Biotechnology and biomedical technology are among the most capital-intensive industries in the public markets. Unlike software or asset-light services businesses, biotech companies must fund multi-year research programs, preclinical validation, regulatory submissions, manufacturing scale-up and commercial infrastructure, often before generating a single dollar of recurring revenue. For microcap public companies, this reality can be daunting.

The economics of drug development are unforgiving. Multiple peer-reviewed analyses have estimated that bringing a novel therapeutic from discovery through regulatory approval can cost well over $1–2 billion when accounting for failures and cost of capital. Even more conservative models place direct out-of-pocket R&D costs in the hundreds of millions. Clinical trials alone, particularly Phase II and Phase III studies, can consume tens to hundreds of millions of dollars per indication.

For early-stage public biotech issuers trading on the Nasdaq, NYSE American, or OTC Markets, access to capital markets becomes existential. These companies often operate with:

No commercial revenue

Negative operating cash flow

Heavy reliance on equity offerings

When trial timelines extend or endpoints are missed, capital reserves erode rapidly. Without strong institutional sponsorship or non-dilutive funding (grants, partnerships, milestone payments), companies may turn to highly dilutive structures to survive.

Toxic Capital and the Dilution Spiral

In microcap biotech, financing structures can significantly shape long-term shareholder outcomes. Common instruments include:

PIPEs (Private Investments in Public Equity) with warrants attached

Convertible notes with reset features

Variable-priced convertibles (“death spiral” financing)

Structured equity lines

While these instruments provide immediate liquidity, they can create sustained downward pressure on share price through repeated conversions and warrant exercises. Over time, this dilution can materially impair shareholder value, even if the underlying science remains viable.

The past decade provides cautionary examples:

OvaScience raised substantial capital to commercialize fertility treatments but ultimately ceased operations after commercial traction failed to materialize, following heavy dilution and declining market confidence.

Achaogen received FDA approval for its antibiotic Zemdri in 2018, yet mounting financial pressure and insufficient commercialization support led to a Chapter 11 filing in 2019.

Sorrento Therapeutics pursued multiple pipeline assets and capital raises, but operational strain and debt obligations culminated in bankruptcy proceedings in 2023.

In each case, capital structure strain compounded operational risk. Clinical failure is one risk while financial fragility is another and the two often intersect.

R&D Costs and the Rise of “Orphaned Asset” Strategies

Given the staggering cost of de novo drug discovery, many microcap biotech companies have pivoted toward acquiring or licensing “orphaned” pharmaceutical assets, molecules that were shelved by larger pharmaceutical firms due to strategic reprioritization rather than scientific failure.

This strategy aims to:

Reduce early-stage discovery risk

Leverage existing safety data

Accelerate regulatory timelines

Rework compounds with improved delivery systems or combination therapies

While this can be capital efficient relative to ground-up discovery, it is not inexpensive. Reformulation studies, bridging trials and intellectual property repositioning still require meaningful funding. Without disciplined capital management, even a repurposing strategy can result in repeated dilutive financing.

Succeed or Fade

The harsh truth is that biotech does not reward participation, it rewards execution. This is not a game of chance, it is a high-stakes competitive arena where only a minority of companies achieve durable value creation.

Companies that fail to secure:

Clinical validation

Strategic partnerships

Or commercial scalability

Often find themselves layering financing rounds upon financing rounds, each one incrementally weakening the balance sheet and diluting shareholders. Over time, the capital structure can become so impaired that even promising data struggles to overcome investor skepticism.

Conversely, companies that demonstrate compelling Phase II or Phase III results may attract:

Strategic licensing agreements

Commercial partnerships

Or outright acquisition

Large pharmaceutical companies bring manufacturing capacity, regulatory expertise, payer relationships and global marketing infrastructure that small issuers simply cannot replicate.

Private equity has shown increasing interest in healthcare innovation on a private level. However, acquiring publicly traded microcap biotech companies presents very unique challenges:

Broad shareholder bases

Embedded warrant overhang

Convertible debt structures

Elevated acquisition premiums required

Valuations that do not make sense

The “price of admission” can be significantly higher than acquiring a private venture-backed biotech firm. Capital structure complexity alone can deter serious acquirers and it does do that more often than not.

A Different Path Forward

At FGA Partners, we have observed these structural challenges firsthand. Traditional buyout approaches in publicly traded microcap biotech have often proven impractical. Earlier exploratory efforts across the sector underscored the difficulty of acquiring viable companies burdened by excessive dilution and fragmented equity ownership.

In February 2026, we adopted a different strategy.

Rather than pursuing outright acquisition, we are seeking to partner with select publicly traded biotech and biomedical technology companies that demonstrate:

Scientifically credible pipelines

Competent management teams

Clear regulatory pathways

Addressable markets with measurable unmet need

Our objective is to bring value by strengthening balance sheets, restructuring liabilities where feasible, supporting disciplined capital allocation and aligning financing structures with long-term shareholder value.

We believe that responsible capital partnership can:

Reduce reliance on toxic debt structures

Improve negotiating leverage with institutional investors

Position companies to reach key clinical milestones

Enhance attractiveness for strategic partnerships

This approach is designed to give promising innovators a fighting chance, not merely to survive, but to cross the finish line.

Biotech is unforgiving. It demands scientific rigor, regulatory precision and financial discipline. For microcap public companies, the margin for error is razor thin. But the societal upside is extraordinary, products that extend life, improve quality of care and address diseases long considered intractable.

We recognize both the risk and the responsibility in this space. Our mission moving forward is to collaborate with viable companies led by capable scientists and operators, provide structured solutions, and help them navigate the most difficult stretch of the journey.

Because in biotechnology, success is not accidental, it is engineered.

And when engineered properly, it has the power not only to increase shareholder value, but to change and save lives.