Crisis Leadership in Pharma: Navigating Uncertainty and Risk

In the fast-paced, high-stakes pharmaceutical industry, effective leadership is not just a skill; it's a necessity. From unexpected supply chain disruptions to regional endemics and global pandemics, pharma leaders need good crisis management skills to assure their employees, stakeholders, patients, and healthcare professionals (HCPs) that all will be well. The recent COVID-19 pandemic brought this reality into sharp focus.

In such situations, pharma leaders are more than just the face of a company. They’re the ones everyone looks to for information, support, and motivation. Hence, crisis leadership is a non-negotiable skill that all leaders must develop. Considering the high frequency of pharma crises, this is a skill that’ll be most used as people move up the company hierarchy. This article delves into the key principles of crisis leadership and highlights some excellent examples of effective crisis leadership in pharma.

But, before we get into that, let’s address a misunderstanding: Many believe that a pharma crisis is always a disease or a virus. This couldn’t be further from the truth. The pharmaceutical industry faces several types of crises, which are detailed in the following section.

The Nature of Pharma Crises: Types of Crises in the Pharmaceutical Industry

Product-related crises

Product-related crises are among the most common in the pharmaceutical industry. There are various types of product-related crises:

• Product recalls (both voluntary and mandatory) due to manufacturing defects, contamination, or safety concerns.
• Infiltration of counterfeit drugs in the pharma company’s supply chain.
• Drug shortages due to production problems, raw material scarcity, or regulatory challenges.
• Adverse drug reactions not identified during clinical trials.

Between 2017 and 2024, there have been more than 188 FDA-led product recall incidents, including notable companies like Dr. Reddy’s, Bayer, Lupin, and Lilly.

Regulatory and compliance crises

Regulatory and compliance crises are the most serious in the pharmaceutical industry, impacting sales the most. These include:

• Patent litigation and legal disputes over intellectual property rights.
• Ethical or procedural issues during clinical trials include data manipulation.
• Violations of FDA, EMA, or other regulatory standards.

Such crises can lead to fines, operational shutdowns or complete product bans. In 2024, Sun Pharma and Novo Nordisk were involved in separate patent litigation crises.

Operational crises

Operational crises are also frequent in the pharmaceutical industry. They include:

• Manufacturing issues due to production errors, equipment failure, or contamination.
• Supply chain disruptions due to natural disasters, geopolitical events, or supplier failures.
• Cybersecurity issues such as data leaks.

Operational crises can significantly impact production, sales, and the company's overall reputation. In May 2024, the Cencora data breach affected many Big Pharma companies, including Novartis, Bayer, Regeneron, and Incyte, exposing the personal health information of these companies’ patients.

Ethical and public perception crises

Ethical crises can result in the loss of brand reputation and market share. Ethical and public perception crises include:

• Public backlash over affordability and pricing issues.
• Accusations of false advertising or unethical practices.
• Whistleblower allegations.
• Negative media coverage due to exposure to scandals, unethical practices, poor management, sustainability concerns, or neglectful corporate social responsibilities.
• Erosion of employee, HCP or investor trust due to mismanagement.

In 2024, GSK came under scrutiny after a whistleblower alleged the company was concealing the cancer risk of its blockbuster heartburn drug Zantac.

Health crises

People often think of health crises when discussing crises in the pharmaceutical industry. It is important to note that health crises are not associated with all diseases. Health crises include two major types:

• Pandemics and epidemics, where the entire industry faces the same crisis.
• Vaccine controversies include issues with vaccine safety, efficacy, or distribution.

The COVID-19 pandemic was the most recent health crisis that all pharma companies faced, and many triumphed.

Legal and financial crises

Legal and financial crises are among the most serious crises for any pharma company. They can significantly affect the entire company's operations, such as bankruptcy or loss of investor confidence. These include:

• Mass litigation, such as class-action lawsuits.
• Financial mismanagement contains problems such as fraud, embezzlement, or accounting scandals.

Most leaders encounter at least one of these crises during their terms. To this end, leaders must know some key principles of crisis management.

Crisis Leadership Principles: Techniques for Managing Uncertainty and Risk

Proactive management

To manage risk in pharma, dedicated crisis management teams must be created with appropriate experts to ensure the company is ready for a crisis. Ideally, the team should include members with diverse skills and perspectives who can help with comprehensive problem-solving. Leaders and crisis management teams must identify and evaluate potential crises before they escalate. They should develop detailed crisis management plans and conduct training and simulations to ensure readiness.

Clear and decisive communication

The role of crisis management teams is to create contingency plans for potential crises, while the role of pharma leadership is to communicate these plans with all stakeholders—investors, patients, HCPs, employees, and external partners. Hence, leaders must communicate openly and honestly. They should address all concerns with genuine empathy. As they speak on behalf of the company, pharma leaders must ensure their communication establishes the company’s position on the crisis.

Focus on stakeholder engagement.

Pharma leaders must also manage internal (employees) and external stakeholders (investors, partners, regulators, customers, and the public). This not only includes maintaining an open dialogue with all parties involved but also includes partnering with medical professionals or public figures to ensure there is no miscommunication between the company and the general public/HCPs.

Ethical and value-based decision-making

In times of crises, pharma leaders must make ethical decisions that align with the company’s overall value proposition rather than chasing profits. In cases where unethical choices come to light, leaders must take responsibility for their mistakes and focus on corrective actions rather than deflecting blame. Most importantly, leaders must direct the company’s operations and performance to focus on patients and improving care.

Business continuity

Making on-the-spot operational decisions during a crisis is difficult for all leaders. In cases where a crisis affects the company’s operations, leaders should be able to rely on someone. Hence, pharma leaders must establish dedicated teams with representatives from all departments. These representatives can speak on behalf of their respective departments and provide solutions for crises. These representatives may also be the best people to develop business continuity plans for their respective teams.

While effective, these five principles are theoretical, and each leader may choose to implement them differently. In the face of a real crisis, each company adapts differently. However, many pharma companies have adapted these or similar principles during crisis management. Here’s an example case study.

A Case Study of Crisis Leadership

Background: Tylenol is among Johnson & Johnson’s most successful over-the-counter products in the United States. In 1982, for reasons unknown, a person or persons replaced Tylenol extra-strength capsules with cyanide-laced capsules, resealed the packages and deposited them on the shelves of pharmacies and food stores in the Chicago area. These poisoned capsules were purchased, resulting in the death of 7 people.

Response: Led by Chairman James Burke, Johnson & Johnson immediately alerted consumers via media to not consume any Tylenol product. Furthermore, the company stopped producing and advertising the product and recalled all Tylenol capsules.

Lessons learned:

• By recalling all capsules, despite the little chance of finding tampered drugs, Johnson & Johnson showed its ethical decision-making: It was unwilling to risk public safety even if it resulted in a loss.
• Johnson & Johnson leveraged PR and paid advertising to communicate their strategy and intentions during the crisis. The company also established a consumer hotline and a toll-free line that provided recent updates. Due to clear and transparent communication, Tylenol was eventually viewed as an unfortunate victim of a crime.
• The company’s proactive management was displayed when they circulated internal staff videos within hours and held several press conferences.

Where does Tylenol stand now?

More than 52 million consumers consume Tylenol in the U.S. The drug generates more than $1 billion a year.

Conclusion

The case study of Johnson & Johnson’s Tylenol is an excellent example of an unpredictable crisis a pharma company can be pushed into even when they’ve done nothing wrong. Pharmaceutical crises can arise at any time and can unexpectedly impact the company’s operations and revenue. Consequently, strong and effective crisis management is a must. Leaders must proactively manage and tackle crises and maintain effective communication throughout to ensure all internal and external stakeholders understand the company’s crisis management strategy.

FAQ

1. What is crisis leadership in pharma?

Crisis leadership involves leading teams and the company during unforeseen disruptions that threaten public health, safety, or operational continuity.

2. Why is good crisis leadership so crucial in the pharma industry?

The pharma industry impacts the health of thousands of people worldwide. Poor and ineffective leadership can lead to death.

3. How can pharma leaders be prepared for a crisis?

Pharma leaders must develop robust crisis management plans and create crisis management teams to deal with the uncertainty. They must build cross-functional response teams and run crisis simulations to ensure they’re prepared for a crisis.