Last week over 400 Life Sciences accounting, audit and finance professionals gathered in Philadelphia, PA to discuss the latest issues and opportunities in the industry. We were most interested to share views with life sciences firms on revenue recognition, a key focus of conversation given the potential impact of the new standard, as well as discussing innovative ways to use data to drive revenue and profitability.
Preparing for the New Revenue Standard
Many thought leaders at the conference believe meeting the impact of the changing revenue recognition rules for Life Sciences companies will be achieved through education, change management and systems innovation. Given the room allowed for judgment, especially around the areas of collaborations, royalties and collectability, many speakers saw education as key to preparing their organizations. Panelist, Tom Cunningham (Merck & Co) spoke of the importance of understanding what kind of information your systems can simply and easily provide given the additional disclosures required.
In our experience working with organizations in other industries around revenue recognition, we also see data acquisition, transparency and business controls (automating and centralizing policy) as key considerations. Making sure systems can access the right contract data, standardize it, apply logic and process calculations at the rate and speed required is essential. Future audits, especially in the early years of the new standard adoption, will require the ability to provide a deep level of detail.
New ways to drive revenue and profitability
Many of the challenges we heard about at the conference started with getting the right data, at the right level of detail in the hands of finance professionals. We find that when we can provide trusted data to finance teams, the company's ability to grow revenue and profitability invariably improves.
We talked to attendees about how Life Sciences organizations can put finance data to work to add value. First, Research and Development costs continue to challenge industry growth and there was much talk of better embedding finance into clinical research operations to tread the thin line between maintaining cost control and allowing teams to innovate effectively. This means having a strong handle on the granular costs and the associated values that these are driving.
Collaborative alliances are nothing new to the industry but many mentioned the increasing overlap of retail in the healthcare space. Retailers like CVS, Wal-Mart and others are aiming to become sizable providers of healthcare – and thus, pharmaceuticals – in the coming years. Therefore there will be a growing need to account for and manage these collaborations in an agile fashion.
Finally, many participants chatted with us about the need to better forecast customer sales and inventory levels. With variable provisions like returns, rebates and chargebacks making it difficult to predictably account for sales and inventory, the more detailed data finance teams have at their disposal the better. Given that many finance teams at large life sciences companies struggle with not being able to drill down into finance data, some managers noted that they were not confident making decisions based upon it. Clearly, finance teams at life sciences firms will look to build highly granular data stores to get the insights that will help them drive their businesses forward.