 | 1 Market Risk:
The growth of veterinary buying groups and corporate customers.
We sell and promote primarily to veterinary practices and distribute our products through wholesaler and distributor networks in most markets.
In a number of mature markets, veterinarians have established buying groups to consolidate their purchasing, and corporate customers are continuing to expand. | The growth of corporate customers and buying groups represents an opportunity to increase sales volumes and revenue but may result in reduced margins. | We manage and monitor our national and European pricing policies to deliver equitable pricing for each customer group.
Our relationships with larger customers are managed by key account managers.
Our marketing strategy is designed to support veterinarians in retaining customers by promoting the benefits of our product portfolio in our major therapeutic areas. |  |
| 2 Competitor Risk:
Competitor products launched against one of our leading brands (e.g. generics or a superior product profile).
We depend on data exclusivity periods or patents to have exclusive marketing rights for some of our products.
Although we maintain a broad portfolio of products, our unique products like Vetoryl and Felimazole have built a market which may be attractive to competitors. | Revenues and margins may be adversely affected should competitors launch a novel or generic product that competes with one of our unique products upon the expiry or early loss of patents.
Costs may increase due to defensive marketing activity. | We focus on lifecycle management strategies for our key products such that they can fulfil evolving customer requirements.
Product patents are monitored and defensive strategies are developed towards the end of the patent life or the data exclusivity period.
We monitor market activity prior to competitor products being launched, and develop a marketing response strategy to mitigate competitor impact. | 
Increasing competition on a number of our key products |
| 3 Product Development and Launch Risk:
Failure to deliver major products either due to pipeline delays or newly launched products not meeting revenue expectations.
The development of pharmaceutical products is a complex, risky and lengthy process involving significant financial, R&D and other resources.
Products that initially appear promising may be delayed or fail to meet expected clinical or commercial expectations or face delays in regulatory approval.
It can also be difficult to predict whether newly launched products will meet commercial expectations. | A succession of clinical trial failures could adversely affect our ability to deliver shareholder expectations and could also damage our reputation and relationship with veterinarians.
Our market position in key therapeutic areas could be affected, resulting in reduced revenues and profits.
Where we are unable to recoup the costs incurred in developing and launching a product this would result in impairment of any intangible assets recognised.
COVID-19 may cause some clinical trial delays due to challenges in recruiting patients. | Potential new development opportunities are assessed from a commercial, financial and scientific perspective by a multi-functional team to allow senior management to make decisions on which ones to progress.
The pipeline is discussed regularly by senior management, including the Chief Executive Officer and Chief Financial Officer. Regular updates are also provided to the Board.
Each development project is managed by project leaders who chair project team meetings.
Before costly pivotal studies are initiated, smaller proof of concept pilot studies are conducted to assess the effects of the drug on target species and for the target indication.
In respect of all new product launches a detailed marketing plan is established and progress against that plan is regularly monitored.
The Group has a detailed market knowledge and retains close contact with customers through its management and sales teams which are trained to a high standard. | |
 | 4 Supply Chain Risk:
Inability to maintain supply of key products due to manufacturing, quality or product supply problems in our own facilities or from third party suppliers.
We rely on third parties for the supply of all raw materials for products that we manufacture in-house. We also purchase many of our finished products from third party manufacturers. | Raw material supply failures may cause:
- increased product costs due to difficulties in obtaining scarce materials on commercially acceptable terms;
- product shortages due to manufacturing delays; or
- delays in clinical trials due to shortage of trial products.
Shortages in manufactured products and third party supply failures on finished products may result in lost sales.
We have now addressed the majority of our in-house quality and supply challenges which contributed to an increased supply chain risk last year. However, the risk level has maintained because COVID-19 may impact our product supply due to:
- unexpected fluctuations in demand;
- reduced output in manufacturing sites;
- challenges in securing raw materials; and
- increased product costs due to scarce supply.
| We monitor the performance of our key suppliers and act promptly to source from alternative suppliers where potential issues are identified.
The top ten Group products are regularly reviewed in order to identify the key suppliers of materials or finished products.
A dedicated external network team who manage and support our CMOs to deliver quality products to our regulatory specifications.
Demand forecasting and supply planning processes, with monthly reviews of demand and production forecasts, inventory levels, and remediation plans for products that are out of supply.
We plan to increase our working capital and carry higher levels of safety stock on critical raw materials, and finished products.
Processes are in place to monitor and improve product robustness, including Quality and Technical analyses of key products and engagement with internal and external Regulatory stakeholders.
A business continuity plan is in place at Skipton, Zagreb and Uldum, and similar plans are being developed for other sites.
A project is in progress to review and improve our supply planning processes. | |
| 5 Regulatory Risk:
Failure to meet regulatory requirements.
We conduct our business in a highly regulated environment, which is designed to ensure the safety, efficacy, quality, and ethical promotion of pharmaceutical products.
Failure to adhere to regulatory standards or to implement changes in those standards could affect our ability to register, manufacture or promote our products. | Delays in regulatory reviews and approvals could impact the timing of a product launch and have a material effect on sales and margins.
Any changes made to the manufacturing, distribution, marketing and safety surveillance processes of our products may require additional regulatory approvals, resulting in additional costs and/or delays.
Non-compliance with regulatory requirements may result in delays to production or lost sales. | The Group strives to exceed regulatory requirements and ensure that its employees have detailed experience and knowledge of the regulations.
>Manufacturing and Regulatory teams have established quality systems and standard operating procedures in place.
A dedicated External Network Quality Director has been appointed to support our CMOs in complying with our regulatory specifications.
Regular contact is maintained with all relevant regulatory bodies in order to build and strengthen relationships and facilitate good communication lines.
The Regulatory and Quality teams update their knowledge of regulatory developments and implement changes in business procedures to comply with new requirements.
Where changes are identified which could affect our ability to market and sell any of our products, a response team is created in order to mitigate the risk.
External consultants are used to audit our manufacturing quality systems. |
Increasing regulatory requirements and CMO compliance with our regulatory specifications |
 | 6 Acquisition Risk:
Identification of acquisition opportunities and their potential integration.
Identification of suitable opportunities and securing a successful approach involves a high degree of uncertainty.
Acquired products or businesses may fail to deliver expected returns due to over-valuation or integration challenges. | Failure to identify or secure suitable targets could slow the pace at which we can expand into new markets or grow our portfolio.
Acquisitions could deliver lower profits than expected or result in intangible assets impairment. | We have defined criteria for screening acquisition targets and we conduct commercial, clinical, financial, environmental and legal due diligence.
The Board reviews acquisition plans and progress regularly and approves all potential transactions.
The SET manages post acquisition integration and monitors the delivery of benefits and returns. |
Managing the integration of new product acquisitions |
 | 7 People Risk:
Failure to resource the business to achieve our strategic ambitions, particularly on geographical expansion and acquisition.
As Dechra expands into new markets and acquires new businesses or science, we recognise that we may need new people with different skills, experience and cultural knowledge to execute our strategy successfully in those markets and business areas. | Failure to recruit or develop quality people could result in:
- capability gaps in new markets;
- challenges in integrating new acquisitions; or
- overstretched resources.
This could delay implementation of our strategy and we may not meet shareholders' expectations. | The Group HR Director reviews the organisational structure with the SET and the Board twice a year to confirm that the organisation is fit for purpose and to assess the resourcing implications of planned changes or strategic imperatives.
A development programme is in place to identify opportunities to recruit new talent and develop existing potential. | |
| 8 Antibiotic Regulatory Risk:
Continuing pressure on reducing antibiotic use.
The issue of the potential transfer of antibacterial resistance from food producing animals to humans is subject to regulatory discussions.
In some countries this has led to government recommendations on reducing the use of antibiotics in food producing animals. | Reduction in sales of our antimicrobial product range.
Our reputation could be adversely impacted if we do not respond appropriately to government recommendations. | Regular contact is maintained with relevant veterinary authorities to enable us to have a comprehensive understanding of regulatory changes.
We strive to develop new products and minimise antimicrobial resistance concerns.
We communicate appropriate antibiotic use in line with best practice. | |
| 9 Retention of People Risk:
Failure to retain high calibre, talented senior managers and other key roles in the business.
Our growth plans and future success are dependent on retaining knowledgeable and experienced senior managers and key staff. | Loss of key skills and experience could erode our competitive advantage and could have an adverse impact on results.
Inability to attract and retain key personnel may weaken succession planning. | The Nomination Committee oversees succession planning for the Board and the SET.
Succession plans are in place for the SET together with development plans for key senior managers.
Remuneration packages are reviewed on an annual basis in order to help ensure that the Group can continue to retain, incentivise and motivate its employees. | |