Transparency in life sciences reporting
March 2018 | FEATURE | SECTOR ANALYSIS
Financier Worldwide Magazine
March 2018 Issue
An arena which touches all our lives, life sciences is a ‘health and wealth’ sector of key strategic importance to national economies – one that does much to translate medical innovations into tangible benefits for all.
That said, companies operating within the sector face myriad challenges, including economic uncertainty, cost and pricing pressures, increased demand for innovation and value, and an ever-changing regulatory and risk environment. These are challenges which put significant pressure on life sciences companies when it comes to their reporting obligations.
Additionally, as is the case across virtually all sectors, transparency in reporting is key. This requires life sciences companies to disclose data related to revenue recognition, research and development costs, acquisitions and divestitures, leases, the definition of a business, consolidation, contingencies, income taxes and non-GAAP measures, among others.
Yet the fact is that mistakes are made and compliance leaders spend millions managing reporting errors prior to deadline – an expensive scenario that calls for the sector to identify more effective strategies to minimise discrepancies and optimise processes.
Reporting obligations for life sciences companies are substantial. In the US, for example, companies need to divulge extensive details of general and research payments made to US-registered physicians and teaching hospitals, and ownership or investments of those recipients in those companies and group purchasing organisations (GPOs). Similar data is required by members of local industry bodies in Europe, such as the Association of the British Pharmaceutical Industry (ABPI) in the UK, in respect of payments to healthcare professionals (HCPs).
While the level of data available to the public via transparency reporting is comprehensive, shortfalls can and do arise. “This is particularly the case when there is no context in which to judge whether a financial interest is beneficial, or whether a payment may create a conflict of interest,” says Ian Oliver, Life Sciences assurance lead partner at BDO LLP.
Katie Pawlitz, a partner at Reed Smith LLP, believes companies face significant challenges in terms of their reporting obligations, mainly due to the extent to which they vary across jurisdictions. “Different reporting requirements mean companies with a global presence must develop sophisticated data systems and jurisdiction-specific policies, procedures and training programmes to ensure proper collection and reporting,” she says.
An additional issue is that data is often presented to the public without proper context – potentially exposing companies to unfair scrutiny. “Simply presenting dollar amounts and general categories of payments may be misleading, or suggest that legitimate relationships are inherently suspect or improper,” notes Ms Pawlitz. That said, despite the challenges, she believes that transparency in life sciences reporting is largely a successful endeavour.
“Life sciences companies are reporting a significant amount of information and data, which is being made available to the public,” she continues. “Improvements can certainly be made to the system and process, but there is no doubt that the public has access to a wealth of information.”
As far as optimising their reporting processes is concerned, may commentators feel that life sciences companies need to communicate their organisations’ current position and their future strategies as clearly, effectively and convincingly as possible.
“The burden currently falls on life sciences companies to prepare appropriate, accurate information, and on healthcare professionals to consent to, review and approve such information,” notes Mr Oliver. To optimise reporting processes, he suggests: (i) clear, consistent and ongoing education of both life sciences companies and HCPs, in terms of the specific information required and companies’ interpretation of payment description guidance, with real-life examples; and (ii) engendering a ‘right first time’ philosophy in data collation, including maximising automation across systems – for example, by leveraging information from purchasing and expenses finance systems, and internal audit.
With the efficiency of the processes life sciences companies utilise to deliver their reports under constant review, the future of reporting is likely to consist of greater rather than lesser transparency.
“I expect that in the months and years to come the efficiency of transparency reporting will improve,” says Ms Pawlitz. “Given the amount of data at issue and the fact that companies face different reporting requirements across different jurisdictions, it must. I also think we will continue to see an expansion of transparency in terms of those countries or jurisdictions that require reporting.”
According to Mr Oliver, transparency is not expected to reduce in the future, as stakeholders – including patients, care providers, insurers and governments – will continue to demand it. “Life sciences companies will need to continue to build trust in their financial relationships, corporate governance and strategies,” he says. “In terms of improving efficiency, the future looks bright for developing auditable complex transactional data processes, initially by implementing online verification processes by recipients on a real-time basis, and subsequently perhaps by exploring the opportunities afforded by a blockchain technology approach.”
With transparency clearly an integral part of life sciences reporting, it would appear that the trend across the sector is that of ever more substantial disclosure obligations.
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