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The operational risk requirements of Basel II (International Convergence of Capital Measurement and Capital Standards) place a heavy emphasis on the identification, assessment, monitoring and control of operational risk. The ultimate requirement for rese

According to USFDA, a combination product is one composed of any combination of a drug and device; biological product and device; drug and biological product

rving capital against operational losses are closely linked to the actions that a bank needs to take to manage these risks. Keeping a banks capital allocation against Operational Risks is a hands-on business, based on controlling and mitigating risk.

Cr

; or drug, device, and biological product and fixed dose combination would include two or more combinations of drug.

Examples of combination products may in

dit risk is well catered for in exceptional detail. Credit risks are clearly understood by all players, for credit is the reason why banks exist. In the current mad scramble to meet the Basel II requirements, credit risks have been getting the lion’s sha

lude drug-coated devices, drugs packaged with delivery devices in medical kits, and drugs and devices packaged separately but intended to be used together.

e of attention while far less attention has been given to the operational risk issues. Basel II is more than just reserving capital against credit and operational risk. Now for the first time, banks have to take into account the operational risk aspects

here is enormous increase in the number of combination products entering the market in the recent years. Combination products have proven advantages but fixe

s well.

To start with, Basel II provides a range of options for determining the capital requirements of credit and operational risks. This allows banks and bank supervisors the opportunity to select the most appropriate option for their operations and t

d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.

Combination pro

eir financial market infrastructure. Additionally, allowance is made for a limited degree of national discretion in the way in which each of these options may be applied.

Based on the Basel II requirements, I summarize briefly what needs to be done to e

ucts have become life saving products for the pharmaceutical companies who doesn’t have many innovative molecules in their product pipeline and have been inc

fectively implement the operational risk aspects of this important international standard.

The starting point is the board of the bank and the creation of an appropriate “Risk Management Policy”. It should be remembered that bank boards generally do not

easingly used in the product life cycle management. Even the companies having product patents are trying to extend their product life cycle through the combi

have members with operations experience. Very often board members are drawn from business areas within the bank whose primary concern is revenue generation. Operational risk controls cost money and generally reduce profits – which means that they are no

nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically

really a popular boardroom subject. Bank boards need to be educated and coaxed into the role they have to play in the mitigation of Operational Risk.

To effectively implement operational risk controls it is first necessary to identify the risks and th

and physically. They need to rightly judge the benefits of the combination products and they have to even look at the risks involved when combining the produ

n to establish appropriate written board policies and procedures to reduce these. These policies are the foundation for the development of risk control measures and need to be established for the whole range of operational issues including products, proc

ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi

ssing, IT & security and business continuity.

Risk mitigation can only be effective if a centralized risk management unit controls the whole risk reduction process. Most banks internal risk functions are fragmented and split over numerous areas (such as

ding difficulty in defining their combination products and facing various challenges from selecting a combination to marketing it.

Following aspects would a

IT security, internal audit, physical security etc.) that tends to render a common risk policy ineffective. A critical element in the whole approach to operational risk control is the centralization of this function at a director level within the bank.

dd to the challenges in developing combination products:

Which markets to tap where the combination products can do fairly well?
Which combination prod

nce the appropriate policies are in place the next step is to undertake a risk assessment. Risk assessment is the process that identifies and evaluates the internal and external factors that could adversely affect the achievement of a banking organizati

cts are meaningful and rational?
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin

n’s operational, information and compliance objectives. In the full sense of the word this should cover all the risks such as credit, market, liquidity and operational risk. For our purposes we limit our focus on operational risk alone. Under Basel II op

tions increase the patient compliance?
What would be the developing cost?
How to tackle the risks encountered during combination product developmen

erational risk is defined as “… the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events”. This definition includes legal risk, but excludes strategic and reputational risk.

Basel II is specific

t?

As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel

on the actions that need to be taken in operational risk management. These actions are based on international risk containment standards, most of which have been developed through the Bank for International Settlements. There is a strong emphasis on det

ping new procedures for reviewing their safety, efficacy and quality.

Professional from academic institutions, pharmaceutical industries, health care indust

iled definitions and documentation relating to the use of the methods, the development of policies and their implementation. There is less focus on technology and more on doing.

Once the Risk Assessment has been completed the previously defined risk red

y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products

ction policies need to be implemented.

Implementing Basel II is not a once off operation. It is an ongoing process aimed at limiting a bank’s exposure to risks. In the operational area reducing and containing operational risks so as to control the amoun

.

As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de

of capital that will have to be reserved. This ongoing process can only be achieved through the following steps;

•Fine-tune Operational Risk controls – New products, process and techniques will need to be brought under appropriate controls. Existing co

elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.

Companies that provide selfless information through particip

trols will need to be reviewed and changed where necessary.

•Feedback on Policy – Experience will indicate whether the Operational Risk policy is both effective and appropriate. This may result in the need to refine the Policy and the Controls over time

tion in industry events and feedback to regulatory authorities would be able to face the challenges and will be successful in developing combination products

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