Title: Rebuilding Trust: A Revolution in Compliance November 17, 2004
1Rebuilding Trust A Revolution in Compliance
November 17, 2004
- Anthony Farino
- Leader, US Pharmaceutical Advisory Services Group
2Fundamental Challenges in the Pharmaceutical
Industry
- Market dynamics and competitive pressures are
making it necessary for pharmaceutical and health
care products companies to examine their
corporate strategies, to re-engineer processes,
all with a goal of improving productivity and
reducing costs. - RD continues to face the challenge of increasing
the flow of new products to a level sufficient to
sustain targeted sales growth. - Regulators across the globe are flexing their
muscles through increased rule-making activity
enforcement actions and punitive fines. - Continued investigations into commercial
practices, and enhanced scrutiny of clinical and
manufacturing functions will continue to fuel
significant change in business practices and
required controls. - Regulatory sanctions are now of a level that can
threaten the very existence of companies, and
risk and compliance departments can now make a
significant difference to the success of a
company, and its share price. - Governments, large payers, and patients continue
to raise questions about product pricing and the
cost effectiveness of certain therapies.
3Fundamental Challenges Exist Across the Major
Markets
- Tougher regulatory environment is impacting
across the value chain creating increased cost of
compliance and reputational risk - Increasing concern over drug safety issues
- Pressure from seniors has resulted in the passing
of the Medicare drug benefit - Increasing use of generics and therapeutic
substitution - Price control concerns rising from re-importation
from Canada
USA
- Rising patient-co-payments
- The likely introduction of a new pricing system
- An increasing tendency to refuse reimbursement
for costly new products - Greater separation of prescribing and dispensing
- Continuing pressure on pharmaceutical budgets
- Direct and indirect measures to control drug
prices - Tighter controls on reimbursement
- More sophisticated methods of monitoring
prescribing
Major Challenges
Japan
Europe
Source IMS Health 2002, PwC WINS Analysis
4What Others Are Saying About the Industry
- Stakeholders from almost every conceivable
corner are leveling criticism at the industry for
the prices of its products, for its reliance on
the US to finance most of its research, and for
its resistance to change ways that have long made
it the most profitable sector in the US economy. - - John K. Iglehart, Founding Editor, Health
Affairs - The prices of the top 30 brand-name drugs
prescribed for seniors rose by 4.3 times the rate
of inflation last year. - Families USA
- "I do think there is a serious problem in the
pharma industry with the business model and with
the lack of trust and respect in the general
public. - - Hank McKinnel, Pfizer CEO, FT May 3, 2000
5Questions Senior Executives are Asking
- How do we know we have achieved a compliance
mindset throughout the organization? - How do our governance, risk and compliance
practices measure up against leading practices? - How do we ensure identification and resolution of
issues in a timely manner? - How do we build value and efficiency from our
investment in governance, risk and compliance?
6Looking for Answers.Research Recently Conducted
by PwC
- PwC and Economic Intelligence Unit on Compliance
(June 2003) - Survey of 160 executives at international
financial institutions, regulators and technology
houses in US, UK, Europe and Asia and 20
interviews - META Group survey on behalf of PwC (October 2003)
- 135 interviews with executives and line of
business managers at North American
multi-nationals with revenue greater than 1
billion - Global CEO Survey on Risk (December 2003)
- 1391 phone interviews with CEOs around the world
35 from companies with more than a billion in
revenue - PwC and Economic Intelligence Unit on Governance
(April 2004) - Survey of 200 executives at international
financial institutions, regulators and technology
houses in US, UK, Europe and Asia
7Key Research Findings Governance
- 97 of respondents saw integrity as a source of
competitive advantage and over half reported it
as a source of great competitive advantage - Clear, public codes of governance, better
communication with more constituencies and a
clean track record were identified as the most
important ways companies could demonstrate a
culture of integrity. - The compliance function and the risk management
function stood out as top governance-related
areas for expanded resource allocation.
8Key Research Results Risk
- 60 of CEOs responding report ERM is a priority
of theirs and the boards - 43 believe they dont have the information they
need to manage risk on an enterprise level. - 58 say risk is not fully integrated into
strategic planning - 51 say everyone in the organization does not
understand their accountability with regard to
risk management - 73 say risk is not fully integrated across all
business units and functions
9Key Research Results Compliance
- Only 15 feel their compliance procedures are
effective in minimizing reputational risk - Reputational risk identified as 1 priority
- Only 25 believe they are in full compliance with
regulations and laws - Customers are viewed as second only to regulators
as key drivers to adopt and implement best
practices - Compliance with internal risk control policies
viewed as more effective at protecting against
reputational damage than compliance with
government and/or exchange rules
10What Others are Saying about Compliance Programs
MetaGroup/PwC SurveyOctober 2003
Strategic View Operational Issues Future Trends
See governance, risk and compliance as a value driver The need for connection among governance, risk and compliance is understood and valued although operational issues exist Exposure to substantial risk through insufficient commitment to risk management Manual processes are instrumental to meet governance, risk and compliance requirements Most do not have significant real-time governance, risk and compliance capability 1/3 of regulated respondents are not even close Growing investment area, but light on cost and value measurement Investment shifting to technology Significant improvements are expected in the areas of data accuracy, quality of decision making, task redundancies, etc. Technology will be a critical governance, risk and compliance enabler Effective governance, risk and compliance can realize value in the areas of reputation and brand, employee retention and revenue
11Integrated View of Governance, Risk Management
Compliance
12A New Vision of Compliance An Integrated View of
Governance, Risk, and Compliance
13Where are GRC Programs Most Vulnerable?
- Tone-at-Top/Oversight/Culture
- Corporate strategy and missions do not consider
GRC concerns - Culture not aligned with organizations GRC
strategy, mission and values - Management behavior is inconsistent with stated
procedures - Inability or lack of process to elevate issues to
senior management - Senior management is not effectively
communicating the organizational strategy - Understanding Cost
- Total Cost of Compliance is not known
- Compliance Functions have become costly, an in
some instances ineffective and inefficient - Unexpected costs are incurred as a result of
required compliance steps - Resources are unavailable to support compliance
requirements - Monitoring and Reporting
- Lack of identification of the appropriate data to
be monitored and reported results in ineffective
programs and cost increases - Costs of monitoring increases without focus on
use of technology and synergies among people and
processes - Quality of underlying data that is used to
monitor is unreliable - Inability to monitor information on a timely
basis is key to effective program maintenance - Accountability for monitoring is not clearly
defined
14Leading Practices Associated with Key Enablers
15Concluding Thoughts Enabling the Strategic
Advantages of GRC
- Aim higher
- Drive an awareness deep into the organisations
DNA - Anticipate the next challenges
- Help the board to operate effectively
- Communicate with all stakeholders who affect the
way your company performs