This is the first installment of our two-part blog post covering our webinar series discussing the advantages that channel analytics and downstream inventory analytics have when it comes to gross-to-net calculations. Today we’ll examine issues around retail brand and open distributor products as well as industry challenges, wholesaler inventory rolled forwards, and how 852 and 867 data and monthly reconciliations can help resolve some of those issues.  

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In the brand space, demand and inventory are the foundational data components for gross-to-net (GTN) accruals. Industry professionals typically have a robust understanding of GTN or of channel data, but there is a gap of combined knowledge in the industry over both. At IntegriChain, we’ve focused on overall GTN optimization and on providing manufacturers with more visibility into demand and pipeline data reporting. We emphasize the combined knowledge and synergy of GTN and channel analytics and how they empower our customers to predict accruals with more accuracy.

Why are channel analytics important to GTN?

Manufacturers of brand products typically utilize a demand-and-pipeline accrual methodology to support monthly and/or quarterly accrual processes. This allows them to calculate more precise accruals and maintain visibility of the balance sheet at each NDC and contract level. This methodology, however, requires reliable demand and inventory data. 

Utilizing channel analytics provides insights into demand and total pipeline inventory. Total pipeline inventory consists of distributor inventory and downstream inventory. In GTN, manufacturers take the monthly total pipeline inventory values and demand values and apply GTN assumptions such as contract rate, utilization mix, and WAC price. However, there are challenges that make managing inventory and demand estimates difficult. In this blog series, we will address distributor inventory challenges and solutions. 

What is open distribution and what challenges do manufacturers face in reconciling inventory data?

As we explore retail or open-distribution drugs, there are numerous issues the industry experiences in terms of reconciling inventory. Open distribution products are shipped to a wide variety of distributors. The big three are AmerisourceBergen, Cardinal, and McKesson, but there are numerous other trade partners in the distribution space. With a wide range of distributors in a network comes varying reporting capabilities. Not all trade partners are created equal and not all trade partners have the same data infrastructure, EDI capabilities, and level of support. It’s also important to note that due to the rise in prescription drugs available in the US and the volume associated with that rise, there has consequently been an increase in data gaps in distributor reporting. On top of that, manufacturers are shipping large volumes across their distributor network and require reconciliation for what has been shipped versus what’s been truly received. These issues create gaps when it comes to reconciling inventory data. 

Often, we see finance teams with an automated query that sums up quantity on hand, and then they plug that value into their GTN inventory roll forward models as distributor inventory – all without proper data quality checks and understanding specific wholesaler reporting configuration. This is one way to introduce variances into the GTN process. If the data-driven aspect of the distributor inventory is inaccurate, then the rest of the roll forward will contain variances. If there’s no consistency in validating these 852 fields, then chaos is created in the end-to-end inventory roll forwards. Having an automated and repeatable process around calculating inventory at any given wholesaler adds a critical layer to the quality assurance process not just for the inventory value but for all the metrics related (e.g., Qty Sold, Qty Received, Qty Returned, etc.).

Trade and finance teams using 867 data as their indirect sales value without cross validating the alignment to 852 data for both sales and returns poses another opportunity for variances to enter inventory roll forward models.  867 transactions for branded products are exposed to variables that affect the accuracy of the data such as, blinding, blocking, and timing delays, just to name a few. Therefore, it is imperative that teams have visibility into this alignment and are aware of outstanding gaps as it relates to utilizing this indirect sales data source prior to inputting into any downstream processes.    

Only after the distributor metrics and inventory have been validated can teams begin truly reconciling Sales to Qty Received at the wholesalers. Aligning the ExFactory ship to sales data to the Distributor Distribution Center the product was shipped to, per brand, per NDC, is a best practice IntegriChain encourages with our customers. There are many challenges around the Monthly Sales Reconciliation – such as unexpected timing delays and performing at the All or Trade Partner level that without the details at the most granular level, provide an almost impossible task for teams to reconcile Sales versus what has truly been received in the current period.

These challenges, when met with proper solutions, provide finance teams control and visibility required to reconcile distributor inventory and optimize their gross-to-net. Lessons learned from this distribution model can also be extrapolated to other product archetypes such as specialty, specialty, light, generics, and biosimilars. 

How does an End-to-End Roll Forward enable GTN Stakeholders?

In conclusion, we have highlighted several distributor data challenges that impact distributor inventory in gross-to-net. A robust end-to-end Roll Forward enables manufacturers to reconcile to Gross Sales in the current period, while also accruing to appropriate estimates for total inventory (distributor Inventory, downstream Inventory) and demand. A robust inventory roll forward builds confidence in channel data as we are more easily able to isolate and explain data discrepancies in inventory roll forward management.

End-to-end Inventory Roll Forward support is a service IntegriChain provides for our ICyte Platform customers who leverage our GTN, Channel Data Aggregation, and Inventory Analytics solutions. This provides our customers the tools they need to align pipeline and demand figures that improve the gross-to-net close process. 

In our second webinar on August 17, we will focus on downstream inventory visibility and channel data gross-to-net impacts. Be sure to register as we continue to discuss advantages that channel analytics and downstream inventories have when it comes to gross-to-net calculations. If you have questions, please feel free to reach out to Aaron Light or Tom Travaglini.