Revenue maximisation


Along with heightened regulatory scrutiny, a dearth of product approvals, mounting payer demands for product performance and increasing pricing pressure, the pharmaceutical industry is facing significant worries about future revenue growth.

The leading pharmaceutical companies are expected to lose between 14% and 41% of their existing revenues as a result of patent expiries prior to 2012. In 2007, the US Food and Drug Administration approved only 19 new molecular entities and biologics, a smaller number than at anytime since 1983 . Generic manufacturers present substantial threats to revenue growth for the ethical producers, as they continue to enter the market with ever-increasing efficiency.
Another trend facing the industry is the colossal financial burden of product promotion, which is bearing less fruit per dollar spent. With declining productivity, sales-force effectiveness is high on the agenda for all pharma companies.

Increasing budgetary demands, growing population longevity and the mounting burden of chronic disease are placing further stresses on healthcare systems, and leading to increasing activism by payers who are insisting on tighter product performance criteria before funding new treatments. Thus an increased focus on healthcare economics is essential for companies to succeed.

The putative genomics and proteomics based drug explosion, much anticipated after the completion of the Human Genome Project, has not yet materialised. While the Project opened up the possibility of developing drugs based on individuals’ genetic codes, the complexity of the task at hand suggests that it will take a number of years before the promise of personalised medicine can truly delivers on its original promise. Nevertheless, a major inclination of numerous companies in recent years has been towards the biologics arena, with many acquiring biologics trophies to secure expertise or capacity.

The virtues of a biologics capability are regularly lauded, with the tide turning towards specialty drugs. Nonetheless, if they intend to fully develop a product based on patient outcomes, companies will need to embrace not only biologics but other new technologies as well, including nanotechnology and information systems.

  • Focusing on optimal management of their intellectual property (IP)
  • Increasing in-licensing activity, particularly from the biotech sector, while out-licensing non-core assets or adjacent market applications
  • Refocusing their activities based on the business model they would like to adopt
  • Targeting merger & acquisition opportunities, and expanding into emerging geographic markets
  • Searching for ways to improve productivity in-house from a leaner cost base.

Each of these options may have tax ramifications, which will need to be carefully considered. Such considerations include (but are not limited to) analysing the most tax-efficient structure and location for new businesses and IP management, ensuring appropriate transfer pricing methodologies and documentation, performing tax due diligence reviews, and analysing the appropriate treatment of transaction costs. Many of these tax costs can be minimised with appropriate planning, making for a more efficient business structure.

It is likely that companies will need to make a strategic decision on their business model (mass market or specialty). Whichever model they choose, however, will likely require more innovative collaboration.

Rapidly developing markets offer significant opportunities for companies, as more affluent middle classes in the E7 countries Brazil , China, India, Indonesia, Mexico, Russia and Turkey – demand more choice and control over their healthcare. By 2020 , it is anticipated that the E7 countries will account for approximately 19% of the estimated US $1.3 trillion global sales. Developing countries have very different clinical and economic characteristics, healthcare systems and attitudes towards the protection of IP. Any company that wants to serve these markets successfully will therefore have to devise carefully tailored strategies. We are already seeing some creative use of differential pricing in developing country markets.

Moreover, with strengthening IP environments, increasing investment, burgeoning intellectual capital and maximise revenue growth. Additionally, as multinational companies expand into emerging geographic markets, they can often negotiate tax incentives with local taxing authorities, reducing cash taxes and/or reducing a company’s effective tax rate.

In the longer term, for growth to be sustainable, drug companies will need to re-establish their relationship of trust with the patients, physicians, regulators and payers. This trust has been severely tested in recent years as fraud investigations, safety issues and the perception of over-pricing have entered public consciousness. In addition, healthcare payers are increasingly measuring the pharmacoeconomics of medicines and implementing pay-for-performance and risk-sharing schemes. Accordingly, companies will need to consider the payer perspective earlier on in the development process.

Notwithstanding these issues, the healthcare market, and pharmaceuticals as an integral part of it, will continue to grow as the world’s population ages and becomes more affluent. The pharmaceutical company that makes intelligent investment decisions, embraces innovation both in creating and exploiting its IP, and manages its relationships with key stakeholders, will continue to benefit in revenue growth.

Open Medical Consulting offers a wide array of services to help pharmaceutical, biotech, medical-device, generics and service provider companies identify future growth opportunities and implement strategies, processes and structures to achieve that growth. Our team will assist you in defining your strategy and business plans as you meet the challenges of a changing environment.

We can leverage our comprehensive global network to facilitate expansion into any territory, including the growing E7 countries, and assist you in managing the attendant risks. Working with our corporate finance specialists, we can help you develop and implement an acquisitive growth strategy, built on robust strategic and valuation fundamentals.

Using an effective portfolio evaluation and management approach, we can also help you identify the most fruitful areas for research & development investment. Our licensing management team can provide robust advice on licensing strategy, including evaluating strategic options, and assist at every stage of the licensing process, from due diligence and development of contract terms, to reviewing of the company’s controls around maintaining alliances.

We can also assist you in improving revenue streams and managing risk by reviewing compliance with licences and other business arrangements and by advising on appropriate procedures to manage royalty revenue payments and proceeds. Our compliance team can help you identify and manage any legal, regulatory or operational risk associated with new areas of growth.

Our performance improvement team has a proven track record of providing pragmatic advisory services in respect of sales-force effectiveness. And our global network of tax professionals can help ensure that any transactions or changes in your business model is structured in the most tax-efficient manner, while still meeting business, legal and regulatory requirements.