mdg-annual-report-2013

46 GROUP MANAGEMENT’S DISCUSSION AND ANALYSISPlanning risksAt least once a year, Medigene’s management prepares a detailed business plan incorporating the results of portfoliomanagement and evaluation. This plan contains numerous assumptions relating to issues such as project progress, theoutcome of clinical trials, the conclusion of new licensing agreements and development partnerships, the trend inproduct revenues and general conditions within the relevant pharmaceutical market segments. These assumptionsmay deviate substantially from actual future developments. Important prerequisites for achieving financial targetsinclude the success of research and development activities as well as progress with the commercialisation of drugsand drug candidates. There is no guarantee that Medigene will achieve the product revenues, additional market approvalsand product launches as well as newly concluded development and marketing partnerships required to meetits financial targets. Medigene’s plans are based on assumptions regarding future research and development resultsand on estimates of the market and competitive environment. These assumptions may prove to be inaccurate.Risks inherent in the drug development and approval processIndustry and market risksMedigene is subject to the typical industry and market risks inherent in the development of pharmaceutical productsusing innovative technologies. Experience shows that the development of a drug takes 10 to 15 years. In principle,there is a risk that some or all of Medigene’s products may not be developed or marketed successfully. There is alsothe possibility that some product candidates may fail to obtain the regulatory approval required for marketing orfurther development, that one or all of the product candidates turn out to be hazardous or ineffective, that not all thefinancing required to develop product candidates can be raised, that the products cannot be manufactured in largequantities or marketed profitably, or that they are not sufficiently competitive. Furthermore, proprietary rights heldby third parties may pose an obstacle to marketing a product, or other companies may launch drugs that are superiorin terms of quality or market price.Risks of unsuccessful drug developmentPrior to commercial use, Medigene’s drug candidates have to pass through the preclinical development stages, followedby the individual phases of clinical trials with patients. In these trials, the effectiveness of the drugs and sideeffects are investigated. Once the preclinical and clinical trials have been concluded positively, the application formarketing approval can be submitted to the appropriate authorities. Once the application and data presented havebeen evaluated, the authorities decide whether or not to grant approval for marketing the particular product. There isa possibility that approval will be denied on the basis of the data submitted, or granted only on certain conditions, orthat additional data will be required for a final decision on the product’s approval. Delays in a clinical trial or in patientrecruitment may result in higher costs and delay the market launch. It is not possible to predict the results of preclinicaland clinical trials. Equally, the results of previous trials do not facilitate an accurate forecast of the outcome offuture trials.Many pharmaceutical and biotechnology companies, including Medigene, have experienced setbacks in clinical trialsdespite achieving promising results in earlier phases. Medigene works closely together with the regulatory authoritiesand performs an annual risk assessment for each project in discussion with in-house and external experts. The Companyachieves risk diversification with a product portfolio which is based on different technological and scientificapproaches that are independent of each other.The Company commissions specialised service providers to conduct the required clinical trials. Some of these contractsinclude a right of cancellation for the respective service provider. Cancellation of a contract by a service providermight cause a serious delay in the execution of clinical trials and thereby prolong product development significantly.Medigene places a great deal of importance on consulting only experienced and well-known service providersto undertake clinical trials. Nevertheless, it is possible that a service provider may fail to conduct a trial properly in allrespects, which could also cause delays in development.