Lundbeck is exposed to risks throughout the value chain, from the initial stages of developing innovative pharmaceuticals in our in-house facilities to the proven pharmaceuticals reaching the patients.
Lundbeck’s risk management processes are continually updated and adapted to match internal and external requirements, where risks related to trends, global economic developments, geopolitics and long-term forecasts are assessed as part of Lundbeck’s long-term strategic planning. With this understanding of the wider context and an accurate and complete overview of Lundbeck’s activities and resources, Executive Management has a clear basis for decision-making on our overall risk-exposure and mitigating actions.
The overall responsibility of risk management lies with the Board of Directors. Oversight of compliance within the established enterprise risk management framework is delegated to the Audit Committee.
Enterprise risk management in Lundbeck is considered an integral part of doing business, which is reflected in the risk management process.
The process starts in the decentralized teams within Business Units and Corporate Functions, which have detailed and extensive knowledge of the risks within their areas of responsibility. They systemically identify, quantify, respond to and monitor risks. They are ideally placed to mitigate our risk exposure in the first instance.
Business Units and Corporate Functions report to the central Risk Office on a semi-annual basis. The central Risk Office provides the risk framework and conducts interviews and workshops with management from Business Units and Corporate Functions, risk contributors and risk responsible individuals. This represents an integral part in the alignment of risks reported to the Risk Office.
In cooperation with the Business Units and Corporate Functions, the Risk Office assess the likelihood of an event occurring and the potential impact on the Group in terms of financial loss. The key risk overview is presented to Executive Management for their assessment and approval, before it is reported to the Audit Committee and approved by the Board of Directors.
The corporate risk register kept by the Risk Office provides a consolidated overview of our risk exposure by detailing each risk, risk category and type. The risk descriptions provide details on the event, its current status, the status of the response and the likelihood and potential impact. Our reporting process defines six risk categories:
Lundbeck has a streamlined process covering day-to-day risk identification, monitoring, mitigation and reporting within Business Units and Corporate Functions, all the way to the final reporting to Executive Management. This process enables Executive Management to control Lundbeck’s risk appetite when deciding strategy and practice, and when making day-to-day decisions.
|Risk Area||Description||Potential Consequences||Mitigating Actions|
|Research & Development||Exposure to delays of regulatory approval or failure in the development of new and innovative medicines. Exposure to delays is higher due to Covid-19.Increased regulatory requirements for clinical trials. Data requirements from production of non-clinical studies and clinical studies.||Delays or failure of new products could impact patients who cannot benefit from these products and decrease earnings for shareholders. Delay in regulatory approval may impact the patient’s drug access.Issues with data integrity can 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. Robust quality management system is in place to ensure consistent quality, data integrity and the compliance of clinical trials and clinical safety activities.|
|Market and Commercial||Price pressure, new legislation, regulation of reimbursement and healthcare reforms in key markets, etc.Limited access to physician offices due to Covid-19.||Market restrictions could impact patients’ access to Lundbeck products. Changes in market conditions and healthcare reforms could affect the pricing landscape as well as rebates and discounts. Restrictions due to Covid-19 could impact patients’ access to physicians.||Understanding the price development in main markets. Working with health care authorities around the world to document the value of our pharmaceuticals. Monitor political developments and requirements.|
|Supply, Quality and Product Safety||Disruption of production or supply or unpredictable demand and stock-out. Loss of licenses to manufacture or sell pharmaceuticals. Defects in product quality or safety.||Product shortage, not giving patients needed access to the pharmaceuticals they require.||Systems, policies and procedures are in place to ensure product supply, quality and safety. Dual sourcing strategy and high level of safety stock of key products. Robust pharmacovigilance system.|
|IT Security||Cyber-attacks and cyber fraud. System down-time.||Disruption or compromise of IT security could affect all parts of Lundbeck’s operations and product supply to patients. Data loss.||IT policies and procedures are in place to safeguard processes and data. Cyber-attack testing is being performed on a regular basis. Annual testing of IT disaster recovery plan. Lundbeck has also purchased a cyber insurance.|
|Legal and Compliance||Intellectual property rights. Non-compliance with laws, industry standards, regulations and our Code of Conduct. Exposure to legal claims or investigations.||Infringement of intellectual property rights could decrease earnings for shareholders. Loss, expiration or invalidation of intellectual property rights could decrease earnings for shareholders. Non-compliance with laws, industry standards, regulations, or our Code of Conduct could affect our ‘license to operate’ and impact our reputation and earnings for shareholders.||Policies are in place to safeguard intellectual property rights. The Code of Conduct is pivotal in sustaining our compliance culture. Annual training is provided to all employees. Third parties are committed to observe our legal and ethical standards in mutually binding agreements and are subject to monitoring.|
|Financial||Fluctuations in exchange rates incl. impact from currency devaluations. Fluctuations in interest rates.||Lundbeck’s cash flow and earnings could be impacted in cases of fluctuations in key currencies.||Monitoring the financial exposure and hedging a significant part of Lundbeck’s currency risk up to 18 months in advance. Issuing debt with fixed interest and fixing interest rates on floating debt with interest rate swaps or similar derivatives. Exchange rate risks and interest risks are managed within the Treasury Policy.|
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