As any compliance professional working in life sciences knows, there are many challenges unique to the industry. It’s a highly regulated sector, and life sciences compliance programs often become cumbersome, spanning multiple jurisdictions covering extended supply chains and numerous third parties.
We’ve put life sciences compliance under the microscope, looking at the issues the industry currently faces and how to overcome them as well as what lies on the horizon. We’re also delighted to share frontline insights from Richard Rew, General Counsel and Corporate Secretary at biotech firm Luminex.
In Focus: Unavoidable Compliance Risks?
The life sciences sector does not have a good reputation when it comes to bribery and corruption. According to The Lancet, it’s estimated that more than US$7 trillion is spent globally on health services, but at least 10–25 percent of this global spending is lost directly through corruption. Pharmaceutical businesses are particularly prone to corruption, as noted by Transparency International, but what is it about these industries that makes them particularly susceptible to compliance failings?
A primary reason for this is the nature of the stakeholders, with many firms working directly with hospitals or other government-owned institutions. This exposes a particular vulnerability to public corruption with a heavy reliance on sales teams and third party agents/finders to pursue government buyers. As a result, firms are exposed to multiple compliance issues, driven by local customs and regulations, which may include:
- Common use of kickbacks in sales process
- Management of gifts and entertainment
- Engagement with politically exposed persons
- Exposure to government interference
- Complex supply chains
Many life sciences compliance programs are onerous and unwieldy. Some operate in silos or are fragmented, lacking an enterprise-wide view of the compliance challenges they face. Add to this conflicts between managing compliance risk and meeting business goals, and it’s clear why problems arise.
Regulators have paid particular attention to the industry in the US and abroad, pursuing many pharmaceutical and life sciences businesses for Foreign Corrupt Practices Act (FCPA) violations, particularly in relation to the distribution of kickbacks and other improper payments. 2020 cases include that of Novartis, which paid $346 million to the DoJ and SEC for widespread FCPA offenses in multiple jurisdictions, and Cardinal Health, which paid the SEC $8.8 million to settle China FCPA issues.
Stories from the Frontline: One Biotech Firm’s Take on Compliance
To find out more about current challenges, particularly in light of the pandemic, we spoke with Richard Rew, General Counsel and Corporate Secretary at biotech firm Luminex. He described how the main compliance challenges facing Luminex continue to relate to adhering to the FCPA as well as the anti-kickback statute and the Sunshine Act. To manage this, Luminex places a heavy emphasis on training employees globally to comply with these requirements.
But it isn’t alway straightforward, and Richard outlined some of the ongoing difficulties, such as the need to remind a salesperson that a customer has used up their allotment of sample products with no more being provided, even though they have not yet “come to a decision.” Richard also outlined the complexity involved with interpreting certain rules and guidelines, for example what constitutes an acceptable “business meal” and what is “training” versus just a product demo.
“Balancing what is allowed for sales people and their interactions with healthcare professionals versus the sales mantras of ‘the customer is always right’ and ‘providing excellent customer service’ is a constant tension,” Richard explained.
Reflecting on his past experience at another life sciences business, ArthroCare, Richard described his learning experience. Importantly, he outlined the need to design compliance features that can scale with a company—particularly when they transition from a start up to a fully-developed global enterprise. In the case of ArthroCare, it wasn’t one specific failure, it was just the business eventually out-pacing the compliance infrastructure. “It’s like it grew up one day and realized it was an adult but was still wearing its toddler’s clothes,” Richard said.
Richard explained how the focus at Luminex, like many other businesses, has shifted in response to the pandemic, prioritizing the safety of their employees and adjusting to requirements of working from home. This has provided some additional challenges, including a direct impact on their training and auditing protocols since travel has been limited. In addition, they face compliance concerns about what information HR can share with management and what managers can share with their staff about other co-workers. “Covid has also shifted risks,” Richard said. “Things like HIPAA compliance are becoming more important as people want to know health information about their co-workers.”
But not everything is more difficult. The change to their sales cycles has meant sales people making fewer in-person calls, which has simplified compliance to some degree.
Looking to the near future, Richard highlighted some of the challenges involved with decisions relating to the Covid vaccine, whether to make it mandatory for staff and if so how will this be enforced? In the longer term, ESG matters will be of growing importance for the wider life sciences industry. Businesses will move away from the traditional duties just to shareholders and look more holistically at stakeholders as well.
Rising to the Challenge: Next-Gen Compliance
Developing a holistic compliance policy enterprise-wide is vital for life sciences firms to avoid a regulatory fall-out. Strengthening compliance and risk management processes through the adoption of technology platforms will play a key role in allowing this to happen. As compliance processes become more automated, compliance anomalies will be easier to identify and address.
For example, utilizing a third-party management compliance platform that assesses the status of every third-party relationship on an ongoing basis will identify issues before they cause concern. Such a platform could serve a dual purpose by also incorporating upfront and annual compliance training for all employees and third parties. Bringing in AI-based solutions to support high volume diligence remediation support in a post-merger scenario could also help in identifying FCPA successor liability in inherited transactions.
Life sciences compliance teams can benefit from working with a trusted partner to support effective risk mitigation strategies. At IntegrityRisk, we have extensive experience helping businesses navigate a wide spectrum of risks to achieve positive outcomes.
Reach out to us today and discover how we can support your life science compliance needs. From third-party screening and enhanced due diligence to assessing your ESG risks and ABAC investigations, we partner with our clients to get ahead of risk.