Can Your Company Handle a Drugs Crisis?

April 14, 2010

If your ?wonder drug? proves to have damaging side effects, do you have the measures in place to deal with the aftermath effectively? Chris Hart provides some pointers.

With so much capital invested in the development of new drugs, every company needs a few with the magic financial formula - ones that provide exceptionally good returns on the R&D investment that went into them. But, in spite of the rigorous testing that precedes the launch of any drug, sometimes the unexpected occurs, with the potential to damage the company's profitability. Examples are not infrequent: a drug trial in London's Northwick Park hospital in 2006 made headlines when trialists became critically ill, and only last month it was reported that giant GSK's antidepressant Paxil has allegedly been linked with elevated mortality rates of breast cancer patients. What separates limited damage from corporate disaster is not whether the drug is central to your financial projections or an 'also ran:' it is how well the company reacts to such crises.

Reacting to any crisis requires clear and rapid communication between those who first hear of unexpected side effects and those able to make the decisions about suspending or investigating the product. If decision makers are aware of the problem early, and take investigative action, damage (to the company and patients) can be minimized. However, if their first awareness comes from a breaking media story, decision makers will have a far harder battle on their hands, since the company may be perceived either to not know, or worse, not be concerned by these discoveries. How long would it take in your company for such information to filter through, and how long would it take for a plan to be decided and executed?

When facing any unknown situation, one has to identify the few things that are known and accept them. At the outset no one will know whether the drug is safe, being interfered with by other drugs taken or any other possibility. The sooner some certainty can be identified, the better. If this drug is fundamentally unsafe, ensure this is accepted decisively and that efforts are not wasted on fruitless pursuits at a time when it could be tempting to act irrationally. Worse, what if the rogue compound is central to patents that affect other drugs still on sale or in the pipeline? Have your senior directors ever confronted such scenarios and role-played them? Plans may exist on paper, but they are only a theory until they are rehearsed.

Leadership in a crisis
Any high-profile corporate crisis will have an effect on morale. The massive number of staff who will have worked on bringing the drug to market, only to see it both fail and potentially injure people, will be particularly susceptible to this. Regardless of your personal frustration with the situation, remember that morale can be difficult to restore if it breaks down. Maintaining the perspective needed to do this is a challenge in itself in a crisis, but doing so will ensure the teams' (and the company's) successes are recognized alongside their failings. Given the tremendous specialization of many roles in the pharma industry, a company's employees represent a tremendous asset. If failing morale demotivates the workforce, or leads to important specialists leaving for rival firms, the costs could be far higher over time than the immediate disruption the failed drug causes.

Leaders are never more alone than in a crisis. Many normally independent-minded people can turn to their superiors to get them through uncertain times by instruction, and will hope for strong, definite decisions made and a clear objective at the end of it. Hearing "I donÕt know" from a leader can give rise to all sorts of uncertainties. Are we doing the right thing? Why isn't it working? Convicted decision making is the only way to solve this. But acting with conviction is not just important internally, it is vital externally.

Dealing with the problem
Big companies involved in product-related crises have two alternatives: being seen to deny the problem or being seen to deal with the problem. When it was discovered that Johnson & Johnson Tylenol tablets contained lethal quantities of cyanide in 1982, the company did not embark on a "no comment" policy with the outside world. While it is understandable to be cautious about public admissions, remember that potential customers and the media rarely come to the best opinion based on the absence of information, and in this instance this could have led to spiralling claims of illness and death. By pulling the drug decisively from sale for investigation, consumers saw the firm to be putting them first and profit second. This allowed Johnson & Johnson to regain 70% of its previous market share within five months of the incident.

When a crisis breaks the departmental boundary and becomes a firm-wide issue, does your leadership team have integration vital to ensure the company retains its relationship with customers, distributors and health agencies simultaneously, as Johnson & Johnson did?

In Johnson & Johnson's case, although the damage to profit was significant (turnover resulting to Tylenol equated to 15% of Johnson & Johnson's profits), it was not an affair that forced the company to change direction. If such a crisis struck with a particularly important revenue generator, or shattered public confidence your company, your business plans could have to be reassessed, and quickly. If you needed to redeploy resources in such a case, how would your company decide how to do it? To prevent a forced decision also being a bad one, the management team must consider the movements of competitors - who is moving in and out of which markets and regions, and why - as well as internal factors such as the product pipeline to prevent bad decisions compounding bad fortunes.

When disaster strikes a multinational business, it can bring out its worst characteristics Ñ bureaucracy, sluggishness and miscommunication. From time to time any business will have a setback (Toyota, currently, and even the untouchable Apple Inc has had battery fires). The companies that rehearse dealing with crises, and prevent them becoming disasters when they happen, are those that will continue to prosper regardless of adversity.

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