4 Financial Concerns of Biotech Companies and How to Conquer Them with Cloud Technology

Biotech companies have made incredible contributions to our society, from tools that enable less-invasive surgery and faster recovery to drugs that save and enhance lives. However, running a biotech company is more than science and engineering. Financial accounting is required, a reality that brings unique challenges. Flexible cloud technology combined with the strength of modern financial accounting software can transform these challenges into opportunities

In its2018 Life Sciences Accounting and Financial Reporting Update, Deloitte highlights several financial concerns and we’re here to highlight how the proper financial management system can help you overcome your reporting frustrations and increase financial competency.

1. Revenue recognition. The FASB and IASB issued new standards on revenue from customer contracts. These criteria require biotech companies to reassess and possibly adjust their current revenue accounting policies. One specific challenge is to evaluate collaboration agreements to determine if they represent as contracts with customers. Such complexities can make compliance with the new standards a daunting task.

To achieve compliance, you must: systemize processes, support consistent documentation, and ensure consistency through expansion. Modern, integrated business management systems can connect new users, new locations, and new lines of business to support growth. Driving consistent processes across business units and locations promotes profitability and compliance.

2. Consolidation. To facilitate the research, development, or sales of their intellectual property or products, biotech companies enter into arrangements with other parties. “Because life sciences entities may absorb the risks and rewards of other parties, they must carefully analyze their arrangements with those parties to determine whether to consolidate them,” Deloitte notes.

3. Research and development. Developing new products in the biotech industry can be time-consuming and costly, and the accounting requirements and considerations that entities must evaluate are increasingly complex. According to Deloitte, “biotech and pharmaceutical companies need to consider the substance of the R&D relationship, risks associated with R&D arrangements, and related deliverables to determine the appropriate accounting models and literature that will apply.”

Biotech companies should look at modern technology that allows the affordable automation of even the most complex workflows. This includes batch/lot tracking to ensure traceability, which is the foundation for compliance and transparency. From raw materials through finished goods, accurate tracking of all inputs to batches and lots is critical to assure investors and regulators of full traceability.

4. Financial instruments. To cover the cost of drug development, biotech companies often seek external funding. The financing transactions often include complex terms and conditions that require a careful accounting analysis. In addition, life sciences entities must find the right spending cadence and application of funding.

Collaborative forecasting and budgeting are essential to keep projects moving according to plan—maintaining an optimal pace while closely monitoring cash flow. Not spending enough could delay projects while spending too much could prematurely deplete cash before additional funding becomes available.

“The biotech CFO needs to make sure that the funds forecasted are sufficient to get the project to the next financial milestone or development milestone that may potentially trigger additional investment,” says Thomas Fagley, Massey Consulting partner at Hughes Pittman & Gupton, LLC.

From the pre-revenue stages, throughout the funding stages, and up to the ultimate goal of merger, acquisition, going public or simply operating as a much larger, profit-yielding entity, financial accounting is a key component of effectively managing a life sciences or biotech company. With its modern cloud architecture and deep functionality, Sage Intacct financial accounting software can accelerate your success at any and every stage. Contact Massey Consulting for a free consultation today.


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