Demand grows in pharma sector for non-damage BI product-JLT

“We have found that the growing demand for our EPIC product is due in the main to three key risks: regulatory, intellectual property and counterfeiting. These are some of the most potentially damaging to pharmaceutical company income streams and are not covered under traditional insurance placements,’ said James Bird, Partner, JLT’s specialist Life Science team.

The number of site closures as a result of the Food and Drug Administration (FDA) interventions has steadily increased over the last three years. This has interrupted production and dented the bottom lines and reputations of the companies concerned, said JLT.

“As the FDA leads the way in enforcement, other regulators will inevitably follow, and companies are more likely to experience disruption to their supply chains,” it said.

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“Over the last decade, the pharma industry’s dependence on outsourced manufacturers has risen dramatically and the regulators are, only now, catching up with these trends, increasing the frequency and vigour of facility inspections and extending their influence to an ever wider range of territories,” it added.

Pharmaceutical companies also face a battle to defend their intellectual property.

In the US, where many companies earn a substantial amount of their revenues, the Hatch Waxman legislation encourages generic producers to challenge patents before their expiration.

Regular challenges also arise from key competitors that seek to prove that elements of their intellectual property are being infringed by other manufacturers.

“Given the huge costs of drug development and the fact that a significant percentage of the average drug’s revenue stream is delivered whilst it remains under patent, there are obvious financial implications in a successful challenge,” said JLT.

As the pharmaceutical industry moves into emerging markets, and as unregulated operations become more sophisticated, so the risk of counterfeiting has grown, added the broker.

It is hard to quantify how much counterfeit product gets to market, but the World Health Organisation has suggested that up to 30% of drugs in Africa, parts of Asia and Latin America are counterfeit.

Once counterfeit product enters the market, all products may need to be recalled if the counterfeit is indistinguishable from the approved version, less effective or even harmful.

In addition to the cost of the recall and the resultant loss of sales, a company’s market share and reputation may be damaged for a considerable period of time in that market.

EPIC has been devised to help protect companies against these risks, as well as other major events that could disrupt the supply chain.

It was developed in conjunction with Munich Re and Kiln Group.

“The pharmaceutical industry is fraught with risk and is only getting riskier every year. EPIC covers a number of risks that no other insurer or product has covered before. Based on current trends, we are confident that non-damage business interruption insurance will increasingly be considered a key insurance purchase within the sector,” added Mr Bird.