Cash Strategies for Life Sciences Delays

By Andrew Levitch

The one constant when raising financing in a life sciences company is that it takes longer than initially forecasted.  As previously shared in my colleague Patrick Nugent’s article about Life Sciences Financing Trends, it is taking twice as long to close a financing round (six months or more), and the length of time between financing rounds has also doubled to more than two years.

In my experience, I’ve discovered that the  following strategies help proactively manage cash when financing is delayed:

1. Model cash flow. 

When times were good, simple quarterly forecasts were sufficient. However, in today’s environment, a 13-week rolling detailed cash flow forecast, with a less detailed extension for an additional 13 weeks, is a great starting point.  This base forecast should be supplemented with the following:

• Scenario planning: What if the financing round closes three months later? Six months later? What if a key milestone payment is delayed? What if an unanticipated activity that requires funding occurs? Modeling these scenarios will enable the company to evaluate the impact on liquidity.
• Variable vs. Fixed Costs: Clarity on variable vs. fixed costs will enable the company to understand the impact of and ability to reduce costs.
• Milestone-Driven Spending: R&D, clinical trials, and manufacturing activities are often tied to specific milestones. It’s critical to rigorously assess if we can delay or re-phase certain activities without jeopardizing our core value proposition or intellectual property.

2. Prioritize every dollar spent.

Driving towards valuation inflection points is critical as a company progresses. Every dollar spent must be directly traceable to achieving these inflection points.

• Identify and prioritize key spend: The highest priority must be identified and addressed. It will depend based upon the stage of the company. Pre-revenue companies will focus on development, whereas post-revenue companies may need to allocate resources to achieve a sales milestone. All non-key spend must be evaluated before incurring expenses.
• Vendor Negotiations: When cash becomes extremely tight, payments to vendors must be evaluated as some will be more critical and demand timely payment. Others may have the flexibility to be negotiated.
• Cost Cutting: Evaluating areas where costs can be reduced, along with their impact on cash and potential risk to meeting milestones, will enable informed decisions to be made if cuts are necessary.

3. Communication

Open and transparent communications with the Board of Directors, Investors, and to the extent needed with employees will enable the company to manage through the stressful period of waiting on financing to close.

Finally, the most critical thing is proactive planning.  For example, the longer the company waits to take cost-cutting actions, the greater the cuts will need to be to achieve the desired impact.

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Successfully navigating extended financing timelines in the life sciences sector demands foresight, discipline, and strategic alignment across leadership. By modeling multiple cash flow scenarios, prioritizing spending tied to value creation, and maintaining clear and consistent communication, management teams can preserve flexibility and keep the company on track.

At FLG Partners, we’ve guided hundreds of companies through these challenges, and we stand ready to help you do the same.