Pharmaceuticals and the need to reduce cost and time to market in drug development: The importance of royalties
Within the last couple of decades, the cost and time to market for new drug development have soared. Nowadays we are talking about an average of 15 years from first molecule investigations until we can get finally some sales revenue and an average cost of 500-600 million Euros. On top, in the last decades the FDA put in place a strict regulatory policy that causes a dearth of product approvals or that requires more extensive clinical trials increasing the cost of new drug development.
But to get the FDA approval doesn´t necessarily mean that then Pharmaceutical companies can start receiving the expected revenue to cover the high development costs they had, this is just the beginning because it is especially since the economic crisis started that government and public health sector plays a more important role as they can decide to include or not this new drug into the list of products supported and financed by the public sector or not. In case they are excluded they will be limited to private practice or the willingness of the patient to pay for a drug while they might be another similar or that covers the same disease fully or partially covered by public health and at considerable lower price with the correspondent negative sales profitability for the manufacturer that has been anxiously waiting for at least 10 years. We should not forget that there is another dimension to consider which is that pharma patents have an expiration date, so while the laboratory sees that the new drug is not as profitable as he was expecting, the countdown of patent expiration starts and generics are waiting for it.
As results of this the returns from R&D have fallen to the lowest level in six years and looks like that will continue to deteriorate in the years to come.
In response to these challenges and with the aim to seek for R&D efficiency and reduce cost there is an increase of collaboration between pharmaceutical companies in forms of royalties (patent buying or royalties payments based on usage), like this laboratories can reduce their time to market by buying IP rights (Intellectual property rights) for an active ingredient or for a process in development phase and they can lower the risk by linking the royalty payment to the success of the product when it will be commercialized.
But… how to effectively manage Royalties? By using the SAP Incentive Administration by Vistex solution, pharmaceutical manufacturers can effectively manage their royalties (either if they buy or if the sell IP rights).
Audibility, tracking and, data management are vital functions for any organization that tracks royalties and rights, processes that are key in ensuring that royalty monies owed or due are administered accurately and because Vistex’s royalty management solution is inside SAP ERP, transactional, financial, and master data are accessible in one place, without duplication, giving your organization end-to-end visibility into royalty programs in a solution that is auditable and SOX compliant. With Vistex’s royalty management solution, your business can accurately identify the sale of relevant products and accurately determine who should be paid, what amount, and under which circumstances. As accrual, calculation and settlement of royalty payments all are important factors that contribute to the overall order-to-cash process, Vistex’s royalty management solution helps define royalties due at a product level, based on sales activity. This minimizes the risk of nonpayment liability and creates a reliable system to support audit requests from licensors and IP owners
Interested knowing more? Contact SAP and ask for SAP Solution extensions by Vistex