Mastering Clinical Trial Accounting & Forecasting

Tyler (BDO): Hello everyone, and welcome to Mastering Clinical Trial Accounting and Forecasting. Before I hand it over to our presenters, I want to quickly go over some CPE and support information.

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That covers our housekeeping. I will hand it over to James to get us started with introductions.

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James Neal (BDO): Thanks, Tyler. My name is James Neal, and I am here with Jennifer Kyle from Condor. A quick intro on myself: I have been in ERP for twenty-eight years and in the pharmaceutical world for the last twenty. We will get into my experience with clinical trial accruals as we work through the sessions today.

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With that, I will turn it over to Jennifer.

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Jen Kyle (Condor): I am excited to be here. Thanks for inviting me, James, and thanks to John at BDO.

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I spent most of my career in biotech and pharma. I started at Ernst & Young auditing biotech companies, then left EY for industry, where I worked as a controller, VP of Finance, and in FP&A, specifically around clinical accruals and forecasting. Many years ago I built a workbook - like many of you have used or are still using - that automated and streamlined clinical accruals and forecasting.

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That workbook is where Condor came from, so let me introduce the company and share a bit of what I have learned in the industry and where we are going. Condor is a leading cloud-based clinical financial software company built for clinical forecasting and accruals. It is a unified platform that connects clinical, finance, and all of the disparate data sources in between. It was developed with deep clinical finance and industry expertise. It automates clinical accruals and vendor management, and it supports scenario planning and forecasting.

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James, do you want to go over the learning objectives?

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James Neal: Yes. Today we will cover accrual methods for clinical trial accounting and forecasting. You will learn about reconciling accruals and forecasting using both historical and AI-based methods.

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Jennifer will start by defining accrual methods, tools, and audit readiness. Then we will walk through reconciliation methods, move into forecasting, and finish with systems and integrations - how to bring these pieces together into a more automated, exception-based process.

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Our first polling question: what stage is your company in?

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Jen Kyle: It looks like we have a healthy balance between preclinical, early stage, late stage, commercial, and none of the above. Everyone here should take away something useful, and it also shows that this is not a one-size-fits-all problem or a one-size-fits-all solution.

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James Neal: All right, I will pass it back to you.

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Jen Kyle: Thanks, James. Accrual methods, tools, and audit readiness.

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What is accrual accounting? Hopefully everyone here has some familiarity with it, otherwise we would not need the CPE. It measures financial performance by recognizing economic events regardless of when the cash transaction occurs. Put simply, an accrual is an estimate of all the billable work or services rendered in a given period, so that the expense is recognized in the period it was incurred.

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Biotech and pharma have nuances that other industries do not, largely because of the different phases of a clinical trial. For this discussion - and I know we have preclinical and early-stage folks here - we will focus on human clinical trials. So we are past CMC work, we are in Phase 1, 1b, or 2, and we will talk through how to think about clinical accruals and how to use that same data for forecasting.

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Within a clinical trial there are three basic stages. This varies based on your contracts, the CROs you use, and how you define your timelines.

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The first is startup. You have brought your CRO on board, or a series of vendors, to help you conduct the trial. You are doing site feasibility work, recruiting sites, setting up databases, and getting regulatory submissions and applications out the door. Because these are the costs required to get the trial going, much of it can be straight-lined over the startup period. We see this commonly with startup work orders: the work order runs three to six months, and you straight-line it over that period. Then the full work order is executed and the games begin.

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The second is enrollment and clinical conduct. This is where it gets interesting from a finance perspective, because now there are many more variables. Where is enrollment coming from? Which sites are enrolling patients? Patients are screened, sometimes pre-screened, then move through a host of protocol visits, with procedures at each visit - and there are always changes. A significant share of cost here relates to enrollment, treatment, and monitoring the sites to make sure they are doing what they are supposed to do, such as entering visits into the EDC.

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There is real variability depending on whether you are in Phase 1, 2, or 3 and how long the trial runs, but a significant portion of the accrual in this phase is measurable through your sites and your enrolled patients. Alongside that you have fixed costs, which we will get to, plus surprises you cannot plan for, such as certain pass-throughs.

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The third is closeout. These are activities like reviewing incoming data, having your clinical partners push sites to submit everything invoiceable, making sure all visits are recorded, and gathering data for the FDA submission. Accruals here are similar to startup: a good portion can be straight-lined across the closeout period. There will also be a lot of catch-up, especially with investigator fees, grants, pass-throughs, and delayed billing. Start your closeout and final reconciliation procedures here so you are not caught off guard a year after the trial has ended.

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Next, an introduction to standard costing methodologies. This is not cost accounting, this is clinical trial accounting, but there are many similarities.

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As we said, accrual accounting means recognizing expenses as they are incurred. The only way to really do that is to align with what drives clinical trial activity. Inside your vendor contracts there is a cross between the significant activities in the trial and the units those activities are measured in. That accounts for most of the clinical trial expense you have to accrue and record. There is another ten percent we will not get into today - that is a separate advanced session, and we are happy to do it later.

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You can summarize all of these activities against three basic attributes: patients, sites, and time.

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The biggest category is investigator fees and labs. Think about patient visits, screenings, procedures, drug dosing, and central lab. Depending on your therapeutic area, there may also be home health visits, mental health surveys, or wearable devices. All of these fluctuate with activity level, so you can estimate them using an average patient cost. If you are commercial or late stage with thousands of patients and several hundred sites, average patient cost works well. If you are earlier stage, you may go per visit - or per procedure, if you are an oncology company. There are also site administrative costs, which you can handle through an average site cost or recognize as incurred.

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The second bracket is all the other project costs from CROs and other service providers. You might have everything with one CRO, you might use several, or you might not use a CRO at all. For project management, study management, study monitoring, and site monitoring, a lot of it can be driven by timeline. Project management fees are often timeline-based, a fixed monthly cost. Some can be driven by enrollment rate instead - interim monitoring visits are a good example, where you can measure against enrollment velocity. Site monitoring can be driven by how many sites are active each month, what the CROs call a site month.

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The point is that there are different ways to recalculate these services and align them with the units actually being consumed, based on the budgets your CROs and vendors provided.

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On to the challenges with accruals. As many of you know, one size does not fit all, and anyone who has worked at several biotech companies at different stages knows this already. Three main components drive it.

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First, materiality. If you are early stage with a couple of trials in Phase 1b or 2, you are looking at every single transaction, because on a $500,000 or $1 million estimate you want to be materially accurate. A late-stage company is usually less concerned with that level of granularity but needs the process to scale, so it carries a higher threshold and more tolerance for reasonable estimates. Materiality drives both the process you use and the level of detail you accrue at.

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Second, complexity of contracts. Constant changes, with sites and with your large service providers.

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Third, data limitations. We all know CROs are not the best at providing accurate data on time, and neither are most other vendors. It is on us to figure out where the data can come from. At the end of the day, the chief accounting officer or CFO signs off on financial statements that include the accruals, and "we did not get the data from our vendors" is not an excuse.

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So, some best practices. Automation gives you consistency of method. Choose a process, stick to it, and stick to a standard set of assumptions - it makes everything downstream easier. It also improves accuracy, especially when you build your own independent calculation of what cost should be and reconcile that to your third parties. Then you know you have done your part to prevent a material misstatement.

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Another one is collaboration. This is a team effort. Internally, set up monthly or at least quarterly meetings between accounting, FP&A, and your clinical partners or program managers. Externally, work with your clinical team and vendor management to set expectations with vendors: these reports, by day two, day three, day five. Getting what you need takes some arm wrestling with every stakeholder in the process.

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Then internal controls. You need checkpoints where you review your assumptions and accruals and look at third-party confirmations. Do not just take what the third party gives you. Have an educated estimate of what you think it should be and set that expectation. Then, when the vendor number comes in off from what you expected, you can have a productive conversation about billing accuracy, potential overbilling, or something one of you missed that you will ultimately be responsible for.

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That is a good segue into reconciling your actuals and your accruals. On the common challenges, delayed vendor invoicing happens, it is not avoidable, and it will keep happening. So will data silos and manual errors. But with the technology now available on both the clinical side and the finance and accounting side, this is an area where we can mitigate, whether you work in Excel or in dedicated software.

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On vendor communication, set up a process at the very start of the trial that defines what information you require, and put it in the MSA and the SOW. Some of you already do this. When accrual time comes, you want something in the contract that obligates your third-party vendors to provide information. You can request EDC data, site activity, and CTMS reports. You can get Excel files, budgets, unit trackers, and CTA agreements. Work with your vendors and your clinical teams - sometimes you just have to be the squeaky wheel.

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Next, clinical collaboration. This is a team sport. Accounting cannot do it alone, FP&A cannot do it alone, and neither can clinical. If you are on the accounting side, meet your clinical partners and build the relationship. It pays off when you need them to confirm enrollment, site activity, and estimates from CROs and other vendors.

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One thing that gets overlooked constantly: keep an open dialogue with clinical about change orders being negotiated. They are not signed yet, but they are being discussed. Talk to your clinical partners and find out what is happening, so you can get ahead of the incremental liability or adjustment before the change order is executed six months later.

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For analytics and documentation, set expectations and look at trends. Do it by category, by site monitoring, by patient - whatever fits. Perform an analytical review and document the reasons for variances and adjustments, working with clinical to set those expectations, because on your own you will not know.

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For companies where clinical accruals are a critical audit matter, here is the checklist that was drilled into me as an auditor and then as a controller on the other side. When you have a significant estimate, define the expectations, document the review procedures, and document any findings. A finding during review is not a bad thing - it can be a good thing. Record the key questions asked, the answers given, and any adjustments that resulted. That will always put a smile on your auditor's face.

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And use technology. Five years ago this was not really an option. We were beholden to Excel and spent most of month-end and quarter-end calculating, clerically checking formulas, and confirming that tabs still linked. Now you can use technology. If your trials are large and complex, make it easy on yourself. Integrate the systems and databases you already use, especially if you are on the larger pharma side. Then validate, monitor, and document.

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James Neal: Our next polling question is about your ERP or financial software. What is your company using today?

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Jen Kyle: Interesting. I would have expected NetSuite. NetSuite and SAP are the two most common ones we see, along with Oracle Fusion, and Microsoft. Rest in peace, Great Plains - I remember using it ages ago and it feels ancient now.

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Jen Kyle: Now the fun stuff. This is where you can be wrong all the time and nobody is ever upset.

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So, there are a few strategies for accurate accruals and reasonable forecasts. Forecasting these costs is essential to maintaining financial control and accurate budget management across the phases of a trial. There is one massive driver, and that is patients. How many sites you activate, how fast you think they can enroll, and the number of patients. That drives your budget more than anything else. Then you have vendor costs and contracts, fixed fees, and other variable fees such as site management and site monitoring. When you forecast, look at both fixed and variable components.

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First, use standard costing methodologies. When your accruals are generated from the same drivers that determine what you will spend, you can forecast off them too. You are comparing apples to apples, and the conversation at the financial review table gets far more productive. Instead of "a late invoice caught up and that is why we were over," you can say "our enrollment slowed beyond expectations" - or increased beyond expectations, which is what we all want.

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Second, leverage industry intelligence. Use benchmarking data, including your own internal benchmarks. If you are building a budget for a new trial in a therapeutic area you have already worked in, use the prior trial as a baseline and apply what you learned. You can also use external data sources to see what is out there by therapeutic area and phase, and what different vendors charge for key activities.

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Third, automate CRO budgeting and change orders. As we said in the accrual section, work with clinical to know what is being negotiated. In FP&A you should have direct line of sight here. When clinical says "we need to open five new sites in Asia Pacific," you should be able to run that through your own model or through software and see the budget impact. Then the CRO sends its change order and you compare. That makes you the real finance partner in the negotiation: here is what we expect and here is why, now explain why you are charging more in these areas. At Condor we have had a lot of success here, not by defining scope but by checking the math across all the assumptions and activities in the trial.

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Fourth, rapid scenario planning. Just like standard FP&A, you have a base case, a best case, and a worst case. What happens if enrollment comes in below what the CRO predicts? What does that do to cash runway and to timelines? I have been in the situation where we are prepping for a board meeting, clinical is running a few different budgets last minute, and they ask questions as if you can snap your fingers and produce new numbers. With the right software, you actually can - and a clinically minded person with a finance background can run some of those scenarios themselves. Replace the manual spreadsheets.

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Fifth, roll up to the program level. If you are a larger organization, commercial or late stage, with several trials running, you may not want to look at trials individually so much as at total spend at the program level. Depending on how you budget and how your executive team reviews and communicates to the board and investors, you want to be able to roll all of these trials into a program-level view.

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James Neal: Jennifer, can you hear me? Looks like we may have lost Jennifer. Let me try to get her back.

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I can talk to this a little, and she will add a lot more clarity when she is back. When we look at forecasting there is a lot we can draw on. There are past clinical trials in the same area and the same indication. You look at those and ask, this is an oncology trial, we ran it at these sites - what did that actually look like?

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Sorry, Jennifer, I started talking as you came back.

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Jen Kyle: No worries.

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James Neal: Go ahead.

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Jen Kyle: Where did you get to, James? Did you cover historical data analysis?

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James Neal: I just started, so you can take it from the top.

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Jen Kyle: The best way to predict the future is to learn from the past.

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If you are building a budget for a new trial in the same therapeutic area, copy a prior trial, use it as your baseline, and adjust from there. Use your past trends. If you are moving into Asia Pacific, look at what your enrollment rate was in that region and apply it until you have evidence to the contrary.

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The second approach is patient-activity based. If you are working in Excel, with accounting booking invoices and maybe carrying its own estimate, what we usually see in FP&A is a split between fixed and variable costs. At minimum, investigator grants and fees are driven by your enrollment curve or patients on site. Direct fees are typically straight-lined. Pass-throughs might be a rolling average, or driven by enrollment and patient count - that is up to you, depending on how material they are to the forecast.

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Apply the same logic across every contractor, not just the CRO. Central labs, for example, have variable costs you can drive off patient enrollment, fixed costs, and pass-throughs. The approach works across the board.

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Then scenario planning and benchmarks. Always look for benchmarking, whether through technology or through industry peers, including what your clinical team has seen. Make sure you are in the ballpark of what is being sold in the market.

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Last, a unified source of truth. This one is relatively new, it did not exist several years ago. If you are using an application that can import all of your clinical data - patient visits, site listing, timeline adjustments from a CTMS - into your accrual model or accrual system, you can use that to generate accruals, and then forecast simply by updating your assumptions about the future. What if we speed up enrollment? We know the timeline will be extended, so I update that in the forecast.

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The same source of truth marries your clinical activity with your financial budgets and contracts. Accounting uses it for accruals. Clinical uses it for change order negotiations and for confirming and validating estimates. FP&A uses it to keep up with the constant back-and-forth between accounting and clinical, and to keep the executive team and board decks current. One system of truth is the best-case scenario for anybody who needs to move fast and scale.

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And apply consistent logic between your accruals and your forecast, and within your accruals themselves. Consistency is key. Every time you change method - we did it this way for this reason and that way for that reason - it is painful for your auditors, for you, and for everyone else in the process.

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For the last section, James will take the technical integration side: how do you connect all these disparate sources, systems, and databases to accomplish what we have spent the last hour talking about?

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James Neal: Thanks. Before we start, we have another polling question: does your organization plan to leverage clinical accounting and FP&A software? And I love the "never, software can't tackle this" option.

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Jen Kyle: If we had asked that question five years ago, James, that number would have been much higher.

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James Neal: Yes, it has gotten much easier. Although I should not say easier - the systems have caught up. The problem is still difficult.

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As the number of trials, sites, and patients grows, so does everything around them: more partners, more CTMS systems, more EDC systems, more contracts, more ways of invoicing. It becomes very complex very quickly.

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Preclinical is fairly straightforward. Most of the companies we see there are on QuickBooks, or an ERP if preclinical spend is significant. It is a much less complicated model. Once you get into Phase 2, or Phase 1 for certain indications, you are handling multiple partners and multiple contracts across multiple systems.

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What we usually see at that point is a 20- or 30-page Excel workbook, with more people added to support it as complexity grows. There are a few problems with that. It does not scale well, and it is already hard to fill the positions we have today, let alone new ones to maintain new spreadsheets for new trials. It goes stale almost immediately as data comes in. And it is reactive rather than forward-looking: you find out about things after the fact, as invoices arrive and as reality disproves the spreadsheet, instead of seeing exceptions in the data as they happen.

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So what do you do? You start talking about integrations, and there are a couple of ways to think about them. I always put air quotes around "integration." An integration can be as simple as an Excel export that gets hand-entered into another system, or a CSV upload. What we are talking about here is real automation. That means the data is normalized: the same data comes in day in and day out, month in and month out, and the systems update the same way every time.

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When you look at the systems that matter for clinical trial accrual accounting, there are several pieces. Someone asked a question that gets at one of the big complexity drivers: all of the detail that goes into tracking accruals. Procedures. Site ramp-up time. Prequalification and screening for each patient, screen fails, and how those are paid. Layer multinational trials on top - different costs and billing rates for the monitors, the PIs, everyone involved - and you can imagine how complex it gets.

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So the pieces you are dealing with are these. The CTMS captures the detail on visits, procedures, and site activity. The contract defines what data you need to capture to do the accrual: is this milestone driven by patients, by sites, or by something else? The EDC captures visit data and the key metrics you need for a proper accrual. The invoices tell you what you are actually being billed for - is it correct, and does it match what the other systems say? The ERP holds the POs and invoices and forms the basis of the accounting for the contract, so it all has to reconcile. And the FP&A model pulls that detail through to show where you are against where you thought you would be, budget versus actual.

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These should be connected in a way that lets you validate and prove exceptions. When they work together, you can manage by exception: see where you are going over budget, where a change order may or may not be needed but is being requested, or where cash burn is running high and patient enrollment is not matching it. In a disconnected system you would see all of that far later.

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So what do you look for in the technology, and in the people who are going to help you with it? The biggest thing is to look for something that has already been done. You do not want to be the pioneer with the arrows in the back. This is done day in and day out across pharma and biotech companies worldwide, and there are plenty of systems that do it well - you are talking to a couple of them right now.

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Look for systems that have been through audits and that can clearly demonstrate the ability to integrate these sources in a way that makes sense. For example, when you bring data in from CTMS or EDC, you are not bringing in patient data as such, because that creates other issues for you. You want only the data pertinent to validating against the contract.

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Foreign currency gains and losses are one of the biggest problem areas we see in CRO management and FP&A. Transfer costs, service agreements, how all of it fits together - it is incredibly complicated. Doing that manually, or in a system not built for it, is a fool's errand in most cases. You end up dropping back down to Excel.

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Then think about scale. One question people rarely ask is whether a system is too much for them. I do a lot of NetSuite work now, but over thirty years I have done SAP, Oracle Cloud, and plenty of others. Each of them is very good for the audience it serves. A company that should be on QuickBooks should not be on SAP. Know what the right solution is for where you are, and make sure it will still fit you in two or three years.

Those are the main points: look for "been there, done that," and look for the right level of scale. Jen, anything to add?

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Jen Kyle: Sure. The slide lists a few more things to look for in clinical trial financial software, but I want to spend the last couple of minutes on audience questions.

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One question: do we work with clients that use procurement software such as Coupa on top of the ERP? Yes. There is a common tech stack in biotech. I generally see NetSuite, Coupa, and Adaptive Insights, although now there is Planful too. There are many systems. For us it comes down to where you want to pull the information from: do you integrate with Coupa, or with NetSuite, for purchase orders and the invoice listing?

James, what else are you seeing?

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James Neal: It is not a limited stack at all. We see Coupa quite a bit. We also see customers with very large trials but a small number of partners, and they will use something lighter - not a Coupa, maybe something built into the ERP itself. It depends on scale, so we see all levels of it.

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Let me move to the conclusion and Q&A.

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For key takeaways, we spent most of today on the financial complexity of clinical trial accruals. There are many moving pieces. As you build out the system that handles them - whether that is Excel spreadsheets plus the people who support them, or a fully automated platform - think through how it will satisfy your auditors, your internal management, and external reporting.

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There are systems that can help, and systems that can scale with you. Starting with a group of people who have been there and done it is the best way to begin, because they have traveled this path and know the best way to do what you are trying to do.

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Jen Kyle: There are two more questions I can answer quickly.

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On clinical accounting and FP&A software, there are only two options on the market right now: Auxilius and Condor. They do broadly the same thing, and each differs in features and functionality. If you are exploring, look at all your options and determine which is the best fit for your organization and your needs.

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On what type of audit evidence we provide: feel free to ping me afterwards, since we are out of time. We do a comprehensive audit package at Condor. But not everybody uses Condor and not everybody needs software, so I am happy to share some foolproof templates you can give your auditors that have been tried and true for me throughout my career.

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I think that is it - we are about at time.

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James Neal: Yes, there will be a post-event email.

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Jen Kyle: Are we sending the slides?

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James Neal: We are, yes.

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Tyler (BDO): Thank you so much, James and Jennifer. I have a final slide with some housekeeping information.

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As always, we will send a results email indicating your eligibility for credit within two business days. If you qualified for a certificate, it will follow within about two weeks, provided all required documentation has been submitted to us by the course sponsor.

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Thank you so much for attending, and have a good rest of your day.