Why is clinical finance so difficult?

Chris Chan, Vice President of Financial Planning and Analysis, IGM Bioscience

Chris Chan, vice president of financial planning and analysis at IGM Biosciences, joins us for Part 1 of a three-part series on clinical finance and how clinical finance’s role is defined, sustained, and even championed in the clinical world. I’ll explain why it’s so difficult. the study.

“Welcome to the company! ” My heart was filled with rainbows and California golden poppies as the CMO exuded warmth and smiled as he held my hand. Then his face changed to Gollum’s and hissed, just as Smeagol spontaneously transformed into his malevolent twin. They have a lot to do and don’t have time for financial nonsense. ” My poppies were wilting, but I wasn’t really surprised. This was not my first role as a research and development financial partner. In fact, I owe my career to this very dynamic start. My first clinical finance job many years ago was a newly created one by the clinical director because the relationship between clinical and finance was becoming Gryffindor vs. Slytherin. Like a fusion of Frodo, Harry, and Luke, I understood that my job was to bring balance and peace to the universe.

What makes clinical finance particularly challenging? Undoubtedly, every functional area has its own challenges. But clinical finance holds a special place in the pantheon of pain. In this article, we’ll explain what makes clinical finance so frustrating, why having a good clinical finance infrastructure is so important for biopharmaceutical companies, and how to make the process as smooth and effective as possible. Find out what the strategy is.

“No problem can be ignored if you put your mind to it” – Ralph, “King Ralph”

Or, “Number crunchers, please line up.”

If you ask company executives and shareholders which is more important: hitting clinical milestones or staying on budget, the former will overwhelmingly win. Similarly, when clinical personnel undergo performance reviews, the focus is on clinical progress rather than budget variance. Achieving clinical milestones is more critical to a company’s long-term success and longevity than meeting financial budgets or projections (I’m not kidding). Clinical leaders are well-educated and rational, so they prioritize accordingly. So when we approach our financial representatives to discuss budget variances and unpaid expenses and debts, it’s not really surprising if they don’t show enthusiasm.

Of course, there are exceptions depending on the situation. Finance becomes a much higher priority when a company is low on cash and becomes a major concern, or when accounting points to the risk of a conclusion of material weakness by external auditors. However, traditionally, clinical finance professionals often interact with business partners who are extremely busy and overstressed, where financial issues are not their most pressing priority.

“You’re in danger, Will Robinson!” – Robot Model B-9, “Lost in Space”

Or, “Give yourself some clinical knowledge so you don’t get eaten by a space walrus.”

The moment the question left his mouth, my spider senses buzzed. The accountant asked a short-sighted question. “Can you explain to me why the estimated amount owed was $75,000 and his bill was $78,000?” Before the clinical team could respond, I pointed outside and said, “ Oh, it’s a puppy!” After the meeting, when we were out of range, I told my novice accountant that in the world of clinical trials, the accrual in question is equivalent to kicking a game-winning field goal two inches left of center. He explained that it is clinical finance. We should be elated with the results, and stalking our clinical partners for clarification will only make them more cautious about providing future data. To be clear, accountants have done nothing fundamentally wrong. he asked in a trained manner. He just didn’t recognize the nuances. And, as Daddy always said, if you end up having your leg bitten off by an alligator, that’s not the right thing to do.

One thing I’ve learned after working in clinical-focused finance for several decades is that being good at finance and accounting doesn’t necessarily mean you’re good at clinical finance. Clinical trials are characterized by unique challenges and are more like a swarm of locusts than a herd of cats. Additionally, the way clinical trials are accounted for can vary widely from company to company, as there are no standards or generally accepted guidelines. As an example, large pharmaceutical companies often use the “straight line” method for accruing clinical expenses (i.e., dividing the contract total by the estimated term and recording an equal accrual each month). Because a large number of trials are performed simultaneously, the inaccuracies inherent in linear methodologies are evened out across the board. On the other hand, small companies that have only conducted a small number of trials cannot realistically use this methodology due to the risk of noticeable inaccuracies and obvious modifications in the future. Because of these nuances, even experienced clinical finance professionals can encounter a steep learning curve when moving between different companies.

“I’m going to heaven, Lt. Dan.” – Forrest Gump, “Forest Gump”

…and clinicals meet all milestones on time.

Clinical professionals are often the most optimistic people in Middle-earth when it comes to budgeting. Expectations for patient enrollment and other milestones are often more ideal than realistic, resulting in underbudget. To further complicate matters, the recommended solution to slow registrations is to start adding more sites to drum up enthusiasm and support, and expand your resources by increasing site visits. These relief measures will increase spending. When these forces collude, the financial results are: (a) There is a shortage of expenditures for this year’s budget. (b) Relationship between excess spending and the overall (multi-year) research budget. (c) A sharp remorse for the poor soul who explains the difference.

Clinical’s tendency toward optimism is understandable. They face tremendous pressure to meet or exceed clinical trial schedules, and individual, team, and corporate goals are focused on these schedule goals. When more reasonable predictions are proposed, they are often interpreted as pessimism or even punching, and are not explicitly or implicitly encouraged.

But you may be wondering, why is clinical finance important? Learn why in Part 2 of this series on clinical finance.

About the author:

When Chris Chan was a kid, he wanted to be Bruce Lee or a Jedi Knight. He ended up doing the next closest thing and becoming an expert in biotech finance. Chris has worked for biopharmaceutical companies of various shapes and sizes over his 30 years (approximately four times Al Capone’s entire prison tenure), primarily in his FP&A and clinical/R&D finance areas of the company. I’m here. He has presented at numerous conferences and has written multiple articles on drug development budgeting, financial accruals, and outsourcing. He currently crunches numbers in his VP of FP&A at IGM Biosciences. When he retires, he wants to be Bruce Lee or a Jedi Knight.