How Financial planning & analysis solutions can solve uncertainty in life sciences

Financial planning and analysis (FP&A) can be challenging for any organization. Tracking expenditures, workforce planning, budgeting, reporting and forecasting are all complicated processes requiring the collection, integration and analysis of large quantities of data. But different industries also have unique needs when it comes to FP&A and face challenges specific to their sector.

The life sciences sector, with its inherent uncertainties and complexities, can pose very particular challenges to FP&A teams attempting to monitor cash flow and track burn rates. From the Research and Development (R&D) phase through clinical trials, various industry-specific factors, from strict regulations to cost fluctuations, can complicate the FP&A process.

Fortunately, there are solutions out there. Advances in software and technology have made it possible to develop solutions that, not only streamline the FP&A process in general, but can be deployed and configured to address an individual sector’s specific needs.

A unique financial planning & analysis landscape

The lifespan of a project in the life sciences sector, from conception to release, can be a long, complicated and unpredictable one. The duration and uncertainty of the R&D phase, the transition to clinical trials, and the need to strategically allocate funds throughout both phases give rise to several industry-specific challenges:

Data management and integration

Both the R&D and clinical trial phases generate massive amounts of clinical, operational and financial data, often over a period of years. It is essential for FP&A teams to be able to track, integrate and analyze these diverse data streams while also ensuring their accuracy. Just as there is little room for error when testing the safety of a new vaccine, even small inconsistencies on the financial side could potentially jeopardize the entire project.

Scenario planning

Both the R&D and clinical trial phases are highly unpredictable. Trial and error is an essential part of any scientific process and the development of medications, medical devices and tools is no different. Pharmaceuticals have an extremely high failure rate, so allowances must be made for course corrections, new insights and discoveries, and unanticipated results. This makes budgeting, cash burn rate projection and revenue forecasting extremely difficult.

During the COVID-19 pandemic, for example, the urgent need for a quick, effective vaccine demanded unprecedented levels of scenario planning to ensure that certain companies weren’t selling more inventory than they could realistically manufacture.

Fluctuating costs

Given the unpredictability of both R&D and clinical trials, costs can change quickly and unexpectedly. R&D’s reliance on specialized materials, often from foreign sources can be impacted by shifting tariff policies. Similarly, delays, candidate dropout rates, and regulatory changes can have a dramatic effect on costs during clinical trials.

Funding and cash burn management

Most life sciences companies are dependent on private investments, partnerships and grants to fund their projects. This, coupled with the potential for unforeseen and fluctuating costs, necessitates the careful and controlled planning of expenditures. It is vital to ensure that a project’s expenses never overtake its available funding.

Regulatory and compliance costs

For obvious reasons relating to both personal and public safety, perhaps no industry is as tightly regulated as the life sciences. Budgeting must account for FDA, EMA and other global regulatory approvals. Any non-compliance can result in heavy fines, costly delays and even trial failures.

Complex revenue projections

Even when a particular medication, diagnostic tool or medical device has made it through both the R&D phase and clinical trials, predicting factors like market adoption and drug pricing can be extremely difficult. This makes accurate revenue projections especially challenging.

Solutions and strategies

For all the many complex and singular challenges faced by finance teams in the life sciences sector, there are many solutions and strategies available, ranging from simple tips and tricks to more comprehensive end-to-end solutions, to help simplify the process.

Implement an FP&A software platform

Perhaps no other solution is as effective or far-reaching as deploying a powerful planning and reporting software platform, to automate processes.

A big part of what makes data tracking and integration, budgeting and reporting so difficult is that these tasks are often performed manually using Excel spreadsheets. This process is laborious, time-consuming and error prone. An integrated platform connects financial, clinical and operational data into a single source. Real-time dashboards allow teams to track data, monitor incoming funds, expenditures, and cash burn, automate reporting, and instantly update and incorporate any financial, operational or regulatory changes.

Some of these platforms also leverage advances like AI and predictive analytics to facilitate both long- and short-range forecasting and scenario planning. This allows for the simplified modeling of multiple scenarios simultaneously, making it easier to consider all possible variables and improve strategic decision-making.

Platforms like Workday Adaptive Planning can even simplify the transition from each phase, reconfiguring the data and processes accordingly with no need for redeployment.

Strengthen cost control, cash flow, and funding strategies

In order to better control costs, life sciences companies can move away from the practice of making annual budgets and shift to rolling forecasts. This provides a more adaptable approach, making it easier to adjust to sudden changes. This is another area where an planning software platform can help out.

Many life sciences companies also negotiate contracts with milestone-based payment structures. Rather than receive an initial investment fund upfront, funding is broken into payments which are released when specific tasks or deliverables are completed. This helps better align a company’s spending with its ongoing progress.

Additionally, companies with multiple projects or clinical trials happening simultaneously can adjust the sequencing to prioritize those that might have a higher chance of approval. This can potentially maximize the influx of initial funds, while also creating better opportunities for future funding.

Enhance compliance strategies

Finally, in order to stay on top of regulatory and compliance costs, companies can keep a step ahead by incorporating both direct and indirect regulatory costs into early-stage budgets. Close collaboration between FP&A teams and regulatory affairs teams can help anticipate costs as well as potential regulatory changes.

The science of financial planning & analysis

While the challenges faced by FP&A teams in the life sciences sector can be complex and difficult, they don’t need to be. Solutions such as FP&A software platforms, like Workday Adaptive Planning, can automate and simplify many tasks and processes. Even smaller scale strategies, such as improving financial strategies and staying on top of regulatory costs and changes can make a difference. And while these solutions can be implemented to fit the specific needs of teams in the life sciences, the enhancements and improvements they offer can just as readily be deployed to suit the needs of any organization’s FP&A approach.

If you need help simplifying your financial planning & analysis process, please feel free to reach out.