Event De-briefing: 3rd Annual Pharma/Biotech Gross-to-Net Accounting and Accruals Summit

At this year’s annual CBI Gross-to-Net (GTN) Summit, there was a respective mix of financial discussions led by thought-leaders from highlighted (big Pharma-branded) manufacturers, Government Program (GP) and Health Care Reform (HCR) information sessions led by various SMEs, as well as different Vendor presentations providing insight into solving the GTN problems of the industry. Attendees also encountered, from a purely financial and accounting audience, small amounts of information sharing and interaction during fits of avid note taking to bring back to their organizations. They also saw the steady burning of artificial light from company-issued laptops as employee’s struck as much of a balance as they could between listening-in and tending to their daily sales reports and journal entry postings. Nonetheless, it was a very successful event in that all hot topics in the GTN realm were addressed, and by heavy-handed presenters with a wealth of knowledge; except for one very hot topic…Generic Drugs.

Generics by the Numbers

Looking back, Generic Manufacturers were certainly represented in the room that first day, by show-of-hand they amounted to about 20-30% of the audience. But yet, the tone of the conversation seemed to stay on big-branded Pharma and its overwhelmingly aggregate GTN calculations and reporting, as well as heavy investments into GP and Health Care Reform. If one dared to raise their hand and ask about forecasting liability for Shelf Stock Adjustments or, wait for it, NDC-level accrual calculations and reporting, and you’ll be asked to take that offline with other related attendees. This was by no fault of the conference or the presenters themselves, but these breakout sessions did not seem to occur. Rather, the notes of the Generic attendee were flooded by question marks and ‘not for us!’ notations next to each agenda detail.

Yes, GP and HCR are hot right now, undeniably. But why is no one discussing the other big news such that last year alone 40 brand-name drugs including blockbusters like Plavix, Lexapro and Seroquel, which were valued at $35 billion in annuals sales, lost their patent protection, with an additional $17 billion scheduled to lose patent protection this year and be sold as generic drugs? Maybe you’ve heard it referred to as, “the Patent Cliff”. A recent article in “Life Science Leader”, also referred to this as an Impending Drought (question mark), for Generic Drugs, citing a few of the following insights.[1]

Current Generic Market Insights
Changing Generic Drug Landscape
New Business Strategies for Generic Manufacturers
Focus on Emerging Markets
Future Innovation

What’s this mean for Generics and GTN implications? At a 30,000 feet view, it means the nature and the importance of accurate GTN calculation and reporting for these manufacturers is growing; not only because the market is being more dynamic and diluted with more generic competition, but because of the implications of a true ‘generic drought.’ In the case that R&D, product pipeline and ultimately, successful product launches, decrease in the next couple of years, more focus will need be put on current revenue streams, attempting to seal every leak and push every penny out of exist product profit margins. This multiplied by the fact that many folks in the industry either don’t see or won’t believe; that GTN deductions make up about 70-80 percent of profit margin for Generic products. When it comes to Generics, GTN is NOT a place to skimp, now, or at the patient cliff.

The Dynamics of Generic GTN Calculations

In various forums, across all of Pharma (branded and generics), it is discussed that charge back liability forecasting is among one of the larger struggles within GTN finance departments. But for generics, it’s the charge back picture that becomes much more complex, and again, attributes to a much larger percentage of profit margins. Manufacturers aren’t simply selling product to Wholesalers and GPOs, whom distribute to their end customer, and all the while paying the standard admin fee on GPO sales. Generic drug makers are exposed to competing direct and indirect channels by RCPs they have multiple contracting strategies with. The need for channel monitoring and management of their product is crucial, not only for charge back accruals, but for bill back payments, wholesaler rebate programs, non-contract sales rebate programs. Supply issues come largely into play, as your companies failure to supply product, now becomes your customer buying it from your competitor and footing you with the bill. Also, by shear nature of the generic market, engagement into a contract with a wholesaler (and all customers to an extent), opens the manufacturer up to vulnerability of price competition, which frequents Competitive Bids (requests for price decreases, or business will be moved to another manufacturer) forcing regular price decreases or change in contract strategy. Oh, and in turn, Shelf Stock Adjustments due to the customer every time a price decrease is taken.

The true GTN calculation for any given product, and yes, at the NDC-level, could be changing multiple times per month. So pardon us for the confused looks and large amounts of question marks littering our notes at such conferences…aggregated accrual calculations, quarterly reporting, annual price changes…? We live GTN in the day-to-day.

Preparing for the Future and the Innovation that it will Demand

At the conclusion of the earlier quoted article, it is agreed upon by many heavy hitters in the industry, that the key to the future success of the generic drug industry lies is innovation. So, while one can certainly start planning for the future, what can be done today, before GTN professionals find themselves neck deep in highly-innovative and highly-complex system and process implementations? Well, they can assess what is done today and how it be improved, while creating and maintaining a standard within our GTN organization that syncs up to required documentation, audit requests, compliance needs, etc.


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