There could be a biotech famine in 2020

Inventing drugs is a cash-intensive endeavor, and a big part of why the vast majority of biotech companies pursue IPOs is that the public markets provide a convenient way to raise the money they’ll inevitably need. But what becomes of the companies that run low on cash in a down market?

The analysts at EvercoreISI looked at cash balances across the biotech industry to figure out just who might need a trip to the Wall Street ATM in 2020, an election year that could be rough on investor sentiment when it comes to drug companies. It turns out that big companies, those worth more than $1 billion, have mostly stored up enough money to survive a lengthy winter.

But the smaller firms aren’t so fortunate. According to EvercoreISI, the roughly 140 biotech companies worth less than $500 million are on track to go broke in 2021, which means they’ll need to raise a cumulative $10 billion between now and then. If investor sentiment worsens in 2020, we could see companies raising money at a discount, taking on toxic debt, or just outright going out of business.