Zealand Pharma's Warrant Exercises: A Strategic Balance of Dilution and Capital Efficiency

Zealand Pharma A/S, a leader in peptide-based therapies, has recently executed two significant capital increases through employee warrant exercises in 2025, raising millions in proceeds while expanding its share count. These moves underscore a strategic approach to capital generation, employee incentives, and dilution management. Let's dissect how these exercises reflect undervaluation, fund critical pipeline progress, and position the company for long-term growth.

The Capital Increase Breakdown

In March 2025, Zealand issued 27,425 new shares at exercise prices of DKK 90.70 and DKK 224.40, raising DKK 3.55 million. A larger June exercise followed, issuing 292,508 shares at the same prices, generating DKK 27.1 million in total proceeds. The total share count rose to 71.3 million, up from 71.0 million in late 2024. These warrants, part of employee incentive programs, align executives and staff with shareholder interests while bolstering the company's war chest.

Employee Confidence and Undervaluation Signals

The exercise prices of DKK 90.70 and DKK 224.40 are critical metrics. As of June 6, 2025, Zealand's closing share price was DKK 476.40—more than double the lower exercise price and 210% above the higher one. This stark disparity suggests employees see significant upside, a strong vote of confidence in the company's pipeline and execution. The willingness to exercise warrants at these prices implies the stock is undervalued relative to its intrinsic potential, particularly given its obesity drug glepaglutide and type 1 diabetes therapies, which are nearing commercialization.

Dilution Impact: Manageable and Strategic

The share count increased by 0.46% post-March and 0.35% post-June, totaling a 0.81% dilution from late 2024 levels. While no company likes dilution, this is a small price for DKK 30.6 million in non-dilutive capital (relative to equity raises). Crucially, the warrants were already on the balance sheet as liabilities; exercising them converts these to cash without requiring future equity issuance. This preserves future capital flexibility for larger needs, such as global launches or acquisitions.

Capital Efficiency Meets Pipeline Momentum

Zealand's clinical pipeline is its crown jewel. Glepaglutide, approved in the U.S. for obesity, is on track for EU approval in late 2025, with $2.8 billion in peak sales potential. The Roche partnership, securing $1.4 billion upfront, funds late-stage trials and commercialization. The warrant proceeds add DKK 30.6 million—a modest but meaningful boost to operational liquidity, reducing debt reliance. With 2025 net expenses guided at DKK 2–2.5 billion, this capital is a prudent buffer.

Investment Thesis: A Buy with a Long-Term Horizon

The strategic calculus here is clear:
1. Undervaluation: Share prices far exceed exercise prices, signaling a discount to intrinsic value.
2. Dilution Control: Minimal share growth for meaningful cash infusion.
3. Pipeline Catalysts: Glepaglutide's global rollout and rare disease candidates are near-term drivers.

Investors should view Zealand as a buy, particularly if the stock holds above DKK 450—a level that reflects confidence in its commercialization prowess. The dilution is justified by the capital raised and the alignment of interests between employees and shareholders. While volatility may persist, the 50/50 profit-sharing deal with Roche and glepaglutide's dominance in obesity markets create a sturdy foundation for multi-year growth.

Risks to Consider

• Regulatory delays for glepaglutide in the EU or other markets.
• Competition in obesity therapeutics, though Zealand's peptide expertise offers a unique edge.
• Macroeconomic headwinds impacting healthcare spending.

Conclusion

Zealand Pharma's warrant exercises are a masterclass in capital efficiency, using employee incentives to secure funds while minimizing dilution. With a robust pipeline and strategic partnerships, the company is poised to capitalize on its innovations. For investors willing to ride out short-term market noise, Zealand presents a compelling opportunity to participate in a peptide therapy leader at a price that still offers upside.

Recommendation: Accumulate positions on dips below DKK 460, with a 12-month target of DKK 600+, reflecting pipeline catalysts and undervaluation resolution.