Greg Seminack got a call from a friend who distributed drugs to clinical sites. He was deep in the finance world at the time. Seminack’s buddy mentioned that many of the sites he visited were in dire straits financially. Yes, they had contracted with some of the largest, most profitable companies in the world to conduct clinical research. But no, they were not being being paid promptly—often more than four months after services were performed. And some sites were tremendously distressed.

Unfortunately for sites that needed temporary financial relief, few banks understood trials and sites well enough to be comfortable loaning them money, said Seminack. And so he and his pal hit upon an idea: Why not start a business offering bridge financing to clinical sites struggling to make it to the next big payment from their sponsor?

$51 Million Later

That was in 2001. Flash forward six years: Clinical Financial Services, the company the men launched with two others, has since provided $51 million worth of bridge financing by buying the accounts recievable of 48 different clinical sites working for 100 different sponsors and contract research organizations (CROs). 

Initially the company, based outside Philadelphia, focused on stressed-out individual principal investigators (PIs), but then worked its way up to site maintenance organizations (SMOs) and dedicated research sites that were pulling their hair out.

140 Days of Nail Biting

The loans have ranged from $25,000 on the low side to $1.5 million on the high side, said Seminack. Average loan? Just north of $100,000. And the sites often need to keep that dough for about 140 days, as that’s the average number of days of sales outstanding, said Seminack. Translation: that’s how long most sponsors are taking to pay.

For sites, he said, “It’s hard to run a business and grow a business under those conditions.” 

‘A Broken System’

Why do sponsors take so long to fork over the money? In Seminack’s opinion, it’s part of a broken payment system, filled with triggers that can put the sites behind the 8-ball. For instance, he said, payments to sites are often set up to be sent out quarterly. The checks are also tied to a monitor’s visit to the site. So if a monitor has to cancel a visit, that can set the site’s payment back six months.

“Part of it is also big pharma being slow to move, and then CROs are involved, making it worse,” Seminack said. “The money has to go from pharma to the CRO to the site.” Also, sometimes the site itself is disorganized in dealing with queries and adverse events, which can frustrate sponsors and delay payment.

No Improvement

Ominously, Seminack observes that things haven’t been getting any better for sites since he got into the field. Just as many stressed principal investigators are reaching out to the company for help.

“This issue is out there and it hasn’t been resolved,” he said. “There’s been no improvement in the last five years.” That’s been good for his business, which charges an interest rate of 1.5 percent per month.

Accounts What?

One major problem Seminack found when he and his colleagues dug in on various sites’ accounting was in the area of accounts receivable. Namely, there weren’t any. With no financial background, most clinical sites weren’t setting up an accounts-receivable system to keep a close check on money that was due in from sponsors, nor were they invoicing sponsors. They were just performing the trials and waiting for the money, sweating when it didn’t come.

Seminack saw another opportunity there, expanding Clinical Financial to include counseling for sites, helping them master accounting controls, costing and cash management before agreeing to take on a clinical trial. And they worked with sites on the art of negotiation, guiding them to, for example, require that sponsors pay the bridge loans fees if late payments make such measures necessary.

Are there risks for Clinical Financial? Sure. Seminack says the company had a couple of clients close down, leaving them unpaid by the sponsor as the studies were not closed out properly. In a few other cases, sites misrepresented themselves, saying they were performing work that they were not.  Said Seminack: “This side of the business is not for the faint of heart, but ... it does not happen frequently and the company is adequately reserved when it does happen.”

Hidden Riches

Clinical Financial has been providing counseling services to its usual clients—individual investigators, SMOs and dedicated research sites—but more recently added academic medical centers. During a recent audit of a major university he declined to name, Seminack and his team found more than $1 million due to the center from sponsors. It had gone uncollected and unnoticed over the course of studies performed during a two-year period. The university had no record keeping in place to even realize the money was due to them, he said. “No one was following up with accounts receivable because there was no accounts receivable.”

Last year, Clinical Financial launched a third business line: jumping the fence to work with sponsors in coming up better contracts to use with sites. “Knowing this playing field helps CFS deliver services that are beneficial to both parties,” said Seminack.

“On the pharma side, they handle very large contracts very well, but when you get down to single-investigator contracts, $50,000 or less, it gets pretty complicated, and they really don’t do a good job of it,” he said. So far, Clinical Financial has three top-tier pharma companies as clients, Seminack said.

More Sophistication

Meantime, he said, the good news is that clinical sites seem to be getting a bit more sophisticated, learning that they’d better closely scrutinize a contract with a sponsor to understand the true cost of doing business before signing on for a trial.

The days of sites saying, “ ‘Hey, I have a Pfizer study here and I’m going to do it,’ without looking at the details, thinking of the bottom line and realizing what the related costs are,” appear to be slowly fading, said Seminack.

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