Home – Why Pharma & Biomed Companies’ Risk Analysis Processes are Due for a Check-Up

Why Pharma & Biomed Companies’ Risk Analysis Processes are Due for a Check-Up

Posted on 07-18-2018 by Lisa Thompson

 Just three years ago, Teva Pharmaceuticals, a drug-maker in Israel, disclosed to both the U.S. Securities & Exchange Commission and the U.S. Department of Justice that an on-going internal probe had revealed possible violations of the Foreign Corrupt Practices Act (FCPA) and/or local laws. Ultimately, Teva paid Teva Pharmaceuticals paid half a billion dollars in U.S. penalties for having bribed foreign doctors, and in early 2018, the company was ordered to pay an additional $22 million by the Israel Justice Department. It’s not an admission that investors like to hear; yet in recent years, according to FiercePharma, “That’s something some of Teva’s pharma peers know all too well.”  More worrying, a spokesperson for Teva said, “There can be no assurance that the remedial measures we have taken and will take in the future will be effective.” A robust process— including risk analysis, due diligence and ongoing monitoring—can help mitigate the risk. 

Why is the Pharma Industry Vulnerable to Compliance Risk?

Mitigating compliance risk has tested a number of other companies in the pharmaceuticals and biomed sector in the past two years, with settlements for FCPA violations by GlaxoSmmithKline, AstraZeneca, Novartis, SciClone Pharmaceuticals, Orthofix International, and Biomet.These probes that cost pharma and bio-tech companies more than $98 million in settlements; clearly the growth of business into emerging markets like China, Russia and South America has increased risk. The SEC’s director of enforcement, Andrew Ceresney, indicated that pharmaceutical companies will continue to be susceptible because their operations are considered high-risk. For example, in countries with state-owned healthcare facilities, administrators or physicians fall into the realm of government officials—and incentives to move new drugs onto approved programs may be considered bribes, even if the ‘incentives’ are the work of third-party agents. If someone is acting on your behalf, you’re vulnerable.

In his remarks at a pharmaceuticals industry event, Ceresney suggested eight necessities for an effective FCPA compliance program:

  1. Hire enough compliance personnel
  2. Put policies and procedures in place and test them periodically
  3. Train employees to understand compliance risks
  4. Conduct thorough vendor reviews
  5. Establish a robust third-party due-diligence process
  6. Put accounting and expense controls in place
  7. Devise a procedure for identifying and escalating red flags with ongoing risk monitoring
  8. Perform regular internal audits
The prospect of criminal or civil penalties is not the only concern; pharma companies that violate compliance laws—on their own or through third parties—risk having limitations placed on future business ventures in those countries. And FCPA compliance isn’t the only risk that companies in this industry face. When “Pharma Bro” Martin Shkreli announced a 5,000 percent price increase on a drug used by cancer and AIDs patients, he ignited a reputational bombshell—and others in the industry have felt consumers’ wrath over drug prices and a perception that profits are more important than people’s health concerns. 
Now, more than ever, pharma companies need to go beyond due diligence, and incorporate ongoing risk monitoring to stay alert to both regulatory and reputational risks that could end up giving them a huge headache. 

3 Ways to Apply This Information Now
  1. Read our eBook on the Risk Monitoring Imperative
  2. Talk to a LexisNexis® specialist about potential gaps in your due diligence and risk monitoring process.
  3. Share this blog on LinkedIn to keep the dialogue going with your colleagues and contacts. 

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