5 2010, December 127,500 30 December 2010 March 2012-2014 and March 2018 103 - 127,500 3.2 Total programs 42,944 3,087,261 8,392,435

* The holders have earned complete and final rights. ** Issued in connection with company acquisitions. The holders have earned complete and final rights. *** After conversion in connection with rights issue 2 July 2009. Topotarget • Annual Report 2010 Financial statements 43

Notes

15. Warrants – continued

Under the programs, each warrant entitles the holder to subscribe for one share against cash payment of the exercise price, as illustrated in the table. The warrant program is conditional upon the warrant holder being employed with or acting as a consultant to the company or being a member of the company’s Board of Directors. Warrants subsequently vest after 12 months for 25% of the allocated warrants, after 24 months for another 25% of the allocated warrants, and the remaining 50% of the allocated warrants vest after 36 months. If an employee/consultant/board member resigns, the person in question is obliged to exercise the vested warrants in the first coming exercise period after the date of resignation.

If issuing bonus shares, the number of shares which can be subscribed in accordance with the warrants is increased proportionally and the subscription price of the shares must be reduced proportionally so that the profit potential is retained. This is also the case, if shares are issued at a price beneath the market price. The number of shares which can be subscribed must be reduced proportionally and the subscription price has to be increased proportionally if the company reduces the capital by reserves to a special fund, cf. the Danish Public Companies Act, or in cover of loss, cf. section 44 of the Act. Last time bonus shares were issued was in Spring 2004.

In the event that a decision is made to liquidate the company, to merge or demerge the company or to reduce the share capital through a subsequent disbursement, the warrant owners are entitled to exercise their warrants within 14 days.

The estimated values of warrants issued in 2010, 2009, 2007, 2006 and 2005 are calculated using the Black-Scholes model. The value is expensed on the income statement during the period in which the warrants vest.

The following assumptions provide the basis for the estimated fair values:

DKK ’000 2010 2009

Weighted average share price (DKK per share) 4.3 4.4 Weighted average exercise price (DKK per share) 3.5 4.4 Expected volatility (%) 83 55 Risk-free interest rate (%) 2.6 2.8 Expected dividend payout ratio (%) - - Period until expiry (number of years) 7 7

The expected volatility was calculated based on historic volatility of the share price of the parent company’s shares during the period from the IPO in June 2005.

Period until expiry is calculated on the basis of the most recent potential exercise of the warrant adjusted for expected termination of employment and other causes of non-exercise of the warrants. 44 Financial statements Topotarget • Annual Report 2010

Notes

15. Warrants – continued

Specification of total outstanding warrants: Weighted Weighted average average Number of exercise Number of exercise warrants prices warrants prices DKK ’000 2010 2010 2009 2009

Outstanding warrants 1 January 6,461,685 11,5 3,832,667 23,0 Granted in the financial year 1,990,000 3,5 1,272,500 4,0 Exercised in the financial year (59,250) 3,2 - - Expired in the financial year (redundancy) - - (412,406) 18,0

Outstanding warrants, 31 December 8,392,435 18,2 4,692,761 18,59

Outstanding warrants 31 December after convertion 2 July 2009 - - 6,461,685 11,48

Hereof outstanding vested warrants, 31 December 5,652,364 4,662,875

The weighted average remaining contractual maturity was 3 years at 31 December 2010 and 4 years at 31 December 2009.

There was warrants exercised in 2010 at 59,250 and (2009 nil).

The above assumptions were applied in connection with the calculation of the fair value of the warrants being vested.

The following values were recognised for the programs: Group Parent 2010 2009 2010 2009

Recognized share-based payment, equity schemes 1,529 3,793 1,414 2,039

1,529 3,793 1,414 2,039

As a part of their contract the CEO and CFO are eligible to receive up to a total of 2,700,000 warrants over a period of 3 years, each conferring a right to subscribe nominal DKK 1 share in the Company. Any grant of warrants is subject to the shareholders of the Company granting the Board of Directors authority to issue the warrants. Topotarget • Annual Report 2010 Financial statements 45

Notes

16. Pension plans

The group companies operate pension plans that are all defined contribution plans.

Under the defined contribution plans, Topotarget pays regular pension contributions to an independent pension company or similar institution and carries no risk in respect of future developments in interest rate, inflation, mortality, etc. In respect of the amount eventually to be paid to the employee.

Defined benefit plans Topotarget Switzerland S. A., operated a defined benefit plan for its employees. No employee remain at year-end 2010. Under the pension plans, employees are entitled to receive regular pension payments corressponding to a certain percentage of their end salary on retirement, provided that the employee has a defined minimum age on retirement and has been employed with the company for a minimum of years.

Costs of the defined benefit plans are recognized in the income statement as follows:

Group DKK ’000 2010 2009

Pension costs for the year - 215 Total - 215

Specification of pension obligation recognized in the balance sheet:

Present value of funded pension obligations - 3,889 Fair value of plan assets - (3,574) Unfunded pension obligations - 315 Unrecognized actuarial gains and losses - - Unrecognized pension cocsts concerning prior years - - Total - 315

The pension obligations are calculated on the basis of the following actuarial assumptions:

Average discount factor - 3.50% Expected return on plan assets - 3.80% Expected wage increases - 2.00% Expected increases in pensions - 0.25%

Specification of plan assets measured at fair value:

Shares - 21% Listed bonds - 58% Real property - 10% Other - 11% Total - 100%

None of the plan assets are related to the Group´s businesses in the form of treasury shares, rental property, loan or the like. Topotarget will not continue paying into the schemes during the coming fiscal year, since there is no longer any employees.

The most recent actuarial calculation of the pension obligations was made as at 30 June 2009 by the pension insurance company Zürich, Lausanne. 46 Financial statements Topotarget • Annual Report 2010

Notes

17. Financial instruments

Capital risk management It is Group policy to minimize financial risks. The company does not use hedging transactions. Management carefully assesses and monitors the company’s currency and interest rate exposure.

The Group manages its capital with a view to ensuring at all times that all Group entities can meet their payment obligations and give investors the best possible return on their investment through the best possible ratio of debt to equity. The Group’s overall strategy is primarily focused on belinostat.

The Group’s capital structure is composed of debt, as appears from the liabilities stated in the balance sheet with the exception of deferred tax, cash and cash equivalents and securities and equity, comprising both share capital, reserves and retained losses.

The carrying amount of financial assets and financial liabilities equals the fair value of such assets and liabilities.

Cash, cash equivalents and securities relative to equity The company is a development-stage company generating income from the sale of Totect® and from the sale of services and potential milestone payments from Spectrum Pharmaceuticals. The company has a net cash outflow.

Group management regularly reviews the company’s capital structure and, in this respect, takes into account both the price of capital and the risk related to the capital.

The company has cash and cash equivalents to fund the day-to-day cash requirements of the business. Cash, cash equivalents and securities amounted to DKK 205 million at 31 December 2010 (2009: DKK 130 million).

Significant accounting policies Note 1 to the financial statements sets out the significant accounting policies and the methods applied, including policies on recognition and measurement.

Financial instrument categories The carrying amount of each financial asset and liability is recognised in the balance sheet. The company’s financial assets include receivables and available-for-sale financial assets, while its financial liabilities include current and non-current liabilities exclusive of deferred tax.

Financial risk management areas The company monitors and reports on financial risk areas, including movements in exchange rates, interest rates and liquidity. The company does not use financial hedging instruments.

No changes were made to the Group’s risk exposure or to the way in which risks are monitored compared with 2009.

Risk management – interest rates The company is exposed to interest rate risk on marketable securities and cash on the asset side and to lease obligations and short-term loans on the liabilities side.

In its management reporting, the company quantifies the interest rate risk by calculating a change in financial results and equity in case of a 50 basis point change in interest rates. Such a change is considered to be within a likely range. Topotarget • Annual Report 2010 Financial statements 47

Notes

17. Financial instruments – continued

The company’s interest rate exposure at 31 December is stated below: Group Parent DKK ’000 2010 2009 2010 2009

Cash - demand deposit 205,068 30,067 165,013 20,945 Average interest 0.50% 0.49% 0.67% 0.67%

Cash - deposit - 100,078 - 100,000 Average interest - 1.28% 1.28% 1.28%

Total cash 205,068 130,145 165,013 120,945

Inter-company balances - - 148,159 121,127 Average interest - - 6.00% 6.00%

In case of a 50 basis point change in nominal interest rates, results and equity would be impacted by 1,025 651 825 605

The interest exposure is believed to be insignificant compared to the Group´s overall operations.

Risk management – exchange rates It is company policy to monitor exchange rate developments and, to the extent possible, to even out income and expenses in the same currency in order to reduce the overall exposure.

The company is primarily exposed to exchange rate fluctuations with respect to two areas. One of these areas represents the strategic investment in subsidiaries, while the other area relates to the company’s ongoing short-term activities. 48 Financial statements Topotarget • Annual Report 2010

Notes

17. Financial instruments – continued Group Parent DKK ’000 2010 2009 2010 2009

The company’s exposure in foreign currencies at 31 December are stated below:

Currency Payment/expiry GBP 0-12 months - 626 7 390 More than 12 months - - - - USD 0-12 months 9,016 864 32,045 61,445 More than 12 months - - - - EUR 0-12 months 802 3,241 805 2,881 More than 12 months - - - - SEK 0-12 months 250 65 250 65 More than 12 months - - - - NOK 0-12 months - 70 - 70 More than 12 months - - - - CHF 0-12 months - 1,179 147,656 121,04 More than 12 months - - - -

Total receivables 10,069 5,975 180,763 185,900

Payables: GBP 0-12 months 3,140 4,903 55 946 More than 12 months - - - - USD 0-12 months 55,163 31,387 54,215 23,600 More than 12 months 14,111 11,386 14,111 11,386 EUR 0-12 months 728 7,761 520 7,333 More than 12 months - 58,255 - 58,255 SEK 0-12 months - 148 - 148 More than 12 months - - - - CHF 0-12 months 2,325 3,925 - - More than 12 months - 1,634 - - CAD 0-12 months - - - - More than 12 months - - - - NOK 0-12 months - - - - More than 12 months - - - - THB 0-12 months - 2 - 2 More than 12 months - - - -

Total payables 75,470 119,401 68,981 101,670 Topotarget • Annual Report 2010 Financial statements 49

Notes

17. Financial instruments – continued

GBP, USD, EUR and CHF are the currencies that have the greatest impact on results and equity and, accordingly, these are the currencies reported on in-house reports to the management. Management believes that the most likely fluctuations in these currencies are restricted to a 10% range. A 10% change upwards or downwards in the exchange rate at 31 December will have the following numerical impact on results and equity figures:

DKK ’000 2010 2009 2010 2009

GBP (314) 428 5 56 USD 6,026 4,191 (3,636) 2,646 EUR (7) 6,277 (29) 6,271 CHF 232 438 14,766 290

The risk in USD has increased during 2010 as compared to 2009. This is caused by increased sales in the US and at the same time the costs have been reduced thus increasing the USD exposure.

The exchange rate exposure is believed to be insignificant compared to the Group’s overall operations.

Credit risk management The company’s credit risk relates primarily to trade receivables from the sale of Savene®/Totect®. Customers are primarily public institutions or private businesses guaranteed by a public sector enterprise.

Customer payment compliance is carefully monitored, and any late payments are followed up immediately.

The company has trade receivables with sales spread among many customers and in many territories, thereby diversifying and reducing the risk exposure.

The company finds that there are no material credit risks.

Liquidity risk management The Board of Directors is ultimately responsible for the company’s risk management. The Board of Directors has defined appropriate limits for how the company may procure adequate liquidity in the long term and in the short term to cover its ongoing activities. The company regularly monitors the liquidity requirements through renewed calculation of expected cash flows based on the cash flows realised.

All receivables and payables recognized in the balance sheet fall due within 12 months except the conditioned liabilities in relation to belinostat and APO866. Other obligations falling due after 12 months are listed in note 19. Other commitments.

50 Financial statements Topotarget • Annual Report 2010

Notes

18. Fair value of financial assets and financial liabilities

Included in the non current liabilities is the potential payment of USD 3.0 million to CuraGen (2009 USD 3.0mio.) in relation to the purchase of the full belinostat rights in April 2008. In 2009 non current liability also included APO milestone of DKK 58.3mio.

The carrying value of other financial assets and financial liabilities, is equivalent to the same assets´and liabilities´fair value.

19. Other commitments Group Parent DKK ’000 2010 2009 2010 2009

A rent agreement has been concluded with notice of termination of 6 months equivalent to 2,935 3,457 2,935 3,457 Other lease contracts 873 2,963 - - Lease commitment, operational lease 223 593 223 498 Purchase obligations - 150 - -

Total 4,031 7,163 3,158 3,955

Other obligations are due as follows: Up to one year 3,903 5,063 3,030 3,826 One to five years 128 2,100 128 128 More than five years - - - -

Total 4,031 7,163 3,158 3,955

The Parent has a obligation to secure Topotarget Switzerland S.A. in cash burn for a period 12 months after the balance sheet date.

20. Deferred income

The company signed a licens and collaboration agreement concerning research – development of the companies belinostat project. The agreement is a contract comprising of multiple componets and the amount received of DKK 162,9mio. (USD 30mio.) is recognised over a period of 18 months from 2nd February 2010. Please see note 1b. Topotarget • Annual Report 2010 Financial statements 51

Notes

21. Related parties

Related parties include the following:

Group and Parent:

Shareholders HealthCap, Stockholm, cf note 22 Avanza Bank, Stockholm, cf note 22 2010 No transactions 2009 No transactions

The company’s Board of Directors and senior management 2010 Renumeration and salaries, cf. note 5 2010 Shares and Warrants, see the table in ”Corporate Governance” and note 15 2009 Renumeration and salaries, cf. note 5 2009 Shares and Warrants, see the table in ”Corporate Governance” and note 15

Other related paties 2010 Related parties to the Board of Directors and the executive management have received remuneration of TDKK 715 and warrants of TDKK 0. 2009 Related parties to the Board of Directors and the executive management have received remuneration of TDKK 761 and warrants of TDKK 75.

For the parent company:

The subsidiary Topotarget UK Limited 2010 Intra-group balance of TDKK 25 and interest on the intra-group balance of TDKK 35 2009 Intra-group balance of TDKK 76 and interest on the intra-group balance of TDKK 395

The subsidiary Topotarget Germany AG 2010 Intra-group balance of TDKK 19 and interest on the intra-group balance of TDKK 0 2009 Intra-group balance of TDKK (261) and interest on the intra-group balance of TDKK (55)

The subsidiary Topotarget USA, Inc. 2010 Intra-group balance of TDKK 86,806 and interest on the intra-group balance of TDKK 4,170 2009 Intra-group balance of TDKK 61,445 and interest on the intra-group balance of TDKK 3,267

The subsidiary Topotarget Schwitzerland S.A. 2010 Intra-group balance of TDKK 147,656 and interest on the intra-group balance of TDKK 2,955 2009 Intra-group balance of TDKK 121,049 and interest on the intra-group balance of TDKK 2,508

The subsidiary Topotarget Netherlands B.V. 2010 Intra-group balance of TDKK (18) and interest on the intra-group balance of TDKK 1 2009 Intra-group balance of TDKK (46) and interest on the intra-group balance of TDKK (7) 52 Financial statements Topotarget • Annual Report 2010

Notes

22. Ownership Ownership

The following shareholders hold more than 5% of the company’s share capital:

- HealthCap 1999 KB, Stockholm 13,01%

The HealthCap funds, that hold shares in the company are, HealthCap 1999 KB, HealthCapKB, HealthCap 1999 GbR, HealthCap III Sidefund KB, OFCO Club III Sidefund, HealthCap IV LP, HealthCap IV BisLP, HealthCap IV KB, OFCO Club 1999 and OFCO Club IV

- Avanza Bank, Stockholm 6,3%

Insurance company Avanza Pension.

23. Working capital changes Group Parent DKK ’000 2010 2009 2010 2009

Changes in current assets (2,621) 10,292 (1,782) 5,367 Changes in current liabilities 29,120 (12,342) 31,199 (3,215)

Total 31,742 (2,050) 32,981 2,152

Changes in non-current liabilities - - - -

Total 31,742 (2,050) 32,981 2,152

24. Non-cash transactions The company has had no non-cash transactions during 2009 and 2010.

25. Proceeds from capital increases There has been no transactions in 2010. On 2 July 2009 Topotarget issued 66,304,510 new shares through a rights issue,The cash proceeds after deduction of costs related to the capital increase amounted to DKK 119,094,860. Topotarget • Annual Report 2010 Financial statements 53

Notes

26. Fees to auditors appointed at the Annual General Meeting Group Parent DKK ’000 2010 2009 2010 2009

Statutory audit services 455 470 375 400 Other assurence engagements 20 750 20 750 Tax services 0 0 0 0 Other services 593 881 480 807

Total 1,068 2,101 875 1,957

Separate audit of the Topotarget Germany AG, Topotarget S.A., Topotarget Netherland B.V., Topotarget USA, Inc. has not been carried out as the companies are not deemed material to the consolidated financial statements for 2010.

27. Accounting policies

In addition to the description in note 1, the accounting policies are as described in the following.

Consolidated financial statements The consolidated financial statements comprise the parent company and group enterprises in which the parent company is entitled to determine finance and operating policies, which normally applies for ownership interests of more than half of the voting rights.

Basis of consolidation The consolidated financial statements are prepared on the basis of the financial statements of the parent company and its subsidiaries. The consolidated financial statements are prepared by adding items of a uniform nature. On consolidation intra-group income and expenses, intra-group accounts, dividends as well as gains and losses on transactions between the consolidated enterprises are eliminated.

The financial statements used for consolidation are prepared in accordance with the Group’s accounting policies.

Acquisitions of subsidiaries are accounted for using the purchase method. Costs related to an acquisition are measured at the fair value of remuneration in the form of assets, the equity instruments granted and the liability incurred at the date of acquisition with the addition of costs directly connected to the takeover. From 1st of January 2010 costs are recognized in the income statement.

Acquired identifiable assets, liabilities and contingent liabilities in a business combination are measured on initial recognition at fair value at the acquisition date. Identifiable intangible assets are recognised if they can be separated or arise from a contractual right and the fair value can be reliably measured. Positive differences between cost and fair value of the Group’s share of the identifiable net assets are recognised as goodwill.

Newly acquired subsidiaries are consolidated at the time when the controlling influence is established in the Group.

Recognition and measurement The items included in the financial statements of each entity of the Group are measured by using the currency that best reflects the economic substance of the underlying events and conditions applicable for the entity in question. The financial statements are presented in Danish Kroner (DKK), the parent company’s and the subsidiaries’ functional currency.

On initial recognition, assets and liabilities are measured at cost. Revenue and costs, assets and liabilities are subsequently measured as described below.

The preparation of financial statements assumes the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group’s accounting policies.

Assets are recognised in the balance sheet when it is probable that future economic benefits will flow to the Group and the value of the asset can be measured reliably. 54 Financial statements Topotarget • Annual Report 2010

Notes

Liabilities are recognized in the balance sheet when the Group has a legal or constructive obligation as a result of a prior event, and it is probable that future economic benefits will flow out of the Group, and the value of the liabilities can be measured reliably.

Recognition and measurement take into consideration anticipated gains, losses and risks that arise before the time of adoption of the annual report and that confirm or invalidate matters and conditions existing at the balance sheet date.

Income is recognized in the income statement as and when earned, whereas expenses are recognized as incurred. Value adjustments of financial assets and liabilities are recognized in the income statement as financial income or financial expenses.

Foreign currency translation On initial recognition, transactions denominated in foreign currency are translated at the exchange rate ruling on the transaction date. Receivables, payables and other monetary items denominated in foreign currencies that have not been settled on the balance sheet date are translated at the exchange rates ruling at the balance sheet date. Exchange differences between the exchange rate at the date of the transaction and the exchange rate at the date of payment or the balance sheet date, respectively, are recognised in the income statement as financial income or financial expenses.

On recognition in the consolidated financial statements of foreign subsidiaries in which Danish kroner (DKK) is the functional currency but which present their financial statements in another currency, monetary assets and monetary liabilities are translated at the exchange rate at the balance sheet date. Non-monetary assets and liabilities measured based on historical cost are translated at the exchange rate at the transaction date. Non-monetary assets and liabilities measured at fair value are translated at the exchange rates at the most recent date of fair value adjustment.

Income statement items are translated at average monthly exchange rates, except for items derived from non-monetary assets and liabilities, which are translated at historical rates for the non-monetary assets and liabilities.

Income statement

Revenue Revenue comprises Savene® and Totect® sales and milestone payments and other income from research and development agreements. Revenue is recognized when it is probable that future economic benefits will flow to the company and such economic benefits can be measured reliably. Income from agreements with multiple components and where the individual components cannot be separated is recognized over the period of the agreement. In addition, recognition requires that all significant risks and rewards of ownership of the goods and services included in the transaction have been transferred to the buyer. If all risks and benefits have not been transferred, the revenue is recognized as deferred income until all components in the transaction have been completed.

Production costs Production costs comprise costs incurred to generate the revenue. Production costs comprises cost of goods sold, transport costs, cost of inventories, salaries, contributions to pension schemes, costs of share-based payments and other costs including depreciation, impairment writedown and amortization attributable to the Group’s production activities.

Research and development costs Research costs comprise salaries, contributions to pension schemes, costs of share-based payments and other costs, including patent costs, as well as depreciation and amortization attributable to the Group’s research activities. Research costs are recognised in the income statement as incurred.

Development costs comprise salaries, contributions to pension schemes, costs of share-based payments and other costs, including depreciation and amortization attributable to the Group’s development activities. Capitalization assumes that the development of the technology or the product in the Group’s opinion has been completed, that all necessary public registration and marketing approvals have been obtained, and that costs can be reliably measured. Furthermore, it has to be established that the technology or the product can be commercialized and that the future income from the product can cover, not only production costs, sales and distribution costs and administrative expenses, but also development costs.

Development costs are recognized in the income statement as incurred if the conditions for capitalization of the development costs are deemed not to be met.

Research and development costs also comprise any impairment writedown on acquired research and development projects made before the time when the project is available for use. Topotarget • Annual Report 2010 Financial statements 55

Sales and distribution costs Sales and distribution costs comprise costs incurred for the distribution of goods sold and for sales campaigns, including salaries, contributions to pension schemes for sales and distribution staff, office expenses and depreciation and other indirect costs.

Administrative expenses Administrative expenses comprise salaries, contributions to pension schemes to the management and administrative functions, office supplies as well as depreciation and amortization and other indirect costs.

Financial income and expenses These items comprise interest income and expenses, interest on capitalized milestone payments, the interest element of finance lease payments, realised gains and losses on marketable securities and realised and unrealised gains and losses on payables and transactions in foreign currencies.

Income taxes Tax for the year, consisting of the year’s current tax and movements in deferred tax, is recognized in the income statement as regards the amount that can be attributed to the profit/loss for the year and posted directly in equity as regards the amount that can be attributed to movements taken directly to equity. Current tax payable or receivable is recognized in the balance sheet as calculated tax on the taxable income for the year adjusted for prepaid tax.

The deferred tax charge is recognized and measured using the balance sheet liability method on all temporary differences between the carrying amount and the tax values of assets and liabilities. The tax value of the assets is calculated based on the planned use of each asset.

Deferred tax is measured based on the tax rules and rates in the respective countries that will apply under the legislation in force on the balance sheet date when the deferred tax asset is expected to crystallise as current tax. Changes in deferred tax resulting from changes in tax rates are recognized in the income statement.

Deferred tax assets, including the tax value of tax loss carry-forwards, are recognized at the value at which they are expected to be realized, either through a set-off against deferred tax liabilities or as net assets.

Deferred tax assets and liabilities are not recognised if the temporary difference arises on initial recognition (in cases other than in connection with a business combination) of other assets and liabilities in a transaction not affecting the results for tax or accounting purposes.

Provision is made for tax on temporary differences arising on investments in subsidiaries, unless the Group can control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not be reversed in the foreseeable future.

Segment reporting The segment information has been prepared in accordance with the Group’s accounting policies and is based on the Group’s internal management reporting.

Segment income and segment expenses comprise those items that are directly attributable to individual segments or that can be allocated to individual segments on a reasonable basis. Items not allocated primarily comprise income and expenses that are related to the Group’s administration, investment activities, income taxes etc.

The Group does not allocate assets and liabilities to the segments.

There are no transactions between the segments.

Share-based payment All warrants granted after 1 January 2005 are equity instruments that are measured at fair value at the date of grant. Where warrants are included as part of an acquisition price of a subsidiary, the value of the equity instrument is recognized together with the remaining cost, and the balancing item is taken directly to equity to the reserve for share-based payment. Where warrants are issued as incentive programs, the compensation cost is charged to the income statement of the over the period when the warrants vest. The expense is allocated to production costs, research and development costs, sales and distribution costs and administrative expenses, and the balancing item is taken directly to equity to the reserve for share-based payment. 56 Financial statements Topotarget • Annual Report 2010

The fair value is calculated using the Black&Scholes formula, taking into consideration the anticipated exercise of the warrants granted. On each balance sheet date, Topotarget estimates the anticipated number of warrants that will vest. Any change to the original estimates of number of warrants will result in a change of the expensed cost over the remaining vesting period. Prior year changes are recognized in the income statement in the year in which the change is identified.

Balance sheet

Goodwill Goodwill is the amount at which the cost of an enterprise taken over exceeds the fair value of the Group’s share of the net assets acquired at the time of the takeover.

Goodwill is tested for impairment at every balance sheet date. In the event of an impairment loss, the carrying amount of the goodwill is written down to the recoverable amount. Writedowns are recognised in the income statement.

Acquired research and development projects Costs of acquiring research and development projects are measured at cost price and recognized as intangible assets. The assets are amortised over their expected economic lives from the time when the project is ready for use (marketing approvals have been obtained). In the period until a marketing approval has been obtained, the acquired research and development project is tested for impairment annually. After marketing approval has been obtained, an impairment test is performed when events or other circumstances indicate that the carrying amount may not be recoverable.

Property, plant and equipment Other fixtures and fittings, tools and equipment as well as assets held under finance leases are measured at cost less accumulated depreciation and impairment losses.

Cost comprises the acquisition price, costs directly attributable to the acquisition, and preparation costs of the asset until the time it is ready to be put into operation. In the case of assets produced in-house, cost comprises direct and indirect costs for materials, components, third-party suppliers and labour. The cost price of assets held under finance leases is determined as the lower of the present value of future lease payments and the fair value.

The basis for depreciation is cost less estimated residual value after the end of useful life. The expected residual value is re-assessed every year. The assets are depreciated on a straight-line basis over their useful lives, which are four to ten years.

Impairment of non-current assets In the period until a marketing approval has been obtained, the acquired research and development project is tested for impairment annually. After marketing approval has been obtained, an impairment test is performed when events or other circumstances indicate that the carrying amount may not be recoverable.

The carrying amount of other intangible assets, property, plant and equipment as well as non-current asset investments is reviewed for impairment when events or changed conditions indicate that the carrying amount may not be recoverable. Where such an indication exists, an impairment test is made. An impairment loss is recognized in the amount by which the carrying amount exceeds the recoverable amount of the asset, which is the higher of the net present value and the net selling price. In order to assess the impairment, the assets are grouped on the least identifiable group of assets that generates cash flows (cash-generating units). Impairment losses are recognized in the income statement under the same items as the associated depreciation or amortization.

Investments in subsidiaries (Parent Company) Investments in subsidiaries are recognized and measured according to the equity method. This means that the investments are measured at the proportionate share of the companies’ equity value after addition or deduction of any unamortized positive or negative goodwill, respectively, and after deduction or addition of unrealized intra-group gains and losses.

The parent company’s share of the subsidiaries’ profits or losses after tax and after elimination of unrealized intra-group gains and losses and with the deduction or addition of amortization of positive, or negative, goodwill is recognized in the income statement.

Subsidiaries with a negative net asset value are recognized at DKK nil, and any receivable amount from these companies is written down, to the extent it is deemed to be irrecoverable, by the parent company’s share of the negative net asset value. Where the negative net asset value exceeds the amount receivable, the residual amount is recognized under provisions to the extent that the parent company has a legal or constructive obligation to cover the relevant company’s obligations. Topotarget • Annual Report 2010 Financial statements 57

Net revaluation of investments in subsidiaries is transferred in connection with appropriation of the profit/loss for the year to the reserve for net revaluation according to the equity method.

Acquisitions of subsidiaries are accounted for using the purchase method. See above under consolidated financial statements.

Inventories Inventories are measured at the lower of cost under the FIFO method and net realisable value.

The cost of goods for resale, raw materials and consumables includes the purchase price plus transportation costs. The cost of finished goods and work in progress comprises the cost of raw materials, consumables and other manufacturing costs incurred by a sub-supplier.

The net realisable value of inventories is calculated as the expected selling price less completion costs and costs incurred in making the sale.

Financial assets The Group and the parent company classify their financial assets in the following categories:

• Loans and receivables • Available-for-sale financial assets

Financial assets are classified according to the purpose of the acquisition. Management determines the classification on initial recognition and re-evaluates this designation at every reporting date.

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. In the balance sheet, they are classified as trade receivables, other receivables and as loans.

Available-for-sale financial assets are non-derivative financial assets and are designated as short-term securities in the balance sheet.

Trade receivables On initial recognition, trade receivables are measured at fair value and subsequently measured at amortized cost according to the effective interest method less provision for impairment based on an individual assessment.

Other receivables On initial recognition, other receivables are measured at fair value and subsequently measured at amortized cost according to the effective interest method less writedowns for losses.

Prepayments Prepayments comprise incurred costs relating to subsequent financial years. Prepayments are measured at amortized cost, which usually corresponds to the nominal value.

Short-term securities The securities are easily negotiable in the established markets. Short-term securities are classified as “available for sale”. Fair value equals the market price. Upon a sale, cost is measured according to the FIFO principle. Realised gains and losses (including realized exchange rate gains and losses) are recognized in the income statement as financial items. Unrealized gains and losses (including unrealized exchange rate gains and losses) are recognized directly in equity. Transactions are recognized on the trade date.

Cash Cash comprises cash holdings, bank deposits and short-term securities with an insignificant price risk. Cash is measured at fair value.

Equity The share capital comprises the nominal value of the company’s ordinary shares, each with a nominal value of DKK 1.

Retained earnings include amounts paid as premium compared to the nominal value of the shares in connection with the company’s capital increases less external expenses, which are directly attributable to the increases of capital. The amount also includes unrealized gains and losses (including unrealized exchange rate gains and losses). 58 Financial statements Topotarget • Annual Report 2010

The reserve for share-based payment includes the value of recognized warrant programs measured at the fair value at the time of grant and subsequent value adjustments.

The buying and selling of own shares is recognized directly in equity. Own shares are therefore not recognized separately in the balance sheet.

Pension obligations Under the defined contribution plans, regular and fixed contributions are paid to independent pension companies or similar institutions. The contributions are recognized in the income statement during the period in which the employees rendered the related service. Payments due are recognized as a liability in the balance sheet.

In respect of defined benefit plans, the Group is required to pay an agreed benefit in connection with the retirement of the employees covered by the plan, e.g. in the form of a fixed amount or a percentage of the salary at retirement.

For defined benefit plans, an annual actuarial assessment is made of the net present value of future benefits to which the employees have earned the right through their past service for the Group and which will have to be paid under the plan. The Projected Unit Credit Method is applied to determine value in use. The net present value is calculated based on assumptions of the future developments of salary, interest, inflation, mortality and disability rates.

The net present value of pension liabilities is recognised in the balance sheet, after deduction of the fair value of any assets attached to the plan, as either plan assets or pension liabilities, depending on whether the net amount is an asset or a liability, cf. below, however.

If the assumptions made with respect to discount factor, inflation, mortality and disability are changed or if there is a discrepancy between the expected and realized return on plan assets, actuarial gains or losses occur. These gains or losses are only recognized if the accumulated gains and losses at the beginning of a financial year exceed the higher numerical value of 10% of the pension liabilities or 10% of the fair value of plan assets (the corridor method). If this is the case, the excess amount is recognized in the income statement, distributed on the expected remaining average working life of the employees covered by the plan.

If the pension plan represents a net asset, the asset is only recognized to the extent that it does not exceed the sum of unrecognized actuarial losses, unrecognized past service costs and the present value of any refunds from the plan or reductions in future contributions to the plan.

If the benefits relating to the employee’s service in prior periods change, this results in a change to the actuarial net present value which is considered a past service cost. If the employees covered by the plan have already earned the right to the changed benefits, the change is taken to the income statement immediately. Otherwise, the change is recognized in the income statement over the period during which the employees earn the right to the benefits.

Provisions Provisions are recognised when the Group has a legal or constructive obligation as a result of a prior event on or before the balance sheet date, and it is probable that the company has to give up future economic benefits in order to repay the obligation. The provisions are measured according to an assessment of the costs required in order to repay the present obligation at the balance sheet date. Provisions which are not expected to be repaid within a year from the balance sheet date are measured at present value.

Lease commitments Lease commitments relating to assets held under operating leases are recognized in the income statement over the terms of the contracts. Lease payments are recognized either in production costs, research and development costs, sales and distribution costs or administrative expenses, depending on the use of the asset.

Financial liabilities Financial liabilities, including trade payables and other payables, are initially measured at fair value. In subsequent periods, financial liabilities are measured at amortised cost, applying the effective interest method, to the effect that the difference between the proceeds and the nominal value is recognised in the income statement as financial expenses over the term of the loan.

Deferred income The item reflects the part of revenue that has not been recognised as income immediately on receipt of payment and which concerns agreements with multiple components which cannot be separated. Topotarget • Annual Report 2010 Financial statements 59

Cash flow statement The cash flow statement of the parent company and the Group is presented using the indirect method and shows cash flows from operating, investing and financing activities as well as the Group’s cash and cash equivalents at the beginning and the end of the financial year.

Cash flows from operating activities are calculated as the operating profit/loss adjusted for non-cash operating items, working capital changes and income taxes as well as interest paid.

Cash flows from investing activities comprise payments in connection with acquisition and divestment of enterprises and activities as well as purchase and sale of intangible assets, property, plant and equipment as well as non-current investments.

Cash flows from financing activities comprise changes in the size or composition of the parent company’s and the Group’s share capital and related costs as well as the raising of loans, instalments on interest-bearing debt and payment of dividends.

Cash and cash equivalents comprise cash, deposits in financial institutions, liquid securities with terms of three months or less at the date of acquisition less short-term bank debt that forms an integral part of the Group’s cash management activities.

Financial highlights and key ratios The financial ratios have been calculated in accordance with “Recommendations & Ratios 2010”, issued by the Danish Society of Financial Analysts, as set out below:

Earnings per share Earnings per share is calculated as the net profit or loss divided by the weighted average number of outstanding ordinary shares.

Diluted earnings per share Diluted earnings per share is calculated as the net profit or loss divided by the average number of outstanding ordinary shares adjusted for the diluting effect of issued equity instruments.

Share price at year-end The year-end share price is determined as the average trading price (all trades) of the company’s shares on the NASDAQ OMX Co- penhagen stock exchange at the balance sheet date or at the most recent trading date prior to the balance sheet date.

Assets/equity Total assets at the balance sheet date divided by total equity at the balance sheet date.

Net asset value per share Net asset value per share is calculated as total equity at the balance sheet date divided by the number of outstanding ordinary shares at the balance sheet date. meyer & bukdahl as produktion Design og grafisk

Topotarget A/S Symbion Science Park Fruebjergvej 3 2100 København Ø Denmark

Tlf +45 39 17 83 92 www.topotarget.com