Tech Challenges in the Phases of Life Sciences Organizations: the IPO Phase

After the startup phase, a life sciences organization typically begins the transition towards the IPO phase. In an ideal world, the company is already using an established ERP like NetSuite. If not, it is time to begin thinking about it!  At this point, the organization is raising additional funding, but ultimately, the finance team is going to drive a culture shift to act and operate like a public company. This shift should begin anywhere between 12-24 months pre-IPO.  

One crucial aspect for companies in the IPO process is a grace period. This grace period provides a buffer, allowing you to time implement systems that will support the new requirements of a public company. It’s a strategic move that ensures a smoother transition.  

Life Sciences IPO Phase Preparations

The biggest shifts we are seeing at this stage of the organization are the size and structure. What is the makeup of the team now that they are moving into the IPO phase? The organization is growing, but the finance team is still lean. Annual expenditures are growing upwards, and transaction volume is significantly increasing. The organization is no longer only purchasing products and lab supplies, but also purchasing outsourced services and service contract agreements. 

It’s important to consider whether your management structure effectively supports your approval matrix. Often, there’s a discrepancy between the excel-based approval matrix used during the start-up phase and the actual approval processes or a logical representation of how they should function. As the finance team begins to emphasize the segregation of duties, it’s crucial to ensure the deployment of these duties aligns with the approval matrix.  

We are also witnessing a transformation in roles. NetSuite and similar platforms support diverse user types. This evolution prompts us to explore the introduction of users who, while they may not handle financial or backend tasks, will be heavily involved in approval processes, purchasing, document review, and reporting. Hence, managing permission levels effectively becomes paramount at this juncture. 

IPO Audit Pressures 

As you embark on or near the completion of implementing your ERP system, one immediate audit concern is ensuring the accurate migration to the new system. The go-live timing—whether it’s the start of a fiscal year or month—is less critical than achieving a seamless transition from your current system. This involves halting transactions on platforms like QuickBooks, deactivating users, and migrating all data into NetSuite or your chosen ERP system. Once all new transactions occur exclusively in the new system, you can demonstrate to your auditors, a successful transition from the old system to the new one. 

Moving forward, attention shifts to system controls, compliance, and change management beyond the initial go-live phase. This phase necessitates collaboration with third-party experts to establish and test system controls effectively. It also involves developing robust change management processes that evolve alongside your organization’s growth. These processes are crucial to ensure that modifications, such as changes to purchase approval workflows, maintain proper approval authority throughout the system. 

Also at this point, IT typically begins to get involved with your ERP from a system administration standpoint. 

IPO Speed to Value 

We have found that it is beneficial to separate the implementation of an ERP system from the development and configuration of all elements related to controls and compliance. Many organizations try to tackle both tasks simultaneously, often resulting in delays, project frustration, and resistance to adopting the new ERP system. 

A more effective approach is to set a grace period, especially when an IPO is planned or approaching. This period is ideal for fully designing and documenting controls before integrating them into the system.  

Our ideal scenario involves a phased approach: first, establish a robust ERP system, such as NetSuite, and focus on user adoption. Once the system is in place and users are comfortable with it, gradually layer in the controls after they are fully defined. This ensures a smooth transition and effective system adoption of the controls. 

This approach helps organizations manage the IPO process while allowing users to continue with their regular responsibilities and transactions, minimizing disruptions and external pressures. It’s a strategic move that ensures a smoother transition, significantly reduces stress and uncertainty, making the process more manageable and less overwhelming. 

IPO Controls vs. Flexibility 

Implementing IPO controls is easier when accounting and finance teams are larger. For example, a life sciences organization with a 20-person finance team can easily assign different groups to manage vendors, bills, and payments separately. However, most organizations have smaller finance teams, which highlights the need for an ERP system that supports scalability and segregates duties as the organization grows. 

Not all transactions are straightforward. Beyond simple tasks like buying lab supplies and paying for them, changes in transactions are inevitable. You might need to issue change orders, or vendors might change their addresses or bank accounts. These changes often involve multiple roles and users, making the process cross-departmental and requiring numerous approvals. For example, a scientist might initiate a change process for a purchase order, necessitating clear rules about who owns transactions and manages approvals. 

It’s crucial to keep controls and approvals simple and scalable. Overly complex controls can slow down closing the books at the end of the month and make audits more cumbersome. The approval process should be efficient, minimizing the need for extensive maintenance and explanation during audits. 

Moreover, an ERP system should provide robust reporting capabilities that are out of the box. With so much to manage in defining and explaining controls, building a reporting system from scratch should not be an added burden. 

Implementing a System Administrator 

It’s important to consider who will maintain your key business systems. At Sikich, we strongly recommend that your system administrator be a direct employee of your organization. If you do not have the bandwidth for that, we offer an exclusive Managed Service Plan for Life Science clients called, SAL: System Administrator for Life Sciences. You can read more about that here.

Following the IPO phase, life science organizations typically enter the clinical trials phase, which we will cover in our next post. If you have any questions or need support during the life sciences IPO phase, please feel free to reach out to us at any time!