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February 13th, 2008
Budgeting for Life Science Companies
Owen Gordon, Axela Inc.
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Budgeting for Life Science Overview
Why budget?
Who should be involved in the budgeting process?
How frequently should I update my budget?
What should be included in my budget?
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Why Budget?
Cash flow planning
Grant submissions/reporting
Shareholder Agreement/board requirement
Investor Due Diligence
Bank/lender requirements
Strategic Alliance negotiations/monitoring
Other regulatory compliance (CRA, etc.)
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Who Should be involved?
Those most closely involved with the underlying activities
Scientist
CRO/consultant liaison
Collaborator
Business development personnel
Finance
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What should be included?
Assumptions Headcount/FTE’s
Benefits, bonuses, recruitment fees, tax equalizationpayments, relocation of non-residents
Occupancy costs
Machine rental (Mass Spectrometers, NMR’s, etc.)
Capital Expenditures (wet/dry lab build-out, chemistryhoods)
Tax credits (SR&ED, GST input credits)
Professional Fees (Legal corporate and IP-related, audit);patent costs
Insurance (Key person, D&O, etc.)
Board/SAB member fees
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What should be included (cont’d)?
Assumptions (cont’d) Exchange rate
Conferences
Travel & Entertainment (T&E) Fundraising (CEO/CFO/CTO, etc.)
Board/SAB/Clinical Advisory Board meetings
Development driven (clinical trials, etc.)
Regular
Profit & Loss/Income Statement on cash basis
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Select Items – Therapeutics Co.
(assuming no CRO)
Number of planned trial sites
Protocol/trial design fees
Patient recruitment fees
Sample collections
Statistical data analysis fees
Regulatory fees
CRA T&E
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Select Items – Research Tools Company
Instrument development phases
Tooling
Consulting
Outside engineering resources
Software development
Assay development
Alpha/Beta testing
Instrument compliance costs (CSA, CE, ROHS, etc.)
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Budgeting Fundamentals
Annual Strategic Plan
Objectives
Activities
Budgets
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Budgeting Fundamentals (cont’d)
Annual Strategic Plan
An operating plan of your major deliverables for the year (orwhatever planning cycle makes sense)
e.g. Complete a Phase I trial, have a successful product launchfor a medical device.
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Budgeting Fundamentals (cont’d)
Annual Strategic Plan
Objectives
The 3 – 6 major milestones or goals you will measure to see ifyou are on track to meet your Strategic Plan
e.g. select CRO by X date, complete patient recruitment by Ydate
e.g. have product launch collateral completed by Z date
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Budgeting Fundamentals (cont’d)
Annual Strategic Plan
Objectives
Activities
e.g. Interview 3 CRO’s in Q2 including T&E to visit HQ’s
Select graphic designer; Spend $X on mock-ups andmasters; Print batches by Y date in advance of launch
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Budgeting Fundamentals (cont’d)
Annual Strategic Plan
Objectives
Activities
Budgets
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Assumptions – Chart of Accounts
Financial/Statutory
1 Financing - Gross Proceeds
2 GST Refund
3 Scientific Research and Experimental Development (Investment Tax Credit)
4 Investment Income
Corporate Payroll
5 Corporate Salaries
6 Employee Benefits - Corporate
7 Performance Bonus - Corporate
8 Recruiting Fees - Corporate
9 Employee Relocation - Corporate
10 Training - Corporate and R&D (50%/50%)
Professional Fees
11 Legal - Corporate
12 Accounting/Audit - Corporate
13 SR&ED Tax Consultants - R&D
14 MIS/IT - Corporate
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Assumptions – Chart of Accounts (cont’d)
Office, General & Admin
15 Bank Interest & Charges - Corporate 25 Building Mtce - Corporate & R&D (25%/75%)
16 Postage/Courier/Ship-Corporate & R&D (25%/75%)26 Director/Committee Fees - Corporate
17 Telecomm/Security - Corporate & R&D (25%/75%) 27 Board/Audit/Comp Cttee Meetings - Corporate
18 Office Costs - Corporate & R&D (25%/75%) 28 Insurance - D&O - Corporate
19 Printing/Advertising - Corporate 29 Insurance - Keyman - Corporate
20 Communications/PR - Corporate 30 Insurance-Building-Corporate & R&D (25%/75%)
21 Subscriptions/Dues/Memberships - Corporate 31 Telephone Equip Lease - Corporate & R&D (25%/75%)
22 Conferences - Corporate 32 Photocopier lease-Corporate & R&D (25%/75%)
23 Meals/Entertainment/Travel - Corporate 33 Miscellaneous
24 Building Lease-Miss-Corporate & RD(25%/75%) 34 Financing fees
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Assumptions – Chart of Accounts (cont’d)
Research & Development
35 R&D Salaries 46 Subscriptions/Dues/Memberships - R&D
36 Employee Benefits - R&D 47 Conferences - R&D
37 Performance Bonus - R&D 48 Meals/Entertainment/Travel - R&D
38 Recruiting fees - R&D 49 Scientific Advisory Board fees
39 Employee Relocation - R&D 50 Clinical Advisory Board fees
40 Consultants - R&D 51 SAB Meeting - R&D
41 Other Research Agreements 52 CAB Meetings - R&D
42 Project II Research Agreement 54 Insurance - Keyman - RD
43 Lab Supplies - R&D 55 Insurance - Clinical Trials
44 Legal - Patents - Spinout 56 Miscellaneous
45 Legal - Patents - Collaborator A
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Assumptions – Chart of Accounts (cont’d)
Business Development
57 BD Salary
58 Employee Benefits - BD
59 Performance Bonus - R&D
60 Consultants
61 Meals/Entertainment/Travel - BD
62 Conferences - BD
63 Research Reports - BD
CAPEX
64 Capital Expenditures
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January February March October November December Total
Net cash, beginning of period 1,656,712 1,124,697 813,584 (61,797) 20,604,426 373,688
Inflows:
Financing 2,503 - - 21,500,000 - 27,470,898
GST refund 12,441 - 43,337 5,053 3,681 118,885
SR&ED ITC - Federal & Provincial - - - - - 1,283,077
Investment income 779 1,194 2,136 - - 7,671
Other - - - - -
Total inflows 15,723 1,194 45,473 21,505,053 3,681 28,880,531
Outflows:
Corporate
Salaries 52,598 36,085 34,273 31,538 31,538 430,505
Employee benefits - - - 4,725 4,725 28,369
Performance bonus - 12,875 - - - 25,750
Recruiting fees - - - - - -
Employee relocation - - - - - -
Training - - - 500 500 3,000
Legal - Corporate - 225 - 6,250 6,250 42,958
Accounting/audit 11,931 - 14,317 - - 61,997
MIS/IT 3,732 1,913 2,004 3,167 3,167 39,040
Interest and bank charges 106 88 55 100 100 6,156
Sample Budget Format
~//~
Capital expenditures
Computer - network - - -
Computer equipment 4,108 - -
Leasehold improvements - - -
R&D equipment - - -
Office equipment 1,459 - -
Office furniture - - -
Total capital expenditures 5,567 775 -
Total outflows 547,737 312,307 1,014,062
Net cash, end of period 1,124,697 813,584 19,594,044
Headcount 6 7 9
/========/
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Sample Budget – Clinical Trial Phase I
January February November December Total
Phase 1 program
Research 64,400 49,595 68,000 372,244
CMC development - - 40,000 200,000
Preclinical development - - 80,000 1,235,000
Clinical development - - - 400,000
Regulatory - - 25,000 50,000
Project management - - 12,000 78,000
Pharmacology-biology 43,387 15,044 - 173,100
Analytical chemistry 96,962 - - 562,825
Toxicology 29,641 35,407 - 101,801
Genotoxicology - - - -
Reprotoxicology - - - -
Safety/Pharmacology - - - 72,995
Metabolism - - - 80,000
Clinical Subproject - - - 2,766
CMC Subproject 85,000 - - 116,881
Regulatory Subproject - - - 12,216
Consultant - 150 - 6,618
Consultant - - - -
Consultant - - - -
Consultant - - - 4,708
Other Clinical Consultants - - - 1,000
Founders - 3,210 - 9,095
~//~
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Sample Budget – Clinical Trial Phase II
~//~January February November December Total
Phase 2 program
License fee - - - 1,500,000
Research - - - -
CMC development - - 100,000 600,000
Preclinical development - - - 30,000
Clinical development - - 500,000 800,000
Regulatory development - - 5,000 85,000
Project management - - 10,000 60,000
Consultat - - - -
Consultant 11,195 - - 16,331
Consultant - - - 14,733
Consultant - - - 88,755
Other Consultants - - - 9,565
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Sample Budget – other examples
Total
Q3 Q4 2007KEY EQUIPMENT
Core chemistry apparatus -$ -$ -$
Core pharmacology apparatus (Laval CRULRG) -$ -$ -$
PROGRAM 1
Pharmacophore analysis of preleads -$ -$ -$
Lead optimization -$ -$ -$
Post-IND candidate declaration chemistry -$ -$ -$
HPLC methods -$ -$ -$
Process research for API -$ -$ -$
Formulation research for drug product -$ -$ -$
GMP production of API -$ -$ -$
GMP production of drug product -$ -$ -$
Genotoxicology -$ -$ -$
Pre-IND meeting -$ -$ -$
In vivo toxicology -$ -$ -$
Ancillary assays -$ -$ -$
Preparation of IND and CMC -$ -$ -$
Phase IA (SAD) study -$ -$ -$
GMP production of drug product (for phase II) -$ -$ -$
Post-study (biostatistical) analyses -$ -$ -$
In vivo GLP toxicology studies -$ -$ -$
Phase IB (MAD) study -$ -$ -$
Phase IIA study -$ -$ -$
TOTAL -$ -$ -$
ACTIVITY2007
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Sample Budget Roll-up example
Q3 Q4Rent & Research Contracts
Partner 1 -$ 5.8$
Partner 2 -$ 25.0$
Partner 3 10.0$ 15.0$
Partner 4 -$ 55.0$
Office Supplies & Equipment 25.0$ 2.0$
Insurance
Key man -$ 0.6$
Directors' and Officers' -$ 6.0$
Telephone / Internet 1.5$ 1.5$
Legal
Corporate 120.0$ 80.0$
Intellectual Property 10.0$ 5.0$
Advisors
Executive Chairman -$ -$
BOD -$ -$
SAB -$ -$
Others -$ 25.0$
Payments to Licensors 120.0$ -$
Accounting 3.0$ -$
Closing Costs
First Closing 58.0$ -$
Second Closing -$ -$
Meetings -$ 5.0$
Travel & Entertainment -$ 7.0$
Dues & Subscriptions 1.0$ 1.0$
Repairs & Maintenance 6.5$ 6.5$
Miscellaneous 2.5$ 2.5$
TOTAL 357.5$ 242.9$
ACTIVITY2007