Lab and Clinical Trial Spend: How to Set Up Spend Controls Without Slowing R&D
In the biotech world, spending and progress are intimately correlated. Every action taken, from experiments to patient enrolments to prototypes, moves a project forward incrementally, but it also burns up a lot of cash.
Innovation is never the problem, but ensuring there’s enough cash to continue is a real concern. You’ll need to spend to keep things on track and figure out how to do it without slowing down the science.
Finding the balance is critical. If controls are too loose, your spending will get out of hand quickly, and the runway will shorten. If they’re too rigid, you’ll run into bottlenecks, delays, and frustrated researchers.
While it’s important to control costs, these decisions should not be taken lightly. The ultimate goal is to build sustainable systems that enable both discipline and speed.
Understand Where the Money Goes
In any budgeting exercise, it’s vital to understand how the money is being spent. In biotech, spending typically falls into two categories: early development/pre-clinical lab, and clinical.
Spending categories in the pre-clinical stage include salaries, equipment, and consumables, and can add up quickly depending on the pace of the work.
The clinical phase is dominated by third-party vendors and other providers, as well as patient-related costs. As programs advance, we can add manufacturing into the flow.
The challenging part is that the process is not linear. Costs tend to spike at the outset, when enrollment ramps up, or when manufacturing starts to scale. These variables are just the nature of the business, and without adequate controls, spending can quickly drift.
So, what could happen?
Most obviously, the project could run out of money. Even a small overrun can cut months off your runway, which can impact your ability to reach key milestones and raise more cash.
Without adequate visibility, there may also be a tendency to overinvest or misallocate funds. Eventually, if the mismanagement continues, it will raise questions about leadership and discipline, which will undoubtedly pique investor interest (but not in a good way).
How to Balance Spending Through Applied Controls
Controls should guide decisions. However, too many controls can become bureaucratic and cause friction with your teams. For example, if spending approvals take longer than the work itself, you’re cutting your research off at the knees. So, make a clear distinction between necessary controls and red tape.
Prioritize the work while maintaining visibility.
In other words, your scientists and clinicians should be empowered to make everyday decisions, but finance should have a real-time view of what’s being spent and why.
Controls should also align with R&D priorities, so high-stakes programs receive the fast approval or flexibility they need to move forward.
With that in mind, you might think about establishing a tiered approval structure:
Small purchases can stay within well-defined team budgets without needing approval.
Enable after-the-fact approvals to eliminate the wait. Reviews can be done later while the work carries on.
Build Controls into Your Workflows – But Keep it Simple!
Controls tend to work better when they’re part of the workflow, not something layered on top. If ordering becomes a pain, people will find ways to circumvent the process you’ve so carefully applied.
Another way to gain consistency (and reduce time and friction) is to standardize your vendor contracts, pre-approve your vendor lists, and negotiate terms and agreements in advance. That way, costs will be relatively predictable and controllable. The trick is not to over-complicate the process. If your PO and tracking systems are creating more work, they’re not doing you any favors.
Managing Third-Party Relationships
How you manage your third-party relationships can significantly impact your spending. Here are a few tips to get you thinking along the right lines:
Clearly articulate all agreements, deliverables, timelines, and assumptions with CROs, clinical sites, etc. Poorly worded agreements can lead to unexpected costs and delayed results.
Implement change order controls, in which any change of scope is documented, justified, and approved before further costs are incurred.
Prioritize milestone-based payments where possible to align cash flow with actual work done.
Monitor costs on an ongoing basis. Reconcile your expectations with the actual spend so you can get ahead of issues before they escalate.
Avoid These Common Issues
If systems are overly complicated or poorly implemented, they are bound to fail.
In best practice, keep things as simple and streamlined as possible to avoid bottlenecks.
Another surefire way to sabotage your progress is to wait too long to invite finance to the table. If new controls are implemented after things are already being done a certain way, they are more likely to be ignored.
Accountability is also critical. Assign ownership to each project and budget to ensure a consistent set of eyes on it. Without this oversight, enforcement will be challenging.
Update budgets to reflect growth. As projects evolve, some controls can become irrelevant. Static budgets don’t generally work in a dynamic R&D setting, so periodic review is recommended to keep everything on track.
Prioritize Communication and Culture
When creating a control system, always consider who will be using it. There needs to be a level of trust between finance and research teams, wherein scientists know they are supported and finance appreciates the urgency of the work.
Training can also help teams gain a basic understanding of what other departments are concerned with and how their work affects the whole. If research teams have a better understanding of burn and runway, they may feel empowered to make better decisions.
The Bottom Line
Finding a balance between R&D spending and financial sustainability is a delicate business. Too much control puts a stranglehold on innovation, while too little puts the work at risk.
Defining simple, sustainable systems that address the need for both speed and discipline enables continuity. Bear in mind, the best systems are the ones people actually use, so consider your people, make it easy for them, and make every dollar count.
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