Risk Management
Shionogi continues to build a groupwide internal management system based on the Shionogi Group Risk Management Policy, to deal with risks that affect business continuity, including natural disasters, fire, explosion and other accidents, outbreaks of infectious diseases, acts of terrorism, and other risks.
Response to COVID-19
Shionogi established its “Coronavirus Response Headquarter” before the Japanese government’s declaration of a state of emergency and is working to ensure prompt decisions in line with Business Continuity Plans (BCPs). Moreover, all organizations, including Group companies, took steps to completely revise the content of existing BCPs adding measures to address pandemics as well as earthquakes during fiscal 2019. We also reviewed plans during the fiscal year in light of the COVID-19 pandemic. Due to prompt and appropriate responses in line with the BCPs, this did not affect the continuity of the company-wide business.
Under the state of emergency, we created a telecommuting environment that is supported by enhanced IT infrastructure, and many employees have smoothly transitioned to telecommuting. For employees who need to go to work in person, we have taken measures to reduce the risk of infection through private car commuting, staggering working hours, and implementing a temperature measurement system. By such means, we continued to fulfill our social responsibility as a pharmaceutical company, maintaining stable supplies of pharmaceuticals and undertaking research and development related to COVID-19. In addition, we worked closely with important manufacturers and suppliers in Japan and overseas to ensure a stable supply of pharmaceuticals.
Establishing a stronger system in light of COVID-19
Our goal is to be a drug discovery-based pharmaceutical company for which infectious diseases are a core therapeutic area, and which, while confronting infectious diseases, is resilient to all threats, including pandemics. In response to COVID-19, we are taking measures to tackle various issues that became clear in the course of continuing the business, and we have established robust systems for business continuity ready for a second and third wave of the spread of the virus. In doing so, we are determined to fulfill our responsibilities to our stakeholders
while balancing the sustainability of social and economic activities.
Specifically, by taking a detailed look back at our response, we will be reviewing our BCPs so that we can flexibly respond to the re-expansion of COVID-19 or the occurrence of a new pandemic. Furthermore, we are building more-effective BCP systems through repeated BCP-based simulation training. In parallel, we are continuing to build a more robust IT system.
Risk Management Aiming to Achieve the Business Plan
Beginning in fiscal 2020, under Shionogi’s New Medium-Term Business Plan, Shionogi Transformation Strategy 2030 (STS2030), we are aiming to transform the business model and build new healthcare platforms. Business uncertainty is expected to increase in the process of this transformation. If we cannot respond to sudden changes in the environment within and outside the company, we may fail to achieve the goals of STS2030. That would also affect business continuity, so we are focusing on identifying related risks. In addition, we are working to build systems and to foster a culture in which various information is reported to management promptly by departments and other business units.
As part of this, within the Corporate Strategy Committee, which is headed by a Senior Executive Officer and Senior Vice President of Corporate Strategy Division, we have established the Risk Management Subcommittee as a specialist meeting body to oversee the risk management of the Shionogi Group. In addition to the steps taken to consolidate and identify risks, efforts were also made to ensure that analysis and assessment was more transparent in fiscal 2019. In fiscal 2020, we will continue to identify risks, refine countermeasures, and strengthen the monitoring and review cycle for risks by management.
Moreover, since there are many risks that may impede the attainment of STS2030, we will review the Shionogi Group Risk Management Policy to make it appropriate for dealing with these risks.
Risk management structure
Business and other risks
Below, we list and outline the main types of risk that could have a significant impact on Shionogi’s operations.
| Risk category | Overview | Risk description |
|---|---|---|
| Systemic and Regulatory Risk | • There could be an impact from trends with government regulations including revisions to Japan’s National Health Insurance (NHI) system, including the NHI drug price system • Tougher Japanese and overseas regulations in areas such as the development and manufacturing of pharmaceuticals could present us with additional expenses or make it difficult for our products to comply with regulations |
• Provide innovative new drugs at an acceptable price to society • Build evidence to show the value of the innovations created • Promote the value of innovation through industry group activities • Obtain the latest information and make appropriate changes to prevent delays in R&D and business opportunity loss due to non-compliance with regulations, etc. |
| Risk of Adverse Drug Reactions | • Pharmaceuticals entail the risk of unanticipated adverse drug reactions that could lead to the termination of sales, product recalls, and other outcomes |
• Construct systems to appropriately convey side effect and other information • Educate all employees to limit the spread of side effects and control damage • Obtain insurance for medical damage compensation based on side effects, etc. |
| Pharmaceutical R&D Risk | • Pharmaceutical R&D requires substantial commitment of resources and time. In addition, new drugs are subject to numerous uncertainties prior to the start of actual sales |
• Develop efficient drug discovery research; leverage strengths in disease fields and small-molecule drug discovery • Maintain and improve productivity with global top-level R&D • To foster new growth areas and improve drug discovery success rates, build drug discovery technology for medium-sized molecule drugs and non-small-molecule antibody drugs • Clarify drug discovery programs and development compounds to ensure focused investment of management resources • Secure management resources necessary for acquiring technologies such as peptide drugs and vaccines and collaborate with outside parties through alliances • Undertake rigorous determination of development possibility based on R&D data, accelerate R&D through in-licensing and out-licensing of compounds |
| Intellectual Property Risk | • Concerns surrounding inadequate protection of the intellectual property of drugs discovered or infringement of the intellectual property of third parties • Impact of the expiration of intellectual property rights of pharmaceuticals developed and the launch of generics |
• Strengthening the appropriate management system for intellectual property rights • Strengthening the system for preventing infringement by investigating infringement prevention in business activities and conducting intellectual property due diligence on licensing |
| Risk of Dependence on Certain Products | • NHI drug price revisions and the appearance of competitors to main products, the extent of the uptake of those competitor products, expiration of intellectual property rights and accompanying launch of generic products, and a drop in or the discontinuation of sales of the products in question |
• Market launch of product groups and review contracts based on the latest information on drug price systems and competitive position • Collaborate and express opinions in industry groups that promote the importance and value of innovation creation • Promote business transformation from pharmaceuticals to provide general healthcare services, including pharmaceuticals |
| Risk of Partnerships with Other Companies | • Modification or cancellation of agreements, delays or stagnation of alliances with other companies for joint research, development, manufacturing and sales, including joint research, joint development, technology licensing and joint sales |
• Judge whether or not to cooperate by analyzing and evaluating from various perspectives • Seek agreement to reduce assumed risk at the time of contract conclusion; consensus-building • Establish a governance system with alliances, understanding the risks of alliances, and responding with measures to resolve them |
| Risk of Natural Disasters or Pandemics | • Closure of plants, laboratories or other business sites due to such natural disasters as storms and floods caused by major earthquakes and climate change and unexpected accidents or pandemics, as well as accompanying product supply delays and suspensions |
• BCP formulation and training, and plan reviews • Confirm and request improvement for environmental and safety conditions in response to supplier audits • Consider diversifying raw material suppliers to ensure the stable supply of products |
| Risks Related to Environmental Pollution | • Effects on the human body and ecosystems of substances used and generated in the research and manufacturing processes of pharmaceuticals • Temporary closure of facilities, countermeasures and restoration as well as legal liability attributable to environmental pollution or other hazards |
• Establish integrated management system and management regulations for environment, safety and health • Ensure compliance with laws and regulations, formulate stricter self-management standards and goals, implement responses and measures, and confirm their appropriateness |
| Capital Market and Foreign Exchange Risk | • Fluctuations in stock and foreign exchange markets could increase retirement benefit obligations and affect royalty income from overseas partners |
• Diversify investment of pension assets among multiple investment products • Utilize forward exchange contracts with respect to foreign exchange fluctuation risk |
| Risks Related to Securing / Training Human Resources | • Impact of not being able to recruit and train enough people with the necessary expertise for each business activity, including human resources who have the flexibility and high level of operational ability to respond to changes in values and the necessary expertise that reflects the way of working in anticipation of the post-COVID-19 era, such as the employment situation and increasing demand for ESG management; and human resources who can seize environmental changes as an opportunity to promote Group management |
• Secure and train human resources with diverse values and expertise • Practice diversity and inclusion • Provide opportunities for self-growth and strengthen systems and mechanisms that help individuals realize their potential • Implement human resource development and manager education that will contribute to the realization of our 2030 Vision • Train prospective executives though attendance at The President’s Management Seminar and sessions held by group company officers |
| Litigation Risk | • Possibility of litigation related to medication side effects, product liability, workplace disputes, fair trading and other issues |
• Strengthen internal systems as necessary to reduce risk • Appropriately respond through consultation with experts such as lawyers and patent attorneys |
In addition to the above, there are various other risks to which the Shionogi Group is exposed; other potential risks include political and economic factors affecting business activities, as well as IT security and information management. The forward-looking statements with respect to risks contained herein are based on the Group’s judgment as of the date of submission of its Securities Report. For more information on these risks, please refer to our Securities Report (available only in Japanese).
Crisis management system
Business continuity planning (BCP)
With respect to the supply of pharmaceutical products, in fiscal 2018 we established Shionogi Pharma Co., Ltd. to take charge of manufacturing operations. At that time we conducted a BCP review, resulting in a rebuild of both our business continuity management system. In addition to the above, we regularly conduct training at both the management and front-line levels to ensure the ongoing viability of operations.
Overview of business continuity management system
