Reference no: EM133014203

EXPANDING HORIZONS FOR RISK MANAGEMENT IN PHARMA

Risk management has become a top-of-mind issue for C-suites and boards around the world-nowhere 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 riskmanagement 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 taking-whether 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 doubled-and in some cases more than quadrupled-over 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

Case extracted from: Mckinsey and Company https://www.mckinsey.com/business-functions/risk/our-insights/expandinghorizons-for-risk-management-in-pharma Answer ALL the questions in this section

Please reference

QUESTION 1 As part of understanding their internal and external environments, critically discuss any model(s) that can be successfully applied by pharmaceutical organisations so that they can have an accurate acknowledgement of potential risks.

QUESTION 2 In the context of the pharma industry, examine what risk culture entails and critically discuss the factors that are considered as influential in determining the risk culture of the industry and organisations.

QUESTION 3 With reference to the pharmaceutical industry, discuss operational risks and provide a detailed report motivating why there is a need for organisations to invest in operational risk management processes.

QUESTION 4 You have been requested by Mr Mdumseni Zulu, the CEO of Smith and Nephew, a leading pharmaceutical company, to examine what effective risk management entails in the context of the pharma industry. Highlight what would be the major issues in effective risk management.