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European Pharmaceutical Contractor

Healthcare Ecosystem

The management of risk plays a crucial role in highly regulated industries such as life sciences. To date, it has predominately been focused on ensuring the quality of the product that is delivered to the patient. Half a century ago, in the wake of the thalidomide disaster, the first drug Good Manufacturing Practice (GMP) guidelines were introduced to help manage risks within production in order to provide safe and effective products.

Subsequently, a series of further ‘rules’ (GxPs) have been implemented, covering the development of new products through to manufacturing operations and across the entire supply chain. Furthermore, the regulations governing the development and manufacturing of medicines continue to be tightened, with both the European Medicines Agency (EMA) and the US Food and Drug Administration (FDA) now placing more emphasis on risk management serialisation and active surveillance (1,2).

But with an industry facing considerable challenges within a rapidly changing environment, the nature of risk has undergone significant change. Consider the following risk implications:

  • The healthcare ecosystem in which life sciences companies operate is evolving, with traditional boundaries disappearing and new partnerships being formed which focus on the consumer and patient
  • Many life sciences organisations are now thinking beyond the product and offering an end-to-end solution to the consumer consisting of diagnostic and monitoring devices and supporting services
  • These smarter solutions may be digitised and interconnected, adding another level of complexity around both the volume of data and its origin

Life sciences executives need not only to consider the risk profile of their own drugs and their internal operations; increasingly they must also look at the wider global healthcare ecosystem. How do they manage risks that are within their control, alongside those over which they may have little or no influence?

Executives on Risk

In the past, the subject of risk has been high on the agenda for directors of quality and finance departments. Today, it is a hot topic of discussion across all executives in the boardrooms of life sciences companies.

In our 2010 chief executive officer (CEO) survey, 67 per cent of life sciences CEOs said that they were facing a world which was becoming dramatically more complex: deeper, faster product development cycles, carrying greater risk (3). In the next iteration of the same study, regulatory concerns were seen as the top external force affecting this industry. Compare this with the overall survey population where technology, people skills, market forces and macro-economic factors took priority over regulatory concerns (4).

When we talked to life sciences chief financial officers (CFOs), 95 per cent said they are taking a prominent role in driving risk management decisions across the enterprise. One respondent from a US medical device company said: “We [CFOs] are an important part of identifying where our risks are.” Unfortunately, only 56 per cent of CFOs believed that they were effective at this role (5).

Finally, when the industry’s chief information officers (CIOs) were asked about their plans to increase competitiveness over the next three to five years, they cited risk management and compliance in their top three solutions (6). In the same study, 60 per cent of outperforming CIOs said they were planning to implement risk management frameworks.

Impact of Convergence

Health system participants are increasingly re-evaluating their roles and strategically considering how the different pieces of the healthcare system puzzle fit together. Many life sciences companies are choosing to engage and collaborate more fully in the ecosystem, driving outcomes with solutions that extend ‘beyond the pill’. CEOs will need to determine how they can create value for both themselves and their partners.

In the past, efforts attempting to align financial incentives among multiple converging parties have been fraught with issues. However, improved technology and our ability to predict and adjust for differences in risk have created increased potential for participants to share risk and financial incentives. A key requirement for a sustainable model that provides a ‘win-win’ for all parties is to have a strong governance model in place (7).

Data Everywhere

However, technology is also contributing to growing complexity and risk exposure, creating a world that is more digitised and massively interconnected. In a recent survey looking at analytics and big data, 22 per cent of respondents from across life sciences and healthcare identified ‘risk and financial management’ as one of their top three objectives for the use of big data. Comments suggest that this reflects the industry’s need to identify fraud, efficiently process payments and comply with global regulations (8).

Despite this mass of data, many organisations are unable to adequately understand aggregated risks across their businesses: processes and systems are not integrated; decision support is poor; and a good working risk assessment approach is often not in place. How do organisations move to a situation where information from multiple sources is automatically analysed and correlated to identify areas of risk and regulatory compliance exposures? One option is to embed analytics into all facets of the operating structure.

Life Sciences Becomes Social

The use of social business tools in life sciences is promising considerable benefits in relation to engaging with consumers, as well as helping to accelerate innovation – but it is not without risk. Indeed, the FDA has yet to issue its long-awaited guidelines on social media, which in itself has caused confusion within the industry as to how to proceed while waiting for implementation.

Respondents to our social business survey cited a number of concerns about using social media tools, including attacks on their brand and reputation, legal issues, data security and privacy, and unintended disclosure of company information. In addition, social business risks are more visible, their impact can be felt more quickly, and they can be spread more widely than traditional risks.

While about half of companies surveyed said that they do not yet have effective processes in place to deal with these risks, nearly a quarter believe they do, and another third have efforts under way. They have established policies for employees to follow when engaging in social business, and a governance structure for managing and monitoring enterprise-wide social business behaviour (9). Successful companies identify potential exposure, proactively involve the right experts, and develop risk management plans for their social business (see Table 1, page 69).

Innovation Confidence

Annually, around US$200 billion is spent on R&D in science-driven sectors such as healthcare, life sciences, consumer products or chemicals, of which 60 per cent of pharmaceutical R&D is invested in products that will never reach the market. How do life sciences companies help mitigate this risk by identifying potential or known product flaws, and verify long-term and cumulative effects sooner in the development cycle?

By exploring new business models that set independent verification as a key part of scientific research, companies can create a reliable scientific basis, generate more value from R&D, reduce associated business risks and facilitate evidence-based policy making. Systems biology verification (SBV) can transform how organisations validate their scientific findings (see Figure 1). It can assure the safety and efficacy of products, bolster scientific credibility as well as company reputation, and safeguard people and the environment (10).

Assessing Hazards and Risks

The unknown, long-term impact of chemicals represents a high risk for the environment, wildlife and human health. The REACH programme (Registration, Evaluation, Authorisation and Restriction of Chemical Substances), launched by the European Commission, requires industry to demonstrate its ability to assess hazards and risks of chemical substances, and identify and implement measures to manage those risks. Experts estimate that the implementation of these requirements is expected to consume up to $14 billion and 54 million animals for testing. Costs as of 2012 have reached $2.3 billion. Using SBV, chemical businesses can prioritise the most suspicious toxins, then create a complete picture by verifying findings from empirical studies, aggregating information across multiple sources and companies, and using predictive methods.

Demanding Decisions

The variety, magnitude, scope and reach of the risks experienced by the life sciences industry continue to become more demanding. In this new era of heightened risk, there is a need for C-level executives to rethink their approach to risk management and ask themselves the following questions:

  • Am I integrating risk and compliance management into an overall business strategy?
  • Is risk management considered across the enterprise including with partners and alliances?
  • Do I understand how to best address regulatory and legal requirements across the globe?
  • Am I using analytics tools and frameworks to measure, compare and report risks?

Every decision-maker has a role to play in managing risk (see Table 2). It is also crucial to understand how they will work with other members of the company board in managing this critical topic across the entire enterprise.

References

1. Guideline on risk management systems for medicinal products for human use, EMA, November 2005. Visit: www.pharmacoepi.org/ riskmgmt/emea100505.pdf

2. Approved risk evaluation and mitigation strategies, FDA, 2007. Visit: www.fda.gov/drugs/drugsafety

3. Capitalizing on complexity: IBM Global CEO study, IBM Global Business Services, May 2010

4. Leading through connections: Insights from the Global Chief Executive Officer Study, IBM Global Business Services, May 2012

5. The new value integrator: Insights from the Global Chief Financial Officer Study, IBM Global Business Services, March 2010

6. The essential CIO: Insights from the Global Chief Information Officer Study, IBM Global Business Services, May 2011

7. Collaborating beyond traditional boundaries: What convergence means for our healthcare systems, IBM Institute for Business Value, June 2013

8. Analytics: The real-world use of big data in healthcare and life sciences: How innovative healthcare and life sciences organizations extract value from uncertain data, IBM Institute for Business Value, July 2013

9. The business of social business: What works and how it’s done, IBM Institute for Business Value, November 2012

10. Trusting the science that drives your business: A systematic approach to verify scientific claims, IBM Institute for Business Value, May 2013

11. Global initiative to combat counterfeit medicines, PhRMA, March 2013


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Heather Fraser has over 25 years’ experience in the life sciences and healthcare sectors, working across community pharmacy, the pharmaceutical industry and in consultancy. She is currently the global leader for the sectors in IBM’s Institute for Business Value where she develops strategies on related business issues. Recent papers have investigated the future of the life sciences industry and the implications for clinical and pharmaceutical development, manufacturing and the supply chain; alliance management between pharmaceutical, biotech and academic organisations; convergence across the pharmaceutical and healthcare industries; and the impact of emerging markets on pharmaceutical R&D.

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