ComplianceCast Pharma 2014

04.18.14 | By Nick Torre

Compliance Forecast for the Pharmaceutical and Life Sciences Industry

What are some of the key economic and market developments that will potentially impact the compliance landscape for the life sciences industry for the rest of 2014? Here’s a look at what we see could be some of the key drivers:

Mergers & Acquisitions (M&A’s)

Many pharmaceutical Industry forecasts for 2014 (including this Zacks.com article) point to increased mergers and acquisitions as one of the primary methods for establishing greater market share. This trend will likely continue (or increase) given that short-term interest rates will likely remain low until at least 2015, which means the capital necessary for M&As will be readily available. The chart below shows short-term interest rates for the past 6 months:

ComplianceCast Pharma

As you can see, rates have remained consistently between 0.07% and 0.09%. This data further demonstrates the Federal Reserve’s decision to keep rates extremely low in an effort to spur economic growth.

The impact of this M&A activity is increased regulatory pressure on the respective companies entering into deals. Along with scrutiny from the FTC and other government regulators, there are numerous compliance considerations. Participating companies need to ensure compliance systems are aligned in time for reporting deadlines. Additionally, systems need to align for recording spend on grants, healthcare provider(HCP) payments, studies completed, etc., which is often not considered until too late in the process. For example, differences in computing Fair Market Value (FMV) for service provider payments can lead to issues in reporting, tracking spend and identifying valid business needs. Unanticipated differences in processes, such as requirements for recording HCP advice provided during Advisory Board events can be disruptive to day-to-day business, and can have a negative impact on reporting standards. A comprehensive, encompassing compliance structure is key to ensuring major changes to a company do not have an unexpected negative impact.

Patent Expiries

2012 was considered the “patent expiry cliff”, but the major effects appear to have passed. Still, 2014 will see more scheduled patent expirations than 2013. This means generic drug-producing companies will face a number of opportunities and challenges. As branded drugs come off patent and new generic products become available, these firms will likely be aggressively spending money on marketing and promotion, which necessitates a solid compliance process. Systems such as aggregate spend capturing, HCP engagement documentation, and others will help protect such companies from adding undue compliance risk to their drug portfolios. For instance, the increased documentation and reporting requirements that are necessary with new marketing/promotion strategies can be offset with automated tools that make reporting more efficient and cost-effective.

NYSE

Emerging Markets

Emerging markets such as China and India remain one of the biggest opportunities for industry growth. Most of the focus is on China, which the IMF predicts to have ~8% GDP increase in the next year or two. Compared to the ~2-4% growth forecast for the US and Europe, it’s obvious that there are potential opportunities in expanding to such a market. There are also risks associated with such a strategy. Many companies are wary of lax patent laws and intellectual property theft that are often present in emerging market countries. Comprehensive risk assessment as well as robust compliance controls will be necessary to ensure any entry into emerging markets will not expose firms to unforeseen issues. Additionally, it is important to understand differences in compliance “cultures” or “environments” in emerging markets. A lax compliance environment could adversely affect a US company’s compliance reporting and needs to be carefully managed.

Conclusion

As 2014 moves forward, numerous compliance considerations for life sciences companies could emerge. The industry as a whole will be facing a number of challenges and potential opportunities, and these are some of the issues we feel should be on everyone’s radar. It is important to consider the compliance risks associated with strategies and ensure that your company has the necessary systems in place to allow for fast, efficient reporting, quick business needs analysis, and protection against missed compliance targets.