Know Your Risks: Emerging Markets, Third-Party Intermediaries, and the Life Sciences Industry
Managing risk and strengthening business relationships
Emerging markets provide attractive growth opportunities for life sciences companies. But life sciences companies should proceed with caution. While emerging markets may represent incredible growth opportunities, they are still developing, and many have reputations for seemingly pervasive corruption in their business practices and processes.
From January 2009 through September 2010, fines for healthcare companies ranged from $22 million to over $2 billion. The potential exposure for pharmaceutical, medical device, and biotechnology companies are exacerbated by a lack of visibility, understanding, and accountability regarding arrangements with third-party intermediaries (TPIs). Some potential dangers that should be addressed when considering an arrangement with a TPI include:
- Payments to “foreign officials”
- Local regulatory standards
- Contract deficiencies and lack of visibility
- Local business practices and culture
It is important that a life sciences company, its extended organization, and third-party business partners comply with local and international laws and regulations. Conduct a risk assessment of specific TPI relationships and take some practical steps to reduce, share, or transfer risk:
- Apply local and global standards consistently to TPI arrangements
- Perform due diligence
- Document business need and purpose
- Structure applicable contract language
- Customize practical policies, processes, and internal controls
- Implement an effective training and anti-corruption program
- Introduce applicable payment and performance processes
- Conduct ongoing risk monitoring and auditing
- Be prepared for contingencies
Understanding the regulatory and business risks of doing business in the local market is essential. Knowing the warning signs --and implementing applicable processes, effective monitoring and auditing, controls, and systems to address such risks --may help life sciences companies better manage TPI relationships, increase shareholder value, reduce the scrutiny of regulators, and potentially avoid adverse consequences.
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