GENZ » Topics » Product Sales Allowances

This excerpt taken from the GENZ 10-Q filed May 11, 2009.

Product Sales Allowances

        Sales of many biotechnology products in the United States are subject to increased pricing pressure from managed care groups, institutions, government agencies and other groups seeking discounts. We and other biotechnology companies in the U.S. market are also required to provide statutorily defined rebates and discounts to various U.S. government agencies in order to participate in the Medicaid program and other government-funded programs. In most international markets, we operate in an environment where governments may and have mandated cost-containment programs, placed restrictions on physician prescription levels and patient reimbursements, emphasized greater use of generic drugs and enacted across-the-board price cuts as methods to control costs. The sensitivity of our estimates can vary by program, type of customer and geographic location. Estimates associated with Medicaid and other government allowances may become subject to adjustment in a subsequent period.

        We record product sales net of the following significant categories of product sales allowances:

    Contractual adjustments—We offer chargebacks and contractual discounts and rebates, which we collectively refer to as contractual adjustments, to certain private institutions and various government agencies in both the United States and international markets. We record chargebacks and contractual discounts as allowances against accounts receivable in our consolidated balance sheets. We account for rebates by establishing an accrual for the amounts payable by us to these agencies and institutions, which is included in accrued liabilities in our consolidated balance sheets. We estimate the allowances and accruals for our contractual adjustments based on historical experience and current contract prices, using both internal data as well as information obtained from external sources, such as independent market research agencies and data from wholesalers. We continually monitor the adequacy of these estimates and adjust the allowances and accruals periodically throughout each quarter to reflect our actual experience. In evaluating these allowances and accruals, we consider several factors, including significant changes in the sales performance of our products subject to contractual adjustments, inventory in the distribution channel, changes in U.S. and foreign healthcare legislation impacting rebate or allowance rates, changes in contractual discount rates and the estimated lag time between a sale and payment of the corresponding rebate;

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Table of Contents

    Discounts—In some countries, we offer cash discounts for certain products as an incentive for prompt payment, which are generally a stated percentage off the sales price. We account for cash discounts by reducing accounts receivable by the full amounts of the discounts. We consider payment performance and adjust the accrual to reflect actual experience; and

    Sales returns—We record allowances for product returns at the time product sales are recorded. The product returns reserve is estimated based on the returns policies for our individual products and our experience of returns for each of our products. If the price of a product changes or if the history of product returns changes, the reserve is adjusted accordingly. We determine our estimates of the sales return accrual for new products primarily based on the historical sales returns experience of similar products, or those within the same or similar therapeutic category (amounts in thousands):
 
  Three Months Ended
March 31,
   
 
 
  Increase/
(Decrease)
% Change
 
 
  2009   2008  

Product sales allowances:

                   
 

Contractual adjustments

  $ 136,180   $ 102,002     34 %
 

Discounts

    6,275     5,505     14 %
 

Sales returns

    6,523     6,751     (3)%  
                 
   

Total product sales allowances

  $ 148,978   $ 114,258     30 %
                 

Total gross product sales

  $ 1,186,222   $ 1,120,525     6 %
                 

Total product sales allowances as a percent of total gross product sales

    13 %   10 %      

        Total product sales allowances increased $34.7 million, or 30%, in 2009, as compared to 2008, primarily due to the impact of price increases implemented after the first quarter of 2008, primarily for our Cardiometabolic and Renal reporting segment, and changes in our overall product mix.

        Total estimated product sales allowance reserves and accruals in our consolidated balance sheets increased 4% to approximately $219 million as of March 31, 2009, as compared to approximately $210 million as of December 31, 2008, primarily due to changes in the timing of certain payments. Our actual results have not differed materially from amounts recorded. The annual variation has been less than 0.5% of total product sales for each of the last three years.

This excerpt taken from the GENZ 10-Q filed May 9, 2008.

Product Sales Allowances

        Sales of many biotechnology products in the United States are subject to increased pricing pressure from managed care groups, institutions, government agencies, and other groups seeking discounts. We and other biotechnology companies in the U.S. market are also required to provide statutorily defined rebates and discounts to various U.S. government agencies in order to participate in the Medicaid program and other government-funded programs. In most international markets, we operate in an environment where governments may and have mandated cost-containment programs, placed restrictions on physician prescription levels and patient reimbursements, emphasized greater use of generic drugs and enacted across-the-board price cuts as methods to control costs. The sensitivity of our estimates can vary by program, type of customer and geographic location. Estimates associated with Medicaid and other government allowances may become subject to adjustment in a subsequent period.

        We record product sales net of the following significant categories of product sales allowances:

    Contractual adjustments—We offer chargebacks and contractual discounts and rebates, which we collectively refer to as contractual adjustments, to certain private institutions and various government agencies in both the United States and international markets. We record chargebacks and contractual discounts as allowances against accounts receivable in our consolidated balance sheets. We account for rebates by establishing an accrual for the amounts payable by us to these agencies and institutions, which is included in accrued liabilities in our consolidated balance sheets. We estimate the allowances and accruals for our contractual adjustments based on historical experience and current contract prices, using both internal data as well as information obtained from external sources, such as independent market research agencies and data from wholesalers. We continually monitor the adequacy of these estimates and adjust the allowances and accruals periodically throughout each quarter to reflect our actual experience. In evaluating these allowances and accruals, we consider several factors, including significant changes in the sales performance of our products subject to contractual adjustments, inventory in the distribution channel, changes in U.S. and foreign healthcare legislation impacting rebate or allowance rates, changes in contractual discount rates and the estimated lag time between a sale and payment of the corresponding rebate;

    Discounts—In some countries, we offer cash discounts for certain products as an incentive for prompt payment, which are generally a stated percentage off the sales price. We account for cash discounts by reducing accounts receivable by the full amounts of the discounts. We consider payment performance and adjust the accrual to reflect actual experience; and

    Sales returns—We record allowances for product returns at the time product sales are recorded. The product returns reserve is estimated based on the returns policies for our individual products and our experience of returns for each of our products. If the price of a product changes or if the history of product returns changes, the reserve is adjusted accordingly. We

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      determine our estimates of the sales return accrual for new products primarily based on the historical sales returns experience of similar products, or those within the same or similar therapeutic category.

        Our provisions for product sales allowances reduced gross product sales as follows (amounts in thousands):

 
  Three Months Ended
March 31,

   
 
 
  Increase/
Decrease
% Change

 
 
  2008
  2007
 
Product sales allowances:                  
  Contractual adjustments   $ 101,919   $ 84,795   20 %
  Discounts     5,505     4,414   25 %
  Sales returns     6,751     1,717   >100 %
   
 
     
    Total product sales allowances   $ 114,175   $ 90,926   26 %
   
 
     
Total gross product sales   $ 1,120,442   $ 889,116   26 %
   
 
     
Product sales allowances as a percent of total gross product sales     10 %   10 %    

        Total product sales allowances increased $23.2 million, or 26%, for the three months ended March 31, 2008, as compared to the same period of 2007, primarily due to an increase in overall gross product sales, and to a lesser extent, changes in rebate rates or product mix. The increase in sales returns allowances for the three months ended March 31, 2008, as compared to the same period of 2007, is primarily due to increased estimates for the volume of product returns for our Transplant, Biosurgery and Renal segments.

        Total estimated product sales allowance reserves and accruals in our consolidated balance sheets increased 4% to approximately $162 million as of March 31, 2008, as compared to approximately $155 million as of December 31, 2007, primarily due to increased product sales. Our actual results have not differed materially from amounts recorded. The annual variation has been less than 0.5% of total product sales for each of the last three years.

This excerpt taken from the GENZ 10-Q filed Nov 8, 2007.

Product Sales Allowances

        Sales of many biotechnology products in the United States are subject to increased pricing pressure from managed care groups, institutions, government agencies, and other groups seeking discounts. We and other biotechnology companies in the U.S. market are also required to provide statutorily defined rebates and discounts to various U.S. government agencies in order to participate in the Medicaid program and other government-funded programs. In most international markets, we operate in an environment where governments may and have mandated cost-containment programs, placed restrictions on physician prescription levels and patient reimbursements, emphasized greater use of generic drugs and enacted across-the-board price cuts as methods to control costs. The sensitivity of our estimates can vary by program, type of customer and geographic location. Estimates associated with Medicaid and other government allowances may become subject to adjustment in a subsequent period due to the time delay between the recording of the accrual and its ultimate settlement.

        We record product sales net of the following significant categories of product sales allowances:

    Contractual adjustments—We offer chargebacks and contractual discounts and rebates, which we collectively refer to as contractual adjustments, to certain private institutions and various

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      government agencies in both the United States and international markets. We record chargebacks and contractual discounts as allowances against accounts receivable in our consolidated balance sheets. We account for rebates by establishing an accrual for the amounts payable by us to these agencies and institutions, which is included in accrued liabilities in our consolidated balance sheets. We estimate the allowances and accruals for our contractual adjustments based on historical experience and current contract prices, using both internal data as well as information obtained from external sources, such as independent market research agencies and data from wholesalers. We continually monitor the adequacy of these estimates and adjust the allowances and accruals periodically throughout each quarter to reflect our actual experience. In evaluating these allowances and accruals, we consider several factors, including significant changes in the sales performance of our products subject to contractual adjustments, inventory in the distribution channel, changes in U.S. and foreign healthcare legislation impacting rebate or allowance rates, changes in contractual discount rates and the estimated lag time between a sale and payment of the corresponding rebate;

    Discounts—In some countries, we offer cash discounts for certain products as an incentive for prompt payment, which are generally a stated percentage off the sales price. We account for cash discounts by reducing accounts receivable by the full amounts of the discounts. We consider payment performance and adjust the accrual to reflect actual experience; and

    Sales returns—We record allowances for product returns at the time product sales are recorded. The product returns reserve is estimated based on the returns policies for our individual products and our experience of returns for each of our products. If the price of a product changes or if the history of product returns changes, the reserve is adjusted accordingly. We determine our estimates of the sales return accrual for new products primarily based on the historical sales returns experience of similar products, such as those within the same line of product or those within the same or similar therapeutic category.

        Our provisions for product sales allowances reduced gross product sales as follows:

 
  Three Months Ended
September 30,

   
  Nine Months Ended September 30,
   
 
 
  Increase/
(Decrease)
% Change

  Increase/
(Decrease)
% Change

 
 
  2007
  2006
  2007
  2006
 
 
  (Amounts in thousands)

 
Product sales allowances:                                  
  Contractual adjustments   $ 66,931   $ 49,661   35 % $ 180,622   $ 144,384   25 %
  Discounts     45,065     33,384   35 %   126,547     90,202   40 %
  Sales returns     1,827     2,570   (29 )%   9,248     9,458   (2 )%
   
 
     
 
     
    Total product sales allowances   $ 113,823   $ 85,615   33 % $ 316,417   $ 244,044   30 %
   
 
     
 
     
Total gross product sales   $ 981,505   $ 819,846   20 % $ 2,827,771   $ 2,354,345   20 %
   
 
     
 
     
Total product sales allowances as a percent of total gross product sales     12 %   10 %       11 %   10 %    

        Product sales allowances for contractual adjustments and discounts increased for the three and nine months ended September 30, 2007, as compared to the same periods of 2006, primarily due to growth in overall gross product sales.

        Total estimated product sales allowance reserves and accruals in our consolidated balance sheets, increased 23% to approximately $159 million as of September 30, 2007, as compared to approximately $129 million as of December 31, 2006, primarily due to increased product sales. Historically, our actual results have not differed materially from amounts estimated. The annual variation has been less than 0.5% of total product sales for each of the last three years.

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This excerpt taken from the GENZ 10-K filed Mar 1, 2007.

Product Sales Allowances

We record product sales net of the following significant categories of product sales allowances:

·       Contractual discounts and rebates—We offer rebates and discounts to various government and private institutions and account for such by establishing an accrual in an amount equal to our

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estimate of the discount or rebate. We determine our estimate primarily based on historical experience and current contract prices. We consider the sales performance of products subject to these rebates and discounts and levels of inventory in the distribution channel and adjust the accrual periodically throughout each quarter to reflect actual experience.

·       Sales returns—We record allowances for product returns as a reduction of revenue at the time product sales are recorded. The product returns reserve is estimated based on our experience of returns for each of our products, or for similar products. If the history of product returns changes, the reserve is adjusted appropriately. We determine our estimates of the sales return accrual for new products primarily based on the historical sales returns experience of similar products, such as those within the same line of product or those within the same or similar therapeutic category.

·       Prompt payment discounts—In some countries related to certain products, we offer cash discounts, generally as a percentage of the sales price, as an incentive for prompt payment. We account for cash discounts by reducing accounts receivable by the full amounts of the discounts. We consider payment performance and adjust the accrual to reflect actual experience.

"Product Sales Allowances" elsewhere:

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