EXPANDING HORIZONS FOR RISK MANAGEMENT IN PHARMA

Risk management has become a top-of-mind issue for C-suites and boards around the worldnowhere more than in

pharmaceutical companies. In a politically and economically turbulent environment, the risks pharma companies face,

especially in clinical-trial design and execution, drug approval, product quality, and global commercial practices, are

increasing in both frequency and magnitude. One obvious sign of the challenging risk environment (among several factors at

work) is the sharp decline in the valuation of specialty companies (35 percent decrease), generic-drug manufacturers (25

percent decrease), and biotech companies (30 percent decrease) over the past two years. Many pharma companies admit

they feel poorly prepared to navigate these choppy waters because their risk analysis and management is not as robust, data

driven, action oriented, or far-reaching as they would wish.

The pharmaceutical industry is unique in several ways, such as the particular clinical challenges it faces in R&D processes,

and the elaborate requirements for market access. However, our experience indicates that these unique characteristics, while

important for risk management, are not the whole story. Several other sectors have much in common with the pharma sector,

and the advanced risk-management practices they adopt can be readily adapted to a pharma context, just as leading risk-

management practices in the pharma industry are transferable to other industries. Like energy companies, pharma

companies have high capital expenditure and long payoff periods for assets. Like banks, pharma companies operate in a

highly regulated environment in which compliance risks are very high (for instance, for improper or poor filings) and other

risks (such as sales-conduct risks) are present across many markets globally. Pharma companies also face risks that cut

across sectors, such as cyberthreats, data breaches, supply-chain risks, quality risks, geopolitical exposures, and risks

from third and fourth parties.

With these commonalities in mind, we have identified five risk-management ideas frequently seen in other sectors that can

bring benefits to the pharma industry. These ideas will not only help pharma companies protect themselves against risk but

also enable them to optimize their risk takingwhether to differentiate themselves from competitors or to deepen their

thinking about risk/return trade-offs in management decisions. These include

Developing a robust quantitative view of which risks matter most

Organize around three lines of defense to strengthen oversight and minimize duplication

Establish your risk appetite and prioritize where to focus

Take advantage of big data and advanced analytics

Form strong crisis-management preparedness

However robust an organization's risk-management capabilities, they can never rule out the possibility of a crisis event.

Indeed, research has shown that such events have at least doubledand in some cases more than quadrupledover the

past ten years across industries. As the threat level increases, so does the need to not only improve core risk capabilities but

also maintain a strong level of crisis preparedness. Being prepared for a crisis includes both obvious elements, such as

ensuring that senior leaders can quickly respond, and less-obvious aspects, such as integrating crisis scenarios into

budgeting and planning. Too often, crisis-management training and preparation revolves around crisis communications,

which is only one part of a much broader challenge. Instead, executives need to plan how the whole company would function

during a crisis. That preparedness planning needs to include considering how the organization and leadership will respond,

how to stabilize stakeholders, and which operational and technical activities will be critical. It should include deciding how

investigation and governance will be conducted how marketing, brand, and communications teams can help with crisis

management and what financial and liquidity provisions are in place. Finally, it should include thinking through how legal,

third-party, and other issues will be handled and how ready the whole organization is to cope with any crisis that might

emerge

QUESTION 1

As part of understanding their internal and external environments, critically discuss any model(s) that can be successfully applied by pharmaceutical organizations so that they can have an accurate acknowledgement of potential risks.

The question should be answered in the following layout:

Identify the relevant frameworks that can be applied in ensuring that they understand and conceptualize risks. The model or framework identified should be critically discussed and applied within the context of the case study.