Pharma 2020: The vision - which path will you take?

A Report by Forrester

EXECUTIVE SUMMARY

Pharma risk managers and compliance professionals face increasing regulatory scrutiny and market pressures that amplify both business and operational risk. To keep from drowning under a rising tide of agency mandates, legal precedents, and financial controls, pharma must abandon its reactive, functional approach to risk mitigation in favor of a more proactive and structured enterprise risk management (ERM) response. Key software providers and professional services organizations stand ready to help pharma firms build governance, risk, and compliance (GRC) processes and the supporting technology platforms needed to efficiently detect and deter risks, driving top-line business performance improvements through widely applied risk management processes.

INTENSE REGULATORY SCRUTINY RAISES RISK BURDEN FOR PHARMA

Regulatory compliance is the centerpiece of risk management and governance in the life sciences industry. Firms that fail to comply with regulations — and a growing number of financial assurance and legal precedent requirements — set by these agencies will suffer shutdowns in manufacturing operations, product withdrawals, fines, lawsuits, revenue loss, and tarnished reputations.

Operational risk, as well as regulatory compliance, places a greater burden on pharma risk managers because:

• Regulations apply across the entire product life cycle in pharma. Compared with other industries, the risk and compliance profile spans the full pharma product life cycle — from invention to testing, manufacturing, and marketing (see Figure 1). Unlike service delivery in banking or product safety in the automotive industry, pharma must manage risk across a broader range of intellectual property management, clinical (public) trials, submissions, operational validation, privacy, sales practices, and brand reputation management activities.

• International operations and markets increase complexity. The companies that produce drugs are some of the world’s largest and most globally distributed firms. They must not only control far-ranging operations — as Chiron failed to do when its flu vaccine production in Liverpool, UK violated US FDA good manufacturing practices (GMP) regulations — but also navigate a complex set of local restrictions on promotional and sales activities, which vary across every border.

• Multifaceted partner relationships dominate. Worldwide drug supply chains include a complex network of manufacturers, wholesalers, secondary distributors, and retailers, all with independent risk mitigation issues. Due to varying chargeback and rebate practices, different participants, including hospitals, dispensing physicians, clinics, elder care facilities, pharmacies, retail chains, or the government, see a wide range of discounts, which complicates contract management. Secondary buying and selling opens the door to counterfeit drugs and threatens consumer safety. Lawmakers at the federal and state level want technology, such as RFID, electronic signatures, and tracking applications, used in the supply chain to ensure that products flow from the manufacturer to the destination without risk of theft or tampering.1

• Mergers and acquisitions complicate business operations. During the past seven years, the pharma industry has seen record merger activity in both number and size. Rapid M&A activity creates broken and inefficient processes as companies struggle to integrate new operations while maintaining regulatory validation. Pharma’s growing use of outsourced or offshore vendors to supplement internal resources for clinical trial data management, application development, and IT system management further complicates the operational landscape.2

• Product mishaps cause serious, highly visible damage. Because they affect consumer health, product failures can devastate firms’ reputations, brand identities, and financial performances. Before Vioxx, other drugs such as Paxil (an antidepressant that reportedly increased suicidal tendencies in teens) and Baycol (a cholesterol-lowering medicine that was recalled after reports of muscle damage) suffered expensive recalls or large class action suits when manufacturers failed to mitigate risks in clinical research, efficacy trials, quality assurance, or abuse.

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