Risk management
ALK’s Board of Management is responsible for the ongoing management of risks throughout the value chain, including risk mapping, the assessment of probabilities and potential consequences, and the introduction of risk-reducing measures.
The Board of Management has established a risk committee to assist it in meeting its overall responsibility for risk management. The Risk Committee comprises representatives from each functional area relevant to ALK’s risk profile. It meets twice a year or more, as required, to perform its tasks. Risks are systematically assessed according to a two-dimensional matrix, rating the impact and probability of each risk. A risk management report with key enterprise risks and recommended mitigation plans is presented to Board of Management before it is submitted to the Board of Directors on an annual basis for their review and approval.
The following is a description of ALK’s key enterprise risks, and the main initiatives taken to mitigate these risks. The risk movements compared to the previous year are indicated.
Commercial risks
Description
The degree of market acceptance for a new product or drug candidate depends on several factors, including the demonstration of clinical efficacy and safety, cost-effectiveness, convenience and ease of administration, potential advantages over alternative treatment methods, competition, and marketing and distribution support. If ALK’s new products, primarily tablets, fail to achieve market acceptance, this could have a significant influence on the company’s ability to generate revenue. Even if market acceptance of the tablets is successfully achieved, the extent of their acceptance could influence the company’s ability to fully deliver on its sales-growth targets for these products. While acceptance of tablets continues to increase in most markets, market acceptance remains a risk for ALK primarily in the USA.
Price pressures mandated by authorities can have a significant impact on the company’s earnings capacity. In most of the countries in which ALK operates, prescription drugs are subject to reimbursement from, and price controls by, national authorities and healthcare providers. This often results in significant price differences between individual markets. Exceptionally, governments and national authorities may introduce economic measures that also affect the pricing and reimbursement of medicines, for example, because of the impact of COVID on healthcare budgets or because of a major economic downturn.
Risk mitigation
ALK closely monitors economic, market and regulatory developments as they relate to product pricing, along with the competitive situation and initiatives in all important markets, with the aim of appropriate risk mitigation.
ALK regularly conducts extensive surveys of market conditions and similar factors and commits significant resources to providing information on its products to doctors and patients. Sales growth targets are set with a full understanding of the potential risks involved in successfully marketing any product and these are anticipated and managed so far as is possible. ALK continues its focus on market access strategy, especially in the USA, to make tablets a more attractive alternative for patients.
ALK is strongly committed to evidenced-based medicine, based on strong clinical and health economic evidence as the basis for pricing and reimbursement. ALK actively engages in dialogue with authorities with the aim of securing fair pricing and reimbursement agreements and maintains a strong focus on its market access strategy.
2021 movement: The impact of the risk is stable and has not changed from the year before
Production and quality issues impacting product supply and patient safety
Description
ALK’s products are subject to many statutory and regulatory requirements with respect to issues such as safety, efficacy, and production. The products may, in unexpected situations, be associated with allergic reactions of varying extents, durations and severities. Meeting high product quality standards is a prerequisite for the company’s ability to supply products and hence its competitive strength, and for the company’s earnings and sales.
ALK has concentrated its key in-house production capacity at plants in Denmark, France, Spain and the USA. Although the plants are in areas that have not historically been hit by natural disasters, this geographical spread calls for risk planning to avoid emergencies, such as lack of, or poor access to, raw materials: for instance, pollen.
As ALK works to rationalise its product portfolio, there may be risks associated with the discontinuation of its products. Among others, these may include potential disruption at manufacturing sites during decommissioning work, the loss of sales from products for which no suitable ALK substitute product exists, or the inability to meet sudden spikes in demand for other products due to patients switching from discontinued products. Dependency on third parties for supplying input for key production processes and commercialising the company’s products in several markets entails risks that ALK would not be subject to if the company possessed the necessary in-house capabilities.
Risk mitigation
ALK stringently monitors product quality and safety, both in clinical development and in sales and marketing activities. If, despite the high levels of quality and safety, a situation should occur in which it is necessary to recall a product, ALK has procedures in place to ensure that this can be managed swiftly and effectively and in accordance with regulatory requirements. Production and manufacturing processes are subject to periodic and routine inspections by regulatory authorities as a regular part of their monitoring processes to ensure that ALK observes the prescribed requirements and standards.
ALK’s production processes and quality standards have been developed and optimised over many years. ALK has invested significantly to increase the robustness and compliance of the legacy business by reducing manufacturing complexity, and all possible steps are taken during portfolio rationalisation work to mitigate any potential impact on other areas of manufacturing or the wider business. ALK conducts risk planning including for the prevention of unwanted events, and preventative inventory management. ALK manages third party dependency risks through contractual stipulations, planning, monitoring, and joint steering committees.
2021 movement: The impact of the risk is stable and has not changed from the year before
Failures or delays in product development
Description
The future success of ALK depends on the company’s ability to maintain current products and to successfully identify, develop and market new, innovative drugs, which involves significant risks.
A pharmaceutical drug must be subjected to extensive and lengthy clinical trials to document qualities such as safety and efficacy before it can be approved for marketing. During the development process, the outcomes of these trials are subject to significant risks. Even though substantial resources are invested in the development process, the trials may produce negative results.
Failures or delays in the development process or in obtaining regulatory approvals may have a major impact for the patients not able to benefit from the products, and on the ability of ALK to achieve its long-term goals.
Risk mitigation
ALK and its collaborative partners perform thorough risk assessments of their research and development programmes throughout the development and registration processes with the objective of risk mitigation to optimise the likelihood of the products reaching the market.
ALK’s Scientific Committee is responsible for other patient-/product-related innovation activities. The committee advises on matters relating to R&D activities and other patient-/product-related innovation activities, including reviewing R&D programmes and the overall R&D pipeline.
2021 movement: The impact of the risk is stable and has not changed from the year before
Breaches of legal or ethical standards
Description
Non-compliance with applicable regulations, legislation, or ALK’s Code of Conduct could negatively impact the company’s good reputation which is essential for operating within the pharmaceutical industry. Patents and other intellectual property rights are important for developing and retaining ALK’s competitive strength.
Risk mitigation
ALK strives to act professionally, honestly, and with high integrity throughout the company in relation to stakeholders. ALK’s Code of Conduct defines ALK’s high standard of ethical behaviour in relation to customers, employees, shareholders, society, suppliers, and partners. Immediate action is taken on substantiated non-compliance. Annually, all employees are asked to sign and confirm their knowledge of the Code of Conduct and to take an online test.
Internal controls and policies are in place to safeguard ALK’s intellectual property rights. The risk that ALK might infringe patents or trademark rights held by other companies, as well as the risk that other companies may attempt to infringe the patents and/or trademark rights of ALK are monitored and, if necessary, suitable measures are taken.
2021 movement: The impact of the risk is stable and has not changed from the year before
Severe IT security breaches impacting business continuity
Description
The threat of cyberattacks continues to grow significantly for ALK, as it does for most major companies. Disruption to IT systems, such as severe breaches of data security, may occur across the global value chain, where well-functioning IT systems and infrastructure are critical for the company’s ability to operate effectively.
Risk mitigation
ALK continuously manages this risk, among other ways, by having a security strategy in place to prevent intruders from causing damage to systems or gaining access to critical data and systems. Awareness campaigns, access controls, intrusion detection and prevention systems have all been implemented, further initiatives are planned, and systems are regularly upgraded to increase network security.
2021 movement: The impact of the risk has increased compared to the year before