Controlling Your Ability to Price – A Review of the 12th Annual Pharmaceutical Industry Audit

The 12th Annual Pharmaceutical Industry Audit reports that the US Pharmaceutical industry has had a very tough year. The challenges came from a number of different areas: post-recession strains [...]

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The 12th Annual Pharmaceutical Industry Audit reports that the US Pharmaceutical industry has had a very tough year. The challenges came from a number of different areas: post-recession strains on public budgets and private-sector employment as well as the steepness of the patent cliff from 2010-2012. The Editor in Chief of Pharmaceutical Executive stated that there was one signal message from the survey, “today’s race to the top of the league charts belongs to the swift, where you claim your destiny by controlling the ability to price.”

For many in the pharmaceutical industry revenues are down and margins are being squeezed. The leaders are those who have the ability to set prices above the market with less or no discounts, resulting in minimizing overall gross margin erosion.

This year’s audit covered the following areas: Annual sales, Enterprise value, Enterprise value to Sales, Gross Margin, Sales to employee, Net income to assets, Sales to assets, Net income to sales, & SG&A expenses. What resonated with me is that one of the major indicators of success was found to be gross margin. While this is not surprising, in and of itself, it’s the differences among those seeing increases or steady gross margin and those seeing losses that is truly eye-opening. The top 5 gross margin leaders were:

Celgene=90.9%

Biogen-Idec=86.36%

Allergan=84.38%

NovoNordisk=82.00%

Shire=80.31%

At the other end of the scale we have gross margins for Sanofi=18.43%, Mylan=17.43%, Novartis=16.65%, Actavis=9.19%, and Hospira=3.55%.

Vadim Zlotnikov, Chief Market Strategist at Alliance-Bernstein stated that, “pricing power is the key to sustainable earnings growth. There is clear evidence that shares of companies with pricing power dramatically outperform their peers.” The companies who managed the best were the ones that controlled prices by reducing margin erosion.

The leading manufacturers that maintain or even increase their gross margins follow three best practices including:

• Reduce price erosion using business intelligence with their contract management

• Reduce or eliminate maverick pricing that impacts overall product pricing

• Maintain or increase gross margin through more innovate contracts and pricing

Let’s dive a bit deeper into each of these best practices…

Many manufacturers have silo’d systems for their pricing, contracts, and settlement management systems. But those that have an integrated solution can leverage business intelligence tools that allow them to better manage and negotiate their prices over the product lifecycle. This allows them to have much higher gross margins than their competitors.

Maverick pricing by sales is the bane of many manufacturers, leading to a significant loss of gross margin when those prices are used against their government contracts for best price. The best way to avoid this issue is with a contracting solution that not only forces compliance to pricing guidelines but also has easy workflows and alerts for reviewing and approving/disapproving price changes. In addition it needs to have embedded within it best practices for complex contract deals.

Companies face a difficult situation when long-time employees leave taking the institutional knowledge with them or because their current systems do not allow for industry best practices for sophisticated contractual negotiations. Both of these can lead to a reduction in overall gross margins due to poor negotiations and imperfect contractual provisions. The best companies have a pricing and contract solution that is both simple to use and also has superior flexibility to store and learn from previous negotiations and develop complex contracts.

To provide an answer to this overall problem of gross margin management across a product lifecycle, Model N delivers an integrated Channel Management solution combined with the industry’s best practices for KPI dashboards and Business Intelligence. Our solution can significantly reduce price and margin erosion as well as revenue leakage from incorrect rebates and chargebacks.

Resources: Revenue Management for Pharma

Model N Presents at Largest Gross-to-Net Conference for Life Sciences Leaders

Life Sciences finance executives gather in Philadelphia to tackle the challenges and complexities of gross-to-net PHILADELPHIA, PA – November 20, 2013 – Model N, Inc. (NYSE: MODN), a leading [...]

Life Sciences finance executives gather in Philadelphia to tackle the challenges and complexities of gross-to-net

PHILADELPHIA, PA – November 20, 2013 – Model N, Inc. (NYSE: MODN), a leading revenue management solutions provider to the life science and technology industries, will present today at CBI’s 3rd Annual Gross-to-Net Accounting & Accruals conference, currently running in Philadelphia. This year’s conference is the go-to forum on the latest forecasting, accounting, and accrual methods being implemented throughout the life sciences industry.

Model N Vice President of Product Management, Ajay Dawar, will present (Wednesday, Nov. 20 at 2:20 p.m. EST) in the track on practical applications for gross-to-net forecasting, calculations, and reporting. Dawar’s presentation “Best Practices to Achieve Price Transparency: A Tale of Two Gross-to-Nets” will explore how two industry leaders, one a med-tech company and the other a global pharma company, effectively employed reliable, repeatable gross-to-net visibility into their organizations. Attendees of this session will learn new ways to overcome change management challenges, how to obtain and leverage executive buy-in, and mistakes to avoid when taking on increased gross-to-net visibility efforts.

“Having complete visibility into your business is the holy grail in life sciences business management,” said Ken Pulverman, vice president of marketing at Model N. “We are pleased to be delivering these solutions today, and are really looking forward to highlighting two customer success stories at one of the largest gross-to-net conferences of the year.”

Model N is a proud sponsor of CBI’s 3rd Annual Gross-to-Net Accounting & Accruals conference, and will be exhibiting in the Regency Foyer at the Loews Hotel in Philadelphia, November 19-20.

Resources:

Revenue Management for Pharmaceutical Companies

Revenue Management for Medical Device Companies

About Model N

Model N is the leader in Revenue Management solutions. Model N helps its customers maximize their revenue and reduce revenue compliance risk by managing every dollar that impacts their top line encompassing contracting, pricing, incentives, and rebates. Model N leverages its deep industry expertise to support the unique business needs of Life Sciences and Technology companies in more than 50 countries. Global Customers include: Actavis, Allergan, Atmel, Bristol-Myers Squibb, Dell, Johnson & Johnson, Linear Technology, Merck, Marvell, Maxim, Micron, Nokia, Novartis, Novo Nordisk, ON Semiconductor, and STMicroelectronics. Learn more at: modeln.com. Model N is traded on the New York Stock Exchange under the symbol MODN.

Legal

Model N® is the registered trademark of Model N, Inc. Any other company names mentioned are the property of their respective owners and are mentioned for identification purposes only.

Model N Releases New Enhancements to Life Sciences Suite, Introduces Powerful Utilization Data Management Functionality

Responding to industry demand, Model N’s latest release brings ScriptValidate to customers, along with advancements to its embedded BI engine REDWOOD CITY, CA – November 14, 2013 – Model N, Inc. [...]

Responding to industry demand, Model N’s latest release brings ScriptValidate to customers, along with advancements to its embedded BI engine

REDWOOD CITY, CA – November 14, 2013 – Model N, Inc. (NYSE: MODN), a leading revenue management solutions provider to the life science and technology industries, today announced the general availability for Release 5.7 of its industry-leading Life Science Revenue Management suite. Life science manufacturers can now deploy the company’s latest prescription data scrubbing and verification application, ScriptValidate, which can be deployed independently or integrated with Model N’s Revenue Management Suite, either on premise or in the cloud. In addition, Model N’s life sciences customers will benefit from an upgrade to their reporting functionality through its latest Cognos update, as well as time zone and timer service enhancements for improved global data deployment and job management.

Release 5.7 Highlights

With Release 5.7, life sciences customers can now leverage Model N ScriptValidate, the only cloud-based rebate claims validation solution designed with the visibility and control necessary to quickly identify overpayments and save money. Features of ScriptValidate include:

  • Holistic approach to utilization of data management which prevents over payment of claims by ensuring rebates are only paid on valid prescription data.
  • Seamless integration to Model N Commercial and Regulatory Suites for contract-specific validations and downstream rebate processing; can be deployed independently or integrated with Model N’s Life Sciences Revenue Management Suite, either on premise or in the cloud.
  • Intuitive and efficient user interface that facilitates easier adoption and operation to manage exceptions and spot data trends and anomalies.

Release 5.7 also adds new platform enhancements across the suite to support the unique business needs of the life sciences industry. Additional key highlights of this release include:

  • Embedded business intelligence reporting upgrade for advanced reporting and decision support functionality provided by an integrated end-to-end revenue management system.
  • Advanced support of global data deployments via new time zone enhancements.

“The enhancements we’ve made to our life sciences suite, with the addition of ScriptValidate, addresses some of the most significant business challenges faced by life sciences manufacturers that rely on rebates and incentives to maximize wholesaler and distributor relationships,” said Rene Larro, vice president of product management at Model N. “Our latest developments within the Model N suite will continue to help our customers prevent revenue leakage, gain more value from their rebates and incentives business, and increase visibility for their business drivers with better decision support and upgraded global revenue management capabilities.”
Resources:
Model N ScriptValidate
Model N Life Sciences
Model N Revenue Management

About Model N

Model N is the leader in Revenue Management solutions. Model N helps its customers maximize their revenue and reduce revenue compliance risk by managing every dollar that impacts their top line encompassing contracting, pricing, incentives, and rebates. Model N leverages its deep industry expertise to support the unique business needs of Life Sciences and Technology companies in more than 50 countries. Global Customers include: Actavis, Allergan, Atmel, Bristol-Myers Squibb, Dell, Johnson & Johnson, Linear Technology, Merck, Marvell, Maxim, Micron, Nokia, Novartis, Novo Nordisk, ON Semiconductor, and STMicroelectronics. Learn more at: modeln.com. Model N is traded on the New York Stock Exchange under the symbol MODN.

Legal

Model N® is the registered trademark of Model N, Inc. Any other company names mentioned are the property of their respective owners and are mentioned for identification purposes only.