Empowered risk management functions are required in this dynamic risk landscape
28 May 2020
In early April, as the world continued to battle with the COVID-19 global health emergency, the UK announced the biggest clinical trial so far for the treatment of patients infected with the virus. Having now recruited over 10,000 patients in 176 hospitals, the Recovery trial is one of many programmes around the world trying to find both a treatment and an effective vaccine for COVID-19, reflecting the integral role the life sciences industry is playing in the efforts to end the pandemic.
The race to deliver effective therapies however shouldn’t disguise the business risks the industry faces as demand for its products and services grows in some areas and declines in others. Effectively managing these risks – ranging from shifting customer demand, through to supply chain stresses, HR issues for remote workers, reputational threats, and increasing cyber exposure – need to be a critical focus of every organisation’s crisis response and ongoing business continuity efforts.
Overall, the economic impact of the pandemic on life sciences is not as severe as it has been for many other industries. There will be some businesses that support therapies that are not currently happening as a direct result of COVID-19, such as elective surgeries and other planned treatments. These businesses may be seeing a negative impact, as are companies who have had their clinical trials disrupted from clinics who have shifted their focus to the pandemic.
There are also disruption and delays expected in product launches and some key industry conferences have been cancelled. But for other companies in areas where treatment continues to be ongoing such as oncology, there will have been less impact, while the pandemic related demand for drugs and medical devices like ventilators will have boosted revenues for many other pharma and medtech operations, and even resulted in manufacturers entering the life science industry to combat the COVID-19 pandemic.
Overall, it’s a story of fluctuating fortunes but most of the larger life science organisations can count on their diversification to see them through the immediate economic impact.
The pressure to find effective treatments is of course a double-edged sword for pharma businesses. It’s a highly regulated industry and public statements around drug development will be closely followed by the financial markets. If companies find they haven’t delivered in line with their public statements, they could for example find themselves investigated by regulators and their directors and officers may be the target of claims from disgruntled shareholders.
Reputationally pharma businesses may take a hit but on the flip side, the organisations that crack the problem are likely to reap the rewards. There are also reputational gains to be made from donating lab capacity for example to areas like public testing.
Working from home
Life science businesses may also need to take careful watch on how their employees respond to increased levels of remote working. Employees may be feeling more isolated and out of the loop. Although employees may already be well used to working in global virtual teams.
Increased cyber exposure could however be a negative consequence of increased homeworking. The life science sector has always been an attractive target for hackers and it could be even more so given its critical role in helping countries find a way out of the pandemic. More employees working from home, despite the quality of the IT security and training, may inevitably increase the likelihood of a hacker finding a way to penetrate the system.
Supply chain stretched
Other risks likely to cause ongoing problems include supply chain pressure. Although the industry has been seeing some drug shortages for the last couple of years, the pandemic will probably exacerbate some of those supply chain issues.
The role of insurance here may be closely examined and the need to revisit the entire way it looks at supply chain business interruption (BI) cover. While there have been BI solutions in the market in relation to the supply chain, they haven’t been widely taken up. These solutions have become outdated and haven’t responded to the changing nature of the risk and the effects of systemic events – like this pandemic – have not been properly understood.
Recovery and review
What insurers can do to help ensure the sustainability of supply chain and production is a wider question and challenge for both the insurance industry and life science businesses to consider once the immediate demands of the pandemic begin to recede, and thoughts turn to recovery and the eventual review of what went well in the pandemic response and where more work is needed.
For more help and advice on how to respond to the COVID-19 crisis, download Aon’s Decision Making In Complex & Volatile Times: Keys to Managing COVID-19 – a comprehensive framework to help organisations make the right decisions at the right time.
Disclaimer: The information contained in this document is intended to assist readers understand COVID 19 issues and is for general guidance only. This document is neither intended to address the specifics of your situation nor is it intended to provide medical, legal or specific risk advice. You should review the information in the context of your own circumstances (including further safety or medical information from credible sources) and develop an appropriate response. Each insurance policy must be specifically reviewed to determine the extent, if any, of coverage for COVID-19 noting that coverage may vary depending on jurisdiction and circumstances.