The capital requirement for a registrational program peaks exactly when the equity window is narrowest. I have sat on both sides of this table, as an operator raising for late-stage assets and as a banker underwriting those claims. The levers that work are non-dilutive capital, disciplined partnering, and ruthless sequencing of spend.
Key Takeaways
- The hardest financing gap in biotech hits right when the science looks best: Phase 3 succeeds 59% of the time, yet the capital to fund it is scarcest exactly after a promising Phase 2 [1].
- Pivotal oncology trials cost a median of $31.7 million (2015–2017 approvals), and separate data put typical program costs near $37.7 million per trial once you account for most programs needing two [2][3]. Smaller sponsors also pay more per patient than large ones [4].
- Running out of cash, not failing in the clinic, is the more common cause of death: roughly a third of public biotechs entered 2026 with under a year of runway, and the sector’s public company count fell from 977 to 758 between 2021 and 2025 [10].
- Capital should be raised in a strict hierarchy — non-dilutive grants first, then structured/royalty capital, then partnering, then equity last — because deals signed under financial pressure tend to be worse deals, with research showing alliances struck when equity was scarce were more likely to be renegotiated later [5][11][6].
- Trial design and sequencing are themselves financing tools: endpoint and control-arm choices can swing costs fourfold [2], and running one indication to a value-inflecting readout before funding the next — illustrated by MediciNova’s NIH-supported SPRINT-MS and SEANOBI programs — stretches capital further than parallel programs or bottom-up operating plans [8][15].
The Squeeze is Structural, Not Sentimental
Late-stage biotech is where good assets can go to die, for reasons beyond the science. The gap between a completed Phase 2 and a funded registrational program is the most expensive stretch of development and the least forgiving stretch of the financing cycle. Phase 3 to approval carries a 59% probability of success, compared with 13.8% in Phase 1 across all programs and 3.4% in oncology [1]. A late-stage asset is, risk-adjusted, the most valuable thing a small company owns. It is also the most expensive.
Pivotal oncology trials supporting FDA approvals from 2015 to 2017, the most recent oncology-specific cohort in the literature, cost a median of $31.7 million [2]. That number is design, not fate. Objective response rate endpoints ran $17.7 million, progression-free survival $42.3 million, overall survival $79.4 million, active-comparator designs $67.6 million [2]. An independent analysis covering 2000 to 2018 put the oncology Phase 3 out-of-pocket cost at nearly $37.7 million per trial, based on a mean of two trials per program [3]. Note the plural.
Then the penalty nobody models. Smaller sponsors pay more for the same trial, roughly $8,501 per patient-month, compared with $6,176 for the twenty largest [4]. Not a negotiating failure. Scale.
The environment cuts the other way. The first half of 2026 saw 21 biopharma IPOs raise $5.9 billion and 78 follow-ons raise $20 billion, with the latter weighted toward larger, later-vintage issuers [9]. That capital is not reaching the micro-cap with one Phase 3 asset. Roughly 33% of public biotechs had less than 1 year of cash at the end of 2025, and the count of public US and EU biotechs fell from 977 to 758 between 2021 and 2025 [10]. Most did not fail in the clinic. They ran out of money in front of an inflection point they could not reach.
A Hierarchy for Every Dollar
Management teams evaluate financing on headline cost. Wrong axis. Price every dollar on three dimensions at once: dilution, speed to close, and optionality forfeited. Call it the Dilution, Speed, Optionality test.
Tier one is capital with no claim on the asset. Grants from NIH institutes, disease foundations, patient advocacy organizations, and government and defense programs. Investigator-initiated and consortium-supported trials where an academic sponsor holds the grant and the company contributes drug supply and regulatory and safety support. Zero dilution, zero royalty, zero territory. The cost is time and reduced control. Grant cycles run six to eighteen months, so this capital gets pursued two years out.
Tier two is structured capital with a claim on future economics but not on the equity. Royalty monetization, synthetic royalties, revenue interest financings, venture debt. The market is institutional in scale, with $7.1 billion in life sciences royalty volume in 2025 at a median deal size of $221 million [11][6]. One constraint, stated plainly: it requires an approved product or a near-certain path to one, and is generally unavailable mid-Phase 3.
Tier three is partnering: territory- and indication-limited licensing, and co-development. Tier four is equity. ATM facilities, registered directs, PIPEs, equity lines. Fast, flexible, and the most expensive capital a depressed small-cap can issue.
Regulatory assets sit across these tiers. The rare pediatric disease priority review voucher program lapsed in December 2024 and was reinstated in February 2026, funded through September 2029 [12]. Disclosed voucher prices have ranged from $21.2 million to $350 million [13]. A voucher is a non-dilutive, transferable instrument. Oncology developers with pediatric-eligible assets should treat qualification as a financing workstream.
Partnering is a Financing Decision
Lerner, Shane, and Tsai examined 200 biotechnology alliances and found that agreements signed when external equity was scarce and that handed control to the corporate partner were significantly less successful and more likely to be renegotiated once conditions improved [5]. Deals signed in desperation are worse deals, and everyone at the table knows it.
Run the comparison. A $40 million upfront for ex-US rights on a Phase 3 oncology asset, against a $40 million registered direct at a 20% discount for a $120 million market cap. The equity costs roughly 25% of the company, every program and territory, in perpetuity. The license costs one territory on one asset, with milestones and royalties retained, and US rights untouched. Usually cheaper on a cost-of-capital basis. Also slower, nine to fifteen months to signature, which is why it must start before the cash position makes it urgent.
Chinese-origin asset licensing reached approximately $92 billion in the first half of 2026, about 88% of the full-year 2025 total, and oncology accounted for 41% of biopharma M&A value, with antibody-drug conjugates (ADCs) prominent among them [14]. A Western late-stage asset now competes for the same partnering dollar against a Chinese asset with comparable data at a lower price.
Trial Design is Capital Allocation
The cheapest capital is capital you do not have to raise. Endpoint and control arm selection can increase oncology trial costs by a factor of four [2], and master protocols amortize overhead across multiple questions [7]. Three disciplines matter more.
Sequence indications; do not parallelize them. Two simultaneous registrational programs double the burn and halve the odds that either is funded to completion. Run the shortest path to a value-inflecting readout, and fund the second from the value the first creates.
Kill programs deliberately. A shelved program that extends runway seven months is worth more than a funded one that runs out of cash at month nineteen. Shelving is reversible. Insolvency is not.
Match burn to the next inflection, not to the operating plan. Operating plans are built bottom-up by functional leaders, each correct about what they need. Financing is built top down from the next event that changes the valuation. When the two disagree, the inflection wins.
In Practice
At MediciNova, where I serve as Chief Business Officer, two late-stage programs illustrate these levers in publicly disclosed form. MN-166 (also known as ibudilast or AV-411), is an orally administered small-molecule drug that acts as a phosphodiesterase (PDE) inhibitor with anti-inflammatory and neuroprotective properties; in progressive multiple sclerosis, it was evaluated in SPRINT-MS, a 255-patient study run through the NIH-funded NeuroNEXT network with support from NINDS and the National Multiple Sclerosis Society [8]. In ALS, the SEANOBI expanded access program is supported by an approximately $22 million NIH/NINDS grant to an academic group under ACT for ALS, with MediciNova providing drug supply and regulatory and safety support [15].
The general principle is that a company with late-stage assets in high-cost therapeutic areas can pursue registrational ambitions by contributing the asset rather than capital. Slower than a fully funded program, and the difference between one that continues and one that does not.
The Standard
Score every dollar on three questions before you sign. What does it cost in ownership? How fast does it close? What did you give up permanently?
Grants cost time. Royalties cost future economics. Licenses cost territory. Equity costs the company itself.
Raise in that order. Start eighteen months early. And answer the board’s question about which program to fund before the market answers it for you.
References
[1] Wong CH, Siah KW, Lo AW. Estimation of clinical trial success rates and related parameters. Biostatistics. 2019;20(2):273-286. doi:10.1093/biostatistics/kxx069
[2] Hsiue EH, Moore TJ, Alexander GC. Estimated costs of pivotal trials for U.S. Food and Drug Administration-approved cancer drugs, 2015-2017. Clin Trials. 2020;17(2):119-125. doi:10.1177/1740774520907609
[3] Sertkaya A, Beleche T, Jessup A, Sommers BD. Costs of drug development and research and development intensity in the US, 2000-2018. JAMA Netw Open. 2024;7(6):e2415445. doi:10.1001/jamanetworkopen.2024.15445
[4] Mulcahy AW, Rennane S, Schwam D, Dickerson R, Baker L, Shetty K. Use of clinical trial characteristics to estimate costs of new drug development. JAMA Netw Open. 2025;8(1):e2453275. doi:10.1001/jamanetworkopen.2024.53275
[5] Lerner J, Shane H, Tsai A. Do equity financing cycles matter? Evidence from biotechnology alliances. J Financ Econ. 2003;67(3):411-446. doi:10.1016/S0304-405X(02)00256-8
[6] Fernandez JM, Stein RM, Lo AW. Commercializing biomedical research through securitization techniques. Nat Biotechnol. 2012;30(10):964-975. doi:10.1038/nbt.2374
[7] Woodcock J, LaVange LM. Master protocols to study multiple therapies, multiple diseases, or both. N Engl J Med. 2017;377(1):62-70. doi:10.1056/NEJMra1510062. PMID: 28679092
[8] Fox RJ, Coffey CS, Conwit R, et al; NN102/SPRINT-MS Trial Investigators. Phase 2 trial of ibudilast in progressive multiple sclerosis. N Engl J Med. 2018;379(9):846-855. doi:10.1056/NEJMoa1803583. PMID: 30157388
Market data sources
[9] DealForma. Biopharma therapeutics and platforms IPO activity, follow-ons and PIPEs: Q2 2026 review. Published August 6, 2026.
[10] EY. Biotechnology industry report, as reported by BioSpace, June 2026. Cash runway and public company count data as of year-end 2025.
[11]Gibson, Dunn & Crutcher LLP. Royalty finance in life sciences: market update 2026. Published March 12, 2026.
[12] Consolidated Appropriations Act of 2026, signed February 3, 2026, reauthorizing the FDA rare pediatric disease priority review voucher program through September 2029, as reported by Fierce Pharma, February 4, 2026.
[13] BioSpace. Priority review vouchers: by the numbers. Published March 5, 2025.
[14] IQVIA. Biopharma M&A: mid-year 2026 update. Published July 8, 2026.
[15] MediciNova, Inc. Press release: MediciNova to support NIH-funded expanded access clinical trial to evaluate MN-166 (ibudilast) in amyotrophic lateral sclerosis (ALS). September 30, 2024.
This article is educational and does not constitute investment advice or an offer to sell or a solicitation to buy any security.
Featured image:© 2026 CH/JCO. Used with permission.
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