Biotechs are not exempt from managing their expenses

Leona Mondsee
Chief Financial Officer, rebank
6
minutes

Biotech boomed during 2020. According to research from McKinsey, in the year to January 2021 and fuelled by huge growth in VC fundraising and partnerships, average share price for European and US biotechs increased twice as fast as the S&P 500. Chinese biotechs also saw their share price double, with biotech globally outperforming the pharmaceutical sector.

Hardly a surprise, you might say, given the impact of Covid-19, it was inevitable investors would look to bolster their portfolios in the science and healthcare sectors.

However there has been a dramatic change by the start of 2022 and investment in biotech as stalled. According to Richard Murphey from Bay Bridge Bio, the poor performance from biotech IPOs in 2021 has scared a lot of investors. Therefore its even more imperative that biotech startup founders understand the importance to manage their finances efficiently in order to provide confidence in investors for future funding rounds.

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Best practice expense management (for scientists who don’t want to be accountants)

Biotech founders are typically scientists, not accountants or HR professionals.

We’re pretty sure you didn’t set up your biotech so you could become an expert in capital expenditure or master the art of supplier management.

In the context of growing opportunities in the current market, the Rebank team can offer four top tips on seamlessly running the business and managing expenses, so you can focus on what you are good at. One thing is certain, getting systems and processes in place early is key.

1. Supplier management

Establishing a reliable supply chain for your lab equipment and instruments is crucial for any
growing biotech. A few simple rules will ensure both you and your suppliers remain happy:

  • Using lab supply marketplaces or aggregators which reduce the number of suppliers and distributors your biotech start-up has to deal with might seem easier but for regular or high-value purchases it is always best to check prices directly.
  • Are you getting the best price from material suppliers and equipment manufacturers? Don’t be afraid to ask for discounts, particularly on items you purchase on a regular basis. As your business grows and you start to up the volume per order, ask if there are further discounts your suppliers can offer.
  • A good housekeeping tip for invoice payments. Note terms and schedule payments as soon as you receive the goods. This approach will ensure payments aren’t missed, and also go out as late as possible.

2. Strategic spending

In the absence of a dedicated CFO or finance team, it’s vital to establish and categorise spending priorities early. Custom expense categories will make the process easier and ensure you stick to a budget.

  • It might sound obvious, but as activity ramps up, lab equipment expenses will go up and potentially expand your list of suppliers. You need to have a good understanding of what each asset costs and why you need it.
  • Fully evaluate new research and development opportunities in line with costs. Having up-to-date reports for grants on specific lines of research or drugs means the team can make a full evaluation of opportunities.
  • Knowing when to renegotiate supplier contracts is key to your new strategic approach to spending and cost evaluation.

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3. Who signs off?

Approving every invoice might be a necessity for biotech founders in the early days, but as the business and team grows this is neither practical or desirable. Having a documented approval flow for purchases will empower your team to sign off costs as the business matures.

  • Cost approval process must include supplier selection criteria, sign off thresholds so staff know when approval has to go to a second approver or more senior member of
    the team, and a clear process so cost approvals can be matched with
  • If you want your management team to retain control on costs without all the admin, consider having an approval process for payment release. Your bookkeeper or accountant can enable seniors to sign off on payments before they are made.
  • Relinquishing control can be hard for founders but it is important in the long run. Giving departments the autonomy to take control of their budgets and sign off costs with a clear process is important in the long run and will free up senior management time.

4. Taking stock

Finally, a regular monthly or quarterly review of outgoings, duplications, redundant expenses, out-of-date subscriptions and everything in-between will offer your growing biotech a holistic view of your finances. Having two departments complete this review each time will make sure that no stone is left unturned.

As the business grows and the requirements to manage finances become more complex, the need for a CFO will become more apparent. Even if you’re not ready to bring on someone full time, why not consider a fractional or part-time finance leader who can act strategically, take a leading role in your funding applications and support the CEO and management team to make the right strategic decisions for the business.

Opportunity is out there! But are you ready?

We know the cost of research for biotechs is decreasing and this means more individuals and teams are leaving academia to establish and grow their businesses. However, this comes with a number of considerations:

Cashflow and money management – Outside academia, founders have to raise and manage funds independently. Sounds straightforward, right? But have you thought about what accounting system do you need? How you will send international payments? Who will take responsibility for payroll? How you will manage supplier invoices as the business grows and bills start to increase? Establishing processes early on will make life easier for your team.

Accelerators – good news for biotechs, accelerators want your application. Our own accelerator, Y Combinator, is just one of these and, of course, comes highly recommended by the Rebank team.

Other funding options – don’t forget about grants as a means to steady your cash flow in those early days. Although the application and reporting process can be somewhat onerous, there are now lots of dedicated life sciences research grants available. We even provided some advice in our blog on making your application.

One thing is for sure, as operational expenses increase, as new funding and grants are won and as innovation and R&D present new opportunities, business processes will have to evolve. We’re excited to see what the future holds for biotech, and support some of the brilliant innovations coming into the market by allowing founders to focus on what they are good at.

Leona Mondsee
Chief Financial Officer, rebank

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