Effectively Managing Development Contracts and Costs for Virtual Drug Development Companies – Part 2

17th September 2015 (Last Updated August 3rd, 2018 08:31)

In this second installment on Managing Development Contracts and Costs, Carrie Nodgaard Helland of CytRx Corporation explores some best practices for companies to control cost when working with partners

Effectively Managing Development Contracts and Costs for Virtual Drug Development Companies – Part 2

In Part 1 of her article, Carrie Nodgaard Helland, Vice President, Project Manufacturing at CytRx discussed the key factors effecting contract development from a virtual company perspective. Find out more here. In the second installment Carrie explores some best practices for companies to control cost when working with partners.

Controlling Costs with Your Partners

1. Be strategic with contract payment structure. It is important to minimize upfront costs and use a unitized/milestone based payment structure in vendor contracts. Other approaches to a strategic payment structure include Risk-Sharing Agreements, performance incentive/penalty clauses, fixed fee site contracts and a startup fee deposit. I have successfully utilized all of these approaches during my career, and provide a description of each below.

  • Risk-sharing agreements: This approach was utilized with a CRO that solicited our business for a specific country for a clinical study. We believed the Regulatory pathway was risky due to long review cycles and slow turnaround with questions related to the submission. This CRO prepared our submission at no cost to us, and we agreed to pay their fees plus a bonus if the study was approved within a contractually defined amount of time. If approval was not obtained by a specific time, we paid nothing. The CRO successfully obtained approval within the given timeframe and was compensated per the contract terms.
  • Performance incentive/penalty clauses: As a sponsor, be prepared to reward your vendors for beating performance milestones. However, if a vendor has committed contractually to specific milestones, such as enrollment numbers, and they are not met, penalties (such as a discount to project fees) can also be incorporated into the contract. In my experience, I have yet to have an incentive clause that has not been met by a vendor. This is good for the sponsor, because the sooner the project is completed; the sooner the data is available, which if positive, drives company valuation. Additionally, total costs are typically reduced with shorter project duration, even when including the incentive payment.
  • Fixed fee site contracts: This approach offers a fixed price per patient for the duration of the study and can be useful if the sponsor has a close relationship with an Investigator. This is especially effective with smaller studies. Investigators want to be published and want experience with the study drug, and sponsors want data as cheap as they can get it -- it's a win for both sides.
  • Start-up fee deposit: Startup fee deposits can be negotiated as part of the site contract. A percentage of the startup fee is paid initially, and the remaining balance is paid when the first patient is enrolled. Again, this creates an incentive for the site to screen and enroll a patient and gives the sponsor control of cash flow.

2. Accountability on all sides. Executing a project, especially a clinical study, requires that both parties be engaged. Sponsors cannot expect to sit back and let the vendor do the work; it needs to be closely managed. Vendors need to perform as promised in the contract and the sponsor needs to raise dissatisfaction or concerns as they arise. VDDCs must truly partner with their vendors and not approach the relationship as adversarial. The sponsor needs to help the vendor succeed, because then everyone wins. However, if performance metrics are missed, there should be penalties in place. Sponsors also must be prepared to fire vendors and move on if performance metrics are routinely missed.

3. Partner with CRO/vendors on cash flow forecasting models and reconciliations. VDDCs need to monitor their accruals and cash flow closely. This is particularly important for high-value contracts, where the timing of payments is important. There is no single approach for accruing clinical trial costs.3 However, it is important for the sponsor to work closely with the vendor to understand the timing of activities and the current enrollment rates that impact cash flow. These should be reviewed on an ongoing basis.

4. Leverage existing relationships and explore new partnerships. Sponsors should work with vendors, investigators and consultants that they know and trust. Vendors and individuals who have previously worked with the sponsor tend to be more lenient with contract terms and payment structure. Yet, it is just as important to leverage existing relationships as it is to establish new ones. Exploring new partnerships opens the sponsor up to incentive discounts for working with a new vendor. Additionally, the sponsor can compare pricing to ensure they are receiving competitive rates.

VDDCs must be strategic with contract terms impacting cash flow in order to get the most development work using the cash in hand. By partnering with trusted vendors, investigators and consultants who extend flexibility with their contract payment structure, VDDCs can maximize each dollar spent on development work.

Carrie Nodgaard Helland is the Vice President of Project Management & Manufacturing at CytRx Corporation; a Los Angeles based Virtual Drug Development Company specializing in oncology.

References

1. Chan, Christopher. "Financial Accruals for Clinical Trials-A Primer," Journal of Clinical Research Best Practices, Vol. 9, No. 9, September 2013.