|Intellectual Property Infringements and Supply Chain Vulnerabilities Among Top Risks for Life Sciences Companies|
|By Staff and Wire Reports|
|Friday, 20 June 2014 01:11|
Amid uncertainties around patent protection and lawmakers putting an indefinite hold on patent reform legislation, life sciences companies are increasingly pointing to intellectual property (IP) infringement as a threat.According to BDO USA, LLP’s second annual analysis of risk factors noted in the most recent 10-K filings of the 100 largest companies on the NASDAQ Biotechnology Index by revenue, 98 percent of companies cite the protection of their intellectual property as a risk. Research and development (R&D) is crucial to the success of life sciences companies and any infringement of their IP can be financially detrimental and give competitors an advantage. Various requirements relating to the U.S. Physician Payments Sunshine Act (Sunshine Act) and the Health Information Technology for Economic and Clinical Health (HITECH) Act force companies to report, maintain and protect various types of customer and patient data.
Therefore the potential for any form of electronic data breach, along with recent headlines around data security issues, have companies more focused on these risks. In fact, data security and privacy breaches reached the top 25 risk factors overall for the first time this year, with 61 percent of companies citing it as a risk. With these concerns on the rise, companies are subject to more time-consuming regulatory compliance as well as reputational risks in the event such information is corrupted.
The 2014 BDO Life Sciences RiskFactor Report also found that supply chain management and concerns over suppliers and vendors was the number one cited risk for life sciences companies in 2014, with every company in the sample (100 percent) noting this concern. With many life sciences companies relying on third-parties to bring their products to market and to produce critical materials, they depend on these suppliers to comply with numerous standards and regulations, and any compliance setback can lead to disruption in production as well as exposure to product liability issues and recalls. As a result, 95 percent of companies cite significant risks related to product liability and insurance costs, while 88 percent cite product recall and complication concerns.
Changes in the regulatory environment are a constant area of focus for life sciences companies. Nearly all companies (98 percent) cite federal, state and local regulations as a concern, and the Affordable Care Act was cited by more than three-in-four companies (77 percent). Healthcare reform has greatly impacted the life sciences industry overall, by not only bringing on additional compliance concerns and penalties but also uncertainty regarding revenues due to potential impact on reimbursements and coverage driven by increased competition. Companies mentioned challenges specific to compliance with the Affordable Care Act including the amended False Claims Act, which makes companies liable for defrauding governmental programs and the Sunshine Act, which requires manufacturers of drugs, medical devices and biologicals that participate in U.S. federal healthcare programs to report certain types of payments given to physicians and hospitals. Moreover, 85 percent of companies not
According to Bloomberg, more large healthcare companies are looking to biotechs for acquisitions in 2014, and deal activity has already been robust. With many biotechs depending on strategic investments from pharmaceutical companies to grow their business, 69 percent cite risks related to successfully managing or completing mergers and acquisitions. In addition, 75 percent of companies note concerns over anti-takeover or change of control provisions that could hinder buyout opportunities, up nine percentage points from last year.
Life sciences companies also contend with challenging regulations when it comes to bringing products to market. Nearly all companies (94 percent) specifically point to risks associated with the arduous FDA approval process and compliance requirements. The FDA recently announced a $37.5 million grant to support the Clinical Trials and Transformation Initiative (CTTI) to improve both the quality and efficiency of clinical trials, a critical component of the approval process, which is good news for the 87 percent of companies who cite delays or unfavorable results from clinical trials as a risk. Risks also continue after approvals. Ninety-seven percent of companies cite their ability to effectively commercialize and market approved products as a top concern, and another 89 percent note risks related to collaborations, which often provide critical resources for life sciences companies to bring products to market.