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  • 7/25/2019 WorkshopD Pres

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    Gross-to-Net master class

    CBI accounting &reporting congress

    March 2015

    www.pwc.com

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    PwC

    Whos with you today

    John Hayes PwC Partner

    Jennifer Cain PwC Senior Manager

    Larry Breen Sunovion Pharmaceuticals Inc.

    David Levi Bristol Myers Squibb

    Jeff Miller Impax Labs

    March 20152

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    PwC

    Agenda

    Gross-to-Net (GTN) overview

    GTN forecasting process Structure, key considerations

    GTN analysis/accounting & reporting considerations

    Other future considerations

    March 20153

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    PwC

    All discounts must be recognized at time of sale...Challenging due to complexity of supply chain

    March 20155

    Manufacturer

    Wholesaler

    Rx to PatientReimbursement

    Claims Submitted for ReimbursementPayer** 3

    2

    45

    DispensingInstitution

    GTN Line Item Average LAG

    **Variations in Process Flow depending on type of payer (Commercial, State/Federal Government, Other).

    1

    2

    5

    4

    3

    SALE (Indirect = through Wholesaler. Direct = to Dispensing Institution). N/A

    Reimbursement to Wholesalers (WAC Contracted Price) in form of a Chargeback. < 1 QTR

    Dispensing Institution fills Rx to satisfy Patient Demand. < 1 QTR

    Payer submits claims. Manufacturer validates claims and pays Rebate & Other Negotiated Discounts. ~ 2 QTRS

    Product returned to manufacturer in accordance with Sales Returns Policy. > 1 Year

    1

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    PwC

    Gross-to-Net revenue adjustments for toppharma companies

    Top Pharma Cos: Total Gross-to-Net Revenue adjustments (2012-2014, USD Billions)

    March 20156

    47.6

    50.7

    56.8

    42

    44

    46

    48

    50

    52

    54

    56

    58

    2012 2013 2014

    To

    talGTNAdjustments(

    $BN)

    Total GTN adjustments

    Sources: Company fillings, PwC analysis

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    PwC

    GTN reserves of top pharma companies

    Top Pharma Cos: GTN reserves (2012-2014, USD Billions)

    March 20157

    Sources: Company fillings, PwC analysis

    35.6

    34.8

    39.6

    32

    33

    34

    35

    36

    37

    38

    39

    40

    2012 2013 2014

    GTNReserves

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    PwC

    Optimal GTN forecasting processIterative & collaborative

    March 20158

    The Optimal Forecasting Process = Top Down and Bottoms Up ForecastingProcesses that are Iterative and Collaborative across Functions.

    Top-Down: High Level Revenue Forecast for Product

    Bottoms-Up: Detailed Forecast by Customer/Product/Program/State

    feeding overall Channel Forecast

    1

    2

    Product Gross to Net Sales by Channel

    Channel(Managed Care, Medicare (Contracted & Non-Contracted), Government, Other

    Detailed(Plan, State, Program)

    21

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    GTN forecastingDevelop product forecasts by channel

    Product X Actual & Forecast

    Channel Gross sales Discount Net sales

    Commercial

    Medicare part D

    Medicaid

    Other government

    Other non governmentReturns

    Cash discounts

    Wholesalers fee

    Other discounts

    Total

    March 20159

    Historical Data populated through last available period Estimation of future periods incorporates expected changes due to changes in

    demand, life cycle changes, changes in legislated & contractual discount rates

    Structure allows for detailed variance analytics & comparative reviews acrosschannels & products

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    PwC

    GTN forecasting & managementRequires a significant level of interdepartmental coordination

    March 201510

    Contract Strategy &Development

    GovernmentPricing

    Legal,U.S. Policy

    ContractManagement &Payment Processing

    Analytics

    Finance

    Accounting

    Marketing & Sales

    GTN Forecasting/Management Process

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    PwC

    Areas for consideration/estimation complexities

    Estimation complexities

    - Companies typically utilize historical data as well as judgment to recordthe reserve

    - Shifts in lives

    - Availability of data, including: historical data, new facts/trends,wholesaler data, IMS/WK data, contracting strategies

    - Linkage of contracting group (among other cross functional groupspreviously discussed) with the finance organization

    Identifying and capturing new/amended contracts

    Disputes and respective reserves

    Should include reserves for pipeline

    March 201511

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    GTN analysis/accounting & reporting

    Methods to analyze provisions and period end accruals should encompassbalance sheet and P&L reviews. Examples include:

    P&L

    1. Provision as a % of Gross Sales

    2. Provision Trend Analysis

    Balance Sheet

    1. Accrual vs. Actual

    2. Accrual Trend Analysis

    3. Accrual Reasonableness Build

    March 201512

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    GTN analysis/accounting & reporting Example

    Companies should have a process to review actual payments and forecastedliabilities to ensure accruals recorded are complete and accurate.

    Example (for Managed Care):

    March 201513

    Managed CareOrganization (MCO)

    Q1 2014 Q2 2014 Q3 2014 Q4 2014

    RX Solutions $ 100 $ 105 $ 110 $ 115 (Est.)

    Express Scripts $ 85 $ 90 $ 92 (Est.) $ 94 (Est.)

    AETNA $ 60 $ 65 $ 68 $ 69 (Est.)

    Caremark PCS $ 150 $ 170 (Est.) $ 180 (Est.) $ 190 (Est.)

    Prime Therapeutics $ 40 $ 42 $ 44 $ 46 (Est.)

    When taking a step back and reviewing the actual invoices paid and

    forecasted rebates, do accruals on the balance sheet appear reasonable?

    Do any items require follow up/management to understand better?

    The above should be performed on a quarterly basis for each significantprograms (i.e. Medicaid, by state, Medicare, etc.)

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    PwC

    Key considerations for pipeline

    Pipeline - Represents the lag time between when the product is shipped tothe wholesaler to when it completely moves through the value chain to theend customer. This lag is comprised of: (1) wholesaler and (2) retail pipeline

    Companies must accrue for estimated rebates associated with the pipeline to

    appropriately recognize revenue Estimation complexities

    - Ability to obtain information (wholesaler/retail inventory levels)

    - Current contractual arrangements

    - Product specific events (i.e. recalls, patent expiration, launches, etc.)

    Reduction of the Pipeline reserve for anticipated returns

    Linkage of contracting group (among other cross functional groupspreviously discussed) with the finance organization

    March 201514

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    PwC

    Key considerations for product life cycle events

    Can returns reasonably estimated? Consider all revenue recognition criteriawithin ASC 605

    Consider:

    - History with similar products

    - Comparable products

    - Launch programs

    - Current contractual arrangements

    - Loss of exclusivity retained market share

    - Availability of channel data (wholesaler and retailer)

    Ability to obtain information

    Interdepartmental coordination

    Disclosure considerations

    March 201515

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    Other future considerationsImpact on GTN

    Healthcare Reform Fee

    Components of ACA evolution

    - Insurance Exchanges

    More individuals being insured and receiving care

    - Medicaid Expansion

    New Revenue Recognition Standard

    Outcomes Based Pricing

    March 201516

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    Recap

    GTN deductions should be recognized at the time of sale and representmanagements best estimate of the related liabilities, including pipeline.

    The GTN forecasting process should be iterative and collaborative,embedding inputs and insights from across the organization.Communication across functional areas is key!

    GTN Analysis should include a top down and a bottoms up approach, a P&Land a Balance Sheet focused approach, and consider all data available at adisaggregated level.

    GTN Accounting & Reporting includes various estimation uncertainties, andit is critical that managements judgments related to these uncertainties aredeveloped using the best available data, including indicators of future trends.

    Staying abreast of new legislation and continuously analyzing new data is keyto the overall process as the future of forecasting gross to nets evolves.

    March 201517

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    PwC

    For further information, contact

    John C. HayesPwC [email protected]

    Jennifer Cain

    PwC Sr. [email protected]

    Larry BreenSunovion Pharmaceuticals Inc.Dir Financial Planning & Analysis

    (508) 357 [email protected]

    Jeff MillerImpax LabsAssoc Dir Revenue [email protected]

    David LeviBristol Myers SquibbExec Dir Bus [email protected]

    March 201518

    mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]
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    2015 PricewaterhouseCoopers LLP. All rights reserved. PwC refers to the United States

    member firm, and may sometimes refer to the PwC network. Each member firm is a separatelegal entity. Please see www.pwc.com/structure for further details.

    Thank you!