Forward Looking Statement - Risk Management

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Research and Development Risks

Performing research and development within the pharmaceutical industry is subject to significant risk. It is well known that new potential pharmaceutical products have to undergo a lengthy process, from early research through clinical studies and development activities, before they can be approved and authorized for sale on the market. Some product candidates are never approved; other projects are abandoned, for various reasons, during the research and development process.

Clinical studies are lengthy, time consuming, and expensive, and they have uncertain outcomes. Nevertheless, it is a regulatory requirement to conduct them to provide the necessary documentation for our product candidates to obtain a marketing authorization. Over the development period, we work closely with the health authorities to ensure our development programs have the best possible chance of success.

Commercial Risks

Diverse commercial risk factors include risks related to market acceptance, effective commercialization, and competition related to Fenoglide® and the Veloxis product candidates, as well as the ability to attract and retain employees and partners. We continuously monitor and evaluate the market development of, and the competitive landscape for, our products and product candidates to proactively manage applicable risks.

Our business strategy provides us with the freedom to seek partners for certain product candidates and develop our own sales and marketing organization for others. In 2008, we concluded an agreement with Cowen Healthcare Royalty Partners whereby we sold the future royalty stream related to the sale of Fenoglide® in North America and thereby mitigated the commercial risk significantly.

Financial Risks

Our expenses and investments are primarily in Danish kroner (DKK) and US dollars (USD). However, our revenues are in currencies other than DKK, primarily USD and, to a smaller extent, Euros (EUR). Therefore, our net expenses and any future investment or other income may be vulnerable to fluctuations in exchange rates. We actively mitigate such fluctuation by placing some of our cash position in demand deposits in USD.. If we fail to manage foreign exchange risk adequately, the results of our operations and expectations, and the value of Veloxis, may be adversely affected.

We do not have any interest-bearing debt except for finance lease arrangements. Our interest risk is, therefore, primarily related to our cash position and cash equivalents. It is essential to our activities to ensure we maintain our capital while at the same time we maximize the income derived from our excess cash without significantly increasing the risk. Veloxis' treasury policy allows the company to hold excess cash at deposits with major Danish banks and in short term Danish government and mortgage bonds.

Legal Risks

Biotechnology and pharmaceutical companies are often involved in legal proceedings concerning a variety of issues, including product liability claims, claims related to quality and safety, and infringement of intellectual property rights. Currently, we are not involved in any legal proceedings.

The appropriateness of the Veloxis insurance policies is assessed regularly. At least once a year, the Board of Directors reviews the insurance policies in detail. Currently, Veloxis carries product liability insurance for our product candidates in clinical development.

At Veloxis, quality and safety matters are of utmost importance. A detailed quality assurance system is in place for in-house company activities as well as for our external partners and suppliers.

Although we believe that the activities relating to Fenoglide® and our product candidates do not infringe on any third-party intellectual property rights, we can never rule out that we may become involved in costly and time-consuming intellectual property litigation. Our product and product candidates are subject to ongoing freedom-of-operation analyses in relation to third parties' intellectual property rights, and our competitors' activities are constantly under surveillance.

Internal Controls and Risk Management in Relation to Financial Reporting

The Financial Reporting Process Veloxis internal controls and risk management are planned with a view to presenting financial reports in accordance with International Financial Reporting Standards (IFRS), as approved by the EU, and other disclosure requirements to annual reports of listed companies, providing a true and fair view without material misstatement; selecting and applying appropriate accounting policies and exercise of accounting estimates that are reasonable in the circumstances.

The Executive Management and Board of Directors determine and approve the overall policies, procedures, and controls in material areas relating to the financial reporting process.

The Board of Directors has set up an audit committee to assist the Board of Directors and Executive Management in monitoring the financial reporting and the efficiency of internal control and risk management systems at Veloxis.

The maintenance of an efficient control environment and internal control and risk management systems is the responsibility of the Executive Management. As a tool to identify and manage the critical risks, Veloxis has implemented a control environment with internal systems designed to reduce identified risks to an acceptable level.

Risk Assessment At least once a year, Veloxis assesses the risks identified and reports these risks to the Executive Management and Board of Directors. The major risk in relation to the financial reporting process relates to ensuring sufficient liquidity to be able to meet the Group's liabilities as they are due. Other risks relate to estimates made in connection with the financial reporting. These estimates are further described in the section, "Critical Accounting Estimates and Judgments," in the Annual Report.

Capital Management

Rolling budgets are prepared on both a short-term and a long-term basis to ensure that the Group always has sufficient funds to pay its liabilities as they are due, and that Veloxis can, in the long term, finance the Group's research and development projects.

Control Activities The objective of control activities is to prevent, detect, and adjust any errors or irregularities. The activities are integrated into the Veloxis accounting and reporting procedures and comprise, among other things, procedures for certification, authorization, approval, reconciliation, analyses of results, segregation of incompatible functions, controls relating to IT applications, and IT general controls.

Policies and Procedures Policies and procedures are reviewed at least once a year and updated when necessary. Relevant policies are reviewed by the audit committee and, if necessary, in special areas approved by the Board of Directors.

Monitoring Veloxis uses a finance system for monitoring the Group's results. Monthly reviews are based on interim financial statements. In connection with the preparation of the Annual Report, additional analysis and control activities are performed to ensure that the preparation of the Annual Report is in accordance with the IFRS provisions described under Accounting Policies in the Annual Report