Risk management

The risk management framework to address and assess risks

Lundbeck’s risk management processes ensure close monitoring, systematic risk assessment, and reporting, supporting the timely identification and management of internal and external risks in a changing environment.

Enterprise Risk Management (ERM) at Lundbeck

Lundbeck is exposed to risks throughout the value chain, from developing innovative pharmaceuticals to delivering proven treatments to patients.

To anticipate and address these risks, scenario and risk-thinking exercises are integrated into strategic planning, including analyses of market trends and the potential impact of socioeconomic, environmental, geopolitical, and political changes. Lundbeck’s risk management processes follow a systematic approach, enabling the identification, assessment, and mitigation of risks related to research and development, global economic developments, geopolitical factors, and long-term forecasts. This ensures that the Executive Leadership Team has a solid basis for decisions on overall risk exposure and mitigating actions, supporting sustainable growth and reliability as a partner to stakeholders and the communities in which Lundbeck operates.

The Board of Directors is responsible for ensuring the implementation of risk management procedures, with oversight delegated to the Audit Committee. Lundbeck’s ERM process is integrated into day-to-day activities, starting with decentralized teams who identify and monitor risks. These teams share updates with the Central risk office, which aligns and assesses risks, presenting an overview to the Executive Leadership Team and the Board of Directors for approval.

The corporate risk register details Lundbeck’s risk expo-sure, categorized into:

Research and development,
Market strategy,
Supply, quality and product safety,
IT security,
Legal compliance,
Financial.

Link to double materiality assessment (DMA)

Lundbeck’s ERM and DMA, as required under the Corporate Sustainability Reporting Directive (CSRD), are inter-linked and focused on identifying, assessing, and man-aging risks and opportunities that affect both financial performance and sustainability. The ERM process identifies, assesses, and monitors risks across our six expo-sure categories. This is complemented by the DMA process, which provides a deeper evaluation of ESG topics by assessing both how sustainability factors may pose financial risks to Lundbeck (i.e., financial materiality) and how Lundbeck’s operations and value chain activities may impact people and the environment (i.e., impact materiality). Our material impacts, risks, and opportunities (IROs) are monitored through the annual DMA review, which integrates stakeholders’ perspectives into our existing governance structures and frameworks.

Lundbeck’s governing bodies receive annual updates on sustainability reporting to support effective oversight and decision-making. Sustainability governance is anchored with the Board of Directors and cascades through the Audit Committee and the Executive Leader-ship Team, as outlined in ‘Lundbeck’s governance structure’ overview on page 4. A cross-functional working group supports this structure by ensuring regulatory compliance, monitoring impacts, risks, and opportunities, and tracking progress on Sustainability Strategy and targets. To strengthen access to sustainability expertise, sessions with internal subject matter experts are included in the annual meeting schedules of the Board of Directors, Audit Committee, and Executive Leadership Team. This enables our governing bodies to oversee key sustainability topics, including material impacts, risks, and opportunities.

Key risks

Risk Area	Description	Potential Consequences	Mitigating Actions
Research and development	Exposure to delays in regulatory approval or failure in the development of new and innovative medicines. Increased regulatory requirements for clinical trials. Data requirements from production of non-clinical and clinical studies.	Delays or failure of new products could impact patients who cannot benefit from these products and decrease earnings expectations for Lundbeck and its shareholders. A delay in regulatory approval may impact the patient’s access to medicines. Issues with data integrity could lead to delays in studies and production – ultimately leading to withdrawals and failure to gain approval.	Clinical trials are run and evaluated throughout the research and development phase. Ongoing evaluation of the product pipeline, regulatory requirements, and product benefit. A robust quality management system is in place to ensure consistent quality, data integrity, and compliance in clinical trials and clinical safety activities.
Market strategy	Price pressure, new legislation, reimbursement regulations, healthcare reforms, or other regulatory measures in key markets. Changes in market and economic dynamics derived from geopolitical instability. Effects from mergers and acquisitions	Market restrictions could impact patients’ access to Lundbeck products and the conditions for market access. Changes in market and economic conditions, healthcare reforms, and other policy measures could affect the pricing landscape as well as rebates and discounts. Differences in business performance and WACC vs. assessment at the time of mergers and acquisitions deals can lead to impairment losses. These changes could decrease earnings for Lundbeck and its shareholders.	Understanding price development and market access conditions in key markets. Engaging with healthcare authorities to document and communicate the value of our pharmaceuticals. Monitor political and regulatory developments and related requirements in key markets. Maintain a robust merger and acquisitions implementation tracking processes and impairment assessments.
Supply, quality, and product safety	Disruption of production or supply or unpredictable demand and stock-out. Loss of licenses to manufacture or sell pharmaceuticals.	Product shortage, not giving patients the needed access to the medicines they require.	Systems, policies, and procedures are in place to ensure product supply, quality, and safety. A dual sourcing strategy and a high level of safety stock for key products. A robust pharmacovigilance system.
IT security	Cyber-attacks and cyber fraud. System downtime.	Disruption or compromise of IT security could affect all parts of Lundbeck’s operations, and product supply to patients. Data loss, including patient-, employee-, proprietary business- and other sensitive data.	IT policies and procedures are in place to safeguard systems and data. Cyber defenses are tested regularly. Annual testing of the IT disaster recovery plan.
Legal compliance	Non-compliance with laws, industry standards, regulations, and our Code of Ethics. Exposure to legal claims or investigations.	Non-compliance with laws, industry standards, regulations, or our Code of Ethics could affect our ‘license to operate’, result in litigations or investigations, expose Lundbeck to significant fines, and impact our reputation and earnings for Lundbeck and its shareholders.	The Code of Ethics, Compliance Program, and Global Compliance organization are in place to ensure our compliance culture. Annual trainings for all employees. Third parties are committed to observing our legal and ethical standards and are subject to due diligence and audits. A global Compliance Hotline and investigation procedure are in place for reporting and address-ing potential misconduct.
Financial	Fluctuations in interest rates and exchange rates, including the impact of currency devaluations.	Lundbeck’s cash flow and earnings could be impacted by fluctuations in key currencies.	Treasury Policy. Monitoring the financial exposure and hedging a significant part of Lundbeck’s currency risk up to 18 months in advance.