The growing need for RegTech in the Pharmaceutical Industry
Caroline Shleifer discusses the true cost of non-compliance
The birth of RegTech
We first witnessed the emergence of RegTech shortly after the economic plunge of 2008. The financial disaster spurred an increase in regulation in the finance and banking industries, and as a result, companies began to shell out billions in compliance costs. To stay compliant, while also working within the framework of a finite amount of resources, companies began turning to technology – regulatory technology. Since then, the industry has grown dramatically and is expected to be a $12.3 billion industry by 2023.
RegTech has the potential to transform how we manage complaince, regulatory reporting and risk and identity in pharma
RegTech, sister of fintech, refers to the use of new(ish) technologies (i.e. big data, blockchain, cloud computing, AI-artificial intelligence) to address regulatory pain points. As the technology evolves, the solutions and industries it serves grow wider and more diverse. RegTech firms are now boasting automated compliance management, regulatory reporting, risk and identity management in industries such as healthcare, environmental protection, cybersecurity, and even crypto-currency.
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The true cost of non-compliance
No matter the industry, non-compliance costs more. According to a research report conducted by the Ponemon Institute, the cost of non-compliance is about 2.71 times ($14.82 million vs. $5.47 million) that of the cost of compliance; such costs include fines, penalties, etc. In certain cases, goods are even held at customs if regulatory requirements are not met.
A simple warning letter from the FDA in the U.S. can cost hundreds of thousands of dollars, even without a levied fine. Just think of the lawyer fees and reputation management costs involved in the aftermath of a warning letter, and that includes only the cost to respond to the letter, not to fix the problem. Drug manufacturer Akorn received a warning letter this year and company shares immediately dropped 12 percent the following day.
The cost of non-compliance is 2.71x more than the cost of compliance, yet some companies are still failing to invest the required resources
Moreover, the cost of remaining compliant is quite expensive, as well. Contemplate the following: a large multi-national company, like General Mills or Coca-Cola, with thousands of SKUs in hundreds of countries. In today’s business world, where geo-expansion is a must, these companies require resources and budgets to monitor and ensure their products remain compliant in every region in the world. When it comes to introducing a product to a new market, researching the regulations in the area and understanding the product registration process can take months, whereas RegTech can perform the research with accuracy and cost-effectiveness within days.
The regulatory industry is shifting; creating the need for preemptive recognition of changes that could affect a product before and after it reaches the market. The ability to anticipate gives manufacturers the capacity to avoid problem areas in compliance, ultimately allocate fewer resources fighting the subsequent penalties and fines linked with non-compliance, and also seize new market opportunities.
Simply put: RegTech companies provide a unique opportunity to companies looking to creatively reduce their compliance budgets while continuing to reliably meet the directives of governing agencies.
RELATED: We discuss what the future holds for regulatory information management