Operational risks

Sales and business risks

Market-specific operational models are necessarily applied to sales of pharmaceuticals. The traditional way of maintaining an extensive network of sales representatives requires substantial fixed costs. Orion’s business operations in Europe are based on its own sales network, and sales elsewhere in the world mainly through partners. During 2021, Orion has continued to expand its sales activities in Southeast Asia and the Pacific to two new countries. In the Southeast Asia and Pacific region, Orion now has its own sales operations in a total of five countries.

This structure is intended to optimise available resources and risk-bearing capacity, in view of the input required for worldwide marketing of own new proprietary products. In some markets, certain product categories are only sold to insurance companies or hospital procurement organisations, based on bidding.

Where Orion has its own sales organisation, sales must be kept sufficiently high to maintain profitability. This generally requires a broad enough product range.

Orion constantly monitors and acts responsibly in accordance with ethical marketing regulations and practices in different countries. Their obligations are incorporated into internal guidelines and regular training is provided to sales representatives.

Risks associated with pharmaceutical production

The manufacturing of pharmaceutical products is subject to regular inspections by the authorities. Pharmaceutical products must be safe, efficacious and compliant with all quality requirements. To comply with statutory requirements, in pharmaceutical production close attention must be paid to various safety and quality risks.

Adequate quality of pharmaceuticals is ensured through systematic, comprehensive management of operations covering all factors with direct and indirect impact on the quality of the drugs. The operations are managed by comprehensive instructions and adequate control of materials and products before and after production.
Orion's broad product range may cause risks to the delivery reliability and make it challenging to maintain the very high quality standard required in production. Authorities and key customers in different countries undertake regular and detailed inspections of development and manufacturing of drugs at Orion’s production sites. Carrying out any corrective actions that may be required may at least temporarily have effects that decrease delivery reliability and increase costs. Orion’s product
range also contains products manufactured by other pharmaceutical companies and products that Orion manufactures on its own but for which other companies deliver active pharmaceutical or other ingredients. Possible problems related to the delivery reliability or quality of the products of those manufacturers may cause a risk to Orion’s delivery reliability. Also the single channel system for the distribution of pharmaceuticals, which is in use in Finland, in which Orion’s products are supplied to customers through a single wholesaler, may also pose risks for the reliability of supply.

Legal, intellectual property rights and regulatory risks

The pharmaceutical sector is subject to some special regulations and close regulatory control by authorities. Pharmaceutical manufacture, distribution and research require licences from authorities. The pharmaceutical sector is also overseen by the competition authorities. Orion has clear policies and principles for its operations that ensure compliance with these regulations.

Intellectual property rights are inherently of crucial importance to the pharmaceutical sector. To protect Orion’s position, the patent situations of its products available for sale and in the pipeline are continuously monitored worldwide. This is done to ensure the rights to products developed by Orion can be defended and to prevent Orion itself from infringing patents or other intellectual property rights of others.

Patent protection is nevertheless of limited duration, and the expiry of patent protection on an important product can have a negative impact on the Orion Group’s operations, financial position or operating results. Nor does Orion have guarantees that patent protection will be obtained for new products in the pipeline to the desired extent or that the authorities will grant the marketing authorisations required for the products.

Product liability risks

As explained in the description of research and development risks above, the launch of a new drug in markets is preceded by extensive phased trials that delineate the drug's pharmacological properties, such as its efficacy and safety. Marketing authorisation issued by drug authorities is required to start sales and marketing of a drug.

The adverse effects of a drug are monitored as required by the authorities even after the launch of the product. Through the trials and pharmaceutical production methods described above as well as based on adverse event and quality issue reports received from the market, Orion strives to ensure that its products have no such unreasonable adverse effects for patients in relation to the benefits of the drugs that might lead to liability or withdrawal of a product from the market.

To cover for the financial impact of product liability risk, the Orion Group’s products and operations are insured through operational and product liability insurance that also covers clinical studies, except for clinical studies carried out in the United States or Canada. Studies conducted in the United States and Canada are insured through separate insurances. The purpose of the insurance is to provide cover for any liability for damages on the part of the policyholder. As is customary in insurance terms, this protection is limited as regards potential payout, for example. Certain products and active pharmaceutical ingredients are also excluded from the cover, some of which are included in Orion’s operations. Nevertheless, they are not estimated to increase Orion’s product liability risk materially.

Risks of damage

In addition to statutory insurance, Orion has property, business interruption and liability insurance to cover such risks of damage as are deemed to be material and limitable through insurance.

Corporate safety risks

Orion’s Corporate Governance Manual includes the Group’s corporate safety guidelines. The objective of the Group’s corporate safety policy is to ensure the uninterrupted continuation of operations, the safety of people, the protection of property and the environment against damage, and the adequacy of the measures relating to data protection. The corporate safety guidelines set out the principles for corporate safety activities, and also cover guidelines for crisis management. In addition to guidelines, the data protection policy includes the objectives, key principles and responsibilities for data protection.

Information is an essential part of Orion’s immaterial capital. For collecting, handling, storage and transmitting data, Orion uses efficient, safe and reliably functioning information systems that for their part, secure the performance and the continuity of the Group’s operations. With compliant information systems Orion also manages its pharmaceuticals business-specific obligations to secure the availability of its medicinal products, pharmacovigilance, and the reliability of drug related information.

The data security risk materialises if the data or the data system is not at the right persons’ disposal, the information has changed or ended up in the possession of outsiders. Orion manages the risks concerning information and information management systems by means of regular risk assessments, protection of operational premises and data systems, by practices which strengthen information security and by ensuring the employees’ awareness of the risks and threats concerning data security.  

Environment, social matters and personnel risks

The Group’s environmental, health and safety (EHS) guidelines define procedures and responsibilities for predicting, preventing and observing exceptional events and situations causing possible harm. In addition, the guidelines defines how to identify, assess, deal with and manage the risks of these situations. Management of EHS matters is monitored through annual internal audits. Operations are continuously being improved by identifying development objectives. Sustainability issues, including the management of EHS risks, are also part of our supplier and partner selection and management practices.

Orion’s most significant environmental impacts relate to consumption of raw materials, energy and water; emissions into the air and wastewater; and the amounts of waste arising from the operations. Annual development measures are defined for impacted areas, and the progress of these measures is monitored among other things by measuring emissions, monitoring the amount of waste and compiling statistics on the use of resources. All of the Group’s production plants are in Finland, and the manufacturing plants have the valid environmental permits required for operations.

The Company's objective is to improve safety at work, keeping in mind that potential safety incidents and injuries are among the key social and personnel risks. The Company works continuously to prevent safety incidents and injuries and to further develop safety culture, for example through comprehensive training, regular audits and by encouraging people to make observations that promote safety.

One of the typical impacts associated with the environment, social matters and personnel risks would be a damage to the Company’s reputation. Besides risk management, the Company communicates in a way that is reliable, transparent, comprehensive and timely to avoid reputational risk. Systematic communication on both positive and negative matters also enables proactive management and learning from incidents, if they would occur.

Risks associated with the COVID-19 pandemic

There have been numerous risks concerning Orion’s operations related to the coronavirus epidemic that continued globally in 2021. The risks associated with the COVID-19 pandemic could even result in a material disruption of production. Such risks include employees falling ill, reduced availability of precursors and semi-finished products, and disruptions of logistics chains. Restrictions on movement and other restrictions imposed in different parts of the world and sickness absences could, with a delay, disrupt the global delivery and logistics chains of pharmaceuticals.

To secure pharmaceutical supply, additional work and arrangements have been made to ensure the patient safety, continuity of production, laboratory and research activities. Efforts have been made to reduce risks by ensuring the availability of raw materials and precursors, in particular by focusing on proactive supplier management, innovative transport arrangements and by temporarily increasing the inventory levels of certain products.

As the COVID-19 pandemic continued, measures continued to focus on the employees’ occupational health and well-being. Orion monitored the pandemic situation and as the situation required adapted its operating guidelines to ensure a safe working environment for the employees. In particular, in order to ensure that production and laboratory personnel remain healthy and to minimise situations leading to possible exposure to the virus, various arrangements have been put in place to minimise contacts that are not essential for the continuity of business operations. Orion’s own production has been able to operate normally despite the COVID-19 pandemic, and the availability of products remained at a good level throughout the year. Some important clinical trials have been delayed slightly due to the fact that the patients required for the trials have not been able to visit the trial sites due to the risk of coronavirus or because some of the people conducting the trials have been participating in the treatment of coronavirus.

Product procurement and corporate acquisition risks

Orion endeavours to expand its operations by purchasing from other pharmaceutical companies or in-licensing products that are under development or already available in markets, or possibly by acquiring other pharmaceutical and biotechnology companies. In carrying out such projects, Orion strives to observe due care and diligence and to utilise both internal and external expertise in the planning and implementation phases, as well as when integrating acquired operations within the overall business.

Product procurement and possible corporate acquisitions can involve customary corporate acquisition liabilities or risks as well as other liabilities and risks connected with the nature and value of the purchased assets.

Ensuring competence

Orion’s success depends on the competence of its executive management, R&D staff and other personnel. Human resources management strives to promote well-being at work and continuous improvement of competence and the workplace. Orion’s success also depends on the Company’s ability to recruit, develop, train, motivate and retain professionally skilled personnel.