Regulatory & Capital Risks Top-of-mind for Life Sciences: BDO Analysis of SEC Filings | Business Wire

CHICAGO–(BUSINESS WIRE)–It’s not the risks that are unfamiliar to life sciences companies—it’s

the regulatory environment around them that’s changed.

Eighty-nine percent of life sciences companies cite changes to

healthcare regulations as a major business risk this year, according to

a new report from BDO

USA, LLP—the highest level cited in the report’s history. Much of

this increase has been prompted by the continuing shift to value-based

reimbursement in the healthcare industry, along with ongoing uncertainty

around the future of the Affordable Care Act. Meanwhile, 98 percent of

life sciences entities mention concerns related to FDA regulatory

approvals and compliance in their most recent 10-K filings, inspired by

changes in leadership under the Food and Drug Administration (FDA),

among several other factors.

The 2017

BDO Life Sciences RiskFactor Report examines the risk

factors cited in the most recent annual shareholder filings of the 100

largest publicly traded U.S. life sciences companies listed on the

NASDAQ Biotechnology Index by revenue. The risk factors were analyzed

and ranked in order of frequency cited.

Life sciences companies continue to face new and evolving regulations

this year: Nearly all (99 percent) worry about compliance with various

federal, state or local regulations. Concerns around anti-fraud

regulations are elevated, with nearly three-fourths expressing concerns

related to anti-kickback regulations (73 percent) and the False Claims

Act (72 percent, up from 43 percent in 2014). Compliance with

cybersecurity regulations is also top of mind, as connected healthcare

devices receive increased

attention from the FDA.

Despite regulatory uncertainty, the FDA’s move to reduce regulatory

burdens may prove beneficial to life sciences organizations looking for

greater flexibility when it comes to innovation. Efforts to lower the

barrier for new products seeking approval, such as components of the 21st

Century Cures Act aimed at streamlining drug and medical device

approvals, along with the FDA’s recently unveiled Digital

Health Innovation Action Plan, seek to boost sector growth and will

require organizations to reconsider business strategies and risk

frameworks.

“FDA Commissioner Scott Gottlieb has already unveiled proposals to

streamline the approval of new drugs and medical devices,” said David

Friend, MD, MBA, chief transformation officer and managing director

in The BDO Center for Healthcare Excellence &. Innovation. “While the

changes could require life sciences companies to rethink their

compliance frameworks, they present exciting opportunities for growth,

and we'll likely see advanced waves of both innovation and competition

take hold.”

The following chart highlights the top 25 risk factors cited by the 100

largest companies on the NASDAQ Biotechnology Index:

2017 Rank*

 

Risk Factors (descending in order of frequency)

 

2017

 

2016

 

2015

 

2014

 

2013

#1t

 

Competition in industry and consolidation

 

100%

 

100%

 

100%

 

97%

 

100%

#1t

 

Corporate copyright, IP infringement and/or trade secrets trademarks

invalidations, violations or challenges

 

100%

 

100%

 

99%

 

98%

 

96%

#1t

 

Ability to commercialize and market current and future products

 

100%

 

98%

 

99%

 

97%

 

96%

#1t

 

Legal proceedings and litigation

 

100%

 

95%

 

92%

 

91%

 

84%

#5

 

Federal, state or local regulations, including tax rates and

uncertainty

 

99%

 

100%

 

100%

 

98%

 

100%

#6t

 

FDA regulatory approvals, obligations and compliance, including

limitations on approved products

 

98%

 

97%

 

100%

 

94%

 

94%

#6t

 

Ability to attract/retain/motivate key personnel and management

 

98%

 

95%

 

91%

 

94%

 

96%

#8t

 

Issues with suppliers, manufacturers, vendors, distributors and

partners/alliances (product quality, shipping, imports,

availability, costs, etc.). Compliance with Good Manufacturing

Practices

 

97%

 

97%

 

99%

 

100%

 

93%

#8t

 

Various liabilities, including product liability. Insurance costs

and potential losses due to uninsured liabilities

 

97%

 

96%

 

98%

 

95%

 

87%

#8t

 

Product complications, side effects, delays, recalls, safety issues,

etc.

 

97%

 

96%

 

93%

 

88%

 

88%

#8t

 

Revenue, stock price, sales cycle and profitability vary or are

volatile. Financial results less predictable

 

97%

 

94%

 

90%

 

97%

 

92%

#12t

 

Changes to the availability of. Limitations to, reimbursement

from third party payers, including Medicare/Medicaid

 

95%

 

97%

 

96%

 

85%

 

87%

#12t

 

Risks related to collaborations/relationships with other companies,

including breach of obligations, failure to perform, etc.

 

95%

 

91%

 

90%

 

89%

 

92%

#14

 

Inadequate liquidity or capital

 

94%

 

85%

 

84%

 

85%

 

79%

#15

 

Failure to properly execute corporate strategy and growth (i.e. R&D

not leading to successful drugs. Inability to capitalize on product

innovation or go further with research. Inability to develop new

products like biosimilars, gene therapy, etc.)

 

93%

 

84%

 

79%

 

66%

 

69%

#16t

 

Delays or unfavorable results from pre-clinical and clinical trials

 

90%

 

91%

 

92%

 

87%

 

80%

#16t

 

Threats to international operations and sales

 

90%

 

92%

 

88%

 

71%

 

79%

#18t

 

Changes in healthcare laws and regulations, including the Affordable

Care Act (ACA)

 

89%

 

86%

 

82%

 

77%

 

78%

#18t

 

Ability to maintain operational infrastructure, including IT and/or

implement new systems. Breaches of technology security, privacy,

theft, etc.

 

89%

 

89%

 

70%

 

61%

 

46%

#20

 

Pressure on pricing and margins and cost cutting**

 

84%

 

89%

 

N/A

 

N/A

 

N/A

#21t

 

Maintaining adequacy/effectiveness of internal controls, financial

reporting and SOX. Accounting standards/regulations changes and

compliance

 

81%

 

85%

 

87%

 

76%

 

68%

#21t

 

Natural disasters, war, conflicts and terrorist attacks

 

81%

 

77%

 

76%

 

56%

 

47%

#23

 

General economic and financial market conditions

 

79%

 

83%

 

91%

 

67%

 

84%

#24t

 

Anti-takeover or change of control provisions

 

78%

 

81%

 

79%

 

75%

 

66%

#24t

 

Labor concerns, including those related to pension, post-retirement

costs, benefit plans (including rising healthcare costs),

healthcare, union concerns, retention, immigration, outsourcing,

managing geographically dispersed workforce, etc.

 

78%

 

76%

 

78%

 

40%

 

24%

*t indicates a tie in the risk factor ranking

**Combined with “competition in industry, consolidation” in

2015. Split in 2016.

Bliss Integrated Communication
Katie Perkowski, 646-576-4114
katie@blissintegrated.com