Pharmaceutical companies that begin as research and development (R&D) organizations and successfully make their way through the various drug development stages face the unique challenge of growing their finance function to meet evolving business needs. Growth at each stage must be carefully managed to balance cost with the appropriate level of capabilities to support the business.
Key finance activities for companies in the R&D stage generally involve raising funds from angel investors and venture capitalists, controlling spend, and managing purchasing activities. Finance teams at this stage are typically small. As such finance employees must have a versatile skill set and be willing to take on a broad range of responsibilities.
Clinical Phases I, II, III
As the company progresses through the clinical phases, clinical trials increase in size driving need for larger volumes of clinical trial product. Companies must develop manufacturing processes and scale those processes up appropriately. Finance must support these efforts by tracking and accounting for the clinical trial product as well as the clinical trials themselves. The purchasing function must also be prepared to take on a greater volume of purchase requests. In order to handle these new requirements without substantially growing staff, the organization will need to consider new technology and more formalized processes. For example, utilizing a requisition system over a spreadsheet would streamline approvals, reduce overall confusion, and improve internal controls.
Once a company begins selling a drug, finance must be prepared to account for product revenue and inventory. This involves developing an order-to-cash (OTC) process, which includes policies, procedures, and technology related to customer management, credit limits, order processing, order fulfillment, accounts receivable, and revenue recognition. The company must also develop a system to track inventory through the supply chain, which is critical from an accounting as well as business management perspective. Finance should be prepared to begin collecting data around sales and payer mix, which is needed to support critical accounting assumptions around inventory excess and obsolescence (E&O) reserves and revenue recognition respectively. This data will need to be collected and stored and may require implementation of additional technology such as business intelligence software.
For a more comprehensive view of how the pharmaceutical finance function must evolve to successfully support your business, please see our white paper Finance Transformation in the Pharmaceutical Industry. To learn more about how McGladrey can assist you with your other business needs, contact McGladrey’s management consulting professionals at 800.274.3978 or email us.