Model N Express – Fueling Growth in the Life Sciences Mid Market

Over the past few months, a growing number of our pharmaceutical and medical device customers have celebrated the Go Live of Model N Express. What is Model N Express? It is Model N’s new offering [...]

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Over the past few months, a growing number of our pharmaceutical and medical device customers have celebrated the Go Live of Model N Express.

What is Model N Express? It is Model N’s new offering which allows tomorrow’s emerging life sciences leaders (pre-market, small and mid-size pharmaceutical and medical devices companies) to benefit from the tremendous value of Revenue Management, at a cost that fits in their budgets and resources, and at an accelerated speed of value.

Model N consolidated all the best practices learnt from larger life sciences organizations in the past 15 years and synthesized them into a set of implementation accelerators and standard operating procedures (SOPs) that allow for faster time-to-go-live.

We consider it a game changer for so-called “mid-market” companies. Until now, limited by both personnel and budgetary resources, companies with revenues under $1B worldwide had to manage commercial contracting and government compliance processes with limited custom internal IT developments, spreadsheets, or even pen and paper! As a result, they were often at risk of overpaying incentive rebates, miscalculating their distributor chargebacks, paying fines for misreporting prices applicable to government agencies, and more.

At Model N, we heard the midmarket needs loud and clear and decided it was time for this important segment of the market – some of the most innovative companies in the industry! – to be able to automate these business critical process and, doing so, to maximize revenues and margins while complying with regulatory mandates.

Eight months ago, we set out to streamline and accelerate the implementation of our Revenue Management offering for the mid-market. The response from the market has been excellent, as both pharmaceutical companies, such as Keryx Pharmaceuticals or Tolmar Pharmaceuticals, and medical devices companies, such as Sizewise, jumped aboard the program.

Through these early customers, we continued to learn about the unique Revenue Management requirements and needs of midsize companies, and further simplified and adapted our approach. In particular we were able to reassert the fundamental pillars of the Model N Express offering:

1. An implementation is only as good as its data. The earlier the data cleansing occurs, the faster the implementation. With Express, we engage on data as soon as possible to remove any possible hurdle.

2. Management education and empowerment is critical for the business to change quickly. The Express methodology comes with a lot of proven industry business processes that companies need to adjust to quickly. With Express, we communicate about this even before the project starts, so that the customer can realign and comply to SOPs.

3. Automated integration effort also needs to start on day one. Defining what processes to automate, what data to map and integrate are intensive exercises that to start quickly in the Model N Express methodology.

4. Start leveraging SOPs even before the start of the project. Aligning everyone on best practices and accelerators before the kick-off day makes for intelligent, efficient discussions during the first few days of the project.

Our goal is to continue to accelerate time-to-value to maximize value for customers. We cannot wait for many more life sciences companies to adopt Model N’s best-in-class Revenue Management Cloud solutions, thanks to the Express offering!

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