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The butterfly effect

Managing global compliance requires careful planning, as marketing activities at local level may have a global effect on a company's reputation and risk of prosecution

Compliance with rules governing the promotion of pharmaceuticals on a global level requires astute management. It needs methodical planning, and careful examination of each country's 'rules' and the practices of the affiliates operating in these environments.

The emergence of new practices, whether driven by legislation, industry best practice, or internal codes of practice, weighs heavily on the industry both at headquarters and within local management. Corporate executives and country managers alike need to set the right tone at the top to help support those responsible for compliance, and establish robust processes that identify potential non-compliance issues early.

By taking proactive steps to assess operations, adopting clear policy positions and exercising vigilance, drug companies can be better positioned to reduce the risk of incurring penalties through non-compliance.

Practices under scrutiny
Heavily regulated and under close scrutiny, the pharmaceutical industry's reputation is inextricably linked to companies' ability to comply with regulation and implement best practice.

In today's climate, even apparently 'minor' instances of non-compliance with regulations and codes of practice can lead to negative media coverage, and significant criminal and civil penalties, fines and damages. Current trends point towards a future characterised by increased scrutiny, both from regulatory and non-regulatory stakeholders, and robust enforcement. In particular, the sales and marketing practices of pharma firms are under significant surveillance from regulatory agencies and other stakeholders worldwide (see figure 1, opposite).

Investigations and enforcement efforts are now focusing on how companies sell and promote products with an emphasis on four key areas:

  • Off-label promotion and usage

  • Company interactions and transactions with healthcare professionals and institutions

  • The role of marketing in both clinical trial activity and post-marketing studies

  • Transparency of risk/reward information in promotion.

Successful prosecutions and a mounting number of investigations - often initiated by disaffected employees - are having a significant impact on the reputation of the sector and further undermining stakeholder trust.

Multinational pharmaceutical companies know, based on their experiences in the US, that the consequences of non-compliance can be severe. Prosecutions in America have resulted in settlements of hundreds of millions of dollars for apparent off-label promotion and other alleged non-compliance activities under criminal and civil law.

Penalties totalling no less that $3bn have been incurred by the industry since 2000. One in two of the world's leading pharma companies have been the subject of investigations in relation to sales and marketing practices since 2004; many more enquiries are believed to be in the pipeline in the US.

In most other countries, companies are susceptible to accusations of violating local promotion, competition laws and corruption, as well as the US Foreign Corrupt Practices Act (FCPA) for those companies listed in the US.

Not only do they risk penalties, fines and other sanctions, but they jeopardise their reputations and consumer confidence. In the last year, the industry has experienced well-publicised, local enforcement actions in markets such as Italy, Germany, Poland, Turkey, China and very recently the UK.

What may have seemed like acceptable practices in the past may now be viewed differently by government agencies, politicians, and consumers. Criticism of pharmaceutical practices emanates not just out of the desire to address presumed corrupt practices, but may be motivated by political pressures to curb healthcare costs, or other reforms.


Voluntary standards emerge
Compliance failures and enforcement in the US have served to generate interest in voluntary industry codes. Industry trade groups, including the Pharmaceutical Research and Manufacturers of America (PhRMA) and the European Federation of Pharmaceutical Industries and Associations (EFPIA), spurred to address the apparent weaknesses of marketing codes, have issued new or updated codes of conduct (see figure 2, overleaf).

These codes of practice are aimed at guiding behaviour that has been the focus of continuing criticism by prosecutors and investigative agencies.

Local pharmaceutical associations in many countries have developed their own codes of conduct in recent years in response to growing concerns about pharma firms' marketing practices.

The myriad individual codes pose several challenges to drug companies operating across borders in jurisdictions such as Europe, including:

  • Adding another level of standards in addition to those otherwise applicable under local laws and regulations

  • Requiring companies to maintain effective processes and controls to meet the obligations imposed by local standards and voluntary codes

  • Compelling both headquarters and local management to gain a full appreciation of the totality of standards (whether compulsory or voluntary) that exist in the markets in which the company operates

  • Understanding cultural issues, history and the competitive environment in each locality that influence a company's approach to compliance.

Existing codes of conduct address similar issues, including discounts, grants, rebates, support for educational programmes and sample distribution. Most codes also address other practices, such as gift giving, hospitality and entertainment, which policymakers in many countries have scrutinised.

For senior management, as well as compliance executives and in-house counsel, securing assurance that sales and marketing activities across the organisation are in compliance is challenging. In particular, when addressing the risks associated with sales and marketing practices, executives are struggling to account for variation in practice across their organisations.

Addressing differences across geographies also poses a significant challenge. In Brazil, for example, the Febrafarma Code of Conduct only limits the distribution of free samples to professionals qualified to prescribe.

Other countries limit the quantity of samples provided to physicians, which is the case in the UK, where the Association of the British Pharmaceutical Industry Code of Practice includes annual limits of no more than 10 samples of a particular medicine to a single physician.

Global compliance infrastructure
Managing compliance in the global environment requires careful planning. Sales and marketing activities at local level may have a global effect on a company's reputation and risk of prosecution.Mitigating surprises requires open communication across borders and a global set of processes to maintain compliance with corporate and local standards.

The first step in developing a global sales and marketing compliance programme involves a current state assessment, which includes surveying existing standards to gain an understanding of regional laws and regulations. It also involves a comprehensive review of sales and marketing operations and practices throughout the organisation.

Legal advice is also important and can provide an objective assessment of the extent of non-compliance at global, regional and local levels. This helps to build a picture of an organisation's exposure to risk and identify gaps in policy and processes.

Where possible, benchmarking promotional activities and governance against peers can provide further insight for corporate management, board members and shareholders. Identifying internal weaknesses and positioning, relative to best practices, may help to shape and guide decisions on the actions required to tighten compliance and mitigate risks.

Other important elements of the global compliance infrastructure include identifying the right people to manage the global compliance system and developing a set of robust processes to flag up non-compliance risks before they occur.

There are three key elements involved:

  • Structure - a compliance framework needs to address local, regional and global aspects of compliance with codes, legal advice, training and communication of corporate guidelines and requirements

  • Process - processes should address global standards and local legal and regulatory distinctions. They need to provide adequate approval processes, monitoring and exception reporting, and include effective communication protocols

  • People - the compliance function must have high quality individuals who garner the respect and authority to carry out their roles and the ability to implement change in the organisation with the support of specific and targeted training programmes.

Pharma companies that take proactive steps to assess operations, adopting clear policy positions and exercising vigilance, will position themselves to meet the sales and marketing compliance demands of an increasingly global industry.

The author
John Smart is a partner at Ernst & Young, Forensic Investigations and Dispute Advisory Services

2nd September 2008


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