Leading the way in
breakthrough
immunotherapies
Annual Report 2021
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
Faron Pharmaceuticals in brief
Faron (AIM: FARN, First North: FARON) is a clinical stage
biopharmaceutical company focused on building the
future of immunotherapy by harnessing the power of
the immune system to tackle cancer and inflammation.
The Company currently has a pipeline based on the
receptors involved in regulation of immune response in
oncology, organ damage and bone marrow regeneration.
Bexmarilimab, a novel anti-Clever-1 humanised antibody,
is its investigative precision immunotherapy with the
potential to provide permanent
immune stimulation
for difficult-to-treat cancers through targeting myeloid
function. Currently in phase I/II clinical development as a
potential single-agent therapy for patients with untreatable
solid tumours, the Company is also progressing plans to
investigate bexmarilimab’s potential in additional clinical
settings, including in combination with anti-PD-1 therapy
is an
intravenous
investigational
in selected advanced solid tumors and in combination
with standard of care in hematological malignancies.
(IV)
Traumakine
interferon beta-1a therapy for the treatment of acute
respiratory distress syndrome (ARDS) and other ischemic
or hyperinflammatory conditions. Traumakine is currently
being evaluated in the Phase II/III HIBISCUS trial as a
potential treatment for hospitalized COVID-19 patients.
The 59th Medical Wing of the US Air Force and the US
Department of Defense are also evaluating Traumakine
for the prevention of multiple organ dysfunction syndrome
(MODS) after ischemia reperfusion injury caused by a
major trauma. Faron is headquartered in Turku, Finland
with offices in Zürich, Switzerland and Boston, MA in the
United States.
“Despite the ongoing global pandemic, 2021 was
another historic year for Faron. We accelerated
our ambitious bexmarilimab development program
and progressed plans to study this novel precision
immunotherapy in multiple settings across both
solid tumors and hematologic malignancies.
We couldn’t have done this without the continued
support of our shareholders and the incredible
team at Faron, who I’d like to especially thank
for their dedication to our mission, resiliency and
ability to navigate these unprecedented times.”
Dr. Markku Jalkanen
Chief Executive Officer
For further information on the Company’s progress, development programmes and pipeline, please visit Faron´s website www.faron.com.
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FARON PHARMACEUTICALS OY
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Contents
FARON PHARMACEUTICALS
Our Pipeline
Highlights 2021
STRATEGIC REPORT
Chairman’s Statement
Chief Executive Officer’s Review
Financial Review
Risks and Uncertainties
CORPORATE GOVERNANCE
Chairman’s Introduction to Governance
Compliance with the Principles of the QCA Code
Board of Directors
Remuneration Report
Corporate Governance Statement
Directors’ Report
FINANCIAL REPORT
Statement of Comprehensive Income
Balance Sheet
Parent Company Statement of Changes in Equity
Group Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
Results and Dividends
Auditor’s Report
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FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
Our Pipeline
Building the future of immunotherapy
PROGRAMS (TARGET)
INDICATIONS
PRECLINICAL
PHASE I
PHASE II
PHASE III
IMMUNO-
ONCOLOGY
Bexmarilimab
(anti-Clever-1 mAb)
ORGAN
PROTECTION
Traumakine
(intravenous IFN
beta-1a)
REGENERATIVE
MEDICINE
Haematokine
AOC3 inhibitor
Solid tumors (MATINS)
NSCLC (MATINS-05 LUNG)
Hematological Malignancies
(MATINAML)
COVID-19 (HIBISCUS)
ARDS & COVID-19 (REMAP-CAP)
Hematological Malignancies
Bone Marrow Failure
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FARON PHARMACEUTICALS OY
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Bexmarilimab (formerly ‘Clevegen’)
– the future of immunotherapy
THE TARGET AND PROGRAMME
immune stimulation
Bexmarilimab
investigative
is Faron’s wholly-owned,
precision immunotherapy with the potential to provide
for difficult-to-treat
permanent
cancers through targeting myeloid cell function. A novel
anti-Clever-1 humanised antibody, bexmarilimab targets
Clever-1 positive (Common Lymphatic Endothelial and
Vascular Endothelial Receptor 1) tumour associated
macrophages (TAMs) in the tumour microenvironment,
converting
immunosuppressive M2
macrophages to immune stimulating M1 macrophages.
these highly
Bexmarilimab has been shown to successfully block
or silence Clever-1, activating antigen presentation and
promoting interferon gamma secretion by leukocytes.
Additional pre-clinical studies have proven that Clever-1,
encoded by the Stabilin-1 or STAB-1 gene, is a major
source of T cell exhaustion and involved in cancer growth
and spread. Observations from clinical studies to date
indicate that Clever-1 has the capacity to control T cell
activation directly, suggesting that the inactivation of
Clever-1 as an immune suppressive molecule could be
more important than previously thought.
As an immuno-oncology therapy, bexmarilimab has
potential as a single-agent therapy or in combination with
other standard treatments including immune checkpoint
molecules. Beyond immuno-oncology, it offers potential in
infectious diseases, vaccine development and more.
CLINICAL DEVELOPMENT
Bexmarilimab is currently in phase I/II clinical development
as a potential therapy for patients with untreatable solid
tumours. The MATINS study is a first-in-human, open label
phase I/II clinical trial investigating the tolerability, safety
and efficacy of bexmarilimab in ten different hard-to-treat
metastatic or inoperable solid tumour cohorts. The most
significant disease control rate (partial response + stable
disease rate) was observed in cutaneous melanoma
(30%), gastric cancer (30%), cholangiocarcinoma (30%),
hepatocellular carcinoma (40%) and breast cancer (40%)
patients. To date, the investigational therapy has been
shown to be safe and well-tolerated.
Beyond the MATINS trial, Faron is progressing plans to
study bexmarilimab in combination with other checkpoint
for hematological
inhibitors and as a
malignancies. Biomarker analysis will also continue to
better understand which patients are likely to respond
and what happens in the tumour microenvironment when
patients are treated with bexmarilimab.
treatment
This project has received funding from
the European Union’s Horizon 2020
research and innovation programme
under grant agreement No 960914.
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FARON PHARMACEUTICALS OY
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Traumakine –enhancing the endothelial
barrier
II proof of concept studies investigating the potential of
Traumakine for the treatment of ARDS reported promising
results with a significant drop in mortality among patients
treated with Traumakine and efficacy improvements
consistent with a reduction in vascular leakage.
trial
The Phase
II/III HIBISCUS
investigating
Traumakine in the treatment of hospitalized COVID-19
patients commenced in 2021. In the trial, Traumakine
is used prior to the current practice of corticosteroid
treatment to prevent acute respiratory distress syndrome
(ARDS), to improve clinical condition and reduce patient
death. This trial was supported the US Department of
Defense through funding from the Coronavirus Aid, Relief,
and Economic Security Act.
As part of a working relationship established with Faron,
the 59th Medical Wing of the US Air Force and the U.S.
Department of Defense are also evaluating Traumakine’s
role in preventing multiple organ dysfunction syndrome
(MODS) after ischemia-reperfusion injury caused by a
major trauma.
IFN beta-1a has previously demonstrated a compelling
argument as the body’s first line of defence against
viral infection. Inducing CD73 expression on vascular
endothelium can protect vital organs against ischemia and
inflammation, offering a new approach to the treatment of
several life threatening diseases and conditions.
THE TARGET AND PROGRAMME
Traumakine® is Faron’s investigational intravenous (IV)
interferon beta-1a therapy for the treatment of acute
respiratory distress Syndrome (ARDS) and other ischemic
or hyperinflammatory conditions.
ARDS is a severe, orphan lung disease characterised by
widespread inflammation in the lungs and a sudden failure
of the respiratory system. The integrity of vasculature and
capillaries, which maintain the supply of oxygen in various
organs, is sustained by endothelial cells covering the inner
surfaces of blood vessels and forming a barrier between
circulation and tissues. The breakdown of this endothelial
barrier results in leakage of blood content to tissues.
When this happens in the lungs of ARDS patients, the
lungs fill with protein rich fluid and blood cells, resulting in
respiratory failure.
The body’s own, natural production of interferon beta
1a, a key interferon signaling protein produced in response
to infection, is one of the major innate immunity defences
against virus invasion and a vital response to inflammation,
especially in severe respiratory viral infections.
Faron is investigating the potential of Traumakine
treatment to further strengthen this natural defence.
In addition to a profound antiviral effect, Traumakine
upregulates
the cell surface protein Cluster of
Differentiation 73 (CD73), an enzyme that suppresses
pro-inflammatory responses in endothelial cells. Using an
IV administration of interferon beta-1a provides optimal
exposure to the lung vasculature, increasing protection
against serious lung complications and helping to prevent
vascular leakage by enhancing endothelial barrier function.
CLINICAL DEVELOPMENT
Building on robust pre-clinical research, Faron has
conducted multiple clinical studies using Traumakine
for the treatment of ARDS and other conditions. Phase I/
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FARON PHARMACEUTICALS OY
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Haematokine – haematopoietic stem cell
expansion
THE TARGET AND PROGRAMME
Hematopoietic Stem Cell Transplantation (HSCT)
is
standard of care for many diseases of the blood. However,
transplant failure, a result of poor expansion rates from
the transplanted cells, is a complication arising from
transplantations that occurs in over 25% of patients and
can be lethal.
The AOC3 enzymatic domain, a semicarbazide
sensitive amine oxidase, is known to produce hydrogen
peroxide (H2O2), a potent inflammatory mediator. AOC3
in vivo, ex vivo and in vitro studies have revealed that an
ACO3 enzymatic end product H2O2 controls expansion of
hematopoietic stem cells.
Haematokine® regulates AOC3 activity in order to
expand hematopoietic stem cells, which can be used in
regenerative medicines and in hematological malignancies
where expansion rates in transplanted cells are low. This
programme, currently in pre-clinical development, has the
potential to benefit all indications where an expansion of
haemopoietic stem cells is needed.
CLINICAL DEVELOPMENT
Hematokine is currently undergoing IND-enabling studies.
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FARON PHARMACEUTICALS OY
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Highlights
Operational (including post period):
BEXMARILIMAB - Faron’s wholly-owned, novel
precision cancer
immunotherapy candidate,
in Phase I/II development for difficult-to-treat
cancers.
• Compelling antitumor activity in multiple advanced
solid tumor types was reported from patients
enrolled in the completed Part I and ongoing Part
II of the MATINS study, investigating bexmarilimab
as a potential monotherapy in patients with solid
tumors who have exhausted all treatment options.
The strongest results were observed in cutaneous
melanoma, gastric cancer, cholangiocarcinoma,
hepatocellular carcinoma and breast cancer with
a 30.0% — 40.0% clinical benefit rate (CBR) across
these tumor types.
• Landmark analysis estimates 70% nine-month overall
survival rate for MATINS patients who benefited from
treatment with bexmarilimab and 26% for patients
who did not benefit from treatment. Median overall
survival has not yet been reached in the clinical
benefit patient group.
(IFNy) and
• Biomarker analysis shows patients with
low
interferon gamma
tumor necrosis
factor alpha (TNFa) levels experienced significantly
higher clinical benefit following treatment with
bexmarilimab, which is opposite to what is usually
seen with checkpoint inhibitors and other T cell
activating agents, meaning bexmarilimab has the
potential to bring the promise of immunotherapy
to a much broader patient population compared to
the relatively small percentage of cancer patients
benefiting from checkpoint inhibitor therapies today.
• A more than 100% increase in IFNy levels was
seen after the first cycle of bexmarilimab treatment
among patients who experienced clinical benefit. In
certain patients, bexmarilimab is able to turn cold
tumors into hot tumors and may serve as a catalyst
for the immune system allowing initially checkpoint
inhibitor resistant patients to become responsive to
PD-1 blockade.
• Further clinical trials are planned to start in 2022 to
investigate bexmarilimab’s potential in additional
clinical settings, including in combination with anti-
PD-1 therapy in selected advanced solid tumors and
in combination with standard of care in hematological
malignancies.
• A key patent with claims protecting the composition
of matter of bexmarilimab was granted by the United
States Patent and Trademark Office and equivalent
Japanese patent office. This patent family covers
bexmarilimab’s binding sequences and Clever-1’s
corresponding epitope – specific elements of the
antibody-antigen binding site – with an expected
expiry date, not including any potential extensions,
of 2037. The European Patent Office also issued an
allowance letter, which means that more than 80% of
pharmaceutical markets are now covered with this
patent family.
• A new role for soluble Clever-1 was identified, related
to its capacity to control T cell activation. The
scientific findings, from tests on MATINS patients’
plasma, suggest that their high
levels of free,
soluble Clever-1 can act as a direct inhibitor of T cell
activation, providing a greater immunosuppressive
effect than previously expected and
indicating
broader applicability for bexmarilimab. A new patent
application has been filed seeking protection for
these inventions and related applications.
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FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
TRAUMAKINE® - Faron’s investigational intravenous
(IV) interferon beta-1a therapy, in development
for the treatment of acute respiratory distress
syndrome
ischemic or
hyperinflammatory conditions.
(ARDS) and other
HAEMATOKINE – An AOC3 (amine oxidase copper
containing 3) protein inhibitor targeting Vascular
Adhesion Protein-1 (VAP-1) in development for use
in regenerative medicine and to treat hematological
malignancies.
investigating Traumakine
• Dosing commenced in the Phase II/III HIBISCUS
trial
in the treatment
of hospitalized COVID-19 patients compared to
corticosteroid
treatment with dexamethasone.
The US Department of Defense (DoD) selected the
HIBISCUS trial to receive $6.1 million of funding from
the Coronavirus Aid, Relief, and Economic Security
(CARES) Act.
• Building on Faron’s already strong IP portfolio for
Traumakine, Faron signed a sub-license agreement
covering a relevant manufacturing patent in the US.
Faron also applied for patent protection relating to
Traumakine’s induction of CD73 for organ protection,
through the sequential use of IV interferon beta-
1a followed by corticosteroids for the treatment of
systemic inflammation.
• Scientific Reports published data from INFORAAA
Study Showing Traumakine induced up-regulation of
CD73 was associated with 100% survival in surgically
operated
ruptured abdominal aorta aneurysm
(RAAA) patients. These patients are at high risk of
ischemia-reperfusion injury, with expected mortality
between 30-40%.
• Partnership established with the 59th Medical Wing
of the U.S. Air Force and U.S. Army and U.S. Army
Institute of Surgical Research to explore the use of
Traumakine for organ protection in combat wounds
leading to multi-organ failure from ischemia and
reperfusion.
• New manufacturing process
is progressing as
planned in collaboration with AGC Biologics.
• Faron acquired rights for this potential use of
AOC3 inhibitors and will be responsible for the
future development of Haematokine and for the
management, prosecution, maintenance and filing of
patent applications.
• The multidisciplinary journal Cellular and Molecular
Life Sciences published research showing the
inhibition of VAP-1 potentially supports the expansion
of human hematopoietic stem cells (HSC), which are
essential to the formation of new cells within blood.
This approach has the potential to benefit a variety
of conditions where an expansion of HSC is needed.
This includes bone marrow transplantation, where
approximately 25% of transplants fail due to poor
expansion of transplanted cells.
CORPORATE HIGHLIGHTS
includes
• Balance sheet was strengthened by raising EUR
25.6 million gross through private placements
of new ordinary shares. This
two
placements, which encompassed existing and
new investors, including the European Innovation
Council Fund, a breakthrough initiative from the
European Commission. In February 2022, Faron
also announced a debt funding agreement with IPF
Partners for up to EUR 30 million. EUR 10 million
was accessed upon signing of the agreement with
an additional EUR 20 million available in the future
through additional tranches of EUR 5 million and EUR
15 million, subject to certain conditions being met.
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FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
• Anne Whitaker joined the Faron Board of Directors,
bringing more than 25 years of experience in the life
science industry, including senior leadership roles
with large pharmaceutical, biotech and specialty
pharma companies. Anne is the current Chairman
of the Board for Aerami Therapeutics Holdings, Inc.
Anne previously served as Chief Executive Officer
of Novoclem Therapeutics, Inc., Executive Vice
President at Bausch Health, President and Chief
Executive Officer of Synta Pharmaceuticals and as
President, North America Pharmaceuticals at Sanofi.
• Marie-Louise Fjällskog, M.D., Ph.D., joined Faron’s
Global Management Team as Chief Medical Officer,
bringing with her over 30 years of experience in
clinical oncology, translational research, and drug
development. Dr. Fjällskog joined Faron from Sensei
Biotherapeutics (SNSE), a Nasdaq listed immuno-
oncology company. As Chief Medical Officer at
Sensei, she was responsible for leading clinical and
development strategy and operations. Previously,
she served as Vice President, Clinical Development
at Merus (MRUS) and Infinity Pharmaceuticals
(INFI) where she led development of multiple small
molecule and immuno-oncology clinical programs.
She was also formerly Global Clinical Program Leader
at the Novartis Institute for Biomedical Research.
• Faron hosted a virtual R&D Day in February 2022
presenting the Company’s plans to accelerate the
development of bexmarilimab. The event was hosted
by Dr. Markku Jalkanen, Chief Executive Officer, and
members of the Global Management Team including
Dr. Marie-Louise Fjällskog, Chief Medical Officer and
Dr. Juho Jalkanen, Chief Operating Officer. External
perspectives were provided by Dr. Tyler Curiel,
Professor of Medicine and Microbiology, Immunology
& Molecular Genetics at The University of Texas
Health Science Center at San Antonio, United States
and Dr. Maija Hollmén, Adjunct Professor of Tumour
Immunology, Group Leader and Academy Research
Fellow at the MediCity Research Laboratory, Institute
of Biomedicine, University of Turku, Finland.
IMPACT OF COVID-19
• Despite the ongoing global pandemic, the Company
limited
was able to continue operations with
disruptions. This included the successful planning
and execution of its clinical trials, which proceeded
as planned.
• Additionally, Faron closely followed and strictly
10
complied with the regulations and recommendations
of the Finnish National Institute for Health and Welfare
(THL) and other relevant local and international
authorities to ensure the safety of its employees,
study subjects and partners.
FINANCIAL
• On December 31, 2021, the Company held cash
balances of EUR 6.9 million (2020: EUR 4.1 million).
• Loss for the period for the financial year ended
December 31, 2021 was EUR 21.2 million (2020: EUR
16.9 million).
• Net assets on December 31, 2021 were EUR 2.9
•
million (2020: EUR -1.8 million).
In February 2021, the Company successfully raised
a total of EUR 15.0 million gross (EUR 14.4 million
net) from new and existing shareholders, through
issuance of a total of 3,521,127 new ordinary shares.
In September 2021, the Company successfully raised
a total of EUR 10.6 million gross (EUR 10.1 million
net) from new and existing shareholders, through
issuance of a total of 2,763,158 new ordinary shares.
Proceeds from both raises will be used to accelerate
and expand
the
Company’s main drug candidates and to strengthen
the Company’s balance sheet.
the clinical development of
• Post period, in February 2022, Faron secured a debt
funding agreement with IPF Partners for up to EUR 30
million. EUR 10 million was accessed upon signing
of the agreement with an additional EUR 20 million
available in the future though additional tranches of
EUR 5 million and EUR 15 million, subject to certain
conditions being met.
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
CONSOLIDATED KEY FIGURES, IFRS
€’000
Revenue
Other operating income
Research and Development expenses
General and Administrative expenses
Loss for the period
Loss per share EUR
Unaudited
7–12/2021
6 months
Unaudited
7–12/2020
6 months
1–12/2021
12 months
1–12/2020
12 months
0
4,927
(8,361)
(7,250)
(10,649)
(0.21)
0
1,379
(8,345)
(2,543)
(9,603)
(0.22)
0
6,137
(17,369)
(9,876)
(21,209)
(0.42)
0
2,122
(13,879)
(4,897)
(16,946)
(0.37)
Number of shares at end of period
53,232,032
46,896,747
53,232,032
46,896,747
Average number of shares
51,836,953
44,606,204
50,723,964
45,712,111
€’000
Cash and cash equivalents
Equity
Balance sheet total
Unaudited
30 Jun 2021
Unaudited
30 Jun 2020
31 Dec 2021
31 Dec 2020
6,967
2,813
11,865
11,627
7,313
14,343
6,853
2,919
13,182
4,108
(1,849)
8,367
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FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
Chairman’s
Statement
During 2021, Faron has continued to make significant
progress across the business. It has maintained its focus
on pipeline delivery, including the initiation of clinical trials
and generation of further clinical data. The Company
has developed the management team with new hires
and raised funds during the period, all of which has been
achieved against the continued challenges of COVID-19.
A key priority for Faron has been to continue to advance
its wholly-owned novel precision cancer immunotherapy
candidate, bexmarilimab, through the Phase I/II MATINS
clinical trial. Over the course of the year the Company has
generated and presented further clinical data showing
that heavily pre-treated, late-stage cancer patients who
receive clinical benefit from bexmarilimab can achieve
long term survival. Through the multiple cohorts tested
to date, bexmarilimab has generated compelling efficacy
data and has continually been shown to be safe and well-
tolerated. Faron is continuing to analyze biomarker data
from the trial to better understand which patients are
most likely to respond.
The Company will continue to accelerate bexmarilimab
through clinical development and is planning to study
in combination with other checkpoint
bexmarilimab
inhibitors and as a
for hematological
malignancies, in addition to the ongoing MATINS trial. The
evolving data generated to date suggest bexmarilimab is
an active drug with a novel mechanism of action which, I
believe, has the potential to play a significant role in the
future treatment of cancer patients.
treatment
2021 saw the COVID-19 pandemic continue to evolve.
With the global call for research to identify potential
therapies being widely answered by life science companies,
including Faron, there has been unprecedented innovation
in this space. Despite this, there is still a need for new
therapeutic options to treat the serious complications of
COVID-19, including acute respiratory distress syndrome
(ARDS). As such, Faron was pleased to initiate the Phase
II/III HIBISCUS trial, investigating Traumakine, Faron’s
investigational intravenous (IV) interferon (IFN) beta-1a
therapy, in hospitalized COVID-19 patients.
Faron has generated a wealth of data on the potential
of Traumakine during its clinical development and we
were pleased to publish data from the completed Phase
II INFORAAA trial showing the up-regulation of CD73 in
surgically operated ruptured abdominal aorta aneurysm
(RAAA) patients. The results show the role of CD73
in organ protection and its ability to benefit patients
undergoing major surgery, and we remain confident that
Traumakine has potential beyond ARDS, across multiple
indications, where there continues to be significant unmet
medical need.
Despite the difficult funding environment due to
COVID-19, Faron has successfully secured
further
investment over the period to progress its pipeline. This
is testament not only to the potential of our product
candidates but also to the expertise and credibility of
the management team. The Board meets regularly to
discuss the Company’s performance, review the clinical
programs, discuss ongoing business strategy and assess
the Company’s financial situation in order to continue to
progress the pipeline and deliver value for shareholders.
On behalf of the Board, I would like to take this
opportunity to thank all the staff at Faron, without
whom we would not have achieved so much this year;
my colleagues on the Board for their commitment to
the Company; our partner organisations and steering
committee members for their support and expertise;
Faron’s investors for showing continued confidence in
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FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
the Company and, importantly, the health professionals
and patients across our trial network. I would also like to
extend a warm welcome to Dr. Marie-Louise Fjällskog, our
new Chief Medical Officer. Her knowledge and network
will be invaluable to Faron as we continue to accelerate
through clinical development whilst
bexmarilimab
progressing our other product candidates.
Finally, I would also like to thank the management
team, particularly Dr. Markku Jalkanen, Chief Executive
Officer, Toni Hänninen, Chief Financial Officer, and Dr.
Juho Jalkanen, Chief Operating Officer, who also acted as
interim Chief Medical Officer in 2021, for their leadership.
Under their expert guidance, we are looking forward to
another year of continued progress during 2022.
Dr Frank Armstrong
Chairman
24 March 2022
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FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
Chief
Executive
Officer’s
Review
Despite the ongoing challenges presented by a global
pandemic, 2021 was another year of significant progress
for our Company. Each of our pipeline assets moved
forward and our quest to harness the power of the immune
system to tackle cancer and inflammation is closer to
being realized. We believe strongly that all three of our
programs, Bexmarilimab, Traumakine and Haematokine,
have the potential to fundamentally change treatment
paradigms and meaningfully improve patient outcomes.
Since Faron was founded, our focus has been to
challenge the status quo and accelerate innovation.
Incremental progress is not good enough. We exist to
address areas of significant unmet need; areas where
there are no currently approved treatment options, or, in
the case of cancer, where far too many patients are not
benefiting from recent advances.
Bexmarilimab has the potential to bring the promise
of immunotherapy to many more patients and in 2021
we significantly advanced its development. Our Phase
I/II MATINS (Macrophage Antibody To INhibit immune
Suppression) study investigating the safety and efficacy
of bexmarilimab showed that patients across five different
tumor types experienced disease control rates between
30% and 40%. The data also showed that heavily pre-
treated, late-stage cancer patients who receive clinical
benefit from bexmarilimab can achieve long term survival.
These results are important, and the global community
took notice when we presented the data at international
cancer meetings including ESMO, ESMO-IO and ASCO.
We also learned a great deal in 2021 about which
cancer patients are most likely to benefit from treatment
with bexmarilimab and what happens in the tumor
microenvironment when patients respond to treatment.
Biomarkers, which are proteins or other substances that
are made at higher amounts by cancer cells than normal
cells, are a critical missing link in attempting to identify
appropriate candidates for immunotherapy and tailoring
immunotherapy treatment regimens. The biomarker
analysis we conducted showed clearly that patients with
low baseline levels of serum interferon gamma (IFNy)
and tumor necrosis factor alpha (TNFa) were more likely
to experience clinical benefit following treatment with
bexmarilimab. Patients with low levels of pro-inflammatory
cytokines experiencing higher clinical benefit is opposite
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FARON PHARMACEUTICALS OY
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to what is usually seen with currently approved checkpoint
inhibitors and other T-cell activating agents.
Our analysis also showed that among patients who
experienced clinical benefit, IFNy levels increased over
100% after the first cycle of bexmarilimab treatment.
Interferon gamma is a marker for inflammation which
suggests bexmarilimab may amplify an immune response
and serve as a catalyst for the immune system allowing
initially checkpoint inhibitor resistant patients to become
responsive to PD-1 blockade.
This enhanced understanding of who is most likely
to respond to treatment with bexmarilimab and what
happens in the tumor microenvironment allowed us to
refocus and accelerate our development plan in 2021.
In addition to the ongoing MATINS trial, we progressed
plans to study bexmarilimab in combination with other
checkpoint inhibitors and as a treatment for hematological
malignancies. We are undertaking an ambitious strategy
but given the data we have seen to date and our evolving
understanding of which biomarkers will predict response
to treatment, we believe bexmarilimab has the potential to
broadly impact cancer care.
We have also been successful in obtaining long term
patent protection for bexmarilimab. During 2021 the
United States Patent and Trademark Office and equivalent
Japanese patent office approved protection, at least
through 2037, for our humanized anti-Clever-1 antibody
(bexmarilimab) sequence and the counter binding site
of this antibody on Clever-1. Faron has also received an
allowance letter from the European Patent Office, which
now means that more than 80% of pharmaceutical
markets are covered with this patent family.
Leading our bexmarilimab development efforts
moving forward will be Dr. Marie-Louise Fjällskog, who
joined Faron in January 2022 as our new Chief Medical
Officer. We were thrilled to add someone of Marie-Louise’s
caliber to our team. She has over 30 years of experience
in clinical oncology, translational research, and drug
development and has held senior R&D roles at several
clinical stage biotech companies. She was also formerly
Global Clinical Program Leader at the Novartis Institute for
Biomedical Research where she led global development of
oncology treatments targeting CDK4/6, BCL-2, PD-1, CSF-
1 and CD73.
15
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
In addition to bexmarilimab, 2021 proved to be an
important year for Traumakine as well. Traumakine is our
investigational intravenous interferon beta-1a therapy,
which we are developing for the treatment of acute
respiratory distress syndrome (ARDS) and other ischemic
or hyperinflammatory conditions. Traumakine works
by up-regulating CD73, a critical enzyme which yields
anti-inflammatory adenosine and can prevent fluid from
building up in and around organs.
In August, dosing commenced in the Phase II/III
HIBISCUS trial investigating Traumakine in the treatment
of hospitalized COVID-19 patients. While hospitalizations
and severity of disease have decreased since the initiation
of this study, we continue to believe that Traumakine
has the potential to become a powerful treatment option
for patients who are at risk of developing ARDS as a
consequence of a viral infection, such as COVID-19. This
trial is supported the US Department of Defense through
funding from the Coronavirus Aid, Relief, and Economic
Security Act.
Additionally, research highlighting results from our
Phase II INFORAAA clinical trial, which examined the
effect of Traumakine on mortality of surgically operated
ruptured abdominal aorta aneurysm (RAAA) patients,
was published in the multidisciplinary journal Scientific
Reports. Analysis showed that up-regulation of CD73
following treatment with Traumakine was associated
with 100% survival compared to the expected mortality
rate for operated RAAA patients, which is between 30-
40%. Ischemia-reperfusion injury, tissue damage caused
when blood supply returns to tissue after a period of
oxygen depletion, is the main cause of death for operated
RAAA patients. We believe Traumakine has the potential
to prevent acute organ injury following major surgery and
polytrauma by reducing inflammation and preventing
vascular leakage. This could represent a significant
advancement in patient care given there are currently no
drugs approved for this condition.
Similar to the patent advancements we made with
bexmarilimab, our intellectual property (IP) portfolio for
Traumakine was also strengthened in 2021 by signing a
sub-license agreement covering a relevant manufacturing
patent in the US. In addition, we applied for patent
protection relating to Traumakine’s induction of CD73
for organ protection, through the sequential use of IV
interferon beta-1a followed by corticosteroids for the
treatment of systemic inflammation. Adding these patent
protections to our already strong IP portfolio will ensure
16
we are able to move each of the potential indications
forward with the ultimate goal of making this innovative
drug available to patients in the coming years.
The third program in our pipeline is Haematokine,
an investigational Vascular Adhesion Protein 1 (VAP-1)
inhibitor. Haematokine blocks VAP-1 enzymatic activity,
which supports the expansion of human hematopoietic
stem cells. This has the potential to benefit a variety of
conditions where an expansion of hematopoietic stem
cells is needed. Most notably, this includes bone marrow
transplantation, where approximately 25% of transplants
fail due to poor expansion of transplanted cells.
In November, the multidisciplinary journal Cellular and
Molecular Life Sciences published research that aligns
with our pre-clinical findings. Pre-clinical studies are
continuing, and we believe Haematokine could have broad
applicability, not just in hematological malignancies, but
across the field of regenerative medicine.
Our focus for 2022 will be to accelerate bexmarilimab’s
clinical development, which in addition to the ongoing
MATINS trial will include the initiation of trials investigating
bexmarilimab in a first line setting in combination with
other checkpoint
inhibitors and as a treatment for
hematological malignancies. We have a responsibility to
the millions of cancer patients across the globe currently
not benefiting from existing treatment options to move
this novel asset forward as quickly as possible. We will
move with urgency because patients can’t wait.
I would like to thank our shareholders for their
continued support of our Company and the management
team. I would also like to express my profound gratitude to
every Faronial, which is what we call our team members.
They come to work each day committed to disrupting the
current treatment landscape and fundamentally improving
patient outcomes.
As critical as 2021 was, there is no doubt that 2022 will
be the most important year in the history of our Company.
There is also no doubt that with the team we have in place
and with your continued support, we are positioned to
exceed even our most ambitious goals.
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
Dr Markku Jalkanen
Chief Executive Officer
24 March 2022
17
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
Financial
Review
included new
investors. Both also
Despite challenging market conditions, we were able
to conduct two successful fundraising rounds in 2021.
Combined, they raised EUR 25.6 million gross and both
rounds
included
investments by the European Investment Council (EIC)
in companies
Fund, which
across Europe developing breakthrough and disruptive
technologies. We were proud to become the first publicly
listed company to receive an investment from the EIC
Fund.
is focused on
investing
As a result of these fundraising efforts, the Company’s
net cash flow in 2021 showed EUR 2.9 million positive. We
were able to accomplish this while also increasing R&D
and G&A expenditures.
Post period, in February 2022, Faron secured a
debt funding agreement with IPF Partners, one of the
leading alternative financing providers focused on the
healthcare sector, for up to EUR 30 million. EUR 10 million
was accessed upon signing of the agreement with an
additional EUR 20 million available in the future, subject
to certain conditions being met. This non-dilutive funding
agreement strengthened our financial position and gives
us the flexibility to access supplemental and inexpensive
capital as we continue to accelerate the development of
our pipeline assets.
REVENUE AND OTHER OPERATING INCOME
The Company’s revenue was EUR 0.0 million for the year
ended 31 December 2021 (2020: EUR nil).
The Company recorded EUR 6.1 million (2020: EUR 2.1
million) of other operating income. This consisted of mainly
of the result of the arbitration ruling in favor of Faron in its
case against Rentschler Biopharma SE (EUR 3.8 million)
and the rest consists of government grant and loan.
18
RESEARCH AND DEVELOPMENT COSTS
R&D costs increased by EUR 3.5 million from EUR 13.9
million in 2020 to EUR 17.4 million in 2021. The costs of
outsourced clinical trial services were decreased by EUR
0.9 million from EUR 4.4 to EUR 3.5 million. The cost of
employee benefits was increased by EUR 0.4 million from
EUR 2.9 to EUR 3.3 million, mainly driven by additional
headcount.
GENERAL AND ADMINISTRATION COSTS
Administrative expenses increased by EUR 5.0 million from
EUR 4.9 million in 2020 to EUR 9.9 million in 2021. The
increase was mainly due to the EUR 3.1 million increase
in other G&A costs, mainly driven by legal expenses, which
were offset by other income. Further, employee benefits
increased by EUR 1.0 million mainly driven by additional
headcount.
TAXATION
The Company’s tax credit for the fiscal year 2021 can
be recorded only after the Finnish tax authorities have
approved the tax report and confirmed the amount of tax-
deductible expenses. The total amount of cumulative tax
losses carried forward approved by tax authorities on 31
December 2021 was EUR 42.6 million (2020: EUR 38.2
million). The Company estimates that it can utilise most
of these during the years 2020 to 2021 by offsetting them
against future profits.
In addition, Faron has EUR 70.1 million of R&D costs
incurred in the financial years 2010 - 2020 that have
not yet been deducted from taxation. This amount can
be deducted over an indefinite period at the Company’s
discretion.
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
LOSSES
Loss before income tax was EUR 21.2 million (2020: EUR
16.9 million). Net loss for the year was EUR 21.2 million
(2020: EUR 16.9 million), representing a loss of EUR 0.42
per share (2020: EUR 0.37 per share) (adjusted for the
changes in number of issued shares).
CASH FLOWS
Net cash flow was EUR 2.9 million positive for the
year ended 31 December 2021 (2020: EUR 2.8 million
negative). Cash used for operating activities increased by
EUR 4.7 million to EUR 22.2 million for the year, compared
to EUR 17.5 million for the year ended 31 December 2020.
This increase was mostly driven by an increase in R&D
investments. Net cash inflow from financing activities
was EUR 25.6 million (2020: EUR 14.8 million) mainly due
to the successful equity placings completed in February
2021 and September 2021.
FUNDRAISING
In February 2021, the Company successfully raised a total
of EUR 15.0 million gross (EUR 14.4 million net) from new
and existing shareholders, through issuance of a total of
3,521,127 new ordinary shares. In September 2021, the
Company successfully raised a total of EUR 10.6 million
gross (EUR 10.1 million net) from new and existing
shareholders, through issuance of a total of 2,763,158 new
ordinary shares. Proceeds from both raises will be used
to accelerate and expand the clinical development of the
Company’s main drug candidates and to strengthen the
Company’s balance sheet. Post period, in February 2022,
Faron secured a debt funding agreement with IPF Partners
for up to EUR 30 million. EUR 10 million was accessed
upon signing of the agreement with an additional EUR 20
million available in the future, subject to certain conditions
being met.
FINANCIAL POSITION
As at 31 December 2021, total cash and cash equivalents
held were EUR 6.9 million (2019: EUR 4.1 million).
GOING CONCERN
As part of their going concern review, the Directors have
followed the Finnish Limited Liability Companies Act, the
Finnish Accounting Act and the guidelines published by
the Financial Reporting Council entitled “Guidance on the
Going Concern Basis of Accounting and Reporting on
Solvency and Liquidity Risks – Guidance for directors of
companies that do not apply the UK Corporate Governance
Code”. The Company and its subsidiaries (the “Group”)
are subject to a number of risks similar to those of other
development stage pharmaceutical companies.
risks associated with
These risks include, amongst others, generation of
revenues in due course from the development portfolio
research, development,
and
testing and obtaining related regulatory approvals of its
pipeline products. Ultimately, the attainment of profitable
operations is dependent on future uncertain events which
include obtaining adequate financing to fulfil the Group’s
commercial and development activities and generating
a level of revenue adequate to support the Group’s cost
structure.
The Group made a net loss of EUR 21.2 million during
the year ended 31 December 2021. It had a positive equity
of EUR 2.9 million including an accumulated deficit of EUR
116.265 million. As at that date, the Group had cash and
cash equivalents of EUR 6.9 million.
19
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
The Directors have prepared detailed financial
forecasts and cash flows looking beyond 12 months from
the date of the approval of these financial statements.
In developing these forecasts, the Directors have made
assumptions based upon their view of the current
and future economic conditions that are expected to
prevail over the forecast period. The Directors estimate
that the cash held by the Group together with known
receivables will be sufficient to support the current level
of activities into the fourth quarter of 2022. The Directors
are continuing to explore sources of finance available
to the Group and they believe they have a reasonable
expectation that they will be able to secure sufficient
cash inflows for the Group to continue its activities for
not less than 12 months from the date of approval of
these financial statements; they have therefore prepared
the financial statements on a going concern basis.
Because the additional finance is not committed at the
date of issuance of these financial statements, these
circumstances represent a material uncertainty that
may cast significant doubt on the Company’s ability to
continue as going concern. Should the Group be unable to
obtain further finance such that the going concern basis
of preparation were no longer appropriate, adjustments
would be required, including to reduce balance sheet
values of assets to their recoverable amounts, to provide
for further liabilities that might arise.
HEADCOUNT
Headcount of the Company at the end of year was 37
(2020: 30).
SHARES AND SHARE CAPITAL
During the period 1 January to 31 December 2021, the
Company, using the share authorities granted at the
Annual General Meeting held on 18 May 2020, issued a
total of 3,521,127 new ordinary shares at an issuance
price of EUR 4.26 per share. During the same period,
the Company, using the share authorities granted at the
Annual General Meeting held on 23 April 2021, issued a
total of 2,763,158 new ordinary shares at an issuance
price of EUR 3.80 per share.
The subscription price net of costs was credited in full
to the Company’s reserve for invested unrestricted equity,
and the share capital of the Company was not increased.
The Company has no shares in treasury; therefore
at the end of 2021 the total number of voting rights was
53,232,032.
20
LEGAL PROCEEDINGS
As announced by the Company on 9 November 2021, the
arbitration tribunal appointed by the Arbitration Institute
of the Stockholm Chamber of Commerce (SCC) ruled in
favor of Faron in its case against Rentschler Biopharma
SE (“Rentschler”). Faron was seeking damages from
Rentschler for unfounded termination of an agreement
concerning the manufacturing process for Traumakine.
As a result of the favorable arbitration award, Rentschler
was ordered to pay Faron EUR 3.8 million in damages.
The parties were jointly and severally liable towards the
arbitral tribunal and the SCC for the fees and expenses of
the arbitral tribunal and the fees of the SCC, which were
paid in equal shares. In addition, each party carried its
own legal costs. A third-party recovery services provider
funded the proceedings for Faron. The funder received
compensation from Faron in accordance with the litigation
funding agreement.
Toni Hänninen
Chief Financial Officer
24 March 2022
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
Risks and
Uncertainties
Faron is a clinical stage biopharmaceutical company and, similar to other companies operating in this field, is
subject to a number of risks and uncertainties. The principal risks and uncertainties identified by Faron for the
year ended 31 December 2021 are below.
RESEARCH AND DEVELOPMENT
Faron’s main products are
in clinical development
however, they may not be successful in clinical trials and
the Company may not be able to develop approved or
marketable products. Technical risk is also present at each
stage of the discovery and development process of other,
earlier stage products with challenges in biology (including
the ability to produce candidate drugs with appropriate
safety, efficacy and usability characteristics). Conversion of
cutting-edge scientific research into clinical development
programmes of novel compounds and drugs where there
is limited amount of guidance, and no previous examples
involves a high degree of uncertainty. This uncertainty,
combined with Faron’s lean organisation, could result
in situations where the Company needs to make rapid
alterations to its development projects without full visibility
to all of the downstream consequences. Additionally, drug
development is a highly regulated environment which
presents technical risk through the need for study designs
and data to be accepted by regulatory agencies. As part of
the development risk, the manufacturing of the Company’s
intended products could become impossible or products
would be supplied in lower quantities than needed.
COMMERCIAL PRODUCTS AND MANUFACTURING
The biotechnology and pharmaceutical industries in which
Faron operates are very competitive. The Company’s
competitors include major multinational pharmaceutical
companies, biotechnology companies and research
institutions. Many of which have substantially greater
financial, technical, and operational resources, such as
larger research and development resources and staff.
It may have a material adverse impact on the Company
if its competitors succeed in developing, acquiring, or
licensing drug product candidates that are more effective
or less costly than any of the product candidates which
the Company is currently developing or which it may
develop. Furthermore, there can be no guarantee that
the Company will be able, or that it will be commercially
advantageous for the Company, to monetise the value of
its intellectual property through entering into licensing or
other cooperation deals with pharmaceutical companies.
There can be no assurance that the Company’s proposed
products will be capable of being manufactured in
sufficient quantities and standards for clinical trials or
in commercial quantities, in compliance with regulatory
requirements and at an acceptable cost or within an
acceptable timeframe.
DEPENDENCE ON KEY PERSONNEL AND
SCIENTIFIC AND CLINICAL COLLABORATORS
The Company’s success is highly dependent on the
expertise and experience of the Directors and key
management. Whilst the Company has entered into
employment and other agreements with each of these
key personnel, the retention of such personnel cannot be
guaranteed. Should key personnel leave or no longer be
21
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
party to agreements or collaborations with the Company,
the Company’s business prospects, financial conditions
and/or results of operations may be materially adversely
affected. To develop new products and commercialise
its current pipeline, the Company relies, in part, on the
recruitment of appropriately qualified personnel, including
personnel with a high level of scientific and technical
expertise. There is currently a shortage of such personnel
in the pharmaceutical industry, meaning that the Company
is likely to face significant competition in recruitment.
The Company may be unable to find a sufficient number
of appropriately highly trained individuals to satisfy its
growth rate, which could affect its ability to develop as
planned.
Furthermore,
the Company’s development and
prospects depend to a significant degree on the
experience, performance and continued service of its
senior management team including the Directors. The
Company has invested in its management team at all
levels and has entered into contractual arrangements with
these individuals with the aim of securing their services.
Retention of these services or the identification of suitable
replacements, however, cannot be guaranteed. The loss of
the services of any of the Directors or other members of
the senior management team and the costs of recruiting
replacements may have a material adverse effect on the
Company and its commercial and financial performance
and reduce the value of an investment in the shares of the
Company.
REGULATORY ENVIRONMENT
The Company operates in a highly regulated environment.
Whilst the Company will take every effort to ensure that
the Company and its partners comply with all applicable
regulations and reporting requirements, there can be
no guarantee of this. Failure to comply with applicable
regulations could result in the Company being unable to
successfully commercialise its products and/or result
in legal action being taken against the Company, which
could have a material adverse effect on the Company.
The Company will need to obtain various regulatory
approvals (including from the FDA and the EMA) and
comply with extensive regulations regarding safety, quality
and efficacy standards in order to market its products.
While efforts have been and will be made to ensure
compliance with governmental standards and regulations,
there is no guarantee that any product will be able to
achieve the necessary regulatory approvals to promote
that product in any of the targeted markets and any such
regulatory approval may include significant restrictions for
which the Company’s products can be used. In addition,
the Company may be required to incur significant costs in
obtaining or maintaining its regulatory approvals. Delays
or failure in obtaining regulatory approval for products
would likely have a serious adverse effect on the value
of the Company and have a consequent impact on its
financial performance.
INTELLECTUAL PROPERTY AND PROPRIETARY
TECHNOLOGY
The Company relies and will rely on intellectual property
laws and third-party non-disclosure agreements to
protect its patents and other proprietary rights. The
IPR on which the Company’s business is based is a
combination of patents, patent applications, confidential
business knowhow and trade secrets, and trademarks.
No assurance can be given that any currently pending
patent applications or any future patent applications will
result in patents being granted. In addition, there can be
no guarantee that the patents will be granted on a timely
basis, that the scope of any patent protection will exclude
competitors or provide competitive advantages to the
Company, that any of the Company’s patents will be held
valid if challenged, or that third parties will not claim rights
in, or ownership of, the patents and other proprietary
rights held by the Company.
Despite precautions taken by the Company to protect
its products, unauthorised third parties may attempt to
copy, or obtain and use, the Company’s IPR and other
technology that is incorporated into its pharmaceutical
products. In addition, alternative technological solutions
similar to the Company’s products may become available
to competitors or prospective competitors of the
Company. It should be noted that once granted, a patent
could be challenged both in the relevant patent office
and in the courts by third parties. Third parties can bring
material and arguments which the patent office granting
the patent may not have seen at the time of granting the
patent. Therefore, whilst a patent may be granted to the
Company it could in the future be found by a court of law
or by the patent office to be invalid or unenforceable or
in need of further restriction. Should the Company be
required to assert its IPR, including any patents, against
third parties it is likely to use a significant amount of the
Company’s resources as patent litigation can be both
costly and time consuming. No assurance can be given
22
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
to various securities laws in multiple jurisdictions. The
Company uses significant amount of both internal and
external resources to secure that all its operations and
external communication are conducted in accordance
with these regulations. Whilst the Company will take every
effort to ensure that the Company and its partners comply
with all applicable securities laws and requirements, there
can be no guarantee of this.
This report was approved by the Board on 24 March 2022.
23
that the Company will be in a position to devote sufficient
resources to pursue such litigation. Any unfavourable
outcomes in respect of patent litigation could limit the
Company’s IPR and activities moving forward.
The Directors do not believe that the Company’s lead
pharmaceutical drug candidates, future drug candidates
in development, and proprietary processes for generating
those candidate compounds infringe the IPR of any third
parties. However, it is impossible to be aware of all third-
party
intellectual property. The Company’s research
has included searching and reviewing certain publicly
available resources, which are examined by senior levels of
management to keep abreast of developments in the field.
FINANCIAL
The Company has incurred significant losses since its
inception and does not have any approved or revenue
generating products. The Company expects to incur losses
for the foreseeable future, and there is no certainty that
the business will generate a profit. The Company is highly
dependent on equity, public grants and loan financing.
The Company may not be able to raise additional funds
that will be needed to support its product development
programmes or commercialisation efforts, and any
additional funds that are raised could cause dilution to
existing investors. The Company operates internationally,
and it is thus exposed in various currencies and fluctuation
in their relative values. Even though the Company seeks to
hedge currency positions there is no guarantee that it will
be successful.
OTHER RISKS RELATED TO OPERATIONS
Operating with multiple vendors and other external
suppliers means that the Company regularly delivers and
receives information and data through multiple channels.
Some of these are trade secrets or of confidential nature.
Even though the Company uses all reasonably available
means to secure the data and the channels used, there is
no certainty that full data security can be obtained.
While the impact of COVID-19 seems to be lessening,
there remains uncertainty related to the future course of
the pandemic and what impact it or future public health
crises may have on our operations, including our ability
to conduct clinical trials. Additionally, military conflicts
like the one currently taking place in Ukraine, have the
potential to disrupt operations and negatively impact the
debt and equity markets.
The Company is publicly listed and as such subject
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
Corporate
Governance
Dr Frank Armstrong
Non-Executive Chairman
24 March 2022
CHAIRMAN’S INTRODUCTION TO GOVERNANCE
The Board of Faron emphasises the importance of good
corporate governance and is aware of its responsibility
for overall corporate governance and for supervising the
general affairs and business of the Company.
As Chairman of the Board, I oversee the adoption,
delivery and communication of Faron’s corporate
governance model. In this role, I endeavour to foster a
positive governance culture throughout the Company,
seeing that ultimate responsibility for the quality of, and
Faron’s approach to, corporate governance lies with me.
Faron is not required to comply with the UK Corporate
Governance Code by virtue of being an AIM and Nasdaq
First North Growth Market quoted company. The
Board does, however, seek to apply the QCA Corporate
Governance Code (as devised by the Quoted Companies
Alliance in consultation with a number of significant
institutional small company investors) in its updated form.
After the year end 2020 and the UK leaving the European
Union, Faron has to follow applicable domestic laws of
the UK in addition to Finnish national and European
Union’s legislation.
No significant changes in governance arrangements
occurred during the year.
As described below, the Board continues to promote
a healthy corporate culture that is based on ethical
values and behaviours consistent with the Company’s
objectives, strategy and business model described on
the Company’s website and with the description of
principal risks and uncertainties set out in this document.
As good corporate governance is fundamentally about
culture, rather than procedure, Faron’s corporate culture
is monitored on a regular basis, and appropriate action is
taken if, and to the extent, deemed necessary.
24
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
Compliance
COMPLIANCE WITH THE PRINCIPLES OF THE QCA CODE
The Principles of the QCA Code
Comply/Explain
Disclosure in the 2021 Report
1. Establish a strategy and business
model which promote long-term
2. Seek to understand and meet
shareholder needs and expectations
3. Take into account wider stakeholder
and social responsibilities and their
implications for long-term success
4. Embed effective risk management,
considering both opportunities and threats,
throughout the organisation
5. Maintain the board as a well-functioning,
balanced team led by the chair
6. Ensure that between them the directors
have the necessary up-to-date experience,
skills and capabilities
7. Evaluate board performance based on
clear and relevant objectives, seeking
continuous improvement
8. Promote a corporate culture that is
based on ethical values and behaviours
9. Maintain governance structures and
processes that are fit for purpose and
support good decision-making by the board
Comply
Comply
Comply
Comply
Comply
Comply
Comply
Comply
Comply
Pages 4, to 7 and 14 to 17
Pages 40 to 43
Pages 41 to 43
Pages 21 to 23
Pages 30 to 31 and 44 to 45
Pages 27 to 30
Page 30 to 31
Page 24
Pages 24 and 26
10. Communicate how the company is governed
and is performing by maintaining a dialogue with
shareholders and other relevant stakeholders
Comply
Pages 30 to 31 and 40 to 43
25
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
Board of
Directors
On 23 April 2021, the Company held its Annual General
Meeting (AGM). The AGM was held through exceptional
procedures in accordance with the temporary legislative
limit the spread of the Covid-19 pandemic
act to
(677/2020). The shareholders of the Company or their
proxy representatives could participate
in the AGM
and exercise their shareholders’ rights only by voting in
advance as well as by submitting counterproposals and
asking questions in advance. At the AGM the number
of Directors was confirmed as seven. Frank Armstrong,
Markku Jalkanen, Matti Manner, Leopoldo Zambeletti,
Gregory Brown and John Poulos were re-elected to the
Board and Anne Whitaker was elected as a new member
to the Board for a term that ends at the end of the next
AGM. At the meeting of the Board held following the AGM,
Frank Armstrong was re-elected Chairman of the Board
and Matti Manner was re-elected Vice-Chairman of the
Board. The Board comprises six non-executive directors
and one executive director. Brief biographical details for
the Directors can be found on the following pages. During
2021, the Board held 19 meetings.
The Board is responsible to the shareholders for the
proper management of the Company and meets regularly
to set the overall direction and strategy of the Company, to
review scientific, operational and financial performance, to
review the strategy and activities of the business, and to
advise on management appointments. The Board sees to
the administration of the Company and the organisation
of its operations, being responsible for the appropriate
arrangement of the control of the Company accounts and
finances.
All key operational and investment decisions are
subject to full Board approval. The management of the
Company prepares a monthly management and financial
accounts pack, which is distributed to the Board every
month and in advance of Board meetings. In individual
26
cases the Board may decide in a matter falling within the
general competence of the Chief Executive Officer.
The roles of Chief Executive Officer and Non-Executive
Chairman are well defined and clearly separated. The
Chairman oversees the Board’s work, ensures that the
Board’s decision-making is balanced and that the Non-
Executive Directors have all relevant
information on
matters to be decided. The Chairman sees to it that the
Board meets when necessary.
is
responsible
The Chief Executive Officer
for
implementing the strategy of the Board and managing the
day-to-day business activities of the Company. The Chief
Executive Officer, reviewing the operating results regularly
to make decisions about the allocation of resources and
to assess overall performance, is the chief operating
decision-maker.
there
The Board considers
to be sufficient
independence of the Board and that all the Non-Executive
Directors are of sufficient competence and calibre to
add strength and objectivity to the Board, and to bring
considerable experience in terms of their knowledge
of the scientific, operational and financial development
of biopharmaceutical products and companies. Where
necessary, the Company facilitates that Non-Executive
Directors obtain specialist external advice from appropriate
advisers.
The term of office of each Director expires on the closing
of the AGM immediately following their appointment to the
Board. Under the Finnish Limited Liability Companies Act
and the Company’s Articles of Association, the Directors
are elected by the shareholders at general meetings
annually. Under the Act, Directors may be removed from
office at any time, with or without cause, by a majority of
votes cast at a general meeting. Vacancies on the Board
may only be filled by a majority of shareholder votes cast
at a general meeting.
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
Dr Frank Armstrong
Non-Executive Chairman
b. 1957
Matti Manner
Non-Executive Vice-Chairman
b. 1953
Dr. Armstrong is the Non-Executive Chairman of Faron
Pharmaceuticals Ltd. and has served in this role since
joining the board in September 2015. He has built a
distinguished career as a visionary leader, scientist, and
life sciences executive.
Dr. Armstrong has held Chief Executive roles with
five biotechnology companies, both public and private,
including Fulcrum Pharma plc and CuraGen, which was
acquired by Celldex Therapeutics Inc, Bioaccelerate,
Provensis and Phoqus. He also led Medical Science
and Innovation at Merck Serono, the biopharmaceutical
division of Merck KGaA and was previously Executive Vice
President of Product Development at Bayer and Senior
Vice President of Medical Research and Communications
at Zeneca.
Dr. Armstrong is currently the Chairman of Caldan
Therapeutics, Enhanc3D Genomics and BioCaptiva, a
Director of Newcells Biotech and a Non-Executive Director
of ECO Animal Health Group plc, as well as a member of
the Senior Advisory Board at Healthcare Royalty Partners
and Epidarex Capital.
Dr. Armstrong
in
biochemistry and an MBChB, Bachelor of Medicine,
Bachelor of Surgery from the University of Edinburgh,
Scotland. He is a physician, a Fellow of the Royal College
of Physicians of Edinburgh and Non-Executive Director of
the University of Edinburgh’s governing body, theUniversity
Court.
received an honours degree
Mr. Manner is the Non-Executive Vice-Chairman of Faron
Pharmaceuticals Ltd.. Mr. Manner joined the Board of the
Company as Chairman in 2007 having previously been
the Chairman of Faron Ventures Oy from 2002. He was
appointed to the Board as Non-Executive Vice-Chairman
in October 2015. He has significant experience in national
and international business deals, corporate law and
mergers and acquisitions, and has held several Board
memberships throughout his career.
Mr. Manner was appointed a partner of Brander &
Manner Attorneys Ltd in 1980, having previously sat as a
judge at the Court of Appeal, Turku, Finland. Throughout
his career, he has held several trustee posts including the
Presidency of the Finnish Bar (Lawyers) Association from
1998 to 2004.
In addition to his work with Faron, he is currently
Chairman of Ruissalo Foundation and Länsi-Suomen
Yleishyödyllinen Asuntosäätiö Foundation, Vice-Chairman
of Suomen Asianajajaliitto Foundation and a member
of the Board of Marva Media Ltd, Satatuote Ltd, YH VS-
Rakennuttajat Ltd and Chairman of Ajanta Innovations Oy.
He obtained a Master of Law from the University of Turku,
Finland, and became an Honorary Chief Justice in Finland
in 2013.
Holdings in the company: 551,035 shares (directly and
with his spouse) and 140,000 stock options, entitling to
same amount of shares in the company.
Holdings in the company: 64,792 shares and 280,000
stock options, entitling to same amount of shares in the
company.
27
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
Dr Markku Jalkanen
Chief Executive Officer
b. 1954
Dr Gregory B. Brown
Non-Executive Director
b. 1953
Dr. Jalkanen is the Chief Executive Officer of Faron
Pharmaceuticals Ltd. and was a founding member of
the Company. He has more than 40 years of experience
within biomedical research, biotech development and the
biopharmaceutical industry and has published over 130
peer reviewed scientific publications in various highly
ranked international journals.
Between 1996 and 2002, Dr. Jalkanen was the founding
CEO and President of BioTie Therapies Corp, which became
the first publicly traded Finnish biotech company to be listed
on NASDAQ. BioTie was sold to Acorda Therapeutics in
January 2016 for $363 million. Over his career, Dr. Jalkanen
has held several board memberships for both public and
private companies including Inveni Capital Management,
Meddia Ltd and Priaxon AG. He is also an advisor for the
only active Finnish life sciences fund – Inveni Capital.
Dr. Jalkanen obtained a Masters in Medical Biochemistry
from the University of Kuopio and subsequently received a
PhD in Medical Biochemistry from the University of Turku.
He completed a side-laudatur examination in Molecular
Biology from the University of Turku and completed his
post-doctoral training at Stanford University, California
between 1983 and 1986. Dr. Jalkanen obtained the position
of docent in Biochemistry from University of Helsinki and
the same qualification in Molecular and Cell Biology from
the University of Turku. He became a Professor at the
University of Turku in 1992.
Holdings in the company: 3,226,667 shares (directly
and with his spouse) and 480,000 stock options, entitling
to same amount of shares in the company.
Dr. Brown
is a Non-Executive Director of Faron
Pharmaceuticals Ltd., a role he has served since joining
the Board in May 2017. He has more than 35 years of
experience in healthcare and investment banking.
Dr. Brown founded HealthCare Royalty Partners,
a healthcare-focused private asset management firm
investing in biopharmaceutical and medical products,
where he serves as a member of the Senior Advisor Board.
In addition, Dr. Brown is currently Chief Executive Officer
and a Director of Memgen, and a Director of Caladrius
Biosciences and Aquestive Therapeutics. He previously
served as a Director of Invuity between October 2014 and
December 2015.
Earlier in his career, Dr. Brown was a Managing
Director at Paul Capital Partners in New York, Co-Head of
Investment Banking at Adams, Harkness & Hill, and VP of
Corporate Finance at Vector Securities International.
Dr. Brown received a Bachelor of Arts with honors from
Yale University, a Doctor of Medicine with honors from
SUNY Upstate Medical Center, and a Master of Business
Administration with honors from Harvard Business
School.
Holdings in the company: 46,490 shares and 100,000
stock options, entitling to same amount of shares in the
company.
28
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
John Poulos
Non-Executive Director
b. 1954
Leopoldo Zambeletti
Non-Executive Director
b. 1968
Mr. Poulos
is a Non-Executive Director of Faron
Pharmaceuticals Ltd., a role he has served since joining
the board in May 2017. He has extensive experience in
the global pharmaceutical industry having spent nearly 40
years at AbbVie and Abbott.
Mr. Poulos served as Vice President, Head of Business
Development and Acquisitions for AbbVie from 2013
until 2016. He was also Group Vice President, Head of
Pharmaceutical Licensing and Acquisitions for Abbott
from 2005 until 2012. During his career with AbbVie and
Abbott, Mr. Poulos was instrumental in the negotiation
of numerous acquisitions, including Knoll/BASF Pharma
(Humira) in 2001 for $6.9 billion, Kos Pharmaceuticals in
2006 for $3.7 billion, Solvay in 2010 for $6.2 billion and
Pharmacyclics (Imbruvica) in 2015 for $21 billion.
Mr. Poulos is currently President GNK Advisors Inc.,
a Pharmaceutical Business Development firm, and is a
member of the Board of Memgen, Inc.
Mr. Poulos holds a B.S. in Marketing and M.B.A in
Finance from Indiana University.
Holdings in the company: no shares and 100,000
stock options, entitling to same amount of shares in the
company.
Mr. Zambeletti is a Non-Executive Director of Faron
Pharmaceuticals Ltd., a role he has served since joining
the board in September 2015. He is a highly respected
figure within the life sciences and investment banking
industries.
Mr. Zambeletti led the European Healthcare Investment
team at JP Morgan for eight years before serving in the
same role at Credit Suisse for an additional five years. He
started his career at KPMG as an auditor.
Since 2013 Mr Zambeletti has been an independent
strategic advisor to life science companies on Merger and
Acquisitions, out-licensing deals and financing strategy.
He is a Non-Executive Director of Nogra Pharma, Philogen,
Touchlight, LenioBio, Adler Ortho. Meatless Farm.
Mr. Zambeletti received a BA in Business from Bocconi
University in Milan, Italy.
Holdings in the company: 17,461 shares and 140,000
stock options, entitling to same amount of shares in the
company.
29
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
Anne Whitaker
Non-Executive Director
b. 1967
Ms. Whitaker
is a Non-Executive Director of Faron
Pharmaceuticals Ltd., a role she has served since joining
the board in April 2021. She is an experienced life sciences
leader who has held senior leadership positions at large
pharmaceutical, biotech and specialty pharma companies.
Ms. Whitaker is currently Chairman of the Board for
Aerami Therapeutics Holdings, Inc., having previously
served as the Company’s Chief Executive Officer and
Director. She also currently serves as a member of the
Board of Directors on three publicly listed companies,
Caladrius Biosciences Inc., Mallinckrodt Plc and OraSure
Technologies, Inc. as well on three private companies,
Bryn Pharma, Curio Digital Therapeutics and Trinity LIfe
Science Partners
Previously, Ms. Whittaker was Chief Executive Officer at
Novoclem Therapeutics, Inc. and Executive Vice President
at Bausch Health, where she oversaw its Global Branded
Pharmaceutical Business and the Western European
Region. Earlier in her career, she also served as President
and Chief Executive Officer of Synta Pharmaceuticals
and President, North America Pharmaceuticals at Sanofi,
where she oversaw all pharmaceutical and consumer
healthcare operations for the region.
Ms. Wihitaker holds a bachelor of science in Chemistry
from the University of North Alabama.
Holdings in the company: no shares and 30,000
stock options, entitling to same amount of shares in the
company.
30
PERFORMANCE EVALUATION
The Board has a process for evaluation of its own
performance and that of its committees and individual
Directors, including the Chairman. These evaluations are
carried out at least annually.
In the Board performance evaluation process adopted
by the Company, Board, committee and
individual
effectiveness is considered against the criteria of creating
and running an effective Board, professional development,
strategic foresight, stewardship, managing management,
value creation and corporate culture.
In 2021 the Directors performed a self-assessment
its results against previous
exercise and reviewed
assement from the year 2020. The results of the self
assessment remained on the same level compared to the
previous years, being in overall good.
BOARD COMMITTEES
In conjunction with being admitted to trading on AIM,
the Company has established audit, nomination and
remuneration committees of the Board with formally
delegated duties and responsibilities.
legal status or
Under the Finnish Limited Liability Companies Act,
Board committees do not, generally speaking, have a
independent decision-making
formal
powers; rather, their role is to provide support in the
preparation of the decision-making. The responsibility for
the decisions remains with the Board even if the matter
has been delegated to a committee.
Members of the Board committees were elected at the
Board meeting held following the AGM on 23 April 2021.
REMUNERATION COMMITTEE
As of 23 April 2021, the remuneration committee
comprises Frank Armstrong as Chairman together with
John Poulos, Leopoldo Zambeletti and Anne Whitaker.
The remuneration committee has the task of advising on
and making recommendations to the Board in relation to
the remuneration paid to the Directors and supervising
the development of any other remuneration or reward
systems of the Company. During 2021, the remuneration
committee held two meetings.
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
AUDIT COMMITTEE
The audit committee, which comprises Leopoldo
Zambeletti as Chairman together with Matti Manner and
Gregory Brown, meets not less than twice a year. The audit
committee has the task of supervising and developing the
internal audit of the Company and advising and making
recommendations to the Board on related issues. During
2021, the audit committee held two meetings.
NOMINATION COMMITTEE
As of 23 April 2021 , the nomination committee comprises
Matti Manner as Chairman together with Frank Armstrong
and Anne Whitaker. The nomination committee has the
task, in co-operation with the Board, of advising on and
making recommendations to the Board on issues relating
to the composition and nomination of the Board. During
2021, the nomination committee held two meetings.
The nomination committee considers succession
planning for Directors and other senior executives in the
course of its work, bearing in mind the challenges and
opportunities facing the Company and the skills and
expertise needed on the Board in the future, and makes
recommendations to the Board concerning formulating
plans for succession for both Executive and Non-Executive
Directors and in particular for the key roles of Chairman
and Chief Executive Officer.
Attendance at Board Meetings
During 2021 the Board held 19 meetings. The table below lists the Directors’ attendance at the Board and
Committee meetings during the year:
The Directors’ attendance during the year ended 31 December 2021
Board
Audit
Committee
Remuneration
Committee
Nomination
Committee
Executive Directors
Jalkanen Markku
Non-Executive Directors
Armstrong Frank
Manner Matti
Brown Gregory
Poulos John
Zambeletti Leopoldo
Whitaker Anne*
(*) Board member since April 2021
19
18
19
18
19
15
13(13)
2(2)
2(2)
2(2)
2(2)
2(2)
2(2)
2(2)
2(2)
1(1)
31
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
Remuneration
Report
Remuneration Policy for Directors
The Remuneration Committee sets the remuneration policy that aims to align Director remuneration with
shareholders’ interests and attract and retain the best talent for the benefit of the Company. No Director is
involved in discussions relating to their own remuneration. This report sets out Faron’s remuneration policy
for the Executive and Non-Executive Directors. The remuneration of the Directors during the year ended 31
December 2021 is set out below:
BASIC SALARY
Executive Directors’ basic salaries are reviewed annually.
The review process is managed by the Remuneration
Committee with reference to market salary data, the
Executive Director’s performance and contribution to the
Company during the year.
BONUSES
Executive Directors’ annual bonuses are based on the
achievement of the Company’s strategic and financial
targets and personal performance objectives. The Non-
Executive Directors believe that bonuses are an incentive
to achieve the targets and objectives and represent an
important element of the total compensation of the Exe-
cutive Directors; they have established that the annual
bonus potential will be up to 50% for the Executive Directors.
LONGER TERM INCENTIVES
In order to further incentivise the Executive Directors and
employees, and align their interests with shareholders,
the Extraordinary General Meeting of the Company on
15 September 2015 approved a share option plan and
granted share options to the members of the Board
under this option plan. At the AGM held on 28 May 2019,
the Company authorised the Board to implement a new
share option plan for the employees and Directors of, and
persons providing services to, the Company’s group. Rules
of that new option plan were approved by the Board on 20
November 2019. An amendment to option plans 2015 and
2019 was resolved at the AGM held on 18 May 2020. The
amendment enables options to be transferred or pledged
after the conditions for share subscription have been
fulfilled under the relevant rules. Details of these option
plans are on pages 35 to 39.
PENSION
Faron has a law-defined contribution plans under which it
pays fixed contributions into a separate entity. The plans
cover all the employees of Faron including the Executive
Directors. Faron has no legal or constructive obligations
to pay further contributions if the fund does not hold
sufficient assets to pay all employees the benefits relating
to employee service in the current and prior periods.
32
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
OTHER BENEFITS
The Chief Executive Officer and some employees have the
possibility to take a company car allowance, which is part
of their gross salary. All employees including Executive
Directors have a company mobile phone that constitutes
a company mobile phone allowance.
EXECUTIVE DIRECTORS’ SERVICE CONTRACTS
AND TERMINATION PROVISIONS
The service contracts of Executive Directors are approved
by the Board and are concluded for an indefinite term.
The details of the Executive Directors’ contracts are
summarised below:
Date of contract Notice period
Jalkanen Markku, CEO
16.9.2015
6 months
NON-EXECUTIVE DIRECTORS’ SERVICE
CONTRACTS AND REMUNERATION
The remuneration and compensation payable to the
members of the Board
including the Non-Executive
Directors is approved by the shareholders at the AGM.
Any Non-Executive Director who, by request, goes or
resides abroad for any purposes of the Company or who
performs services which in the opinion of the Board go
beyond the ordinary duties of a Director may be paid extra
remuneration or may receive such other benefits as the
Remuneration Committee may approve. Non-Executive
in respect
Directors are entitled to be reimbursed
of their reasonably and properly
incurred travelling,
accommodation and incidental expenses for attending
and returning from meetings of the Board, Committee
meetings or the general meetings of shareholders.
With the exception of share options disclosed below,
the Non-Executive Directors do not receive any pension,
bonus or benefit from the Company. The contracts of
the Non-Executive Directors, excluding remuneration and
compensation, are reviewed by the Board annually.
33
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
Current contracts are summarised below:
Non-Executive Directors
Independence
Contract
Date of Contract
Armstrong Frank
Manner Matti
Brown Gregory
Poulos John
Zambeletti Leopoldo
Whitaker Anne**
Independent
Non-independent*
Chairman
Vice-chairman
Independent
Independent
Independent
Independent
Member
Member
Member
Member
16.09.2015
16.09.2015
16.05.2017
16.05.2017
16.09.2015
23.04.2021
(*) Has served as a director for more than 10 consecutive years
(**) Board member since April 2021
The appointments of Non-Executive Directors are
terminable with immediate effect, in accordance with
the Company’s Articles of Association and pursuant to
the Finnish Limited Liability Companies Act, through
a resolution of shareholders at a general meeting on
any grounds. The Non-Executive Directors may resign
as a director by delivering three months’ notice to the
registered office of the Company or through tendering
such resignation at a meeting of the Board.
The Directors received the following remuneration
during the year
€
Salaries and fees
Bonus
Taxable benefits
Total
380,969
67,592
1,425
449,986
82,000
47,000
41,000
40,000
48,198
26,873
82,000
47,000
41,000
40,000
48,198
26,873
Executive Directors
Jalkanen Markku
Non-Executive Directors
Armstrong Frank
Manner Matti
Brown Gregory
Poulos John
Zambeletti Leopoldo
Whitaker Anne*
(*) Board member since April 2021
34
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
THE COMPANY’S OPTION PLANS AND
DIRECTORS’ SHARE OPTIONS
Aggregate remunerations disclosed on the previous page
exclude any amounts for the value of options to acquire
ordinary shares in the Company granted to or held by the
Directors.
Option Plan 2015 was adopted by the Company at
the Extraordinary General Meeting held on 15 September
2015 and amended in the Annual General Meetings of 16
May 2017, 18 May 2020 and 23 April 2021, respectively.
Option Plan 2015 allowed the Company to offer options
for subscription free of charge to members of the Board
and to such officers and employees of the Company
as the Board sees fit. Each option entitles the holder
of the option to subscribe for one ordinary share in the
Company. Under the terms of Option Plan 2015, an
aggregate maximum number of 1,800,000 options could
be granted, such aggregate being made up of a maximum
of 400,000 “2015A” options, the subscription period for
which ended on 9 June 2016, a maximum of 400,000
“2015B” options, the subscription period for which ended
on 30 September 2019, a maximum of 500,000 “2015C”
options, the subscription period for which ended on 30
September 2019, and a maximum of 500,000 “2015D”
options, the subscription period for which ended on 30
September 2019, all such options being exercisable until
30 September 2023.
The exercise price for ordinary shares based on
“2015A” options is €3.71. The exercise price for ordinary
shares based on “2015B” options is €2.90. The exercise
price for ordinary shares based on “2015C” options is
€8.39. The exercise price for ordinary shares based on
“2015D” options is €1.09. All options granted under 2015
Option plan are visible on the next pages.
Share Option Plan 2019 was adopted by the Board
on 20 November 2019 and amended on 19 March 2020
based on an authorisation by the Annual General Meeting
of 28 May 2019, as amended in the Annual General
Meeting of 18 May 2020. Share Option Plan 2019 allows
the Company to offer options for subscription free of
charge to employees and directors of the Group (including
any non-executive members of the Board) and any eligible
person who provides services to the Group. Each option
entitles the holder of the option to subscribe for one
ordinary share in the Company. Under the rules of Share
Option Plan 2019, an aggregate maximum number of
2,000,000 options can be granted. The number of granted
options under the Option Plan 2019 and their exercise
period and prices is described in the table below.
Option tranches under
Option Plan 2019
Total number
of options
Confirmation
date
Exercised period,
vesting 25% per annum
Excercise price, €
2019 A options
2019 B options
690,333
14.10.2020
23.07.2021 - 23.07.2025
728,333
28.04.2021
24.03.2022 - 24.03.2026
2019 B bis options
21,000
27.01.2022
05.07.2022 - 05.07.2026
2019 B tertiary options
147,000
27.01.2022
17.11.2022 - 17.11.2026
3.80
3.99
4.40
4.47
(4.04 € under US plan)
At 1
January
2021
Granted
during the
period
Exercised
during
the period:
At 31
December
2021
Average subs.
price per
shares, €
Total options
under 2015 and
2019 Option Plans
Jalkanen Markku
Armstrong Frank
Manner Matti
Brown Gregory
Poulos John
360,000
120,000
220,000
60,000
110,000
30,000
70,000
30,000
70,000
30,000
Zambeletti Leopoldo
110,000
30,000
Whitaker Anne*
0
30,000
(*) Board member since April 2021
480,000
280,000
140,000
100,000
100,000
140,000
30,000
4.45
3.97
3.97
4.23
4.23
3.97
3.99
35
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
Details of 2015 Option Plan are as follows
2015A options
Date of
grant
At 1
January
2021
Granted
during the
period
Cancelled
during
the period
At 31
December
2021
Subscription
price per
share, €
Date from
which
exercisable
Expiry
date
Jalkanen Markku
16.09.2015
80,000
Armstrong Frank
16.09.2015
40,000
Manner Matti
16.09.2015
20,000
Brown Gregory
Poulos John
-
-
0
0
Zambeletti Leopoldo
16.09.2015
20,000
Anne Whitaker*
0
160,000
(*) Board member since April 2021
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
80,000
40,000
20,000
0
0
3.71
02.11.2015
30.09.2023
3.71
02.11.2015
30.09.2023
3.71
02.11.2015
30.09.2023
-
-
-
-
-
-
20,000
3.71
02.11.2015
30.09.2023
0
160,000
2015B options
Date of
subscription
At 1
January
2021
Granted
during the
period
Cancelled
during
the period
At 31
December
2021
Subscription
price per
share, €
Date from
which
exercisable
Expiry
date
Jalkanen Markku
18.11.2016
80,000
Armstrong Frank
18.11.2016
40,000
Manner Matti
18.11.2016
20,000
Brown Gregory
Poulos John
-
-
0
0
Zambeletti Leopoldo
18.11.2016
20,000
Anne Whitaker*
0
160,000
(*) Board member since April 2021
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
80,000
40,000
20,000
0
0
2.90
08.10.2016
30.09.2023
2.90
08.10.2016
30.09.2023
2.90
08.10.2016
30.09.2023
-
-
-
-
-
-
20,000
2.90
08.10.2016
30.09.2023
0
160,000
36
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
2015C options
Date of
subscription
At 1
January
2021
Granted
during the
period
Cancelled
during
the period
At 31
December
2021
Subscription
price per
share, €
Date from
which
exercisable
Expiry
date
Jalkanen Markku
16.11.2017
80,000
Armstrong Frank
16.11.2017
40,000
Manner Matti
16.11.2017
20,000
Brown Gregory
16.11.2017
20,000
Poulos John
16.11.2017
20,000
Zambeletti Leopoldo
16.11.2017
20,000
Anne Whitaker*
0
200,000
(*) Board member since April 2021
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
80,000
40,000
20,000
20,000
20,000
20,000
0
200,000
8.39
08.10.2017
30.09.2023
8.39
08.10.2017
30.09.2023
8.39
08.10.2017
30.09.2023
8.39
08.10.2017
30.09.2023
8.39
08.10.2017
30.09.2023
8.39
08.10.2017
30.09.2023
2015D options
Date of
subscription
At 1
January
2021
Granted
during the
period
Exercised
during the
period:
At 31
December
2021
Subscription
price per
share, €
Date from
which
exercisable
Expiry
date
Jalkanen Markku
21.05.2019
0
Armstrong Frank
21.05.2019
40,000
Manner Matti
21.05.2019
20,000
Brown Gregory
21.05.2019
20,000
Poulos John
21.05.2019
20,000
Zambeletti Leopoldo
21.05.2019
20,000
Anne Whitaker*
0
120,000
(*) Board member since April 2021
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1.09
08.10.2018
30.09.2023
1.09
08.10.2018
30.09.2023
1.09
08.10.2018
30.09.2023
1.09
08.10.2018
30.09.2023
1.09
08.10.2018
30.09.2023
1.09
08.10.2018
30.09.2023
40,000
20,000
20,000
20,000
20,000
0
120,000
37
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
Details of 2019 Option Plan are as follows
2019A options
Date of
grant
At 1
January
2021
Granted
during the
period
Cancelled
during
the period
At 31
December
2021
Subscription
price per
share, €
Date from
which
exercisable
Expiry
date
Jalkanen Markku
23.07.2020
120,000
Armstrong Frank
23.07.2020
60,000
Manner Matti
23.07.2020
30,000
Brown Gregory
23.07.2020
30,000
Poulos John
23.07.2020
30,000
Zambeletti Leopoldo
23.07.2020
30,000
Anne Whitaker*
0
300,000
(*) Board member since April 2021
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
120,000
3.80
23.07.2021
23.07.2025
3.80
23.07.2021
23.07.2025
3.80
23.07.2021
23.07.2025
3.80
23.07.2021
23.07.2025
3.80
23.07.2021
23.07.2025
3.80
23.07.2021
23.07.2025
60,000
30,000
30,000
30,000
30,000
0
300,000
2019B options
Date of
grant
At 1
January
2021
Granted
during the
period
Cancelled
during
the period
At 31
December
2021
Subscription
price per
share, €
Date from
which
exercisable
Expiry
date
Jalkanen Markku
24.03.2021
Armstrong Frank
24.03.2021
Manner Matti
Brown Gregory
Poulos John
24.03.2021
24.03.2021
24.03.2021
Zambeletti Leopoldo
24.03.2021
Anne Whitaker*
24.03.2021
(*) Board member since April 2021
0
0
0
0
0
0
0
0
120,000
60,000
30,000
30,000
30,000
30,000
30,000
330,000
0
0
0
0
0
0
0
0
120,000
3.99
23.04.2022
24.03.2026
60,000
30,000
30,000
30,000
30,000
30,000
330,000
3.99
23.04.2022
24.03.2026
3.99
23.04.2022
24.03.2026
3.99
23.04.2022
24.03.2026
3.99
23.04.2022
24.03.2026
3.99
23.04.2022
24.03.2026
3.99
23.04.2022
24.03.2026
38
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
At 31 December
2021
Executive
Jalkanen Markku(1)
Non-Executive Directors
Armstrong Frank
Manner Matti(2)
Brown Gregory
Poulos John
Zambeletti Leopoldo
Anne Whitaker*
Issued Share Capital
Share Options
Ordinary shares Percentage held
Ordinary shares
Average exercise price, €
3,226,677
6.06
480,000
64,792
551,035
46,490
0
17,461
0
3,906,455
0.12
1.04
0.09
0.00
0.03
0.00
7.34
280,000
140,000
100,000
100,000
140,000
30,000
1,270,000
4.45
3.97
3.97
4.23
4.23
3.97
(1) of which 2,100,565 are held by Markku Jalkanen
directly and 1,126,112 are held by Markku Jalkanen’s wife
Sirpa Jalkanen
(2) of which 528,890 are held by Matti Manner directly
and 22,145 are held by his wife
(*) Board member since April 2021
39
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
Corporate
Governance
Statement
COMMUNICATING WITH SHAREHOLDERS
Media and investor relations:
The Company acknowledges that effective communication
with shareholders on strategy and governance is an
important part of its responsibilities. Interim and final
results are communicated via formal meetings with
roadshows, participation in conferences and additional
dialogue with key investor representatives held in the
intervening periods. Faron recognises the Annual General
Meeting as an opportunity to meet shareholders.
As an AIM and First North listed company, Faron
complies the Market Abuse Regulation (both EU and UK
domestic laws after year end 2020), the AIM Rules for
Companies and the Nasdaq First North Growth Market
Rulebook. The Company complies with other relevant
legislation in all its corporate communications issues.
The Company speaks to the financial community and
shareholders only through authorised representatives. In
accordance with the Company’s disclosure policy, the Chief
Executive Officer is the designated person to make public
statements. The Chief Executive Officer may delegate this
authority to other members of the management team.
In addition to the CEO, the CFO is able to communicate
externally on behalf of the Company on financial matters.
The contact details are below:
email: investor.relations@faron.com
Consilium Strategic Communications
email: faron@consilium-comms.com
SHARE DEALING
The Company has established a share dealing code
appropriate to an AIM and First North listed company,
and all the Directors of the Company understand the
importance of compliance to that code.
ETHICAL VALUES AND CORPORATE CULTURE
Faron is strongly committed to conducting its business
affairs with honesty and integrity and in full compliance
with all applicable laws, rules and regulations. The
Company requires that all employees and Directors
comply with all laws, rules and regulations applicable to
the Company wherever it does business.
licensors,
Employees and Directors should endeavour
to
deal honestly, ethically and fairly with the Company’s
collaborators,
licensees, business partners,
suppliers, customers, competitors and other employees.
Statements regarding the Company’s therapies and
services must not be untrue, misleading, deceptive or
fraudulent.
Employees and Directors act in the best interests of
the Company and use the Company’s assets and services
solely for legitimate business purposes of the Company
and not for any personal benefit or the personal benefit of
anyone else.
40
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
RISK MANAGEMENT AND INTERNAL CONTROL
The principal risks and uncertainties identified by the
Board are set out on pages 21-23 of the 2021 Report.
The Board has put in place internal controls and systems
which are designed to manage rather than eliminate
risk and provide reasonable but not absolute assurance
against material misstatement or loss. A key element
of delivering the Company’s strategy and managing the
risks facing the Company is the employment of a skilled
workforce and use of appropriate vendors. The Board
reviews the risks and uncertainties facing the Company
and the effectiveness of its systems annually.
At present, the Company does not consider it necessary
to have an internal audit function due to the small size of
the administrative function, the frequent interaction with
the auditors and the supervision of the audit committee.
The Board is, however, closely following both regulatory
and operational developments in this realm and plans
to react appropriately if, and to the extent, considered
necessary.
There is a monthly review and authorisation of
transactions by the Chief Financial Officer and Chief
Executive Officer. A comprehensive budgeting process
is completed once a year and is reviewed and approved
by the Board. The Company’s results, compared with the
budget, are reported to the Board on a monthly basis and
discussed in detail.
The Company maintains appropriate insurance cover
in respect of actions taken against the Directors because
of their roles, as well as against material loss or claims
against the Company. The insured values and type of
cover are comprehensively reviewed on a periodic basis.
REGULATED ADVISORS
The shares of Faron are listed for trading on the London
Stock Exchange AIM and Nasdaq First North Growth
Market marketplaces, which require the nominating of
advisors. Panmure Gordon (UK) Limited acted as the
Company’s broker on AIM until 29 March 2021. On the
same date Peel Hunt LLP was appointed as the Company’s
sole Broker on AIM. Cairn Financial Advisers LLP is the
Company´s nominated advisor on AIM and Sisu Partners
Oy is the Company’s certified advisor on First North.
RESPONSIBILITY
At Faron we embrace the responsibility we have to
patients, our employees, the communities where we
work and the planet. We set ambitious goals for our own
operations, high expectations for our suppliers and serve
as an example of leadership for our industry.
In the same way that it drives the development of
our transformational medicines, innovation fuels our
approach to practices related to environmental, social and
governance (ESG) matters. We are focused on enhancing
patient access to medicines, being an employer of choice
and prioritizing environmental sustainability, all while
operating with the highest levels of quality, integrity and
ethics. Our strong governance profile includes board
41
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
oversight and active participation and reporting from
leadership and team members across functions and
geographies.
Faron is committed to maintaining and promoting high
standards of business integrity. The Company’s values,
which incorporate the principles of corporate social
responsibility and sustainability, guide its relationships
with clients, employees and the communities and
environment in which it operates. Faron’s approach to
sustainability addresses both its environmental and social
impacts, supporting its vision to remain an employer
of choice, while meeting client demands for socially
responsible partners.
By putting ESG into practice, Faron is committed, wherever
possible, to:
• developing treatments for medical conditions with
significant unmet needs
• conducting itself responsibly and in an ethical
manner
• creating a positive and supportive working
environment
• acting fairly in its dealings with suppliers and other
third parties
• minimising the impact on its environment
Environmental – Prioritizing Sustainability
The well-being of our communities is enriched by a safe,
clean and healthy environment. Faron is committed to
behaving responsibly and to minimizing its impact on
the world around us. In considering the environment,
the Company has resolved to include environmental
factors in its business travel practices and to minimise
its consumption of natural resources and manage waste
through responsible disposal and reuse and recycling. The
Company endeavours also, through its suppliers, to make
environment-friendly choices where possible, for example
when selecting packages for our drug substances.
Social – Patients, Employees and inventions
Unmet medical needs and enhancing patient access
Faron exists to help patients overcome serious medical
conditions and diseases. As part of this, we have
developed a compassionate use program which allows us
to work with physicians to provide bexmarilimab (free-of-
charge) to cancer patients who were unable to participate
in one of our clinical trials but may benefit from treatment.
Inventions from academia to patients
We are a pioneer in partnering with academia to bring
scientific advancements from the laboratory to patients in
the clinic. All three of Faron’s pipeline candidates originate
from academic laboratories.
Be an Employer of Choice
Driving everything we do is a team of dedicated and
talented professionals who share a commitment to
working every day to deliver innovative medicines for
patients with serious and life-threatening diseases. Not
only do we hire the best and brightest people, but we
also provide them with a work environment that places a
premium on diversity, integrity, collaboration, community
involvement and personal development. We have created
an inclusive and empowering culture that embraces
diverse experiences and perspectives of all our employees
to drive innovation and transformative scientific and
business results. Faron considers all staff members
to be equal and aims to create a working environment
which is free of unlawful discrimination. In this regard, the
Company maintain an internal code of conduct based on
professionalism and respect.
Governance
local
Accountability is fundamental to our business. Faron
respects
laws and customs while supporting
international laws and regulations. The Company aims to
adopt the highest professional standards and not to act
in such a way as to compromise Faron’s integrity. Faron
is also committed to eliminating unlawful discrimination
and to promoting equality and diversity in its professional
dealings, which includes a commitment to enter into clear
and fair contracts with its suppliers.
The cornerstone for Faron’s internal policies is its Code
of Business Conduct and Ethics, which embodies the
standards and policies under which Faron operates. The
code combines the values and corporate responsibility
commitments to provide the framework and guidance
for its employees to operate in an open, honest, ethical,
and principled way. The code is supported by a set of
internal policies varying from information security to
anti-corruption. The Company continuously trains its
employees on e.g., business ethics, securities regulations,
and data privacy. We have also engaged with external
providers to test IT security, the results of which identified
no major vulnerabilities.
The Board has overall responsibility and plays a key
role in ensuring the appropriate systems and controls are
42
in place and effective. As described in this Annual Report,
the Company complies QCA’s Corporate Governance
Code for Small and Medium Sized Companies. Faron is
fully committed to the highest possible standards of
openness, honesty, and accountability. In line with that
commitment, the Company actively encourages all staff
members who have serious concerns about any real or
perceived departure from the high ethical standard that it
sets to voice those concerns openly.
STATEMENT OF RESPONSIBILITIES
Under the Finnish Limited Liability Companies Act and
the Finnish Accounting Act, the Company must prepare
financial statements in accordance with applicable law
and regulations.
The Board and the CEO are responsible for the
preparation of financial statements that give a true and
fair view
in accordance with International Financial
Reporting Standards (IFRS) as adopted by the EU, as
well as for the preparation of financial statements and
the report of the Board that give a true and fair view in
accordance with the laws and regulations governing the
preparation of the financial statements and the report
of the Board in Finland. The Board is responsible for the
appropriate arrangement of the control of the Company’s
accounts and finances, and the CEO shall see to it that
the accounts of the Company are in compliance with
the law and that its financial affairs have been arranged
in a reliable manner. In accordance with the rules of the
London Stock Exchange for companies trading securities
on AIM, the Company is also required to prepare annual
accounts and financial statements under IFRS.
In preparing these financial statements, the Board of
Directors is required to:
• select suitable accounting policies and then apply
them consistently;
• make judgements and accounting estimates that are
reasonable and prudent;
• state whether they have been prepared in accordance
with IFRS as adopted by the EU, subject to any
material departures disclosed and explained in the
financial statements;
• prepare the financial statements on the going
concern basis unless it is inappropriate to presume
that the Company will continue in business.
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
The Board and the CEO are responsible for keeping
adequate accounting records that are sufficient to show
and explain the Company’s transactions and disclose with
reasonable accuracy at any time the financial position
of the Company and enable them to ensure that the
financial statement comply with the requirements of the
Finnish Accounting Act. They are also responsible for
safeguarding the assets of the Company and hence for
taking reasonable steps for the prevention and detection
of fraud and other irregularities.
WEBSITE PUBLICATION
The Directors are responsible for ensuring that the financial
statements are made available on a website. Financial
statements are published on the Company’s website in
accordance with AIM Rule 26, Nasdaq First North Growth
Market Rulebook and the recommendations of the QCA’s
Corporate Governance Code for Small and Medium Sized
Companies.
On behalf of the Board
Frank Armstrong
Chairman
24 March 2022
43
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
Directors’
Report
The Directors present their report together with the audited financial statements for the year ended 31
December 2021.
DIRECTORS
FINANCIAL INFORMATION
During the year ended 31 December 2021 the following
persons have been members of the Board of the Company:
Executive
Dr Markku Jalkanen, PhD | Chief Executive Officer
Non-executive
Dr Frank Armstrong, FRCPE, FFPM | Chairman
Mr Matti Manner, LLM | Vice-Chairman
Dr Gregory B Brown | Non-Executive Director
Mr John Poulos | Non-Executive Director
Mr Leopoldo Zambeletti | Non-Executive Director
Ms Anne Whitaker | Non-Executive Director*
(*) Appointed to the Board on April 2021
PRINCIPAL RISKS AND UNCERTAINTIES
For a discussion of the principal risks and uncertainties which
face Faron please see pages 21 to 23 of this document.
RESULTS AND DIVIDENDS
The Consolidated Statement of Comprehensive Income
for the year is set out on here.
The Company’s loss of the financial year after taxation
and other comprehensive losses was €21,2million (2020:
€16.9million).
The Company has no distributable equity and thus the
Directors do not recommend the payment of a dividend
(2020: nil).
The Company produces budgets and cash flow projections
on an annual basis for approval by the Board. These are
reviewed during the year and updated if needed to reflect any
changes in the business. Detailed management accounts
are produced on a monthly basis, with all significant
variances
investigated promptly. The management
accounts are reviewed and commented on by the Board
at Board meetings and are reviewed and reported to the
Directors on a monthly basis by the Chief Financial Officer.
FINANCIAL KEY PERFORMANCE INDICATORS (KPIS)
For a review of the Group’s KPIs please see page 18
Financial Review.
RESEARCH AND DEVELOPMENT
Details of the Company’s key research and development
programmes can be found in the Strategic Report and
the detailed programme sections. See also notes 2.7 and
6. Further information is also available on the Company
website, www.faron.com.
FINANCIAL INSTRUMENTS AND MANAGEMENT
OF LIQUID RESOURCES
The Company’s principal financial instrument comprises
cash, and this is used to finance the Company’s operations.
The Company has also other financial instruments such
as leasing facilities that arise directly from its operations.
The Company has a policy, which has been consistently
44
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
followed, of not trading in financial instruments and
to minimise currency exposure by actively matching
currency expenses and income to the extent possible. The
Company’s cash is held on bank accounts in reputable
banks in Finland. The Group’s treasury policy is reviewed
annually. See note 2.16
‘Financial assets’, note 19
‘Financial assets and liabilities’ and note 20, ‘Financial risk
management’ in the notes to the Financial Statements for
IFRS disclosure regarding financial instruments.
SUBSTANTIAL SHAREHOLDINGS
On 31 December 2021, the Company had been notified of
the following holdings of 3% or more of the issued share
capital of the Company.
Timo Syrjälä*
Tom-Erik Lind
8,873,402
16.67 %
3,806,611
7.15 %
A&B (HK) Company Limited
3,408,409
6.40 %
Markku Jalkanen**
3,226,677
6.06 %
Marko Salmi
2,667,707
5.01 %
The information presented in the above table is consistent
with the Company’s best knowledge as at 31 December
2021.
ANNUAL GENERAL MEETING
The Company held the Annual General Meeting on 23
April 2021. In 2022, the Annual General Meeting will be
held on 22 April 2022. Further details will be provided to
shareholders in advance of the meeting.
INDEPENDENT AUDITORS
PricewaterhouseCoopers have expressed their willingness
to continue in office as auditors for the year. A resolution
to reappoint them will be proposed at the forthcoming
Annual General Meeting.
DISCLOSURE AND INFORMATION TO AUDITORS
Each of the current Directors hereby confirms that:
(a) So far as he/she is aware, there is no relevant audit
information of which the auditors are unaware; and
(b) He/she has taken all reasonable steps to ascertain any
relevant audit information and to ensure that the auditors
are aware of such information
Fjarde AP Fonden (The Fourth
Swedish National Pension Fund)
The European Investment
Council Fund, EIC
2,632,385
4.95 %
On behalf of the Board
2,080,437
3.91 %
(*) of which 2,561,402 are held directly by Timo Syrjälä and 6,312,000
are held by Acme Investments SPF S.à.r.l., an entity which
is wholly owned by Timo Syrjälä
(**) of which 2,100,565 are held by Markku Jalkanen directly and
1,126,112 are held by Markku Jalkanen’s wife Sirpa Jalkanen
Frank Armstrong
Chairman
24 March 2022
45
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
Financial
Report
Statement of Comprehensive Income
For the year ended 31 December
Group Parent
€’000
Revenue
Other operating income
Research and development expenses
General and administrative expenses
Operating loss
Financial expense
Financial income
Loss before tax
Tax expense
Loss for the period
Note
2021
2020
2021
2020
3, 4
5
6, 7, 8
6, 7, 8
9
9
10
0
6,137
(17,369)
(9,876)
(21,108)
(235)
165
0
2,122
(13,879)
(4,897)
(16,654)
(389)
109
0
6,137
(17,369)
(9,969)
(21,201)
(249)
182
0
2,122
(13,879)
(4,947)
(16,704)
(388)
113
(21,178)
(16,934)
(21,268)
(16,979)
(16)
(10)
(2)
(1)
(21,194)
(16,944)
(21,270)
(16,980)
Other comprehensive income (loss)
-
(15)
2
-
-
Total comprehensive loss for the period
(21,209)
(16,946)
(21,270)
(16,980)
Loss per ordinary share
Basic and diluted loss per share, EUR
11
(0.42)
(0.37)
(0.42)
(0.37)
46
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
Balance Sheet
€’000
Assets
Non-current assets
Machinery and equipment
Right-of-use-assets
Subsidiary shares
Intangible assets
Prepayments and other receivables
Total non-current assets
Current assets
Prepayments and other receivables
Cash and cash equivalents
Total current assets
Group Parent
Note
2021
2020
2021
2020
12
14
24
12
13
15
16
20
187
-
899
53
1,159
5,170
6,853
12,023
14
361
-
565
56
996
3,263
4,108
7,371
20
187
18
899
649
14
361
18
565
191
1,772
1,149
5,164
6,634
11,798
3,264
4,037
7,301
Total assets
13,182
8,367
13,570
8,450
Equity and liabilities
Capital and reserves attributable to the equity holders of the Company
Share capital
Reserve for invested unrestricted equity
Accumulated deficit
Translation difference
Total equity
Non-current liabilities
Borrowings
Lease liabilities
Other liabilities
Total non-current liabilities
Current liabilities
Borrowings
Lease liabilities
Trade payables
Accruals and other current liabilities
Total current liabilities
17, 18
19
14
21
19
14
22
22
2,691
116,507
(116,265)
(15)
2,919
2,691
92,015
2,691
116,507
2,691
92,015
(96,557)
(116,381)
(96,598)
2
-
-
(1,849)
2,818
(1,892)
2,918
16
151
3,085
429
184
2,229
4,336
7,178
2,728
199
786
3,713
122
176
2,115
4,090
6,503
2,918
16
151
3,085
429
184
2,951
4,104
7,668
2,717
199
788
3,704
122
176
2,293
4,047
6,638
Total liabilities
10,263
10,216
10,753
10,342
Total equity and liabilities
13,182
8,367
13,570
8,450
47
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
Parent Company Statement of
Changes in Equity
€’000
Note
Share
capital
Reserve for Accumulated
deficit
invested
unrestricted
equity
Total
equity
Balance as at 31 December 2019
2,691
78,916
(80,003)
1,604
Comprehensive loss for the period
Transactions with equity holders of the Company
Issue of ordinary shares, net of
transaction costs EUR 1,004 thousand
Share-based compensation
17
7,18
-
-
-
-
-
(16,980)
(16,980)
13,098
-
13,098
-
386
386
13,098
386
13,484
Balance as at 31 December 2020
2,691
92,015
(96,598)
(1,892)
Comprehensive loss for the period
Transactions with equity holders of the Company
Issue of ordinary shares, net of transaction
costs EUR 1,067 thousand
Share-based compensation
17
7,18
-
-
-
-
-
(21,270)
(21,270)
24,492
-
24,492
-
1,487
1,487
24,492
1,487
25,981
Balance as at 31 December 2021
2,691
116,507
(116,381)
2,818
48
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
Group Statement of
Changes in Equity
€’000
Note
Share
capital
Reserve for
invested
unrestricted
equity
Translation
difference
Accumulated
deficit
Total
equity
Balance as at 31 December 2019
2,691
78,916
Comprehensive loss for the period
Transactions with equity holders of the Company
Issue of ordinary shares, net of
transaction costs EUR 1,004 thousand
Share-based compensation
17
7,18
-
-
-
-
-
13,098
-
13,098
Balance as at 31 December 2020
2,691
92,015
-
2
-
-
-
2
(79,997)
1,610
(16,946)
(16,944)
-
13,098
386
386
386
13,484
(96,557)
(1,849)
Comprehensive loss for the period
Transactions with equity holders of the Company
Issue of ordinary shares, net of transaction
costs EUR 1,067 thousand
Share-based compensation
17
7,18
-
-
-
-
-
(15)
(21,194)
(21,209)
24,492
-
24,492
-
-
-
-
24,492
1,487
1,487
1,487
25,980
Balance as at 31 December 2021
2,691
116,507
(15)
(116,265)
2,919
49
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
Statement of Cash Flows
As at 31 December
Group Parent
€’000
Note
2021
2020
2021
2020
Cash flow from operating activities
Loss before tax
Adjustments for:
Received grant
Depreciation and amortisation
Interest expense
Unrealised foreign exchange loss (gain), net
Tax expense
Share-based compensation
Adjusted loss from operations before
changes in working capital
Change in net working capital:
Prepayments and other receivables
Trade payables
Other liabilities
Cash used in operations
Taxes paid
Interest paid
(21,194)
(16,936)
(21,268)
(16,979)
5
8
9
9
10
18
(1,387)
307
216
153
16
1,487
(587)
283
149
117
10
386
(1,387)
(587)
307
215
168
2
1,487
283
148
129
1
386
(20,402)
(16,578)
(20,476)
(16,619)
(1,919)
723
(566)
(22,163)
(16)
(40)
(1,097)
1,641
(1,416)
(17,450)
(1)
(28)
(2,358)
1,090
(566)
(22,309)
(2)
(40)
(1,101)
1,653
(1,441)
(17,508)
(1)
(28)
Net cash used in operating activities
(22,218)
(17,479)
(22,351)
(17,537)
Cash flow from investing activities
Payments for intangible assets
Payments for equipment
Net cash used in investing activities
Cash flow from financing activities
Proceeds from issue of shares
Share issue transaction cost
Proceeds from borrowings
Repayment of borrowings
Proceeds from grants
Payment of lease liabilities
12
12
17
17
20
20
5, 21
2.19
(461)
(13)
(473)
25,559
(1,067)
662
(122)
750
(191)
(137)
(5)
(142)
14,103
(1,004)
630
(122)
1,375
(195)
(461)
(13)
(473)
25,559
(1,067)
661
(122)
750
(191)
(137)
(5)
(142)
14,103
(1,004)
630
(122)
1,375
(195)
Net cash from financing activities
25,590
14,787
25,590
14,787
Net increase (+) / decrease (-)
in cash and cash equivalents
Effect of exchange rate changes on
cash and cash equivalents
2,899
(2,834)
2,766
(2,892)
(153)
(117)
(168)
(129)
Cash and cash equivalents at 1 January
Cash and cash equivalents at 31 December
16
16
4,108
6,853
7,059
4,108
4,037
6,634
7,058
4,037
50
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
Notes to the Financial Statement
1. CORPORATE INFORMATION
company
biopharmaceutical
Faron Pharmaceuticals Ltd (the ”Company”) is a clinical
stage
incorporated
and domiciled in Finland, with its headquarters at
Joukahaisenkatu 6 B, 20520 Turku, Finland. The
Company has a pipeline based on the receptors
involved in regulation of immune response in oncology,
organ damage and bone marrow regeneration.Faron
Pharmaceuticals Ltd. is listed on the London Stock
Exchange’s AIM market since 17 November 2015, with
a ticker FARN. On 21 November 2019 the company
announced it has submitted an application for the listing
of its ordinary shares on Nasdaq First North Growth
Market, a multilateral trading facility operated by Nasdaq
Helsinki Ltd. The first date of trading at Nasdaq First
North was 3 December 2019 (trading code FARON).
The Board of Directors of the Company approved the
financial statements on 24 March 2022.
2. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
in
the Consolidated Financial Statements. Faron
Pharmaceuticals Ltd holds 100% ownership of all its
subsidiaries.
The Consolidated Financial Statements are presented
in euro which is the functional currency of the parent
company. The statements of comprehensive income
and statements of cash flows of foreign subsidiaries,
whose functional currency is not euro, are translated
into euro each month at the average monthly exchange
rates, while the statements of financial position of
such subsidiaries are translated at the exchange rate
prevailing at the reporting date. Translation differences
resulting from the translation of profit for the period and
other items of comprehensive income in the statement
of comprehensive income and statement of financial
position are recognised as a separate component in
equity and in other comprehensive income. Also, the
translation differences arising from the application of the
purchase method and from the translation of equity items
cumulated subsequent to acquisition are recognised in
other comprehensive income.
All figures presented in notes are group figures if not
2.1. Basis of Preparation
else stated.
in
The financial statements have been prepared
accordance with the International Financial Reporting
Standards of the International Accounting Standards
Board (IASB) and as adopted by the European Union
International
(IFRS) and the
Financial Reporting Standards Interpretations Committee
(IFRIC). The financial statements have been prepared on a
historical cost basis, unless otherwise stated.
interpretations of the
The principal accounting policies applied
in the
preparation of these financial statements are set out
below. The Company has consistently applied these
policies to all the periods presented, unless otherwise
stated. The areas of the financial statements involving a
higher degree of judgment or complexity, or areas where
assumptions and estimates are significant to the financial
statements are disclosed in note 2.21.
The Consolidated Financial Statements incorporate
the parent company, Faron Pharmaceuticals Ltd, and all
subsidiaries in which it holds over 50% of the voting rights.
The subsidiaries established during the financial period
are consolidated from the date that control was obtained
by the Group.
The
consolidated by using
are
the purchase method. All
transactions,
intragroup
receivables, liabilities and unrealized gains are eliminated
subsidiaries
All amounts are presented in thousands of euros,
unless otherwise indicated, rounded to the nearest euro
thousand.
2.2. Going Concern
As part of their going concern review the Directors have
followed the Finnish Limited Liability Companies Act, the
Finnish Accounting Act and the guidelines published by
the Financial Reporting Council entitled “Guidance on
the Going Concern Basis of Accounting and Reporting
on Solvency and Liquidity Risks – Guidance for directors
of companies that do not apply the UK Corporate
Governance Code”. The Company and its subsidiaries (the
“Group”) are subject to a number of risks similar to those
of other development stage pharmaceutical companies.
These risks
include, amongst others, generation of
revenues in due course from the development portfolio
and
research, development,
testing and obtaining related regulatory approvals of its
pipeline products. Ultimately, the attainment of profitable
operations is dependent on future uncertain events which
include obtaining adequate financing to fulfil the Group’s
commercial and development activities and generating
a level of revenue adequate to support the Group’s cost
structure.
risks associated with
51
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
The Group made a net loss of €21.2 million during
the year ended 31 December 2021. At the end of the
financial year, it had total equity of €2.9 million including
an accumulated deficit of €116.2 million. As at that date,
the Group had cash and cash equivalents of €6.9 million.
The Directors have prepared detailed financial
forecasts and cash flows looking beyond 12 months from
the date of the approval of these financial statements.
In developing these forecasts, the Directors have made
assumptions based upon their view of the current and
future economic conditions that are expected to prevail
over the forecast period. The Directors estimate that the
cash held by the Group together with known receivables will
be sufficient to support the current level of activities into
the fourth quarter of 2022. The Directors are continuing to
explore sources of finance available to the Group and they
believe they have a reasonable expectation that they will
be able to secure sufficient cash inflows for the Group to
continue its activities for not less than 12 months from the
date of approval of these financial statements; they have
therefore prepared the financial statements on a going
concern basis.
Because the additional finance is not committed at
the date of issuance of these financial statements, these
circumstances represent a material uncertainty that
may cast significant doubt on the Company’s ability to
continue as going concern. Should the Group be unable to
obtain further finance such that the going concern basis
of preparation were no longer appropriate, adjustments
would be required, including to reduce balance sheet
values of assets to their recoverable amounts, to provide
for further liabilities that might arise.
2.3. Foreign Currency Transactions and Balances
Functional and Presentation Currency
The financial statements are presented in euro, which is
the Group’s functional and presentation currency.
Transaction Currency
Transactions in foreign currencies are translated at the
exchange rates ruling at the date of the transaction.
Monetary assets and liabilities denominated in foreign
currencies are translated at the exchange rates ruling
at the reporting date. Foreign exchange differences
arising on translation are recognised in the statement
of comprehensive
income
and expenses. Non-monetary assets and liabilities
denominated
in foreign currencies are translated
at the foreign exchange rate ruling at the date of the
transaction.
income, within financial
2.4. Segment Reporting
Operating segments are reported in a manner consistent
with the internal reporting provided to the chief operating
decision maker. The Chief Executive Officer, reviewing
the operating results regularly to make decisions
about the allocation of resources and to assess overall
performance, is identified as the chief operating decision
maker. The Chief Executive Officer manages the Group as
one integrated business and hence, the Group has one
operating and reportable segment.
2.5. Revenue Recognition
The Group uses IFRS 15 standard for Revenue from
Contracts with Customers and applies the single,
principles based five-step model to all contracts with
customers provided by IFRS 15 as follows:
1. Identify the contract with a customer
2. Identify the performance obligations in the contract
3. Determine the transaction price
4. Allocate the transaction price to the performance
obligations in the contract
5. Recognise revenue when (or as) the entity satisfies
a performance obligation (over time or at a point in
time).
Revenue from Licensing Agreements
According to IFRS 15, performance obligation is a
promise to provide a distinct good or service or a series
of distinct goods or services. Goods and services that
are not distinct are bundled with other goods or services
in the contract until a bundle of goods or services that
is distinct is created. A good or service promised to a
customer is distinct if the customer can benefit from the
good or service either on its own or together with other
resources that are readily available to the customer and
the entity’s promise to transfer the good or service to the
customer is separately identifiable from other promises
in the contract.
Faron Pharmaceuticals Ltd.’s existing
license
agreements with Maruishi in Japan, with A&B in Greater
China and with Pharmbio in Republic of Korea each
include only one performance obligation, which is the
grant of the license to use of its intellectual property
(“IP”). After the Company has granted the license, it does
not have an obligation to participate or provide additional
services to its customers. The transaction price for the
grant of the license to use the Company’s IP comprises
of fixed and variable payment streams and the grant of
the license is considered to be a right to use IP. Upfront
fees earned, are recognised as revenue at a point in time,
upon transfer of control over the license to the licensee.
52
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
Revenue from variable consideration, which are contingent
on achievements of future milestones are recognised as
revenue when it is highly probable the revenue will not
reverse, that is when the underlying contingencies have
been resolved. For future royalty payments associated
with a license, the Group applies the IFRS 15 exception
for sales-based royalties and recognises the revenue only
when the subsequent sale occurs.
In addition, there is a potential performance obligation
regarding future manufacturing. Faron Pharmaceuticals
Ltd. has tentatively agreed on supply and manufacture
of the drug product to its licensees. The terms including
quantities and commercial terms for the future supply will
be subject to separate negotiations.
For further information on revenue recognition, see
notes 2.21 and 3.
2.6. Recognition of Government Grants
The direct government grants are recognised as other
operating income at the same time as the underlying
expenditure is incurred, provided that there is reasonable
assurance that the Company will receive the grant and
complies with the conditions of such grant. Direct grant
payments received in advance of the incurrence of the
expenditure that the grant is intended to compensate
are deferred at the reporting date and presented under
advances received on the balance sheet.
The indirect government assistance in the form of
below-market interest government loans is recognised
as grant income and recorded as other operating income
in the same period in which the company recognises the
expenses for which the benefit is intended to compensate.
Grant income is measured as the difference between the
initial fair value of the loan and the proceeds received.
2.7. Research and Development Expenses
Research and development costs are expensed as incurred
and presented under research and development expenses
in the statement of comprehensive income. Research
and development expenses include costs for outsourced
clinical trial services, materials and services, employee
benefits and other expenditure directly attributable to
the Company’s research and development activities.
The Company’s research and development expenses are
directly related to the Company’s development projects
and may therefore fluctuate strongly from year to year.
Capitalization of expenditure on the development of the
Company’s products commences from the point at which
technical and commercial feasibility of the product can
be demonstrated and it is probable that future economic
benefits will result from the product once completed.
As at 31 December 2021, considering the development
stage of the Company’s drug candidates, no internally
developed assets related to Company’s development
activities had met these criteria and had therefore not
been recognised. The uncertainties inherent in developing
pharmaceutical products prohibits the capitalization of
internal development expenses as an intangible asset
until the marketing approval has been received from the
relevant regulatory agencies.
2.8. Employee Benefits
The Group’s employee benefits consist of short-
term employee benefits, post-employment benefits
(defined contribution pension plans) and share-based
compensation. Short-term employee benefits are charged
to the statement of comprehensive income in the year
in which the related service is provided. Under defined
contribution plans, the Group’s contributions are recorded
as an expense in the accounting period to which they
relate and the Group does not have any further obligations
once the contributions have been paid.
2.9. Share-based Compensation
The options granted under share-based
incentive
programs are measured at fair value at earlier of the
grant date or the service commencement date, using the
Black-Scholes valuation model. The options, for which
the option exercise price is determined later, right before
the vesting, an estimate is used to determine the fair
value at service commencement date and the estimate is
subsequently revised until the options become granted.
The share-based compensation expense is recognised on
a straight-line basis over the vesting period together with
a corresponding increase in equity, based on the Group’s
estimate of equity instruments that will eventually vest. At
each reporting date, the Group revises its estimate of the
number of equity instruments that are expected to vest
and its estimate of the grant date fair value for the options
with earlier service commencement date. The exercise
price paid by the option or warrant holder to subscribe the
Group’s shares is recognised in the reserve for invested
unrestricted equity.
2.10. Loss per Share
Basic loss per share is calculated by dividing the loss for
the period with the weighted average number of ordinary
shares during the period.
Since the Group has reported losses, inclusion of
unexercised options would decrease the loss per share
and therefore not taken into account in diluted loss per
share calculation.
53
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
2.11. Income Tax
Income tax expense for the period consists of current
and deferred taxes. Tax is recognised in the statement of
comprehensive income, except for the income tax effects
of items recognised in other comprehensive income or
directly in equity, which is similarly recognised in other
comprehensive income or equity.
Deferred taxes are recognised using the
liability
method on temporary differences arising between the tax
bases of assets and liabilities and their carrying amounts
in the financial statements. Deferred taxes are determined
using tax rates enacted or substantively enacted by the
balance sheet date in the respective countries and are
expected to apply when the related deferred tax asset is
realised or the deferred tax liability is settled.
Deferred income tax assets are recognised only to the
extent that it is probable that future taxable income will
be available, against which the temporary differences, tax
losses and tax credit can be utilized.
2.12. Machinery and Equipment
The Group’s machinery and equipment comprise of office
furniture and equipment, which is stated at historical cost
less depreciation and any impairment losses. The historical
cost includes expenditure that is directly attributable to
the acquisition of the machinery and equipment.
Depreciation
is calculated using the straight-line
method over the asset’s estimated useful life of four years.
Depreciation is recorded to the costs of the asset function.
2.13. Intangible Assets
The Group’s intangible assets comprise of capitalized
patent costs arising in connection with the preparation,
filing and obtaining of patents. Patent cost are amortised
on a straight-line basis over the useful lives of the patents
of ten years.
2.14. Impairment of Non-financial Assets
Assets that are subject to depreciation or amortisation are
reviewed for impairment whenever there are indications
that the carrying amount may not be recoverable.
An impairment loss is recognised for the amount by
which the asset’s carrying amount exceeds its recoverable
amount. The recoverable amount is the higher of an
asset’s fair value less costs of disposal and value in use.
The value in use represents the discounted future net cash
flows expected to be derived from the asset.
2.15. Inventories
Inventories are stated at the lower of cost and net realizable
value. The cost includes all costs of direct materials
and external services associated with the process of
manufacturing of the goods sellable upon obtaining the
regulatory marketing approval. The cost of inventories is
fully written down.
2.16. Financial Assets
The Group’s financial assets comprise of other receivables
and cash and cash equivalents, which are all classified
to the category “financial assets measured at amortised
cost”. These are non-derivative financial assets with fixed
or determinable payments that are not quoted in an active
market. They are included in current assets, except for
maturities greater than 12 months after the reporting
date, which are classified as non-current assets.
Other receivables consist mainly of VAT refund and
restricted cash in the form of security deposits for rental
agreements. Cash and cash equivalents comprise cash
on hand and at banks.
2.17. Financial Liabilities
interest
The Group’s financial
bearing borrowings, trade payables, other non-current and
current liabilities.
liabilities comprise of
Borrowings are initially recognised at fair value, less
any directly attributable transaction costs. Subsequently
borrowings are carried at amortised cost using the
effective interest method. Borrowings are presented as
current liabilities unless the Group has an unconditional
right to defer settlement of the liability for at least 12
months after the end of the reporting period. Borrowings
are not derecognised until the liability has ceased to exist,
that is, when the obligation identified in a contract has
been fulfilled or cancelled or is no longer effective.
Borrowings comprise of four government loans with
a below-market rate of interest from The Finnish Funding
Agency for Technology and Innovation (formerly “Tekes”,
currently “Business Finland”), of which two have been fully
drawn down before the Group’s date to transition to IFRS.
Accordingly, the Group has utilized the IFRS 1 exemption
and not accounted for the below-market grant separately
for these two loans, which are carried at amortised cost.
The government loan originated after the date of
transition to IFRS was initially recognised and measured
at fair value and subsequently at amortised cost over the
loan period by using the effective interest method. The
grant component of the loan, which is the benefit of the
below-market interest rate, is measured as the difference
between the initial fair value of the loan and the proceeds
received.
Trade payables and other liabilities are classified as
current liabilities, unless the Group has an unconditional
right to defer settlement of the liability for at least 12 months
54
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
after the end of the reporting period, in which case they are
classified as non-current liabilities. The carrying amount of
trade payables and other current liabilities are considered
to be the same as their fair values, due to their short-term
nature. Non-current liabilities are initially measured at fair
value and subsequently at amortised cost.
2.18. Equity
The Group’s equity comprises of share capital, reserve
for invested unrestricted equity and accumulated deficit.
The proceeds from issuance of new ordinary shares, less
incremental costs directly attributable to the issue, are
credited to the reserve for invested unrestricted equity, in
accordance with the terms and conditions of the share issue.
The accumulated deficit comprises of the accumulated
profits and losses of the Group since the inception.
Under the Finnish Limited Liability Companies Act
(624/2006, as amended), if the board of directors of a
company notices that the company has negative equity,
the board must make a register notification on the loss
of share capital. However, if the fair value of the assets
of the company is otherwise than temporarily notably
higher than their book value, the difference between the
probable current price and the book value may be taken
into account as an addition to equity.
2.19. Leases
The Company as Lessee
From 1 January 2019, the Group recognises all leases,
with the exception of short-term (i.e. lease term less than
12 months) and low value leases, in line with IFRS 16
Leases as right-of-use assets with a corresponding lease
liability at the date at which the leased asset is available
for use by the Group. A contract is or contains a lease if
the Group has the right to control the use of an identified
asset for a period of time in exchange for consideration.
When determining the lease term, the Group assesses
the probability of exercising extension and termination
options over the non-cancellable period by considering all
relevant facts and circumstances. Right-of-use assets and
lease liabilities are initially recognised on the consolidated
balance sheet at future fixed lease payments over the lease
term. Lease payments are discounted to present value
using an effective interest rate. Right-of-use assets are
depreciated on a straight-line basis over the lease term and
reviewed periodically for indication of impairment. When
the future lease payments are revised due to changes in
index-linked considerations or the lease term changes, the
right-of-use asset and the corresponding lease liability is
remeasured. Any differences arising on reassessments
are recognised in the consolidated income statement.
Interest expense on lease liabilities is presented within
Interest expense in the consolidated income statement.
In the consolidated cash flow statement, the principal
portion of the lease payment is presented in the cash flow
from financing activities.
2.20. Provisions and Contingent Liabilities
Provisions are recognised when the Group has a present
legal or constructive obligation as a result of past events, it
is probable that an outflow of resources will be required to
settle the obligation, and a reliable estimate of the amount
can be made. The Group does not have provisions at the
end of the reporting periods presented in these financial
statements.
A contingent liability is a possible obligation that arises
from past events and whose existence will be confirmed
only by the occurrence of uncertain future events not
wholly within the control of the entity. Such present
obligation that probably does not require settlement of a
payment obligation and the amount of which cannot be
reliably measured is also considered to be a contingent
liability. Contingent liabilities are disclosed in the notes to
the financial statements.
2.21. Critical Accounting Estimates and Significant
Management Judgements in Applying Accounting
Policies
Revenue Recognition
In determining the amounts to be recognised as revenue,
the Group uses its judgement in the following main issues:
•
Identifying the performance obligations in the
license agreements and determining whether the
license provided is distinct - based on the Group’s
analysis, the license is distinct as the licensee is able
to benefit from the license on its own at its current
stage and the licensee has the responsibility for
the development in that territory. The management
has determined that the provision of data and
information generated by the Group in connection
with its own development activities to facilitate the
licensees’ territory-specific development efforts
is immaterial (perfunctory) to the grant of the
license to the IP and does not constitute a separate
performance obligation.
• Management has concluded that the license meets
the criteria to be classified as a right to use, as
the license granted provides at the outset of the
contract all necessary documents and knowhow
to utilize the license. The contract does not
define activities that would significantly affect the
intellectual property to which the licensee has rights
after the date of granting.
55
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
recognises expenses
Share-based Compensation
The Group
for share-based
compensation. For share options management estimates
certain factors used in the option pricing model, including
volatility, vesting date of options and number of options
likely to vest. If these estimates vary from actual
occurrence, this will impact the value of the share-based
compensation. Further details of the Group’s estimation
of share-based compensation are disclosed in note 18.
Clinical Trial Accruals
Quantification of the accruals related the clinical trials
require a lot of detailed information about the services
performed. The services invoiced by Contract Research
Organisations consist of contributions of various
independent subcontractors and
tasks
completed may be reported with significant delays. Also
the clinical study sites, may invoice their costs with long
delays. These factors combined result in a complicated
task of defining on which period the cost belongs to
and the Company has implemented a detailed tracking
process to minimize any judgement needed.
the actual
License Agreement and Supply Agreement with Maruishi
In 2011, the Company entered into a license agreement
with Japanese license partner Maruishi. The Company
has not recognised revenue for the Maruishi license
agreement during the periods presented but is entitled to
receive additional payments upon achievement of certain
development or commercial milestones.
In 2014, the Company entered into a separate supply
agreement with Maruishi for the delivery of investigational
medicinal products to be used in territory-specific clinical
studies. In 2021 the Company has not recognised revenue
from deliveries based on this agreement.
License Agreement with Pharmbio
In 2016, the Company entered into license agreement with
Korean license partner Pharmbio and met the upfront at
signing. In this connection the Company satisfied the
performance obligation for the grant of the license and use
of its IP and recognised revenue in the amount of EUR 750
thousand. The Company is entitled to receive additional
if certain
milestone payments from Pharmbio only
development or commercial milestones are achieved.
2.22. New and Amended Standards and
Interpretations Adopted by the Group
4. SEGMENT REPORTING
Faron Pharmaceuticals Ltd. is a late clinical stage drug
discovery and development company. Its operations
have been focused on the development of its main drug
candidates Traumakine and Bex. The Group’s chief
operating decision maker has been identified as the Chief
Executive Officer (CEO).
The CEO manages the Group as one integrated
business and hence the Group has one operating and
reportable segment.
The Group had no revenue in 2021 (EUR 0 thousand
in 2020).
All of the Group’s non-current assets are located in
Finland.
New standards not to yet implemented by the Group:
Amendments to IAS 1 Presentation of Financial State-
ments and IAS 8 Accounting Policies, Changes in
Accounting Estimates and Errors. The purpose of the
amendments is to align the definition of ‘material’ across
the standards and to clarify certain aspects of the defini-
tion. The amendments clarify that materiality will depend
on the nature or magnitude of information, or both.
The group is monitoring potential changes in future
accounting standards and assessing any impact thereof
on a continuing basis.
3. REVENUE
Faron Pharmaceuticals Ltd. has entered into exclusive
license agreements with Maruishi in Japan, with A&B
in Greater China and with Pharmbio in the Republic
of Korea for the development, commercialization and
supply of Traumakine and is entitled to related milestone
payments. The Company retains rights to Traumakine in
the rest of the world. The license partners are responsible
for all regulatory activities and needed clinical activities
necessary for commercialization in respective territories.
Under the license agreements, the Company is also
entitled to receive royalty payments based on the product
sales in territories, but such royalties have not been earned
or recognised to revenue during the periods presented.
56
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
5. OTHER OPERATING INCOME
7. EMPLOYEE BENEFITS
€’000
Salaries
Pension expenses –
contribution-based plans
Social security contributions
Share-based compensation
Total employee benefit expenses
Year ended 31 December
2021
2020
(4,419)
(3,593)
(644)
(202)
(1,487)
(6,753)
(480)
(116)
(386)
(4,575)
Employee benefit expenses by function
Research and development expenses
(3,281)
General and administrative expenses
(3,472)
Total employee benefit expenses
(6,753)
(2,894)
(1,681)
(4,575)
The headcount of personnel at the end of 2021 was 37
(2020: 30). Share-based compensation information is
included in note 18 and management remuneration
information in note 24.
8. DEPRECIATION AND AMORTISATION
€’000
Year ended 31 December
2021
2020
Depreciation and amortisation
by type of asset
Depreciation for right-of-use-assets
Intangible assets - patents
Intangible assets
Machinery and equipment
(172)
(110)
(18)
(6)
(178)
(98)
(3)
(4)
Total depreciation and amortisation
(307)
(283)
Depreciation and amortisation by function
Research and development expenses
(232)
General and administrative expenses
(75)
Total depreciation and amortisation
(307)
(225)
(58)
(283)
€’000
Year ended 31 December
2021
2020
Grant from the European Union
1,387
Grant from Business Finland
Grant component of government
loans
Other income
Total operating income
160
498
4,091
6,137
587
162
152
1,221
2,122
Grant from the European Union comprise of direct funding
from the European Commission under the Horizon
2020 research and innovation programme (for research
and technological development to support the Matins
clinical program). Grant from Business Finland is also
direct funding to support Cancer IO research. The grant
component of government loan comprise of indirect
financial benefit from the below-market interest of a loan
from Business Finland which has been granted to finance
Traumakine manufacturing. The other income consists of
the reimbursement of already occurred legal expenses by
the third-party recovery services and the arbitration award
provider as announced by the Company on 30 December
2019 and 9 November 2021.
6. BREAKDOWN OF EXPENSES BY FUNCTION
Research and Development Expenses
€’000
Materials and services
Employee benefits
Outsourced clinical
trials services
Other R&D costs
Depreciation and amortization
Total research and
development expenses
Year ended 31 December
2021
2020
(9,392)
(3,281)
(5,739)
(2,894)
(3,541)
(4,393)
(923)
(232)
(628)
(225)
(17,369)
(13,879)
General and Administration Expenses
€’000
Other G&A costs
Employee benefits
Communication
Depreciation and amortization
Total general and
administrative expenses
Year ended 31 December
2021
2020
(5,932)
(3,472)
(396)
(75)
(2,820)
(1,681)
(338)
(58)
(9,876)
(4,897)
57
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
9. FINANCIAL INCOME AND EXPENSES
€’000
Financial income
Interest income
Gains from foreign exchange
Total financial income
Financial expenses
Interest expenses
Losses from foreign exchange
Interest expenses from lease liabilities
Other financial expenses
Total financial expenses
Year ended 31 December
2021
2020
€’000
Year ended 31 December
2021
2020
2
163
165
(200)
(3)
(15)
(32)
(250)
9
98
107
(127)
(227)
(22)
(13)
(389)
Loss before tax
(21,209)
(16,936)
Income tax calculated at Finnish
tax rate 20%
Tax losses and temporary
differences for which no deferred
tax asset is recognised
Non-deductible expenses and
tax exempt income
Non-credited foreign withholding taxes
Taxes in the statement of
comprehensive income
4,242
3,387
(4,131)
(3,491)
(111)
(16)
(16)
104
(10)
(10)
Tax losses and deductible temporary differences for which
no deferred assets have been recognised, are as follows:
Total financial income and
expenses, net
(85)
(282)
€’000
Year ended 31 December
2021
2020
Interest expenses consist of paid and accrued interest
expenses. The accrued interest expense relates mainly
to the government loans, see note 19. Interest expenses
recognised from lease liabilities totalled to EUR 15
thousand (2020: EUR 22 thousand).
The foreign exchange wins mainly relate to the cash
balance nominated in US Dollars which strengthened
against the EUR.
Unrealised foreign exchange loss (gain), net is EUR
153 thousand and EUR 117 thousand for the years ended
31 December 2021 and 2020, respectively.
R&D expenses not yet deducted
in taxation (1)
Tax losses carried forward (2)
Total
70,085
42,561
112,646
54,981
38,158
93,139
(1) The Group has incurred research and development
costs, that have not yet been deducted in its taxation. The
amount deferred for tax purposes can be deducted over
an indefinite period.
(2) Tax losses carried forward expire over the period of 10
years. The tax losses will expire as follows:
10. TAX EXPENSE
€’000
Tax expense
Total tax expense
€’000
2021
2020
Year ended 31 December
2021
2020
Expiry within five years
(16)
(16)
(10)
(10)
Expiry within 6-10 years
Total
23,037
19,524
42,561
13,276
24,882
38,158
Income tax consists of foreign corporation tax.
The difference between income taxes at the statutory
tax rate in Finland (20%) and income taxes recognised in
the statement of comprehensive income is reconciled as
follows:
The related deferred tax assets have not been recognised
in the balance sheet due to the uncertainty as to whether
they can be utilized. The Group has a loss history, which
is considered a significant factor in the consideration of
not recognising deferred tax assets. The total tax value of
unrecognised deferred tax assets is EUR 22,529 thousand
(2020: EUR 18,628 thousand).
The Group does not have any other deductible or taxable
temporary differences. Therefore, no deferred tax assets or
liabilities have been recognised in the balance sheet and
thus the itemisation of deferred taxes is not provided.
58
11. LOSS PER SHARE
Loss per share is calculated by dividing the net loss by
the weighted average number of ordinary shares in issue
during the year.
€’000
Year ended 31 December
2021
2020
Loss for the period
(21,209)
(16,946)
Weighted average number of
ordinary shares in issue
Basic and dilutive loss
per share (in €)
50,723,964
45,712,111
(0.42)
(0.37)
As of 31 December 2020, Faron Pharmaceuticals Ltd. had
only share options outstanding. Number of potentially
dilutive
totalled
instruments currently outstanding
3,643,000 as of 31 December 2021 (31 December 2020:
3,694,000). Since the Group has reported a net loss, the
share options would have a further dilutive effect and are
therefore not taken into account in diluted loss per share-
calculation. As such, there is no difference between basic
and diluted loss per share.
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
12. INTANGIBLE ASSETS AND MACHINERY AND
EQUIPMENT
Intangible
assets
Machinery
and
equipment
€’000
Book value on 1 January 2021
Additions
Disposals
Depreciation/amortisation
Book value 31 December 2021
As at 31 December 2021
Acquisition cost
Accumulated disposals
565
461
-
(127)
899
1,521
-
Accumulated depreciation/amortisation
(622)
Book value 31 December 2021
Book value 1 January 2020
Additions
Disposals
Depreciation/amortisation
Book value 31 December 2020
As at 31 December 2020
Acquisition cost
Accumulated disposals
899
529
137
-
(102)
565
1,060
-
Accumulated depreciation/amortisation
(495)
Book value 31 December 2020
565
14
13
-
(6)
20
57
-
(37)
20
13
5
-
(4)
14
44
-
(30)
14
13. NON-CURRENT PREPAYMENTS AND OTHER
RECEIVABLES
€’000
As at 31 December
2021
2020
Other receivables
Total non-current prepayments
and other receivables
53
53
55
55
Other receivables consist mainly of restricted cash in the
form of security deposits for rental agreements.
For the parent company, the other receivables (2021 EUR
649 thousand) consist on intercompany loans that are
eliminated on group level
59
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
14. RIGHT-OF-USE-ASSETS AND LEASING
LIABILITIES
€’000
31 December
2021
31 January
2020
Right-of-use assets
Office
Vehicle
Total right-of-use assets
Lease liabilities
Long-term leasing liability
Short-term leasing liability
Total leasing liabilities
187
0
187
16
184
199
359
2
361
199
176
375
The Company maintained the office premises during
2021, the decrease on Right-of-use assets was EUR 172
thousand.
15. CURRENT PREPAYMENTS AND OTHER
RECEIVABLES
€’000
Prepayments
Other accrued incomes and other receivables
Receivable for production defects
VAT receivable
Group Parent
2021
As at 31 December
2021
2020
3,752
1,993
3,752
808
434
176
740
434
96
802
434
176
2020
1,993
741
434
96
Total current prepayments and other receivables
5,170
3,263
5,164
3,264
The majority of prepayments consist of the Clinical Service
Agreements with Contract Research Organisations, which
are current service providers in different clinical trials.
60
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
16. CASH AND CASH EQUIVALENTS
€’000
Bank accounts
Total cash and cash equivalents
Group Parent
2021
6,853
6,853
As at 31 December
2021
2020
4,108
4,108
6,634
6,634
2020
4,037
4,037
17. SHAREHOLDERS’ EQUITY
Movements in number of shares, share capital and reserve
for invested unrestricted equity were as follows:
€’000
1 January 2020
Issue of new shares, net of transaction costs
31 December 2020
1 January 2021
Issue of new shares, net of transaction costs
31 December 2021
Total registered
shares (pcs)
Share
capital
Reserve for
unrestricted
equity
43,290,747
3,606,000
46,896,747
46,896,747
6,335,285
2,691
-
2,691
2,691
-
78,916
13,098
92,015
92,015
24,492
53,232,032
2,691
116,507
On 23 April 2020, the number of shares was increased
to 45,183,510 following the issue of 1,892,763 new shares.
On 24 April 2020 the number of shares was increased to
46,133,510 following the issue of 950,000 new shares.
On 28 April 2020 the number of shares was increased to
46,790,747 following the issue of 657,237 new shares.
On 22 May 2020 the number of shares was increased to
46,799,747 following the issue of 9,000 new shares. On 23
September 2020 the number of shares was increased to
46,814,747 following the issue of 15,000 new shares. On
30 November 2020 the number of shares was increased
to 46,896,747 following the issue of 82,000 new shares.
On 12 February 2021, the number of shares was
increased to 50,417,874 following the issue of 3,521,127
new shares, On 6 April 2021, the number of shares was
increased to 50,457,874 following the issue of 40,000 new
shares. On 1 October 2021, the number of shares was
increased to 53,221,032 following the issue of 2,763,158
new shares. On 8 October, the number of shares was
increased to 53,232,032 following the issue of 11,000 new
shares.
Faron Pharmaceuticals Ltd. has one class of ordinary
shares. The shares have no par value. Each share entitles
the holder to one vote at the Annual General Meeting and
equal dividend. All shares are fully paid.
The subscription price for the shares is recorded
to the share capital, unless the Board has made a
resolution to record the subscription price in the reserve
for invested unrestricted equity. If the shares of a Finnish
limited liability company have no par value according to
its articles of association, the Finnish Limited Liability
Companies Act allows companies the recognition of the
proceeds from share issuance to the reserve for invested
unrestricted equity. In such situations the board of a
company can choose on a subscription by subscription
basis, how much of the issue, if anything, is recorded in
share capital and how much to the reserve for invested
unrestricted equity that is distributable. During 2020 and
2021, the Board recognised all relevant transactions in the
invested unrestricted equity reserve.
61
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
18. SHARE OPTIONS
Option Plan 2015
The Option Plan 2015 was approved at the Company’s
extraordinary shareholders’ meeting on 15 September
2015 as part of the Group’s incentive scheme determined
by the Board of Directors. The share options are granted
to the members of the Board of Directors and the
management team and other management and employees
for no consideration. The annual general meeting on 16
May 2017 resolved to amend, due to the increase in the
number of employees in the Group and the increase in the
number of members of the Board of Directors, the Option
Plan so that a maximum total of 500,000 C options and a
maximum total of 500,000 D options may be offered under
initial Option Plan terms and conditions. The share options
have a service condition and are forfeited in case the
employee leaves the Company before the share options
vest, unless the Board of Directors approves otherwise.
After the beginning of the share subscription period, the
vested options may be freely transferred or exercised. The
fair value of the options has been determined using the
Black & Scholes option valuation model and expensed
over the vesting period. Grant dates for the share options
may vary depending on the date when the Company and
the employees agree to the key terms and conditions of
the Option Plan. The maximum number of share options
that can be awarded under the Option Plan is 1.800.000 in
four different tranches designated as A options, B options,
C options and D options. Each share option entitles the
holder of the option to subscribe for one ordinary share in
the Company.
The exercise price for ordinary shares based on
A options is euro equivalent of the Company’s share
subscription price in the Company’s initial public offering
on the AIM market place of the London Stock Exchange
on 17 November 2015. The exercise price for ordinary
shares based on B options, C options and D options is
euro equivalent of the exercise price determined based
on the Company’s average share price on the AIM market
place during 1 July - 30 September 2016, 2017 and 2018,
respectively.
Key characteristics and terms of the option plan are
listed in the table below.
The date of the allocation of D options to the employees
and key management is 30 June 2019, which has been
used in the option calculations.
2015 Option Plan
A options
B options
C options
D options
Maximum number of share options
400,000
400,000
500,000
500,000
Exercise price, EUR
Dividend adjustment
Beginning of
subscription period
3.71
No
2.90
No
8.39
No
1.09
No
2 November 2015
8 October 2016
8 October 2017
8 October 2018
End of subscription period
30 September 2023*
30 September 2023*
30 September 2023* 30 September 2023*
Vesting conditions
Service until the beginning of the subscription period
(*) During the company annual general meeting on 23 April 2021, the AGM resolved to amend the terms and conditions of the 2015 option programme
by extending the end of subscription period by 2 years, i.e. to 30 September 2023.
62
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
2021
2015 Option Plan
2020
2015 Option Plan
Number of share options
A
B
C
D
A
B
C
D
Outstanding at 1
January
Granted
Forfeited
Exercised
Outstanding at 31
December
Exercisable at 31
December
The weighted average
fair value of the share
options granted, EUR
The weighted average
share price at the date
of exercise, EUR
385,000
385,900
500,000
394,000
385,000
385,900
500,000
500,000
-
-
-
-
-
2000
-
-
-
-
-
49,000
-
-
-
-
-
-
-
-
-
-
-
106,000
385,000
383,900
500,000
345,000
385,000
385,900
500,000
394,000
385,000
383,900
500,000
345,000
385,000
385,900
500,000
394,000
-
-
-
4.78
-
-
-
4.16
-
-
-
-
-
-
-
3.32
2021
2015 Option Plan
2020
2015 Option Plan
Determination of the fair value for the share options granted
C
D
C
D
Share price at grant date, EUR
4.51–9.39
0.62–4.96
4.51–9.39
0.62–4.96
Subscription price, EUR
Volatility, %(*)
Interest free rate, %
Expected dividends yield, %
Option fair value, EUR
4.51–8.39
1.09–4.96
4.51–8.39
1.09–4.96
42.59–52.57
0.01
0
55.60
0.01
0
42.59–52.57
0.01
0
55.60
0.01
0
1.42–4.01
0.11–1.25
1.42–4.01
0.11–1.25
(*) Expected volatility was determined as the average volatility of a peer group consisting of ten comparable biotechnology companies listed on London
Stock Exchange AIM list.
There was no effect on earnings 2021 or 2020 based on
share options granted under the 2015 Option Plan. The
share based compensation expense for the Option Plan
2015 was EUR 0 in 2021 (EUR 0 in 2020).
63
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
Option Plan 2019
The Option Plan 2019 was approved at the Company’s
board of directors meeting on 20 November 2019 and
amended on 19 March 2020 as part of the Group’s
incentive scheme determined by the Board of Directors.
The share options are granted to the members of the Board
of Directors, Scientific Advisory Board, the management
team and other management and employees for no
consideration.
The share options have a service condition and are
forfeited in case the employee leaves the Company before
the share options vest, unless the Board of Directors
approves otherwise. After the beginning of the share
subscription period, the vested options may be freely
transferred or exercised. The fair value of the options
has been determined using the Black & Scholes option
valuation model and expensed over the vesting period.
Grant dates for the share options may vary depending
on the date when the Company and the employees agree
to the key terms and conditions of the Option Plan. The
maximum number of share options that can be awarded
under the Option Plan is 2.000.000 in aggregate, with
certain maximum limits per person. The details of the
plan are available on www.faron.com. Each share option
entitles the holder of the option to subscribe for one
ordinary share in the Company.
The exercise price for ordinary shares based on 2019
grant options is euro equivalent of the average share
price at the London AIM list for the past 90 days prior
to the grant date. For the GBP to EUR price conversion,
the exchange rate of the European Central bank on the
grant date is used. The weighted averace exercise price
for ordinary shares based on plan 2019 granted options
in 2021 is €4,03.
Company’s board has confirmed the grant of a total of
719,833 options in the company in 2021 under the Option
plan 2019. The Options have been allocated under the
Share Option Plan 2019 and are exercisable between 23
July 2021 and 23 July 2025 at an exercise price of €3.80
per share, vesting 25% per annum over a period of four
years.
Key characteristics and terms of the option plan are
listed in the table below.
201 9 Option Plan
Maximum number of share options
Exercise price, EUR (weighted average if several grant during the year)
Dividend adjustment
Beginning of subscription period
End of subscription period
Vesting conditions
(*) In 2021, there was three grants at three different times
2021*
2020
2,000,000
2,000,000
4.03
No
3.80
No
24 April 2022
23 July 2021
17 November 2026
23 July 2025
Service until the
beginning of the
subscription period
Service until the
beginning of the
subscription period
64
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
2020 - 2021
2019 Option Plan
Number of share options
2021
2020
Outstanding at 1 January
Granted
Forfeited
Exercised
Outstanding at 31 December
Exercisable at 31 December
2,000,000
2,000,000
796,333
690,333
-
-
-
-
2,000,000
2,000,000
152,458
-
2020 - 2021
2019 Option Plan
Determination of the fair value for the share options granted
2021
2020
Share price at grant date, EUR
Subscription price, EUR
Volatility, %(*)
Interest free rate, %
Expected dividends yield, %
Option fair value, EUR
4.00 - 4.43
4.7 - 5.56
3.99 - 4.47
79.54
(0.58)
0
3.80
62.76
0.01
0
2.10 - 2.63
1.83 - 3.08
(*) Expected volatility was determined as the average volatility of a peer group consisting of ten comparable biotechnology
companies listed on London Stock Exchange AIM list.
The share-based compensation expense for the Option
Plan 2019 was EUR 1,487 thousand in 2021 (EUR 386
thousand in 2020).
65
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
19. FINANCIAL ASSETS AND LIABILITIES
€’000
Financial assets measured at amortised cost
Other receivables(*)
Cash and cash equivalents
Total financial assets measured at amortised cost
Financial liabilities measured at amortised cost
Account payables
Borrowings in form of Business Finland R&D loans
Total financial liabilities measured at amortised cost
2021
270
6,853
7,123
2,229
3,380
5,609
(*) Prepayments are excluded as they are not considered to be financial instruments.
Group Parent
As at 31 December
2021
2020
151
4,108
4,259
2,115
2,839
4,954
264
6,634
6,898
2,951
3,380
6,331
2020
151
4,037
4,188
2,293
2,839
5,132
Due to the short-term nature of the other receivables, their
carrying amount is considered to equal their fair values.
Borrowings in the Form of Business Finland R&D Loans
Fair value for the Business Finland R&D loans is calculated
by discounting estimated future cash flows for the loans
using appropriate interest rates at the reporting date.
The discount rate considers the risk-free interest rate
and estimated margin for the Company’s own credit risk.
Discounted future cash flows are derived from the terms
containing the repayment amounts and repayment dates
for the principal and the cash payments for interest. Given
that some of the inputs to the valuation technique rely on
unobservable market data, loan fair values are classified
in Level 3.
The fair value of all the Business Finland loans was
EUR 3,347 thousand (2020 EUR 2,839 thousand).
Business Finland R&D loans are granted to a defined
product development project and cover a contractually
defined portion of the underlying development projects’
R&D expenses. The below-market interest rate for these
loans is the base rate set by the Ministry of Finance minus
three (3) percentage points, subject to a minimum rate
of 1%. Repayment of these loans shall be initiated after
5 years, thereafter loan principals shall be paid back in
equal instalments over a 5-year period, unless otherwise
agreed with Business Finland. For more information on
contractual maturities of the Business Finland R&D loans
and interests is provided in the note 19. The accrued
interest on Business Finland R&D loans amounted to EUR
174 thousand (2020 EUR 124 thousand). Grant payments
received in advance of the incurrence of the costs the
grant is intended to compensate are deferred at the
reporting date and presented under advances received on
the balance sheet.
This section sets out an analysis of net debt and the
movements in net debt (calculated as cash and cash
equivalents less borrowings) for each of the periods
presented.
66
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
Group Parent
As at 31 December
2021
2020
2021
2020
6,853
(199)
(462)
(2,918)
3,274
4,108
(375)
(122)
(2,717)
894
6,634
(199)
(462)
(2,918)
3,055
4,037
(375)
(122)
(2,717)
823
€’000
Net debt
Cash and cash equivalents
Lease liabilities
Business Finland R&D loans- repayable within one year
Business Finland R&D loans- repayable after one year
Net debt
€’000
Group
Parent
Cash and cash
equivalents
Borrowings
and lease
liabilities
Total
Cash and cash
equivalents
Borrowings
and lease
liabilities
Total
(2,822)
4,237
7,058
(2,822)
4,236
(508)
(3,342)
(508)
(3,400)
-
(375)
491
(3,214)
(540)
(199)
374
(117)
(375)
491
894
2,358
(153)
(199)
374
3,274
(2,892)
(129)
-
-
4,037
2,765
(168)
-
(375)
491
(3,214)
(540)
(199)
374
(129)
(375)
491
823
2,225
(168)
(199)
374)
3,055
Net debt as at 1 Jan 2020
Cash flows
Foreign exchange adj.
Lease liability
7,059
(2,834)
(117)
-
Other non-cash movements
-
Net debt as at 31 Dec 2020
Cash flows
Foreign exchange adj.
Lease liability
Other non-cash movements
4,108
2,898
(153)
Net debt as at 31 Dec 2021
6,853
(3,579)
6,634
(3,579)
20. FINANCIAL RISK MANAGEMENT
(a) Capital Management and Liquidity Risks
The operations of the Group expose it to financial risks.
The main risk that the Group is exposed to is liquidity risk,
with capital management being another important area
given the nature of the Group’s operations and its financing
structure. The Group’s risk management principles focus
on obtaining funding and managing capital taking into
consideration the unpredictability of the financial markets
with the aim at minimizing any undesired impacts on the
Group’s financial performance and position. The Board of
Directors define the general risk management principles
and approve operational guidelines concerning specific
areas including but not limited to liquidity risk, foreign
exchange risk, interest rate risk, credit risk, the use of any
derivatives and investment of the Group’s liquid assets.
The Group’s objective when managing capital is to
safeguard the Group’s ability to continue as a going
concern (refer to notes 2.2 and 16).
Significant financial resources are required to advance
the drug development programs into commercialized
pharmaceutical products. The Group relies on its ability
to fund the operations of the Group through three major
sources of financing – equity financing, research and
development grants and loans and licensing agreements.
Faron Pharmaceuticals Ltd.
has been able to fund its operations with equity, grants
and R&D loans. While equity financing has been available
in the past, there can be no assurance that sufficient funds
can be secured in order to permit the Group to carry out
its planned activities. In general, capital market conditions
67
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
are volatile. The prevailing financial market situation and
the overall investor’s sentiment dictate whether the Group
is able to secure additional financing in the future, which
can be considered a risk. To partly manage this risk, the
Group and its management is in constant dialogue with
financial investors, investment banks, debt providers and
other market participants.
The Group also relies on different sources of research
and development grants and loans. These funds, which
are provided through regional, national or EU
level
institutions, have been historically available to the Group.
The Group strictly complies with all rules and legal
obligations pertaining to these funding programs and is
in regular contact with the funding agencies providing
these. Availability of such funds in the future cannot be
guaranteed and thus this poses a potential risk to the
Group’s funding in the future.
Finally entering into commercialization, collaboration
and licensing agreements with larger pharmaceutical
companies entitles the Group to receive up-front and
milestone payments related to agreed regulatory or
commercial points, as well as royalty payments once
commercialization has been successful. Activities in the
area of business development are targeted at securing
such agreements. Consideration of these activities is
part of the management’s duties and is monitored by the
Board of Directors, which ultimately decides on entering
into such agreements.
There can be no assurance that sufficient financing
can be secured in order to permit the Group to carry out
its planned activities. To protect the continuity of the
Group’s operations, sufficient liquidity and capital has to
be maintained. The Group aims to have funds to finance
its operations for the foreseeable future. The Group can
influence the amount of capital by adapting its cost basis
considering available financing. Management monitors
liquidity on the basis of the amount of funds. These are
reported to the Board of Directors on a monthly basis.
The Company’s Board of Directors approves
the operational plans and budget and monitors the
implementation of these plans and the financial status of
the Group on a monthly basis.
As at 31 December 2021, the contractual maturity of
loans and interests was as follows:
€’000
2022
2023
2024
2025-
thereafter
Total
R&D loans
Repayment of loans
Interest expenses
Lease liabilities
Total
429
32
184
645
523
34
16
573
1,048
1,841
3,841
29
0
27
0
122
200
1,077
1,868
4,163
As at 31 December 2020, the contractual maturity of loans
and interests was as follows:
€’000
2021
2022
2023
2024-
thereafter
Total
R&D loans
Repayment of loans
Interest expenses
Lease liabilities
Total
122
32
199
354
523
29
16
567
1,153
1,504
3,302
21
0
25
0
106
215
1,173
1,528
3,623
68
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
(b) Market Risk
21. OTHER NON-CURRENT LIABILITIES
€’000
Advance received
Total non-current liabilities
As at 31 December
2021
2020
151
151
786
786
During the 2020 and 2021 the Group received a grant of
EUR 1.375 thousand and EUR 750 thousand respectively
from the European Union. Of these grants, EUR 587
thousand is recognised as other income in 2020 and 2021
EUR 1.387 thousand and the rest of the grant is posted as
advance received.
i. Foreign Exchange Risk
The Group operates internationally but is mainly exposed
to translation risk
in respect of US Dollar (“USD”)
denominated cash and cash equivalents balances The
Group’s policy is not to hedge translation risk. As of 31
December 2021, the Group had cash and cash equivalents
of EUR 5,291 thousand, GBP 3 thousand, CHF 83 thousand
and USD 1,672 thousand (2020: EUR 1,945 thousand,
GBP 1,039 thousand, CHF 76 thousand and USD 1,149
thousand) and the foreign exchange gains and losses
recorded arise mainly from the USD cash balances. The
Group is not exposed to significant transaction risk, as the
Group mainly operates in its functional currency, the EUR.
ii. Interest Rate Risk
The Group’s interest rate risk arises from Business Finland
R&D loans, which interest is the base rate defined by the
Finnish Ministry of Finance minus three (3) percentage
points, subject to minimum rate of 1%. During the periods
presented, the interest has been below the minimum level
and the Group has paid the minimum interest of 1% on the
loans. During the periods presented, the Group has not
been exposed to variable interest rate risk and accordingly
the Group has not entered into derivative contracts.
(c) Credit and Counterparty Risk
The Group works with partners and financial institutions
with good credit ratings. Management monitors credit
ratings of the financial institutions that hold the Group’s
bank deposits regularly. Further, the Group currently
derives its revenue from restricted number of reputable
licence partners
in specific territories. This risk of
concentration of creditors is partly mitigated by the fact
that these partners are financially solid. These licence
agreements are governed by contractual relationships that
typically address and describe remedies for situations in
which interests of the Group and the partner are no longer
aligned.
69
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
22. TRADE PAYABLES AND OTHER CURRENT
LIABILITIES
€’000
Account payables
Clinical trial hospital fees
Accrued research & development costs
Accrued payroll
Accrued general and administration
Other liabilities and accruals
Advances received
Total
23. CONTINGENCIES AND COMMITMENTS
Operating Lease – Faron as a Lessee
The future aggregate minimum lease payments under
non-cancellable operating leases are as follows:
€’000
No later than 1 year
Later than 1 year and
no later than 5 years
Later than 5 years
Year ended 31 December
2021
2020
18
27
-
27
26
-
The Group’s operating lease commitments comprise of
lease commitments for machines and equipment with low
value leases of 3 to 4 years. The Group’s operating leases
are non-cancellable and they do not include redemption
or extension options. Contingencies and commitments
liabilities do not include lease liabilities that are recognised
as lease liabilities on the balance sheet.
Contractual Contingencies
The Group has a contingent contractual liability to a
development party for pre-clinical product candidate Bex
to pay additional milestone payments. Second milestone
payment of EUR 460 thousand payable when production
system reached certain material yield threshold was
charged 2019. The remaining one becomes payable upon
the Group receives a certain amount of Net Sales for Bex.
On 9 November 2021 Faron Pharmaceuticals Ltd.
announced that the Arbitration Institute of the Stockholm
Chamber of Commerce (SCC) ruled in favor of the
70
Group Parent
As at 31 December
2021
2,229
1,197
1,405
558
896
280
-
2020
2,115
1,415
1,506
751
146
160
112
2021
2,951
1,197
1,405
558
749
195
-
2020
2,293
1,415
1,506
722
132
160
112
6,565
6,205
7,055
6,340
Company in its case against Rentschler Biopharma
SE (“Rentschler”). As has been previously announced,
Faron was seeking damages from Rentschler for
unfounded termination of an agreement concerning the
manufacturing process for Traumakine®. As a result of
the favorable arbitration award, Rentschler was ordered
to pay Faron EUR 3.8 million in damages. A third-party
recovery services provider funded the proceedings for
Faron. After the award the funder received compensation
from Faron in accordance with the litigation funding
agreement between the Company and the funder.
24. RELATED PARTY TRANSACTIONS
Parent and subsidiary relations of Faron Pharmaceuticals
Group on 31 December 2021:
Country
Group
holding
%
Group
voting
%
Companies owned by
the parent company
Faron Europe GmbH Switzerland
Faron USA LLC
USA
100
100
100
100
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
At the end of period, the Company has EUR 596 thousand
in long term receivables from subsidiaries, which contains
intercompany loans and the interests associated to them.
The parent Company trade payables to subsidiaries at the
end of the period were EUR 735 thousand.
During the period the profit and loss relevant bookings
are EUR 15 thousand for the interest of the intercompany
loans and the invoices admin services by the subsidiaries
of EUR 992 thousand.
The Group identifies the following related parties:
• Members of the Board of Directors, and their close
family members; and
• Company’s key Management team and their close
family members
Faron Pharmaceuticals Ltd. has not had interests in other
entities as at, and for the years ended, December 31, 2020
and 2021.
Key Management Personnel
The Company’s key management personnel consist of the
following:
• Members of the Board of Directors
• Management team, including CEO
The Management team was awarded 280,333 share
options during 2021 (2020: 282,333 share options). At
the end of the 2021, the number of outstanding options
and share granted to the Management team amounted
to 1,044,471 share options (at the end of 2020: 1,003,013
share options).
Non-executive Directors were awarded 210,000 share
options during 2021, (2020: 180,000 share options). At the
end of 2021, the number of outstanding options and share
options granted to the non-executive directors amounted
to 790,000 share options (at the end of 2020: 580,000
share options).
Management and Board Shareholding
Management(*) shareholding, 31 December 2021
Number of shares (pcs)
Shareholding, percentage
Board(**) shareholding, 31 December 2021
(excluding the shareholding of CEO)
Number of shares (pcs)
Shareholding, percentage
Total number of shares
outstanding at
31 December 2021 (pcs)
4,443,099
8.4 %
679 778
1.3 %
53,232,032
€’000
Compensation of key
management personnel(*)
Salaries and other short-
term employee benefits
Post-employment benefits
Share-based payments
Year ended 31 December
2021
2020
(*) Presented information for the Management includes the executive
directors of the Board
(**) Presented information for the Board includes only non-executive
directors.
2,038
2,025
238
604
268
155
Transactions with Related Parties
There are no additional related party transactions during
2020 and 2021 than already disclosed.
Total
2,880
2,448
(*) Presented information for the Management includes the executive
directors of the Board
71
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
25. EVENTS AFTER THE BALANCE SHEET DATE
Result and Dividends
On 28 February Faron announced that the Company had
obtained a debt funding from IPF Partners for up to EUR 30
million. This consist of a loan with initial trance of EUR 10
million which was drawn on 28 February and two further
tranches of EUR 5 million and EUR 15 million subject to
certain conditions precedent. IPF partners will also be
granted warrants entitling them to subscribe for ordinary
shares and have the right to appoint a board observer.
The statement of comprehensive income is on page 44.
The Group’s
21,208,864.89 euro (2020: 16,946,261.84 euro).
for the accounting period was
loss
The Board of Directors does not recommend the
payment of a dividend (2020: nil).
BOARD SIGNATURES
Turku, 24 March 2022
Frank Armstrong
Chairman
Markku Jalkanen
CEO
Gregory Brown
Matti Manner
John Poulos
Leopoldo Zambeletti
Anne Whitaker
THE AUDITOR’S NOTE
A report on the audit performed has been issued today
Helsinki, 24 March 2022
PricewaterhouseCoopers Oy
Authorised Public Accountants
Panu Vänskä
Authorised Public Accountant (KHT)
72
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
1 (3)
Auditor’s Report (Translation of the Finnish Original)
To the Annual General Meeting of Faron Pharmaceuticals Ltd
Report on the Audit of the Financial Statements
Opinion
In our opinion the consolidated and the parent company’s financial statements give a true and fair view of the
group’s financial performance and financial position and cash flows in accordance with International Financial
Reporting Standards (IFRS) as adopted by the EU and comply with statutory requirements.
What we have audited
We have audited the financial statements of Faron Pharmaceuticals Ltd (business identity code 2068285-4) for
the year ended 31 December 2021. The financial statements comprise the balance sheets, statements of
comprehensive income, statements of changes in equity, statements of cash flows and notes for the group as
well as for the parent company.
Basis for Opinion
We conducted our audit in accordance with good auditing practice in Finland. Our responsibilities under good
auditing practice are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements
section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Independence
We are independent of the parent company and of the group companies in accordance with the ethical
requirements that are applicable in Finland and are relevant to our audit, and we have fulfilled our other ethical
responsibilities in accordance with these requirements.
Material Uncertainty Related to Going Concern
We draw attention to the notes in financial statements, item 2.2 “Going concern”. As stated in the notes,
additional funding has not been confirmed by approval of the financial statements. This fact together with other
matters stated in the notes, indicates that a material uncertainty exists that may cast significant doubt on the
Company’s ability to continue as a going concern. Our opinion has not been modified in respect of this matter.
Responsibilities of the Board of Directors and the Managing Director for the Financial
Statements
The Board of Directors and the Managing Director are responsible for the preparation of consolidated and the
parent company’s financial statements that give a true and fair view in accordance with International Financial
Reporting Standards (IFRS) as adopted by the EU, and comply with the statutory requirements. The Board of
Directors and the Managing Director are also responsible for such internal control as they determine is
necessary to enable the preparation of financial statements that are free from material misstatement, whether
due to fraud or error.
PricewaterhouseCoopers Oy, Authorised Public Accountants, P.O. Box 1015 (Itämerentori 2), FI-00101 HELSINKI
Phone +358 20 787 7000, www.pwc.fi
Reg. Domicile Helsinki, Business ID 0486406-8
73
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
2 (3)
In preparing the financial statements, the Board of Directors and the Managing Director are responsible for
assessing the parent company’s and the group’s ability to continue as a going concern, disclosing, as applicable,
matters relating to going concern and using the going concern basis of accounting. The financial statements are
prepared using the going concern basis of accounting unless there is an intention to liquidate the parent company
or the group or to cease operations, or there is no realistic alternative but to do so.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our
opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with good auditing practice will always detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on the basis of these financial
statements.
As part of an audit in accordance with good auditing practice, we exercise professional judgment and maintain
professional skepticism throughout the audit. We also:
•
Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or
error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is
sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement
resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
parent company’s or the group’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates
and related disclosures made by management.
• Conclude on the appropriateness of the Board of Directors’ and the Managing Director’s use of the going
concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists
related to events or conditions that may cast significant doubt on the parent company’s or the group’s ability
to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw
attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures
are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the
date of our auditor’s report. However, future events or conditions may cause the parent company or the
group to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures,
and whether the financial statements represent the underlying transactions and events so that the financial
statements give a true and fair view.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business
activities within the group to express an opinion on the consolidated financial statements. We are responsible
for the direction, supervision and performance of the group audit. We remain solely responsible for our audit
opinion.
74
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2021
3 (3)
We communicate with those charged with governance regarding, among other matters, the planned scope and
timing of the audit and significant audit findings, including any significant deficiencies in internal control that we
identify during our audit.
Other Reporting Requirements
Other Information
The Board of Directors and the Managing Director are responsible for the other information. The other
information comprises the information included in the Annual Report 2021, but does not include the financial
statements and our auditor’s report thereon.
Our opinion on the financial statements does not cover the other information and we do not express any form of
assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in
doing so, consider whether the other information is materially inconsistent with the financial statements
or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of the other
information, we are required to report that fact. We have nothing to report in this regard.
Helsinki 24 March 2022
PricewaterhouseCoopers Oy
Authorised Public Accountants
Panu Vänskä
Authorised Public Accountant (KHT)
75
Faron Pharmaceuticals Ltd
Joukahaisenkatu 6, 20520 Turku Finland
Phone: +358 2 469 5151
Fax: +358 2 469 5152
Email: info@faron.com