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Pharmceutical Industry

6 Critical Risks Facing the Pharmaceutical Industry

Drug manufacturers face legal, regulatory and technology-related challenges every day.
By: | June 29, 2018 • 3 min read

The pharmaceutical industry is under scrutiny from the government, health insurers and consumers, all calling for greater transparency and accountability. It’s also facing competition from both internal and external forces.

1) Increased Competition from Generic Drugs

In 2017, the FDA began a push to get lower-cost generic drugs out to market faster.

Once a new brand name drug is approved, it’s granted a 180-day period of exclusivity, during which time generic versions cannot go to market. But, a backlog of generic applications has stretched that 180 days much longer. The FDA’s renewed effort to clear that backlog and get generic applications through the approval process faster will flood the market with cheaper versions of high-cost drugs.

According to the FDA, the entree of two competitive generic versions knocks down the price of a brand name drug by 52 percent. The price falls another 30 percent once nine generics are on the market.

2) Legal Liability for Opioid Addiction

Opioid manufacturers are under fire for feeding the epidemic sweeping the nation. Hundreds of lawsuits filed from the local to the federal level accuse drug makers of misleading the public about the addictive properties of opioid painkillers. The suits additionally allege that drug makers exaggerating their benefits and urged doctors to over-prescribe for the sake of increasing revenue.

Now the Department of Justice is getting involved.

Attorney General Jeff Sessions announced the creation of a task force to investigate manufacturers and distributors of prescription opioids. He also said the Department will provide assistance to the prosecution of lawsuits against the drug makers where it can.

3) Product Liability

Beyond promoting competition from generic drugs, the FDA is also urging pharmaceutical companies to cut down the cost of new drugs by streamlining and speeding up the research and development process, which should eliminate some overheard expenses.

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While this makes drugs more affordable for consumers, it also means medications spend less time in testing, increasing patient safety risk and regulatory risk.
Policy makers will weigh access to medicines with the desire to encourage biopharmaceutical R&D, which relies on regulatory efforts to streamline clinical research, ensure product quality, and achieve more efficient oversight.

4) Keeping Up with Technology

The study of human genomics is paving the way for personalized medicine, in which drugs are built to work with an individual’s unique set of genes, increasing their effectiveness and safety. 3D printers could emerge as top competitors for manufacturers; the first printed drug was approved by the FDA in 2015. The explosion of personal data collected by wearable devices could enhance the quality of clinical studies and help researchers synthesize results more efficiently.

Nanotechnology could take data collection a step further than wristwatches. Clothing made from nanoparticles could detect more health parameters like internal body temperature, sweat rate, blood pressure, hydration status and more. Medication delivered directly to the cells via nanoparticles in the bloodstream could also revolutionize the way medications are designed.

Failure to keep up with these technology advancements could open the door for non-traditional players to enter the market and infringe on pharmaceutical companies’ market share.

5) Counterfeit Drugs and Global Quality Control

The flow of foreign counterfeit drugs into the American market continues to be a problem, especially as manufacturers move operations overseas.
Multinational pharma companies have to ensure they meet U.S. quality standards while adhering to all local regulations abroad, and are also responsible for blocking for illegal trafficking of counterfeit medications.

This requires stringent standards for all vendors and third parties involved in the manufacture and transportation processes. Brexit will make this more difficult for companies operating out of or distributing drugs in the UK.

6) Patent Cliffs

A patent cliff refers to the expiration of drug patents and the sudden drop-off of sales of products that previously constituted a large percentage of the market. Essentially, patent cliffs put these dollars up for grabs for competitors to produce and patent a comparable brand name drug

In 2022, the industry is expected to have almost $50 billion in prescription drug sales worldwide at risk due to patent expiration, according to market research firm Statista. &

Katie Dwyer is an associate editor at Risk & Insurance®. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

High Net Worth

Your High Net Worth Client Wants to Live in the Danger Zone? Here’s What Your Resiliency Plan Should Look Like.

Having a resiliency plan and practicing it can make all the difference in a disaster.
By: | September 14, 2018 • 7 min read

Packed with state-of-the-art electronics, priceless collections and high-end furnishings, and situated in scenic, often remote locations, the dwellings of high net worth individuals and families pose particular challenges when it comes to disaster resiliency. But help is on the way.

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Armed with loss data, innovative new programs, technological advances, and a growing army of niche service-providers aimed at addressing an astonishingly diverse set of risks, insurers are increasingly determined to not just insure against their high net worth clients’ losses, but to prevent them.

Insurers have long been proactive in risk mitigation, but increasingly, after the recent surge in wildfire and storm losses, insureds are now, too.

“Before, insurance was considered the only step in risk management. Now, our client families realize it is one of the many imperative steps in an effective risk management strategy,” said Laura Sherman, founding partner at Baldwin Krystyn Sherman Partners.

And especially in the high net worth space, preventing that loss is vastly preferable to a payout, for insurers and insureds alike.

“If insurers can preserve even one house that’s 10 or 20 or 40 million dollars … whatever they have spent in a year is money well spent. Plus they’ve saved this important asset for the client,” said Bruce Gendelman, chairman and founder Bruce Gendelman Insurance Services.

High Net Worth Vulnerabilities

Laura Sherman, founding partner, Baldwin Krystyn Sherman Partners

As the number and size of luxury homes built in vulnerable areas has increased, so has the frequency and magnitude of extreme weather events, including hurricanes, harsh cold and winter storms, and wildfires.

“There is a growing desire to inhabit this riskier terrain,” said Jason Metzger, SVP Risk Management, PURE group of insurance companies. “In the western states alone, a little over a million homes are highly vulnerable to wildfires because of their proximity to forests that are fuller of fuel than they have been in years past.”

Such homes are often filled with expensive artwork and collections, from fine wine to rare books to couture to automobiles, each presenting unique challenges. The homes themselves present other vulnerabilities.

“Larger, more sophisticated homes are bristling with more technology than ever,” said Stephen Poux, SVP and head of Risk Management Services and Loss Prevention for AIG’s Private Client Group.

“A lightning strike can trash every electronic in the home.”

Niche Service Providers

A variety of niche service providers are stepping forward to help.

Secure facilities provide hurricane-proof, wildfire-proof off-site storage for artwork, antiques, and all manner of collectibles for seasonal or rotating storage, as well as ahead of impending disasters.

Other companies help manage such collections — a substantial challenge anytime, but especially during a crisis.

“Knowing where it is, is a huge part of mitigating the risk,” said Eric Kahan, founder of Collector Systems, a cloud-based collection management company that allows collectors to monitor their collections during loans to museums, transit between homes, or evacuation to secure storage.

“Before, insurance was considered the only step in risk management. Now, our client families realize it is one of the many imperative steps in an effective risk management strategy.” — Laura Sherman, founding partner, Baldwin Krystyn Sherman Partners

Insurers also employ specialists in-house. AIG employs four art curators who advise clients on how to protect and preserve their art collections.

Perhaps the best known and most striking example of this kind of direct insurer involvement are the fire teams insurers retain or employ to monitor fires and even spray retardant or water on threatened properties.

High-Level Service for High Net Worth

All high net worth carriers have programs that leverage expertise, loss data, and relationships with vendors to help clients avoid and recover from losses, employing the highest levels of customer service to accomplish this as unobtrusively as possible.

“What allows you to do your job best is when you develop that relationship with a client, where it’s the same people that are interacting with them on every front for their risk management,” said Steve Bitterman, chief risk services officer for Vault Insurance.

Site visits are an essential first step, allowing insurers to assess risks, make recommendations to reduce them, and establish plans in the event of a disaster.

“When you’re in a catastrophic situation, it’s high stress, time is of the essence, and people forget things,” said Sherman. “Having a written plan in place is paramount to success.”

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Another important component is knowing who will execute that plan in homes that are often unoccupied.

Domestic staff may lack the knowledge or authority to protect the homeowner’s assets, and during a disaster may be distracted dealing with threats to their own homes and families. Adequate planning includes ensuring that whoever is responsible has the training and authority to execute the plan.

Evaluating New Technology

Insurers use technologies like GPS and satellite imagery to determine which homes are directly threatened by storms or wildfires. They also assess and vet technologies that can be implemented by homeowners, from impact glass to alarm and monitoring systems, to more obscure but potentially more important options.

AIG’s Poux recommends two types of vents that mitigate important, and unexpected risks.

“There’s a fantastic technology called Smart Vent, which allows water to flow in and out of the foundation,” Poux said. “… The weight of water outside a foundation can push a foundation wall in. If you equalize that water inside and out at the same level, you negate that.”

Another wildfire risk — embers getting sucked into the attic — is, according to Poux, “typically the greatest cause of the destruction of homes.” But, he said, “Special ember-resisting venting, like Brandguard Vents, can remove that exposure altogether.”

Building Smart

Many disaster resiliency technologies can be applied at any time, but often the cost is fractional if implemented during initial construction. AIG’s Smart Build is a free program for new or remodeled homes that evolved out of AIG’s construction insurance programs.

Previously available only to homes valued at $5 million and up, Smart Build recently expanded to include homes of $1 million and up. Roughly 100 homes are enrolled, with an average value of $13 million.

“In the high net worth space, sometimes it takes longer potentially to recover, simply because there are limited contractors available to do specialty work.” — Curt Goetsch, head of underwriting, Private Client Group, Ironshore

“We know what goes wrong in high net worth homes,” said Poux, citing AIG’s decades of loss data.

“We’re incenting our client and by proxy their builder, their architects and their broker, to give us a seat at the design table. … That enables us to help tweak the architectural plans in ways that are very easy to do with a pencil, as opposed to after a home is built.”

Poux cites a remote ranch property in Texas.

Curt Goetsch, head of underwriting, Private Client Group, Ironshore

“The client was rebuilding a home but also installing new roads and grading and driveways. … The property was very far from the fire department and there wasn’t any available water on the property.”

Poux’s team was able to recommend underground water storage tanks, something that would have been prohibitively expensive after construction.

“But if the ground is open and you’ve got heavy equipment, it’s a relatively minor additional expense.”

Homes that graduate from the Smart Build program may be eligible for preferred pricing due to their added resilience, Poux said.

Recovery from Loss

A major component of disaster resiliency is still recovery from loss, and preparation is key to the prompt service expected by homeowners paying six- or seven-figure premiums.

Before Irma, PURE sent contact information for pre-assigned claim adjusters to insureds in the storm’s direct path.

“In the high net worth space, sometimes it takes longer potentially to recover, simply because there are limited contractors available to do specialty work,” said Curt Goetsch, head of underwriting for Ironshore’s Private Client Group.

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“If you’ve got custom construction or imported materials in your house, you’re not going to go down the street and just find somebody that can do that kind of work, or has those materials in stock.”

In the wake of disaster, even basic services can be scarce.

“Our claims and risk management departments have to work together in advance of the storm,” said Bitterman, “to have contractors and restoration companies and tarp and board services that are going to respond to our company’s clients, that will commit resources to us.”

And while local agents’ connections can be invaluable, Goetsch sees insurers taking more of that responsibility from the agent, to at least get the claim started.

“When there is a disaster, the agency’s staff may have to deal with personal losses,” Goetsch said. &

Jon McGoran is a novelist and magazine editor based outside of Philadelphia. He can be reached at [email protected]