Pharma companies are increasingly looking to contract research organisations but a number of risks may be overlooked, says KPMG.
With the Bribery Act coming into play and a light being shone on compliance, Hitesh Patel, risk and compliance partner, and Natasha Barnett, senior manager, intellectual property and contract governance, at KPMG, say building the right relationship with CROs is becoming very important.
Pharma companies need to know what they are paying their CROs and what the CRO is paying third parties on their behalf, Patel and Barnett say.
“While the Bribery Act is not specific to the pharmaceutical industry, drug companies are more vulnerable to violations because of the intricate nature of the relationships between the pharmaceutical company, the CRO and other industry figures in the supply chain such as doctors, nurses and lab technicians.”
Visibility in the costs in contracts can also lead to misreporting, Patel and Barnett add: “The importance of ensuring that a company is paying the right amount to their CRO given what is often a complex, lengthy and shifting contractual position as trials progress is also an important risk that needs to be managed.”
Contract obligations are not always considered at the start of the relationship, misreporting can be quite frequent and the clinical trial budget may often be revised, all of which can lead to issues later on. The paying of costs can be a very grey area, they add.
“In one case we investigated, nearly £1 million costs had been invoiced and paid even though the costs were incurred a long time ago and were time barred by the contract. This also demonstrated the importance of those responsible for the management of the CRO relationship within the pharma company knowing and enforcing the obligations within the contract. In addition, in a number of reviews we have identified approximately £3 million advance payments made to CROs, which have not been deducted from future invoices and without an audit it is unlikely the clients systems would have picked this up.”
Patel and Barnett suggest there are three things pharma needs to do to best manage the CRO relationship: a good compliance programme; a good system for monitoring budgets; and strong and unambiguous contractual clauses.
“It is clear that there is an increased need to demonstrate governance over third party spends and increasing the bottom line has never been more important to pharmaceutical companies,” Patel and Barnett say. “With a range of risk factors building up to apply increased pressure on them, the argument for getting to know both their CROs and their associates much better appears to be more important than ever before.”