Managing FX in multi-country biotech trial accruals: accounting, hedging, runway protection

Managing FX in Multi-Country Clinical Trials: A Biotech's Guide

Your first multi-country clinical trial is a major milestone. Then the first invoice arrives from your European CRO, denominated in euros. You book it in your P&L at the current exchange rate, but by the time you pay it, the cash leaving your USD bank account is thousands of dollars more than you budgeted. This isn't a rounding error; it’s a direct hit to your runway. For US-based biotech startups managing international trial expenses, currency risk in clinical trial budgeting isn't a theoretical problem. It's a recurring operational challenge that directly impacts cash burn and financial predictability.

Why Currency Risk in Clinical Trial Budgeting Is a Board-Level Issue

Why does this suddenly become a critical issue for a growing biotech? The problem stems from two unavoidable realities in international trial expense management. First, foreign exchange rates are volatile. Second, a time gap always exists between when an expense is incurred and recorded (accrued) and when you actually pay the invoice. This gap is typically 30 to 60 days, and in that window, currency fluctuations can create significant financial discrepancies.

Unmanaged FX swings can easily create 5-10% variances in a trial budget. When research and development is your largest expense category, this variance translates into a substantial and unpredictable cash drain. This creates what accountants call a realized foreign exchange loss. It’s not just an accounting entry; it's real cash that has left your business, permanently reducing your available capital.

Consider this tangible example. Your CRO in Germany hits a key milestone, and you accrue a €100,000 expense at month-end. The EUR/USD exchange rate is 1.08, so you book a $108,000 liability in your accounting system. Forty-five days later, when you wire the funds, the rate has moved to 1.12. The cash required to settle that same €100,000 invoice is now $112,000. That $4,000 difference is a realized FX loss that directly reduces your cash runway.

The practical consequence tends to be that budget-to-actual reports become unreliable, making it difficult to forecast cash needs accurately. This financial uncertainty is precisely why FX risk management becomes a board-level concern as soon as a company's foreign currency spend exceeds 10-15% of its total monthly burn.

Part 1: Establishing an Audit-Ready Accrual Process

Before you can effectively manage the currency fluctuation impact on biotech costs, you must account for them correctly. A disciplined process ensures your financial statements are accurate, consistent, and can withstand auditor scrutiny. The key is to create and follow a simple, formal FX Accounting Policy.

For a US-based, US GAAP compliant company, this policy needs only two core components: your Rate Source and your Timing methodology. Establishing these elements removes ambiguity and ensures consistency month after month.

Define Your Rate Source and Timing

First, your policy must name a single, consistent, and defensible Rate Source. Commonly used reputable sources include OANDA, Bloomberg, and central banks like the European Central Bank or the Federal Reserve. For operational simplicity and cost-effectiveness, OANDA is often sufficient for early-stage companies.

Second, you must define your Timing for applying this rate. The standard and best practice is to use the exchange rate from the last day of the month for all accruals related to that month. This approach ensures all expenses from a given period are translated to your home currency at the same point in time, simplifying reconciliation and reporting.

Implementing a Clean Tracking System

In practice, we see that US-based startups can manage this process effectively with their existing tools: QuickBooks and a spreadsheet. Your QuickBooks should be set to your home currency, which for a US biotech is USD.

To properly track foreign expenses, use a simple ‘Two-Column Ledger Trick’ in a spreadsheet to support your journal entries. This spreadsheet acts as a sub-ledger, holding all the detail on your foreign currency payables. It should track key data points for each invoice, including the original value in the foreign currency and the converted USD value based on your month-end rate source.

At the end of each month, you make one consolidated journal entry in QuickBooks. You debit your R&D expenses and credit your accounts payable based on the total USD value calculated in your spreadsheet. When you later pay the €100,000 invoice for $112,000, the original $108,000 liability is cleared from accounts payable, and the $4,000 difference is booked to a ‘Realized FX Gain/Loss’ account. This creates an audit-ready trail and keeps your primary ledger clean and uncluttered.

Part 2: Proactive Hedging Strategies for Trial Budgets

With clean accounting in place, you can shift from simply reporting on past losses to proactively managing future risk. This is not about speculating on currency markets; it's about buying certainty for your budget. For early-stage biotech, two simple hedging strategies for trial budgets cover most scenarios: opening multi-currency bank accounts and using forward contracts.

The key is understanding the appropriate use case for each tool. The primary distinction is whether you are managing a stream of smaller, recurring payments or a single, large, and predictable expense.

Strategy 1: Multi-Currency Bank Accounts for Recurring Payments

For recurring payments, such as monthly site management fees or lab services across Europe, a multi-currency bank account is highly effective. What founders find actually works is opening a EUR-denominated account once their European spend becomes consistent and predictable. We generally see multi-currency bank accounts become beneficial when recurring monthly spend exceeds €25,000 to €50,000 in a single foreign currency.

With this account, you can convert a larger sum of USD to EUR when the rate is favorable, hold the euros in your EUR account, and then pay all your euro-denominated invoices directly from it. This approach neutralizes FX volatility on each individual transaction and greatly simplifies the logistics of managing cross-border payments in biotech.

Strategy 2: Forward Contracts for Large, Predictable Milestones

For large, singular, and predictable payments, forward contracts are the right tool. A scenario we repeatedly see is a biotech approaching a significant clinical milestone that triggers a large, one-time payment to a CRO. Forward contracts are a critical tool when a single, predictable payment exceeds $250,000.

For example, you know a €500,000 milestone payment is due in 90 days. Instead of waiting and hoping the EUR/USD rate remains stable, you can execute a forward contract today with a bank or an FX broker. This contract locks in a specific exchange rate for converting USD to EUR on a future date. If the agreed-upon rate is 1.10, you have guaranteed that your cash outflow in 90 days will be exactly $550,000, regardless of where the market rate moves. The budget variance from FX for that payment is now zero. This provides absolute certainty for a major cash outflow.

Your Four-Step Plan to Control Foreign Exchange Risk

Managing foreign exchange risk in clinical trials does not require a large finance team or complex software. It requires a pragmatic, tiered approach that aligns with your company’s stage and the scale of its international operations. For US-based biotech startups, the path to controlling currency risk can be broken down into four clear steps.

1. Assess Your Exposure. The first step is to quantify your risk. Calculate your total monthly spend in all foreign currencies and compare it to your total monthly cash burn. If your foreign spend is consistently approaching or exceeding the 10-15% threshold, it is time to formalize your FX management strategy and communicate it to your board.
2. Create Your FX Accounting Policy. Document your process. This can be a simple one-page document that states your official rate source (e.g., OANDA) and timing methodology (e.g., the closing rate on the last day of the month). This policy is the foundation for consistent, audit-proof bookkeeping and demonstrates financial control to investors.
3. Implement a Clean Process. Use the two-column ledger method in a spreadsheet to track all foreign currency invoices in their original currency and in USD. This spreadsheet provides the detailed backup for the consolidated USD journal entries you make in QuickBooks, making month-end close and reconciliation straightforward.
4. Hedge Pragmatically Based on Clear Thresholds. Finally, hedge pragmatically using simple decision rules. If you have recurring monthly spend over €25,000 to €50,000 in one currency, open a multi-currency bank account to buffer against transaction-level volatility. If you have a single, contractually defined payment over $250,000 on the horizon, use a forward contract to eliminate uncertainty entirely. These simple tools provide the predictability you need to protect your runway and keep your trial on budget.

Frequently Asked Questions

Q: What is the difference between a realized and unrealized FX loss?

A: An unrealized loss is a paper loss on an open position, like an unpaid invoice at month-end, based on the current exchange rate. A realized loss occurs when you actually settle the invoice by exchanging currency. It represents a real cash loss that has permanently reduced your bank balance.

Q: Do I need a full-time finance person to manage currency risk in clinical trial budgeting?

A: Not necessarily. For early-stage biotech, a fractional CFO or an experienced controller can establish the policies and processes. The key is implementing a system with clear rules and thresholds, which can be managed part-time until your international operations become more complex and material in scale.

Q: Are forward contracts expensive or complicated for a startup?

A: Forward contracts are generally not expensive. The cost is typically baked into the exchange rate provided by the bank or broker, which will be slightly less favorable than the live market rate. Setting them up is straightforward and involves working with an FX provider to lock in your rate for a future date.

Q: Can I use currency options instead of forward contracts?

A: While options offer more flexibility by giving you the right, but not the obligation, to exchange currency at a set rate, they are more complex and come with an upfront cost (a premium). For early-stage biotechs seeking budget certainty, the simplicity and zero upfront cost of forward contracts are typically more appropriate.