Leading the way in
breakthrough
immunotherapies
Annual Report 2022
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2022
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2022
Faron Pharmaceuticals in brief
Faron Pharmaceuticals Oy (“Company”, AIM: FARN, First
North: FARON) together with its subsidiaries (“Faron”
or “Group”) is a clinical-stage biopharmaceutical group
focused on building the future of
immunotherapy
by harnessing the power of the immune system to
tackle cancer and inflammation. Faron currently has a
pipeline based on the receptors involved in regulation
of immune response in oncology. Bexmarilimab, a novel
anti-CLEVER-1 humanised antibody, is its investigative
precision immunotherapy with the potential to provide
for difficult-to-treat
permanent
cancers through targeting myeloid function. Currently
in Phase I/II clinical development in combination with
standard of care in hematological malignancies, the
immune stimulation
agent has also demonstrated a well-tolerated profile
as a monotherapy for patients with untreatable solid
tumours. Faron is also progressing plans to investigate
bexmarilimab in combination with anti-PD-1 therapy in
selected advanced solid tumors. In terms of other pipeline
assets, Traumakine® is an investigational intravenous
(IV) interferon beta-1a therapy for the prevention of
complications that arise from cytokine release syndrome,
or hyperinflammatory conditions. Faron is headquartered
in Turku, Finland with offices in Zürich, Switzerland and
Boston, MA in the United States.
“In 2022, we saw impressive growth in our
bexmarilimab program, with exciting early
data across both hematologic malignancies
and solid tumors. These accomplishments
could not have been done without the
continued support of our shareholders
and the incredible team at Faron. We have
a bright future ahead and I’d like to thank
everyone for their dedication to fighting
cancer and improving patient outcomes.”
Dr. Markku Jalkanen
Chief Executive Officer
Contents
FARON PHARMACEUTICALS
Our Pipeline
Highlights 2022
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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For further information on Faron’s progress, development programs and pipeline, please visit Faron´s website www.faron.com.
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Our Pipeline
Building the future of immunotherapy
PROGRAMS
(Target)
INDICATION
(Trial name)
PHASE OF DEVELOPMENT
Preclinical
Phase I
Phase II
Phase III
Solid Tumors (MATINS)
First-in-human
IMMUNO-
ONCOLOGY
Bexmarilimab
(anti-CLEVER-1 mAb)
ORGAN
PROTECTION
Traumakine®
(intravenous IFN beta-1a)
REGENERATIVE
MEDICINE
Haematokine®
(AOC3 inhibitor)
* Non-Small Cell Lung Cancer
AML and MDS (BEXMAB)
Checkpoint Combination in
Solid Tumors (BEXCOMBO)
NSCLC* (BEXLUNG)
(Investigator-Initiated)
Prevention of Cytokine
Release Syndrome
Chemotherapy-Induced
Neutropenia
MATINS
FDA regulatory feedback;
EOP I/II meeting Q1 ‘23
BEXMAB
Phase I/II study of bexmarilimab
on top of SoC in hermatoligal
malignancies. Opportunity for
accelerated approval.
BEXCOMBO
Advanced indications with CLEVER-1
expression where PD-1 blockade is SoC
1st line setting with modest ORR. PD-1
blockade naive 1st line setting.
LAST LINE RANDOMISED
Highest disease control (30–40%),
like bile duct cancer.
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Bexmarilimab – the future of
immunotherapy
THE TARGET AND PROGRAMME
CLINICAL DEVELOPMENT
leukemia
Bexmarilimab is being evaluated for safety and effi cacy in a
Phase I/II clinical trial in combination with standard of care
(SoC) in aggressive hematological malignancies including
acute myeloid
(AML) and myelodysplatic
syndrome (MDS). The trial has posted early, positive
results, including tolerability and objective responses
observed in three out of fi ve patients in the fi rst doublet
cohort. Two of the three responders were refractory to
prior azacitidine monotherapy.
Bexmarilimab has already demonstrated a strong
safety and overall survival benefi t profi le in the Phase I/II
MATINS trial as a monotherapy in late-stage solid tumors.
Beyond BEXMAB, a Phase II BEXCOMBO study
investigating bexmarilimab in metastatic or unresectable,
recurrent HNSCC, locally advanced or metastatic UCC
and metastatic NSCLC in which fi rst-line PD-1 blockade is
approved standard of care is planned.
investigative
is Faron’s wholly owned,
Bexmarilimab
precision immunotherapy. Tumor-associated macrophages
(TAM) are considered a key source of resistance to current
standard of care. Bexmarilimab is a novel humanised
anti-CLEVER-1 antibody, that targets a subpopulation of
TAMs, and converts the highly immunosuppressive M2-
like macrophages to a more pro-inflammatory state to
promote immune activation.
Bexmarilimab has been shown to successfully alter the
scavenging functions of CLEVER-1 in macrophages, which
leads to increased antigen presentation and promotion
of interferon gamma secretion by leukocytes. Additional
preclinical 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. This suggests 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.
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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Traumakine® – enhancing the endothelial
barrier, hyperinflammation protection
Haematokine® – haematopoietic
stem cell expansion
THE TARGET AND PROGRAMME
Traumakine® is Faron’s investigational intravenous (IV)
interferon beta-1a (IFN beta-1a) therapy for the prevention
of complications from cytokine release syndrome (CRS),
or hyperinflammatory conditions.
The body’s own, natural production of IFN beta-1a,
a key anti-inflammatory signaling protein produced in
response to infection, is one of the major innate immunity
defenses against virus invasion and a vital response to
inflammation and cell integrity. IFN beta-1a has previously
demonstrated a compelling argument against viral
infection.
Faron is investigating the potential of Traumakine®
treatment to further strengthen this natural defense.
In addition to a profound antiviral effect, when given
intravenously,
the cell
surface protein Cluster of Differentiation 73 (CD73) on
endothelial cells. CD73 is an enzyme that suppresses
pro-inflammatory responses and protects organs from
ischemia and inflammation.
IFN beta-1a upregulates
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. Inducing
CD73 enzyme 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.
CLINICAL DEVELOPMENT
Faron and the Fred Hutchinson Cancer Research Center
in Seattle, Washington, have announced a collaboration
to further develop IV IFN beta-1a in the prevention of
cytokine release syndrome (CRS) and other CAR-T therapy
side effects, such as neurotoxicity.
Prior to this announcement, Scientifi c Reports published
data from the INFORAAA study showing Traumakine®-
induced upregulation 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%.
Data from the preclinical Salvage, Preservation, and
Advanced Resuscitation through Endothelial Stabilization
(SPARES) study was presented at the Military Health
System Research Symposium (MHSRS) held in Orlando,
Florida. The results further highlight the promise of IV IFN
beta-1a therapy as potential therapeutic for emergency
and trauma patients, especially when given early on. In the
study, primates treated with Traumakine® at the time of
major inflammation due to ischemia showed lower levels
of muscle and liver damage markers indicating total body
protection. The full restoration of limb function was seen
with no evidence of muscle atrophy or degeneration.
The study was coordinated
in conjunction with
investigators
from Wake Forest Health, Duquesne
University, the 59th Medical Wing of the US Air Force and
with funding from the US Department of Defense.
Faron closed its Phase II/III HIBISCUS trial investigating
Traumakine® in the treatment of hospitalized COVID-19
patients compared to corticosteroid treatment with
dexamethasone, due to low COVID-19 infections and
hospitalization rates in the US. Faron has transitioned the
development of Traumakine® to settings without the risk
of interference from corticosteroids.
THE TARGET AND PROGRAMME
CLINICAL DEVELOPMENT
Hematokine is currently undergoing IND-enabling studies.
is
Hematopoietic Stem Cell Transplantation (HSCT)
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 in hematological malignancies
where expansion rates in transplanted cells are low and
possibly for the treatment of chemotherapy induced
suppression of the bone marrow, e.g. chemotherapy-
induced neutropenia (CIN). This program, currently in
preclinical development, has the potential to benefi t all
indications where an expansion of haemopoietic stem
cells is needed.
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Highlights
Operational (including post period):
response in cancer patients, especially in patients
with immunologically “cold” tumors. As presented at
ASCO2022 in Chicago, the higher baseline CLEVER-1
levels in the tumors were associated with clinical
benefit and could become an essential component
as a diagnostic tool for patient selection.
• An FDA meeting will take place in Q1 2023 for
feedback on the recommended dosing regimen and
study design for further development of single agent
bexmarilimab.
Combination potential with PD-1 blockade
• A high baseline level of IFN-γ in the tumor indicates
that the immune system is already set to attack
cancer cells and seems required for PD-1 blockade to
work.
• Bexmarilimab ignites the immune system by inducing
IFN-y production.
• Thus, adding bexmarilimab to PD-1 blockade is
anticipated to enhance efficacy.
• Faron plans to initiate the Phase II BEXCOMBO
study investigating bexmarilimab in metastatic or
unresectable, recurrent HNSCC, locally advanced or
metastatic UCC and metastatic NSCLC in which first-
line PD-1 blockade is approved SoC.
BEXMARILIMAB – Faron’s wholly owned, novel
precision cancer
immunotherapy candidate,
in Phase I/II development for difficult-to-treat
hematological and solid tumor cancers.
Hematological cancer with standard of care (SOC)
• Faron reported that three out of five patients
achieved objective responses in the first doublet
cohort evaluating the combination of azacitidine and
bexmarilimab in the Phase I/II (BEXMAB) study. Two
of the three responders were refractory to standard
of care (SoC) azacitidine monotherapy. The addition
of bexmarilimab to SoC was well tolerated.
• Both the 1mg/kg and 3mg/kg doublet arms are fully
enrolled, and the dose-escalation meeting is planned
for Q1 2023. Faron has opened the first triplet
cohort with bexmarilimab (1mg/kg), azacitidine and
venetoclax in newly diagnosed AML patients who are
not able to tolerate chemotherapy.
• Faron anticipates sites in the U.S. to be opened during
Q1/Q2 2023 to speed up recruitment even further.
Single-agent safety and activity in advanced
solid tumors
• Bexmarilimab has been evaluated as a single agent in
the Phase I/II MATINS in more than 200 patients and
found to be well-tolerated.
• Up to 36% of heavily pre-treated patients achieved
disease control in certain indications.
• Median overall survival was 14.9 months for
patients who achieved stabilization of disease from
bexmarilimab compared to 4.4 months for those who
did not, representing a 3.4-fold increase.
• Bexmarilimab treatment in MATINS induced significant
systemic interferon gamma (IFN-γ) increase, again
showing the therapy’s capacity to activate immune
• The Company filed a patent to the US Patent Office
and Trademark Office regarding a patient selection
method in terms of steroid treatment with an
identified gene mutation
interferon beta
receptor. It received positive feedback in 2022.
• Another patent has been filed on sequencing
interferon beta and steroid treatments, so that
steroids can be used once adequate levels of CD73
are reached using IV IFN beta-1a.
in the
HAEMATOKINE – An investigative AOC3 (amine
oxidase copper containing 3) protein
inhibitor
targeting Vascular Adhesion Protein-1 (VAP-1) for
the use in regenerative medicine for the expansion
of hematopoietic stem cells and to treat supressed
bone marrow and the production of new blood cells.
TRAUMAKINE® – Faron’s investigational intravenous
(IV) interferon beta-1a therapy, in development for
hyperinflammatory conditions.
• Data from the preclinical Salvage, Preservation,
and Advanced Resuscitation through Endothelial
Stabilization (SPARES) study was presented at
the Military Health System Research Symposium
(MHSRS) held in Orlando, Florida.
•
• The results further highlight the promise of IV
interferon beta-1a (IFN beta-1a) therapy as a
potential therapeutic for emergency and trauma
patients, especially when given early on.
In the study, primates treated with Traumakine®
at the time of major inflammation due to ischemia
showed lower levels of muscle and liver damage
markers indicating total body protection. The full
restoration of limb function was seen with no
evidence of muscle atrophy or degeneration. The
SPARES study was coordinated in conjunction with
investigators from Wake Forest Health, Duquesne
University, the 59th Medical Wing of the US Air Force
and with funding from the US Department of Defense.
• Faron has refocused its therapeutic strategy of
Traumakine, and closed its Phase II/III HIBISCUS
trial investigating Traumakine® in the treatment
of hospitalized COVID-19 patients compared to
corticosteroid treatment with dexamethasone.
• Faron published research identifying a gene mutation
in interferon alpha/beta receptor that contributed to
the corticosteroid response and outcomes in ARDS
and COVID-19 patients in the completed Phase III
INTEREST trial of Traumakine® in ARDS patients.
The results build on Faron’s initial 2018 findings from
the study.
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CORPORATE HIGHLIGHTS
FINANCIAL
2018 as Faron’s Chief Development Officer. He also
served as Faron’s interim Chief Medical Officer in
2021 prior to the appointment of Dr. Marie-Louise
Fjällskog.
• Vesa Karvonen, LL.M., General Counsel and Juuso
Vakkuri, MA, MSc, EMBA, Chief Human Resources
Officer joined Faron’s Global Management Team.
• Faron appointed Erik Ostrowski as a Non-
Executive Director of the Company. Mr. Ostrowski
is an experienced biotech and financial executive
who
the Chief Financial Officer
of AVROBIO, Inc. (NASDAQ: AVRO).
is currently
• Balance sheet was strengthened by raising EUR 13.4
million gross through two fundraising rounds, which
encompassed existing and new investors, including
The Leukemia & Lymphoma Society® (LLS). 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. Post period in January 2023,
Faron raised EUR 12.0 million gross from new and
existing shareholder, including LLS.
• 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 (NASDAQ: SNSE). 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
(NASDAQ: MRUS) and
INFI) where
Infinity Pharmaceuticals (NASDAQ:
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.
• Maija Hollmén, PhD,
joined Faron’s Global
Management Team as Chief Scientific Officer. In her
role, Dr. Hollmén oversees preclinical and supports
clinical development for Faron. Her priority will be the
further development of bexmarilimab, Faron’s wholly
owned, novel precision cancer
immunotherapy
candidate. Dr. Hollmén is the world-leading expert
on CLEVER-1 biology and CLEVER-1-expressing
tumor-associated macrophages. She is an Adjunct
Professor of Tumor Immunology on the Faculty of
Medicine at the University of Turku in Finland, as well
as a Principal Investigator.
• Juho Jalkanen, M.D., Ph.D., joined Faron’s Global
Management Team as as Chief Operating Officer.
In his role, Dr. Jalkanen leads business strategy
includes
and daily operations for Faron. This
oversight of academic and industry partnerships,
resource prioritization and allocation, chemistry,
manufacturing and controls, supply chain and driving
performance measures. Dr. Jalkanen joined Faron in
• On December 31, 2022, Faron held cash balances of
EUR 7.0 million (2021: EUR 6.9 million).
• Loss for the period for the financial year ended
December 31, 2022 was EUR 28.7 million (2021: EUR
21.2 million).
• Net assets on December 31, 2022 were EUR -11.5
•
•
million (2021: EUR 2.9 million).
In June 2022, the Company successfully raised
a total of EUR 5.0 million gross (EUR 4.8 million
net) from new and existing shareholders, through
issuance of a total of 3,318,421 new ordinary shares
to itself without consideration. 2,006,621 of those
shares were conveyed to investors. In October 2022,
the Company successfully raised a total of EUR 8.4
million gross (EUR 8.2 million net) from new and
existing shareholders, through issuance of a total of
3,229,930 new ordinary shares to itself. Those shares
and the 1,311,800 existing treasury shares were
conveyed to investors. Proceeds from both raises will
be used to accelerate clinical development of Faron’s
main drug candidate, continue the CMC process
and US build-up and to strengthen the Company’s
balance sheet.
In February 2022, the Company 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.
• Post period,
the Company
in January 2023
successfully raised a total of EUR 12.0 million gross
through the issuance of 3,692,308 ordinary shares to
itself without consideration which were conveyed to
investors.
CONSOLIDATED KEY FIGURES, IFRS
€’000
Other operating income
Research and Development expenses
General and Administrative expenses
Loss for the period
Loss per share EUR
Unaudited
7–12/2022
months
Unaudited
7–12/2021
6 months
1–12/2022
12 months
1–12/2021
12 months
318
(10,683)
(3,697)
4,927
(8,361)
(7,250)
803
(20,730)
(7,498)
(15,603)
(10,649)
(28,730)
(0.27)
(0.21)
(0.52)
6,137
(17,369)
(9,876)
(21,194)
(0.42)
Number of shares at end of period
59,805,383
53,232,032
59,805,383
53,232,032
Average number of shares
57,230,625
51,836,953
55,229,835
50,723,964
€’000
Cash and cash equivalents
Equity
Balance sheet total
Unaudited
30 Jun 2022
Unaudited
30 Jun 2021
31 Dec 2022
31 Dec 2021
9,936
(5,194)
16,729
6,967
2,813
11,865
6,990
(11,476)
11,271
6,853
2,919
13,182
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Chairman’s
Statement
to
During 2022, Faron has continued
focus on
bexmarilimab, our novel, wholly owned novel precision
cancer immunotherapy candidate, with exciting clinical
data milestones anticipated for 2023. We have also grown
the Company in the US and in Finland, bringing world-
class expertise into Faron to advance bexmarilimab.
We have the ongoing Phase I/II MATINS clinical trial in
pretreated, late-stage cancer, and as a result have delivered
on our goals to understand monotherapy bexmarilimab
efficacy and safety across multiple tumor types, as well
as identify a dose and potential dosing regimens. We
have also undertaken substantial work on biomarkers to
develop enrichment strategies to identify patients who will
best respond in future trials.
Faron has published data on bexmarilimab that
consistently supports earlier positive
results and
continues to underscore that the mechanism of action
demonstrates an effect on mortality in responders. The
Company will be presenting a data package to the US
Food and Drug Administration in the first half of 2023.
Faron recognises the future of cancer treatment
will be in combination therapies, and as such we have
reported exciting data from the Phase I/II BEXMAB study
in hematological malignancies. We also plan to initiate
BEXCOMBO, a Phase II study of the combination therapy
bexmarilimab plus PD-1 blockade in patients that have
metastatic or unresectable, recurrent HNSCC, locally
advanced or metastatic UCC and metastatic NSCLC where
first-line PD-1 blockade is approved standard of care.
We continue to see bexmarilimab as the major value
driver for Faron, and our goal is to deliver worldwide
approvals to allow bexmarilimab to be used by cancer
physicians to treat patients.
Despite Faron’s focus on bexmarilimab, we have
used partnerships to develop Traumakine®, Faron’s
investigational intravenous (IV) interferon (IFN) beta-1a
therapy, to prevent multiorgan dysfunction.
We recognise the funding environment for European
companies has been extremely challenging and despite
that, we have continued to raise capital to finance Faron’s
activities. In 2022, we announced Faron had entered
into a secured debt agreement with IPF Partners to
advance and accelerate its pipeline programs. We had
two equity financing rounds and are pleased we continue
to have supportive shareholders in Finland and the
rest of Scandinavia. In January 2023 we completed a
further financing round of EUR 12 million to support the
continued development of bexmarilimab. We are delighted
that The Leukemia & Lymphoma Society participated in
the previous round and in the January fundraise.
In terms of building the Group, Dr. Juho Jalkanen was
promoted to COO and we welcomed CMO Marie-Louise
Fjällskog, based in Boston, as well as a Vesa Karvonen, our
new general counsel based in Turku and Juuso Vakkuri
as Chief Human Resources Officer. We have developed
the US team in Boston, investing in clinical and regulatory
personnel. Erik Ostrowski joined the Board of Directors. He
brings substantial finance experience including as the CFO
of a NASDAQ-listed company. We anticipate continuing to
add employees in 2023.
I’d like to thank the staff of Faron, our partner
organizations, study steering and advisory committee
members investigators and patients that have participated
in our clinical trials. I am indebted to CEO Dr. Markku
Jalkanen, CFO Toni Hänninen, COO Juho Jalkanen, CMO
Marie-Louise Fjällskog, General Counsel Vesa Karvonen
and CHRO Juuso Vakkuri for their contributions to Faron
in 2022. We look forward to great success in 2023.
Dr Frank Armstrong
Chairman
March 2, 2023
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Chief
Executive
Officer’s
Review
The past year 2022 has been an incredible year of
transformation for Faron, in terms of development of
our key asset bexmarilimab, building up a new Global
Management Team with five new C-level members and
the initiation of a clinical/regulatory team for US-based
activities. We are excited to go into 2023 with strong
clinical data behind us and clear plans to move forward.
The year 2022 started with premium recruitment
when Dr. Marie-Louise Fjällskog (M.D., PhD) came on
board as Chief Medical Officer, bringing over 30 years of
experience in clinical oncology, translational research, and
drug development. She joined Dr. Juho Jalkanen (M.D.,
PhD), Chief Operating Officer, as well as our new General
Counsel, Vesa Karvonen. We also welcomed Juuso
Vakkuri as our Chief Human Resources Officer, and most
recently, Dr. Maija Hollmén, PhD, as our Chief Scientific
Officer. She will spearhead further inventions around
bexmarilimab, Faron’s wholly owned, novel precision
cancer immunotherapy candidate.
Our first, large Phase I/II MATINS study has provided
us a proper dosing regimen for bexmarilimab and
demonstrated a good safety profile. Initial efficacy data on
advanced solid tumors allows us to identify biomarkers
predicting extended survival of these hard-to-treat cancer
patients. Our teams have worked hard to build a solid
data package for the FDA on the next steps forward. This
feedback will significantly impact our activities in 2023.
Importantly, we have found bexamarilimab is effective
for patients who are refractory to PD-1 blockade. These
patients have silent immune reaction as observed in low
interferon gamma (IFN-gamma) levels. This is opposite to
PD-1 blockers that are usually are active in cancer patients
with high IFN-gamma levels. This is understandable as
their mode of action is based on activating the existing
T-cells, not to generate new T-cell populations. Thus, the
combination of PD-1 blockade with bexmarilimab provides
a unique opportunity to stimulate immune ignition and
effective T-cells.
Bexmarilimab is being evaluated for safety and efficacy
in tBexmarilimab is being evaluated for safety and efficacy
in the Phase I/II BEXMAB clinical trial, in combination
with standard of care (SoC), in aggressive hematological
malignancies including acute myeloid leukemia (AML)
and myelodysplastic syndrome (MDS). This study is very
exciting as now we have cancer cells which express the
therapy target molecule CLEVER-1 on their surfaces.
This means that wherever they travel in cancer patients,
they carry this immunosuppressive element with them.
In December, we reported in BEXMAB a partial responder
achieving complete remission of blasts in blood and
bone marrow followed by normalization of blood counts.
A second patient showed reduced blast counts. This
is particularly noteworthy considering the population
targeted in BEXMAB, such as those having AML, have
high mortality rates. Post period, we reported even more
positive news: that three out of five patients achieved
objective responses in the first doublet cohort of the
Phase I/II BEXMAB study evaluating the combination of
azacitidine and bexmarilimab. Two of the three responders
were refractory to standard of care (SoC) azacitidine
monotherapy.
We are thrilled with the progress and are pushing
ahead in opening sites at US hematological centers.
We have also been successful in obtaining continued,
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. During 2022 we
obtained similarly patent coverage
in Europe and
other territories providing Faron excellent commercial
opportunity in more than 90% of pharmaceutical markets.
This fact has been recognised also by our partner
candidates.
We have continued background work to advance both
Traumakine® and Haematokine® programs to open
clinical studies for both in 2023. We decided to close the
HIBISCUS study using Traumakine due to lack of steroid-
free patients. Our focus now is on opportunities where
steroids cannot be used, and where ischemic conditions
with vascular damage is the main reason for patient death.
For the latter, we will continue to collaborate with the US
Department of Defense (DoD). We also understand today
the molecular basis of steroid interruption of IFN-beta
signalling pathway and what role some genetic alterations
may cause.
The third program in our pipeline, Haematokine, an
investigational Vascular Adhesion Protein 1 (VAP-1)
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inhibitor, has preclinical studies continuing. We believe
Haematokine could have broad applicability, not just
in hematological malignancies, but across the field of
regenerative medicine.
investigating bexmarilimab
Our future looks bright, with the focus for 2023
to accelerate bexmarilimab’s clinical development,
especially in BEXMAB. We also aim to initiate the Phase
II BEXCOMBO study
in
metastatic or unresectable, recurrent HNSCC, locally
advanced or metastatic UCC and metastatic NSCLC where
first-line PD-1 blockade is approved standard of care. This
combination regimen has the potential to change the
future of cancer care. Future interactions with the FDA will
guide our path forward.
I would like to thank our shareholders for their
continued support of Faron and the management team.
I would also like to express my profound gratitude to
every Faron team member who come to work each day
committed to disrupting the current treatment landscape
and fundamentally improving patient outcomes.
Dr Markku Jalkanen
Chief Executive Officer
March 2, 2023
Financial
Review
Despite continuing challenging market conditions, the
Company was able to conduct two successful fundraising
rounds in 2022. Combined, they raised EUR 13.4 million
gross and both rounds
included new and existing
investors. In our fundraising round in June we were able
to attract The Leukemia & Lymphoma Society® (LLS) to
support our newest bexmarilimab trial, BEXMAB. Faron
became part of LLS’ Therapy Acceleration Program®
(TAP). In our October fundraise we were further able to
attract reputable Finnish pension funds.
Additionally, in February 2022, the Company 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 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.
As a result of these fundraising efforts, the net cash
from financing activities of EUR 23.5 million exceeded the
net cash used in operating activities of EU 23.0 million
in 2022. We were able to accomplish this while also
increasing R&D and reducing G&A expenditures, as per
our plan, to focus on accelerating our pipeline.
Post period in January 2023, the Company successfully
raised a total of EUR 12.0 million gross. This fundraising
round was supported by long-only institutional investors,
family offices, existing shareholders and the Leukemia &
Lymphoma Society® (LLS).
REVENUE AND OTHER OPERATING INCOME
Faron’s revenue was nil for the year ended December 31,
2022 (2021: EUR nil). Faron recorded other income of EUR
0.8 million that consisted of grants from the European
Union and Business Finland.
RESEARCH AND DEVELOPMENT COSTS
R&D costs increased by EUR 3.4 million from EUR 17.4
million in 2021 to EUR 20.7 million in 2022. In total,
almost 90% of the R&D costs are directly attributable to
advancing our clinical programs, and Faron expects this to
continue as we accelerate patient recruitment. The costs
of outsourced clinical trial services were increased by
EUR 1.6 million from EUR 3.5 to EUR 5.1 million. The cost
of employee benefits increased by EUR 1.9 million from
EUR 3.3 to EUR 5.2 million, mainly driven by additional
headcount in the US.
GENERAL AND ADMINISTRATION COSTS
Administrative expenses decreased by EUR 2.4 million
from EUR 9.9 million in 2021 to EUR 7.5 million in 2022. The
decrease was mainly due to the EUR 3.5 million decrease
of legal expenses, that consisted in 2021 of the arbitration
with Rentschler Biopharma SE, resulting in Faron’s favor.
Employee benefits increased by EUR 1.1 million from EUR
3.5 million to EUR 4.5 million due to additional headcount.
TAXATION
The Company’s tax credit for the fiscal year 2022 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
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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 Faron’s
ability to continue as going concern. Should Faron 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
Faron’s headcount at the end of year was 40 (2021: 37)
SHARES AND SHARE CAPITAL
During the period January 1 to December 31, 2022, the
Company, using the share authorities granted at the
Annual General Meeting held on April 23, 2021, issued a
total of 3,318,421 new ordinary shares to itself without
consideration and conveyed 2,006,621 of those shares
at an issuance price of EUR 2.49 per share to investors.
During the same period, the Company, using the share
authorities granted at the Extraordinary General Meeting
held on July 7, 2022, issued a total of 3,229,932 new
ordinary shares to itself without consideration. Those
shares and the existing treasury shares were conveyed to
investors at an issuance price of EUR 1.85 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 2022 the total number of voting rights was
59,805,383.
Toni Hänninen
Chief Financial Officer
March 2, 2023
tax losses carried forward approved by tax authorities on
December 31, 2022 was EUR 47.1 million (2021: EUR 41.0
million). The Company estimates that it can utilize most
of these during the years 2023 to 2033 by offsetting them
against future profits.
In addition, the Company has EUR 91.8 million of R&D
costs incurred in the financial years 2010 - 2022 that have
not yet been deducted from taxation. This amount can
be deducted over an indefinite period at the Company’s
discretion.
LOSSES
Loss before income tax was EUR 28.7 million (2021: EUR
21.2 million). Total comprehensive loss for the year was
EUR 28.7 million (2021: EUR 21.2 million), representing a
loss of EUR 0.52 per share (2021: EUR 0.42 per share).
CASH FLOWS
Net cash flow was EUR 0.1 million positive for the
year ended December 31, 2022 (2021: EUR 2.7 million
positive). Cash used for operating activities increased
by EUR 0.8 million to EUR 23.0 million for the year,
compared to EUR 22.2 million for the year ended
December 31, 2021. This increase was mostly driven by
an increase in R&D investments. Net cash inflow from
financing activities was EUR 23.5 million (2021: EUR
25.6 million) mainly due to the successful equity placings
completed in June 2022 and October 2022 as well as the
proceeds from borrowings of the loan with IPF Partners.
FUNDRAISING
In June 2022, the Company successfully raised a total
of EUR 5.0 million gross (EUR 4.8 million net) from
new and existing shareholders, through issuance of a
total of 3,318,421 new ordinary shares to itself without
consideration. 2,006,621 of those shares were conveyed
to investors. In October 2022, the Company successfully
raised a total of EUR 8.4 million gross (EUR 8.2 million net)
from new and existing shareholders, through issuance of
a total of 3,229,930 new ordinary shares to itself. Those
shares and the 1,311,800 existing treasury shares were
conveyed to investors. Proceeds from both raises were
used to accelerate clinical development of the Company’s
main drug candidate, continue the CMC process and US
operations buildup and to strengthen the Company’s
balance sheet. In February 2022, the Company 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.
Post period,
the Company
in January 2022,
successfully raised a total of EUR 12.0 million gross
through and issuance of 3,692,308 ordinary shares to itself
without consideration which were conveyed to investors.
FINANCIAL POSITION
As at 31 December 2022, total cash and cash equivalents
held were EUR 7.0 million (2021: EUR 6.9 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”. Faron is 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
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 Faron’s
commercial and development activities and generating
a level of revenue adequate to support Faron’s cost
structure.
Faron made a net loss of EUR 28.7 million during the
year ended December 31, 2022. It had a negative equity of
EUR 11.4 million including an accumulated deficit of EUR
143.7 million. As of that date, Faron had cash and cash
equivalents of EUR 7.0 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. Directors estimate that the
cash held by Faron together with known receivables will
be sufficient to support the current level of activities into
the third quarter of 2023. The Directors are continuing to
explore sources of finance available to Faron and they
believe they have a reasonable expectation that they will
be able to secure sufficient cash inflows for Faron to
continue its activities for not less than 12 months from
the date of approval of these financial statements; they
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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 December 31, 2022 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
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
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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 March 2, 2023.
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
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-
intellectual property. The Company’s research
party
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
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
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Corporate
Governance
CHAIRMAN’S INTRODUCTION TO GOVERNANCE
The Board of the Company 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 Faron.
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 Faron, 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 Faron’s objectives,
strategy and business model described on Faron’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.
Dr Frank Armstrong
Non-Executive Chairman
March 2, 2023
Compliance
COMPLIANCE WITH THE PRINCIPLES OF THE QCA CODE
The Principles of the QCA Code
Comply/Explain
Disclosure in the 2022 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
10. Communicate how the company is governed
and is performing by maintaining a dialogue with
shareholders and other relevant stakeholders
Comply
Comply
Comply
Comply
Comply
Comply
Comply
Comply
Comply
Comply
Pages 4, to 7 and 12 to 19
Pages 38 to 41
Pages 38 to 41
Pages 20 to 23
Pages 26 to 30 and 42 to 43
Pages 26 to 30
Page 31
Page 24
Pages 24 and 26
Pages 24 to 43
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Board of
Directors
Dr Frank Armstrong
Non-Executive Chairman
b. 1957
Dr Markku Jalkanen
Chief Executive Officer
b. 1954
On 22 April 2022, 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
(375/2021). 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,
Leopoldo Zambeletti, Gregory Brown, John Poulos and
Anne Whitaker were re-elected to the Board and Erik
Ostrowski was elected as a new member to the Board
for a term that ends at the end of the next AGM whereas
longterm member and Vice Chair of the Board Matti
Manner stepped down from his position. At the meeting
of the Board held following the AGM, Frank Armstrong was
re-elected 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 2022, the Board held 23 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 Faron, 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 Faron and the organisation
of its operations, being responsible for the appropriate
arrangement of the control of Faron’s 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 of the Group, which is distributed to the Board every
month and in advance of Board meetings. In individual
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 Board considers
The Chief Executive Officer
for
implementing the strategy of the Board and managing
Faron’s day-to-day business activities. 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.
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.
there
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.
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 Enhanc3D
Genomics, BioCaptiva and Bloomsbury Genetic Therapies,
a Director of Newcells Biotech, a Non-Executive Director of
ECO Animal Health Group plc and a member of the Senior
Advisory Board at Healthcare Royalty Partners as well a
Convenor of the Estates Committee at the university of
Edingburgh.
Dr. Armstrong
received an honours degree
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.
Holdings in the Company: 71,062 shares and 280,000
stock options, entitling to same amount of shares in the
Company.
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: 3,291,865 shares (directly
and with his spouse) and 480,000 stock options, entitling
to same amount of shares in the Company.
26
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FARON PHARMACEUTICALS OY
ANNUAL REPORT 2022
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2022
Dr Gregory B. Brown
Non-Executive Director
b. 1953
John Poulos
Non-Executive Director
b. 1954
Leopoldo Zambeletti
Non-Executive Director
b. 1968
Anne Whitaker
Non-Executive Director
b. 1967
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 fi rm
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 Offi cer
and a Director of Memgen, and a Director of Aquestive
Therapeutics. In addition, Dr. Brown is currently Chairman
of Lisata Therapeutics Inc. 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 130,000
stock options, entitling to same amount of shares in the
Company.
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 fi rm, 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 130,000
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
fi gure 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 fi ve 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 fi nancing strategy.
He is a Non-Executive Director of Nogra Pharma, Philogen,
Touchlight, LenioBio, Adler Ortho, Meatless Farm and
Qardio Inc.
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.
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 Offi cer and
Director. She also currently serves as a member of the
Board of Directors on three publicly listed companies,
Mallinckrodt Plc, OraSure Technologies Inc and Ergomed
Plc. as well on three private companies, Bryn Pharma, Curio
Digital Therapeutics and Trinity LIfe Science Partners
Previously, Ms. Whittaker was Chief Executive Offi cer 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 Offi cer 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: 4,018 shares and 60,000
stock options, entitling to same amount of shares in the
Company.
28
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FARON PHARMACEUTICALS OY
ANNUAL REPORT 2022
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2022
Erik Ostrowski
Non-Executive Director
b. 1972
Mr. Ostrowski is a Non-Executive Director of Faron
Pharmaceuticals Ltd., a role he has served since joining the
board in April 2022. He is a Veteran biotech and financial
executive with significant fundraising and investment
bank experience.
Mr. Ostrowski is currently the Chief Financial Officer
and Treasurer of AVROBIO (Nasdaq: AVRO), a role he
has served since joining the Company in January 2019.
Prior to joining AVROBIO, he served as CFO of Summit
Therapeutics plc. (Nasdaq: SMMT) and vice president
of finance at Organogenesis Inc. (Nasdaq: ORGO). He
previously worked in investment banking, most recently
as a director with Leerink Partners LLC. Having begun his
career as an accountant with Coopers & Lybrand (now
PricewaterhouseCoopers).
Mr. Ostrowski received a BS in accounting and
economics from Babson College and an MBA from the
University of Chicago Booth School of Business.
Holdings in the Company: 2,009 shares and 30,000
stock options, entitling to same amount of shares in the
Company.
PERFORMANCE EVALUATION
AUDIT COMMITTEE
The audit committee, which comprises Leopoldo
Zambeletti as Chair together with Gregory Brown, and
Erik Ostrowski, meets not less than twice a year. The audit
committee has the task of supervising and developing
the internal audit of the Group and advising and making
recommendations to the Board on related issues. During
2022, the audit committee held four meetings.
NOMINATION COMMITTEE
As of 22 April 2022 , the nomination committee comprises
Frank Armstrong as Chair together with Gregory Brown
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
2022, the nomination committee held three 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.
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 2022 the Directors performed a self-assessment
its results against previous
exercise and reviewed
assement from the year 2021. 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 22 April 2022.
REMUNERATION COMMITTEE
As of 22 April 2022, the remuneration committee
comprises Anne Whitaker as Chair together with Frank
Armstrong, John Poulos and Leopoldo Zambeletti. 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 Faron. During 2022, the remuneration committee held
four meetings.
30
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ANNUAL REPORT 2022
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2022
Attendance at Board Meetings
During 2022 the Board held 23 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 2022
Board
Audit
Committee
Remuneration
Committee
Nomination
Committee
Executive Directors
Jalkanen Markku
Non-Executive Directors
Armstrong Frank
Ostrowski Erik*
Brown Gregory
Manner Matti**
Poulos John
Zambeletti Leopoldo
Whitaker Anne
(*) Board member since April 2022 (**) Board member until April 2022
23
21
19
23
4
21
20
21
3
4
1
4
4
4
4
4
3
2
1
3
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 Faron. 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
2022 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
Faron during the year.
BONUSES
Executive Directors’ annual bonuses are based on the
achievement of Faron’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 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.
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ANNUAL REPORT 2022
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 Faron 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 Directors are
entitled to be reimbursed in respect 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.
Current contracts are summarised below:
Non-Executive Directors
Independence
Contract
Date of Contract
Armstrong Frank
Ostrowski Erik*
Brown Gregory
Poulos John
Zambeletti Leopoldo
Whitaker Anne
(*) Board member since April 2022
Independent
Independent
Independent
Independent
Independent
Independent
Chairman
Member
Member
Member
Member
Member
16.09.2015
22.04.2022
16.05.2017
16.05.2017
16.09.2015
23.04.2021
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
Executive Directors
Jalkanen Markku
Non-Executive Directors
Armstrong Frank
Manner Matti*
Ostrowski Erik**
Brown Gregory
Poulos John
Zambeletti Leopoldo
Whitaker Anne
538,974
95,299
240
634,513
82,560
27,341
19,022
43,319
41,000
52,000
44,758
82,560
27,341
19,022
43,319
41,000
52,000
44,758
(*) Board member until April 2022 (**) Board member since April 2022
34
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ANNUAL REPORT 2022
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ANNUAL REPORT 2022
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 Plans 2015 and 2019
Total number
of options
Grant date
Exercised period,
vesting 25% per annum
Exercise price, €
2015 A options
2015 B options
2015 C options
2015 D options
2019 A options
2019 B options
400,000
16.09.2015
02.11.2015-30.09.2023
400,000
18.11.2016
08.10.2016-30.09.2023
500,000
16.11.2017
08.10.2017-30.09.2023
500,000
21.05.2019
08.10.2018-30.09.2023
554,333
23.07.2020
23.07.2021 - 23.07.2025
590,583
24.03.2021
24.03.2022 - 24.03.2026
2019 B bis options
0
05.07.2021
05.07.2022 - 05.07.2026
2019 B tertiary options
147,000
17.11.2021
17.11.2022 - 17.11.2026
2019 C
440,000
24.03.2022
24.03.2023-24.03.2027
2019 C bis options
129,000
24.08.2022
24.08.2023-24.08.2027
3.67
2.90
8.39
1.09
3.80
3.99
4.40
4.47
(4.04 € under US plan)
3.09
(2.91 € under US plan)
2.50
(2.38 € under US plan)
2019 C tertiary options
16,000
17.11.2022
17.11.2023-17.11.2027
2.09
Total options under 2015 and
2019 Option Plans
At 1
January
2022
Granted
during the
period
Exercised
during
the period:
At 31
December
2022
Average subs.
price per
shares, €
Jalkanen Markku
Armstrong Frank
Ostrowski Erik*
Brown Gregory
Poulos John
Zambeletti Leopoldo
Whitaker Anne
(*) Board member since April 2022
480,000
280,000
0
30,000
100,000
30,000
100,000
30,000
140,000
30,000
30,000
0
0
0
0
0
0
0
480,000
280,000
30,000
130,000
130,000
140,000
60,000
4.45
3.97
2.38
3.93
3.93
3.97
3.45
At 31 December 2022
Issued Share Capital
Share Options
Ordinary shares Percentage held
Options
Average exercise price, €
Executive
Jalkanen Markku(1)
Non-Executive Directors
Armstrong Frank
Ostrowski Erik*
Brown Gregory
Poulos John
Zambeletti Leopoldo
Anne Whitaker*
(*) Board member since April 2022
3,291,865
5.50
480,000
71,062
2,009
46,490
0
17,461
4,018
3,429,905
0.12
0.01
0.08
0.00
0.03
0.01
280,000
30,000
130,000
130,000
140,000
60,000
1,390,000
4.45
3.97
2.38
3.93
3.93
3.97
3.45
(1) of which 2,153,697 are held by Markku Jalkanen
directly and 1,138,168 are held by Markku Jalkanen’s wife
Sirpa Jalkanen
36
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ANNUAL REPORT 2022
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ANNUAL REPORT 2022
Corporate
Governance
Statement
COMMUNICATING WITH SHAREHOLDERS
SHARE DEALING
The Company acknowledges that effective communication
with its 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. Faron complies with other relevant legislation
in all its corporate communications issues.
Faron speaks to the financial community and
shareholders only through authorised representatives.
In accordance with Faron’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 Faron on financial matters.
The contact details are below:
email: investor.relations@faron.com
Media and investor relations:
Consilium Strategic Communications
email: faron@consilium-comms.com
The Company has established a share dealing code
appropriate to an AIM and First North listed company, and
all the Directors 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. All
employees and Directors are required to comply with all
laws, rules and regulations applicable to Faron wherever
it does business.
Employees and Directors should endeavour to deal
honestly, ethically and fairly with Faron’s collaborators,
licensors, licensees, business partners, suppliers, customers,
competitors and other employees. Statements regarding
Faron’s therapies and services must not be untrue,
misleading, deceptive or fraudulent.
Employees and Directors act in the best interests of
Faron and use its assets and services solely for legitimate
business purposes and not for any personal benefit or the
personal benefit of anyone else.
RISK MANAGEMENT AND INTERNAL CONTROL
The principal risks and uncertainties identified by the
Board are set out on pages 20-23 of the 2022 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 Faron’s strategy and managing the risks facing
Faron is the employment of a skilled workforce and use
of appropriate vendors. The Board reviews the risks and
uncertainties facing Faron and the effectiveness of its
systems annually.
At present, Faron 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 Group’s results, compared with the
budget, are reported to the Board on a monthly basis and
discussed in detail.
insurance cover
Faron maintains appropriate
in
respect of actions taken against the Directors because
of their roles, as well as against material loss or claims
against Faron. The insured values and type of cover are
comprehensively reviewed on a periodic basis.
REGULATED ADVISORS
The shares of the Company are listed for trading on
the London Stock Exchange AIM and Nasdaq First
North Growth Market marketplaces, which require the
nominating of advisors. Peel Hunt LLP acts 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
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. Faron’s values, which
38
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FARON PHARMACEUTICALS OY
ANNUAL REPORT 2022
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2022
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,
Faron 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.
Faron 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. Bexmarilimab has been used for
cancer patients for which all available treatments have
been tested and which were not bringing help for them.
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,
Faron maintain an internal code of conduct based on
professionalism and respect.
Governance
local
Accountability is fundamental to our business. Faron
laws and customs while supporting
respects
international laws and regulations. Faron aims to adopt
the highest professional standards and not to act in
such a way as to compromise Its 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. Faron 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
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,
Faron 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
WEBSITE PUBLICATION
The Directors are responsible for ensuring that the
financial statements are made available on a website.
Financial statements are published on Faron’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
2 March 2023
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 Faron’s accounts and finances, and
the CEO shall see to it that the accounts of Faron 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.
The Board and the CEO are responsible for keeping
adequate accounting records that are sufficient to
show and explain Faron’s transactions and disclose
with reasonable accuracy at any time the financial
position of Faron 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 Faron and hence for taking
reasonable steps for the prevention and detection of fraud
and other irregularities.
40
41
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2022
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2022
Directors’
Report
The Directors present their report together with the audited financial statements
for the year ended 31 December 2022.
DIRECTORS
FINANCIAL INFORMATION
During the year ended 31 December 2022 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
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
Mr Erik Ostrowski | Non-Executive Director*
(*) Appointed to the Board on April 2022
PRINCIPAL RISKS AND UNCERTAINTIES
For a discussion of the principal risks and uncertainties which
face Faron please see pages 20 to 23 of this document.
RESULTS AND DIVIDENDS
The Consolidated Statement of Comprehensive Income
for the year is set out on here.
The Group’s loss of the financial year after taxation
and other comprehensive losses was €28.7 million (2021:
€21.2 million).
The Company has no distributable equity and thus the
Directors do not recommend the payment of a dividend
(2021: nil).
The Group 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 17
Financial Review.
RESEARCH AND DEVELOPMENT
Details of the Group’s key research and development
programmes can be found in the Strategic Report and the
detailed programme sections. See also notes 2.7 and 5.
Further information is also available on Faron’s website,
www.faron.com.
FINANCIAL INSTRUMENTS AND MANAGEMENT
OF LIQUID RESOURCES
The Group’s principal financial instrument comprises
cash, and this is used to finance the Group’s operations.
The Group has also other financial instruments such as
leasing facilities that arise directly from its operations.
The Group has a policy, which has been consistently
The information presented in the above table is consistent
with the Company’s best knowledge as at 31 December
2022.
GENERAL MEETINGS
The Company held the Annual General Meeting on 22
April 2022 and the Extra Ordinary General meeting on 7
July 2022. In 2023, the Annual General Meeting will be
held on 24 March 2023. 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
followed, of not trading in financial instruments and
to minimise currency exposure by actively matching
currency expenses and income to the extent possible. The
Group’s cash is held on bank accounts in reputable banks
in Finland, Switzerland and US. 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 2022, 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
A&B (HK) Company Limited
Markku Jalkanen**
Marko Salmi
Fjarde AP Fonden (The Fourth
Swedish National Pension Fund)
The European Investment
Council Fund, EIC
12,367,825
20.68 %
3,666,647
6.13 %
3,408,409
3,291,865
5.7 %
5.5 %
2,660,451
4.45 %
2,632,385
4.4 %
2,080,437
3.48 %
On behalf of the Board
Varma Mutual Pension Fund
1,891,891
3.16%
(*) of which 4,898,234 are held directly by Timo Syrjälä and 7,469,591
are held by Acme Investments SPF S.à.r.l., an entity which is wholly
owned by Timo Syrjälä / (**) of which 2,153,697 are held by Markku
Jalkanen directly and 1,138,168 are held by Markku Jalkanen’s wife
Sirpa Jalkanen
Frank Armstrong
Chairman
2 March 2023
42
43
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2022
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2022
Financial
Statements
2022
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 income
Financial expenses
Loss before tax
Tax expense
Loss for the period
Note
2022
2021
2022
2021
3
4
5, 6, 7
5, 6, 7
8
8
9
0
803
(20,730)
(7,498)
(27,426)
96
(1,400)
(28,730)
0
6,137
(17,369)
(9,876)
(21,108)
165
(235)
0
868
(19,958)
(8,495)
(27,585)
36
(1,376)
0
6,137
(17,369)
(9,969)
(21,201)
182
(249)
(21,178)
(28,924)
(21,268)
0
(16)
0
(2)
(28,730)
(21,194)
(28,924)
(21,270)
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
Total assets
Equity and liabilities
Capital and reserves attributable to the equity holders of Faron
Share capital
Reserve for invested unrestricted equity
Accumulated deficit
Translation difference
Total equity
Provisions
Other provisions
Total provisions
Non-current liabilities
Borrowings
Lease liabilities
Other liabilities
Total non-current liabilities
Current liabilities
Borrowings
Lease liabilities
Trade payables
Group Parent
Note
2022
2021
2022
2021
11
13
24
11
12
14
15
13
314
-
1,154
60
1,541
2,740
6,990
9,730
20
187
-
899
53
1,159
5,170
6,853
12,023
13
314
18
1,154
522
2,021
2,845
6,884
9,729
20
187
18
899
649
1,772
5,164
6,634
11,798
11,271
13,182
11,750
13,570
2,691
129,544
2,691
2,691
2,691
116,507
129,539
116,507
(143,713)
(116,265)
(144,008)
(116,381)
2
16, 17
(11,476)
(14)
2,919
-
(11,778)
-
2,818
18
19
13
21
19
13
22
22
158
158
11,102
163
853
12,118
1,851
153
6,014
2,453
10,471
-
-
158
158
2,918
16
151
3,085
429
184
2,229
4,336
7,178
11,106
163
853
12,122
1,851
153
7,265
1,978
11,247
-
-
2,918
16
151
3,085
429
184
2,951
4,104
7,668
Other comprehensive income (loss)
17
(15)
-
-
Total comprehensive loss for the period
(28,713)
(21,209)
(28,924)
(21,270)
Accruals and other current liabilities
Total current liabilities
Loss per ordinary share
Basic and diluted loss per share, EUR
10
(0.52)
(0.42)
(0.52)
(0.42)
Total liabilities
22,748
10,263
23,528
10,753
Total equity and liabilities
11,271
13,182
11,750
13,570
44
45
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2022
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2022
Parent Company Statement of
Changes in Equity
Group Statement of
Changes in Equity
€’000
Note
Share
capital
Reserve for Accumulated
deficit
invested
unrestricted
equity
Total
equity
€’000
Note
Share
capital
Reserve for
invested
unrestricted
equity
Translation
difference
Accumulated
deficit
Total
equity
Balance as at 31 December 2020
2,691
92,015
(96,598)
(1,892)
Balance as at 31 December 2020
2,691
92,015
2
(96,557)
(1,849)
Comprehensive loss for the period
Transactions with equity holders of the Company
Issue of ordinary shares, net of transaction costs
Share-based compensation
16
6,17
-
-
-
-
-
(21,270)
(21,270)
Comprehensive loss for the period
24,492
-
24,492
-
1,487
1,487
24,492
1,487
25,981
Transactions with equity holders of the Group
Issue of ordinary shares, net of
transaction costs
Share-based compensation
16
6,17
-
-
-
-
-
(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
(116,381)
2,818
Comprehensive loss for the period
Transactions with equity holders of the Company
Issue of ordinary shares, net of transaction costs
Share-based compensation
16
6,17
-
-
-
-
-
(28,924)
(28,924)
13,032
-
13,032
-
1,297
1,297
13,032
1,297
14,329
Balance as at 31 December 2022
2,691
129,539
(144,008)
(11,778)
Balance as at 31 December 2021
2,691
116,507
(15)
(116,265)
2,919
Comprehensive loss for the period
Transactions with equity holders of the Group
Issue of ordinary shares, net of
transaction costs
Share-based compensation
Other movements
16
6,17
-
-
-
-
-
-
17
(28,730)
(28,713)
13,037
-
-
13,037
-
-
-
17
2
-
13,037
1,297
(16)
1,297
(16)
(27,448)
(14,395)
(143,713)
(11,476)
Balance as at 31 December 2022
2,691
129,544
46
47
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2022
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2022
Statement of Cash Flows
As at 31 December
Group Parent
€’000
Note
2022
2021
2022
2021
Notes to the Financial Statements
(28,730)
(21,194)
(28,924)
(21,268)
1. CORPORATE INFORMATION
Cash flow from operating activities
Loss before tax
Adjustments for:
Received grant
Depreciation and amortization
Change in provision
Financial expense & income
Interest expense
Unrealized foreign exchange loss (gain), net
Tax expense
4
7
8
8
8
9
(803)
300
(158)
1,304
-
-
-
(1,387)
307
-
-
216
153
16
(868)
300
(158)
1,339
-
-
-
(1,387)
307
-
-
215
168
2
Share-based compensation
17
1,297
1,487
1,297
1,487
Operating cash flows before movements in working capital
(26,790)
(20,402)
(27,014)
(20,476)
Change in net working capital:
Prepayments and other receivables
Trade payables
Other liabilities
Cash used in operations
Taxes paid
Transaction costs related to loans and borrowings
Interest received
Interest paid
2,864
719
1,183
(1,919)
723
(566)
(22,023)
(22,163)
-
(165)
11
(816)
(16)
-
-
(40)
2,887
4,314
(2,126)
(21,940)
-
(165)
11
(816)
(2,358)
1,090
(566)
(22,309)
(2)
-
-
(40)
Net cash used in operating activities
(22,993)
(22,218)
(22,909)
(22,351)
Cash flow from investing activities
Payments for intangible assets
Payments for tangible assets
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
11
11
16
16
19
19
4, 21
2.19
(385)
(0)
(385)
13,445
(365)
10,389
(105)
231
(116)
(461)
(13)
(473)
25,559
(1,067)
662
(122)
750
(191)
(385)
(0)
(385)
13,445
(365)
10,389
(105)
231
(116)
(461)
(13)
(473)
25,559
(1,067)
661
(122)
750
(191)
Net cash from financing activities
23,478
25,590
23,478
25,590
Net increase (+) / decrease (-)
in cash and cash equivalents
Effect of exchange rate changes on
cash and cash equivalents
Cash and cash equivalents at 1 January
Cash and cash equivalents at 31 December
15
15
137
37
6,853
6,990
2,899
(153)
4,108
6,853
250
66
6,634
6,884
2,766
(168)
4,037
6,634
Faron Pharmaceuticals Oy (“Company”), a clinical stage
biopharmaceutical company incorporated and domiciled
in Finland, with its headquarters at Joukahaisenkatu 6
B, 20520 Turku, Finland, is the parent company for all
its subsidiaries (“Faron” or “Group”). The Group has a
pipeline based on the receptors involved in regulation of
immune response in oncology, organ damage and bone
marrow regeneration.Faron Pharmaceuticals Oy is listed
on the London Stock Exchange’s AIM market since 17
November 2015 and Nasdaq First North Growth Market
since 21 November 2019. The Board of Directors of the
Company approved the financial statements on 2 March
2023.
2. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
2.1. Basis of Preparation
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 Group 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 Oy, 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 subsidiaries are consolidated by using the purchase
method. All intragroup transactions, receivables, liabilities
and unrealized gains are eliminated in the Consolidated
Financial Statements. Faron Pharmaceuticals Oy 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 recognized 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 recognized in
other comprehensive income.
All figures presented in notes are group figures if not
else stated. 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 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 risks associated
with 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.
The Group made a net loss of €28,7 million during the
year ended 31 December 2022. At the end of the financial
year, it had total negative equity of €11,5 million including
an accumulated deficit of €143,7 million. As at that date,
the Group had cash and cash equivalents of €7,0 million.
The Directors have prepared detailed financial
48
49
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2022
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2022
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 third quarter of 2023. 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 Group’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. See further
commentary on financial risk management on note 20.
2.3. Foreign Currency Transactions and Balances
Functional and Presentation Currency
The financial statements are presented in euro, which is
the Company’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 recognized in the statement
of comprehensive
income. Non-monetary assets
and liabilities denominated in foreign currencies are
translated at the foreign exchange rate ruling at the
date of the transaction.
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. Recognize 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.
2.6. Recognition of Government Grants
The direct government grants are recognized as other
operating income at the same time as the underlying
expenditure is incurred, provided that there is reasonable
assurance that the Group 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 recognized
as grant income and recorded as other operating income
in the same period in which the Group recognizes 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
Group’s research and development activities. The Group’s
research and development expenses are directly related
to the Group’s development projects and may therefore
fluctuate strongly from year to year.
Capitalization of expenditure on the development of
the Group’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 2022, considering the development stage
of the Group’s drug candidates, no internally developed
assets related to Group’s development activities had met
these criteria and had therefore not been recognized.
The uncertainties inherent in developing pharmaceutical
products prohibits
internal
development expenses as an intangible asset until the
marketing approval has been received from the relevant
regulatory agencies.
the capitalization of
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
incentive
The options granted under share-based
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 recognized 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 recognized 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.
2.11. Income Tax
Income tax expense for the period consists of current
and deferred taxes. Tax is recognized in the statement of
comprehensive income, except for the income tax effects
of items recognized in other comprehensive income or
directly in equity, which is similarly recognized in other
comprehensive income or equity.
Deferred taxes are recognized 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 recognized 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 costs are amortized
on a straight-line basis over the useful lives of the patents
of ten years.
50
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FARON PHARMACEUTICALS OY
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FARON PHARMACEUTICALS OY
ANNUAL REPORT 2022
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 recognized 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 at
banks.
2.17. Financial Liabilities
The Group’s financial liabilities comprise of interest-
bearing borrowings, trade payables, other non-current
and current liabilities. The Group’s financial liabilities are
divided into two groups: the ones measured at amortized
cost using the effective interest method and the ones at
fair value through profit and loss.
interest method (EIR). Amortized cost
Borrowings are initially recognized at fair value, less
any directly attributable transaction costs. Subsequently
borrowings are carried at amortized cost using the
is
effective
calculated by taking into account any discount or premium
on acquisition and fees or costs that are an integral part
of the EIR. The EIR amortization is included as finance
costs in the statement of profit or loss. 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 derecognized 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. When an existing financial liability is replaced by
another from the same lender on substantially different
terms, or the terms of an existing liability are substantially
modified, such an exchange or modification is treated as
the derecognition of the original liability and the recognition
of a new liability. The difference in the respective carrying
amounts is recognized in the statement of profit or loss.
Borrowings comprise of a secured debt by IPF partners
and four government loans with a below-market rate of
interest from The Finnish Funding Agency for Technology
and Innovation (“Business Finland”).
The grant component of the gorvernment loans,
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.
Other liabilities consist of warrants issued as part
of the IPF loan agreement for no consideration paid.
The warrants meet the definition of a derivative and are
therefore recognized at fair value through profit or loss.
In estimating the fair value of the liability, the Group uses
market-observable data to the extent it is available.
Fair value hierarchy levels 1 to 3 are based on the
degree to which the fair value is observable:
• Level 1 fair value measurements are those
derived from quoted prices (unadjusted) in
active markets for identical assets or liabilities;
• Level 2 fair value measurements are those
derived from inputs other than quoted prices
included within Level 1 that are observable for
the asset or liability, either directly (i.e. as prices)
or indirectly (i.e. derived from prices); and
• Level 3 fair value measurements are those
derived from valuation techniques that include
inputs for the asset or liability that are not based
on observable market data (unobservable inputs).
Where Level 1 inputs are not available, the Group
engages third party qualified valuers to assist in preparing
the valuation models.
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 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.
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 Group as Lessee
The Group recognizes 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 recognized 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 recognized
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 recognized 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. At the yearend 2022, the Group had
recognized a provision on restructuring. A restructuring
provision is recognized when the Group has developed a
detailed formal plan for the restructuring and has raised
a valid expectation in those affected that it will carry out
the restructuring by starting to implement the plan or
announcing its main features to those affected by it. The
measurement of a restructuring provision includes only
the direct expenditures arising from the restructuring,
which are those amounts that are both necessarily
entailed by the restructuring and not associated with the
ongoing activities of the entity.
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
recognizes expenses
Share-based Compensation
for share-based
The Group
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 17.
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
Organizations 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 Group has implemented a detailed tracking process to
minimize any judgement needed.
the actual
52
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FARON PHARMACEUTICALS OY
ANNUAL REPORT 2022
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2022
2.22. New and Amended Standards and
Interpretations Adopted by the Group
New standards implemented by the Group:
The Group has applied the following amendments for the
first time in the annual reporting period commencing 1
January 2022:
• Property, Plant and Equipment: Proceeds before
Intended Use – Amendments to IAS 16
• Onerous Contracts – Cost of Fulfilling a
Contract – Amendments to IAS 37
• Annual Improvements to IFRS Standards
2018–2020, and
• Reference to the Conceptual Framework
– amendments to IFRS 3.
The effect of changes required by the adoption of new
standards, interpretations and amendments to existing
standards and interpretations on 1 January 2022 were
considered immaterial for the group.
New standards not yet implemented by the Group:
Certain new accounting standards, amendments to
accounting standards and interpretations have been
published that are not mandatory for 31 December 2022
reporting periods and have not been early adopted by the
group. Those include:
•
IFRS 17 Insurance Contracts and Amendments to
IFRS 17 Insurance contracts: Initial Application of
IFRS 17 and IFRS 9 –Comparative Information
• Amendments to IAS 12 Income Taxes: Deferred
Tax related to Assets and Liabilities arising from
a Single Transaction
• Amendments to IAS 1 Presentation of Financial
Statements, IFRS Practice Statement 2 and
IAS 8 Accounting Policies, Changes in Accounting
Policies and Errors: Disclosure of Accounting
policies and Definition of Accounting Estimates
• Classification of Liabilities as Current or Non-
current– Amendments to IAS 1Non-Current
Liabilities with Covenants – Amendments to IAS 1
• These standards, amendments or interpretations
are not expected to have a material impact on the
entity in the current or future reporting periods
and on foreseeable future transactions.
• The group is monitoring potential changes in
future accounting standards and assessing any
impact thereof on a continuing basis.
3. SEGMENT REPORTING
5. BREAKDOWN OF EXPENSES BY FUNCTION
6. EMPLOYEE BENEFITS
is a
Faron
late clinical stage drug discovery and
development Group. 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 2022 (EUR 0
thousand in 2021). All of the Group’s non-current assets
are located in Finland.
4. OTHER OPERATING INCOME
€’000
Year ended 31 December
2022
2021
Grant from the European Union
Grant from Business Finland
Grant component of government
loans
Other income
Total operating income
526
273
0
4
803
1,387
160
498
4,091
6,137
Grant from the European Union comprise of direct funding
from the European Commission under the Horizon
2020 research and innovation program (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. In 2021 the group recognized
an extraordinary other income based on successful
arbitration case.
The other
the
reimbursement of already occurred legal expenses by the
third-party recovery services and the arbitration award
provider.
in 2021 consists of
income
Research and Development Expenses
€’000
Materials and services
Employee benefits
Outsourced clinical
trials services
Drug production
Analytics
Data management
Legal and consulting
IT expenses
IPR expenses
Travelling
Depreciation and amortization
Short term rent and premises
Other R&D costs
Total research and
development expenses
Year ended 31 December
2022
2021
(1,372)
(5,200)
(5,112)
(4,361)
(2,237)
(499)
(830)
(170)
(254)
(85)
(214)
(16)
(381)
(1,156)
(3,281)
(3,541)
(6,109)
(1,726)
(400)
(62)
(357)
(80)
(16)
(232)
(5)
(404)
(20,730)
(17,369)
€’000
Salaries
Year ended 31 December
2022
2021
(7,153)
(4,419)
Pension expenses –
contribution-based plans
Social security contributions
(822)
(453)
(644)
(202)
Share-based compensation
(1,297)
(1,487)
Total employee benefit expenses
(9,725)
(6,753)
Employee benefit expenses by function
Research and development expenses
(5,200)
(3,281)
General and administrative expenses
(4,525)
(3,472)
Total employee benefit expenses
(9,725)
(6,753)
The headcount of personnel at the end of 2022 was 40
(2021: 37). Share-based compensation information is
included in note 17 and management remuneration
information in note 24.
General and Administration Expenses
7. DEPRECIATION AND AMORTISATION
Year ended 31 December
2022
2021
€’000
Year ended 31 December
2022
2021
€’000
Employee benefits
Communication
Audit fees
(4,525)
(3,472)
(315)
(83)
(396)
(22)
Legal and consulting
(1,283)
(4,782)
IT expenses
Travelling
Depreciation and amortization
Short term rent and premises
Other G&A
Total general and
administrative expenses
(257)
(283)
(87)
(114)
(552)
(209)
(102)
(75)
(7)
(811)
(7,498)
(9,876)
Depreciation and amortisation
by type of asset
Depreciation for right-of-use-assets
(163)
Intangible assets - patents
Intangible assets
Machinery and equipment
(99)
(31)
(7)
Total depreciation and amortisation
(300)
(172)
(110)
(18)
(6)
(307)
Depreciation and amortisation by function
Research and development expenses
(213)
General and administrative expenses
(87)
Total depreciation and amortisation
(300)
(232)
(75)
(307)
54
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FARON PHARMACEUTICALS OY
ANNUAL REPORT 2022
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2022
8. FINANCIAL INCOME AND EXPENSES
€’000
Financial income
Interest income
Other financial income
Gains from foreign exchange
Total financial income
Financial expenses
Interest expenses
Year ended 31 December
2022
2021
€’000
Year ended 31 December
2022
2021
Loss before tax
(28,730)
(21,209)
11
18
67
96
2
-
163
165
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
(1,362)
(200)
Non-credited foreign withholding taxes
Taxes in the statement of
comprehensive income
(6,587)
(4,131)
841
-
-
(111)
(16)
(16)
Losses from foreign exchange
Interest expenses from lease liabilities
Other financial expenses
(23)
(11)
(5)
(3)
(15)
(17)
Total financial expenses
(1,400)
(235)
Tax losses and deductible temporary differences for which
no deferred assets have been recognised, are as follows:
Total financial income and
expenses, net
(1,304)
(70)
€’000
Year ended 31 December
2022
2021
Interest expenses consist of paid and accrued interest
expenses. The interest expense relates mainly to the IPF
loan and government loans. Interest expenses recognised
from lease liabilities totaled to EUR 11 thousand (2021:
EUR 15 thousand).
The foreign exchange wins mainly relate to the cash
balance nominated in US Dollars which strengthened
against the EUR. Unrealised foreign exchange gain, net
is EUR 43 thousand for 2022 and EUR 153 thousand for
2021.
9. TAX EXPENSE
€’000
Tax expense
Total tax expense
Year ended 31 December
2022
2021
(0)
(0)
(16)
(16)
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:
R&D expenses not yet deducted
in taxation (1)
Tax losses carried forward (2)
Total
91,799
56,117
70,085
42,561
147,916
112,646
(1) The Group has incurred research and development
costs, which 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:
€’000
2022
2021
Expiry within five years
Expiry within 6-10 years
Total
26,040
30,077
56,117
23,037
19,524
42,561
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 recognizing deferred tax assets. The total tax value of
unrecognized deferred tax assets is EUR 29,583 thousand
(2021: EUR 22,529 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 itemization of deferred taxes is not provided.
10. 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.
11. INTANGIBLE ASSETS AND MACHINERY
AND EQUIPMENT
€’000
Intangible
assets
Machinery
and
equipment
5,746
4,242
€’000
Year ended 31 December
2022
2021
Book value on 1 January 2022
Loss for the period
(28,713)
(21,209)
Additions
Disposals
Weighted average number of
ordinary shares in issue
Basic and dilutive loss
per share (in €)
55,229,835
50,723,964
Depreciation/amortisation
(0.52)
(0.42)
Book value 31 December 2022
As of 31 December 2022, Faron Pharmaceuticals Oy had
only share options outstanding. Number of potentially
dilutive
totaled
instruments currently outstanding
3,465,816 as of 31 December 2022 (31 December 2021:
2,951,691). 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.
899
387
-
(132)
1,154
1,910
-
As at 31 December 2022
Acquisition cost
Accumulated disposals
Accumulated depreciation/amortisation
(756)
Book value 31 December 2022
1,154
Book value 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
899
20
-
-
(7)
13
57
-
(44)
13
14
13
-
(6)
20
57
-
(37)
20
12. NON-CURRENT PREPAYMENTS AND OTHER
RECEIVABLES
€’000
As at 31 December
2022
2021
Other receivables
Total non-current prepayments
and other receivables
60
60
53
53
Other receivables consist mainly of restricted cash in the
form of security deposits for rental agreements.
For the parent company, the other receivables (2022 EUR
522 thousand) consist on intercompany loans that are
eliminated on group level.
56
57
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2022
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2022
13. RIGHT-OF-USE-ASSETS AND LEASING
LIABILITIES
€’000
31 December
2022
31 Dec
2021
Right-of-use assets
Office & parking places
Total right-of-use assets
Lease liabilities
Long-term leasing liability
Short-term leasing liability
Total leasing liabilities
314
314
163
153
316
187
187
16
184
200
The Group maintained the office premises during 2022
and opened an office in Boston, USA. Lease contracts are
valid until further notice and thus lease term is estimated
reflects the period when the Group is reasonably certain
not to terminate the lease.
14. CURRENT PREPAYMENTS AND OTHER
RECEIVABLES
€’000
Prepayments
Other accrued incomes and other receivables
Prepayment for product testing
VAT receivable
Group Parent
As at 31 December
2022
1,836
332
454
119
2021
3,752
808
434
176
2022
1,834
439
454
119
2021
3,752
802
434
176
Total current prepayments and other receivables
2,740
5,170
2,845
5,164
The majority of prepayments consist of the Clinical Service
Agreements with Contract Research Organizations, which
are current service providers in different clinical trials. The
decrease of the prepayments, other accrued incomes and
other receivables is due to the recognition of those costs
as those costs accrued during the period.
15. CASH AND CASH EQUIVALENTS
€’000
Bank accounts
Total cash and cash equivalents
Group Parent
As at 31 December
2022
2021
2022
6,990
6,990
6,853
6,853
6,884
6,884
2021
6,634
6,634
16. SHAREHOLDERS’ EQUITY
Movements in number of shares, share capital and reserve
for invested unrestricted equity were as follows:
€’000
1 January 2021
Issue of new shares, net of transaction costs
31 December 2021
1 January 2022
Issue of new shares, net of transaction costs
31 December 2022
Total registered
shares (pcs)
Share
capital
Reserve for
unrestricted
equity
46,896,747
6,335,285
2,691
-
92,015
24,492
53,232,032
2,691
116,507
53,232,032
2,691
116,507
6,573,351
-
13,037
59,805,383
2,691
129,544
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 2021 the number of shares was
increased to 53,232,032 following the issue of 11,000 new
shares.
On 6 April 2022, the number of shares was increased
to 53,257,032 following the issue of 25,000 new shares,
On 28 June 2022, the number of shares was increased to
55,063,653 following the issue of 1,806,621 new shares.
On 5 July 2022, the number of shares was increased to
55,263,653 following the issue of 200,000 new shares. On
14 October 2022, the number of shares was increased to
59,805,383 following the issue of 4,541,730 new shares.
Faron Pharmaceuticals Oy 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 2021 and
2022, the Company recognised all relevant transactions
in the invested unrestricted equity reserve.
58
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ANNUAL REPORT 2022
17. 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. 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 of
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 marketplace 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 marketplace
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.
2022
2015 Option Plan
2021
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
383,900
500,000
345,000
385,000
385,900
500,000
394,000
-
-
-
-
-
-
-
-
-
-
-
25,000
-
-
-
-
-
2,000
-
-
-
-
-
49,000
385,000
383,900
500,000
320,000
385,000
383,900
500,000
345,000
385,000
383,900
500,000
320,000
385,000
383,900
500,000
345,000
-
-
-
-
-
-
-
2.44
-
-
-
4.78
-
-
-
4.16
2022
2015 Option Plan
2021
2015 Option Plan
2015 Option Plan
A options
B options
C options
D options
Valuation parameters for instruments granted
C
D
C
D
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
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
(*) 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.
(*) 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 2022 or 2021 based on
share options granted under the 2015 Option Plan. The
share-based compensation expense for the Option Plan
2015 was EUR 0 in 2022 (EUR 0 in 2021).
60
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ANNUAL REPORT 2022
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 Group 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 of 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 average exercise price
for ordinary shares based on plan 2019 granted options
in 2022 is €3,04.
The Company’s board has confirmed the grant of
a total of 742,000 options under the Option plan 2019
during 2022. The Options have been allocated under the
Share Option Plan 2019 and are exercisable between 17
November 2022 and 17 November 2027 vesting 25% per
annum over a period of four years.
Key characteristics and terms of the option plan are
listed in the table below.
2019 Option Plan
Maximum number of share options
Exercise price, EUR (weighted average if several grant during the year)
Dividend adjustment
Beginning of first subscription period
End of the last subscription period
Vesting conditions
(*) In 2021, there was three grants at three different times
(**) In 2022, there was six grants at four different times
2022**
2021*
2,000,000
2,000,000
3.04
No
4.03
No
17 November 2022
24 April 2022
17 November 2027
17 November 2026
Service until the
beginning of each
subscription period
Service until the
beginning of each
subscription period
2021–2022
2019 Option Plan
Number of share options
2022
2021
Outstanding at 1 January
Granted
Forfeited
Exercised
Outstanding at 31 December
Exercisable at 31 December
2021–2022
2019 Option Plan
Valuation inputs for instruments granted during period
(weighted average)
Share price at grant date, EUR
Subscription price, EUR
Volatility, %(*)
Interest free rate, %
Expected dividends yield, %
Option fair value, EUR
2,000,000
2,000,000
742,000
202,875
-
796,333
-
-
1,876,916
2,000,000
458,374
152,458
2022
2021
2.05 - 3.44
4.00 - 4.43
2.06 - 4.04
3.99 - 4.47
63.92
0.50
0
79.54
(0.58)
0
1.14 - 2.19
2.10 - 2.63
(*) Expected volatility was determined by calculating the historical volatility of the Group`s share using monthly observations over corresponding maturity.
The share-based compensation expense for the Option
Plan 2022 was EUR 1,296 thousand (EUR 1,487 thousand
in 2021).
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ANNUAL REPORT 2022
18. PROVISIONS
€’000
At 1 January 2022
Restructuring provision
Utilization of provision
At 31 December 2022
The restructuring provision relates to severance payments
or other arrangements for employees leaving the Group
during 2022. As at 31 December 2022, approximately 60
per cent of the provision was reversed whereas remainder
of the provision was reversed in January 2023.
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
Lease liabilities
Account payables
Borrowings in form of Business Finland R&D loans
Borrowings in form of IPF Tranche A
Group
Parent
-
396
238
158
-
396
238
158
Group Parent
As at 31 December
2022
2021
270
6,853
7,123
200
2,229
3,380
-
252
6,884
7,136
316
7,265
3,401
9,557
2022
137
6,990
7,127
316
6,014
3,401
9,557
2021
264
6,634
6,898
200
2,951
3,380
-
6 531
-
-
Total financial liabilities measured at amortised cost
19,228
5,809
20,539
Financial liabilities measured at FVTPL (category 2)
Other liabilities
Total financial liabilities measured at FVTPL
853
853
-
-
853
853
(*) Prepayments are excluded as they are not considered to be financial instruments.
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 carrying amount of all the Business
Finland loans was EUR 3,401 thousand (2021 EUR 3,380
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 20. The interest
on Business Finland R&D loans amounted to EUR 210
thousand (2021 EUR 174 thousand).
Loan facilities and related warrant agreements with IPF
On 28 February 2022, Faron entered into agreement with
IPF Fund II SCA (IPF), which contained
• a Euro term loan facility (Tranche A) of up to 10
million euro,
• a Euro term loan facility (Tranche B) of up to 5
•
million euro,
the possibility of Faron to request up to an additional
15 million euro facility (Tranche C), subject to IPFs
approval process and certain conditions to be met,
• Faron to issue warrants to IPF as part of the loan
agreement, based on the amount drawn in the
above facilities.
The first tranche (Tranche A) of EUR 10 million was
drawn down upon signing the agreements. Faron pays a
cash interest on drawn amounts of the above facilities plus
a pay-in-kind interest (PIK) for drawn amounts in Tranche
A. In addition, Faron has paid a structuring fee of the
committed facility on the utilization date of the respective
facility. Tranche A has been measured at amortised cost
using the effective interest method. The carrying amount
of the Tranche A was EUR 9,557 thousand.
The interest on Tranche A facility amounted to EUR
1,225 thousand. The loan facility is subject to financial
covenants. The covenants measure the Group’s gearing
ratio and cash runway. Given that some of the inputs to
the valuation technique rely on unobservable market data,
loan fair values are classified in Level 3.
Liabilities designated at fair value through profit or loss
primarily represent warrants which entitle IPF to subscribe
for new ordinary shares in the Company. The subscription
price per share is the lower of EUR 1,85 or the subscription
in any subsequent share offering
price per share
undertaken by the Company. The warrants were issued as
part of the loan agreement for no consideration paid and
have been treated as a separate financial instrument. On
initial recognition of the agreement, the fair value of the
loan facility was reduced by the structuring fee and other
fees that are integral part of the loan and by the implicit
costs of the warrants. On subsequent reporting dates the
changes in fair value of warrants have been accounted
separately through profit and loss. The warrants are
classified as level 2 instruments and their fair value is
determined using techniques whose inputs are based on
observable market data.
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.
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FARON PHARMACEUTICALS OY
ANNUAL REPORT 2022
€’000
Cash and cash equivalents
Lease liabilities
IPF Tranche A
Business Finland R&D loans
Net debt
Group Parent
As at 31 December
2022
2021
2022
6,990
(316)
(9,557)
(3,401)
(6,284)
6,853
(199)
-
(3,380)
3,274
6,884
(316)
(9,557)
(3,401)
(6,390)
2021
6,634
(199)
-
(3,380)
3,055
€’000
Borrowings
Lease
liabilities
Other
liabilities
Total
Opening balance as at 1 Jan 2021
Financing cash flows
Other movements (*
Balance as at 31 Dec 2021
Financing cash flows
Fair value adjustments
New lease liability
Other movements (*
Balance as at 31 Dec 2022
*) Other changes include reversals, interest accruals and payments.
2,850
540
-43
3,347
10,119
-513
12,953
375
-191
16
200
-116
232
316
786
4,011
349
-662
3,698
10,003
853
232
-664
14,123
-635
151
853
-151
853
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 note 2.2).
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.
The Company has been able to fund its operations with
equity, grants, debt 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 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 debt
and 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 2022, the contractual maturity of
non-derivative liabilities excluding trade payables, other
payables and accruals was as follows:
€’000
2023
2024
2025
2026-
thereafter
Total
Borrowings
Lease liabilities
Total
1,892
169
2,061
4,300
169
4,469
4,419
-
4,419
7,975
18,586
-
338
7,975
18,924
As at 31 December 2021, the contractual maturity of non-
derivative liabilities and interests excluding trade payables,
other payables and accruals 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
-
27
-
122
200
1,077
1,868
4,163
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FARON PHARMACEUTICALS OY
ANNUAL REPORT 2022
(b) Market Risk
21. OTHER NON-CURRENT LIABILITIES
€’000
FV of warrants
Advance received
Total non-current liabilities
As at 31 December
2022
2021
853
-
853
-
151
151
During the 2020 and 2021 the Group received a grant of
EUR 1.375 thousand and EUR 750 thousand respectively
from the European Union. In 2022 the remainder of related
advances received was recognized as other income.
The fair value of warrants issued to IPF (see note 19) is
recognized in Other liabilities.
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 2022,
the Group had cash and cash equivalents of EUR 6,862
thousand, USD 109 thousand, CHF 27 thousand and GBP
7 thousand (2021: EUR 5,291 thousand, GBP 3 thousand,
CHF 83 thousand and USD 1,672 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 EUR.
ii. Interest Rate Risk
The Group’s interest rate risk arises from IPF Tranche
A loan and Business Finland R&D loans. IPF Tranche A
interest consist of Cash interest (Margin and 3 months
EURIBOR) and Payment In Kind interest accrued over the
repayment period.
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 material
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.
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
Total
Group Parent
As at 31 December
2022
5,142
621
-
1,841
195
667
2021
2,229
1,197
1,405
558
896
280
2022
6,385
621
-
1,490
195
551
2021
2,951
1,197
1,405
558
749
195
8,467
6,565
9,243
7,055
23. CONTINGENCIES AND COMMITMENTS
24. RELATED PARTY TRANSACTIONS
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
2022
2021
70
1
-
18
27
-
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 Bex to pay additional milestone
payments. The remaining milestone becomes payable
upon the Group receives a certain amount of Net Sales
for Bex.
Parent and subsidiary relations of Faron Pharmaceuticals
Group on 31 December 2022:
Country
Group
holding
%
Group
voting
%
Companies owned by
the parent company
Faron Europe GmbH Switzerland
Faron USA LLC
USA
100
100
100
100
At the end of period, the Company has EUR 469 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 1,264 thousand.
During the period the profit and loss relevant bookings
are EUR 23 thousand for the interest of the intercompany
loans, Management fee charges to subsidiaries of EUR
42 thousand and the invoices for admin services by the
subsidiaries of EUR 2,835 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
The Company has not had interests in other entities as
at, and for the years ended, December 31, 2022 and 2021.
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ANNUAL REPORT 2022
Key Management Personnel
Management and Board Shareholding
The Company’s key management personnel consist of the
following:
Management(*) shareholding, 31 December 2022
BOARD SIGNATURES
Turku, 2 March 2023
• Members of the Board of Directors
• Management team, including CEO
€’000
Year ended 31 December
2022
2021
Compensation of key
management personnel(*)
Salaries and other short-term
employee benefits
Post-employment benefits
Share-based payments
Total
2,374
2,038
260
801
238
604
3,435
2,880
(*) Presented information for the Management includes the executive
directors of the Board
The Management team was awarded 230,000 share
options during 2022 (2021: 280,333 share options). At
the end of the 2022, the number of outstanding options
and share granted to the Management team amounted
to 1,003,936 share options (at the end of 2021: 1,044,471
share options).
Non-executive Directors were awarded 120,000 share
options during 2022, (2021: 210,000 share options). At the
end of 2022, the number of outstanding options and share
options granted to the non-executive directors amounted
to 770,000 share options (at the end of 2021: 790,000
share options).
Number of shares (pcs)
Shareholding, percentage
Board(**) shareholding, 31 December 2022
(excluding the shareholding of CEO)
Number of shares (pcs)
Shareholding, percentage
Total number of shares
outstanding at
31 December 2022 (pcs)
4,485,538
7.5%
141,040
0.24 %
59,805,383
(*) Presented information for the Management includes the executive
directors of the Board
(**) Presented information for the Board includes only non-executive
directors.
Transactions with Related Parties
There are no additional related party transactions during
2021 and 2022 than already disclosed.
25. SUBSEQUENT EVENTS
Subsequent to the reporting date, on January 27, 2023, the
Company successfully raised a total of EUR 12.0 million
gross through issuance of 3,692,308 ordinary shares
to itself without consideration which were conveyed to
investors. With these proceeds and the current level of
activities the Company has sufficient working capital into
Q3 2023.
Result and Dividends
The Company’s comprehensive loss for the period was 28
924 250,82 Euro (2021: 21 270 235,71 Euro). The Board of
Directors proposes to the Annual General Meeting 2023
not to pay dividend.
Frank Armstrong
Chairman
Markku Jalkanen
CEO
Gregory Brown
Erik Ostrowski
John Poulos
Leopoldo Zambeletti
Anne Whitaker
THE AUDITOR’S NOTE
A report on the audit performed has been issued today
Helsinki, 3 March 2023
PricewaterhouseCoopers Oy
Authorised Public Accountants
Panu Vänskä
Authorised Public Accountant (KHT)
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1 (3)
2 (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 2022. 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
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.
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FARON PHARMACEUTICALS OY
ANNUAL REPORT 2022
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2022
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 2022, 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 3 March 2023
PricewaterhouseCoopers Oy
Authorised Public Accountants
Panu Vänskä
Authorised Public Accountant (KHT)
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Faron Pharmaceuticals Ltd
Joukahaisenkatu 6, 20520 Turku Finland
Phone: +358 2 469 5151
Fax: +358 2 469 5152
Email: info@faron.com