Strategies for maximizing the value of R&D in Health Sciences

Integrated financial planning allows businesses to evaluate all the variables that can affect their forecasts, improving their ability to react to unforeseen changes. In the Life Sciences industry, this is an important skill, particularly concerning pharmaceuticals.

The Office of Finance in a Life Sciences company needs to forecast for all their disparate products and drugs, which then need to be individually calculated and consolidated into the company’s plans. Each of these products may be affected by many different variables.

For example, management may make decisions about the funding of a particular research & development (R&D) project, either increasing or decreasing investments based on changes in the competitive environment. This has the potential to affect short-term costs, as well as long-term revenue for the company.

After the R&D phase for a product is complete, which can take upwards of 10-15 years, it must be receive regulatory approval. When this will happen is difficult to forecast, but as soon as it happens, companies can capitalize on the associated R&D costs. If it is close to the end of the fiscal year, this event can materially affect annual statements.

In addition, if a major insurer, such as Medicare, adds a company’s new product to their formulary, this can trigger a need for increased sales and marketing spend, as well as a need for extra production. The Office of Finance will then need to revise revenue forecasts for years in the future.

An insurer may also seek to renegotiate the price paid for a formulary product in return for a guaranteed volume commitment. If this happens, the finance team will have to develop a completely new product revenue forecast.

All of these potential scenarios speak to a need for integrated financial planning. The Office of Finance at a Life Sciences company needs to conduct conducts forecasting at a detailed level, on regular basis and in multiple areas of the business.

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