The term “life sciences” is used to define a wide variety of companies that deal with contract research, genomics, equipment and chemicals, treatments, and diagnostics. There are multiple options for financing for life sciences at different stages. This article will explore these funding options while also evaluating their viability, advantages, and considerations with the help of a diagnostics consultant:
1. Equity Financing
For most fledgling life science companies, equity is the key source of finance. Seed-stage firms start with equity, such as a grubstake from family and friends or startup funding from venture capitalists (VCs). Incubator-based startups can swap ownership for in-kind services and advantages. Most early-stage biotech startups seek venture capital with the intention of raising extra funds in a series of rounds at successively higher valuations, which often lead to an IPO or trade sale. VC investors can bring valuable networks, boost a company’s exposure, help in the hiring of employees, and land business development (BD) options while also providing funds and delivering value as board members.
2. Grant Funding
The NIH, other government agencies, and private foundations offer to finance many biotechnology companies. Despite the fact that much of this non-dilutive funding helps early-stage R&D, certain grant programs offer higher rewards to fund clinical trials and future product innovation.
3. Pharmaceutical Licensing
Emerging life science companies can use business development financing and the expertise they gain from working with BD partners to expand their platform technology and develop proprietary product prototypes. BD capital can provide external validation and expand a life science company’s capital runway, boosting profitability. Relationships with partners can also help a young company gain access to vital expertise (such as clinical development, general R&D, the medicinal area, marketing, or regulatory).
4. Debt Financing
In order to extend its cash runway and reach a goal or have more time to raise capital, a venture-backed life science company sometimes uses venture debt as one strategy. A venture debt transaction depends on the borrower’s venture capitalists backing up the firm’s ability to repay a loan by deploying more equity as needed. Advanced biotech firms looking to achieve a milestone, such as the commercialization and launch of a product, which can result in self-sustaining cash flows, will find debt financing for life sciences to be an appealing choice.
5. Royalty Monetization
Life science firms with marketed products can sell a royalty stake, agreeing to pay a portion of future profits in exchange for one or more upfront or other contractual payments. By using the royalty flow to sustain debt financing, future earnings or royalties can also be turned into cash. Early-stage investments, such as buying royalty claims to products before they reach FDA registration procedures, are more lucrative to royalty investors.
Conclusion
Life science companies, whether emerging or evolved, solo or partnered, must make strategic choices along the road about their targeted funding structure and timeline, target investor mix, and profit maximization. Smart startup founders and leaders should be informed of which capital markets can provide the most opportunity for growth and support the success of their company. The financing for life sciences strategy they choose to set up with their syndicate of investors will impact all upcoming funding rounds across all sectors.
