Cash flow risk poses greatest threat to life science firms in Europe

More than 75% of senior executives at Europe's leading life science companies have identified cash flow as the biggest threat to their long-term success, a study commissioned by Marsh, a leading UK-based insurance broker and risk adviser, has found.

Despite being less directly affected by the downturn than other industries, life science companies are not immune to its effects, as supply chains are tightening up and payment terms are being shortened or made less generous, the research reveals.

Just under half (43%) of respondents were concerned about their customers, with 34% concerned about suppliers. In addition, one-third said they were being more careful in credit-checking their customers and analysing suppliers" financial health (28%).

Although the downturn is perceived to be having little direct effect on the industry, life science companies recognise that they need to re-examine their risk management procedures and are taking steps to improve them.

According to Christopher Bryce, Marsh's chemicals and life sciences practice leader in Europe, the Middle East and Africa, this is prudent as the downturn has increased two of the industry's long-standing risks: supply chain management and business continuity.

"It is no surprise that supply chain risk is judged to be significant by 67% of participants, while business continuity is seen as significant by 53%," he said.

The report also highlights how attitudes towards risk have changed in European life science companies as a result of the downturn: 60% have reviewed their approach to risk, 65% said risk management is now more important at senior levels, and 38% expect their risk management budgets to increase. The top areas earmarked for extra spending are improved business continuity planning and new training and information management systems.

Marsh researchers interviewed senior risk and insurance professionals in 86 life science firms across Europe for the Attitudes to Risk Management in the Life Science Industry and Chemical and Life Sciences Industry Risk Footprint reports.

They identified the 24 most common strategic, operational, regulatory, hazard and financial risks that feature in the risk registers of life science firms in the UK, including inadequate product innovation and development strategies, product over-dependence and market consolidation.

Marsh recommends that companies understand the pressure points in their supply chains and draw up contingency plans. Once plans are drawn up, training is needed to ensure that everyone knows how to put them into practice, and the whole procedure needs to be tested to make sure that it works.