In-house legal departments across the pharmaceutical industry are being asked to manage ever-increasing risk and compliance challenges, as well as increasing litigation costs as cases increase. In fact, it has been estimated that 2014 saw a 25 percent rise in patent cases[i] – a critical driver of corporate revenue given that generic manufacturers that win patent cases can take over 65 percent of a pharmaceutical’s revenue base – and they win an estimated 70 percent of the time[ii].
At the same time, these legal departments are facing pressures familiar to all legal departments, regardless of industry: lowering overall legal spend and evolving from a company cost center into a strategic business partner. These requirements mean that the department has to do more with less, while increasing visibility, predictability, and responsiveness.
Traditionally, however, in-house legal departments have not invested in building the skills, processes, and tools to support this evolution from a cost center into a true driver of business value for the enterprise. One way to think about this evolution is to view legal departments as falling in different stages on a maturity curve:
- Stage 1: Legal as a Cost Center.
- A department that primarily reacts in mitigating known risks.
- Has undefined and/or inefficient business processes.
- Operates as an independent “silo” with infrequent collaboration with other departments.
- Has a reputation as simply a cost of doing business.
- Stage 2: Legal as a Tactical Success.
- Department that is cost-efficient.
- Uses predictable, repeatable processes to respond to internal and external needs.
- Is viewed as a valued partner that is often brought in by the business to facilitate solutions.
- Stage 3: Legal as a Competitive Advantage.
- Department that actually drives positive bottom‑line business results by optimizing legal spend and performance.
- Operates with foresight to protect the company’s brand and reputation by preventing risks from becoming legal issues.
- Leverages data to predict likely outcomes and support informed business decision making.
The best legal departments will be those that create lasting competitive advantages for their companies by embracing this change and moving up the value chain. At Mitratech, we have found that many legal departments beginning to embrace this new model through the implementation of key tactics, including:
- Optimizing overall spend – moving beyond simply cutting legal costs to optimize spend for business outcomes even outside of the department.
- Protecting intangible assets like corporate brand reputation proactively, in concert with strategic positioning.
- Proactively mitigating risk in a way that increases business investment opportunities.
- Facilitating decisions by predicting successful business outcomes – in addition to advising in a way that prevents legal risk.
- Minimizing commercial friction to the point of being an accelerant of revenue.
Let’s examine one example of how these can be applied specifically in the pharmaceutical industry:
In a recent Inside Counsel article, the example of one pharmaceutical company that proactively mitigated risk and averted compliance issues through emerging legal technology was highlighted. The article noted that “a major pharmaceutical company used data analytics available through e-discovery technology used in litigation and investigations to detect and avert potential liability relating to off-label marketing, unapproved patient populations, Sunshine Law compliance and unsupported product claims.
“The legal department interviewed subject-matter experts to gather the keywords, concepts and metadata necessary to construct a profile of documents requiring closer scrutiny. After sampling email and other unstructured data, the company used predictive, concept and relationship analytics, as well as email communication visualization to automatically segment the one percent of documents that indicated a potential compliance violation.”[iii]
This example demonstrates how proactively mitigating risk through the use of data and analytics enabled this pharmaceutical company to drive value to the business and lowered the risk of litigation costs.
What’s the lesson here? GCs must embrace their role as a driver of real competitive advantage and enterprise value. Legal departments cannot simply view themselves as a cost center. If one competitor is able to effectively apply these legal tactics in a way that their peer companies are not applying, they will win market share and drive shareholder value through an enhanced brand reputation, increased overall revenue and increased corporate profitability.