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Corporate Governance

Compliance with the Combined Code

The rules of the Alternative Investment Market (AIM) do not compel the Company to comply with the Combined Code (the Code). Nevertheless, the Company fully endorses both the spirit and principles of the Code and seeks to comply wherever possible, whilst taking account of both its own size and its resources. Precisely how the Company has applied these principles is set out in the following statement.

Board of Directors

The Board meets at regular intervals, normally no less than ten times a year. The Company is committed to maintaining a balance of Executive and Non-executive Directors and the Board consists of six members, three are Executive Directors, the remaining three, one of whom is Chairman, are Independent Non-executive Directors. T Wright was appointed Executive Director on 17 October 2005, N J Goldsmith was appointed Executive Director on 12 June 2006 and H G McMillan was appointed on 1 May 2005 as a Non-executive Director. M A F Macpherson retired as Chairman on 20 January 2006 with H G McMillan assuming the role as at that date. The Board believes that, given its size and complexity, it is not appropriate to specify a Senior Independent Director.

All Non-executive Directors are members of both the Audit and Remuneration Committees. Their biographies illustrate their relevant corporate and industry experience.

Given the Company’s limited resources and manpower, there is no separate Nominations Committee. However, any new appointments at Board level are considered and approved by the full Board. A detailed introduction to the activities of the Company is given to any new appointee who is also provided with any appropriate training deemed necessary. The Company Secretary, to whom all Directors have full access, attends all Board and Committee meetings.

Audit Committee

P Murray is Chairman of the Audit Committee, which meets at least twice a year. The Finance Director is generally in attendance at those meetings and also acts as secretary to the Committee. An invitation is also extended to the auditor to attend meetings of the Committee in order to discuss related matters. On a more formal basis, the Committee also reviews with them those reports to be issued by the auditors to the Directors.

The Audit Committee also undertakes a formal assessment of the auditor’s independence each year which includes:

  • a review of the non-audit services provided to the Group and related fees;
  • discussion with the auditor of a written report detailing all relationships with the Company and any other parties that could affect independence or the perception of independence;
  • a review of the auditor’s own procedures for ensuring the independence of the audit firm and partners and staff involved in the audit, including the regular rotation of the audit partner; and
  • obtaining written confirmation from the auditor that, in their professional judgement, they are independent.

An analysis of the fees payable to the external audit firm in respect of both audit and non-audit services during the year is set out in Note 3 to the financial statements.

AIM Committee

To comply with the London Stock Exchange AIM Rules for Companies (Rules), Rule 31, the Company must:

  • have in place sufficient procedures, resources and controls to enable its compliance with the Rules;
  • seek advice from its Nominated Adviser regarding its compliance with these Rules whenever appropriate and take the advice into account;
  • provide its Nominated Adviser with any information it requests in order for that Nominated Adviser to carry out its responsibilities under these Rules and the AIM Rules for Nominated Advisers;
  • ensure that each of its directors accepts full responsibility, collectively and individually, for its compliance with these rules; and
  • ensure that each Director discloses without delay all information which it needs in order to comply with Rule 17 insofar as that information is known to the Director or could with reasonable diligence be ascertained by the Director.

In order to ensure that these obligations are being discharged, the Board has established a committee of the Board (the AIM Committee), chaired by Geoff McMillan, the Non-executive Chairman of the Company.

Having reviewed relevant Board papers and met with the Company’s Executive Board and the Nominated Adviser to ensure that such is the case, the AIM Committee is satisfied that the Company’s obligations under AIM Rule 31 have been satisfied during the period under review.

Internal control

At the present time, given the aforementioned limitations imposed by manpower and resources, there is no internal audit function. The Board is responsible for the Company’s system of internal control, which is designed to manage rather than eliminate the risk of failure to achieve business objectives; it can therefore only provide a reasonable and not an absolute assurance against material misstatements or losses.

Proper briefing of all Directors at Board meetings is considered an important issue, and all Board papers are distributed in advance of those meetings; meetings are either adjourned or decisions deferred on occasions when the Board seeks the provision of further information upon which to base its decisions. There also exists a formal schedule of matters specifically reserved for decisions by the Board.

During the year the Directors have reviewed and are satisfied with the adequacy of the Group’s internal financial controls. These controls include the following:

  • a comprehensive annual budgetary process, reviewed and approved by the Board; and
  • the monitoring of actual results against budgets, together with the revisiting of forecasts whenever it is deemed appropriate, no less than at monthly intervals.

Using the guidance on internal controls contained in the Combined Code as a benchmark, the Group continues to develop its review procedures of all other aspects of internal control, including operational and compliance issues and risk management.

Principal risks and uncertainties

IS Pharma’s business is influenced by a range of factors, some of which may be beyond the control of the Group and its Board. The risk factors set out below are regularly reviewed by the Board in the course of operating its business and should be considered carefully.

There may be other risks which the Group is not aware of, which are not deemed to be material but turn out to be material.

  • Adverse information about one or more of IS Pharma’s products is received by the Group’s customer base, with a negative impact on demand for its products.

IS Pharma conducts extensive clinical trials on its products before they are launched in their respective markets. In the event of the Group becoming aware that any adverse effects are attributed to the use of its products, we would immediately take steps to fully investigate these and in accordance with the responsibilities placed upon us by the Medical and Healthcare products Regulatory Agency, would immediately notify our customers and/or withdraw those products from sale, as appropriate. Where these were proven to be false or ill-founded, we would consider issuing information to our customers communicating the facts to them.

  • IS Pharma experiences a significant increase in the cost of producing its product.

In the event of a significant increase in the cost of producing one or more of our products we would seek alternative sources of supply at the earliest opportunity to mitigate the impact on our profitability.

  • The Group is unable to fulfil its commitments to supply its products, with adverse consequences for its customers.

IS Pharma has obligations under some of its key contracts to guarantee the supply of its products. The Group safeguards its ability to meet these obligations, by closely managing its relationships with its suppliers, as well as continuously reviewing its stock levels to ensure that these are adequate, while at the same time properly controlled.

  • A product liability or similar lawsuit is issued against IS Pharma, resulting in substantial financial penalties.

We are confident that the robustness of the clinical trials process prior to the launch of our products, minimises the risk of claims against the Group as a result of its products. We also continuously review the production quality of IS Pharma’s products, to ensure that this is consistently high. Were a claim to be lodged against the Group in respect of its products, IS Pharma believes that its product liability insurance would indemnify it in the majority of cases.

Communication with shareholders

The Board has a strong commitment to the maintenance of good investor relations and seeks, wherever possible, to build a relationship of mutual understanding with both its institutional and private investors.

Corporate social responsibility

IS Pharma takes its Corporate Social Responsibility ("CSR") seriously. As part of the Company’s CSR policy, staff are encouraged to get involved in voluntary work in the community. This can range from assisting at local hospitals or schools, to working in a charity shop or getting involved in nearby environmental projects. Several members of staff are already involved in the community and spend one day a month on paid leave helping others.

IS Pharma continues to recycle as much of its waste as possible.

Going concern

The Board believes that IS Pharma has sufficient working capital to see the Company through to profit. The Board will continue to monitor the progress of the acquisition, development and launch of new products and the financial position in order to ensure that the Group continues to have sufficient funding to continue in business. For this reason, the Board continues to adopt the going concern basis in preparing the financial statements.

Renumeration Committee

The Remuneration Committee, consisting of all three Non-executive Directors and chaired by J H Gregory, meets at least once a year (or more frequently as required). The Committee is responsible for the remuneration of the Executive Directors, including their benefits in kind, terms of employment and share options; the Executive Directors also consult the Committee in relation to the remuneration of senior employees and staff share option schemes. It takes account of remuneration paid to the directors and senior employees of other companies of a similar size and comparable industry sector in the UK, and the relative performance of such companies, to ensure that the remuneration packages offered are competitive and designed to attract, retain and motivate Executive Directors and senior employees.

The remuneration of the Non-executive Directors is determined by the Board as a whole, based on outside advice and review of current practices in other companies. The Chief Executive Officer and Company Secretary (who also acts as secretary to the Committee) are both normally in attendance, except when their own remuneration is under discussion.