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Ws from innovation to litigation neil campell and james bird


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White paper - abstract of the presentation of James Bird, Partne and ,Neil Campbell, Partner and Head of Life Science Practice JLT-Group at the Workshop 'From Innovation to Litigation' during the Dutch Life Sciences & Health Conference 2010

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Ws from innovation to litigation neil campell and james bird

  1. 1. Early stage ERM implementation forLife Science and Biotech companies
  2. 2. Early stage ERM implementation for Life Science and Biotech companies1Foreword Businesses in the Communication, Technology and evolve, too. In 2004 JLT founded the Media sectors experienced rapid growth into the Communications, Technology & Media (CTM) early-2000s, which at the time seemed unstoppable Practice to bring together our global expertise and so long as the technology behind those businesses experience in these sectors. Today, the CTM evolved at such an incredible rate. In fact, with Practice has an unrivalled record of working on broadband becoming ubiquitous, the growth of data exciting and challenging projects for some of the services exploding, and the plummeting price of most significant players in the global industry, hardware against rising expectations of capability, providing consultancy, risk management and risk the value chain has fragmented rapidly. Services financing services in Europe, North America, Africa have been saturated and commoditised, meaning and Asia. As a result, we have developed an slower growth and narrower margins. excellent understanding of the regulatory and commercial issues affecting businesses in these The breakneck speed of such change has brought sectors. In this publication we seek to share some of with it a whole host of new risks. Industry’s reliance our findings with you. on these new technologies, and others’ intent on criminally exploiting that reliance, have both given Luke Foord-Kelcey rise to an expanding range of first and third party UK Head of the Communications, Technology & exposures. However, unlike physical risks – with Media Practice their long and recorded history – or management risks – typically driven by the slow pace of regulatory change – the emerging risks of the digital era are driven by technological development, and the speed of such progress has been hitherto unknown to the insurance industry. Technological development has also driven the very direction of some businesses. In 15 years a small company selling books online has emerged not only as one of the world’s most powerful retailers, but also as owner of two publishing houses, numerous web services, one of the world’s largest and most robust global IT infrastructures, a purveyor of wireless services, digital books, music and TV-on- demand and, perhaps most surprisingly, an emerging giant of B2B cloud computing services. Was this their plan, or the opportunities that opened up to them along the road? Either way, the convergence of these industries, and the nature of the risks they face, has required us to
  3. 3. Early stage ERM implementation for Life Science and Biotech companies 1Access to cheap and plentiful finance and achievinga successful exit is typically at the top of the "musthave" list for CEOs of fast growing Life Science andBiotech companies. For sure they and their fellowdirectors and managers continuously strive to doeverything they can to secure these vital ingredientsand have their business priorities in the correct order.But do they? Just imagine for a moment youre an investor beingHave they really looked carefully through the glasses asked to finance or buy a company. What would beof "the other side? Through the eyes of the bankers, running through your mind? Firstly, no doubt tryingthe buyout funds, the investment analysts and the to figure out whether the financial projections aredetail-hungry due diligence teams, whos green light reasonable, robust? Remember, the client’s almostis so essential when it comes to putting serious certainly pressurising you into paying dearly for themoney on the table - the preferred CEO prescription consistent growth and lack of volatility so proudlymedication for several good nights sleep. displayed in their future revenue and profit projection PowerPoints. But you would also be thinking moreMaybe not... broadly what could go wrong. Quite a lot as it turns out...What if that recent trade journal promotion,Dull as it may appear at first blush, proven risk which won an award for the ad agency, wanderedmanagement excellence and discipline could well be way outside of the strict zone allowed by thethe answer to the key questions posed in the title of packaging label and that dreaded lawyers firstthis article. "We dont need all that stuff now" I hear claim letter landed in the corporate in-tray? Oryou cry. "Of course we have insurance, my secretary perhaps worse, the same shock revelation arosetakes care of that". Yes, insurance, that sure fire, during an analyst presentation, with the tradecocktail-party-room-emptying device. Perhaps its press in full attendance and the CEO was not fullynot quite as exciting as Tigers recent love affair with forewarned or prepared? What if that that seeminglyfire hydrants but having a properly constructed wall inconsequential Puerto Rican supplier – but one thatof contingent capital - product liability insurance to happened to provide a cheap yet critical ingredientuse is more mundane name - can be the difference for the companys bestseller – went bust or wasbetween corporate life and death if something goes shut down for a regulatory infringement or justwrong. And the likelihood of something bad blown away by the next hurricane? What if youhappening in the first place can be dramatically suffered a major IP infringement? What if areduced with the early adoption of best practice in significant environmental threat in one of yourEnterprise Risk Management (ERM).
  4. 4. Early stage ERM implementation for Life Science and Biotech companies2 production facilities, that cost 10% of your profit to Yet the real but simple difference between manage, turned out to be not so serious after all and Companies A and B is that Company B decided, the cash saved from earlier more considered and early on, to invest a little time, effort and money in professional analysis could have been used to some professional risk management help and finance another sure hit product? advice. The initial cost was probably no more than fifty thousand dollars, maybe even less. But the real When you raised all these issues with the senior value was huge. It was perhaps hard to see at the management of the company - lets call it company time, but once the professional Enterprise Risk A – and they appeared on the back foot, defensive Management journey had commenced, Company all the time, no real answers, a "Dont-worry-it-will- B never doubted its long-term value for a second. never-happen" nervous pat on the back from the And yet, in the heat of battle, with the CEO trying CEO in your wrap up meeting, you’d be more than a to grow its precious company so it can be noticed little concerned wouldn’t you? Youd probably want among all the competitive noise, this long-term to dig some more and see if there were more bones core process can so easily be overlooked, with lying in the corporate cupboards. After all, you are the modest initial cost and investment buried in being asked to invest a lot of money and you want to the lower budget reaches or not even making it be sure of meeting or exceeding your return targets. on to the critical corporate "to do" list. On the other hand, lets consider hypothetical So, if you’re interested in how to add multiple company B in these same circumstances. What if millions of value and gain easier access to cheaper each time you probed and dug deeper into the finance, youd better sit down, grab a cup of coffee detail, a confident, well thought through response and read on. came back. And the more you probed, the more it really did seem as though not only had the company The best 50k youve ever spent: Initial ERM considered the myriad of things that could go wrong Implementation for Tier 3 companies but also what to do if the proverbial happened. Youd be reassured, would you not? Comforted that In the context of a commercial organisation, your investment or refinancing capital was more Enterprise risk management (ERM) prescribes secure with Company B than Company A. That the the methods and processes used to manage risks former had a better chance of achieving its financial and seize opportunities related to the achievement projections and was much less likely to spring any of business objectives. ERM provides a framework nasty surprises along the journey to success. for risk management, which typically involves identifying particular events or circumstances Now, heres the real issue, The difference between the relevant to the organisations objectives (risks and price you might be prepared to pay for an investment rewards), assessing them in terms of likelihood and in Company B might be tens or maybe hundreds of magnitude of impact, determining the most effective millions of dollars more than Company A. In fact you method of managing or exploiting risk, and ongoing may be put off making any investment at all in management and monitoring. Such a process Company A. You may just conclude that its too risky. creates value for all stakeholders, including
  5. 5. Early stage ERM implementation for Life Science and Biotech companies 3customers, shareholders, employees, and regulators. Company to then progress its ERM program at a rate appropriate to its requirements. For purposes ofERM can also be described as a risk-based the discussion below, we will refer to this initializationapproach to managing an enterprise, integrating phase as a Phase 1 engagement.concepts of internal control, appropriate nationaland international regulation, and strategic planning. During the Phase 1 process, The Company would beERM is evolving to address the needs of various professionally guided to develop its ERM structure,stakeholders, who want to understand the broad overarching ERM terms and definitions, its perceivedspectrum of risks facing complex organizations to risk profile, and its initial perceived Risk list (via aensure they are appropriately managed.. review of existing materials, interviews, limited use of a questionnaire). Importantly, a heavy emphasisEffective Enterprise Risk Management is about would be placed upon leveraging the informationidentifying, mitigating and ultimately optimising the that The Company has already developed rathervarious risks that drive a companys success. Risk than attempting to “reinvent the wheel”.cannot be eliminated entirely. Indeed it would bewrong to do so as measured and managed risk Further, we would work through the initial businesstaking is actually what companies should be doing. area risk workshops with The Company, facilitateERM is part of the overall process that transforms the first so-called Risk Council meeting to reviewrisk to your competitive advantage. Done correctly the workshop findings, and help to develop Theand we would strongly recommend, at an early Company’s first validated and prioritized Risk Reportstage, ERM provides critical intelligence and for executive leadership. This work would also assistprocesses to manage the gamut of financial, The Company to define the structure and processesoperational, reputational and natural and other that it can use as it later proceeds to the riskcatastrophic risks that would otherwise keep the mitigation stage of its program.Board awake at night unnecessarily. In addition,regulators and debt rating agencies have increased PHASE 1: ERM Program Development:their scrutiny on the risk management processes of Define EBS’s ERM Program &companies, further heightening the potential Vocabulary; Risk Mapping Exercise; Riskeconomic impact. Workshop; Report to ManagementTo embark on this process, heres a summary of thekey steps that need to be taken with the appropriateprofessional advice and guidance. Step 1: Step 2: Step 3:Long term, a three-phased approach might prove ERM Program Risk Mapping Risk Workshop –best suited to the needs of emerging Life Science Development – Exercise – Data Risk Validation.and Biotech companies. However, we would Define EBS’s Gathering &suggest that any Company starts its ERM program Step 4: Risk Council ERM Program Development ofwith a streamlined, practical baseline engagement Review and Report & Vocabulary “Perceived Risk Map”that will set the ERM foundation and allow The to Management.
  6. 6. Early stage ERM implementation for Life Science and Biotech companies4 PHASE 1: Following the meeting, a Draft ERM Handbook will The Development of The Company’s ERM be prepared. The Handbook will summarize the Program and its Initial Risk Mapping Exercise approach and definitions/materials developed by the Core Working Group. Once approved by the Core A Phase 1 engagement would provide The Working Group, a status update can then be shared Company with the foundation for an effective, with the appointed Board representative, through to sustainable ERM program. Based upon our the executive leadership group. With the proposed dialogue, we would suggest the following steps: path finalised and signed off by the Board, the Core Step 1 – ERM Program Development – Defining Working Group proceeds to Step 2. The Company ERM Program and its Vocabulary: Step 2 – Data gathering & the Development of The At the start of any process, the Company would be Company’ Perceived “Risk Map”: asked to identify an “ERM Project Leader” as well After reviewing and consolidating available as an “ERM Core Working Group”, which ideally will information that has already been developed by be cross functional and consist of four (4) to five (5) and for The Company, best practice suggests that persons including the ERM Project Leader. In approximately five (5) to eight (8) members of the addition, the appointment of a Board representative, Senior Management Team be interviewed to identify usually from the legal or finance disciplines, is highly ‘perceived’ material risks within the Company recommended. In this role, they will oversee the (approx. 1 hour/interview). These discussions project, providing guidance and facilitating would be on an anonymous basis to encourage a organizational support as well as provide more frank and candid dialogue. Some limited use of intimate feedback to and discussion with the rest questionnaires may also be considered, although of the Board. generally, questionnaires are not nearly as effective The initial ERM Core Working Group session as actual interviews. typically takes one full business day and is highly The risk items developed during this interview/ interactive. During this session, the team will decide questionnaire process would be combined with upon the Company’s approach to ERM while also other risks identified from existing materials for crafting its formal ERM Mission Statement and discussion with the Core Working Group and developing the Company’s unique ERM vocabulary. compiled into the draft perceived risk list. This set Concepts and processes that are fundamental to of risks will form the basis for the risk workshops ERM success will also be reviewed. Finally, a discussed in the next step. strategy to move the ERM process forward will be reviewed for endorsement and support, e.g. Step 3 – “Validation Workshops”: development of achievable goals and objectives for This process involves cross-functional “Bottom-Up” the project; preparation of a draft annual risk workshops for each of the main business areas. timeline/schedule that will integrate the new ERM These workshops, which usually include 8-12 process into the Company’s annual budget and participants from the relevant business area (and strategic planning cycles. other related disciplines that interact with and may
  7. 7. Early stage ERM implementation for Life Science and Biotech companies 5have important insights) will: (possibly with additional membership) would convene to participate in an initial Risk Assessment• be provided with a background briefing on the workshop (often called the Risk Council). The Companys ERM process, During this initial Risk Council session, the• assess those pre-identified ‘perceived’ risks group would be asked to assess the direct and collected in step 2 as well as any new risks consequential implications, assess current controls, which may be raised during the workshop, and vote on the significance to The Company of the• identify any low cost items for which risk compiled/combined risks gathered and assessed mitigation may be considered immediately during the previous steps, using an interactive, anonymous voting tool. From this feedback, a• prioritize those risks which may require funding risk-prioritized “Heat Map” and summary report consideration will be developed for presentation to senior• consider the appointment of potential Risk management and for consideration in the Strategic Owners for specific items proposed for risk and Operational Budget process. The Core Working mitigation (based on time constraints of the Group may also identify potential Risk Owners at this day). “Risk Owners” are persons who are stage, time permitting. Risk Owners will eventually believed to possess appropriate skills and be assigned to address priority issues approved by expertise to lead a Risk Mitigation initiative The Company for risk mitigation initiatives. following senior management approval. Significantly, experience to date suggests that theIdeally, one or two members of the Core Working cost to mitigate many of risks identified through theTeam will participate in each of these sessions. ERM process is fairly nominal. To address manyWorkshop participants are normally senior risks, all that is often required is the identification ofexecutives (Director, Senior Director, Vice President) the issue, the dedication of focused effort, and thethat have a good understanding of the business, as removal of the internal barriers that has previouslywell as the issues to be discussed. Validation and precluded a solution. In instances where someprioritization are achieved via the use of an capital funding is needed, the prioritizationanonymous, wireless voting system that has proven methodologies of an effective ERM process provideshighly popular and effective. Senior Management with a unique advantage whenA report of Workshop findings and results is deciding where to best allocate limited capital. Justgenerated that can be shared internally within The as importantly, ERM provides Senior ManagementCompany and consolidated into a group level report and the Board with an effective tool to define andas described below. objectively measure progress against agreed upon risk mitigation objectives.Step 4 – Risk Workshop - Assessment of Phase 1Findings: After this initialization phase, The Company can then assess its progress and determine a path forwardOnce the “Top Down” and “Bottom Up” assessment that meets with its needs and abilities.of the risks are completed, the Core Working Group
  8. 8. Early stage ERM implementation for Life Science and Biotech companies6 PHASE 2 and beyond Successful and growing organisations are increasingly outsourcing risk management and other similar advisory and management functions, much in the same was as the software industry is moving from an ownership to rent-as-a-service model. JLT has wide-ranging, deep experience in working with the Worlds largest Life Sciences companies and is therefore in an excellent position to be able to share this rich seam of knowledge with emerging and fast growing Life Science and Biotech companies. grow its involvement with its clients to suit their future advisory and risk financing requirements. DONT RUN BEFORE YOU CAN WALK If youre not convinced yet that this is a "must do", essential investment for your company and its stakeholders, just reflect for a moment on some of the outcomes for companies that ignored it. [list a few here....] Just remember that a small but critical investment early on in developing a professional company-wide risk management culture will make it easier and cheaper to finance, more attractive to buy or invest in and more valuable overall. You know it makes sense.
  9. 9. Early stage ERM implementation for Life Science and Biotech companies 7NEIL CAMPBELL JAMES BIRDHead of Life Science & Chemicals, Jardine Lloyd Partner, Jardine Lloyd Thompson LimitedThompson Limited James obtained a degree in Economics from theAfter graduating in 1982 with a Masters in Applied University of Portsmouth and began his insuranceBiology Neil spent a short period in the Agrochemical career on Guardian Royal Exchanges graduateIndustry before joining Sedgwick Group (insurance training scheme in 1993. He subsequently becamebrokers) in London, and subsequently moved to a Liability underwriter in the London Market. MovingImperial Chemical Industries in London to work in the to Chubb as a Senior Liability Underwriter, he tookcompany’s risk management department. responsibility for several of their largest multinational clients. In 2001 James became Senior InsuranceIn 1993 ICI demerged its bioscience business to Manager at AstraZeneca, managing the globalform a separate company, Zeneca Group PLC, and product liability, clinical trials, marine, credit andNeil was appointed global Risk Manager. In 1999 travel accident programmes. He moved to JLT inZeneca merged with Astra AB to form AstraZeneca, 2004. He is a Fellow of the Chartered Insuranceone of the world’s biggest healthcare companies. Institute and an Associate of the Institute of RiskNeil was subsequently appointed Director, Risk & Management.Insurance Services based at AstraZeneca’sheadquarters in London. James leads JLTs approach to clinical trial insurance and risk management, an area in whichNeil joined Jardine Lloyd Thompson Risk Solutions he looks after some of JLTs largest clients. He isin November last year to head up JLT’s Life heavily involved in the development of productsSciences Industry Practice. and risk management approaches aimed at betterNeil earned an Honours degree from Cambridge addressing the risk profiles of life science companiesUniversity in applied Biology, has post-graduate across the wider risk portfolio including supplyqualification in agronomy and is an associate of chains and liability exposures. James looks after athe UK Chartered Institute of Insurers. number of clients in respect of their product liability insurance programmes and is one of a team of JLT Life Science Liability Insurance Practitioners whoT: + 44 (0)20 7558 3996 provide technical advice to JLTs clients.E: James regularly speaks at industry events on a broad range of life science related topics including product liability, clinical trials and supply chain risks. T: +44 (0)20 7558 3580 E:
  10. 10. Jardine Lloyd Thompson Limited Lloyds Broker. Authorised and Regulated by the Financial Services6 Crutched Friars Authority. A member of the Jardine Lloyd Thompson Group. Registered Office:London EC3N 2PH 6 Crutched Friars, London EC3N 2PH. Registered in England No. 01536540.Tel +44 (0)20 7528 4000 VAT No. 244 2321 96.Fax +44 (0)20 7528 4500 © November 2010 262978