Transcript Slide 1
ERM and the Pharmaceutical
Industry
Risk
An innate part of every aspect of life, and the business environment is of no
exception
Severity, both in terms of impact and likelihood, of risks are increasing in
general due to the influence of globalization
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
More than ever before, advances in healthcare are reaching new
horizons never before believed to be possible
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.