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 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.
Production and sub-supplier issues impacting product supply
Description
ALK has concentrated its key in-house production capacity at plants in Denmark, France, Spain and the USA. Although the plants are located in areas that have not historically been hit by natural disasters, this geographical spread calls for risk planning in order to avoid emergencies, such as lack of, or poor access to raw materials: for instance, pollen.
As ALK works to rationalise its 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 conducts risk planning including for the prevention of unwanted events, and preventative inventory management, such as the build-up of contingency stocks in order to ensure an unbroken chain of production and supply.
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 manages third party dependency risks through contractual stipulations, planning, monitoring, and joint steering committees.
Quality issues impacting patient safety and product supply
Description
ALK’s products are subject to a large number of statutory and regulatory requirements with respect to issues such as safety, efficacy and production.
Meeting high product quality standards is a prerequisite for the company’s ability to supply products and hence its competitive strength.
ALK’s products may be associated with allergic reactions of varying extents, durations and severities. If such events occur in unexpected situations, they may have an impact on the company’s earnings and sales.
Risk mitigation
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 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.
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 being 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.
Tablets not gaining market acceptance
Description
If ALK and its partners succeed in developing new products and obtaining regulatory approvals for them, the ability to generate revenue depends on the products being accepted by doctors and patients.
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.
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.
Authorities introducing new pricing pressures
Description
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. Regulatory requirements and interventions, as well as price control measures, may therefore have a significant impact on the company’s earnings capacity.
Exceptionally, governments and national authorities may introduce economic measures that also affect the pricing and reimbursement of medicines, for example, as a consequence of the impact of COVID on healthcare budgets or as a result of a major economic downturn.
Risk mitigation
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.
Competition becoming more intense
Description
ALK operates in competitive markets. If, for instance, a competitor were to launch a new and more effective treatment for allergy, it may have a material impact on ALK’s sales. A competitive market may also lead to market-driven price reductions just as national and regional authorities may mandate price reductions. Equally, there may be circumstances that prevent planned price increases, with a consequent impact on revenue. Both competition and pricing risks may have a material impact on ALK’s ability to achieve its long-term goals.
Risk mitigation
ALK’s Scientific Committee monitors the competitor landscape in global AIT research and development to ensure a timely response to developments by competitors or in the market. As a consequence, and to stay ahead of competition, ALK 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.
IT security breaches impacting business continuity
Description
Disruption to IT systems, such as 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 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, and systems are regularly upgraded to increase network security.
Breaches of legal or ethical standards
Description
Non-compliance with applicable regulations, legislation, or ALK’s Code of Conduct could negatively affect 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.
Fluctuations in exchange rates and interest rates
Description
Due to the nature of its operations, investments and financing, ALK is exposed to fluctuations in exchange rates and interest rates, which could impact the company’s cash flow and earnings.
Risk mitigation
The company’s financial risks are managed centrally, based on policies approved by the Board of Directors. The objective of ALK’s financial risk management is to reduce the sensitivity of earnings to fluctuations in exchange rates, interest rates, liquidity and changes in credit rating. Company policy is to refrain from active financial speculation.
See note 25 of this annual report for a specification of the company’s exposure to currency, interest rate and credit risks and its use of derivative financial instruments.