Biotech Startups Find Cash Is the Best Medicine

After years of abundant funding from VCs and public investors, capital has lately become a scarce resource

- Angelica Peebles

For much of the past decade, venture capital firms and other investors were eager to throw money at biotech startups in hopes of bankrolling the next billion-dollar medicine. These days, fledgling drugmakers spend as much time convincing investors they have enough cash to survive as they do developing the promising treatments in their pipelines.

How often are biotech executives questioned about cash? "Every single conversation," says Marcio Souza, chief executive officer of Praxis Precision Medicines Inc. Shares of the company, which aims to treat central nervous system disorders, have plummeted 80% over the past year.

Investors today want to know how much money companies have, how long it will last and exactly how they plan to use it, executives say. The answers are especially important in 2023, as investors navigate a tough environment for risky assets, such as biotech stocks, and hundreds of companies seek to raise fresh funds to stay in business.

It's a stark turn of events for an industry that got used to big capital influxes before and during the pandemic. VC firms invested a record $36.6 billion in biopharma companies in the US, UK and European Union in 2021, up 281% from 2017, according to SVB, the parent of Silicon Valley Bank. Private investment in 2022 dipped 19% from the year before, to $29.5 billion. The slump speaks to growing investor uncertainty about biotech's near-term prospects.