workshopd pres
TRANSCRIPT
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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
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Agenda
Gross-to-Net (GTN) overview
GTN forecasting process Structure, key considerations
GTN analysis/accounting & reporting considerations
Other future considerations
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All discounts must be recognized at time of sale...Challenging due to complexity of supply chain
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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
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Gross-to-Net revenue adjustments for toppharma companies
Top Pharma Cos: Total Gross-to-Net Revenue adjustments (2012-2014, USD Billions)
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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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GTN reserves of top pharma companies
Top Pharma Cos: GTN reserves (2012-2014, USD Billions)
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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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Optimal GTN forecasting processIterative & collaborative
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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
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2
Product Gross to Net Sales by Channel
Channel(Managed Care, Medicare (Contracted & Non-Contracted), Government, Other
Detailed(Plan, State, Program)
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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
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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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GTN forecasting & managementRequires a significant level of interdepartmental coordination
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Contract Strategy &Development
GovernmentPricing
Legal,U.S. Policy
ContractManagement &Payment Processing
Analytics
Finance
Accounting
Marketing & Sales
GTN Forecasting/Management Process
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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
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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
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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):
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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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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
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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
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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
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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.
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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]
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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!