Transcript Slide 1

ERM and the Pharmaceutical
Industry
Risk
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An innate part of every aspect of life, and the business environment is of no
exception
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Severity, both in terms of impact and likelihood, of risks are increasing in
general due to the influence of globalization
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Systematic risks
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General economic conditions, competition, regulation
Industry specific risks
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Ex: Political tensions and their impact on the oil industry
Pharmaceutical Industry
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More than ever before, advances in healthcare are reaching new
horizons never before believed to be possible
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Perhaps the riskiest industry due to its unique environment
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Intense competition to create new drugs and from generic drug
manufacturers
Government regulation -- FDA Drug Approval Process
Patent protection issues
Drug failure
Litigation exposure
FDA Approval Process
 Food and Drug Administration (FDA) regulates pharmaceuticals in
the United States
› Drug safety, quality standards, labeling and warnings, etc.
 The drug approval process is extremely complex
› Preclinical laboratory testing (often involves experimentation with
animals)
› Three phases of human testing
› Post market monitoring
FDA Approval Process
› Graphical Depiction
› Statistical Reality
› For every 5,000
compounds that enter
preclinical testing, only
about 5 reach first
phase of human
testing
› Of the 5 that make it to
human testing, only
roughly 1 will achieve
approval
COSO’s ERM Framework
 Enterprise Risk Management (ERM) involves the procedures and methods
used by an organization to assess, manage, and mitigate risk
 Committee of Sponsoring Organizations of the Treadway Commission
(COSO) developed a widely used ERM framework during a period of
widespread corporate scandals
COSO’s ERM Framework
 ERM Objectives (4)
› strategic objectives
› operations
objectives
› reporting objectives
› compliance
objectives
 ERM Components (8)
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internal environment
objective setting
event identification
risk assessment
risk response
control activities
information and
communication
› monitoring
Application of ERM to Pharmaceutical
Companies
 Internal environment is a vital component in terms of
protecting an organization’s sensitive research and
development information
› Corporate culture built upon high ethical standards
› Proactive measures to hire individuals with integrity
› Adequate and effective internal controls
Conclusion
 Clearly, pharmaceutical companies face a myriad of risk
factors
› Intense competition and government regulation (FDA approval
process)
 However, ERM is an effective way for pharmaceutical
companies to manage their risks
› Reduce exposure to losses due to competition, drug failure,
litigation, etc.