Transcript EMEA Presentation -- PwC Portal

Rebuilding Trust:
A Revolution in Compliance
November 17, 2004
Anthony Farino
Leader, US Pharmaceutical Advisory Services Group
Fundamental Challenges
in the Pharmaceutical Industry

Market dynamics and competitive pressures are making it necessary for
pharmaceutical and health care products companies to examine their corporate
strategies, to re-engineer processes, all with a goal of improving productivity and
reducing costs.

R&D continues to face the challenge of increasing the flow of new products to a
level sufficient to sustain targeted sales growth.

Regulators across the globe are flexing their muscles through increased rulemaking activity; enforcement actions and punitive fines.

Continued investigations into commercial practices, and enhanced scrutiny of
clinical and manufacturing functions will continue to fuel significant change in
business practices and required controls.

Regulatory sanctions are now of a level that can threaten the very existence of
companies, and risk and compliance departments can now make a significant
difference to the success of a company, and its share price.

Governments, large payers, and patients continue to raise questions about product
pricing and the cost effectiveness of certain therapies.
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Fundamental Challenges
Exist Across the Major Markets
 Tougher regulatory environment is
impacting across the value chain creating
increased cost of compliance and
reputational risk
 Pressure from seniors has resulted in the
passing of the Medicare drug benefit
 Increasing use of generics and
therapeutic substitution
 Increasing concern over drug safety
issues
 Price control concerns rising from reimportation from Canada
USA
 Continuing pressure
on pharmaceutical
budgets
 Rising patient-copayments
Major
Challenges
 Direct and indirect
measures to control
drug prices
 The likely introduction of
a new pricing system
 An increasing tendency
to refuse reimbursement
for costly new products
 Tighter controls on
reimbursement
 More sophisticated
methods of
monitoring
prescribing
 Greater separation of
prescribing and
dispensing
Europe
Japan
Source: IMS Health 2002, PwC WINS Analysis
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What Others Are Saying About the Industry
“Stakeholders from almost every conceivable corner are leveling criticism at
the industry for the prices of its products, for its reliance on the US to finance
most of its research, and for its resistance to change ways that have long
made it the most profitable sector in the US economy.”
-
John K. Iglehart, Founding Editor, Health Affairs
The prices of the top 30 brand-name drugs prescribed for seniors rose by
4.3 times the rate of inflation last year.
-
Families USA
"I do think there is a serious problem in the pharma industry with the
business model and with the lack of trust and respect in the general public.”
-
Hank McKinnel, Pfizer CEO, FT – May 3, 2000
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Questions Senior Executives are Asking
 How do we know we have achieved a compliance mindset throughout the
organization?
 How do our governance, risk and compliance practices measure up against
leading practices?
 How do we ensure identification and resolution of issues in a timely manner?
 How do we build value and efficiency from our investment in governance, risk
and compliance?
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Looking for Answers….Research Recently Conducted by
PwC
PwC and Economic Intelligence Unit on Compliance (June 2003)
 Survey of 160 executives at international financial institutions, regulators and
technology houses in US, UK, Europe and Asia and 20 interviews
META Group survey on behalf of PwC (October 2003)
 135 interviews with executives and line of business managers at North American
multi-nationals with revenue greater than $1 billion
Global CEO Survey on Risk (December 2003)
 1391 phone interviews with CEOs around the world; 35% from companies with more
than a billion in revenue
PwC and Economic Intelligence Unit on Governance (April 2004)
 Survey of 200 executives at international financial institutions, regulators and
technology houses in US, UK, Europe and Asia
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Key Research Findings: Governance
 97% of respondents saw integrity as a source of competitive advantage and
over half reported it as a source of “great competitive advantage”
 Clear, public codes of governance, better communication with more
constituencies and a clean track record were identified as the most important
ways companies could demonstrate a culture of integrity.
 The compliance function and the risk management function stood out as top
governance-related areas for expanded resource allocation.
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Key Research Results: Risk
 60% of CEOs responding report ERM is a priority of theirs and the board’s
 43% believe they don’t have the information they need to manage risk on an
enterprise level.
 58% say risk is not fully integrated into strategic planning
 51% say everyone in the organization does not understand their
accountability with regard to risk management
 73% say risk is not fully integrated across all business units and functions
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Key Research Results: Compliance
 Only 15% feel their compliance procedures are effective in minimizing
reputational risk
 Reputational risk identified as #1 priority
 Only 25% believe they are in full compliance with regulations and laws
 Customers are viewed as second only to regulators as key drivers to adopt
and implement best practices
 Compliance with internal risk control policies viewed as more effective at
protecting against reputational damage than compliance with government
and/or exchange rules
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What Others are Saying about Compliance Programs
MetaGroup/PwC Survey
October 2003
Strategic View
 See governance, risk and
compliance as a value driver
 The need for connection
among governance, risk and
compliance is understood and
valued – although operational
issues exist
 Exposure to substantial risk
through insufficient
commitment to risk
management
Operational
Issues
 Manual processes are
instrumental to meet
governance, risk and
compliance requirements
 Most do not have significant
real-time governance, risk and
compliance capability – 1/3 of
regulated respondents are
“not even close”
 Growing investment area, but
light on cost and value
measurement
 Investment shifting to
technology
Future Trends
 Significant improvements are
expected in the areas of data
accuracy, quality of decision
making, task redundancies,
etc.
 Technology will be a critical
governance, risk and
compliance enabler
 Effective governance, risk and
compliance can realize value
in the areas of reputation and
brand, employee retention
and revenue
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Integrated View of Governance, Risk Management &
Compliance
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A New Vision of Compliance: An Integrated View of
Governance, Risk, and Compliance
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Where are GRC Programs Most Vulnerable?
 Tone-at-Top/Oversight/Culture
o
o
o
o
o
Corporate strategy and missions do not consider GRC concerns
Culture not aligned with organization’s GRC strategy, mission and values
Management behavior is inconsistent with stated procedures
Inability or lack of process to elevate issues to senior management
Senior management is not effectively communicating the organizational strategy
 Understanding Cost
o
o
o
o
Total Cost of Compliance is not known
Compliance Functions have become costly, an in some instances ineffective and inefficient
Unexpected costs are incurred as a result of required compliance steps
Resources are unavailable to support compliance requirements
 Monitoring and Reporting
o
o
o
o
o
o
Lack of identification of the appropriate data to be monitored and reported results in ineffective programs and cost
increases
Costs of monitoring increases without focus on use of technology and synergies among people and processes
Quality of underlying data that is used to monitor is unreliable
Inability to monitor information on a timely basis is key to effective program maintenance
Accountability for monitoring is not clearly defined
The audit plan do not consider compliance risks and / or the outcomes of audits are not elevated to senior
management to assess and take corrective action
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Leading Practices Associated with Key Enablers
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Concluding Thoughts:
Enabling the Strategic Advantages of GRC
 Aim higher
 Drive an awareness deep into the organisation’s DNA
 Anticipate the next challenges
 Help the board to operate effectively
 Communicate with all stakeholders who affect the way
your company performs
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