Unlocking Capital: 5 Key Strategies for First-Time Biotech Fundraising

Executive Summary:

Build investor trust through financial transparency, strong leadership, and solid internal controls to overcome the “first-time fundraising roadblock” in biotech.
Showcase your product’s potential with a compelling pitch and clear value proposition, backed by data and a talented research team.
Leverage your professional network and industry connections to get noticed by the right investors in the biotech space.

The biotech landscape is currently divided into the “haves” and “have-nots” when it comes to fundraising. Those who have successfully brought products to market or secured previous funding rounds have a substantial advantage. They possess the track record, relationships, and trust investors crave.

But what if you don’t have that? If your biotech company is preparing to raise capital for the first time, not to worry — you can still stand out and secure funding. Here are five key strategies to help you get around the first-time fundraising roadblock and gain the attention of investors.

1. Build Trust with Financial Transparency

Investors need to trust your company is financially sound. Without a track record, demonstrating your fiscal responsibility is essential. Start by having a quality audit of your financial statements, conducted by a reputable auditor with experience in the biotech space. Accurate, clear financial reporting builds investor confidence, showing you are serious about managing capital effectively.

If you have already raised seed funding or received a grant, highlight how you have used those resources responsibly. A grant audit, for example, can showcase you have maximized the value of previous funds—something investors will look for as they evaluate your business.

2. Strengthen Your Leadership and Team

Investors are not just funding an idea; they are funding the people behind it. If you lack in-house knowledge or experience, consider hiring or partnering with experienced professionals. A strong chief financial officer (CFO) — even an outsourced one — can make a significant difference. Outsourced accounting support allows you to tap into the knowledge of seasoned professionals without the full-time cost. A skilled CFO will strengthen your financial reporting and operations, further enhancing trust with investors.

Additionally, if you don’t have an executive with capital-raising experience, bring in someone who does. Investors are more likely to bet on a team with a proven track record in biotech, especially when that person has a Rolodex of contacts and a history of success. Just remember: there is no silver bullet. Even bringing in a seasoned executive won’t move the needle if the fundamentals aren’t in place. Investors will see through any attempts to paper over weaknesses.

3. Demonstrate Your Product’s Potential

At the core of any capital raise is the product you are developing. Investors want to know your biotech solution has potential. Your value proposition should be clear, well-researched, and backed by data. Whether you are creating a novel drug or pioneering a new treatment technology, demonstrate the market need, potential impact, and your path to commercialization. A strong, well-articulated product concept, supported by a talented research team, will help you stand out.

This is where you must focus on having a polished pitch deck and elevator pitch. If you do secure a meeting with potential investors, being prepared with a compelling and concise presentation can make or break the deal. Your pitch should clearly communicate your company’s vision, market potential, and how their investment will drive growth.

4. Establish Strong Internal Controls

Investors not only want to see financial transparency and a strong product, they also want to know your business is structured for long-term success. Demonstrating you have solid internal controls — related to compliance with regulations like the Sarbanes-Oxley Act (SOX) — shows you are prepared to scale responsibly.

An internal controls evaluation can identify areas for improvement and help strengthen your company’s operational documentation, efficiency, and security. This is a crucial step in building investor trust and positioning yourself as a mature, trustworthy business.

5. Leverage Your External Network

Building your company is just one part of the equation. The next step is expanding your personal network so you are speaking to the right investors. Start by identifying the key players in your biotech niche. Look at competitors and peers who have successfully raised capital and find out who their investors were. This will help you target the right people and increase your chances of getting noticed.

Once you have a list of potential investors, begin outreach. Attend industry events, schedule informal meetings, and use every opportunity to introduce yourself and your business. This is where your external network can become an invaluable resource. Don’t hesitate to tap into your legal, financial, and banking partners for introductions to investors. These professionals often have established relationships with investors and can open doors you would not be able to access on your own. If you don’t have all these partners in place, one can often connect you with the others. For example, at MGO, we can refer you to trusted legal and banking partners to help you get the full support you need.

Breaking Down Barriers to Secure First-Time Funding

Raising capital for the first time is undoubtedly challenging, but it’s far from impossible. By focusing on building a strong company, demonstrating your value, and strategically expanding your network, you can bridge the gap between the “haves” and “have-nots” of biotech fundraising — securing that essential first round of funding.

How MGO Can Help

Navigating your first capital raise can be daunting, but you don’t have to go it alone. We’re here to help you build the strong foundation you need to attract investors and take your groundbreaking ideas to the next level.

Our experienced biotech practice offers a range of services tailored to meet your specific needs, including:

Audit and assurance services to validate your financial statements
Outsourced CFO services to strengthen your financial operations
Internal control evaluations to enhance your operational efficiency
Strategic advisory services to help you navigate the fundraising landscape

Don’t let being a first-time fundraiser hold you back. Reach out to our team today to learn how we can support your journey from promising startup to funded success story.

Federal Award Audits: Essential Steps for Your Biotech Company

Federal awards and grants support the biotech sector’s quest for advancement. However, navigating the maze of compliance requirements demands expertise, precision, and a proactive approach. The result of non-compliance is severe, and may include financial penalties, the loss of funding, reputational damage, and potential legal action.

This is why it is essential to work with an assurance provider with specific knowledge of the biotech/life science landscape. In the video below, we detail how our specialized guidance focuses on risk assessment, control evaluation, and regulatory adherence to safeguard your projects and funding.

Orphan Drug Credits: A Significant Tax Incentive for Biotech Companies

Key Takeaways:

Orphan drug credits offer a significant tax incentive to encourage pharmaceutical companies to develop treatments for rare diseases.
The tax credit is worth up to 25% of qualified clinical testing expenses.
It is possible for companies to claim both R&D and orphan drug credits in the same tax year, maximizing support for a broad range of medical research.

Developing new pharmaceuticals and bringing them to market is an expensive endeavor. Uncommon diseases and conditions, often called “orphan diseases,” affect small populations in the United States. Given the high costs of research and development (R&D), this limited patient base can make treatment development less economically attractive for pharmaceutical companies.

Congress passed the Orphan Drug Credit (IRC Section 45C) to address this challenge and encourage the development of treatments for less profitable drug therapies.

What Is the Orphan Drug Tax Credit?

The Orphan Drug Credit is a federal tax credit designed to encourage pharmaceutical companies to invest in the research and development of treatments, cures, and preventive measures for rare diseases or conditions.

Before the Orphan Drug Act was enacted in 1983, life sciences companies often hesitated to invest in development costs for rare diseases because the small populations of potential patients made it difficult to recover development costs.

If your testing qualifies, the nonrefundable tax credit equals 25% of qualified clinical testing expenses (QCTEs) for the current taxable year.

In general, you can claim the credit between the date the U.S. Food and Drug Administration (FDA) grants the orphan drug designation and the date it approves the drug for patients.

Orphan Drug Tax Credit Eligibility Criteria

To qualify for the Orphan Drug Credit, you must first receive an orphan drug designation from the FDA. This designation is granted to drugs intended for the treatment, diagnosis, or prevention of diseases or conditions that affect fewer than 200,000 people in the United States or that affect more than 200,000 people but are not expected to recover the costs of developing and marketing a treatment drug.

Once receiving the orphan designation, you can deduct 25% of qualified clinical testing expenses incurred in the U.S.

Eligible expenses are similar to those that qualify as research and experimental expenditures for the R&D credit. Some examples include:

Wages paid to employees performing clinical testing
Costs incurred for supplies used directly in conducting clinical testing
Payments made to another party for computer hosting and leasing pertaining to clinical testing activities
Payments made for qualified research undertaken by contractors

Research activities funded by a government entity or another entity other than the taxpayer do not qualify for the tax credit.

Orphan Drug Tax Credits vs. R&D Tax Credits

The Orphan Drug Credit and the R&D credit (IRC Section 41) offer substantial financial incentives to spur U.S.-based research. However, the Orphan Drug Credit provides a greater incentive than the R&D credit.

If you are researching non-orphan diseases, you can claim the standard R&D credit, which on average results in an overall credit benefit of roughly 10% of the qualified expenses.

Other benefits of the Orphan Drug Credit include claiming 100% of qualified contract research expenses, compared to 65% under the R&D credit, and claiming the credit on foreign clinical testing expenses provided the testing meets certain criteria. The criteria include:

The testing is conducted outside the United States because there is an insufficient testing population within the U.S., and
The testing is conducted by a person inside the United States or any other person not related to the taxpayer to whom the designation under Section 529 of the Food, Drug and Cosmetic Act applies.

Ideally, you can claim the Orphan Drug credit on qualified clinical testing expenses until the FDA approves your drug for patients, then claim the R&D credit for any ongoing qualified research expenses post-FDA approval.

Is it possible to claim both the R&D credit and the Orphan Drug Tax Credit in the same tax year?

Yes, you can claim both credits in the same tax year, provided you meet the eligibility criteria for each. However, the expenses used to claim the Orphan Drug Credit cannot also be used to claim the R&D credit. The return on investment is greater under the ODC, so a company with an eligible orphan drug designation would likely pursue the ODC credit pertaining to those expenses. A company may have expenses pertaining to a non-ODC program, or expenses incurred prior and post the ODC eligible timelines, that would benefit under the R&D credit.

How MGO Can Help

The Orphan Drug Credit provides significant incentives for pharmaceutical companies developing treatments for rare diseases, making these endeavors more financially viable.

As with any tax credit, the qualifications for claiming the Orphan Drug Credit are nuanced, and it’s critical to have the necessary documentation to calculate and substantiate your claim.

If you need help determining which expenses qualify, calculating your credit, or determining how it works in tandem with the R&D credit, call or contact MGO online today. We’re happy to help you identify potential qualified expenses and maximize the tax benefits of bringing these new drugs to market to treat rare diseases.

Optimal Audit Approach for Federal Awards in Biotech and Lifesciences

Executive Summary

Federal awards fuel innovation and growth in the biotechnology and life sciences sector, but they require stringent adherence to regulations and the terms of the award.
The risks of non-compliance include financial penalties, loss of funding, and even legal action.
An experienced federal award audit provider can improve performance by mitigating risk, adhering to complex regulations, and delivering additional operational and financial insight.

The path to groundbreaking biotech and life science innovations is paved with both opportunities and regulatory challenges. Federal awards and grants support the biotech sector’s quest for advancement. However, navigating the maze of compliance requirements demands expertise, precision, and a proactive approach.

Most federal awards require stringent adherence to federal regulations and the terms of the award. The result of non-compliance is severe, and may include financial penalties, the loss of funding, reputational damage, and in the worst circumstances, potential legal action from funding agencies and/or stakeholders.

This is why it is essential to work with an assurance provider with specific knowledge of the biotech/life science landscape. Your audit provider must provide specialized guidance for the sector’s dynamic nature, focusing on risk assessment, control evaluation, and regulatory adherence to safeguard your projects and funding.

Why Program-Specific Audits Matter

In the detail-oriented and highly regulated biotech industry, a generic approach to auditing cannot uncover or address the nuanced complexities of federal funding compliance. Every federal award program has unique regulatory and reporting requirements. A one-size-fits-all approach is likely to miss key details of your specific requirements and may waste essential time and resources on irrelevant matters.

The benefits of a well-run audit by a seasoned provider should include:

Compliance with Regulations: Support adhering to the terms of the federal award will help reduce the risk of penalties and funding termination.
Improved Financial Management: An objective, independent review of financial management practices can help make sure funds are used for their intended purposes and are properly accounted for.
Added Transparency: A clear view into operations and financials – validated by a trusted auditor – will help build trust with both funding agencies and stakeholders.
Superior Risk Management: Reduce and mitigate risks related to financial management, compliance, reporting, and potential fraud.
Performance Improvement: Identify areas for improvement in financial management practices, internal controls, and compliance processes.

Optimal Federal Award Audit Approach

Conducting a federal award audit for a biotechnology company involves several key steps to ensure compliance with federal regulations and the terms of the award. Our audit process is differentiated by its collaborative, transparent, and client-focused methodology. We start with an in-depth evaluation of your unique needs and the specifics of your programs to craft a tailored strategy. Throughout the audit journey, we provide open communication, delivering insights and updates to keep you informed and engaged. Our final deliverable is a comprehensive report that addresses compliance, empowers strategic decision-making, and program enhancement.

The following is our outline of the process:

Analysis of Award Terms: Review of the terms and conditions of the federal award to understand the requirements related to financial management, reporting, and compliance.
Collect Documentation: Assemble all relevant documentation, including financial records, invoices, receipts, and others.
Financial Record Review: Examination of your company’s financial records to confirm that expenses are properly documented and allocated.
Compliance Assessment: Evaluation of your company’s compliance with the federal award requirements, including allowable costs, cost-sharing, reporting, and other terms in the award agreement.
Perform Testing: Select a sample of transactions and expenses to test for compliance with federal regulations and the award terms. This may include testing for allowability, allocability, and reasonableness of costs.
Document Findings: Document the results of the audit, including any findings of non-compliance or areas for improvement.
Prepare Audit Report: Prepare a formal audit report summarizing the audit findings, conclusions, and recommendations for corrective action, if necessary.
Communicate Results: Discuss the audit findings with the company’s management and provide them with an opportunity to respond and address any issues identified during the audit.
Follow-Up: Monitor the company’s corrective actions and follow up to identify and resolve issues in a timely manner.
Federal Agency Report: Submit the audit report to the appropriate federal agency responsible for overseeing the award, along with any recommendations for further action.

Benefits of an Experienced Biotechnology Audit Provider

When selecting a federal audit provider, it is important to identify a firm with a dedicated biotechnology and life sciences practice with professionals actively serving the industry. Your provider should bring a wealth of experience and a multidisciplinary team that specializes in the financial intricacies and regulatory frameworks governing the biotech industry.

At MGO, our professionals are not only auditors but also advisors versed in the nuances of biotech funding and federal award compliance. We understand the operational, financial, and compliance pressures you face and offer bespoke auditing solutions that reflect the latest regulatory standards and industry best practices.

We can provide support in a number of areas:

Compliance Assurance: Leveraging our deep understanding of federal regulations and the biotech landscape, we can guide your organization through all compliance requirements, protecting you from potential penalties and financial discrepancies.
Risk Management: Our targeted audits help identify and address risks specific to your federal awards, enhancing the efficiency and impact of your funded programs.
Strategic Guidance: We go beyond compliance, offering insights and strategies to optimize the management and performance of your federally funded projects, aligning them with your mission and federal objectives.

Let’s get to Work

In the biotech sector, where federal awards catalyze innovation, MGO is uncommonly positioned to guide organizations through the complexities of program-specific audits for federal awards, determining compliance, and the strategic allocation and utilization of federal funds. MGO can help you optimize the management and performance of your federally funded projects, leading to greater efficiency, impact, and innovation.

Discover how MGO’s specialized auditing services can empower your biotech organization to achieve compliance, efficiency, and innovation. Contact us today to explore how we can support the success and compliance of your federally funded programs, allowing you to focus on advancing biotechnology’s boundaries.