Managing third-party risks across your life sciences business
Key takeaways
In the biopharma and medtech sectors, where collaboration with external parties is pivotal, it's imperative to understand and address the inherent risks that come with such relationships. RSM’s life sciences advisory team guides companies through the intricate world of third-party risk management, focusing on the unique challenges facing this dynamic industry.
Recent global challenges, particularly the disruptive impact of the COVID-19 pandemic, have accentuated the critical role of robust third-party risk management. Life sciences companies have been tested in various ways, from maintaining the integrity of clinical trials to ensuring the security of sensitive research and development data. These unprecedented circumstances have underscored the importance of mitigating risks associated with regulatory compliance, data security and safeguarding your organization's reputation.
Explore how our insights and experience can empower your business to navigate the complexities of third-party engagements in the life sciences sector.
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CHAPTER 1
Security and privacy
Your business may have a strategic approach to managing your security, privacy and compliance, but your efforts should also include your third parties.
Cyberthreats and third parties
Given the enormous amounts of data exchanged between life sciences organizations and their third parties, it’s essential to incorporate cybersecurity into your third-party management program, moving beyond standard due diligence and onboarding safeguards to help ensure third-party security evolves with your changing needs and your threat environment.
Another key consideration involves privacy regulations in the European Union, which have become more rigorous, even for U.S. organizations. The EU’s General Data Protection Regulation requires all organizations that hold, transmit or process EU resident data to comply with the law, regardless of whether you or your third party actually operates in the EU. Failure to comply can result in significant financial penalties.
The U.S. is following suit with similar regulations. Compliance obligations are now in place in six states—California, Colorado, Connecticut, Iowa, Utah and Virginia—with more on the horizon. Some state laws and regulations also focus on personal data in specific industries, such as health care and financial services.
These regulations raise the bar for protecting consumer information and require specific tracking from collection to disposal.
At a minimum, life sciences businesses should conduct risk assessments on their third parties annually—but given the complexity of that relationship, changes in either your business or a third-party organization may require more frequent risk evaluations.
Did you know?
According to the 2023 RSM US Middle Market Business Index Cybersecurity Special Report, 68% of executives surveyed in early 2023 believed unauthorized users would attempt to access their data or systems in the coming year.
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CHAPTER 2
Regulatory and contract compliance considerations
In the ever-evolving landscape of life sciences, regulatory and contract compliance is paramount.
To effectively manage regulatory risks and maintain the integrity of your third-party relationships, you need a robust framework that carefully considers the impact of new and pending regulations. Ensure your organization remains in full compliance with the latest regulations while maximizing the benefits of your third-party collaborations.
Staying on top of present and emerging regulations
Pharma
Various industry requirements support the identification of regulated pharmaceutical products throughout their entire life cycle, from development to approval to marketing.
GDPR
All organizations that hold, transmit or process EU resident data must comply with the GDPR, regardless of whether you or your third party actually operates in the EU.
FCPA
Compliance with the Foreign Corrupt Practices Act (FCPA) and other similar global anti-corruption laws becomes a business imperative as you leverage resources abroad and expand globally.
IDMP
The Identification of Medicinal Products international standards facilitate the identification of regulated pharmaceutical products through the full life cycle, from development through marketing.
FDA regs
Increased scrutiny underscores the importance of frequently evaluating compliance with Food and Drug Administration requirements.
Did you know?
To achieve optimal contract management:
- Maintain a central repository for all contract agreements.
- Assign responsibility for management and oversight.
- Complete periodic contract reviews and address areas needing updates or improvements.
- Manage key dates and ongoing due diligence for all aspects of contracts, from financial provisions to legal filings.
Essential contract compliance management
Effective third-party management requires appropriate controls and a deep understanding of roles and responsibilities outlined in your provider contract. Contract compliance management is essential, as failure to properly oversee these agreements could mean costly contractual missteps and lost profits.
To uncover these risk areas, a comprehensive contract compliance audit should be completed on existing contracts to assess whether your third parties are meeting their agreement obligations.
When used regularly, surveys and analysis uncover issues and potential risks before contract agreements are formalized.
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CHAPTER 3
Anti-bribery and fraud protection
Challenges in these areas continue to grow as more and more life sciences companies enlist third parties and conduct business abroad.
Protecting against fraud and corruption
As your life sciences company leverages resources abroad and expands globally, compliance with the FCPA and other international anti-corruption laws becomes essential. Failing to establish and implement comprehensive policies, procedures and controls to tackle bribery and corruption concerns can leave your organization vulnerable to various forms of risk, including legal, regulatory and reputational. Noncompliance with these strict laws, whether within your organization or through your third-party partnerships, may result in significant financial implications and jeopardize your long-term profitability.
Tips to reduce your risk
Third-party vetting
Implement a rigorous and comprehensive third-party vetting and due diligence process to assess potential vendors.
Vendor score card creation
Develop a vendor score card to assess the alignment of your third parties with your organization's goals and values.
Inclusion of audit rights
Ensure your contracts with third parties include audit rights, enabling you to monitor compliance.
Continuous monitoring
Regularly perform internet and database searches to stay informed about your third parties’ activities and potential risks.
Ethics training
Offer annual training sessions to educate third parties on your organization's culture, policies and ethical standards, fostering a consistent ethical tone from the top.
Documented fraud response
Establish a well-documented fraud response strategy, ready for activation in case of any suspicious activities.
Reporting channels promotion
Encourage the use of tip and fraud hotlines, providing a secure platform for reporting any concerns.
Internal controls review
Periodically review and strengthen internal controls through comprehensive fraud risk assessments, proactively mitigating potential issues.
Did you know?
Leveraging data analytics to detect and mitigate fraud can be a powerful element of your overall corporate compliance framework in an increasingly globalized economy.
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CHAPTER 4
Enhancing your operations for better results
Optimizing your processes in collaboration with third parties is a strategic move that can lead to improved workstreams, elevated customer service, enhanced regulatory compliance, greater cost-effectiveness and increased production efficiency.
Efficiencies for improved business decisions
Life sciences organizations often operate in a highly outsourced environment that includes contract manufacturers, clinical research organizations, third-party logistics providers, specialty pharmacies and a variety of other external partners that play crucial roles in guiding the business from the early stages of clinical trials to the final commercialization phase.
Designing processes from an end-to-end perspective across all parties and throughout the supply chain and fulfillment life cycle can help ensure transparency, efficiency and compliance at all stages.
Best practice
Design a scalable infrastructure
A scalable infrastructure determines how your processes will operate across all parties and key systems. Document data flow, information points, systems of record and operational procedures to ensure a clear delineation of roles and responsibilities.
Communicate clearly
Define and document what your third party is responsible for and how you will interact and communicate on a regular basis. Define your expectations of the third party and include language in your contracts to ensure your expectations can be met. Include right-to-audit clauses to allow you access to evaluate your third party’s quality of work.
Develop an operating model
An effective operating model should define how you will interact with your third parties and include forward-looking planning, routine reporting requirements and performance evaluations.
Consider automation
Repeatable processes can be automated and improve efficiencies. Working across an ecosystem often leads to inefficient processes that can be improved with emerging automation technologies.
Forecast business outcomes
Leverage technology to forecast business outcomes and then optimize processes to improve them. Work with your vendors to analyze systems and operations and address problem areas.
When basic functions are optimized, a company can focus on strategy and what’s next on its growth journey.
Did you know?
CHAPTER 5
Empowering your life sciences business with technology solutions
Leveraging a third party to provide valuable technology solutions for your life sciences business can be a game changer. However, the importance of choosing the right vendor and service cannot be overstated. Making the right technology choices is a pivotal step toward enhancing your organization's performance, efficiency and success.
Key considerations to keep in mind:
- Assess your requirements: Your choice of technology vendors should align with how you engage with third parties and your overall operational model.
- Choose the right ERP solution: Whether you outsource manufacturing or handle it in-house, your enterprise resource planning (ERP) takes center stage. Proper due diligence in selecting the right system can lead to significant cost savings.
- FDA-validated software needs: Determine if your operations require FDA-validated software. This determination will not only influence your ERP selection but also affect your ability to leverage cloud software solutions.
- Serialization strategy: Evaluate and plan how you will manage serialization with your third-party collaborators to ensure compliance and efficient tracking.
- Prioritize forecasting and planning: Elevate the importance of forecasting and planning within your business operations and leverage technology solutions to enhance inventory efficiency.
- Select your vendors wisely: Look beyond technology implementation and seek parties that can provide valuable insights into your business needs and recommend technology that best supports your strategic objectives. Collaboration with the right parties can be transformative for your business.
Other technology considerations include leveraging key systems for ERP; customer relationship management; corporate performance management for budgeting, planning and forecasting; quality management; human resources/payroll; and standard employee internal use. Implementing these solutions to fit in the overall operating model with your third parties will provide your organization with visibility into your business and enable you to optimize spend.
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CHAPTER 6
M&A: Unveiling third-party risks
If your life sciences company is on the brink of a merger or acquisition, it's crucial to comprehend the third-party relationships that may become part of your business through this transformative transaction.
M&A due diligence
Conducting integrity due diligence can protect your company by identifying key areas of risk within the target organization, including third-party vendor arrangements.
The goal is to gain a deeper understanding of the target’s business and its associations, primarily from a corruption risk management perspective. This proactive approach is essential, especially when dealing with entities or third parties located abroad. By taking these precautions, you can proactively mitigate integrity risks and ensure a smoother transition during the M&A process.
What are the consequences of not conducting an integrity due diligence analysis on an acquired company and its third parties?
Potential reputational damage
Revenue and profit impact
Vulnerable compliance programs
Final considerations
To thoroughly assess your acquisition target and its third-party relationships, consider the following key steps:
- Comprehensive risk review: Conduct a detailed risk assessment of existing business relationships, paying particular attention to any connections with foreign government officials.
- Examination of purchase and sale agreements: Scrutinize the representations made within the purchase and sale agreements to gain valuable insights into potential risks.
- Independent market research: Carry out independent research to understand the target company’s management and the business landscape within the markets where it operates.
- Corruption investigations: Research and assess any circumstances related to government inquiries or investigations into past or ongoing violations of corruption laws. This insight can be instrumental in gauging potential risks.
- Management interviews and questionnaires: Interview senior management of the target company and complete standardized questionnaires provided by company management. This step aids in obtaining a more comprehensive view of the integrity and risk profile of the acquisition target.