From the Editor: Are You Myopic About Risk?

March 8, 2010
Two years after the heparin disaster, the drug industry is still vulnerable to major quality, safety and security risks.

Risk management is at the heart of most issues in pharmaceutical research, development and manufacturing today. We see its principles being embraced by regulators, who are using principles outlined in ICH Q9 to harmonize efforts, prioritize inspections and even speed up drug approvals. Through its Risk Evaluation and Mitigation Strategy (REMS), for instance, FDA is requiring companies to look more closely at post-marketing patient safety data, to avoid scenarios like the Vioxx recall in the future. 

Last month, FDA shortened the approval time for a multiple sclerosis drug and a leukemia therapy because the drugs manufacturers had submitted adequate risk data to several global regulatory bodies.

For their part, drug manufacturers are becoming better at “triaging” operations, focusing on what is most critical to product quality and becoming more comfortable with FMEA, simulation and other risk management tools.

However, many drug companies are siloed. Now, some of them are also in the midst of mergers and restructuring, which makes it harder to assess risk. How many of the over 60,000 people in this industry who lost their jobs last year possessed some piece of knowledge critical to managing risk?

Pharma is still vulnerable to disasters on the scale of the 2008 heparin recall. The problem is that drug companies may be focusing too narrowly on regulatory compliance, leaving them unaware of huge, looming quality, supply chain and security problems.

So concludes a recent survey by the Economist Intelligence Unit for KPMG (available here) which suggests that most pharma risk management programs today are reactive, rather than proactive, and driven from the CEO-level down. 

Two thirds of the companies surveyed do not have a chief risk officer and don’t plan to hire one. That would be fine if their management were ensuring that people throughout their organizations were adequately trained, and making risk management part of the corporate fabric. Unfortunately, KPMG analysts say, survey results suggest they aren’t.

Further complicating the picture is pharma’s new business model, with its focus on outsourcing, both on and offshore. Companies may not be adequately managing the risk posed by business partners’ clinical, manufacturing, distribution, sales, financial reporting and legal practices, say KPMG analysts. Similar conclusions were reached in a survey that Marsh Consulting and published two years ago.

For a dramatic example of what can go wrong, pharma need only look at one of its favorite Operational Excellence role models, Toyota, which has reportedly lost $30 billion in stock value over the past few months, and is said to be losing $155 million per week as a result of recent product recalls. 

Analysts have said that company management was aware of brake problems in its cars at least seven years ago, and possibly earlier, but that they had failed to take concrete action, to analyze safety data to control the sources of the problem. One analyst even suggests that these problems were created by Toyota’s U.S.-based subsidiaries, which became so concerned with controlling cost and competing with the Big Three that they neglected quality.

Toyota’s story is a cautionary tale for Big Pharma as it competes with generic manufacturers, whose products now account for 70% of all U.S. prescriptions. It’s also a wake-up call for any industry on the importance of analytics, data mining, continuous improvement and closed loop control.

The Internet age is unyielding where risk management is concerned. Consider J&J, a pharma company that, like Toyota, has become synonymous with quality and safety. 

Public relations experts today question whether J&J’s classic response to the Tylenol tampering case of 1982 could even take place in today’s 24/7 news environment.

As Chris Gildiz, director of risk management at Hill & Knowlton said in a February article in National Underwriter, had the event happened today, there might have been internal questions about packaging security, followed by the discovery of an email from a product packaging engineer saying ‘we could put wrapping  around the containers, but it will cost three tenths of a percent per unit, and it’s cost prohibitive.” 

Over two decades later, J&J has been dealing with drug recalls of its own.

Even the best role models can teach by negative example. Can we learn from them quickly enough?

About the Author

Agnes Shanley | Editor in Chief