Pharmaceutical industry challenges - part 3

.Managing regulatory compliance

 As heightened regulatory scrutiny of the pharmaceutical industry grows increasingly global, sales and marketing practices, as well as privacy of patient and customer information, have emerged as targets for the most intense focus. Recent highly visible investigations and aggressive prosecutions regarding global compliance violations have resulted in significant financial judgments against leading pharmaceutical companies and subsequent criminal convictions, not only in the United States but also in Indonesia, China and Poland.

Other countries, including Germany, Italy and the United Kingdom, are investigating the activities of pharmaceutical companies or negotiating settlements for compliance violations. Such compliance missteps could lead consumers to question whether the pharmaceutical industry has lost track of its original vision to advance and improve the human condition.

These expanding regulatory forces are driving an urgent need for pharmaceutical companies to develop practical and effective solutions for meeting the challenges of integrating governance, risk and compliance on a global level. Such an integrated approach must properly synergise culture, process and technology to address current and emerging requirements and performance expectations, including:

• Foreign Corrupt Practices Act (FCPA): Pharmaceutical companies must balance the anti-bribery and accounting requirements of this act with standard sales and marketing practices in foreign countries, which often are in direct conflict.

• Legal and regulatory standards in each country: Foreign countries are increasingly enforcing their own laws and regulations, imposing fines and penalties for violations. Some countries don’t allow direct-to-consumer marketing, and some even regulate how much a company can spend on a pen or pad of paper.

• Deficit Reduction Act of 2005 (DFA): This act added another layer of complexity to the already multifarious process of government price reporting. Until final regulations are published, the issues are unclear, but the passage of this act demonstrates Congress's ongoing intense interest in continued enforcement and scrutiny of government pricing practices and reporting.

Pricing pressures and shrinking margins

Contrary to public perception, drugs form only a small proportion of overall healthcare costs (around 9% in the US – a lower percentage than in most developed countries). However, the high profitability of pharmaceuticals companies makes them a relatively easy target for healthcare providers trying to reduce costs. In Europe and Japan particularly, government funding restrictions mean severe constraints on drug reimbursement prices. While these constraints are by no means new, the situation has worsened considerably for pharmaceuticals manufacturers in recent years. For instance in 2004 the 16% claw back from manufacturers in Germany resulted in an unprecedented 6% decline in German pharmaceuticals sales. Even in the US, where manufacturers are free to set drug prices, the rapidly rising cost of healthcare is likely to result in counter-measures that will hurt the pharmaceuticals industry. Although the Medicare drug benefit is generally seen as being positive for the industry, it does introduce into the market a very powerful single purchaser of drugs, and with that the inevitable negative pressure on prices. In 2006, Medicare will account for an estimated 28% of prescription drug spending, compared to just 2% in 2005.

 What impact is the pressure on prices having on pharmaceuticals companies, and what are they doing to combat it? On the one hand, the company that develops a truly innovative drug with proven improvements in safety and efficacy can still, after careful evaluation of the market, demand premium prices and secure an excellent return on investment. On the other hand the reality is that with such breakthrough products being few and far between, even the most innovative pharmaceuticals companies are learning to live in a more cost-conscious environment, with margins under continuous pressure. There is a consequent focus on cost-cutting opportunities in all aspects of the business, from discovery research right up to sales & marketing and general administration