Tips on complying with a highly regulated environment see more
Serving on a Board of Directors for a company is an important role that allows Board members to bring their leadership and experience to the organization to assist it with developing strategy and policy. Board members have a personal fiduciary duty to the organization they serve. Accordingly, Board members must be prepared and engaged and understand the key strategic operational and business issues affecting the company.
When a Board contemplates taking action on behalf of a company, it should act in a reasonable manner which includes being prepared for meetings, reading materials provided by management, asking questions of management and outside advisors, and documenting all such efforts in applicable minutes. As a part of this process, Board members are allowed to rely on the expertise and experience of internal executives and outside consultants and advisors when making decisions related to the company.
For life science companies, Board members have to understand and appreciate the dynamic and highly regulated aspects of the industry. In addition to monitoring the financial performance of the company, Board members should also evaluate other issues that affect companies in the life sciences industry. This article will address some of these key issues that are currently impacting life sciences companies.
Because life sciences companies often produce and sell products that have the potential to harm consumers if the products are manufactured or used improperly, the life sciences industry is very highly regulated by both state and federal governments. This regulation can impact how life sciences companies manufacture, market, and deliver various goods and services. Because of this high level of regulation and potential risk to customers and the public, it is important for life sciences companies to have robust compliance plans with written policies and procedures. The Board should be aware of, and ultimately approve, these policies and procedures and receive periodic updates from compliance executives. The Board should also participate in periodic educational sessions on various compliance issues offered by the company.
If companies experience a significant compliance problem that results in large fines or harm to the public, the Boards of these companies may face questions as to whether the fiduciary duty of care owed to the company was met. Courts have held that Board members can be held liable for failure to implement and follow a system for overseeing corporate compliance but these courts have set a high bar for “failure of duty of oversight” claims. In re Caremark International Inc. Derivative Litigation, 698 A.2d 959 (Del. Ch. 1996). More recent cases have held that Boards should make sure corporate compliance plans are in place that identify and track compliance and safety risks and they must do so “rigorously” for “mission-critical” risks, and have held Boards liable for failing to provide meaningful oversight over the financial and other controls within the company. Marchand v. Barnhill, 212 A.3d 805 (Del. Ch. 1996); Hughes v. Hu, 2020 WL 1987029 (Del. Ch. Apr. 27, 2020).
The following are examples of some of the compliance risks that Boards of life sciences companies should be aware of and take steps to avoid through adoption of various policies and procedures:
- For companies that manufacture or sell products that are regulated by the FDA, the Board should have a general awareness of the key FDA requirements applicable to their company and have a plan in place to remain in compliance with these FDA requirements.
- For companies that manufacture products used by the public, the Board should be aware of and be briefed on key issues related to the safety of the products and any bad outcomes or injuries associated with such products.
- For companies that offer any pricing support or support for patients, Boards should be aware of any state or federal rules on inducements to patients and how to maintain ongoing compliance with state and federal anti-kickback laws.
- For companies that have financial relationships with physicians who make referrals of Medicare, Medicaid, or other governmental patients, the Board should be generally aware of company policies on compliance with the federal Stark and Anti-kickback laws as well as the Sunshine Act laws.
- For companies that submit claims to federal or state governments, the Board should be generally aware of policies used to avoid federal False Claim Act violations. Over the past several years, federal fraud and abuse enforcement in the health care and life sciences industry has remained very strong. In 2020 alone, investigations conducted by HHS’s Office of Inspector General resulted in 578 criminal actions against individuals or entities involved in crimes related to Medicare and Medicaid fraud, and 781 civil actions, which include false claims and unjust enrichment lawsuits, civil monetary penalties settlements, and administrative recoveries related to provider self-disclosure matters. U.S. Department of Justice and U.S. Department of Health and Human Services, Annual Report of the Departments of Health and Human Services and Justice, Health Care Fraud and Abuse Control Program FY 2020 (available at https://oig.hhs.gov/publications/docs/hcfac/FY2020-hcfac.pdf). In 2021, the Department of Justice recovered $5.6 billion from False Claims Act cases.
- For companies who interact with competitors in terms of joint venture acquisitions or other collaborations, companies shall have policies dealing with antitrust compliance.
Protection of Assets
Boards of life sciences companies should be aware of and engaged in developing and implementing policies designed to protect the valuable assets of the companies. For life sciences companies, data, proprietary technology, and know-how are often the companies’ most valuable assets.
One of the most important areas of asset protection in the life sciences industry is cybersecurity. The data of life sciences companies is becoming increasingly more important and valuable and Boards need to ensure this data is adequately protected through periodic software updates and other strategies. Cyber attacks are on the rise in the life sciences industry. According to a report by the research firm, SonicWall, ransomware attack attempts in the healthcare sector rose by a staggering 594% in the first half of 2021. Record 304.7 Million Ransomware Attacks Eclipse 2020 Global Total in Just 6 Months, SonicWall, Jul. 29, 2021 (available at https://www.sonicwall.com/news/sonicwall-record-304-7-million-ransomware-attacks-eclipse-2020-global-total-in-just-6-months/).
Intellectual property is often the most valuable asset owned by life sciences companies. These assets include patents, copyrights, trademarks and other business know-how. Boards of these companies should adopt rigorous policies and procedures to protect this intellectual property. Life sciences companies, even startups, must have intellectual property strategies and policies put in place by the Board to protect these valuable assets or suffer the risk of losing a key portion of the company’s value.
Another valuable asset possessed by life sciences companies are their trade secrets. Trade secrets are information not generally known by the public that is maintained by a company as a secret that provides a competitive advantage or economic benefit to the holder of the trade secret. Trade secrets can be worth large amounts of money and often are a key lynchpin in the assets of a life sciences company. It is critical that life sciences companies take steps to identify and protect trade secrets and take action if their trade secrets are stolen or if they are challenged with taking another company’s trade secrets. If a company does not take active steps to designate and protect trade secrets, a company’s ability to protect its trade secrets or enforce trade secret rights may be weakened. Boards must adopt policies and procedures to protect trade secrets from competitors, the public and disgruntled employees. Boards must also establish policies to address new employees who may have potential trade secrets from their former employers. This defensive strategy can help mitigate risk of trade secret claims against the company.
Protecting Brand / Reputation of Company
Another critical asset of a life sciences company which the Board is responsible for is the brand or reputation of the company. With the globalization of the life sciences industry and explosion of social media, reputation and brand is more important than ever and every life science company needs to pay attention to maintaining and protecting its reputation and brand through thoughtful policies, procedures, and internal and external messaging.
A company may have a very good product or service that it is offering the public but it is also critically important how life sciences companies present the company and its image to the public. The importance of this has resulted in the development of a specific environmental, social, and governance (ESG) strategy by many life science companies. Many life sciences companies have developed environmental policies that improve their sustainability strategy and applicable carbon footprint and incorporate ways to reduce climate change caused by certain industrial activity. In addition, life sciences companies have become more involved in social issues such as improving health equity and access to health care services and products. This has also been evident in the way that certain companies conduct clinical research and including more diverse trial participants. Life sciences companies have also focused on more ethical business practices and policies as a part of their governance strategies.
This concept of ESG has been evident in various aspects of life sciences companies as Boards have adopted new hiring practices, taken high profile positions on social issues or reduced or eliminated businesses with individuals, companies, or governments who have engaged in controversial behaviors. This trend will likely continue with life sciences companies so it is important for Boards to be aware of these issues.
Life sciences companies face a diverse set of challenges and opportunities while operating in a highly regulated environment. It is important for Board members to be aware of the issues discussed herein in addition to monitoring the financial performance of the company. Board education and engagement are truly issues that will benefit the Board, management team, and company.
Life Sciences is front and center in this fabulous podcast see more
Heather Matthews and and Matthew Roberts of the Nexsen Pruet healthcare practice group's Taking the Pulse podcast are joined by special co-host Nexsen Pruet attorney Tushar Chikhliker for a crossover episode with The Buzz: an Economic Development Podcast to introduce SCBIO's new leader, James Chappell.
After a nationwide search, James has recently been named as SCBIO’s new President & CEO to lead the organization’s great work in directing the flourishing life sciences industry in South Carolina. Enjoy this special episode to learn about James Chappell, the future of life sciences in the state and SCBIO’s development efforts at building the business of life sciences across the Palmetto State. Listen to the podcast now.
The Impact of COVID-19 on Clinical Research in the Life Sciences Industry: Is there a Silver Lining?Long term impacts of COVID-19 across the health care spectrum are still to be determined see more
Clinical research is one of the foundations of the Life Sciences industry as it involves the scientific investigation and treatment of diseases and other medical conditions in order to improve medical knowledge related to the diagnosis, treatment, and prevention of such diseases and medical conditions. Clinical research is the underlying process that results in the development of ground breaking new drugs and treatments that cure or treat diseases that improve all of our lives. One of the best and most recent examples of the importance of clinical research is the development of vaccines for the COVID-19 virus which to date has taken the lives of over 5 million people across the globe since early 2020.
The impact of the COVID-19 pandemic on the clinical research industry has been profound and in some respects may prove to be an inflection point for the Life Sciences industry.
The COVID-19 pandemic created massive disruption within the world of clinical research. In 2020, over 79% of ongoing clinical trials were disrupted in one way or another by COVID-19. The disruptions ranged from stopping ongoing trials, pausing recruitment of ongoing trials and pausing the development of new clinical study sites. Enrollment in clinical trials dropped dramatically during the early stages of the pandemic as potential participants were reluctant to make trips to hospitals or other research sites. In addition, many investigators, sub-investigators, and research staff had to shift focus to COVID related support instead of working on clinical research efforts.
Beyond the disruption to existing clinical research studies, however, COVID-19 has had other impacts on the clinical research industry that could have a potentially positive impact on how clinical research is conducted in the future.
COVID-19 Resulted in an Acceleration of the Clinical Research Process
When faced with the rapidly spreading COVID-19 virus, pharmaceutical companies and governments collaborated to accelerate the clinical research process in order to develop a vaccine that would work against COVID-19. Previously, the fastest a vaccine had been developed in the U.S. was four years when the vaccine for the mumps virus was developed in the 1960s. In light of the global health emergency created by the COVID-19 pandemic, researchers were able to reduce the normal time to arrive at a vaccine by years. How was this done? One of the reasons for the rapid development of the COVID-19 vaccine was the years of prior research on vaccine development for other viruses, like HIV. Researchers were also able to quickly determine the specific genetic makeup of the SARS-COV-2 virus by early 2020 and they used technology from RNA-based templates to develop a potential vaccine. Another important factor in streamlining the development for the COVID-19 vaccine was the hundreds of thousands of people who volunteered to participate in the clinical studies for the vaccine development. In addition, the U.S. Government implemented Operation Warp Speed which provided very large government contracts and research grants to pharmaceutical companies to research and produce vaccines. The U.S. Government also had the FDA advance all COVID-19 vaccine clinical research studies to the front of the regulatory approval line through the use of emergency use authorizations (EUAs). This lead to the development of multiple COVID-19 vaccines that were ready for mass distribution within 1 year of the identification of the COVID-19 virus, which is a remarkable accomplishment. The FDA also used EUA to expedite other responses to COVID-19 by approving new testing and additional sources and types of personal protective equipment (“PPE”). The development and distribution of the vaccine was a groundbreaking accomplishment that reflected the resilience and innovation of the clinical research industry. According to some clinical researchers, the rapid creation of COVID-19 vaccines is “a sea change in how to develop vaccines in the future.”
As we continue to work through the COVID-19 pandemic, it remains to be seen how much faster future clinical research studies will be accelerated in the future based on our COVID-19 clinical research experience. The FDA is under both political and media pressure to accelerate its approval process because of the COVID-19 experience and the clinical research industry is looking at its normal processes to determine if things can and should be done in a different way in order to streamline and accelerate the overall process while at the same time maintaining safety and scientific integrity.
A New Focus on the Clinical Research Participant
Another potential change in clinical research that was caused in part by COVID-19 is an effort by clinical trial sponsors to focus more on the clinical trial participant and their experience during the clinical trial. This includes trying to reduce the administrative burden on clinical trial participants and making the process simpler and easier for participants to navigate. Clinical trial sponsors are also evaluating trials with more of a focus on quality of life for the participants and increasing the use of patient support groups or patient advocates so it is easier for clinical trials to recruit new participants and to keep the participants engaged throughout the life of the clinical trial.
Use of More Decentralized Clinical Research
A decentralized clinical trial (DCT) is defined as a clinical study executed through telemedicine and mobile /local healthcare provider processes and technologies that brings the trial’s activities to the patient at home rather than using the traditional model of bringing patients to a trial site. Because much of the world was in lockdown mode to deal with the implications of COVID-19, clinical researchers increased the use of DCTs during 2020. This included the use of more virtual encounters and technology to connect clinical trial participants with the investigators. It is anticipated that this will occur more in the future as researchers can gather better data when it is easier for patients to report the data. With DCTs, patients can report data via their smart phone or tablets from home instead of having to be physically present at a clinical research site. Use of DCTs is also seen as a successful tool in recruiting the appropriate patient populations by increasing both access to clinical trials and the overall diversity of trial participants. Having a diverse group of clinical trial participants can help ensure that the drug or device being tested is safe and effective.
Increased use of Digital Technology
The use of digital technology by patients and participants in clinical trials has steadily increased over the last several years. During COVID-19 and with the increase in DCTs, the use of mobile devices such as smart phones or tablets, digital wearables or other types of biosensors have steadily increased. The use of this digital technology provides clinical researchers with access to continuous data for longer periods of time and it is easier for clinical trial participants to use this technology on a daily basis without disruption to their daily lives. The use of digital technology has also increased the opportunity for clinical trial sponsors to obtain real-world data (RWD) and real-world evidence (RWE) from clinical study participants. This result stemmed in part from the FDA’s launch of a program focused on the increased use of RWD and RWE. This kind of information has been used to support clinical trial designs and studies to generate innovative approaches to clinical studies.
Is there a silver lining from COVID-19 when it comes to clinical trials?
The long term impacts of COVID-19 across the health care spectrum still remain to be determined, but one of the short term impacts of this global pandemic could prove to be potentially significant and positive changes in the way that the clinical research industry operates. These changes could lead to a faster clinical research process that embraces the use of new technology such as digital therapeutics and development of a broader and more diverse base of clinical participants.
For a look at the regulatory framework for clinical trials in the life science industry and the risks faced by companies within the industry – including a discussion of potential future changes caused by the pandemic – watch Nexsen Pruet’s on-demand webinar, “Understanding Clinical Research Framework and Challenges in the Life Sciences Industry,” presented by Matthew Roberts of Nexsen Pruet and Rakel Meir of Biogen.
South Carolina featured in JD Supra article see more
South Carolina has long been known for its colorful history, beautiful beaches and vibrant tourist industry. In recent decades, it has also come to be well known for its high-tech manufacturing with the likes of BMW, Boeing, Honda, Michelin, Samsung and Volvo, all locating large manufacturing facilities throughout the State. What you might not know is that South Carolina is also home to another rapidly growing high-tech industry—the Life Sciences industry.
The term Life Sciences is generally used to include companies in the fields of biotechnology, pharmaceuticals, biomedical technologies, life systems technologies, nutraceuticals, cosmeceuticals, food processing, environmental, and biomedical devices. The Life Sciences industry also includes organizations and institutions that devote the majority of their efforts in the various stages of research, development, technology transfer and commercialization, as well as the companies who support these entities.
According to SCBIO, the trade association which represents the Life Sciences industry in South Carolina, there are over 700 companies and businesses actively engaged in the Life Sciences industry in South Carolina and at least one Life Sciences organization is located in 42 of the State’s 46 counties. The economic impact of the Life Sciences industry is approaching $12 billion per year and is continuing to increase, according to a recent study. It is also estimated that the Life Sciences industry has created over 40,000 high paying jobs in South Carolina over the last several years, with an average annual salary of over $70,000.
The Life Sciences industry in South Carolina is very diverse. It includes companies ranging from small startups focusing on developing new technology like Okra Medical, to a unique genetic clinical and research institution like Greenwood Genetic Center, which has been serving the State for decades, to large established companies like Nephron Pharmaceuticals. Nephron is a pharmaceutical manufacturer and cGMP compliant 503(B) Outsourcing facility, and a global leader in the manufacture of generic respiratory medication that has rapidly expanded its manufacturing capacity and services over the last seven years. Nephron is owned and led by Lou Kennedy, whose vision and leadership have spurred the Company’s growth and success and have also made her one of the State’s most important business leaders, as well as an important thought leader in the Life Sciences industry.
South Carolina is a pro-business state that has worked diligently to attract large companies looking for a friendlier business climate from a tax and regulatory perspective. An additional driver for the growth of the Life Sciences industry is the existing ecosystem for Life Sciences, which is supported by the State’s three major research universities: University of South Carolina, Medical University of South Carolina and Clemson University as well as over ten additional universities and colleges in the State - from Furman University with its innovation program and nationally recognized chemistry department, to Newberry College launching new curriculum and a degree focused on pharmaceutical manufacturing. These universities and colleges further validate the increasing depth of the existing ecosystem and the positive impact it will have on strengthening the talent pool available to the Life Sciences industry. Other factors contributing towards this growth are the efforts of the South Carolina Department of Commerce and the South Carolina Research Authority, the strong system of hospitals and health care systems within the State, the support of various economic development alliances, the State’s expanding technical college system, the support of elected officials and the growth and leadership of SCBIO over the last several years.
SCBIO has spearheaded a series of joint private / public initiatives to promote the growth of the Life Sciences industry in South Carolina. These efforts include promoting statewide economic development strategies to attract Life Sciences companies to locate or relocate in South Carolina and consistently promoting and strengthening the existing ecosystem which allows established South Carolina Life Sciences organizations to collaborate, grow and flourish. In addition to its economic development efforts, SCBIO has integrated its efforts with the broader mission to transform and positively impact healthcare as evidenced by its unique alliances forged with the South Carolina Hospital Association, several large health systems and large payers like Blue Cross Blue Shield of South Carolina. For the past four years, SCBIO has been led by its CEO, Sam Konduros. Konduros has experience with economic development, operations of Life Sciences companies, developing start-up companies and most importantly—developing and implementing an ambitious strategic plan for the Life Sciences industry. During his time at SCBIO, Konduros has assembled a talented team. His vision and energy have fueled a rapid growth in membership and engagement and an increased in awareness and support for the Life Sciences industry across the State. Under his leadership, SCBIO significantly expanded its membership and quadrupled its revenues, while at the same time establishing itself as a powerful force for economic development and creating a new platform for Life Sciences companies to collaborate on innovations and research. Earlier this month, Konduros announced his departure from SCBIO to serve on the Board of Vikor Scientific, another successful company within the Life Sciences space in South Carolina that is rapidly expanding. He will also serve as CEO of a new health innovation company powered by artificial intelligence (AI) and blockchain technologies focusing on science personalized medicine strategies that will be a part of Vikor Scientific’s expanding portfolio of companies. SCBIO is conducting a national search for Konduros’ replacement and there is no doubt that the association and its members will continue to benefit from the momentum created over the last four years as it continues to push the Life Sciences industry forward.
The global COVID-19 pandemic presented a profound challenge to the Life Sciences industry as it disrupted the way business was conducted. The Life Sciences industry in South Carolina stepped up to these challenges and turned them into opportunities. Many Life Sciences companies pivoted from their existing strategic plans to address the needs of the State and Nation by providing assistance in key areas that became critical during the pandemic. Companies like Nephron Pharmaceuticals, Vikor Scientific, KIYATEC, Premier Medical Lab Services and others offered much needed expanded COVID-19 testing services inside and outside South Carolina. Others such as ZVerse, a digital manufacturing company, modified its business model to become one of the largest producers of reusable face shields for use during the pandemic and beyond. Over the last 12 months, they have produced millions of these reusable facemasks and have been recognized throughout the country for their efforts. Rhythmlink International, a medical device leader, donated thousands of masks and personal protective equipment (PPE) to hospitals and other healthcare providers across South Carolina. In addition, Milliken & Company boosted its production of biosmart fabrics used in scrubs and lab coats, which uses chlorine bleach-activated technology and molecular engineering to kill up to 99.9% of the bacteria and viruses it touches. Headquartered in Greenville, Vitalink Research was selected by Moderna to run its Phase III vaccine clinical trial, demonstrating national confidence in Life Sciences research operations in South Carolina. These are just a few examples of how South Carolina Life Sciences companies responded to the challenges of the COVID-19 pandemic and highlight why the Life Sciences industry is one of the fastest growing segments of South Carolina’s economy.
The future of the Life Sciences industry is bright in South Carolina. South Carolina has become an attractive place to develop and expand Life Sciences companies and there is great leadership within these companies. The rapid growth of Life Sciences is becoming more apparent to the public and media. In February 2021, Governor McMaster proclaimed February 15-19 as South Carolina Life Sciences Week in the Palmetto State. Our Life Sciences companies are leading the discussions of how to bring more Life Sciences manufacturing back to the U.S, including to South Carolina, and how to develop a domestic source of PPE and other parts of the supply chain. There is also increased collaboration on leveraging increased use of technology like telehealth and digital health to deliver health care services to rural and less developed areas using technology developed and perfected in South Carolina. SCBIO is also leading an effort to expand and improve the workforce to support Life Sciences companies. All signs point to a very bright future for the Life Sciences industry and South Carolina is just beginning to see the benefits of this growth and development.