Gross-To-Net Survey Uncovers Challenges in Industry Maturity

Financial accruals have become a major headache for corporate finance teams in the Life Sciences industry as they are increasingly difficult to manage, and can lead to major business issues if calculated incorrectly. These accruals are an important part of compliance with Generally Accepted Accounting Principles (GAAP). Funds are set aside to cover the financial obligations associated with sales, from promotional programs, rebates and discounts. The data associated with these programs, must be gathered and then amounts to set aside must be determined based on past and future projections.  Often times, the data for each type of program is captured in different places within an organization making it hard to manage.

Any calculation errors can have a significant impact. If the accrual percentage is too high for rebates and promotions, funds are essentially being taken away from other areas of the business, such as research and product development, which can help grow revenue. But if enough isn’t reserved, manufacturers could find themselves in a cash crunch, and money will need to be borrowed to cover obligations. If the amounts get to be too large, it can also be considered a “material impact” item for earnings reports.

Alliance conducted a survey in which various Pharmaceutical companies were asked four questions to gain a deeper understanding of the majority in their Gross-To-Net processes.  After reviewing the results, few organizations have fully automated Gross-To-Net solutions which can be leveraged for strategic pricing and trend analysis.  Organizations focus the bulk of their time on aggregating data to provide basic forecast and accrual information, restraining their ability to use this data for strategic analysis around pricing and other areas.

While automation of the fundamental processes is still in its infancy, the primary goal by those pursuing it, is the reduction of cycle time. But accuracy must not be sacrificed for speed, meaning any automated solutions must maintain or improve forecast and accrual accuracy.  Currently, companies are focusing on improving the underlying models, which proves to be an important step on the path to automation. Leading companies are recognizing the strategic value of this data and making the investment in its strategic use, even in the absence of automated solutions. The key objectives found in this survey are depicted in the image below.

image 1

Beyond the need for automation, the number one priority is to assess the readiness and rationale for automation in analytical capabilities. This acts as the key driver for generating business insights in the following areas:

  • Revenue growth through WAC price optimization
  • Impact of contracting especially price protections on the net revenue
  • Insights of contracting strategy on Medicaid & PHS liabilities
  • Insights from deep dive diagnostics

Following this as second priority is the desire to get full time employees focused on deriving business insights from the data, rather than spending all their time crunching it. Many organizations are spending more time and money on the mechanics of the accruals – the number crunching – than on understanding what the data is telling them. They’re missing an opportunity to analyze the accruals to see what promotions and programs are really driving the business, helping them expand market share and drive revenue.

 

 

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