Leading the way in
breakthrough
immunotherapies
Annual Report 2023
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
Faron Pharmaceuticals in brief
Faron (AIM: FARN, First North: FARON) is a global, clinical-
stage biopharmaceutical company, focused on tackling
cancers via novel immunotherapies. Its mission is to bring
the promise of immunotherapy to a broader population
by uncovering novel ways to control and harness the
power of the immune system. The Company’s lead asset
is bexmarilimab, a novel anti-Clever-1 humanized antibody,
with the potential to remove immunosuppression of
cancers through reprogramming myeloid cell function.
Bexmarilimab is being investigated in Phase I/II clinical
trials (MATINS and BEXMAB) as a potential therapy
for patients with hematological and solid cancers
in stand alone and combination with other standard
treatments. 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 an office in Boston, MA in the United
States.
“I am pleased to report that we have made strong
progress in 2023 closing MATINS and advancing
our BEXMAB study of bexmarilimab, our wholly
owned immunotherapy asset. Throughout the
course of the year, we have reported highly
encouraging data for bexmarilimab, showing
a strong overall response rate in both
higher-risk frontline MDS patients as well as
HMA-failed MDS patients. None of this work
would be possible without the ongoing support
from our shareholders and our colleagues,
to whom I express my sincere thanks.”
Dr. Markku Jalkanen
Chief Executive Officer
For further information on Faron’s progress, development programs and pipeline, please visit Faron´s website www.faron.com.
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FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
Contents
FARON PHARMACEUTICALS
Our Pipeline
Highlights 2023
STRATEGIC REPORT
Chairman’s Statement
Chief Executive Officer’s Review
Financial Review
Risks and Uncertainties
CORPORATE GOVERNANCE
Chairman’s Introduction to Governance
Compliance with the Principles of the QCA Code
Board of Directors
Remuneration Report
Corporate Governance Statement
Directors’ Report
FINANCIAL REPORT
Statement of Comprehensive Income
Balance Sheet
Parent Company Statement of Changes in Equity
Group Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
Results and Dividends
Auditor’s Report
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FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
Our Pipeline
Building the future of immunotherapy
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FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
Bexmarilimab – a CLEVER approach
to fight cancer
THE TARGET AND PROGRAMME
leads to
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
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. Certain blood
cancer cells carry significant amounts of cell surface
CLEVER-1, which may limit the body’s ability to mount an
immune response, and research has shown a clear survival
benefit among certain blood cancer patients with low
CLEVER-1 expression. As an immuno-oncology therapy,
bexmarilimab is designed to downregulate CLEVER-1
expression, thereby increasing antigen presentation and
allowing the immune system to better identify and kill
cancer cells. This could result in a deeper and more durable
clinical benefit compared to what most patients experience
with currently approved treatments.
CLINICAL DEVELOPMENT
Bexmarilimab is currently being studied in combination
with standard of care in patients with hypomethylating
agents (HMAs)-refractory or -relapsed myelodysplastic
syndrome (MDS), an aggressive myeloid leukemia with
very few treatment options. Phase 2 of the BEXMAB
study is underway following positive results from Phase
1 which showed a significant overall response rate in both
higher-risk frontline, as well as hypomethylating agent
(HMA)-failed, MDS patients. The ongoing, randomized
parallel-assigned Phase 2 part of the study is enrolling
HMA-failed MDS patients at dose levels selected in
accordance with the FDA’s Project Optimus initiative,
which aims to reform the paradigm of dose optimization
and selection in oncology drug development. Patients are
being randomized 1:1 between the doses before moving
into a Phase 2/3 study expansion.
Beyond BEXMAB, planning continues for the Phase
2 BEXCOMBO study, which will evaluate bexmarilimab
with PD-1 blockade in head and neck, bladder and
non-small cell
is also
low risk
immunotherapy’s potential
exploring the
MDS as well as chronic myelomonocytic leukaemia
(CMML) patients, who are currently treated with HMA-
based therapies treatment upon worsening of disease.
lung cancers. The Company
in
BEXMARILIMAB MANUFACTURING
At the end of 2023 Faron, with its partner AGC Biologics,
produced the first industrial scale 2000L batch of the
active pharmaceutical ingredient (API) of bexmarilimab.
During 2024 it will be further manufactured into final drug
product to undergo stability and quality testing in order to
be ready to be used in a confirmatory registrational trial in
2025 leading to marketing approval. Final clinical testing
needs to be done using the product that is produced using
a tightly regulated commercial manufacturing process.
This project has received funding from
the European Union’s Horizon 2020
research and innovation programme
under grant agreement No 960914.
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FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
Traumakine® – enhancing the endothelial
barrier, organ protection in ischemia
and inflammation
THE TARGET AND PROGRAMME
CLINICAL DEVELOPMENT
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
ischemia and 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, IFN
beta-1a upregulates 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. 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.
TThe Company’s INFORAAA study shows 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% due to multi-organ failure.
Data from the preclinical Salvage, Preservation, and
Advanced Resuscitation through Endothelial Stabilization
(SPARES) study, coordinated
in conjunction with
from Wake Forest Health, Duquesne
investigators
University, the 59th Medical Wing of the US Air Force
and with funding from the US Department of Defense,
further highlights the promise of IV 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.
A collaboration with the Fred Hutchinson Cancer Research
Center in Seattle, Washington, is ongoing to further
investigate the use of IV IFN beta-1a for the prevention of
organ damage from cytokine release syndrome (CRS) and
other CAR-T therapy side effects, such as neurotoxicity
(ICANs).
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FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
Haematokine® – haematopoietic stem
cell expansion
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 and
bone marrow. However, transplant failure, a result of
poor expansion rates from the transplanted cells, is a
complication that occurs in over 25% of patients and can
be lethal. The AOC3 enzymatic domain, a semi carbazide
sensitive amine oxidase, is known to produce hydrogen
peroxide (H2O2), a potent inflammatory mediator. 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 benefit all indications
where an expansion of haemopoietic stem cells is needed.
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FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
Highlights
Operational (including post period):
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) - BEXMAB
• The Phase 2 part of the BEXMAB study commenced
based on guidance from the U.S. Food and Drug
Administration (FDA),
investigating bexmarilimab
in combination with SoC in patients with HMA-
refractory or -relapsed MDS. The first patient was
dosed in January 2024.
• Data from the completed Phase 1 part of the
BEXMAB study demonstrated significant ORR in
both previously HMA-failed (5 out of 5) and higher-
risk MDS patient (5 out of 5) populations. The vast
majority of responses were durable with 7/10 MDS
patients achieving CR/mCR and two demonstrating
PR, one of whom moved on to receive a stem
cell transplantation and the other, hematological
improvement without remission (HI-P).
• Further analysis of the patient profiles of those
treated in the the completed Phase 1 part of the
BEXMAB trial showed that patients had experienced
disease progression following previous treatment
with azacitidine monotherapy or combinations of
included azacitidine
up to four therapies that
or decitabine + magrolimab, venetoclax and
sabatolimab. 3 of the 5 patients were refractory to
previous HMA-therapy, with progressive disease (PD)
or stable disease (SD) being the best responses
achieved from that therapy. 2 had relapsed after
treatment with azacitidine or an azacitidine+
venetoclax combination.
• The FDA granted ODD for bexmarilimab for the
treatment of AML.
• BEXMAB phase 1/2 clinical data presented at key
scientific conferences including American Socitety
of Hematology (ASH) and the European Hematology
Association Congress 2023.
• Post period, In January 2024, Faron dosed the first
patients in the Phase 2 part of its BEXMAB Study,
to evaluate the safety and efficacy of bexmarilimab
in combination with standard of care (SoC), in
(HMAs)-refractory or
hypomethylating agents
relapsed myelodysplastic syndromes (MDS) patients.
• Post period, in March 2024, the Company has
announced that it plans to provide BEXMAB readout
to the markets in mid-March.
Single-agent safety and activity in advanced
solid tumors - MATINS
• The first in human MATINS study was completed and
the full safety and anti-tumor efficacy results from the
first-in-human Phase 1/2 MATINS trial of bexmarilimab
in patients with treatment-refractory late-stage solid
tumors was published in Cell Reports Medicine.
• The Company presented two posters at the American
Association for Cancer Research Annual Meeting 2023
on its Phase I/II MATINS study of bexmarilimab in
solid tumors and published a manuscript via medRxiv.
• The findings from MATINS, which have established
strong foundations for Faron’s ongoing development
program, showed activation of intratumoral immunity
and reprogramming tumor associated macrophages
resulting in increase in IFN-gamma signature and
changes in tumor microevironment, (TME) resulting
in disease control and prolonged survival in late-
stage cancer. Furthermore, targeting Clever-1 with
bexmarilimab is well-tolerated. A positive Phase I/
II meeting with the FDA supported the potential to
continue development of bexmarilimab in solid tumors.
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FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
CORPORATE HIGHLIGHTS
•
In 2023, the Company raised equity capital via three
private placements directed to institutional and other
investors to raise EUR 25.7 million, in October 2023
(EUR 7.1 million), in June 2023 (EUR 6.6 million), and
in January 2023 (EUR 12.0 million).
• James O’Brien, CPA, MBA, joined as Chief Financial
Officer. Mr. O’Brien is an accomplished biotech and
financial executive with extensive experience in the
US capital markets.
• Strengthening of the Board of Directors with the
appointments of Dr. Marie-Louise Fjällskog, Ms.
Christine Roth and Mr. Tuomo Pätsi, who joined the
Board as Non-Executive Directors of the Company.
Dr Marie-Louise Fjällskog was previously acting
Chief Medical Officer at Faron. In her new position
as a Board member she is continuesing to play an
integral role in the development of Faron’s wholly
owned
immunotherapy asset, bexmarilimab, by
providing her clinical and regulatory expertise to
support the Company’’s progress. Ms. Christine
Roth
is a pharmaceutical executive with over
three decades of experience in the industry, with
expertise across various therapy areas including
Oncology, Cardiovascular, Metabolic, and Infectious
Diseases. Mr Pätsi is an experienced biotech and
pharmaceutical executive who was until recently
Executive Vice President for Seagen Inc., a US-based,
cancer-focused biotechnology company.
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Combination potential with PD-1 blockade
- BEXCOMBO - and further expansion
• Preparations are ongoing for the initiation of the
Phase II BEXCOMBO trial evaluating bexmarilimab
with PD-1 blockade, aimed at improving the clinical
benefits from standard-of-care PD-1 blockade. The
first, proof-of-concept cohort under the investigation
will be in head and neck cancer, followed by bladder
and non-small cell lung cancers. Patient cohorts
will comprise between 15 and 40 subjects, with the
opportunity for subgroup enrichment.
• Given the positive results to date, the Company is
exploring bexmarilimab’s potential in low risk MDS as
well as chronic myelomonocytic leukaemia (CMML)
patients, and considering further development
and expansion opportunities with bexmarilimab in
hematological cancers in the form of partnerships.
TRAUMAKINE®
investigational
intravenous (IV) interferon beta-1a therapy, in
development for hyperinflammatory conditions.
Faron’s
–
• Traumakine
is being developed
in collaboration
with the Fred Hutchinson Cancer Research Center
in Seattle, Washington, for the development of
neurotoxicity related to cytokine release syndrome
associated with CAR-T therapy.
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.
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
• Mr. Leopoldo Zambeletti, who joined Faron’s Board
as a Non-Executive Director in September 2015,
stepped down from the board, to take on a business
development consulting role within Faron. He is a
highly respected figure within the life sciences and
investment banking industries and, since 2013, has
been an independent strategic advisor to life science
companies on mergers and acquisitions, out-
licensing deals, and financing strategy.
• Dr. Birge Berns, MD, joined Faron as the Company’s
interim Chief Medical Officer. Dr. Berns is a seasoned
senior pharmaceuticals executive with a background
in oncology, clinical medicine, rheumatology and
immunology. She brings more than 25 years’
experience from senior leadership roles in global
pharmaceutical companies, including Sanofi Aventis
and Johnson & Johnson.
• Dr. Gregory B. Brown and Anne Whitaker stepped down
from their positions as a Non-Executive Directors.
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FINANCIAL
• On December 31, 2023, Faron held cash balances of
EUR 6,9 million (2022: EUR 7,0 million).
• Loss for the period for the financial year ended
December 31, 2023, was EUR 30,9 million (2022: EUR
28,7 million).
• Net assets on December 31, 2023, were EUR -15,2
•
•
•
million (2022: EUR -11,5 million).
In January 2023 the Company successfully raised a
total of EUR 12,0 million gross through the issuance
of 3,692,308 ordinary shares to investors.
In June 2023, Faron conducted a placement of
2,601,510 newly issued treasury shares to investors
to raise EUR 6,6 million.
In October 2023, the Company successfully raised
EUR 7,1 million gross through the issuance of
2,491,998 ordinary shares to investors.
• The primary reason for conducting the placings were
to accelerate and expand the clinical development of
the Company’s main drug candidate, bexmarilimab,
scale
advance
production, support general corporate purposes
and other pipeline development, and to strengthen
the Company’s balance sheet.
bexmarilimab’s
commercial
• Post period,
in February 2024, the Company
announced that it is in breach of several undertakings
agreed in the Facilities Agreement with IPF and
subsequent waiver letters provided by IPF and is
therefore in several events of default.
• Post period,
the Company
in March 2024,
successfully raised a total of EUR 3,2 million in
convertible loans allowing the Company to secure
short-term financing. The company continues active
endeavors to secure longer term funding.
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
CONSOLIDATED KEY FIGURES, IFRS
€’000
Unaudited
7–12/2023
months
Unaudited
7–12/2022
months
1–12/2023
12 months
1–12/2022
12 months
Other operating income
0
318
0
803
Research and Development expenses
(11,024)
(10,683)
(19,542)
(20,730)
General and Administrative expenses
(4,732)
(3,697)
(9,026)
(7,498)
Loss for the period
Loss per share EUR
(15,756)
(14,062)
(28,568)
(28,730)
(0.26)
(0.27)
(0.48)
(0.52)
Number of shares at end of period
68,786,699
59,805,383
68,786,699
59,805,383
Average number of shares
67,137,790
57,230,625
65,055,036
55,229,835
€’000
Cash and cash equivalents
Equity
Balance sheet total
Unaudited
30 Jun 2023
Unaudited
30 Jun 2022
31 Dec 2023
31 Dec 2022
6,315
(9,483)
12,836
9,936
(5,194)
16,729
6,875
6,990
(15,160)
(11,476)
10,220
11,271
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FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
Chairman’s
Statement
During 2023 has been another solid year of clinical tiral
progress for Faron. We continue to see bexmarilimab,
our novel, wholly owned investigational immunotherapy
candidate as the major value driver for Faron, and so
our focus has been, and remains, to continue to advance
bexmarilimab through clinical development.
We were pleased to conclude the MATINS trial,
which provided a huge amount of information around
the safety of bexmarilimab in a monotherapy setting
and we were honoured to present and publish the
data at several conferences and in important scientific
Journals. As we have said for a long time, we believe
the future of cancer therapy for later-stage treatment
is in the combination setting and we strongly believe,
reinforced by the remarkable clinical data from the last
year, that bexmarilimab will be part of the backbone of a
combination setting.
Our most advanced program, and our main focus
at Faron, is our Phase 1/2 BEXMAB trial investigating
the safety, tolerability and preliminary efficacy of
bexmarilimab in combination with standard of care
therapies. Over the course of the year, we have seen
very encouraging data from the BEXMAB trial with
bexmarilimab continuing to show real clinical benefit
in specific patient populations. We have consistently
provided updates to the market and presented the data
at several prestigious scientific conferences where we
have had very positive feedback from key opinion leaders
as well as from the clinicians in our trials. This has given
us continued confidence in the potential of bexmarilimab
to provide better patient outcomes and improve the
quality of life in patients suffering from these aggressive
conditions. We will continue to explore the best options
in the combination
to commercialize bexmarilimab
setting and, as we move to next year, we are looking to
have substantial interactions with the US FDA about the
best path to market in our chosen indications.
We are very fortunate at Faron to have long-term
supportive
incredibly
investors and so, despite the
challenging funding environment seen this past year
in both Europe and the US, we were pleased to raise
additional capital throughout the period totalling EUR 25.7
million. Amongst other things, these funds have allowed
us to accelerate our bexmarilimab program, bringing
this much needed potential treatment one step closer to
patients. We will look to strengthen our shareholder base
as we move into 2024.
We had several Board and management changes over
the course of the year. Dr. Gregory B. Brown and Anne
Whitaker both stepped down from their positions as a
Non-Executive Directors of the Company and Faron Board
Member Mr. Leopoldo Zambeletti also stepped down to
assume a transactional advisor role within the Company
on business development opportunities. We were pleased,
however, to welcome Mr. Tuomo Pätsi and Ms. Christine
Roth as Non-Executive Directors of the Company. Ms
Roth has played key roles in the development and launch
of several therapies, including the first immune-oncology
therapy and
intentionally designed targeted therapy
combinations.
Dr. Marie-Louise Fjällskog, moved from Chief Medical
Officer to assume a Board position and we are very
grateful that when she decided to retire, she had the
confidence to continue with the company in this role. We
also appointed a new Chief Financial Officer, Mr. James
O’Brien, a very experienced US based CFO who has
already made a big impact, and Dr. Birge Berns, MD as
Interim Chief Medical Officer.
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FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
I would like to take this opportunity to thank our
outgoing Board members for their service and guidance
to Faron during their tenure and to Mr. Toni Hänninen, our
previous CFO, for his service to Faron over the years.
As always, I would like to thank the whole management
team, led by Dr. Markku Jalkanen, Chief Executive Officer,
for their continued dedication and guidance, my colleagues
on the Board for their commitment to the Company
and our partner organisations and steering committee
members for their support and expertise. I would also like
to extend thanks to all the employees at Faron for their
hard work and dedication. Most importantly, I would like
to thank all the patients on our clinical trials, their families,
and our trial investigators without whom we would not be
where we are today. 2024 is set to be a pivotal for Faron
when BEXMAB will deliver key data giving us a clearer
direction towards commercialization. I look forward to
providing further updates as we continue to progress our
innovative pipeline.
Dr Frank Armstrong
Chairman
March 13, 2024
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FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
Chief
Executive
Officer’s
Review
2023 was a year of significant progress for Faron with
in our ambitious bexmarilimab
momentum building
development program and a continued
laser focus
on proving the potential of this novel myeloid cell re-
programming
immunotherapy to treat patients with
aggressive hematological malignancies.
Initial promising results emerged early in 2023 from
the first part of our Phase 1/2 BEXMAB study, investigating
bexmarilimab in combination with standard of care
(azacitidine and venetoclax) in relapsed/refractory acute
myeloid leukemia (AML) and myelodysplastic syndromes
(MDS) patients who had failed hypomethylating agents
(HMAs). These early, positive responses in a very difficult
to treat refractory setting were extremely exciting, given
patients in the trial had failed standard of care and were
left with few treatment options.
Through 2023 the trial delivered highly encouraging
results which continued to improve over time. And by the
time the first part of the trial completed, the data were no
less compelling. The bexmarilimab combination therapy
had shown a strong overall response rate (ORR) in both
higher-risk frontline MDS patients (5/5 patients) as well
as HMA-failed MDS patients (5/5 patients). Observed
responses were primarily deep and durable with 7/10
MDS patients achieving complete remission/ marrow
complete remission (CR/mCR), and two demonstrating
partial remission (PR), one of whom moved on to receive
a stem cell transplantation and the other, hematological
improvement without remission (HI-P).
The combination continued to be well-tolerated and
generated strong and durable leukemic blast eradication
and immune responses. These were tremendous data,
supporting bexmarilimab’s unique mechanism of action
in the field of myeloid cell re-programming. And provided
compelling evidence for us to continue development, at pace.
We rapidly initiated the second phase of the BEXMAB
study in November, selecting HMA-refractory or -relapsed
MDS as the initial indication, based on guidance from the
U.S. Food and Drug Administration (FDA). MDS presents
a considerable patient burden given the limited efficacy
of the current standard of care, resulting in relatively low
response rates and poor overall survival. Our data from
the first part of the study underscored the potential of
combining bexmarilimab with existing treatments to
advance care for patients who so desperately need help.
Post period, in January 2024, the first patients were dosed
in the second phase of the study and the team secured
additional trial sites to speed up its recruitment.
14
This is an incredibly important stage in bexmarilimab’s
development as data from this phase of the trial will
enable us to discuss a potential registrational study plan
with the FDA.
We are thrilled with this progress and our absolute
priority is to pursue an accelerated path to approval for
bexmarilimab in its initial indication, where we know
the need is so great. We also understand the broader
opportunities for this immunotherapy. The FDA has granted
Orphan Drug Designation (ODD) to bexmarilimab for
the treatment of acute myeloid leukemia (AML), another
hematological cancer with too few treatment options.
And armed with the wealth of data generated so far in the
BEXMAB study, we are exploring bexmarilimab’s potential
in low risk MDS as well as chronic myelomonocytic
leukaemia (CMML) patients. These are development and
expansion opportunities that we will consider in the form
of partnerships as our research continues.
Communicating to the broader healthcare community
was an important aspect of our work in 2023 and I am
delighted that the team was able to share and discuss
the strong data emerging from the BEXMAB program
at many of the leading scientific conferences, including
the American Association for Cancer Research Annual
Meeting,
the European Hematology Association
(EHA) 2023 Congress and the 65th American Society
of Hematology (ASH) Annual Meeting. It was also a
significant moment in December of 2023 when the leading
scientific journal, Cell Reports Medicine, published the full
safety and anti-tumor efficacy results from the Company’s
first-in-human Phase 1/2 MATINS trial of bexmarilimab
monotherapy in solid tumors. That trial achieved disease
control and prolonged survival in a proportion of patients
with very late-stage cancers who had exhausted all
standard treatment options. It formed the bedrock of our
understanding of the potential of bexmarilimab.
Alongside bexmarilimab’s significant advancements
we have continued
the Company’s
to strengthen
foundations. The appointment of James O’Brien, CPA,
MBA, as Chief Financial Officer, supports our journey to
becoming a global pharmaceutical company, given his
extensive experience in the US capital markets and strong
track record as an accomplished biotech and financial
executive. When Dr. Marie-Louise Fjällskog stepped down
as Faron’s Chief Medical Officer, we were delighted that
she agreed to continue playing an integral role in the
development of bexmarilimab, by providing clinical and
regulatory expertise through her Non-Executive Director
role on our Board. Dr. Birge Berns, who we appointed
interim Chief Medical Officer,
is a seasoned senior
pharmaceuticals executive with a background in oncology,
clinical medicine, rheumatology and immunology. She
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
brings a wealth of global pharmaceutical experience that
is critical to this business.
I am excited for the Company’s future in 2024. The
latest stage of the BEXMAB trial will provide important
data to support our continued discussions with the FDA
and, we hope, provide us with a clear pathway to bringing
bexmarilimab to patients. Our confidence grows in the
potential of this novel therapy to provide better patient
outcomes and improve the quality of life of those suffering
from aggressive hematological cancers. The excellent
BEXMAB data have
intensified numerous ongoing
partnering discussions and we are looking forward to
advancing these discussions over the coming year.
None of this work would be possible without the
ongoing support from our shareholders, to whom I
express my sincere thanks. And to my colleagues on
the management team, and the wider Faron community,
thank you for your continued commitment to making this
Company’s vision a reality and bringing the promise of
bexmarilimab to patients.
Dr Markku Jalkanen
Chief Executive Officer
March 13, 2024
15
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
Financial
Review
Despite continuing challenging market conditions in
2023, the Company was able to conduct three successful
fundraising rounds. Combined, these financings raised
EUR 25,7 million. As a result of these fundraising efforts,
the net cash from financing activities of EUR 23,9 million
compared to EUR 23,5 million in 2022. Post period in
March 2024, the Company successfully raised a total
of EUR 3,2 million in subordinated convertible loan
arrangements with existing shareholders.Faron places
a strategic emphasis on capital efficiency, a key element
of extending our cash runway, without compromising
the ability to advance our clinical development program.
This capital efficiency has allowed us to achieve more
with available resources, while focusing on clinical
outcomes. During 2023, nearly 70% of cash expenses
were spent directly in support of our bexmarilimab
clinical development program including manufacturing.
General and administrative expenses were flat in 2023
when compared to 2022 excluding one-time items and
financing costs.
RESEARCH AND DEVELOPMENT COSTS
R&D costs were EUR 19,5 million in 2023 compared to
20,7 million in 2022, a decrease of EUR 1,2 million. These
costs are attributable to advancing our clinical programs
including completion of BEXMAB Phase I and the
initiation of Phase II. Clinical trial costs include the cost
of patient and site enrollment, CRO service costs
including monitoring,
and
for personnel directly
compensation and benefits
responsible for R&D activities, and product supply costs.
The costs of outsourced clinical trial services were
EUR 4,0 million in 2023 compared to EUR 5,1 million in
investigator
fees,
2022. Compensation and benefits were EUR 3,2 million
in 2023 and EUR 5,2 million in 2022 and included stock
compensation expense of EUR 0,7 million and EUR 0,3
million in 2023 and 2022, respectively.
GENERAL AND ADMINISTRATION COSTS
G&A expenses were EUR 9.0 million in 2023 compared to
EUR 7,5 million in 2022, an increase of EUR 1,5 million.
The increase was mainly due to the recognition of the
incremental fair value of amending the terms of 2015
option plan of EUR 1,2 million. Compensation and
benefits were EUR 5,7 million in 2023 and EUR 4,5 million
in 2022 and included stock compensation expense of
EUR 1,7 million and EUR 1.0 million in 2023 and 2022,
respectively.
TAXATION
The Company’s tax credit for the fiscal year 2023 can
be recorded only after the Finnish tax authorities have
approved the tax report and confirmed the amount of
tax-deductible expenses. The total amount of cumulative
tax losses carried forward approved by tax authorities
on December 31, 2023 was EUR 51,6 million (2022: EUR
47,1 million). The Company estimates that it can utilize
most of these during the years 2024 to 2034 by offsetting
them against potential future profits. In addition, the
Company has EUR 95,2 million of R&D costs incurred in
the financial years 2010 - 2023 that have not yet been
deducted from taxation. This amount can be deducted
over an indefinite period at the Company’s discretion.
16
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
LOSSES
Loss before income tax and total comprehensive income
in 2023 was EUR 30,9 million compared to EUR 28,7 million
in 2022, which represents a loss of EUR 0.48 per share
and EUR 0.52 per share in 2023 and 2022, respectively.
CASH FLOWS
Net cash flow in each of the year ended December 31, 2023
and 2022 was essentially flat. Cash used for operating
activities in 2023 was EUR 23,8 million compared to
2022 of EUR 23,0 million. Net cash inflow from financing
activities in 2023 was EUR 24,0 million compared to 2022
of EUR 23,5 million.
FUNDRAISING
In January 2023 the Company successfully raised a
total of EUR 12,0 million gross through the issuance
of 3,692,308 ordinary shares investors. In June 2023,
Faron conducted a placement of 2,601,510 newly
issued treasury shares to raise EUR 6,6 million gross. In
October 2023, the Company successfully raised EUR 7,1
million gross through the issuance of 2,491,998 ordinary
shares to investors. Post period, In March 2024, the
Company successfully raised a total of EUR 3,2 million in
subordinated convertible loan arrangements with certain
existing shareholders.
FINANCIAL POSITION
As of 31 December 2023, total cash and cash equivalents
held were EUR 6,9 million compared to 2022 of EUR 7,0
million.
GOING CONCERN
As part of their going concern review, the Directors
have followed
International Accounting Standard 1,
Presentation of Financial Statements (IAS 1). The
Company and its subsidiaries are subject to a number
of risks similar to those of other development state
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 fulfill the Group’s commercial and
development activities and generate a level of revenue
adequate to support the Group’s cost structure.
The Group generated a net loss of EUR 30,9 million and
recorded EUR 23,8 million cash outflow from operating
activities during the year ended 31 December 2023. At
the end of the financial year, it had total negative equity of
EUR 15,2 million including an accumulated deficit of EUR
172,2 million. As of that date, the group had cash and cash
equivalents of EUR 6,9 million.
The Directors have prepared detailed financial
forecasts and cash flows looking beyond 12 months from
the date of the approval of these financial statements.
In developing these forecasts, the Directors have made
assumptions based upon their view of the current and
future economic conditions that are expected to prevail
over the forecast period. The Director’s estimate that the
cash held by the Group, together with known receivables
will be sufficient to support the current level of activities
into the second quarter of 2024. The Group also maintains
include financial covenants
loan agreements which
related to minimum cash balance and thus
loan
amounts (EUR 9,4 million on December 31, 2023)
become due if the Group is not able to maintain
minimum cash balances or negotiate a waiver with the
lender. The directors are continuing to explore sources of
finance available to the Group and they believe that 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 December
31, 2023; they have therefore prepared the financial
statements on a going concern basis.
During the financial period ended 31, December
2023, the Group raised EUR 25,7 million
in three
successful fundraising rounds. Subsequently, in March
2023, the Group received EUR 3,2 million capital loan
to secure
immediate short-term financing needs
until the end of March 2024. The Capital Loan shall be
governed by the provisions of Chapter 12 of the Finnish
Companies Act (624/2006, as amended) (the “Finnish
Companies Act”) concerning capital loans (in Finnish:
pääomalaina).
The Loans shall be converted to new shares in the
Company as a part of (and at the subscription price
of) the next investment round where shares or other
equity securities are issued by the Company to existing
shareholders and/or new third- party investors, with a
minimum size of EUR 8,0 million (“Investment Round”).
17
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
In the event that the subscription price in such
Investment Round exceeds EUR 1.50 per share, an
Investor shall have the right to postpone the conversion
of the Loan until 10 June 2024 (“Due Date”). In the event
that there is no Investment Round by the Due Date (or
the subscription price of the Investment Round exceeds
EUR 1.50 per share and the respective Investor has
decided to postpone the conversion of the Loan) and the
Loan has not been otherwise repaid prior to the Due Date
(subject to a subordination agreement to be entered into
between the Investors, the Company and IPF), then the
Loan shall be at the request of the Investor converted
into new shares in the Company in connection with the
Due Date. In such case, the subscription price per share
shall be EUR 1.50 per share. However, if then the Investor
elects not to exercise its conversion right on the Due
Date, (such option being only available if there has not
been any Investment Round), the Due Date of the Loan
will automatically be extended until 31 December 2024
(“Final Due Date”). On such Final Due Date, the Loan shall
be either repaid in full in cash, subject to the terms of the
subordination agreement, or converted into new shares in
the Company with the subscription price of EUR 1.50 per
share, subject to a valid share issue authorization being
in place.
In case the Loan is converted before the Due Date,
each Investor is entitled to an arrangement fee of 15%
of its respective Loan amount. If conversion has not
taken place prior to the Due Date, the arrangement fee
will be 30% of the Investor’s respective Loan amount. No
interest shall be payable on the Loan if a conversion takes
place before 30 May 2024, and thereafter the interest
will be 12% + 3-months Euribor and paid subject to the
subordination agreement.
The Group is actively pursuing the following activities
during 2024:
• Securing approximately EUR 5,0 million of short-
term bridge financing to extend the Group’s cash
runway until longer-term financing can be obtained.
• Securing longer-term funding of approximately
EUR 35,0 million in total. The Directors’ intend to
propose to the Annual General Meeting on 5 April
2024 an authorization for a larger share issuance
contemplated to be launched as a public offering
(with planned allocation preferences to existing
shareholders and bridge finance lenders, including
the Investors to enable the conversion of the Capital
Loan and in compliance with the relevant securities
markets regulation) as soon as practicable once the
required preparations and approvals are in place.
The targeted size of the contemplated share issue is
planned to be set accordingly, to meet cash runway
needs for 2024.
• Evaluating and negotiating several business
development alternatives that may result in non-
dilutive funding.
• Evaluating new sources of financing from third
parties on acceptable terms. With respect to the
availability of additional funding from IPF, the
respective term allowing the Group to draw on
Tranche B and Tranche C has expired and the
availability of Funds from IPF would be subject to
further negotiations. The Group does not anticipate,
at this time, having the ability to draw on Tranche
B or Tranche C under favorable terms, in the near
future.
• See Notes 19 and 25 for discussion of post balance
sheet events including IPF loan covenant breach
and waiver on 3 March 2024.
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 a going concern. Should the Group be unable to obtain
further financing 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.
HEADCOUNT
Faron’s headcount at the end of year was 34 (2022: 40).
SHARES AND SHARE CAPITAL
During the period January 1 to December 31, 2023, the
Company, using the share authorities granted at the
Extraordinary General Meeting held on July 7, 2022, issued
a total of 3,692,308 new ordinary shares at an issuance
price of EUR 3.25 per share to investors. During the same
period, the Company, using the share authorities granted
at the Annual General Meeting held on March 24, 2023,
issued a total of 2,601,510 shares at an issuance price of
EUR 2.55 per share to investors. During the same period,
the Company, using the share authorities granted at the
18
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
Annual General Meeting held on March 24, 2023, issued
a total of 2,491,998 new ordinary shares at an issuance
price of EUR 2.85 to investors. 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 2023 the total number
of voting rights was 68,786,699.
James O’Brien
Chief Financial Officer
March 13, 2024
19
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
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, 2023 are below.
RESEARCH AND DEVELOPMENT
COMMERCIAL PRODUCTS AND MANUFACTURING
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 a 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 of 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.
The biotechnology and pharmaceutical industries in
which Faron operates are very competitive. 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. Competitors
include major multinational pharmaceutical companies,
biotechnology companies and research
institutions.
Many of these companies 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.
20
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
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 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. The Company’s financial situation may require
savings measures that result in reduction of staff.
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
21
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
necessary regulatory approvals to promote that product
in any of the targeted markets and any such regulatory
approval may include significant restrictions for which
the Company’s products can be used. In addition, the
Company may be required to incur significant costs in
obtaining or maintaining its regulatory approvals. Delays
or failure in obtaining regulatory approval for products
would likely have a serious adverse effect on the value
of the Company and have a consequent impact on its
financial performance.
INTELLECTUAL PROPERTY AND PROPRIETARY
TECHNOLOGY
The Company relies and will rely on intellectual property
laws and third-party non-disclosure agreements to protect
its patents and other proprietary rights. The Intellectual
Property Rights (IPRs) 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
party
intellectual property. The Company’s research
has included searching and reviewing certain publicly
available resources, which are examined by senior levels
of management to keep abreast of developments in the
field.
FINANCIAL
The Company has incurred significant losses since its
inception and does not have any approved or revenue
generating products. The Company expects to incur
losses for the foreseeable future, and there is no certainty
that the business will generate a profit. The Company
is highly dependent on equity, public grants and loan
financing. The Company may not be able to raise
additional funds that will be needed to support its product
development programmes or commercialisation efforts,
and any additional funds that are raised could cause
dilution to existing investors. The Company operates
internationally, and it is thus exposed in various currencies
and fluctuation in their relative values. Even though the
Company seeks to hedge currency positions there is no
guarantee that it will be successful. The Company has
a loan from IPF Fund II SCA, SICAV-FIAR in the principal
amount of EUR 9.38 million. The said loan contains many
financial covenants, and it is not certain that the company
can comply with the said financial covenants at all times
(see Note 25.). Certain covenants are in the control of the
Company (e.g. the Minimum Cash Covenant) whereas
certain are dependent on external events (e.g. Gearing
covenant which is calculated using the Company stock
price). Furthermore, the Company may not be able to
repay the loan, as agreed with the lender. The Company’s
IPR, business mortgages and bank accounts are pledged
to the lender, giving the lender operational control of the
Company in an Event of Default, if the Company is in
breach of its obligations towards the lender.
22
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
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.
As was seen with the COVID-19 pandemic, unexpected
external reasons may have significant inpact on the
market we are operating and indirectly affect or even
directly affect also 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 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 13 Match, 2024.
23
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
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.
24
Dr Frank Armstrong
Non-Executive Chairman
13 March 2024
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
Compliance
COMPLIANCE WITH THE PRINCIPLES OF THE QCA CODE
The Principles of the QCA Code
Comply/Explain
Disclosure in the 2023 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
25
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
Board of
Directors
On 23 March 2023, the Company held its Annual General
Meeting (AGM). At the AGM the number of Directors was
confirmed as seven. Frank Armstrong, Markku Jalkanen,
Leopoldo Zambeletti, John Poulos, Anne Whitaker and Erik
Ostrowski were re-elected to the Board and Tuomo Pätsi
was elected as a new member to the Board for a term
that ends at the end of the next AGM whereas longterm
member of the Board Gregory Brown stepped down from
his position. At the meeting of the Board held following
the AGM, Frank Armstrong was re-elected Chairman of
the Board. On 22 September 2023 the Company held an
Extraordinary General Meeting and decided to elect two
new members to the Board, Marie-Louise Fjällskog and
Christine Roth. They replaced two Board members who had
resigned form their positions: On 1 June 2023 Leopoldo
Zambeletti resigned from his position as he started as
a strategic advisor for the Company and Anne Whitaker
resigned on 22 September 2023 due to personal reason.
At the end of year 2023 the Board comprised of six
non-executive directors and one executive director. Brief
biographical details for the Directors can be found on the
following pages. During 2023, the Board held 21 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
26
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.
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
Dr Frank Armstrong
Non-Executive Chairman
b. 1957
Dr Markku Jalkanen
Chief Executive Officer
b. 1954
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 Newcells
Biotech, BioCaptiva and Bloomsbury Genetic Therapies, 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 340,000
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: 3,313,434 shares (directly
and with his spouse) and 540,000 stock options, entitling
to same amount of shares in the Company.
27
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
John Poulos
Non-Executive Director
b. 1954
Erik Ostrowski
Non-Executive Director
b. 1972
Mr. Poulos
is a Non-Executive Director of Faron
Pharmaceuticals Ltd., a role he has served since joining
the board in May 2017. He has extensive experience in
the global pharmaceutical industry having spent nearly 40
years at AbbVie and Abbott.
Mr. Poulos served as Vice President, Head of Business
Development and Acquisitions for AbbVie from 2013
until 2016. He was also Group Vice President, Head of
Pharmaceutical Licensing and Acquisitions for Abbott
from 2005 until 2012. During his career with AbbVie and
Abbott, Mr. Poulos was instrumental in the negotiation
of numerous acquisitions, including Knoll/BASF Pharma
(Humira) in 2001 for $6.9 billion, Kos Pharmaceuticals in
2006 for $3.7 billion, Solvay in 2010 for $6.2 billion and
Pharmacyclics (Imbruvica) in 2015 for $21 billion.
Mr. Poulos is currently President GNK Advisors Inc.,
a Pharmaceutical Business Development firm, and is a
member of the Board of Memgen, Inc. Mr. Poulos also
serves as a advisor at Nucleome Therapetics.
Mr. Poulos holds a B.S. in Marketing and M.B.A in
Finance from Indiana University.
Holdings in the Company: 10,000 shares and 160,000
stock options, entitling to same amount of shares in the
Company.
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
banking experience.
Mr. Ostrowski is currently the Interim Chief Excecutive
Officer and the Chief Financial Officer and Treasurer of
AVROBIO (Nasdaq: AVRO). 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. He 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 60,000
stock options, entitling to same amount of shares in the
Company.
28
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
Marie-Louise Fjällskog
Non-Ececutive Director
b. 1964
Tuomo Pätsi
Non-Executive Director
b. 1964
in
industry, particularly
Dr. Marie-Louise Fjällskog (b. 1964) is a Non-Executive
Director of Faron Pharmaceuticals Ltd., joining the Board
in September 2023. She is an experienced life sciences
leader who has held senior leadership positions at large
pharmaceutical, biotech and specialty pharma companies.
Dr. Marie-Louise Fjällskog is a professional with
extensive experience
the pharmaceutical and
in the field
biopharmaceutical
of clinical oncology, translational research, and drug
development. She holds an MD degree and a Ph.D. from
Uppsala University, Sweden, and is an Associate Professor
of Oncology at the same institution. With over 25 years
of clinical experience, Dr. Fjällskog has made significant
contributions to the development of targeted therapies for
cancer. She has held key roles in various pharmaceutical
companies, such as Sensei Biotherapeutics, Merus,
and Infinity Pharmaceuticals, where she led clinical
development programs and played instrumental roles
in their success, including Sensei’s $152 million IPO in
2021. Her extensive expertise and leadership have also
earned her a position on the board of Biovica International
AB, a prominent biotech company in Sweden and in the
US, respectively. She is also on the board of Norwegian
company Lytix Biopharma.
In January 2022, Dr. Fjällskog assumed the role of Chief
Medical Officer at Faron where she leads Faron’s clinical
development programs, particularly the bexmarilimab
program. Dr. Fjällskog stepped down from the CMO role
on September 21, 2023.
Holdings in the company: No shares and 180,000
stock options, entitling her to the same amount of shares
in the company.
Mr. Tuomo Pätsi (b. 1964) is a Non-Executive Director of
Faron Pharmaceuticals Ltd., a role he has served since
joining the Board in March 2023.
Mr. Tuomo Pätsi was the President of the EMEA region
and Worldwide Markets for Celgene Corporation, a global
pharmaceutical company and currently wholly owned
subsidiary of Bristol Myers Squibb, engaged primarily in
the discovery, development and commercialization of
therapies for the treatment of cancer. He is an experienced
biotech and pharmaceutical executive who was until
recently the Executive Vice President for Seagen Inc., a
US-based cancer-focused biotechnology company.
Mr. Pätsi has over 30 years’ experience working in
biotech and pharmaceuticals, with more than 10 years
working at Celgene in various senior management roles,
including as President of European and International
Operations and President of the EMEA region and
Worldwide Markets. Prior to this, he served as Vice President
of Europe for Human Genome Science, a specialty pharma
organization in Europe. Earlier in his career, he held roles
of increasing responsibility in pharmaceutical companies,
including more than ten years at Amgen Inc. Mr. Pätsi
began his career as a Biomedical Research Scientist in
Finland. He is a registered pharmacist and holds an MSc
in pharmacology from the School of Pharmacy, Helsinki
University.
Holdings in the company: 11,765 shares and 30,000
stock options, entitling him to the same amount of shares
in the company.
29
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
Christine Roth
Non-Executive Director
b. 1963
Ms. Christine Roth (b. 1963) is a Non-Executive Director
of Faron Pharmaceuticals Ltd., joining the Board in
September 2023. She is an experienced life sciences
leader who has held senior leadership positions at large
pharmaceutical companies.
Ms. Christine Roth is a pharmaceutical executive with
over three decades of experience in the industry. She
has played key roles in the development and launch of
several therapies, including the first immune-oncology
therapy and
intentionally designed targeted therapy
combinations. Her career includes leadership positions
at major pharmaceutical companies, such as Novartis,
Bristol-Myers Squibb, GlaxoSmithKline (GSK), and most
recently, Bayer AG, where she serves as the Executive
Vice President of the Oncology Strategic Business Unit
focussing on precision molecular oncology, next-generation
immuno-oncology medicines, and radioligand therapies. At
GSK, she was responsible for the rebuild of the oncology
business, including the integration of assets following the
acquisition of Tesaro. Ms. Roth’s expertise extends across
various therapy areas, including Oncology, Cardiovascular,
Metabolic, and Infectious Diseases. She is actively involved
in industry associations, such as the American Society of
Clinical Oncology and the American Society of Hematology.
She holds a Bachelor’s degree in Chemistry from the
University of North Carolina at Chapel Hill.
Holdings in the company: No shares and 30,000 stock
options, entitling her to the same amount of shares in the
company.
30
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
BOARD COMMITTEES
NOMINATION COMMITTEE
As of 22 September 2023 the nomination committee
comprises Frank Armstrong as Chair together with Erik
Ostrowski and Tuomo Pätsi. 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 2023, 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.
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
formal
independent decision-making
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 first elected
at the Board meeting held following the AGM on 24 March
2023.
During 2023 the Board made the decision to establish
a new Business Development Committee. The Committee
did not convene during 2023. John Poulos acts as a Chair
for this new committee.
REMUNERATION COMMITTEE
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. Starting 24 March 2023, the remuneration
committee comprised of Anne Whitaker as Chair together
with Frank Armstrong, John Poulos and Leopoldo
Zambeletti. As of 22 September 2023 the Remuneration
Committee comprises of John Poulos as Chair together
with Christine Roth and Frank Armstrong. During 2023,
the remuneration committee held three meetings.
AUDIT COMMITTEE
In the beginnign of year 2023 the Audit Committee
comprised Leopoldo Zambeletti, Greg Brown and Erik
Ostrowski. As of 22 September 2023 the Committee has
comprised Erik Ostrowski as Chair together and Frank
Armstrong, Marie-Louise Fjällskog (starting 22 September
2023) and Tuomo Pätsi (starting 8 June 23). The Audit
Committee 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
2023, the audit committee held two meetings.
31
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
Attendance at Board Meetings
During 2023 the Board held 21 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 2023
Board
Audit
Committee
Remuneration
Committee
Nomination
Committee
Executive Directors
Jalkanen Markku
Non-Executive Directors
Armstrong Frank
Ostrowski Erik
Brown Gregory*
Zambeletti Leopoldo***
Poulos John
Whitaker Anne****
Pätsi Tuomo**
Fjällskog Marie-Louise*****
Roth Christine*****
(*) Board member until March 2023
(**) Board member starting March 2023
(***) Board member until June 2023
(****) Board member until September 2023
(*****) Board member starting September 2023
21
16
19
4
7
20
11
15
5
6
1
2
1
1
1
3
2
3
3
3
1
2
32
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
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
2023 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. The most recent versions of the amendment
Option plans 2015 and 2019 were resolved by the general
meetings during 2023. 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.
33
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
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.
34
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
Current contracts are summarised below:
Non-Executive Directors
Independence
Contract
Date of Contract
Armstrong Frank
Ostrowski Erik
Poulos John
Pätsi Tuomo
Roth Christine
Fjällskog Marie-Louise
Independent
Independent
Independent
Independent
Independent
Independent
Chairman
Member
Member
Member
Member
Member
16.09.2015
22.04.2022
16.05.2017
27.03.2023
25.09.2023
25.09.2023
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
Brown Gregory*
Ostrowski Erik
Poulos John
Zambeletti Leopoldo**
Whitaker Anne***
Pätsi Tuomo****
Fjällskog Marie-Louise*****
Roth Christine*****
(*) Board member until March 2023
(**) Board member until May 2023
(***) Board member until September 2023
(****) Board member from March 2023
(*****) Board member starting September 2023
398,192
113,299
240
511,730
83,978
22,000
42,934
42,000
34,525
46,851
20,970
0
0
83,978
22,000
42,934
42,000
34,525
46,851
20,970
0
0
35
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
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, 23 April 2021 and 22 September 2023,
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 2025.
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. During 2023 the Option Plan 2019 was
amended at the Annual General Meeting on 24 March
2023. 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 amended rules of the Share
Option Plan 2019, an aggregate maximum number of
4,350,000 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
02.11.2015–30.09.2025
400,000
18.11.2016
08.10.2016–30.09.2025
500,000
16.11.2017
08.10.2017–30.09.2025
500,000
21.05.2019
08.10.2018–30.09.2025
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 options
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
2019 D options
779,000
08.06.2023
08.06.2024–08.06.2028
2019 D bis options
34,000
09.11.2023
09.11.2024–9.11.2028
3.57
(3.36€ under US plan)
3.53
(3.35€ under US plan)
36
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
Total options under 2015 and
2019 Option Plans
At 1
January
2023
Granted
during the
period
Exercised
during
the period:
At 31
December
2023
Average subs.
price per
shares, €
Jalkanen Markku
Armstrong Frank
Ostrowski Erik*
Brown Gregory**
Poulos John
Zambeletti Leopoldo**
Whitaker Anne**
Pätsi Tuomo
Fjällskog Marie-Louise
Roth Christine
480,000
60,000
280,000
60,000
30,000
30,000
160,000
30,000
130,000
30,000
140,000
30,000
60,000
30,000
0
30,000
140,000
40,000
0
30,000
0
0
0
0
0
0
0
0
0
0
540,,000
340,000
60,000
160,000
160,000
170,000
90,000
30,000
180,000
30,000
3.57
3.57
3.36
3.36
3.36
3.57
3.36
3.57
3.57
3.35
(*) Board member since April 2022 (**) Board membership ended during 2023
At 31 December 2023
Issued Share Capital
Share Options
Ordinary shares Percentage held
Options
Average exercise price, €
Executive
Jalkanen Markku(1)
Non-Executive Directors
Armstrong Frank
Ostrowski Erik
Poulos John
Pätsi Tuomo*
Fjällskog Marie-Louise**
Roth Christine**
(*) Board member since March 2023
(**) Board member since September 2023
3,313,434
4.82
540,000
71,062
2,009
10,000
11,765
0
0
0.10
0.01
0.01
0.01
0.00
0.00
340,000
60,000
160,000
30,000
180,000
30,000
4.35
3.90
2.87
4.21
3.57
3.64
3.35
(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
37
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
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
investor 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 2023 Report.
The Board has put in place internal controls and systems
which are designed to manage rather than eliminate
38
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
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
39
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.
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
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.
40
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
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
13 March 2024
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.
41
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
Directors’
Report
The Directors present their report together with the audited financial statements
for the year ended 31 December 2023.
DIRECTORS
During the year ended 31 December 2023 the following
persons have been members of the Board of the Company:
The Company has no distributable equity and thus the
Directors do not recommend the payment of a dividend
(2022: nil).
Executive
Dr Markku Jalkanen, PhD | Chief Executive Officer
FINANCIAL INFORMATION
Non-executive
Dr Frank Armstrong, FRCPE, FFPM | Chairman
Mr John Poulos | Non-Executive Director
Dr Gregory B Brown | Non-Executive Director
Mr Leopoldo Zambeletti | Non-Executive Director
Ms Anne Whitaker | Non-Executive Director
Mr Erik Ostrowski | Non-Executive Director
Mr. Tuomo Pätsi | Non-Executive Director*
Dr. Marie-LouiseFjällskog | Non-Executive Director**
Mrs. Christine Roth | Non-Executive Director**
(*) Appointed to the Board on March 2023
(**) Appointed to the Board on September 2023
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 pages 16-19
Financial Review.
PRINCIPAL RISKS AND UNCERTAINTIES
RESEARCH AND DEVELOPMENT
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 here.
The Group’s loss of the financial year after taxation
and other comprehensive losses was €30.9 million (2022:
€28.7 million).
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
42
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
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
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. 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 2023, the Company had been notified of
the following holdings of 3% or more of the issued share
capital of the Company.
GENERAL MEETINGS
The Company held the Annual General Meeting on 24
March 2023 and the Extra Ordinary General meeting on 22
September 2023. In 2024, the Annual General Meeting will
be held on 5 april 2024. 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
Timo Syrjälä*
13,410,336
19.50 %
On behalf of the Board
Frank Armstrong
Chairman
13 March 2024
A&B (HK) Company Limited
3,408,409
4.96 %
Markku Jalkanen**
3,313,434
4.82 %
Tom-Erik Lind
3,231,797
4.70%
Varma Mutual Pension Fund
2,837,581
4.13 %
Marko Salmi
2,685,079
3.90%
Fjärde AP Fonden
2,576,184
3.75 %
The European Investment
Council Fund, EIC
2,080,437
3.02%
(*) of which 4,604,971 are held directly by Timo Syrjälä and 8,805,365
are held by Acme Investments SPF S.à.r.l., an entity which is wholly
owned by Timo Syrjälä / (**) of which 2,175,266 are held by Markku
Jalkanen directly and 1,138,168 are held by Markku Jalkanen’s wife
Sirpa Jalkanen
The information presented in the above table is consistent
with the Company’s best knowledge as at 31 December
2023.
43
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
Financial
Statements
2023
Statement of Comprehensive Income
For the year ended 31 December
Group Parent
€’000 (except per share information)
Note
2023
2022
2023
2022
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
3
4
5, 6, 7
5, 6, 7
8
8
9
-
-
(19,542)
(9,026)
(28,568)
233
(2 609)
(30,944)
-
-
803
(20,730)
(7,498)
(27,426)
96
(1,400)
(28,730)
-
-
65
(19,019)
(9,792)
(28,746)
317
(2,664)
-
868
(19,958)
(8,495)
(27,585)
36
(1,376)
(31,094)
(28,924)
-
-
(30,944)
(28,730)
(31,094)
(28,924)
Other comprehensive income (loss)
2
17
-
-
Total comprehensive loss for the period
(30,942)
(28,713)
(31,094)
(28,924)
Loss per ordinary share
Basic and diluted loss per share, EUR
10
(0.48)
(0.52)
(0.48)
(0.52)
44
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
Balance Sheet
As at December 31
Group Parent
€’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
Note
2023
2022
2023
2022
11
13
24
11
12
14
15
6
198
-
1,088
60
1,352
1,992
6,875
8,868
13
314
-
1,154
60
1,541
2,740
6,990
9,730
6
198
18
1,088
544
1,854
2,317
6,842
9,159
13
314
18
1,154
522
2,021
2,845
6,884
9,729
10,220
11,271
11,013
11,750
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
Accruals and other current liabilities
Total current liabilities
2,691
154,352
2,691
2,691
2,691
129,544
154,346
129,539
(172,208)
(143,713)
(172,649)
(144,008)
4
2
0
-
16, 17
(15,160)
(11,476)
(15,611)
(11,778)
18
19
13
21
19
13
22
22
0
0
9,423
50
895
158
158
11,102
163
853
0
0
158
158
9,428
50
895
11,106
163
853
10,369
12,118
10,373
12,122
3,475
163
8,971
2,403
1,851
153
6,014
2,453
15,012
10,471
3 475
163
10,585
2,028
16,251
1,851
153
7,265
1,978
11,247
Total liabilities
25,380
22,748
26,624
23,528
Total equity and liabilities
10,220
11,271
11,013
11,750
45
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
Parent Company Statement of
Changes in Equity
€’000
Note
Share
capital
Reserve for Accumulated
deficit
invested
unrestricted
equity
Total
equity
Balance as at 31 December 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)
Comprehensive loss for the period
Transactions with equity holders of the Company
Issue of ordinary shares, net of transaction costs
Share-based compensation
Other movements
16
6, 17
-
-
-
-
-
-
(31,094)
(31,094)
24,808
-
-
-
2,450
2
24,808
2,450
2
24,808
(28,641)
(3,833)
Balance as at 31 December 2023
2,691
154,346
(172,649)
(15,611)
46
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
Group Statement of
Changes in Equity
€’000
Note
Share
capital
Reserve for
invested
unrestricted
equity
Translation
difference
Accumulated
deficit
Total
equity
Balance as at 31 December 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
1,297
(16)
1,297
(16)
13,037
17
(27,448)
(14,395)
Balance as at 31 December 2022
2,691
129,544
Comprehensive loss for the period
Transactions with equity holders of the Group
Issue of ordinary shares, net of
transaction costs
Share-based compensation
16
6, 17
-
-
-
-
-
24,808
-
24,808
Balance as at 31 December 2023
2,691
154,352
2
2
-
-
2
4
(143,713)
(11,476)
(30,944)
(30,942)
-
24,808
2,450
2,450
(28,494)
(3,684)
(172,208)
(15,160)
47
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
Statement of Cash Flows
As at 31 December
Group Parent
€’000
Note
2023
2022
2023
2022
Cash flow from operating activities
Loss before tax
Adjustments for:
Received grants
Depreciation and amortisation
Change in provision
Financial items
Share-based compensation
(30,944)
(28,730)
(31,094)
(28,924)
4
7
8
17
(33)
346
(158)
2,376
2,450
(803)
300
(158)
1,304
1,297
(33)
346
(158)
2,348
2,450
(868)
300
(158)
1,339
1,297
Operating cash flows before movements in working capital
(25,963)
(26,790)
(26,141)
(27,014)
Change in net working capital:
Prepayments and other receivables
Trade payables
Other liabilities
Cash used in operations
Transaction costs related to loans and borrowings
Interest received
Interest paid
Net cash used in operating activities
Cash flow from investing activities
Payments for intangible 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
Transaction and structuring fees of borrowings
Proceeds from grants
Payment of lease liabilities
300
2,994
(50)
2,864
719
1,183
59
3,253
50
(22,719)
(22,023)
(22,779)
-
243
(1,330)
(23,806)
(165)
11
(816)
-
243
(1,330)
2,887
4,314
(2,126)
(21,940)
(165)
11
(816)
(22,993)
(23,866)
(22,909)
11
16
16
19
19
19
4, 21
2, 19
(123)
(123)
(385)
(385)
(123)
(123)
(385)
(385)
26,031
(1,190)
64
(861)
(400)
481
(142)
13,445
(365)
10,389
(105)
-
231
(116)
26,031
(1,190)
64
(861)
(400)
481
(142)
13,445
(365)
10,389
(105)
-
231
(116)
Net cash from financing activities
23,983
23,478
23,983
23,478
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
(114)
(168)
6,990
6,876
137
37
6,853
6,990
(41)
(35)
6,884
6,842
250
66
6,634
6,884
48
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
Notes to the Financial Statements
1. CORPORATE INFORMATION
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 12
March 2024.
2. SUMMARY OF MATERIAL ACCOUNTING
POLICIES
2.1. Basis of Preparation
The financial statements incude both the group and
the Company which have been prepared in accordance
with the IFRS Accounting Standards of the International
Accounting Standards Board (IASB) and as adopted
interpretations of
by the European Union and the
International Financial Reporting Standards
the
Interpretations Committee
(IFRIC). The financial
statements have been prepared on a historical cost basis,
unless otherwise stated. The parent company bears vast
majority of the costs in the Group. The intercompany
items are recognized by the Parent which make the
Group figures differ.
The principal accounting policies applied
in the
preparation of these financial statements are set out
below. These policies have been applied consistently 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
the Consolidated Financial Statements. Faron
in
Pharmaceuticals Oy holds 100% ownership of all its
subsidiaries.
The Consolidated Financial Statements and parent
company financial statemetnts 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. Where the numbers for the Group and the
Company differ significantly those are explained in the
notes. The differences are mainly caused by employee
related costs at subsidiaries and compensation of the
services subsidiaries provide to the Company.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
International Accounting Standard 1,
Presentation of Financial Statements (IAS 1). The
Company and its subsidiaries are subject to a number
of risks similar to those of other development state
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. The subsidiaries have
limited economic activities and have immaterial assets
and liabilities and thus Group’s ability to continue as
going concern is dependent on the Company. Ultimately,
the attainment of profitable operations is dependent
on future uncertain events which
include obtaining
adequate financing to fulfill the Group’s commercial and
49
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
development activities and generate a level of revenue
adequate to support the Group’s cost structure.
The Group generated a net loss of €30,9 million and
recorded a €23,8 million cash outflow from operating
activities during the year ended 31 December 2023. At
the end of the financial year, it had total negative equity of
€15,2 million including an accumulated deficit of €172,2
million. As of that date, the Group had cash and cash
equivalents of €6,9 million.
The Directors have prepared the detailed financial
forecasts and cash flows looking beyond 12 months
from the date of these financial statements. In developing
these forecasts, the Directors have made assumptions
based upon their view of the current and future economic
conditionsto the Company and the Group that are
expected to prevail over the forecast period. The Director’s
estimate that the cash held by the Group, together with
known receivables will be sufficient to support the current
level of activities until Q2 2024. The Group also has loan
agreements which include financial covenants related
to minimum cash balance and thus loan amounts (book
value of €9,4 million on December 31, 2023) become due if
the Group is not able to maintain minimum cash balances
or negotiate a waiver with the lender. The directors are
continuing to explore sources of finance available to
the Group and the Company and they believe that 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
these financial statements; they have therefore prepared
the financial statements on a going concern basis.
During the financial period ended 31, December 2023,
the Group raised 25,7 million in three fundraising rounds.
Subsequent to 31 December 2023, the Group has received
a €3,2 million capital loan to secure immediate short-term
financing needs until the end of March 2024. The Capital
Loan shall be governed by the provisions of Chapter 12
of the Finnish Companies Act (624/2006, as amended)
(the “Finnish Companies Act”) concerning capital loans (in
Finnish: pääomalaina). The Group is actively pursuing the
following activities during 2024:
• Securing approximately €5,0 million of short-term
bridge financing to extend the Group’s cash runway
and meeting the covenant terms until long term
financing can be obtained.
• Securing longer-term funding of approximately
€35 million in total. The Directors’ intend to
propose to the Annual General Meeting on 5 April
2024 an authorization for a larger share issuance
contemplated to be launched as a public offering
(with planned allocation preferences to existing
shareholders and bridge finance lenders, including
the investors to enable the conversion of the Capital
Loan and in compliance with the relevant securities
markets regulation) as soon as practicable once the
required preparations and approvals are in place.
The targeted size of the contemplated share issue
is planned to be set accordingly, to meet these cash
runway needs for 2024.
• Evaluating and negotiating several business
development alternatives that may result in non-
dilutive funding.
• Evaluating, to the extent possible, other sources of
debt financing on acceptable terms. With respect
to the availability of additional funding from IPF,
the respective term allowing the Group to draw on
Tranche B and Tranche C has expired. The Group
does not anticipate, at this time, having the ability to
draw further funding from IPF.
• See Notes 19 in relation to IPF facility agreement
and Note 25 for discussion of post balance sheet
events including IPF loan covenant breach and
waiver on 3 March 2024.
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 and the Company’s
ability to continue as a going concern. Should the Group
and the Company be unable to obtain further financing
such that the going concern basis of preparation were no
longer appropriate, this may have a consequential impact
on the carrying value of the assets and liabilities of the
Group and the Company. See further commentary on
financial risk management in 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
income. Non-monetary assets
of comprehensive
and liabilities denominated in foreign currencies are
translated at the foreign exchange rate ruling at the
date of the transaction.
50
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
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 it
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 2023, 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
51
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
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 and parent company have reported
losses, inclusion of unexercised options would decrease
the loss per share and therefore they are 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.
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.
Borrowings are initially recognized at fair value, less
any directly attributable transaction costs. Subsequently
borrowings are carried at amortized cost using the
effective
is
calculated by taking into account any discount or premium
interest method (EIR). Amortized cost
52
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
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. During Financial Period 2023,
the Board notified that the equity of the Company turned
negative. After having notified this, the Board decided to
further assess the equity amount. In this regard, the Board,
exercising special caution, noted that the fair value of the
intangible assets related to Traumakine and Bexmarilimab
is significantly higher than their respective book values.
When making the calculations mandated by the Finnish
Limited Liability Companies Act, the difference of the book
and fair value of the assets was taken into account, thus
the registration has not been filed.
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
53
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
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.
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
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 year end 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
Share-based Compensation
The Group and the Company recognizes expenses for
share-based compensation. For share options management
estimates certain factors used in the option pricing model,
including volatility, vesting date of options and number of
options likely to vest. If these estimates vary from actual
occurrence, this will impact the value of the share-based
compensation. Further details of the Group’s estimation of
share-based compensation are disclosed in note 17.
Clinical Trial Accruals
Quantification of the accruals related the clinical trials
require a lot of detailed information about the services
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 2023:
• 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
The effect of changes required by the adoption of new
standards, interpretations and amendments to existing
standards and interpretations on 1 January 2023 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 2023
reporting periods and have not been early adopted by the
group. Those include:
• Supplier finance arrangements – Amendments to
IAS 7 and IFRS 7
• Amendments to IAS 21 - Lack of Exchangeability
• Classification of Liabilities as Current or Non-
current– Amendments to IAS 1 Non-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.
54
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
3. SEGMENT REPORTING
5. BREAKDOWN OF EXPENSES BY FUNCTION
is a
late clinical stage drug discovery and
Faron
development Group. Its operations have been focused on
the development of its main drug candidates Traumakine
and Bexmarilimab. 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 2023
(EUR 0 thousand in 2022). All of the Group’s non-current
assets are located in Finland.
4. OTHER OPERATING INCOME
€’000
Year ended 31 December
2023
2022
Grant from the European Union
Grant from Business Finland
Grant component of government
loans
Other income
Total operating income
-
-
-
-
-
526
273
0
4
803
Grant from the European Union is comprised 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 loans is comprised of indirect
financial benefit from the below-market interest of a loan
from Business Finland which has been granted to finance
Traumakine manufacturing. Those different grants have
been concluded in 2022.
The Company had EUR 65 thousand operating income
in 2023 and 2022 related to intra-group transactions.
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
2023
2022
(134)
(3,230)
(3,997)
(8,095)
(1,288)
(260)
(1,731)
(246)
(200)
(74)
(129)
(26)
(133)
(1,372)
(5,200)
(5,112)
(4,361)
(2,237)
(499)
(830)
(170)
(254)
(85)
(214)
(16)
(381)
(19,542)
(20,730)
The Company had lower research and development
expenses than the group mainly due to employee benefits
at subsidiaries.
General and Administration Expenses
€’000
Employee benefits
Communication
Audit fees
Year ended 31 December
2023
2022
(5,686)
(4,525)
(481)
(46)
(315)
(83)
Legal and consulting
(1,167)
(1,283)
IT expenses
Travelling
Depreciation and amortization
Short term rent and premises
Other G&A
Total general and
administrative expenses
(276)
(225)
(217)
(320)
(607)
(257)
(283)
(87)
(114)
(552)
(9,026)
(7,498)
The Company had higher general and administration
expenses than the group mainly due to compensation of
services subsidiaries hs provided to the Company.
55
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
6. EMPLOYEE BENEFITS
8. FINANCIAL INCOME AND EXPENSES
Year ended 31 December
2023
2022
€’000
Year ended 31 December
2023
2022
Financial income
Interest income
Other financial income
Gains from foreign exchange
Total financial income
230
-
3
233
11
18
67
96
Financial expenses
Interest expenses
(2,166)
(1,362)
Losses from foreign exchange
Interest expenses from lease liabilities
Transaction and structuring fees of
borrowings
Other financial expenses
4
(1)
(400)
(46)
(23)
(11)
-
(5)
Total financial expenses
(2,609)
(1,400)
Total financial income and
expenses, net
(2,376)
(1,304)
Interest expenses consist of paid and accrued interest
expenses. The interest expense relates mainly to the IPF
loan and Business of Finland loans. Interest expenses
recognised from lease liabilities.
The foreign exchange gains mainly relate to the cash
balance denominated in US Dollars which strengthened
against the EUR. Unrealised foreign exchange gain, net is
EUR 7 thousand for 2023 and EUR 43 thousand for 2022.
€’000
Salaries
Pension expenses –
contribution-based plans
Social security contributions
(5,540)
(7,153)
(758)
(165)
(822)
(453)
Share-based compensation
(2,453)
(1,297)
Total employee benefit expenses
(8,916)
(9,725)
Employee benefit expenses by function
Research and development expenses
(3,230)
(5,200)
General and administrative expenses
(5,686)
(4,525)
Total employee benefit expenses
(8,916)
(9,725)
The headcount of personnel at the end of 2023 was 34
(2022: 40). Share-based compensation information is
included in note 17 and management remuneration
information in note 24.
7. DEPRECIATION AND AMORTISATION
€’000
Year ended 31 December
2023
2022
Depreciation and amortisation
by type of asset
Depreciation for right-of-use-assets
Intangible assets - patents
Intangible assets
Machinery and equipment
(149)
(129)
(61)
(7)
(163)
(99)
(31)
(7)
Total depreciation and amortisation
(346)
(300)
Depreciation and amortisation by function
Research and development expenses
(129)
General and administrative expenses
(217)
Total depreciation and amortisation
(346)
(213)
(87)
(300)
56
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
9. TAX EXPENSE
€’000
Tax expense
Total tax expense
Year ended 31 December
2023
2022
-
-
-
-
€’000
2023
2022
Expiry within five years
Expiry within 6-10 years
Total
30,911
20,722
51,633
26,040
30,077
56,117
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:
€’000
Year ended 31 December
2023
2022
Loss before tax
(30,944)
(28,730)
Income tax calculated at Finnish
tax rate 20%
Tax losses and temporary differen-
ces for which no deferred tax asset
is recognised
Non-deductible expenses, tax-
exempt income and other perma-
nent items
Taxes in the statement of
comprehensive income
6,189
5,746
(5,950)
(6,587)
(239)
841
-
-
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 29,362 thousand
(2022: EUR 29,583 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.
Tax losses and deductible temporary differences for which
no deferred assets have been recognised, are as follows:
€’000
Year ended 31 December
2023
2022
€’000
Year ended 31 December
2023
2022
R&D expenses not yet deducted
in taxation (1)
Tax losses carried forward (2)
Total
95,179
51,633
91,799
56,117
146,812
147,916
(1) The Group has incurred research and development
costs, which have not yet been deducted in its taxation
in Finland. The amount deferred for tax purposes can be
deducted over an indefinite period.
(2) Tax losses carried forward relate to Finland and expire
over the period of 10 years. The tax losses will expire as
follows:
Loss for the period
(30,942)
(28,713)
Weighted average number of
ordinary shares in issue
Basic and dilutive loss
per share (in €)
65,055,036
55,229,835
(0.48)
(0.52)
As of 31 December 2023, Faron Pharmaceuticals Oy had
only share options outstanding. Number of potentially
dilutive
totaled
instruments currently outstanding
5,595,966 as of 31 December 2023 (31 December 2022:
3,465,816). Since the Group and the Company 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.
57
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
11. INTANGIBLE ASSETS AND MACHINERY
AND EQUIPMENT
13. RIGHT-OF-USE-ASSETS AND LEASING
LIABILITIES
€’000
Intangible
assets
Machinery
and
equipment
€’000
31 December
2023
31 Dec
2022
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
198
198
50
163
213
314
314
163
153
316
The office premises remained unchanged in 2023. Lease
contracts are valid until further notice and thus lease
term is estimated reflecting the period when the Group is
reasonably certain not to terminate the lease.
Book value on 1 January 2023
1,154
Additions
Disposals
Depreciation/amortisation
Book value 31 December 2023
As at 31 December 2023
Acquisition cost
Accumulated disposals
122
-
(188)
1,088
2,031
-
13
-
-
(7)
6
27
-
Accumulated depreciation/amortisation
(943)
(21)
Book value 31 December 2023
1,088
Book value 1 January 2022
Additions
Disposals
Depreciation/amortisation
Book value 31 December 2022
As at 31 December 2022
Acquisition cost
Accumulated disposals
899
387
-
(132)
1,154
1,910
-
Accumulated depreciation/amortisation
(756)
Book value 31 December 2022
1,154
6
20
-
-
(7)
13
57
-
(44)
13
12. NON-CURRENT PREPAYMENTS AND OTHER
RECEIVABLES
€’000
As at 31 December
2023
2022
Other receivables
Total non-current prepayments
and other receivables
60
60
60
60
Other receivables consist mainly of restricted cash in the
form of security deposits for rental agreements.
For the parent company, the other receivables (2023
EUR 544 thousand) consist of intercompany loans that
are eliminated at the group level.
58
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
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
2023
1,764
196
-
32
2022
1,836
332
454
119
2023
1,761
524
-
32
2022
1,834
439
454
119
Total current prepayments and other receivables
1,992
2,740
2,317
2,845
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
2023
2022
2023
6,875
6,875
6,990
6,990
6,842
6,842
2022
6,884
6,884
59
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
16. SHAREHOLDERS’ EQUITY
Movements in number of shares, share capital and reserve
for invested unrestricted equity were as follows:
€’000
1 January 2022
Issue of new shares, net of transaction costs
31 December 2022
1 January 2023
Issue of new shares, net of transaction costs
31 December 2023
Total registered
shares (pcs)
Share
capital
Reserve for
unrestricted
equity
53,232,032
2,691
116,507
6,573,351
-
13,037
59,805,383
2,691
129,544
59,805,383
2,691
129,544
8,981,316
-
24,808
68,786,699
2,691
154,352
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.
On 27 January 2023, the number of shares was
increased to 63,497,691 shares following the issue of
3,692,308 new shares. On 12 June 2023, the number of
shares was increased to 63,559,863 shares following the
issue of 62,712 new shares. On 28 June 2023, the number
of shares was increased to 66,161,373 shares following
the issue of 2,601,510 new shares. On 29 June 2023, the
number of shares was increased to 66,246,522 following
the issue of 85,149 new shares. On 27 October 2023, the
number of shares was increased to 68,786,699 shares
following the issue of 2,540,177 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 2022 and
2023, the Company recognised all relevant transactions
in the invested unrestricted equity reserve.
60
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
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.
The extraordinary general meeting 2023 resolved
to amend the terms and conditions of the Option Plan
2015 so that the subscription period for shares based
on the options is extended by two (2) years, i.e., until 30
September 2025. The amendment is expected to enhance
the usability of the options and thereby significantly
increase the desired benefits of the incentivisation system
for the management and personnel of the Company.
The management has determined the incremental fair
value related to the extension of the subscription window
of the 2015 Option Plan. This valuation is based on a
comparison of the fair value of the instruments before and
after the modification, using Black-Scholes-Merton model.
Notably, as the modification occurred post-vesting date,
the incremental fair value was promptly recognized in the
financial statements.
Key characteristics and terms of the option plan are
listed in the table below.
2015 Option Plan
A options
B options
C options
D options
Maximum number of share options
400,000
400,000
500,000
500,000
Exercise price, EUR
Dividend adjustment
Beginning of
subscription period
3.71
No
2.90
No
8.39
No
1.09
No
2 November 2015
8 October 2016
8 October 2017
8 October 2018
End of subscription period
30 September 2025*
30 September 2025*
30 September 2025* 30 September 2025*
Vesting conditions
Service until the beginning of the subscription period
(*)The extraordinary general meeting, held on 22 September 2023, resolved to amend the terms and conditions of the Option Plan 2015 so that the
subscription period for shares based on the options is extended by two (2) years, i.e., until 30 September 2025.
61
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
2023
2015 Option Plan
2022
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
320,000
385,000
383,900
500,000
345,000
-
-
-
-
-
45,500
-
-
-
-
-
150,000
-
-
-
-
-
-
-
-
-
-
-
25,000
385,000
338,400
500,000
170,000
385,000
383,900
500,000
320,000
385,000
338,400
500,000
170,000
385,000
383,900
500,000
320,000
-
-
-
-
-
3.19
3.19
-
-
-
-
-
-
-
2.44
Valuation parameters for instruments modified during period
Share price at modification, EUR
Average Exercise price, EUR
Expected volatility*
Maturity, years
Risk-free rate
Expected dividends, EUR
Valuation model
Incremental Fair Value
Incremental Fair Value
2015 Option Plan
A-D
3.82
4.02
68,0 %
2,0
3,3 %
0
Black-Scholes
1 205 136
(*) Expected volatility was determined as the average volatility of the Company’s share in Nasdaq Helsinki First North Marketplace.
62
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
Option Plan 2019
The Option Plan 2019 was approved at the Company’s
board of directors meeting on 20 November 2019. The
Annual General Meeting on 24 March 2023 resolved to
amend the terms and conditions of the Option Plan 2019,
so that a maximum total under the 2019 Option Plan is
4,350,000 options. 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 has certain maximum limits
per certain 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 or 30 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
2023 is EUR 3.45.
The Company’s Board has confirmed the grant of
a total of 813,000 options under the Option plan 2019
during 2023. The Options have been allocated under the
Share Option Plan 2019 and are exercisable between 8
June 2024 and 9 November 2028 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 2022, there were three grants
(**) In 2023, there were two grants
2023**
2022*
4,350,000
2,000,000
3.45
No
3.04
No
17 November 2022
17 November 2022
9 November 2028
17 November 2027
Service until the
beginning of each
subscription period
Service until the
beginning of each
subscription period
63
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
2022–2023
2019 Option Plan
Number of share options
2023
2022
Outstanding at 1 January
Granted
Forfeited
Exercised
Outstanding at 31 December
Exercisable at 31 December
2022–2023
2019 Option Plan
Valuation inputs for instruments granted during period
(weighted average)
Share price at grant date, EUR
Subscription price, EUR
Volatility, %(*)
Risk free rate, %
Expected dividends yield, %
Option fair value, EUR
1,876,916
1,337,791
813,000
76,250
-
742,000
202,875
-
2,613,666
1,876,916
904,040
458,374
2023
2022
2.96 - 3.50
2.05 - 3.44
3.35 - 3.77
2.06 - 4.04
65.4
3.1
0
63.92
0.50
0
1.31
1.14 - 2.19
(*) Expected volatility was determined by calculating the historical volatility of the Company`s share using monthly observations over corresponding maturity.
The share-based compensation expense for the Option
Plan 2019 was EUR 1,259 thousand (EUR 1,296 thousand
in 2022).
64
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
Group
Parent
158
-
(158)
-
158
-
(158)
-
18. PROVISIONS
€’000
At 1 January 2023
Restructuring provision
Utilization of provision
At 31 December 2023
The restructuring provision related 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 the
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
As at 31 December
2023
2022
137
6,990
7,127
316
6,014
3,401
9,557
169
6,842
7,011
213
10,585
3,520
9,383
2022
252
6,884
7,136
316
7,265
3,401
9,557
2023
72
6,875
6,948
213
8,971
3,520
9,383
Total financial liabilities measured at amortised cost
22,087
19,288
23,701
20,538
Financial liabilities measured at FVTPL (category 2)
Other liabilities
Total financial liabilities measured at FVTPL
895
895
853
853
895
895
853
853
(*) Prepayments are excluded as they are not considered to be financial instruments.
65
thousand. With respect to the availability of additional
funding from IPF, the respective term allowing the Group
to draw on Tranche B and Tranche C has expired. The
Group does not anticipate, at this time, having the ability
to draw further funding from IPF.
The interest on Tranche A facility amounted to EUR
1,874 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
price per share in any subsequent share offering undertaken
by the Company. The warrants were issued as part of the
loan agreement in 2022 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.
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
Borrowings in the Form of Business Finland R&D Loans
loans
is
Fair value for the Business Finland R&D
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 3,520 thousand
(2022 EUR 3,401 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 329
thousand (2022 EUR 210 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 in 2022. Faron pays
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 9,383
66
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
€’000
Cash and cash equivalents
Lease liabilities
IPF Tranche A
Business Finland R&D loans
Net debt
Group Parent
As at 31 December
2023
2022
2023
6,875
(213)
(9,383)
(3,520)
(6,241)
6,990
(316)
(9,557)
(3,401)
(6,284)
6,842
(213)
(9,383)
(3,520)
(6,274)
2022
6,884
(316)
(9,557)
(3,401)
(6,390)
€’000
Borrowings
Lease
liabilities
Other
liabilities
Total
Opening balance as at 1 Jan 2022
Financing cash flows
Fair value adjustments
New lease liability
Other movements (*)
Balance as at 31 Dec 2022
Financing cash flows
Fair value adjustments
Other movements (*)
Balance as at 31 Dec 2023
(*) Other changes include reversals, interest accruals and payments.
3,347
10,119
(513)
12,953
(692)
637
12,898
200
(116)
232
316
(142)
39
213
151
853
(151)
853
42
3,698
10,003
853
232
(664)
14,123
(834)
42
676
895
14,007
20. FINANCIAL RISK MANAGEMENT
(a) Capital Management and Liquidity Risks
This section applies to The Group and the Company. 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 financial
risk management
principles focus on obtaining funding and managing
into consideration the unpredictability
capital taking
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, venture debt and licensing
agreements.
The Company has been able to fund its operations
with equity, grants, debt and R&D loans. While equity
financing has generally 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.
67
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
The prevailing financial market situation and overall
investor 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 financing
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
licensing agreements with
into potential commercialization,
collaboration and
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 “somewhat” as the ability to impact on cash
runway with cost management is limited 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 2023, the contractual maturity
of non-derivative liabilities excluding other payables and
accruals was as follows. The Company had additional EUR
1,464 thousand (EUR 1 264 thousand as at 31 December
2022) trade payables to subsidiaries:
€’000
2024
2025
2026
2027-
thereafter
Total
Borrowings
Trade payables
Lease liabilities
Total
4,371
8,971
163
4,177
4,277
4,132
16,958
-
50
-
-
-
-
8,971
213
13,505
4,227
4,277
4,132
26,141
As at 31 December 2022, the contractual maturity of non-
derivative liabilities and interests excluding other payables
and accruals was as follows. Trade payable are presented
to align with 2023 presentation:
€’000
2023
2024
2025
2026-
thereafter
Total
Borrowings
Trade payables
Lease liabilities
Total
68
1,892
6,014
169
8,075
4,300
4,419
7,975
18,586
-
169
-
-
-
-
6,014
338
4,469
4,419
7,975
24,938
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
(b) Market Risk
21. OTHER NON-CURRENT LIABILITIES
€’000
FV of warrants
Advance received
Total non-current liabilities
As at 31 December
2023
2022
895
-
895
853
-
853
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 2023, the Group had cash and cash
equivalents of EUR 6,460 thousand, USD 342 thousand,
CHF 2 thousand and GBP 90 thousand (2022: EUR 6,862
thousand, GBP 7 thousand, CHF 27 thousand and USD
109 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 the IPF Tranche
A loan and Business Finland R&D loans. IPF Tranche A
interest consists 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, is subject to a 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.
69
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
22. TRADE PAYABLES AND OTHER CURRENT
LIABILITIES
€’000
Account payables
Clinical trial site fees
Accrued payroll
Accrued general and administration
Other liabilities and accruals
Total
Group Parent
As at 31 December
2023
8,971
794
1,718
114
550
2022
5,142
621
1,841
195
667
2023
10,585
794
1,567
109
352
2022
6,385
621
1,490
195
551
12,147
8,467
13,407
9,243
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
2023
2022
54
-
-
70
1
-
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 Bexmarilimab to pay additional
milestone payments. The remaining milestone becomes
payable upon the Group receiving a certain amount of Net
Sales for Bexmarilimab.
Parent and subsidiary relations of Faron Pharmaceuticals
Group on 31 December 2023:
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 491 thousand
in long term receivables from subsidiaries, which contains
intercompany loans and the interests associated with
them. The parent Company trade payables to subsidiaries
at the end of the period were EUR 1,464 thousand.
During the period the profit and loss relevant bookings
are EUR 11 thousand for the interest of the intercompany
loans, management fee charges to subsidiaries of EUR 33
thousand and the invoices for administrative services by
the subsidiaries of EUR 2,167 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, 2023 and 2022.
70
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
Key Management Personnel
Management and Board Shareholding
The Company’s key management personnel consist of the
following:
Management(*) shareholding, 31 December 2023
Number of shares (pcs)
Shareholding, percentage
Board(**) shareholding, 31 December 2023
(excluding the shareholding of CEO)
Number of shares (pcs)
Shareholding, percentage
Total number of shares
outstanding at
31 December 2023 (pcs)
5,319,934
7.73%
94,836
0.14 %
68,786,699
(*) 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
2022 and 2023 than already disclosed.
• Members of the Board of Directors
• Management team, including CEO
€’000
Year ended 31 December
2023
2022
Compensation of key
management personnel(*)
Salaries and other short-term
employee benefits
Post-employment benefits
Share-based payments
Total
2,929
134
1,409
4,472
2,374
260
801
3,435
(*) Presented information for the Management includes the executive
directors of the Board
The Management team was awarded 211,000 share
options during 2023 (2022: 230,000 share options). At
the end of the 2023, the number of outstanding options
and shares granted to the Management team amounted
to 888,270 share options (at the end of 2022: 1,003,936
share options).
Non-executive Directors were awarded 220,000 share
options during 2023, (2022: 120,000 share options). At the
end of 2023, the number of outstanding options and share
options granted to the non-executive directors amounted
to 800,000 share options (at the end of 2022: 770,000
share options).
71
between the Investors, the Company and IPF), then the
Loan shall be at the request of the Investor converted
into new shares in the Company in connection with the
Due Date. In such case, the subscription price per share
shall be EUR 1.50 per share. However, if then the Investor
elects not to exercise its conversion right on the Due
Date, (such option being only available if there has not
been any Investment Round), the Due Date of the Loan
will automatically be extended until 31 December 2024
(“Final Due Date”). On such Final Due Date, the Loan shall
be either repaid in full in cash, subject to the terms of the
subordination agreement, or converted into new shares
in the Company with the subscription price of EUR 1.50
per share, subject to a valid share issue authorization
being in place.
In case the Loan is converted before the Due Date,
each Investor is entitled to an arrangement fee of 15%
of its respective Loan amount. If conversion has not
taken place prior to the Due Date, the arrangement fee
will be 30% of the Investor’s respective Loan amount.
No interest shall be payable on the Loan if a conversion
takes place before 30 May 2024, and thereafter the
interest will be 12% + 3-months Euribor and paid subject
to the subordination agreement.
On March 12, 2024, Faron is in compliance with all
financial covenants as agreed in the waiver letter.
Result and Dividends
The Company’s comprehensive loss for the period was
31,093,581 Euro (2022: 28,924,250 Euro). The Board of
Directors proposes to the Annual General Meeting 2024
not to pay dividend.
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
25. SUBSEQUENT EVENTS
As announced by the Group on 19 February 2024, the
Company was in breach of several undertakings agreed
in the Facilities agreement with IPF, and as a result
of such Events of Default, IPF blocked the Group’s
bank accounts which are pledged to IPF. Since the
announcement, the Group has negotiated and received
€3,2 million convertible loans from existing shareholders
(in Finnish pääomalaina) to secure immediate short-
term financing needs until the end of March 2024
(Capital Loan). On 8 March 2024, the Group received the
proceeds on the EUR 3,2 million of commitments and
regained control of its bank accounts from IPF. Receipt
of the EUR 3.2 million pursuant to the secures immediate
short-term financing needs until the end of March 2024.
The Company continues active endeavors and is in
discussions to secure additional short and longer-term
financing needs, including additional short term bridge
financing of approximately EUR 5,0 million, to continued
compliance with the Facilities Agreement.
The Capital Loans are fully subordinated to the
Facilities Agreement. As part of the Waiver the minimum
cash covenant was lowered to EUR 4,5 million until 30
April 2024 and thereafter returns to the previously agreed
level (higher of: EUR 6.0 million or three months cash
runway). In accordance with the Waiver, the Group shall
issue to IPF additional special rights which entitle them
to subscribe for new ordinary shares in the Company
(“Warrants”), with an exercise price equal to the volume-
weighted average price of the Group’s share during
the three trading days preceding the warrantholder
agreement (“Strike Price”). The number of Warrants is
calculated by dividing 10% of the original loan amount
(EUR 10 million) by the Strike Price. The Warrants are
exercisable for a period of seven years. The Company
and IPF also agreed on certain amendments to the fee
structure under the Facilities Agreement.
The Loans shall be converted to new shares in the
Company as a part of (and at the subscription price
of) the next investment round where shares or other
equity securities are issued by the Company to existing
shareholders and/or new third- party investors, with a
minimum size of EUR 8 million (“Investment Round”).
In the event that the subscription price
in such
Investment Round exceeds EUR 1.50 per share, an
Investor shall have the right to postpone the conversion
of the Loan until 10 June 2024 (“Due Date”). In the event
that there is no Investment Round by the Due Date (or
the subscription price of the Investment Round exceeds
EUR 1.50 per share and the respective Investor has
decided to postpone the conversion of the Loan) and the
Loan has not been otherwise repaid prior to the Due Date
(subject to a subordination agreement to be entered into
72
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
BOARD SIGNATURES
Turku, 12 March 2024
Frank Armstrong
Chairman
Markku Jalkanen
CEO
Erik Ostrowski
John Poulos
Tuomo Pätsi
Marie-Louise Fjällskog
Christine Roth
THE AUDITOR’S NOTE
A report on the audit performed has been issued today
Helsinki, 12 March 2024
PricewaterhouseCoopers Oy
Authorised Public Accountants
Panu Vänskä
Authorised Public Accountant (KHT)
73
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
1 (3)
Auditor’s Report (Translation of the Finnish Original)
To the Annual General Meeting of Faron Pharmaceuticals Oy
Report on the Audit of the Financial Statements
Opinion
In our opinion the financial statements give a true and fair view of the group’s and the parent company’s financial
position, financial performance and cash flows in accordance with IFRS Accounting Standards as adopted by the
EU and comply with statutory requirements.
What we have audited
We have audited the financial statements of Faron Pharmaceuticals Oy (business identity code 2068285-4 ) for
the year ended 31 December, 2023. The financial statements comprise the group’s and the parent company’s
balance sheet, statement of comprehensive income, statement of changes in equity, statement of cash flows and
notes, which include material accounting policy information and other explanatory information
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 note 2.2 Going concern in the financial statements. Because the additional finance is not
committed at the date of issuance of these 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 group’s and the parent
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 financial statements that
give a true and fair view in accordance with IFRS Accounting Standards as adopted by the EU and comply with
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.
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,
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
74
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
2 (3)
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.
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.
75
FARON PHARMACEUTICALS OY
ANNUAL REPORT 2023
3 (3)
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 2023, 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.
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 12 March 2024
PricewaterhouseCoopers Oy
Authorised Public Accountants
Panu Vänskä
Authorised Public Accountant (KHT)
76
Faron Pharmaceuticals Ltd
Joukahaisenkatu 6, 20520 Turku Finland
Phone: +358 2 469 5151
Fax: +358 2 469 5152
Email: info@faron.com