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Findings support the belief that today’s pharma finance teams should be engaged across all functional areas, including regulatory, supply chain, manufacturing, and commercial. What does that mean for current and future CFOs in the industry?
The role of the chief financial officer has dramatically changed over the past 20 years. For CFOs in life sciences companies, the change has become more focused on patient outcomes. Research and development, innovative technologies, and breakthrough treatments are routinely front-page news, but behind all these improvements are the financial executives who have ensured that capital and funding resources are available to move ahead. Financial leaders today must pave a new path to meet the ever-increasing demands of regulators, shareholders, researchers, and patients.
In a March survey of nearly 400 financial executives by Grant Thornton, 60% believe that finance must lead in advanced analytical support of the business to make better decisions. In other words, the finance function can no longer look solely in the rear-view mirror-it must provide forward-looking analytics for the entire organization. The only logical way, then, for finance to succeed is to be engaged across all functional areas, including regulatory, supply chain, manufacturing, and commercial, to name just some. Two decades ago, very few finance executives would have focused on non-finance regulatory or commercial needs. But today’s finance executives have progressed dramatically from their traditional role as accountants.
In that same Grant Thornton survey, 95% of respondents stated that the CFO is a key stakeholder of, and participant in, all enterprise transformation planning. Stated another way, virtually all CFOs are expected to be significant contributors to transforming every aspect of the global enterprise. Finance executives are no longer viewed as the “bean-counter” in the room.
What does that mean for current and future finance executives in the life sciences? Where should they focus now that they’re fielding demands from every function within the enterprise? Although there are numerous areas, in addition to finance, that should have the CFO’s attention, strategy, compliance, and innovation should be at the top of the list.
The CFO is expected to understand and help define corporate strategy while ultimately engaging in the execution of that strategy. By its very nature, strategy is forward-thinking, and not just when it comes to the finance function. This means CFOs must expand their understanding of drug development, supply chain, and even commercial activities before they can legitimately contribute to strategy development.
For many global pharmaceutical companies, the CFO is second only to the CEO on the executive leadership team. And corporate boards also expect the CFO to support business cases with go/no-go decisions. The CFO cannot participate effectively without being thoroughly immersed across the entire enterprise. Ironically, the finance function was often industry agnostic for decades. But today, most finance executives in pharma are industry veterans who have spent their career in pharma, or at least in the life sciences ecosystem. Those finance executives looking to break into the industry are often ill-equipped to understand or-more importantly-to lead pharmaceutical strategy.
Regulatory compliance for financial reporting has expanded beyond the requirements of the Securities and Exchange Commission (SEC). For example, the Physician Payment Sunshine Act of 2013 was enacted to provide transparency of payments to healthcare providers. Pharma companies quickly realized that their reporting systems often failed to capture the necessary information for compliance. And too often the personnel responsible for such reporting were already stretched thin. Additionally, this new requirement was not a temporary order but demanded new processes, systems, personnel, and risk managers. The regulations even demanded certain reporting for expense items as low as $10. When the law was passed, few CFOs were considered thought leaders or able to provide guidance on how to be compliant. Without understanding the specifics of the law, it is impossible for CFOs to accurately forecast the impact on their financials and resource demands, or manage the risks to the business for noncompliance.
Innovation is one of the greatest needs within the delivery of healthcare and patient demands. But for decades, the concept of innovation in the pharma industry typically meant more research in the lab. According to Greg Satell, in his book Mapping Innovation, the primary purpose of innovation is to solve problems. And every problem can be solved through a myriad of paths. Therefore, in life sciences, the purpose of innovation should be to address patients’ healthcare needs. For example, there have been dramatic improvements in medical devices as well as new cellular therapies that are much more focused on specific diseases. And the primary outlet for understanding patient demands and impact is through clinical trials. Understanding the entire clinical trial process and seeing how results impact future market demands would be an eye-opening experience for many CFOs. But these breakthroughs can only be realized through significant investment. It is the responsibility of each CFO to understand patient needs that require investment in innovation to ultimately turn into their organization’s future revenue streams.
CFOs in pharma have an enormous opportunity to be a major contributor in finding solutions for millions of people with health needs. Moreover, it’s not just an opportunity-it’s an expectation. By expanding their focus outside of finance and collaborating across the entire life science organization, each CFO can be a leader in transforming lives.
Jim Szakacs is Director, Life Sciences, Advisory Services, Grant Thornton LLP