Case Story: Financial forecasting model for a scientific invention
Traditionally, testing for Bird Flu meant qualified medics taking a swab then sending it to a lab. Days later, the results would come in. How much better could we cope with Bird Flu, or another dangerous infection, if we had a kit test that could be administered after minimal training and would produce fast results? This company was on the verge of building such a diagnostic kit and its charismatic Chairman vowed to take the business to the next level and beyond.
Exciting and innovative are over-used words but this was the real deal. The company was working on a way to take polymerase chain reaction — a technique widely used in molecular biology — out of the lab and well ...anywhere. But even the best ideas need help coming to fruition. They had to find the ways and means to move from research to production; engage with global pharmaceutical companies and private equity investors and ensure that the company had the right structure and financial systems in place.
The chairman knew of Peter Charles and invited them to provide a team to help with the business planning and long-term forecasting to create a business plan that would be both exciting enough to attract investors and practical enough to use to run the business. This was both an outward and inward looking project. The existing finance department was perfect for a small research company with few transactions: it was not set up for a multi-million pound, fast-growing enterprise with sophisticated management information needs.
The critical financial work — the burning platform — was the construction and re-construction of a business model. Often in business you hear about teams working together, this was a clear example of the Finance Function working constructively and closely with other disciplines. In any start-up, plans and assumptions change and change again. The Peter Charles Team worked with the scientists and the Board, translating scientific and business ideas into a set of numbers: models, forecasts and assumptions that could project realistically over the next five years. There were many ideas that were played with, examined and many were discarded.
Plans that seemed decided upon would rightly be changed radically or discarded altogether as more data and up-to-date information was analysed. And in the end, all that had to be tamed and reflected in financial forecasts that were credible and understandable to the potential investment community and complied with the requirements of other sources of funding, such as public money and government grants. These were important and came with a different perspective and too required accurate and timely reporting systems.
The final model was as complicated as the molecular biology the company was using, but the outcome was spectacular. A £100m turnover business with a global presence, regularly launching new products, interacting with corporations, governments, public health providers and other pharmaceutical companies as well as the business, finance, IT and HR structures that support such an organisation. At every stage in the model there was built-in complexity and different possible pathways: different ways revenue could be realised; a choice of selling channels; competing visions around the required production and associated costs: manufacturing locations that might shift in time from one jurisdiction to another.
The model that was produced worked and worked well. It was robust enough to deal with change and sensitive enough to produce intelligent answers. More than two years on, the company is still growing, working with major pharmaceutical companies and others, and is on course to be a significant force in healthcare across the globe. The financial and forecasting model still remains in daily use. Scientific know-how, combined with financial and management expertise took an interesting experiment and created an impressive industrial chain reaction.
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