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Biotech companies use secondary, or follow-on, offerings to sell additional shares or related securities after an initial public offering (IPO). The cash typically extends the runway needed for Phase 2 and Phase 3 trials, manufacturing, regulatory filings and other work that becomes substantially more expensive as a program advances. The trade-off is immediate dilution for existing shareholders, plus pricing, execution and market-access risk.
What a biotech follow-on offering is
A follow-on offering is a public-company financing completed after the IPO. The issuer creates and sells new common shares, or securities that can become shares, to investors. Because the company receives the proceeds, this is primary issuance rather than a sale by an existing shareholder. “Secondary offering” is often used broadly in market coverage, although a transaction can also include selling shareholders whose proceeds do not go to the biotech.
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For a clinical-stage company, the purpose is usually to convert investor demand into cash before the existing balance falls too low. Trial expenses arrive over several years: investigators and sites must be paid, contract research organizations (CROs) manage operations, manufacturing organizations produce clinical material, and regulatory and data work continues after the last patient is enrolled.
The Biotechnology Innovation Organization (BIO) described follow-ons and at-the-market (ATM) programs as “the bedrock of capital formation for small public biotechs” in 2022. Its SEC comment archive reported approximately $114 billion in cumulative follow-on issuances versus $46 billion in IPOs since the 2012 JOBS Act. The comparison shows why the IPO is only one financing event in the life of many public biotechs.
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Why follow-ons become more important after an IPO
An IPO commonly finances research and entry into Phase 1. BIO’s phase-based explanation is that follow-ons become more important for Phase 2 and Phase 3, when enrollment, controls, monitoring and manufacturing requirements expand. Phase 3 is generally the largest stage and provides the principal clinical basis for an FDA application; BIO notes that a Phase 3 trial can cost hundreds of millions of dollars to run.
| Development stage | Typical financing role | Why cash needs change |
|---|---|---|
| IPO and preclinical/Phase 1 | Build the platform, complete enabling work and enter first-in-human studies | Smaller initial studies, fewer sites and shorter follow-up than pivotal trials |
| Phase 2 | Fund dose-finding, proof-of-concept and expansion cohorts | More patients, more sites, longer follow-up and potentially multiple indications |
| Phase 3 | Fund pivotal trials and preparation for regulatory submission | Large patient populations, global sites, comparator supply, manufacturing scale-up and extensive data work |
| Registration and pre-commercial work | Support filings, inspections, launch preparation and continued manufacturing | Regulatory, commercial and supply-chain spending can overlap with remaining trial costs |
The phase labels are not a promise that one offering will fund an entire stage. A company may need several raises, a partnership or another source of capital if enrollment takes longer than planned, a study is redesigned or regulators request additional evidence.
How the financing is arranged
1. Registration and shelf capacity
The company first files a prospectus for the offering or relies on an existing shelf registration that permits securities to be sold over time. The filing describes the securities, risk factors and intended use of proceeds. A shelf gives management flexibility, but it does not guarantee that investors will buy shares or that market conditions will support an attractive price.
2. Choosing the transaction format
Management and its advisers select a structure based on speed, investor demand, disclosure requirements and the amount needed.
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- Underwritten follow-on: investment banks market a defined block of shares, usually at a negotiated discount, and purchase the securities for resale to investors.
- Registered direct offering: already-registered securities are sold directly to selected institutional investors, often closing faster than a broadly marketed deal.
- ATM program: shares are sold into the public market periodically through an agent at prevailing market prices. An ATM can reduce the need to raise the full amount at one time, but the company cannot control the price of every sale.
- PIPE: a private investment in public equity sells securities to selected investors, generally with resale registration or another path to liquidity.
- Confidentially marketed transaction: the company and banks approach investors privately before announcing the financing, limiting market exposure during the marketing period.
3. Timing around catalysts
Biotechs frequently seek capital near a clinical readout, regulatory milestone or other catalyst. Investors may be more willing to fund a company when data reduce uncertainty, while management may want cash in hand before a result creates volatility. Gibson, Dunn & Crutcher’s Q2 2025 review found that 87% of follow-ons were confidential offerings and 76% were catalyst-driven. Those percentages describe that quarter’s market, not a permanent rule.
4. Setting the securities and price
The financing can include common stock, pre-funded warrants or other securities. Underwriting discounts, warrant exercise prices, expiration dates and investor protections affect the cash received and the number of shares that could eventually be outstanding. A pre-funded warrant generally requires only a nominal exercise payment after most of the purchase price has been paid, so investors and existing holders should analyze its potential share count rather than treating it as unrelated to dilution.
5. Closing and reporting
The prospectus or offering announcement states gross proceeds, expected expenses, the number and type of securities, and the anticipated use of funds. Gross proceeds are the headline amount; net proceeds subtract underwriting discounts, commissions, legal fees and other offering expenses. Subsequent quarterly filings show cash, investments, operating losses and updated expectations, allowing investors to compare the original plan with actual spending.
Where the proceeds go
Clinical trials are only one line in a biotech’s cash budget. Zentalis’ 2026 prospectus listed clinical trials, preclinical studies, regulatory filings, manufacturing, a companion diagnostic, pre-commercial activities, capital expenditures and working capital as intended uses. It also warned that actual allocations may differ and that management can redirect funds as conditions change.
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- Trial operations: investigator grants, site start-up, patient recruitment, monitoring, data management and CRO fees.
- Clinical supply: drug substance, finished product, packaging, labeling, storage and stability testing.
- Regulatory work: submissions, agency interactions, inspections and required analyses.
- Preclinical and translational studies: toxicology, biomarker work and experiments supporting new indications or combinations.
- Diagnostics and infrastructure: companion-diagnostic development, laboratories, equipment and information systems.
- Working capital: payroll, facilities, insurance, professional fees and other ordinary corporate expenses.
A company may state that proceeds will fund a trial through a particular milestone, but that statement is an estimate. Enrollment can slow, per-patient costs can rise, manufacturing batches can fail, or a protocol can require amendment. The prospectus normally preserves broad discretion to change the allocation.
How companies translate a raise into clinical runway
Runway is the period during which available cash and investments are expected to cover operating needs. Finance teams model the timing of patient enrollment, site activation, CRO invoices, manufacturing campaigns, regulatory payments, payroll and overhead. They then compare projected cash outflows with cash on hand and the net proceeds of the offering.
Runway is not simply “net proceeds divided by last quarter’s expenses.” Clinical spending is lumpy: a manufacturing campaign or milestone payment can create a large one-time outflow, while enrollment may be slow at first and accelerate later. Public companies also report non-cash expenses and may have restricted cash, debt obligations or collaboration payments that make a simple burn-rate calculation misleading.
A 2023 annual report from a clinical-stage biotech described financing through private placements, an IPO and multiple Nasdaq follow-ons while advancing thirteen late-stage candidates. It reported approximately $2.4627 billion in net IPO and follow-on proceeds and expected increasing costs for CROs, contract manufacturing organizations, investigators and trial sites. The example illustrates how cumulative financing can be large when a company advances many programs; it does not establish that every dollar was spent on one trial.
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Zenas BioPharma reported $419.0 million in gross 2026 financing proceeds, including approximately $300.0 million from concurrent March 2026 public offerings and approximately $74.0 million from ATM sales. It reported cash and investments of $718.5 million at March 31, 2026, and said that amount, together with additional financing assumptions, was expected to fund operations through the second quarter of 2029. That is management’s estimate, not a guarantee of funding or clinical success. Gross proceeds also are not the same as cash available after transaction expenses.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.How much dilution does a secondary offering create?
New shares increase the total shares outstanding. If an investor owns the same number of shares after the offering, that investor owns a smaller percentage of the company because the denominator has grown. The percentage effect depends on the number of new shares issued relative to the pre-offering share count, not merely on the dollar value of the raise.
Potential dilution can be greater than the immediate issuance. Pre-funded warrants, ordinary warrants, options and convertible securities may become shares later. Investors should read the capitalization table, fully diluted share count, warrant terms and any beneficial-ownership limitations in the prospectus.
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What the 2025 market says about structure and access
Gibson Dunn’s Q2 2025 recap recorded $4.3 billion across 22 follow-on offerings, down from $7.6 billion across 43 deals in Q2 2024. PIPE volume was $0.6 billion. The quarter favored confidential and catalyst-linked structures, suggesting that companies were selective about when and how they exposed a financing to the market.
| Metric | Q2 2025 | Q2 2024 | How to interpret it |
|---|---|---|---|
| Follow-on proceeds | $4.3 billion | $7.6 billion | Aggregate market volume fell year over year |
| Number of follow-ons | 22 | 43 | Fewer transactions closed |
| PIPE volume | $0.6 billion | Not stated in the cited recap | PIPEs remained one financing route within the quarter |
| Confidential offerings | 87% of follow-ons | Not stated | Shows the quarter’s strong preference for private marketing before announcement |
| Catalyst-driven offerings | 76% of follow-ons | Not stated | Milestones were a common timing factor |
Market access can deteriorate quickly during a biotech downturn. If public investors will not support a follow-on at an acceptable price, a company may consider a private placement, debt, licensing transaction, partnership or asset sale. Each alternative can impose different costs: debt creates repayment obligations, a license may surrender future economics, and an asset sale can reduce the program portfolio.
A practical framework for comparing two biotech financings
Headline proceeds are not enough. Use the following checklist when reading an offering announcement or prospectus:
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- Identify the security: common shares, pre-funded warrants, ordinary warrants, convertible securities or a combination.
- Check registration: underwritten public, registered direct, ATM, PIPE or confidentially marketed transaction.
- Separate gross from net proceeds: subtract discounts, commissions and expenses before estimating runway.
- Measure dilution: compare new shares and potentially issuable shares with the pre-transaction and fully diluted counts.
- Record the price terms: offering price, discount to the last close, warrant exercise price, expiration and reset provisions.
- Locate the catalyst: determine whether data, a regulatory event or a financing need appears to have driven timing.
- Read the use-of-proceeds language: list named trials, manufacturing, regulatory work and working capital, then note the discretion reserved to management.
- Test the runway estimate: compare the stated endpoint with enrollment plans, trial phase, number of sites, manufacturing commitments and historical cash burn.
- Check follow-on risk: look for language indicating that another raise may be required before a study or filing is complete.
- Distinguish guidance from results: later quarterly reports are needed to see whether spending and timelines matched the original forecast.
Key risks for shareholders and patients
- Dilution and price pressure: additional shares reduce existing ownership percentages, and discounts can weigh on the stock.
- Clinical execution: financing does not fix recruitment problems, protocol changes, manufacturing failures or negative efficacy and safety data.
- Runway uncertainty: estimates can be wrong when costs, enrollment speed or regulatory requirements change.
- Capital-market dependence: a company that needs another raise may face a lower price or limited investor demand if sentiment turns.
- Allocation discretion: proceeds described for a named program may be redirected to other candidates, operations or strategic needs.
- Security complexity: warrants and convertibles can create future dilution or unusual incentives that are not visible in the basic share count.
The central trade-off is straightforward: a financing can buy enough time to reach a value-creating clinical or regulatory milestone, but shareholders pay through dilution and the risk that the milestone never arrives. A well-funded trial is not necessarily a successful trial.
Quick Recap
What to remember
- Follow-ons are a recurring public-market funding source for clinical-stage biotechs, not an exceptional event.
- IPOs often support early clinical entry; follow-ons become more important as programs move into larger Phase 2 and Phase 3 studies.
- Offerings are commonly timed around catalysts and may use confidential marketing, registered directs, PIPEs or ATMs.
- Prospectuses describe intended uses, but management usually retains discretion and runway estimates can change.
- The useful comparison is additional runway versus dilution, pricing, security terms and the probability of successful clinical execution.
- Market conditions determine how much capital is available and what it costs at the moment a company must raise.
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