Managing third-party risks across your life sciences business

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.

Chapters

Cyberthreats and third parties

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.

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.

Staying on top of present and emerging regulations

Essential contract compliance 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.

Protecting against fraud and corruption

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.

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.

M&A due diligence

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.