Finance’s role in the clinical trial procurement process
by Auxilius on Jul 27, 2022 6:00:00 AM
Biotech finance occupies a floating middle ground within the corporate decision-making apparatus: finance leaders or teams are viewed as an enabler of strategic business functions but may not have a say during early partner (CRO) selection or other procurement activities. That is a missed opportunity, given the significant role finance has in the success of a clinical trial and its impact on the overall viability of the biotech business model. As a Life Science Leader article puts it, “a relationship catastrophe is often seeded in the early days of an outsourcing decision….Rushing the start of a new outsourcing model without the necessary support and insights can lead to missteps in the process.” However, with the right approach and the right buy-in, biotech finance leaders can influence and shape the procurement process for the company’s benefit.
It all starts with the RFI, prior to sending out an RFP
CFOs and finance teams often get involved in CRO discussions when final negotiations start. This is too late. The window of negotiating from strength is narrow: once you have selected a CRO, you are unlikely to alter course and if at that point you realize the CRO is philosophically misaligned on what is expected of the partnership, the ship has already sailed.
Forward-thinking organizations can set ground rules for their Request for Information (RFI) with finance in mind: “if you respond to this RFI, you agree with these requirements...” There’s a subtle framing shift to this: you (the sponsor) are the customer and have leverage. Use it to your advantage. If you set this framing in advance, you’ll be on the same wavelength as your respondents and can start a more informed conversation off the bat. View the RFI equally as an information-gathering as well as an alignment-producing exercise. Although you may weed out respondents up front, Auxilius principal David Fenske notes, “If in the request for information, you set the ground rules of how you are going to do business, they [the CRO] can choose to not respond to the RFP when it comes, which is great because that’s one less friction down the line.”
Specifically, the clauses or requirements you may want to include could cover language and substance around handling things like payment terms, accruals reporting, change orders, and KPIs – each facet of which should make it easier for your finance and accounting teams to understand the financial trajectory of your study. Even clauses like “are you willing to accept that we won’t have any units based strictly on the passage of time?” can be used to insulate your objectives and properly incentivize your CRO. A full list of KPIs can be found here.
Some sponsors will have an outsourcing group to lean on during this process. If you don’t, it’s even more important to have a finance voice at the table to create agreement and alignment before you award a contract: once the dotted line is signed, you most likely won’t switch vendors mid-study and will be locked into what the organization has shaped.
Go deep on reporting
Once you are past the RFI and onto the RFP response phase, and your respondents are crafting and defending their bid grid, get it in writing: make sure you contract for regular, granular reporting at the bid grid level (free bid grid template here). Include in your contract the level of reporting you expect from your CRO or vendors, what timing expectations they should have for the reporting (is it weekly, is it monthly?), and the penalties or incentives for consistency and accuracy.
The lack of transparency in outsourced spend is sometimes stark. A CRO may send a sponsor a quarterly invoice for $500k broken down into a single category: “services.” No mention of work performed, units, or anything approaching transparency – what on earth are you spending this money on and where is the study headed? To avoid landmines like this, a top-tier approach would cover contracted language for unitized invoices, unitized quarterly accruals, and even unitized monthly accruals. At a minimum, ensure you are receiving a quarterly accrual file broken down by actual units, services completed, and work performed. Two example clauses are outlined below:
Accrual Reporting: For each active Work Order, CRO will provide Company with a detailed estimate of month-end accruals based on actual work performed by CRO and its subcontractors to ensure that Services fees and Pass-through Costs are accounted for in a manner that aligns with Services performed and expenses incurred during that month. CRO will provide accrual reporting, including Services fees, Pass-through Costs, and investigator grants, at the detail Budget Grid level to Company within five (5) business days after each month’s end.
Final reconciliation: Within 60 days after the completion of Services for each Work Order, CRO shall use its best efforts to submit to Company a final invoice with a reconciliation including supporting documentation of a) all amounts invoiced by provider and all payments made by sponsor and b) services actually performed, and expenses actually incurred by CRO and its subcontractors as compared to the agreed upon budgeted services and expenses. Any overpayment by Company shall be refunded to Company by CRO within 30 days of reconciliation. Any underpayment by Company shall be paid to CRO within 30 days after receipt by Company of such final invoice
Reporting requirements can extend to your own EDC data – although rare, sponsors relying on a CRO may opt out of purchasing a seat (which can run into the tens of thousands of dollars), leaving their patient data in the hands of the CRO. Make sure to include clear language on how you will be able to receive and access this information from them, so you aren’t left in the dark on your own patient data.
And finally, the booming business of biotech has led to an increase in full-service CROs, which can orchestrate the entirety of a clinical trial through their own networks of vendor and subcontractors. This is a blessing to many biotechs, but it can also lead to even more distance between the sponsor and the financial intelligence they need. As part of contracting with the CRO, ask them to provide 1) copies of the contracts with their vendors 2) invoices and reporting on work performed for each managed vendor throughout the life of the study. This will offer a line of sight on spend and help steer you toward a better trial forecast.
Throughout the negotiation, strive for clarity and visibility with your vendors. Mismanagement thrives on opacity; reporting drives transparency.
Use the MSA as your foundation
Odds are, the CRO will expect to use their own MSA template for final contracting. While this is standard practice, a CRO template can often be slightly tilted in the CRO’s favor, with clauses that may cause heartburn for the finance function (for instance, a 10% late fee per month on unpaid invoices). Given this, it’s well worth the sponsor creating their own standard template in which they can outline key priorities including:
- Work Orders
- Change Orders
- Study Budget
- Payment Schedule
- Payment Terms for:
- Professional Service Fees
- Pass Through Cost
- Investigator and Study Subject Fees
- Invoice Dispute Resolution
- Foreign Currency Exchange
- Accrual Reporting
- Final Study Reconciliation
- Key Personnel
- Service Level Agreements (KPIs)
In your MSA, we recommend including language that gives you the option to include KPIs in your work orders. While you may not choose to exercise this option, it gives you the flexibility to hold the CRO accountable for effective performance. And the KPIs you choose to be reported on can be derived from your CRO’s own standard operating procedures. As David notes, “if a trip report must be finalized within 5 business days according to their company policy, how could they object to you using that as a KPI?”
Procurement plus finance
Upstream contracting has downstream financial implications. As such, finance shouldn’t be an afterthought in the process. By ensuring your organization is explicit in its needs throughout the procurement process, you can set up your studies for financial success and sustainability.
Just remember, get it in writing up front.