A number of complex hazards can affect the pharmaceutical supply chain. Tom Teixeira, life sciences practice leader for the Willis Group, discusses the benefits of an integrated risk management framework in controlling these dangers.

Can you describe how an integrated approach to risk management works?

Tom Teixeira: With today’s companies facing a challenging economic and regulatory environment, effective management of risk and reward has become increasingly important for any overall business plan. What an integrated approach to risk management offers is a framework to align each and every aspect of risk that a company might face, from risk retention through to financing and transfer.

What are the benefits of this strategy for the pharmaceutical industry?

There are two key benefits: one is related to the improvements made within the decision-making process, which creates greater resilience across the company; the other relates to the major decisions pharmaceutical companies must take in order to reduce uncertainty and remain competitive. They face a raft of potentially hazardous situations in drug development, acquisition, supply chain management and diversification. Integrated risk management can provide the data to effectively manage these scenarios, ensuring that the correct strategic decisions are made.

At the operating level, you may see a reduction in losses as a result of more effective controls. You may also see a fall in insurance premiums as underwriters look more favourably on effective risk prevention and continuity planning measures.

What dangers does the pharmaceutical industry face in terms of supply chain disruption?

With the move towards lean manufacturing, pharmaceutical companies and CMOs are becoming increasingly reliant on a smaller number of key suppliers, both internally and externally. The sudden loss of one of these suppliers could lead to major business disturbance and potential disruption to future revenues. Other risks, not necessarily related to property damage at supplier sites, are also important. These include cyber attacks, problems with IT infrastructure, regulatory shutdowns, a loss of validation and certification, product recalls and political risk.

"Risk management will always remain an important function for the pharmaceutical sector."

If a dual sourcing strategy has not been adopted, it can take between six and 18 months to get an alternative supplier in place to produce an active pharmaceutical ingredient intermediate that is FDA/MHRA/EMA-approved. This is why risk-management strategies are so crucial.

Can you describe the dangers involved in running clinical trials across geographical borders?

Obviously, you have a lot of administration costs, particularly when a number of trials are being undertaken concurrently. You also have to understand the laws and rules for insurance protection and cover, which might not apply in other, more familiar, locations. It’s also important to monitor any changes to the trial conditions and the data that is being produced.

How do you think good risk management can control these perils?

These problems can be managed through a combination of business continuity planning, risk assessment methodologies and the right type of insurance product. For supply chain risk, consideration should also be given to dual sourcing and buffer-stock strategies, and potentially buying financially fragile suppliers. For foreign clinical trials, technology portals that can access the latest data on country requirements can assist in ensuring the required insurance cover is always in place.

What future trends do you see for the pharmaceutical industry when it comes to risk management?

Risk management will always remain an important function for the pharmaceutical sector. The frameworks that large companies operate must be able to adapt to the changing profile of risk. As new products are developed, new risks will need to be managed with ever-more complex manufacturing and distribution systems, shorter product lifecycles and different supply chains. Future consideration must also be given to the possibility of greater public scrutiny and heavier regulation.

The extended supply chain will need to adapt as the requirements around risk assessment and risk management continue to grow. As a global insurance broker, Willis offers advice and solutions to support its clients in implementing this kind of approach. It means that all key insurable and non-insurable risks can be identified, understood, prioritised and then sent to the appropriate level of management to be dealt with.