Week 3 Assignment Paper

November 18th, 2013

MET AD613
Donald Byrne, Michael Jennings
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AD613 Assignment 3

Week 3 Assignment Paper

Introduction

In the introduction of their book, “Making Enterprise Risk Management Pay Off: How

Leading Companies Implement Risk Management”, authors Barton, Shenkir, and Walker state in

no uncertain terms that, “a business that cannot manage its key risks effectively will simply

disappear” (Barton, Shenkir, & Walker, 2002, p. 1). Indeed, in an increasingly uncertain

economy, stakeholders expect companies to identify and manage business risk in order to

increase profitability and control volatility in the marketplace. No force has created more

uncertainty in the marketplace like that of technology, and, more specifically, the field of

biotechnology. Biotechnology is defined as any technological application that uses biological

systems, living organisms, or derivatives thereof, to make or modify products or processes for

specific use (Somsen, 2005). As of 2010, the United States has the largest number of

biotechnology firms (6,213 firms) and had spent USD 22, 030 million PPP on biotechnology

research and development (OECD, 2011). Medical Biotechnology, more specifically, is the

largest component of the biotechnology industry. Key product areas include biological drugs,

vaccines, and in-vitro diagnostics, primarily designed as treatments for cancers, infectious

diseases, auto-immune conditions, HIV/AIDS, and other diseases for which no effective

treatments exist (Somsen, 2005). For all countries combined, 51% of firms are active in Medical

Biotechnology (OECD, 2011). Given this activity level, along with its very long product

development cycle, high financial investments and multifaceted risk environment, legal risk

exposures in the biotechnology field are heightened. Vanderbyl & Kobelak eloborate:
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“Biotechnology is an industry sector where a high failure rate for companies is

considered the norm. The opportunity for high-profit levels is what currently drives the

industry and sustains investment even in the backdrop of the elevated risk. In order to

break down industry barriers and decrease failure rates, biotechnology companies require

a sophisticated risk management plan.” (Vanderbyl & Kobelak, 2008, p. 134).

Developing a risk management plan for the medical biotechnology industry is fraught

with a number of challenges. First, biotechnology business is about innovation, and due diligence

relating to patents and other forms of intellectual property are a critical consideration. Secondly,

biotechnology firms are very capital-intensive and have an extremely lengthy turnaround time

from R &D to the market place, increasing the amount of risk in comparison to other technology

ventures. Additionally, health and environmental risk factors are accentuated because the

industry deals with matters that affect the medical conditions of human beings. Lastly,

biotechnology-related data analysis relies heavily on the use of IT, and this opens the industry up

to a variety of different risk factors (Spedding, 2009). It has been my experience that

successfully meeting these types of challenges is a function of gaining a comprehensive

understanding of compliance and utilizing models and frameworks developed by governing

bodies for the purpose of maintaining standardization within the industry. Besides having the full

support of upper management, adopting a proven methodology is one of the key success factors

of any initiative in an orgainiaztion.

The Plan

The U.S. Department of Health and Human Services, Food and Drug Administration

(FDA) is the primary regulatory body of the medical biotechnology industry. The FDA provides
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AD613 Assignment 3

guidance to the industry in terms of adopting a systematic approach to risk management.

Therefore, the FDA’s best practices can be used as framework for implementing a system-wide

risk management plan. This plan should allow for the assessment, control, communication and

review of risks to the quality of the drug product across the product lifecycle. The assessment

steps outlined by the FDA include risk identification, analysis, and evaluation. The control

segment consists of risk reduction and acceptance. Finally, the review stage includes a thorough

review of risk events and lessons learned (U.S. Department of Health and Human Services, Food

and Drug Administration, 2006). A comprehensive risk assessment is an essential aspect of the

plan, as “it highlights how an issue might cause company performance to vary from its business

plans, identifies the external risks that affect the viability of the business model and addresses the

internal risks that can affect the execution of the business model” (Vanderbyl & Kobelak, 2008,

p. 163). In order to establish a sound and robust risk management process, there must be an

appropriate buy-in to the risk assessment model by all levels within the organization, thereby

establishing a holistic and integrated risk management framework at the corporate level

(Spedding, 2009).

Conclusion

The need to evolve a structured and proactive legal risk management framework is an

imperative that stakeholders in biotechnology ventures cannot ignore. Success is dependent on

an understanding of the fact that no ‘one size fits all ’approach exists in risk management.

Therefore, “it is important that businesses operating in the biotechnology sector have in place

risk management processes which are appropriate for their individual risk profile, operational

structure; and corporate governance practices” (Spedding, 2009, p. 219).

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References

Barton, T. L., Shenkir, W. G., & Walker, P. L. (2002). Making enterprise risk management pay

off. FT Press.

OECD. (2011). Key biotechnology indicators. Retrieved from

www.oecd.org/science/innovationinsciencetechnologyandindustry/49303992.pdf

Somsen, J. (2005). Regulating modern biotechnology in a global risk society: Challenges for

science, law and society. Amsterdam University Press.

Spedding, L. S. (2009). The due diligence handbook: corporate governance, risk management

and business planning. Elsevier.

Vanderbyl, S., & Kobelak, S. (2008). Risk management for the biotechnology industry: A

canadian perspective. Journal of Commercial Biotechnology, 14, 128–140.

U.S. Department of Health and Human Services, Food and Drug Administration. (2006). Q9

quality risk management