Capital Planning: What Life Sciences CFOs Need From Their Bank
Written By
Scott Hansen
For many companies, growth follows revenue. As sales increase, so does the capacity to borrow, invest and expand. Life Sciences companies operate differently, requiring a strategic approach to capital planning.
A biotech or medical device firm may spend years and tens of millions of dollars before generating any meaningful commercial revenue. Progress is measured in FDA phases, trial outcomes and regulatory approvals. Funding follows milestones rather than margins.
Traditional financing forecasts typically assume that spending scales with growth, but in life sciences, spending often accelerates well ahead of any return. Clinical development can be expensive and unpredictable, and cash burn tends to intensify between milestones.
The period just before a major data readout or immediately following a successful trial often demands substantial operational spending to maintain momentum. This timing rarely aligns neatly with planned equity raises or debt availability, making life sciences capital planning more complex.
Timing Capital Around Key Development Milestones
At the preclinical stage, capital requirements are typically more modest, though they can vary significantly depending on the platform and research scope. Companies often rely on venture capital, grants or early-stage financing to cover expenses such as research operations, personnel and initial regulatory submissions.
At this stage, the life sciences CFO strategy is often focused on forward visibility. Decisions made about capital structure early in development may affect the financing options available later.
As companies move from phase I into phase II and III trials, capital requirements typically increase substantially. Patient enrollment, clinical site management, data monitoring and regulatory interactions all generate significant costs, often simultaneously.
If regulatory approval is achieved, capital requirements may shift again. Manufacturing capacity, supply chain infrastructure and commercial launch activities all require significant investment, often before product revenue is generated at a meaningful scale.
This stage frequently requires companies to layer multiple capital sources, including equity, credit facilities and, in some cases, royalty-based or revenue-linked structures. While a strong banking relationship is helpful throughout the process, at this phase, professional guidance regarding the tools available and when to use each option can become a significant strategic benefit.
Using Credit to Bridge Between Equity Raises
When equity markets slowSome life science companies rely on equity financing as their primary capital source. However, venture banking for life sciences companies isn’t often sufficient on its own, and relying too heavily on equity financing may come with drawbacks. Equity raises are time-consuming, dilutive and often tied to data milestones or market conditions outside of the company’s control.
Credit facilities may serve as a tactical complement to equity, but are not a replacement for it. A well-structured credit facility may allow a company to extend its runway by several months, smooth out operational spending during a high burn period or avoid raising equity at an unfavorable valuation. Equally important is working with a banking partner that understands your business and growth trajectory and can help structure a credit facility that aligns with your operational and financing needs.
Life sciences finance teams must understand which credit products are available to a pre-revenue life sciences company. Traditional lending criteria that are based on cash flow coverage or collateral may not apply in the same way. Banks with life sciences experience typically evaluate companies differently, taking into account venture backing, program stage and development timelines rather than relying solely on revenue-based metrics.
Managing Cash Visibility Across Programs and Entities
Many life sciences companies run multiple development programs at the same time, making biotech capital planning more complex. A company might be advancing one asset through phase II trials while a second remains in pre-clinical development. Each program may have distinct spending rates, milestone timelines and funding sources.
Managing cash across these programs may create reporting challenges, especially if they operate through separate subsidiaries or legal entities. CFOs need clear visibility into how much cash is allocated to each program, how quickly it is being consumed and where overall liquidity stands at any given point.
Visibility also becomes more important when companies manage restricted cash, grant proceeds or milestone-based funding tied to specific programs. Without a clear framework for tracking those balances, finance teams may struggle to match capital availability with actual operating needs. Strong cash reporting helps CFOs make better decisions about when to draw on credit, when to preserve liquidity and how to allocate capital across the broader development portfolio.
The right treasury management tools can help CFOs maintain accurate and current financial oversight. These tools must support multi-entity reporting, inter-company funding structures and real-time cash visibility. Banks that work regularly with life science companies may offer structures and reporting capabilities specifically designed to accommodate these operational realities.
Why Sector Expertise Matters in Life Sciences Banking
A bank that primarily serves traditional commercial clients may not fully understand that a pre-revenue company with significant cash burn may actually represent a viable credit relationship. They may also lack familiarity with how FDA timelines, venture funding structures and clinical development cycles interact with the company’s financial profile.
Banks with dedicated life sciences practices tend to bring specialized services and expertise to the relationship. This may include guidance on capital structure, introductions to relevant investors or legal advisors, and financial products calibrated to the sector’s actual risk profile and timeline.
For life sciences CFOs, this kind of institutional knowledge may offer a significant strategic advantage, particularly during the high-stakes transitions between development phases.
Working With a Bank That Understands Life Sciences
Creating a viable biotech financial strategy requires more than standard forecasting. Instead, life sciences capital planning must be based on an approach built around milestones, uncertainty and periods of rapid spending change. CFOs need to plan for what comes next while keeping enough flexibility to respond when timelines shift.
A banking partner that has deep experience in the sector may help your team build more effective funding strategies, maintain better visibility into cash positions and ensure that capital is accessible when critical milestones arrive. Reach out to a Banc of California Relationship Manager to learn more about venture banking services for life sciences companies.
All credit products are subject to credit approval. Not an offer of credit. Banc of California is an equal opportunity lender.
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