Why Restate?

Potential Penalties and Fines : As readers may be aware, pharmaceutical manufacturers are granted a one year grace period to restate the liability to government entities after an acquisition.  If the restatement is not completed within the one year time frame, or not done at all, then any additional liabilities found are subject to penalties and/or fines.  Recent examples from the regulators have resulted in significant fines for other pharmaceutical companies.

Purchase Price Revision: With restatement, there is the possibility that significant liabilities, which were not disclosed at the time of the acquisition, are identified.  It is possible that discovery of these liabilities could trigger a revision to the purchase price.

What makes it so challenging?

There are a number of calculations and variables that determine the total liability to the government entities. In addition, the process of selling pharmaceuticals typically involves sales and shipments to a direct customer (typically a wholesaler) and then sales and shipment to an indirect customer before the pharmaceutical goes to the end consumer. There are also a number of transaction types that must be taken into account to determine the actual price per unit in which the pharmaceutical was actually sold.

There are a number of calculations and variables that determine the total liability to the government entities. In addition, the process of selling pharmaceuticals typically involves sales and shipments to a direct customer (typically a wholesaler) and then sales and shipment to an indirect customer before the pharmaceutical goes to the end consumer. There are also a number of transaction types that must be taken into account to determine the actual price per unit in which the pharmaceutical was actually sold.

Usually these transactions are in their own systems. Each of these systems is optimized for execution of individual transactions. Extracting large sets of data typically require specialized tools and system specific expertise.  Extraction of data is very resource intensive.

Following the document flow across systems also requires an understanding of how to link transactions.  Again, this requires specialized resources.  Investigations are usually performed one transaction at a time.  This is very time consuming.

The Approach to Rapid Restatement

We leverage high performance database technology, SAP HANA, to combat the compressed timeframe for a restatement. The key enabler for this rapid preparation of Government Pricing Restatement is the development of a common data repository on SAP HANA for all relevant data to create synergies including:

  • Common development and maintenance capabilities.
  • Common querying and output tools.
  • Common user administration and security.
  • Platform for standard cross reference definitions.

Subsequent to development of common data repository, our solution expands on building reconciliation, cross-references, recalculation engine , system retirements, and scalability features for compressing time in future developments. Our solution with SAP HANA database, has enabled a government pricing restatement that would generally take 1-1.5 years to be accomplished in only five months, resulting in faster response to management and third party vendors related to the restatement. Finally, the rapid government pricing restatement solution also enables additional costs savings due to system retirements.

B. Data Upload from Subsidiaries’ Financial Systems

A local (functional) currency (TB) for each legal entity is staged and loaded into BPC via a fully automated (scheduled package load) or manually (i.e. extract file upload) from the legacy systems. Data and Process-level Validations take place to ensure accuracy and integrity of the data loads.

C. Account Transformation

Account Transformation represents a flexible set of Business Rules used to perform calculations for “Retained Earnings”, “Cash Flow”, etc.

D. Currency Translation

This step accounts for foreign currency transactions and operations in financial statements, and is used to translate financial statements into a group currency in the books of the parent company.

E. Inter-company Matching and Elimination

In this step, certain transactions between subsidiaries (i.e. Trading Partners) are being eliminated (e.g. Inter-company AR and AP, Sales and COGS). This step is necessary to avoid inflated group financial statements with profits that are a result of transactions between entities of a corporation.

F. Consolidation of Investments and Cash Flow

In this step, certain transactions between subsidiaries (i.e. Trading Partners) are being eliminated (e.g. Inter-company AR and AP, Sales and COGS). This step is necessary to avoid inflated group financial statements with profits that are a result of transactions between entities of a corporation.

G. Journal Entries

Pre- and post-consolidation Journal entries are performed. Examples include Restricted Stock, PPA, Tax and Corporate adjustments.

H. Consolidation Reports

Consolidation reports are generated and reviewed. Some of the key reports types include: Consolidating, comparative and trending financial statements as well as working capital and cash flow reporting

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