Developing & Negotiating a Study Budget

Over the course of more than 20 years in clinical research, I’ve sat in on more study budget development and negotiations meetings than I can count. What I’ve learned from those many thousands of hours of discussion is, whether you’re working with a global pharma company or a biotech start-up, the ultimate success of a negotiation really comes down to the basics – budgeting for all contingencies and negotiating clear terms so that both sides of the table walk away happy.

According to the most recent report issued by the U.S. Department of Health and Human Services, the average of a Phase III clinical trial is $20 million. Phase II trials are comparatively less expensive, averaging around $13 million, while the average cost of a Phase I trial is $4 million.[1]

As a sponsor, how are your clinical trial teams performing against these benchmarks? And, are you budgeting accurately for your studies? I’ve put together some tips to help you keep your budgeting on track.

A clinical trial budget maps out the projected costs associated with conducting a study, including both direct and indirect costs. Budgets generally include an estimated per-subject cost, as well as the total cost for completing the study. Here are the three main steps involved in developing and negotiating a clinical trial budget:

  1. Preparation – Perform an internal cost analysis by evaluating your study specifications and determining expected enrollment. Here are some questions to ask yourself as you prepare:
    • What are your organizational and strategic priorities? While cost is always a concern, there may be cases when budget takes a back seat to expediency, performance or some other study-related factor.
    • How far along are you in your planning? The more well-defined your clinical trial synopsis and protocol are, the fewer assumptions will be required and the easier it will be to compare the budgets you receive from potential CRO partners.
    • Which study tasks are you expecting to outsource? Knowing what will need to be outsourced makes it easier to set budget parameters.
    • Do you already have a CRO in mind? If you are already working with a preferred vendor, do they have the capabilities required, or do you need a niche provider? As you do your due diligence on potential CRO partners, make sure to research beyond organizational experience to the experience of core study team members. Things to look for include expertise in the therapeutic area and disease indication, a track record of working with regulatory agencies around the world and experience dealing with sites that have never participated in industry-sponsored research, all of which can contribute to cost-effectiveness.
  2. Budget Development – In anticipation of receiving budget estimates from potential CRO partners, it is a good idea to develop your own frame of reference for what the study budget might be. If you are still in the early stages of study planning, you may need to make assumptions – such as, the number of patients, sites, and countries required – to come up with a ballpark estimate. Going through this exercise will also help you evaluate each potential CRO partner’s thought process and the strategies they bring to the table.During this step, keep in mind that the service mix for each clinical trial is unique and the percentage of time spent by different members of the study team will fluctuate over the course of a clinical trial. For example, the project manager’s efforts will be more intensive at study start-up and close-out than during study maintenance. In addition, consider the high turnover of clinical trial staff across the industry and the need to account for training new study team members over the course of a study. Resourcing is directly related to cost, and CROs – like Premier Research – that have standard, proven processes and procedures for transitioning exiting staff and on-boarding new staff can make this aspect of clinical trial management more cost-effective.

    It is also important to account for hidden costs – services/items not listed in the protocol, such as institutional review board (IRB) review fees, advertising for recruitment, document archive and storage fees, close-out costs, inspections, audits, etc. For multi-year trials, consider adding an inflation rate of 3% to the per-subject costs. For global trials, consider adding a clause on foreign exchange rates, which can fluctuate widely and significantly impact the budget.

  3. Budget Negotiation – The final step of budgeting is negotiating payment terms and drafting a clinical trial agreement (CTA).  Remember that nearly every study triggers a sponsor-initiated change order, so it may be a good idea to proactively define a process for managing and pricing change orders in the CTA or Master Service Agreement (MSA). It may also be wise to fix the rate card to the MSA, as this provides predictability of rates for both you and the CRO for three years.Regarding payment structure, an initial payment is typically due upon full execution of the CTA. You should note that initial/start-up costs are typically non-refundable, regardless of whether or not the trial enrolls any subjects.

    During the course of the clinical trial, criteria or time points for payment are usually based on achieving milestones. Since patient enrollment may be the single most important factor for ensuring timely execution of a clinical trial, opportunity-sharing agreements with bonuses tied to enrollment support activities such as site activations are becoming increasingly common as incentive to keeping projects on or ahead of schedule. Payments may also be tied to key milestones such as database lock and delivery of top line results.

    In general, your pricing and payment model should maximize accurate budgeting, simplified invoicing and predictability in costs. A successful negotiation can provide risk and reward sharing, while underpinning a genuine commitment to the success of both companies.

As you develop and negotiate budget structure and terms, keep in mind that transparency and collaborative problem-solving that balances the CRO’s commitment and ability to execute with your goals, issues and priorities are the key to win-win negotiations.

[1] Assistant Secretary of Planning and Education. U.S. Department of Health and Human Services. Examination of Clinical Trial Costs and Barriers for Drug Development. Washington, DC, July 25, 2014.