Greetings, and I'd like to thank the American Academy of Dermatology for inviting me to do this presentation regarding improving efficiency of a clinical research unit. So it's very important in your life, in your relationships, and certainly in your career, is how do you define success? I want to be the leading expert in X. I want to be the most profitable site in the X city, state, United States, world, universe, galaxy. I want to become a tenured professor at X. I want to make enough money to enjoy my life and being able to retire at a reasonable age. I want to start a string of sites in the X city, state, United States, et cetera. I want to have the most valuable site possible, no matter where it is. That equals efficiency, and it can lead to all of the above. So business 101, as we all know, we get very little business skills preparation in medical school and in residency, but here's the basics. Revenues greater than expenses in a given time period equals good, almost all the time. Expenses less than revenues equals bad, but okay, as long as there's a trend going toward revenues exceeding expenses in a time period. Expenses equaling revenue equals okay, temporarily. It's okay to break even, especially, but again, you want to make sure that you have a trend going to where revenues will eventually exceed expenses. So expenses with respect to clinical research, there are your expenses, and when I mean your, it means your personal sites or the site that you're a partner with. Those are your expenses versus pass-through. Pass-through expenses are paid for by a sponsor. For this purposes, it would be a pharmaceutical company like Pfizer, AbbVie, or maybe small biotechs that are the sponsors for the clinical trial. So expenses, and these are not exhaustive ever. There's always more expenses, no matter what you do. It's kind of like building a home or remodeling a home, labor. This is most costly, especially if there are employed physicians as investigators. If you are a single physician where you are the investigator, then you're either the best-paid employee or the worst-paid employee, depending on the structure of your site. Rent, even if you own your building, paying rent is advantageous for tax purposes and for the future valuation of your research site. Insurances, workers' comp, employees' liability insurance, which is EPLI, unemployment, yes, you have to pay for this, legal, inevitable, EPLI insurance deductibles are usually $25,000 of a minimum, therefore you're responsible for the rest. So you want to make sure you have good EPLI insurance. Medical supplies, non-disposables like refrigerators and SAM tables, et cetera, and disposables such as bandages, syringes. Many disposable medical supplies are pass-through expenses in the clinical research world. Medical supplies, computers, servers, et cetera, essentially it's like setting up a medical practice, except instead of practicing traditional medicine, you are going to be practicing clinical research. So let's talk about some more about expenses, true versus the pass-through. So pass-through expenses, in plain English, it's expenses that are invoicable or the responsibility of another party. You get reimbursed by the sponsor, i.e. the pharmaceutical company, for the expenses. They're net zero on your books. Pass-through expenses requires excellent bookkeeping, bordering on obsessive-compulsive behavior. You must keep track of these because you must remit the expense and invoice the sponsor, or you will not get repaid. Marketing, advertising, subject-related expenses, transportation, meals, stipends that goes directly to the subject that has volunteered for the study, medical equipment, especially specialized medical equipment such as cameras, ultrasounds, various lights. Disposables are invoicable, such as syringes, bandages, et cetera. Effective bookkeeping is key for pass-through expenses. Revenues, well, these are your payments from sponsors. There are one-time revenue items, and there are recurring revenue items. One-time revenue items cover startup activities. It's a fixed number, such as regulatory activities, staff trainings, investigator meeting attendance. It's not an actual startup cost. All travels and expenses are paid directly by the sponsor, and it never is actually something that you accrue. However, you may pay for some incidentals during the investigator meetings, such as a meal at the airport, or if you're delayed and you have to spend some more time at the airport for maybe for other types of expenditures, that can be a pass-through expense and will be remitted and repaid by the sponsor. Recurring revenue. Dermatology trials, unlike other trials, and I'll give some examples, a vaccine trial or perhaps an acute postoperative pain trial, dermatology trials are many multi-visit trials. Sometimes they even take up to years. Sites are paid per visit, so each visit incurs an expense to the sponsor, and it's invoicable by the site to the sponsor to get paid. Something similar to practicing traditional medicine, a sponsor is like an insurance company or Medicare. You do a visit, you do a procedure, and then you invoice and you get paid for that procedure by the sponsor. In our business, our biggest procedure is a visit by a subject in one of our trials. Holdback. This is something that if you only do traditional medicine, you may not understand this concept. However, it's very, very simple. Historically, sponsors and CROs, contract research organizations, they will hold back five to 10% of all promised contracted revenue. This is held back until all trial-related issues are closed after a trial is closed. The trend is for less holdback, and some sponsors are eliminating the holdback altogether. So please negotiate this when you are negotiating your contract with a sponsor. Scheduling. Historically, payments were quarterly, meaning that if you did a visit today, you may get paid in 90 days. And you actually might not even get paid in 90 days, you may not get paid until 90 days from when you actually send the invoice. So it could be, depending on how often you invoice at your site, you might not get paid until 90 days plus whatever your invoicing person sends in and how often and how long it takes them to send it in. However, now most sites are able to get monthly payments. Push back hard when presented with quarterly payment arraignments. You'll probably win. Efficiency objectives. Reduce expenses. There are doctors, there are business people, there are non-doctors, of course, that are in business for themselves that have different philosophies. They want to go after all the revenue or they want to reduce every expense and count every paper clip. So Seth's philosophy, and this is only one philosophy, drive revenues high enough with expenses in the back of your mind throughout and then look back. Put this in bold, don't be cheap with equipment that is not a pass-through expense. Buy it new, you only have to buy it one time. Get the maintenance plan. It reduces repair costs. Reduce cost of not having it functional, whatever it is. You pay for it one way or another so at least you're able to enjoy and utilize it as needed. And by the way, the people that hired you to do this clinical trial, Eli Lilly, AbbVie, Novartis, any other type of company, they need you to complete this trial as soon as possible so they get their data, so they can make a decision on the compound that you have been hired to test. You want them to hire you again. So you must be reliable. Another bold point, don't be cheap with labor. Whether you've been in practice for a while and you know who your key people are in your medical practice who make sure everything happens the right way and often, those are the same type of people that you need in your clinical research site. Bonus them. Do not use convoluted bonus formulas in order to bonus them. Here are Seth's keys to an incentive plan. It has to be meaningful. Does it improve the quality of their life when it is received and earned? Do they imagine using the possible bonus for something meaningful for them in the future? A vacation, a toy for their kids, another streaming that they can buy and be able to enjoy some television shows. Whatever it is, whatever you are paying them to earn that you are trying to drive them to earn has to be meaningful for them. Understandable. And this goes back to a point I made just a minute ago. Be able to communicate the bonus formula in one sentence with hard numbers. Write it down for them. Write it down. Keep a scoreboard. Reachable. An unreachable goal is a deterrent. Deterring employees from reaching a goal will kill any business, not just a clinical research business. Timely. The lower the pay grade, the more frequent and reachable the bonus should be. Very easy. So if you have a doctor working for you, they usually get bonused once a year. That's fine for a physician. They should be a six-figure employee. And if you bonus them at the end of the year, that's fine. However, that's not fine for someone who makes $20 an hour. Perhaps you should make it monthly, quarterly. I wouldn't make it more than quarterly. And it should be very simplified. And most importantly, when you do a bonus formula, when someone reaches their bonus, it should be a celebration for everybody. Because they get paid more money. And if you've constructed the bonus formula properly, you have made more money. And you've kept your sponsors happy. The people that have hired you to do these trials. Remember, these contracts are very limited. They're one-offs. You get to do this trial for psoriasis, you do it for a year or two, and then they might have a trial for eczema. If you don't do it well, if you give them bad data, and they're checking on you, by the way. If you haven't done it efficiently, what good on your commitment saying you'd have 10 subjects for them and you only got 5. They keep track of this and they may not use you again. That's also death to a clinical research site. So also, how to increase revenue in negotiation of contracts. It's a one-time process that rewards you every time a subject enters the building. If you have negotiated well, you are rewarded every time the button gets pushed. Every time the turnstile goes. Every time the front door opens at your clinical research site, you keep on winning because of that one win when you're negotiating. And when you get experience, you will eventually discontinue working with certain sponsors, i.e. drug companies, due to poor CTAs, which are clinical trial agreements or contracts. And you'd be surprised. Some of the major pharmaceutical companies offer very poor clinical research contracts. And you'll find that some of these small biotechs that only have one compound or two compounds actually have very lucrative clinical research contracts. Add a line item for everything. Updated informed consent forms. That only happens every time it seems that there's a new consent form. You have to re-consent your subjects. They have to spend time in your building. They have to re-read it. It has to be supervised. It has to be re-signed by you or someone on your staff. This takes time. Extended or impromptu monitor visits. We understand that they do have to come and monitor us when we do clinical research trials. But if they're extended, if they're impromptu, they need to pay for it. Sponsor audit preparation times. That takes a long time if you're going to have a sponsor audit. FDA audit preparation time. Remote monitoring visit assistance. Of course, everyone in the world is trying to do everything remote these days. However, fortunately, a lot of large companies are now against that. But if you have a remote monitor, that means there's somebody calling one of your employees and every moment they're requesting something new. But if they were on site, they could request everything one time and it could be delivered to their desk. This is a cost to you, so it should be a cost to them. Lab redraws. If something's hemolyzed and you have to redraw a lab, that's necessary for the conduct of this trial. You need to get paid for that. That's their mistake, not yours. Question. Do I have the most valuable site possible? Is my site the best that it can be, whether it's a small site, a big site? We have five sites that are around a region. If I have 20 sites around the country, do I have the most valuable entity asset possible? So for a single investigator owner site, which is what I had for many years, you should pay taxes on 50 to 60% of revenue if you are the investigator. Example. If you generate $1 million in revenue, you should profit $500,000 to $600,000. Now there's also the model that if you own a site and you pretend you're an employee investigator and subtract that from the profit, your profit should be about 35%. Example. Your site generates $1 million. You should profit $350,000 as an owner, in parentheses, investor, because investors do own lots of sites these days. So in that scenario, if you do a little bit of math, your doctor, your employed principal investigator creates somewhere between $150,000 to $250,000 for working for you in that time period. So those are some basics. But there's also some advanced concepts. There are variations on basic concepts, and that's pretty much how life is, just like in any other type of industry. Diversification. You may get a time where you are saturated with dermatology trials, or the pipeline may be saturated and there won't be available subjects to be in the trials. Both are bad, because what it means is you can't enroll subjects. If you get to where you're at a point in time where you can't enroll dermatology trials, either because you can't get the trials, or you can get the trials, but you can't find the subjects, both are bad. So the way that you can rectify that at your site is to diversify. Rheumatology, allergy and immunology. These are some in the medical Venn diagrams. We share a lot of the same medications with rheumatology and allergy and immunology. So there's a chance that they may give you an opportunity in some of those therapeutic areas. Recruitment of non-physician professionals. Having a chief operating officer, chief financial officer. This will legitimize the site's operations and finances. You can't do everything on your own. I've tried. It doesn't work. And you also won't get any sleep, and you'll have unbelievable amounts of stress at almost every moment of your life until you rectify it yourself. You likely will need to provide earned equity, another well-designed incentive. What you can do for some of these higher ranking personnel in your site or at your site is to say, listen, we have a valuable asset. I'm going to give you a share of the profits annually, or a share of the value of the business. Or if you do have a liquidity event, a transaction, you get acquired, i.e. someone pays you a lot of money for your site, then you can say to your chief operating officer or your CFO, you get a percentage of the sale. EBITDA. This is a term I didn't know up until about 2019. Earnings before interest taxes, depreciation, amortization. It is the bellwether of business. It's a rough estimate of profit. It's how your site slash company, by the way, any other company or business in the United States is valued. If you are good at something, whatever it is, whether you're good at selling lawnmowers, you're good at pest control, you're good at roofing, you have a lot of valuable car washes, someone will want to buy you and buy your projected profits for the next few years. If you get into the situation where someone does want to purchase you, you're going to need a whole set of professional advisors. Again, like what I said about four or five slides ago or seven or eight slides ago, and it's also what I say every day in my own businesses, don't be cheap. You'll lose in the end. You won't get the value that you deserve. Choose the best. Get opinions from friends of yours or people who have done this before. Advisors, attorneys, accountants, and remember that if it's too good to be true, if someone says they can do something for far less than what, say, a more reputable firm or consulting firm can do it for, there's a reason for that. You're not going to get the same value. Don't complain to your advisors. They won't give you the best performance that you deserve. It's pretty common sense. They'll try their best for everybody, but they may not like you as much. Let's be honest. We have patients that complain all the time about nothing that irritates us, and we try our best for them. We really, really do. But do they get our best? I hope they do. I hope my patients do, even if they're the type that complain all the time. But they don't get the same type of attention, and you won't get the same type of attention. And you also won't get far down the line after the transaction. You may get people that you may advise in the future, and those referrals will not come in if you're difficult to deal with. Pay them on time. You like to get paid on time. You want to get paid every 30 days because you're going to renegotiate your clinical trial agreement to where you get paid every 30 days instead of every 90 days. Well, guess what? Your attorney, your accountant, your M&A advisors, they should get paid on time as well. These are all investments that will pay off in time. Thank you very much. It's been a pleasure, and I hope this helps any of you that are trying to start or continue or grow their clinical trial practice.

clinical research efficiency

revenue and expenses

pass-through expenses

contract negotiation

diversification

EBITDA