The pharmaceutical sector needs to take a long hard look at its risk assessment policies after a report from business consultancy KPMG revealed that the Industry is 50% more risky than other organisations in the entire Standard & Poor’s 500 listings. The news appears to reinforce observations that pharma is no longer viewed as a safe investment, particularly in the wake of spectacular product withdrawals and the ensuing litigation – most notably Wyeth’s antiobesity drugs and Merck & Co’s analgesic Vioxx (rofecoxib) – as well as Bristol-Myers Squibb’s restatement of $2.5 billion dollars in revenues after inflating wholesaler stocks to meet financial targets.

Both positive and negative events tend to have extraordinarily pronounced effects on shareholder value, says the report, which was conducted alongside the MIT Sloan School of Management and claims pharmaceutical companies are struggling to take a more comprehensive view of risk and are unable to keep pace with changing Industry business models.

The report contains a breakdown of the risks reported on by pharmaceutical companies in 2003 versus those reported five years previously. In 1998, there was not one single risk that was mentioned by every one of the 18 companies analysed. Just five years later, this situation had reversed, with an increase in the number of firms reporting on risks associated with product supply, under-developed product pipelines, changes in the competitive environment, product launch delays and the retention of key talent.

Richard Sharman, Head of Enterprise Risk Management at KPMG in the UK, commented: “This research indicates that companies’ approaches to risk management are generally detective in nature, reactive in approach and vary widely.” Pharma companies were found to operate in business silos when assessing risk, with no single, uniform approach. Sharman concluded: “The implementation of new practices around risk management will move toward mitigating the extreme negative events impacting the industry while providing a competitive advantage in better anticipating the next big risk.”