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From Phase 2 to Unicorn: How to Secure Funding for Your Biotech Startup’s Pivotal Studies

Author Ella Napata |

May 20, 2023

From Phase 2 to Unicorn How to Secure Funding for Your Biotech Startup's Pivotal Studies

The biotech industry has experienced an unprecedented funding boom over the past decade, with record-breaking investments in biotech startups. However, experts predict that these prosperous times may not last indefinitely. Skyrocketing valuations of private biotech companies and increasing competition for deals pose challenges to securing funding in the coming years. Additionally, the biotech IPO window, which has been open and favorable, may close abruptly, limiting funding and exit opportunities for startups. In this article, we explore the factors influencing the biotech funding landscape and offer insights for startups to navigate these challenges, emphasizing the importance of securing funding partnerships and setting milestones to attract acquisition or IPO opportunities before the market turns.

How to Secure Funding for Your Biotech Startup

The Biotech Funding Boom: Why The Good Times Won’t Last Forever

There are a few reasons why biotech funding may face headwinds in the coming years. Many VCs have raised concerns about the sky-high valuations of private biotech companies, especially those still in the early clinical stages. The average pre-money valuation for biotech seed and series A rounds has tripled over the past decade. Investors will push back on valuations they see as unjustified.

Investors are Leaving the Biotech Space

As Venture Capitalists have flooded into biotech, the competition for deals has intensified. Many firms have expanded into biotech for the first time, despite needing deep scientific expertise. When the broader VC funding cycle turns, many opportunistic investors will flee the space, leaving biotechs with fewer funding options.

Unpredictable Biotech Stocks

The biotech IPO window will stay open for a while. Biotech IPOs have been hot, with over 60 new listings in 2019. If the public markets turn against biotech stocks, it will cut off one of the critical funding pathways for private biotechs.

In summary, while the biotech funding party continues, startups should prepare for a wave of consolidation and re-pricing of assets in the coming years. Companies that have raised substantial funding and shown strong clinical or regulatory progress will be best positioned to weather the challenges ahead. But for startups still in seed or Series A stages, now is the time to lock in funding partnerships and set milestones to become an attractive target for acquisition or IPO before the market turns. The good times won’t last forever, so biotech startups must maximize the current opportunities.

From Garage to IPO: The 4 Phases of Biotech Startup Growth

Every biotech startup follows a similar growth path, progressing through four key phases: the garage phase, seed funding phase, venture funding phase, and IPO phase. Understanding each stage’s milestones and funding requirements is critical to developing an effective fundraising strategy.

The Garage Phase

The garage phase represents the earliest stage of development. The startup is little more than an idea, with no funding and minimal infrastructure. The founders are focused on researching the scientific concept and developing an initial business plan to attract seed funding.

Seed Funding Stage

The seed funding phase allows the startup to launch formally. Seed funding, typically $500K to $2M, is used to set up lab space, hire key staff, and conduct initial experiments to validate the science and concept. At this stage, the startup aims to achieve key proof-of-concept milestones to position itself for Series A venture funding.

Venture Funding Phase

In the venture funding phase, the startup secures multiple rounds of venture capital to advance product development and early clinical trials. Series A, B, and C funding rounds raise $10M to $50M+ to fund IND applications, Phase 1 and 2 trials, and further build out the team and facilities. Startups work to derisk science and technology as much as possible to increase their valuation and attract interest from large biopharma companies.

IPO Stage

Finally, in the IPO phase, the most successful startups will complete an initial public offering, raising $100M or more. The startup will have at least one product in Phase 3 trials if not approved. The IPO allows the startup to raise large amounts of capital from public market investors to fund commercialization, continue advancing its pipeline, and achieve profitability.

The road from garage to IPO is long, taking 10-15 years or more, but the rewards can be significant for startups that successfully navigate each funding phase. With careful planning and execution, biotech startups can tap into the current funding boom and emerge as the next generation of leading biopharma companies.

Crafting A Compelling Biotech Investment Thesis: 3 Case Studies

What transforms a scientific idea into a compelling investment opportunity? For biotech startups, the key is developing an investment thesis that persuades investors your concept has the potential for high growth and returns. Study three real-world examples of biotech startups that secured multi-million dollar funding rounds to see how they developed a persuasive investment thesis:

Case 1 – Turning Point Therapeutics

Turning Point Therapeutics raised $125M in 2019 to develop targeted cancer therapies. Their thesis: targeting specific molecular drivers of cancer can lead to better outcomes than traditional chemotherapy. They pitched the promise of their lead drug candidate, which targets a protein critical for cancer growth.

Case 2 – GRAIL

GRAIL raised over $1.5B to develop a blood test for early cancer detection. Their thesis is that detecting cancer at its earliest stages could significantly improve survival rates and reduce healthcare costs. They argued the potential market for such a test was huge, in the tens of billions of dollars.

Case 3 – Moderna Therapeutics

Moderna Therapeutics raised over $1B to advance an mRNA-based drug development platform. Their thesis: mRNA therapies could provide a fundamentally new way to treat a wide range of diseases. They pitched their platform’s versatility, enabling them to develop mRNA 

treatments for everything from cancer to rare diseases to vaccines.

How to Craft a Compelling Investment Thesis

In each case, the startups could persuasively argue their ideas’ commercial potential, medical benefits, and competitive advantages to secure substantial funding. Their examples offer three essential lessons for crafting your compelling investment thesis:

  1. Focus on the problem you’re solving and your solution’s key benefits. For Turning Point, it was better cancer targeting; for GRAIL, earlier detection; for Moderna, a new treatment modality.
  2. Quantify the size of your potential market and opportunity for returns. GRAIL and Moderna pitched platforms that could generate new therapies for various conditions, representing huge potential markets.
  3. Highlight what makes your idea uniquely positioned to succeed. Turning Point’s mutation-targeting approach, GRAIL’s blood test, and Moderna’s mRNA techniques – were novel approaches that fueled investor excitement.

By crafting an investment thesis that persuasively captures these elements, your biotech startup can transform a scientific vision into a fundable business opportunity. With a compelling pitch, fundraising success can follow.

Regulatory Runway: Why Most Biotechs Never Make It To Market

The road to regulatory approval is long and complex. According to recent estimates, the clinical trial success rate for drugs entering Phase 1 trials is 9%. The percentage drops to 0.3% for drugs entering Phase 2 trials. And on average, a new drug takes 10-15 years and $2.5 billion.

Given these sobering statistics, it’s no wonder most biotech startups never navigate the regulatory runway successfully. They need more funding and patience long before their treatments are approved. For biotech entrepreneurs, the key is to derisk your startup and accelerate your path to market as much as possible.

How to Derisk Your Biotech Startup

1) Repurposing Existing Drugs or Reformulations

Focus on repurposing existing drugs or developing reformulations of approved treatments. This approach bypasses extensive safety testing and Phase 1 trials, allowing you to move directly into proof-of-concept studies. It can shave 3-5 years off development timelines and save hundreds of millions in costs.

2) Target Orphan or Fast-track Indications

Orphan drug designations provide incentives to spur the development of treatments for rare diseases. The FDA’s fast-track programs offer opportunities for accelerated approval of drugs that meet the unmet needs of severe conditions. Focus on these specialized areas allows shorter trials and priority review of your submissions.

3) Front Load Clinical Trials

Third, for innovative new drugs, front-load your clinical trials to confirm safety and proof of concept as quickly as possible. Run small, targeted Phase 1 and 2a trials to establish a solid data foundation before moving into significant, expensive Phase 3 trials. Be prepared to end unsuccessful trials early to avoid wasting resources. The more you can learn in the early stages, the less risky and more attractive your biotech will seem to investors and partners.

4) Build Relationships 

Build strong relationships with regulatory agencies and key opinion leaders early on. Meet with the FDA and leading clinicians in your field to get input on your clinical and regulatory strategy. Address any concerns they raise, and tap into their expertise to design trials with the best chance of success. With the support of regulators and KOLs behind you, your path to approval will face fewer obstacles.

The keys to navigating the regulatory runway are: repurposing existing drugs, targeting orphan/fast-track areas, front-loading clinical trials, and building key relationships. With the right strategy and enough perseverance, even small biotech startups can achieve the dream of regulatory approval and bring new treatments to patients in need.

The Power of Partnerships: How To Leverage Big Pharma Alliances

Forging partnerships with major pharmaceutical companies is one of the most powerful ways biotech startups can derisk their business, gain credibility and tap into new funding sources. Analyze case studies of successful biotech-pharma partnerships to determine the optimal deal structures and learn negotiation strategies to maximize the value of any alliance deals.

The Challenge of Regulatory Approval and Commercialization

One of the biggest challenges for biotech startups is navigating the long, risky, and expensive path to regulatory approval and commercialization. According to recent estimates, the cost of developing a new drug is over $2.5 billion. For small biotechs, this poses an insurmountable barrier.

Partnering with big pharma companies is a proven strategy to overcome these challenges. Large drugmakers have the resources, expertise, and experience to guide new therapies through clinical trials and the regulatory process. They also have established commercial capabilities to market and distribute new products effectively.

Benefits of Pharma Partnerships

For biotech startups, alliances with pharma can provide funding, credibility, and a faster path to market. In return, pharma companies can access innovative science and technology to fill their product pipelines. It’s a win-win.

The deals for biotech-pharma alliances include licensing agreements, joint ventures, co-development partnerships, and acquisitions. Acquisitions give biotechs an exit while enabling pharma to gain new assets.

How to Negotiate a Deal with Biotechs

To negotiate a successful deal, biotechs must demonstrate the value of their science and technology. They must start with a reasonable asking price, while pharma will push for lower upfront payments and higher future milestone hurdles. Finding the right balance, based on a fair valuation of the biotech’s assets, is vital. Biotechs should also ensure sufficient control and involvement in their programs going forward.

With the right strategy and deal, partnerships with big pharma can be the lifeline biotech startups need to progress from a fledgling science project into a thriving, fully integrated company. 

From Zero to IPO: Case Studies of the Most Successful Biotech Startups

The biotech startups that achieve the most spectacular success share some common traits. A prime example is Moderna, a pioneer in messenger RNA (mRNA) therapeutics. Founded in 2010, Moderna raised over $2 billion in funding and completed an IPO in 2018 that valued the company at over $7 billion.

Moderna’s Success

Moderna’s success stemmed from developing a highly persuasive investment thesis around the promise of mRNA to enable a new class of medicines. The company also forged key alliances with strategic partners like Merck and AstraZeneca early on to fund its pipeline. By leveraging these partnerships, Moderna was able to advance multiple mRNA candidates into clinical trials rapidly.


Another biotech unicorn is BeiGene, a China-based oncology startup. Founded in 2010, BeiGene raised $903 million in its IPO on the Nasdaq in 2016. BeiGene’s strategy focused on in-licensing promising cancer drug candidates from Western companies to develop and commercialize in China. This model allowed BeiGene to build a pipeline of over 30 clinical and preclinical programs in just six years.

Alnylam Pharmaceuticals

A final example is Alnylam Pharmaceuticals, a pioneer in RNA interference (RNAi) therapeutics. Founded in 2002, Alnylam raised over $2 billion in funding before its IPO in 2004. Alnylam spent over a decade developing its RNAi platform and navigating clinical trials before gaining FDA approval for its first drug, Onpattro, in 2018. Alnylam’s success demonstrates the patience and perseverance required to bring novel biotech platforms to fruition.

From Zero to Biotech Unicorn Is Possible 

The experiences of Moderna, BeiGene, and Alnylam offer several lessons for biotech startups. First, develop a compelling investment thesis and strategic partnerships early to raise substantial funding. Next, build a diversified pipeline to mitigate risk. Finally, be prepared for a lengthy regulatory and clinical journey to market – it can take 10-15 years for novel platforms like mRNA or RNAi to gain approval. With the right vision and execution, however, the payoff for investors and patients can be enormous.

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