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Improve accuracy in profitability analysis throughout the product life-cycle in life sciences

Feb. 26 2021 by Marco Van der Kooij, Managing Director - ForSight Consulting

Performance Management

The pharmaceutical or life sciences industry has always been very dynamicAnd today more than ever with the big pandemic push and the huge focus getting Covid-19 vaccines to market. On one hand new geographical markets are developing and growing fast, as welfare is increasingin other more mature markets the characteristics of demand are changing. Acquisitions of startups with new promising medicines or vaccines are coming thick and fast, and this shakes up competitive positions 

Other challenges are shifting customer behavior, fluctuating prices, and loss of market exclusivity due to patent expiration, with challenges from generic medicines, biosimilars and non-comparable biologics. Also, it is becoming more challenging for pharma companies to identify possible risks associated with a product or processes involved in development, manufacturing and distribution. A revolution is taking place in healthcare analytics through Artificial Intelligence for new product development. From a business and financial perspective, life sciences is a highly regulated and high-risk market for capital expenditure in product development, but potentially very profitable. 

How is this impacting the office of finance at pharmaceutical companies? 

Reporting for compliance, planning & forecasting and especially profitability management of the entire product portfolio at every stage of the product life cycle, is information that stakeholders need from the office of finance in order to steer the company. In the past, I have undertaken multiple projects for reporting and profitability analysis at pharmaceutical companies using what was, at that time, state-of-the art technology. A siloed approach was needed to deal with the magnitude of data for reporting and analysis. Changing business rules for activity-based costing, for example, was cumbersome and impacted historical data and cube calculation time.  

Now, in an era of digital transformation, where operational and financial data are required for smarter and faster data-driven decision making, the office of finance requires advanced technology to keep up with demand from financial and business users for fast, reliable and accurate information. The office of finance in life sciences needs to leverage an information-centric data hub and act as a data steward to accommodate finance and business users’ needs. Forward-looking insight is required for every product, in every step of its life-cycle, in every market. 

The key is how to use the data 

Next to consolidation and reporting, budgeting, planning and forecasting, a very advanced platform is required to store granular financial and operational data for profitability management during the product life-cycle. Profitability and margin analysis, from any angle, through advanced waterfall cost allocations, provide insight into how to optimize margins. With a large quantity of data, it is possible to apply machine learning to reveal patterns and use the data for predictive analytics and scenario planning. In this way the office of finance can keep up with other departments in applying advanced analytics to optimize capital expenditure to enable innovation. 

You may acknowledge that it’s time to replace your legacy tools or spreadsheet solution, but will others? Ironically, your hard work compensating for shortcomings may be masking the problem. There are also opportunity costs involved – the lack of all of the benefits modern software can bring to your company that your old system can’t. This is the time to be smarter, manage better and act faster. 

If you want to learn more about the benefits that pharmaceutical or life sciences companies can gain with CCH Tagetik’s modern softwarecheck here!

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