A Commitment to Compliance: What Pharmaceutical Companies Expect of Their Partners

In the last six years, the United States Department of Justice has recovered over $13 billion from pharmaceutical and life sciences companies in connection with allegations of fraudulent marketing practices including misbranding and off-label promotion, failure to report safety data and kickbacks.
Global scrutiny is also increasing and worrisome for executives in particular. Following a one-day trial in 2014, a Chinese court found a subsidiary of a major pharmaceutical company guilty of bribery and fined it $492 million. Twenty-two executives were detained; five managers including the former top executive in China were convicted and received suspended sentences. Charges included bribing doctors and hospitals and channeling kickbacks through travel agencies to increase revenue.

Against the backdrop of these and other headline-grabbing actions, it would be convenient to assume that compliance is not top of mind for pharmaceutical companies. But upon closer review, the facts actually suggest a strong commitment to getting drugs to market in a compliant fashion. According to the PwC report State of Compliance 2014 Pharmaceutical and Life Sciences Industry Brief:

  • Companies with a chief of compliance have increased from 79% in 2013 to 84% in 2014;
  • Companies with compliance committees have increased from 74% to 86% in that time;
  • Compliance staffing levels increased 50% in 2013 and 59% in 2014; and
  • Companies increased compliance budgets 36% in 2013 and 49% in 2014.

In addition to increasing their internal capabilities, perhaps the strongest evidence that pharmaceutical companies take compliance seriously lies in what they have come to expect of their partners. Compliance considerations are paramount when engaging service providers such as contract manufacturing organizations (CMOs), clinical research organizations (CROs) or contract commercial organizations (CCOs) that offer comprehensive drug commercialization services.

A 2014 report from Nice Insights shows that pharmaceutical and biotech companies are increasing outsourcing expenditures and the number of services they entrust to outsourcing partners. Notably, the report also reveals that key selection drivers were quality, reliability and regulatory, all topping affordability and reflecting a shift toward strategic compliance considerations.

Indeed, such considerations infuse the RFP and audit process, and partners who hope to attract and retain business must effectively demonstrate that compliance will be embedded into their full array of services. This includes having not only a culture of compliance but also an effective means of meeting clients’ specific needs.

Working with an outsourcing partner with depth in compliance issues can provide companies with the expertise needed to compete in a complex and continually changing environment – from clinical development through commercialization. Consider these trends influencing companies’ expectations for selecting an outsourcing partner:

Corporate Integrity Agreements (CIAs): The Department of Health and Human Services Office of Inspector General (OIG) continues to impose CIAs at a rapidly increasing pace – up 73% over the last four years to 78 CIAs in 2014. CIAs impose obligations as to “covered persons” including third-party providers. Companies subject to CIAs require outsourcing providers to demonstrate that they have the experience, personnel, systems, training, governance, passion and commitment to comply with a broad range of requirements impacting the full life-cycle of product development.

    • Typically, conversations with a partner’s compliance team occur early and, given the obligations CIAs impose directly on senior executives, at a high level, making them a gating factor for partnership decisions.
    • Clients seek dedicated partner compliance resources just as they would have operational, sales or other functional resources in the past. They expect partners who can readily sit on joint compliance committees, agree on protocols for investigating compliance allegations and otherwise operate seamlessly between the two companies’ structures and cultures. Certainly they also expect sales teams to be well-trained to legally launch and promote products.
    • Smaller pharmaceutical companies or those not subject to CIAs expect support in developing their own compliance programs and vetting vendors such as speaker bureau and expense reporting firms.
    • Marketing, advertising and public relations content and messaging ultimately may be subject to the customers’ internal review processes, but companies expect partners who create such content to be savvy as to applicable promotional laws and regulations.
  • Pharmacovigilance: Drug safety is a key area of focus. “With safety monitoring spend expected to reach $1 billion by 2016 in the U.S. alone, the need for qualified outsourcing partners will grow as well.” Outsourcers Land Lead Role in Pharmaceutical Recall Events, Pharmaceutical Compliance Monitor (May 30, 2014), Barry Peters and Heather Ferrence. Partners such as CROs must possess robust pharmacovigilance expertise, processes and resources.
  • Risk Assessment: The OIG expects both larger and smaller pharmaceutical companies to display strong risk assessment capabilities. Recent CIAs include requirements to identify risks associated with the sale, marketing, detailing, advertising and promotion of products reimbursed by government healthcare programs and to devise risk mitigation measures. Service providers hoping to garner business will need to proactively market their risk assessment capabilities to augment those of larger customers and offer a broader portfolio of such services to smaller customers.
  • Global Transparency Requirements: Transparency obligations are on the rise. The European Federation of Pharmaceutical Industries and Associations Code on Disclosures of Transfers of Value From Pharmaceutical Companies to Healthcare Professionals and Healthcare Organisations requires reporting starting in 2016 for 2015 spend. The U.S. Open Payments reporting system has gone live. Partners must provide prompt, accurate and detailed reporting information to their clients. Systems must be robust and sufficiently agile to accommodate clients’ varied reporting formats and requirements.
  • Emerging Markets: Markets such as those in China, Russia and South America hold considerable promise, but industry scrutiny is intense. For example, China’s Public Security Bureau and State Administration for Industry and Commerce are actively visiting drug companies, and the bribery verdict noted above has reverberated. Often even sophisticated pharmaceutical companies do not have the fully-formed internal structures needed to do business in these markets. They must rely on partners to gain a foothold, and they demand sophisticated compliance capabilities to protect their investments. Global trials create additional complexity: regional laws, customs and enforcement environments differ. CROs and CCOs need to be nimble and knowledgeable to operate compliantly in a range of jurisdictions.
  • Corporate Social Responsibility: “In an increasingly competitive marketplace, with dwindling product pipelines and soaring generic penetration, public relations setbacks have potentially enormous repercussions on the bottom line.” Eye for Pharma: Pharma and CSR: Why good deeds are good business (March 14, 2011), Andrew Tolve. Strong corporate responsibility efforts by the likes of GSK, Pfizer, Merck and Sanofi combat negative optics and reflect companies’ desire to do more than just follow the law. It’s no surprise that RFPs and audits now go well beyond asking whether potential partners simply comply with applicable law and instead seek evidence of organic platforms and controls as to human, child and animal rights; wages and hours of work; sustainability; and supplier diversity and accountability.

Overall, pharmaceutical companies have adopted a laser-like focus on compliance both internally and with their partners. Those partners who proactively adopt strong, flexible compliance programs as a business strategy have much to gain.