Life sciences organizations often leverage outsourcing due to the nature of their business.
Third parties can help implement technology, provide valuable insights into business needs and more.
But third-party risks in areas such as regulatory compliance and data security must be mitigated.
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.
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.
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.
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.
Various industry requirements support the identification of regulated pharmaceutical products throughout their entire life cycle, from development to approval to marketing.
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.
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.
The Identification of Medicinal Products international standards facilitate the identification of regulated pharmaceutical products through the full life cycle, from development through marketing.
Increased scrutiny underscores the importance of frequently evaluating compliance with Food and Drug Administration requirements.
To achieve optimal contract 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.
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.
Implement a rigorous and comprehensive third-party vetting and due diligence process to assess potential vendors.
Develop a vendor score card to assess the alignment of your third parties with your organization's goals and values.
Ensure your contracts with third parties include audit rights, enabling you to monitor compliance.
Regularly perform internet and database searches to stay informed about your third parties’ activities and potential risks.
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.
Establish a well-documented fraud response strategy, ready for activation in case of any suspicious activities.
Encourage the use of tip and fraud hotlines, providing a secure platform for reporting any concerns.
Periodically review and strengthen internal controls through comprehensive fraud risk assessments, proactively mitigating potential issues.
Leveraging data analytics to detect and mitigate fraud can be a powerful element of your overall corporate compliance framework in an increasingly globalized economy.
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.
Reluctance of your third parties to grow and improve could affect workstreams, customer service, product launches, regulatory compliance efforts, costs, production and more.
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.
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.
Potential reputational damage
Revenue and profit impact
Vulnerable compliance programs
To thoroughly assess your acquisition target and its third-party relationships, consider the following key steps:
