Description of the main elements of Pharma Equity Group’s internal control and risk management systems in connection with the financial reporting process, according to section 107 b of the Danish Financial Statements Act.
The Company’s policy is to identify and mitigate risks deriving from the Group’s operations and to establish sufficient insurance coverage. The Group’s control and risk management systems may provide reasonable, but not absolute, assurance that misappropriation of assets, losses and/or significant errors and omissions in the financial reporting are avoided. The primary responsibility for the Group’s (Pharma Equity Group A/S and its subsidiary) risk management and internal controls in relation to the financial reporting process will rest with the New Board of Directors and the Executive Management.
Management believes that all significant elements of risk have been identified and addressed. The Board of Directors has discussed the need for an internal audit function and has found that, with the current number of employees, the Company does not need such a function, nor is it possible in practice. This view is expected to be confirmed by the New Board.
The risks and uncertainties discussed below are those that the Pharma Equity Group Management currently views as material in terms of Pharma Equity Group.
Risks relating to the Transaction:
- Risks related to due diligence investigations on Reponex not having revealed all risks, which, if materialized, may impact the factors considered in contributing value to Pharma Equity Group or result in unforeseen difficulties or costs of implementing Reponex into the Pharma Equity Group.
Risks relating to the business and industries in which Pharma Equity Group and it’s subsidiary company Reponex operate:
- Risks related to clinical trials if results from the early clinical trials are not repeated in more extensive clinical trials, if Reponex’ current and future clinical trials will not prove a risk benefit ratio or sufficient clinical benefit for Reponex to be able to subsequently sell its products to partners or customers or obtain regulatory approvals or if, clinical trial results may prove inadequate to draw any conclusions and may have to be repeated.
- Risks related to increased development costs as a consequence of either delays or unsatisfactory results from clinical trials, which may lead to increased cash burn for Reponex and Pharma Equity Group compared to estimates.
- Repositioning Risks related to repositioning of established clinically proven active pharmaceutical ingredients if Reponex never succeeds with any particular product candidate and as a result, never succeeds in creating a marketable product,
- Risks related to the projection of the addressable market and the commercial potential of the product candidates which may reduce their commercial value if Reponex’ projection of the addressable market and commercial potential for its product candidates are not accurate.
- Risks related to the repayment or sale of Pharma Equity Group’s receivable in Portinho S.A, which if not paid in full or in time may force Pharma Equity Group to use a large part of the proceeds generated by the utilization of the warrants in Reponex executed prior to the Transaction and by the Rights Issue, on the day-to-day operations of the Enlarged Group and for settlement of existing creditors, including banks and other financial lenders, if other means of financing are not available.
Risks relating to the financial position of Pharma Equity Group and Reponex:
- Risks related to financing needs and capital for Reponex if delays in clinical trials or product development results in delayed revenues and increased costs, negatively affecting future expected cash flows.
- Risks related to the financial situation of Pharma Equity Group if the receivable in Portinho S.A, is not paid in full or in time.
- Risks related to the current Pharma Equity Group Management as the chief executive officer and one member of the Pharma Equity Group Board of Directors have been appointed recently and have had limited time to gain in-depth knowledge of Pharma Equity Group’s business, to implement their visions for Pharma Equity Group and have only received limited hand-over from previous executive management of Pharma Equity Group.
- If Pharma Equity Group and fails to raise capital in due time, when needed, it will limit the further product development.
The Board of Directors and the Management of Pharma Equity Group are responsible for the Company’s control and risk management in connection with the financial reporting process, including compliance with rules and regulations that are relevant in reporting.
The Board of Directors has established an Audit Committee that reviews and discusses the accounting and audit practices with the Company’s auditors and Management in accordance with the Rules of Procedures of the Audit Committee.
The annual audit and reporting process include detailed planning of individual tasks and planning between finance and the auditors. It is based on an audit strategy developed by the auditors and approved by the Audit Committee. At least annually, the Audit Committee evaluates the risks connected with the financial reporting process, including the presence of internal controls and guidelines. The Audit Committee assesses the Company’s organizational structure, including the risk of fraud and the measures to be taken to reduce and/or eliminate such risk. In that regard, any incentive or motivation of Management to manipulate earnings or perform any other fraudulent action is discussed.
The Company’s internal controls and guidelines provide a reasonable but not an absolute certainty that unlawful use of assets, loss and/or significant errors or deficiencies in relation to the financial reporting process can be avoided.
The Board of Directors has not instituted an internal audit function at Pharma Equity Group, based on its assessment that the Company’s size and complexity does not necessitate such a function.
Pharma Equity Group is considering the establishment of a whistleblower scheme, which gives employees and other stakeholders the opportunity to report serious wrongdoing or suspicions thereof in an appropriate and confidential manner, and that there is a procedure for handling such whistleblower cases.
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