Top 7 RisksFor Life Sciences Companies

A guide to understanding and mitigating the top risks

The best life sciences companies take the time to assess and manage their risks.

SHIP SINKERS1. Loss of reputation

2. Loss of customers

3. Unable to secure capital

4. Loss of Employees

5. Litigation

6. Governmental intervention

7. Poor exit strategy and lower valuations

If you ignore, or simply don’t understand, the risks associated with running a life sciences company,

there can be negative outcomes.

TOP INDUSTRY RISKS1. Competition and consolidation

2. Copyright violations, worldwide Intellectual

Property rights

3. Ability to commercialize and market current

and future products

4. Legal proceedings and litigation

5. Federal state or local regulations, including

foreign “local competent authorities”

6. FDA regulatory approvals

7. Ability to attract, maintain and motivate employees

8. Issues with suppliers, manufacturers, reps, vendors,

partners, alliances

9. Various liabilities including product liability, insurance

costs and potential losses due to unfunded liabilities

10. Product complications

Let’s take a deeper dive.

REGULATORY ISSUES

REGULATORY

Allegations of fraud off label

Government shutting down

operations

Local Competent Authorities

Political Risk

As you consider growing your business, you will

need to think beyond how risks affect your

business today.

• How are your plans to expand affected these issues?

• Who’s assisting you with planning for changes in

regulatory risks as you continue to expand and grow?

PRODUCT ISSUESScenarios:

• Recalls get the attention of the plaintiffs bar

• Class action lawsuits

• Failure to provide sufficient warnings or

advice

• Flaws in product quality are blamed on

incorrect specifications

• Flawed contractual arrangements

Loss:

• Potentially millions PRODUCT ISSUES

RecallsDelays

ReputationalReimbursement

Bodily InjuryAdoptionTraining

Innovation

IntegrationManufacturing

ChallengesProcess and Quality

THE “SPOILED DEVICE”

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Custom designed equipment - $125,000,000 to develop

• Burning cash

• Multiple contracts with no leverage

• $150,000 of product being sterilized

During sterilization process, the power goes out. • FDA: Sorry folks, you can not use those anymore and must destroy those devices.

SUPPLY CHAIN ISSUES

SUPPLY CHAIN

Professional LiabilityMaterial

AvailabilitySterilization

Transit RiskSupplier DefaultDesign Errors

Faulty MaterialsSole Source Subcontractor

defaultDistributors

Independent Reps

Scenario: Custom designed machine costing $100k

per unit. Contract in place. Ten machines on a train,

scheduled for delivery.

Loss: Train derails in transit with your machines.

10X$100k/= $1M. Significant disagreements about

who is responsible for the loss payment

EXTERNAL FORCES

EXTERNAL FORCES

Contractual RiskGPO's

Hospitals

Natural DisastersIntellectual Property

Threats

Investor RiskIndustry

ConsolidationCompetition

• General Purchasing Contracts require a

variety of insurance coverages- often

outlined in two pages of contract lingo. And

every hospital is different.

• What’s your strategy to protect your

intellectual property?

• Investors. Good news: We got the money!

Bad news: They accused us of

misrepresentation and fraud!

• Are you inheriting old product failures during

an acquisition?

TALENT ISSUES

TALENT

Talent AttractionRetention

RetentionResource

ManagementCommunication

Risk

Benefits Job Satisfaction

From attracting the right people to making sure

those people stay and everything in between is

a risk. The most common is human error- and

most of which are honest mistakes.

How does my benefit plan stack up to the competition?

How do we maintain the culture our company was

founded on and grow our business?

How do we engage and communicate with our

workforce and avoid silos?

CYBER FATIGUE

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I kept hearing about cyber, cyber, cyber, so the Board of Directors says get it!

Not all coverage is created equal. Similar to an enterprise cyber assessment, you should do the same with your insurance coverage design strategy. Invest the time to understand the coverage in force and ask questions like, “would they respond to likely scenarios for my particular business?”

TECHNOLOGY CONCERNS

ADVANCES IN TECHNOLOGY

Changes in FDA GuidanceAdditive

Manufacturing

CyberPrivacySecurity

Design ErrorCombination

Devices

Exposures for medical technology firms are

big and costly.

More and more companies are moving

towards solutions verses a single product

sale. That shift has likely resulted in you

relying on others to deliver the final product to

your customer. Contracts are crucial to

establish who is responsible for errors or

mistakes.

Strategic risk management is not about insurance, it’s clearly about risk.

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Answer these questions:• What could go wrong?• Who would be upset at us?• What would they be upset about?• Quantify the damages

Stop looking at risk management as a cost. Instead consider this, “Can you afford not to spend the time and effort to do this? “

SIMPLE STEPS YOU CAN TAKE

Identify, prioritize and set your tolerance limits for the risks.

TO ASSESS, ANALYZE AND QUANTIFY RISKS.

Create a common risk language which starts with an understanding of your overall risk culture and governance.

Establish guidelines and controls.

Take action.

1 2 3 4

ASESS THE VALUE OF YOUR BROKER

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1. Do they understand your business? Are they asking the right questions?

2. Are they are willing to invest the time to assess risks, not just quote insurance?

3. Do they give you a level of certainty that your risks are covered?

4. Do they educate you on industry trends and best coverage practices at a minimum once a year?

SUMMARYProtecting your life science company is key.

Managing risks should be viewed as an investment rather than expense, as it is one you can’t afford not to make.

Apply a stress test to your organizations current strategic plan by answering the following questions: • Can our company survive unfunded liabilities? • Have we identified the “ship sinkers”?

To learn more about how Hylant might help your life sciences company, contact us today.

Mike Cremeans

Hylant Risk Advisor, Life Science Practice

P: 440-321-6625

E: mike.Cremeans@Hylant.com