Later on, frustration arises because there is too little insight into the financial metrics and insufficient control over the things that really matter, such as budget control and flexibility.
Unforeseen changes in budgets are a particular source of concern. Think of new insights arising from testing or different production methods or material choices that suddenly cause additional costs. External factors, such as inflation caused by macroeconomic fluctuations and supply chain instability, can also suddenly render existing budgets inadequate.
The need for control and flexibility
Because the route to market is fraught with uncertainty, control over finances is crucial. Life science companies must be able to respond to changing circumstances while maintaining insight into the impact on their plans and milestones. Only then can they make the transition from promising innovation to sustainable commercial success.
One example of this is Spatium Medical. According to CEO Willem Mees van der Bijl, the collaboration with F.INSTITUTE yielded clear and noticeable results. The first and most important effect was increased confidence among financiers.
But it also gave the CEO a sharper focus. Since he no longer had to perform operational financial tasks himself, he gained not only more time, but also more mental space. He says: “The collaboration with F.INSTITUTE gives me, as CEO, the space to focus on strategic relationships and growth.”
Financial planning in different phases
A sound financial plan and tight budget control are essential for life science companies. Breaking down the road to market into clear phases helps companies bring investors on board while maintaining control over their finances. Each phase requires new financing and a different approach.
Examples of such phases are:
- Proof of Principle: the first technical validation.
- Proof of Concept: a validated product form, not yet tested on humans.
- Clinical studies: testing a device or drug in practice.
- Early commercialisation: when the product is proven to be commercially viable.
Drug development versus medical devices
Life sciences companies are diverse, varying from drug development to medical devices. Both categories have their own challenges, but one common thread runs through them all: the impact of unexpected changes on budgets and planning.
In drug development, the main issue is the high degree of uncertainty during the research and testing phases. Results from animal studies can lead to changes in direction. During the CMC (chemistry, manufacturing & controls) process, it may also become apparent that a product needs to be administered in a completely different way than originally intended. Such changes have enormous consequences for costs and the time required.
Medical devices often involve iterations in product design. Test results can lead to modifications or different components. In addition, companies often collaborate with external partners and suppliers, which increases the risk of budget overruns.
In practice, quotations often turn out to be lower than the actual costs, making tight financial management indispensable.
Collaborating with external parties
Furthermore, almost all companies in the life sciences sector collaborate intensively with third parties: development partners, suppliers, and specialized agencies. This brings opportunities, but also risks. After all, suppliers have an interest in additional work and invoice accordingly.
Without a well-organized financial management system, it is difficult to maintain control over these external parties. Keeping a tight rein on suppliers and partners is therefore a crucial focus for any company that wants to scale up.
Common pitfalls in Life Science finance
A major pitfall in the sector is that the financial structure of companies often does not grow according to their substantive development. Administration and reporting are not set up to monitor projects separately. As a result, there is a lack of insight into both progress and runway, the period during which a company can continue to operate with the available funds.
Investors pay close attention to this. They want to see not only substantive progress, but also certainty that the company is financially healthy and capable of reaching the next milestone.
Frequently asked questions about Life Science finance
When financially guiding Life Science companies, entrepreneurs often ask the same recurring questions. Some examples are:
1. Does my plan fit with the available financing sources?
Entrepreneurs often have many ideas, but want to know if they are financially feasible. We help by calculating plans and providing insight into feasibility and the necessary investments.
2. How do I deal with subsidies?
This includes the financial implications of subsidy applications, monitoring progress, and reporting.
3. How do I reward employees with equity?
Many entrepreneurs are looking for ways to let employees share in the success, for example through an option scheme or Stock Appreciation Rights. Also read Option Pool Sizing: From Percentage to Plan
4. How do I approach financing processes?
From determining the financing requirements and selecting investors to providing support during negotiations and closing.
5. How do I keep control of my finances and reporting to the board?
This concerns budgeting, forecasting, preparing board meetings, and communicating effectively with investors.
More financial advice for life science companies?
Do you recognize these questions and would you like to talk to an expert from the Life Science sector? Don't hesitate to contact us. We would be happy to discuss your goals!
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