1Basis of preparation

These condensed consolidated financial statements are the unaudited, interim consolidated financial statements (hereafter “the Half-year Report”) of PolyPeptide Group AG and its subsidiaries (hereafter “the Group”) for the six-month period ended 30 June 2022 (hereafter “the interim period”). The Half-year Report is prepared in accordance with the International Accounting Standard 34 – Interim Financial Reporting and thus does not include all of the information required for a complete set of IFRS financial statements. The Half-year Report should be read in conjunction with the consolidated financial statements for the year ended 31 December 2021 (hereafter “the Annual report 2021”) as it provides an update of the previously reported information. No new standards or amendments to existing standards with a material effect on the Group’s Half-year Report have become mandatorily effective for reporting periods beginning 1 January 2022 and the accounting policies adopted in the Half-year report are thus consistent with those of the previous financial year. However, disclosures on segment reporting have changed since the Group’s Annual report 2021. See note 2 for further details.

As described in the Annual Report 2021, the Group previously presented movements in financial assets and other current assets together on one line named "(Increase) / Decrease in other current assets” in the cash flow statement. To increase the transparency of the figures, the Group decided to split the line into two separate line items where movements in other current assets were shown on a separate line within “Cash generated from operations” and movements in other financial assets were shown on a separate line within “Net cash flows from investing activities”. This change in presentation was implemented for the first time in the Annual report 2021 and has accordingly been applied in this Half-year Report as well. Comparative figures for H1 2021 have thus been restated to reflect the changes in the presentation.

The preparation of the Half-year Report requires management to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets, liabilities and disclosure of contingent liabilities. If in the future such estimates and assumptions, which are based on management’s best judgment at the date of the Half-year Report, deviate from the actual circumstances, the original estimates and assumptions will be modified as appropriate in the year in which the circumstances change.

There are a number of standards and interpretations that have been issued by the International Accounting Standards Board that are effective for periods beginning subsequent to 31 December 2022 (the date of the Group's next annual consolidated financial statements) that the Group has decided not to adopt early. The Group does not believe these standards and interpretations will have a material impact on the consolidated financial statements once adopted.

All amounts are stated in thousands of Euros, unless otherwise stated.

2Segment information

PolyPeptide generates revenue that can be divided into the three business areas described in note 4. The chief operating decision maker (i.e., the Executive Committee) is reviewing revenue generated within each business area, but is not reviewing results at this disaggregated level. The chief operating decision maker rather reviews the results of the Group as a whole to assess performance. This internal assessment of performance has not changed since the last annual financial statements of the Group. However, the definition of an operating segment according to IFRS 8 – Operating segments has been revisited, and it has been concluded that the three business areas should not be considered three separate operating segments since only revenue information for each area is reviewed by the chief operating decision maker. As a result, there is only one operating segment according to IFRS 8 – Operating segments.

No segment information is thus required to be disclosed in the notes to the interim consolidated financial statements according to IAS 34 – Interim Financial Reporting.

3Seasonality

The activities of PolyPeptide are not subject to seasonal or cyclical variations in the underlying business. However, PolyPeptide may experience variability in its revenue across periods as a result of, among other things, the timing of customer purchase orders and payments, investments made during the period, increased competition, the number of selling days in a period and fluctuation of foreign currency exchange rates.

4Revenue

PolyPeptide generates revenue from the following three business areas:

Revenue by business area

Custom Projects business area specializes in the manufacturing of custom research-grade peptides and oligonucleotides, in milligram, gram or pilot scale quantities, at predefined purity levels for use in pre-clinical and clinical development as well as for regulatory and scientific studies. Custom Projects also provides GMP manufacturing services during the later phases of development. Revenue is allocated to Custom Projects for sales of products in the pre-clinical through clinical stage development (i.e., prior to commercial launch) as generally set out in master service agreements and/or the accompanying work / purchase orders.

Contract Manufacturing business area manufactures peptides for commercial stage peptide therapeutics, at scale, in commercial batches and in accordance with GMP requirements. The Group's Contract Manufacturing services also include consultation for continuous improvement and process stabilization / optimization to support scale-up, process changes to support cost of goods sold enhancement, lifecycle management and extension as well as regulatory support. Revenue is allocated to Contract Manufacturing where production is related to the commercial supply of product, including the production of commercial generic products where we manufacture for the patent originator, as generally set out in master supply agreements and/or the accompanying work / purchase orders.

Generics and Cosmetics business area manufactures peptide-based generics for the human and veterinary market, produced on an industrial scale following GMP guidelines. Generally, PolyPeptide’s generic products are off-patent and manufactured for numerous generic customers. The business area also includes revenue generated from the sale of peptides used in cosmetics, primarily for anti-aging applications. Revenue is allocated to Generics and Cosmetics for product sales to generics manufacturers and non-originators (i.e., not the original patent holder) as well as cosmetics sales, each as generally set out in nonproprietary master supply agreements and/or the accompanying work / purchase orders.

Revenue from contracts with customers

Revenues from Active Pharmaceutical Ingredients (API) fully relate to the sale of goods, and revenues from related services relate to the rendering of services. All revenues from contracts with customers classify as business-to-business.

Revenue by geographical area

Revenue is attributed to the individual geographical area based on the invoice address of the respective customer.

5IPO costs

The following IPO-related expenses are included within “General and administrative expenses” in the income statement for the six months ended 30 June 2021:

The IPO cash bonus amount relates to the bonus award made by the Company after the IPO to selected non-executives involved in the IPO process. The IPO share bonus amount relates to expenses incurred by the Company in relation to the shares awarded by Draupnir Holding B.V. in the IPO process. These expenses were fully reimbursed by Draupnir Holding B.V in H2 2021.

In addition, an amount of kEUR 4,652 relating to consultancy services, Swiss Federal Issue Stamp Tax and Bank Commissions was charged directly to the share premium reserve in H1 2021 in accordance with IAS 32 – Financial Instruments: Presentation.

6Share-based payment

Share-based payment was introduced in the Group as part of the IPO on SIX Swiss Exchange on 29 April 2021.

The following equity-settled share-based payment arrangements have been recognized in the interim consolidated financial statements:

IPO share bonus

Eligible members of the Board of Directors, the Executive Committee and certain other senior managers were granted a total of 51,434 number of shares upon the successful listing on SIX Swiss Exchange on 29 April 2021. The fair value at grant date amounted to kEUR 2,998 and was measured based on the initial public offering price of EUR 58 (CHF 64) per share.

Since all the shares vested immediately upon the listing, the full amount was recognized in the income statement covering H1 2021 as “General and administrative expenses”. The amount was subsequently fully reimbursed by Draupnir Holding B.V. in H2 2021.

Board of Directors

Members of the Board of Directors have the option to elect to be paid up to 100% of their fixed fee in shares. For Board members electing to receive more than 50% of their fixed fee in shares, the shares exceeding the 50% portion are granted at a discount of 20% to market price. The proportion between shares and cash is selected by each Board member upon election at the annual general meeting and is fixed until the next annual general meeting. For the current period (i.e., until the annual shareholders' meeting in 2023), the members of the Board of Directors are compensated on a pro-rata basis for the period of service even in the case of early termination or removal.

The fair value at grant date amounted to kEUR 799 (H1 2021: kEUR 731), reflecting a measurement based on a total number of shares of 9,835 (H1 2021: 12,540) and the price of EUR 81 (CHF 83) per share as of 26 April 2022 (H1 2021: the initial public offering price of EUR 58 (CHF 64) per share).

Under IFRS, all shares will be fully vested at the annual general meeting in April 2023. In H1 2022, a total amount of kEUR 570 (H1 2021: kEUR 415) was recognized as “General and administrative expenses” in the income statement according to the principles of graded vesting in IFRS 2.

Chief Executive Officer

The CEO of the Group, Raymond De Vré, was during 2021 granted three separate share-based payment arrangements:

• A one-time grant of shares at a value of CHF 750,000, which was calculated at a 20% discount to the IPO offer price of CHF 64 as compensation for the loss of unvested options from his previous employer. The fair value at grant date amounted to kEUR 854, reflecting a measurement based on 14,648 number of shares and the initial public offering price of EUR 58 (CHF 64) per share. The grant includes a service condition of three years, one-third vesting each year as of 1 June (starting from 2022). The expenses are recognized in the income statement according to the principles of graded vesting in IFRS 2, resulting in an amount of kEUR 202 recognized as “General and administrative expenses” in H1 2022 (H1 2021: kEUR 131).
• A grant of shares at a value of CHF 100,000 at 15% discount to the IPO offer price of CHF 64 as compensation for his loss of variable payments for 2020 and 2021 from his previous employer. The fair value at grant date amounted to kEUR 107, reflecting a measurement based on 1,838 number of shares and the initial public offering price of EUR 58 (CHF 64) per share. The grant includes a service condition of one year and vested at 1 July 2022. The expenses are recognized on a straight-line basis in the income statement, resulting in an amount of kEUR 46 recognized as “General and administrative expenses” in H1 2022 (H1 2021: kEUR 21).
• During the second half of 2021, the Board of Directors adopted a Long Term Incentive Plan (“LTIP”) for Executive Committee members and other members of senior management of the Group. Under this share-based incentive program, eligible participants will be awarded the contingent right to receive a certain number of registered shares in the future (“PSU(s)”) in the Company subject to, inter alia, continued employment and achievement of non-market performance targets. The actual number of PSUs that will eventually vest and be settled in shares depend on the RONOA and EPS performance of the Group over a three-year performance period.
  
  As of 30 June 2022, the only eligible participant in the LTIP was the CEO of the Group, Raymond De Vré. However, the Remuneration and Nomination Committee is currently evaluating the expansion of the LTIP to cover additional members of the Executive Committee as well as other members of senior management in future periods.
  
  The PSUs were granted to Raymond De Vré on 29 November 2021. In accordance with IFRS 2, the maximum number of shares potentially vesting has been used for the determination of the fair value of the grant. As a result, the fair value at grant date amounted to kEUR 1,241, reflecting a measurement based on 9,909 number of PSUs and the share price of PolyPeptide Group AG as of the grant date of EUR 125 (CHF 131). In H1 2022 an amount of kEUR 173 has been recognized as “General and administrative expenses” in the income statement.
  Any shares will vest 10 trading days after the shareholders approve the 2023 audited financial statements.

7Shareholders' equity

Share capital and share premium

The parent company of the Group, PolyPeptide Group AG, was incorporated on 6 April 2021 with 30,000,000 shares with a nominal value of CHF 0.01 each, corresponding to a share capital of CHF 300,000.

The contribution of all the shares of PolyPeptide Laboratories Holding B.V. into PolyPeptide Group AG in exchange for one share increased the share capital by CHF 0.01.

In connection with the IPO, PolyPeptide Group AG further increased its initial share capital by issuing 3,125,000 shares with a nominal value of CHF 0.01 each, corresponding to an increase in its share capital of CHF 31,250. This transaction increased the share premium reserve by CHF 199,968,750.

As a result, the share capital of PolyPeptide Group AG comprised 33,125,001 shares of CHF 0.01 each as of 30 June 2022. All shares are fully paid.

Treasury shares

Cash distribution

On 26 April 2022, the shareholders of PolyPeptide Group AG approved at the Annual General Meeting to pay a cash distribution of CHF 0.3 per entitled share out of the foreign capital contribution reserves. Treasury shares held by the Company at the time of the cash distribution were not entitled to the cash distribution.

The distribution to shareholders of entitled shares totaled kEUR 9,671 (kCHF 9,916), which has been recognized against share premium in the interim consolidated financial statements.
No cash distribution was made in H1 2021.

8Earnings per share

Basic earnings per share has been calculated by dividing the result for the period attributable to the owners of PolyPeptide Group AG by the weighted average number of shares outstanding during the period. Treasury shares are not considered as outstanding shares.

As described in the first section of the notes to the interim consolidated financial statements, the parent company of the Group changed during H1 2021. However, due to the predecessor accounting for this reorganization, basic earnings per share for the period from 1 January until 27 April 2021 has been calculated based on the total number of outstanding shares of 30,000,001, corresponding to the share capital of PolyPeptide Group AG prior to the capital increase of 3,125,000 shares on 28 April 2021 (see the description above in note 7).

Diluted earnings per share is calculated by dividing the result for the period attributable to the owners of the PolyPeptide Group AG by the weighted average number of shares outstanding adjusted for all potentially dilutive shares. The weighted average number of shares outstanding for the period from 1 January until 28 April 2021 has been calculated in the same way as described above for the calculation of basic earnings per share.
Dilutive shares arise from the share-based payment described in note 6.

9Investment in subsidiaries

The consolidated financial statements include the financial statements of the Company and the subsidiaries listed below. Details of investments in direct and indirect subsidiaries are as follows:

Percentage of voting shares is equal to percentage of ownership.

10Related parties

The following transactions have been entered into with related parties:

All disclosed related parties are either related through the Esperante Investments S.à r.l. ownership structure or through managerial control. Esperante Investments S.à r.l. is a higher parent company of our majority shareholder Draupnir Holding B.V.

Income and amounts due from Draupnir Holding B.V. primarily relate to reimbursement of IPO recognition bonuses. Purchases from Draupnir Holding B.V. relate to service and insurance fees.

Purchases from and amounts due to Thalamus AB relate to rental of premises.

Income from the Ferring Group and amounts due from the Ferring Group relate to sale of goods.

Purchases from Monedula AB relate to the lease of premises. Income and amounts due from Monedula relate to property management fees and recharged improvements to the premises. Amounts due to Monedula AB relate to the financial liability recognized for the lease of premises.

Income from and amounts due from Amzell B.V. relate to sale of goods.

During H1 2022, no provisions for doubtful debt and no write-offs on receivables from related parties were recognized (H1 2021: nil). No guarantees were given or received for any outstanding related party balances (H1 2021: nil).

11Subsequent events

There have been no significant events subsequent to the balance sheet date that would require additional disclosures in the interim consolidated financial statements.

The Half-year Report was approved by the Board of Directors as at 18 August 2022.