Platform vs Program Budgeting in Biotech: Clarify runway, costs and investor narrative

Platform vs. Program Budgeting: How to Structure Your Biotech's Finances

For an early-stage biotech, the budget is more than a financial document; it is the strategic roadmap. It dictates how long the cash runway will last, which scientific questions can be answered, and how the story is told to investors. Yet, for many founders managing finances in a spreadsheet alongside their core R&D work, a critical challenge emerges: how to budget for biotech platform and drug programs separately but cohesively. This isn't just an accounting exercise. Getting it wrong obscures the true cost of developing an asset, makes it difficult to justify resource allocation, and can undermine a fundraising narrative before it even begins. A well-structured budget, on the other hand, provides the clarity needed to make confident decisions, articulate value to investors, and pivot with intention.

Foundational Understanding: The Two-Bucket System

The simplest, most effective way to begin structuring your budget is with a “Two-Bucket System.” This approach separates all research and development spending into two primary categories: Platform R&D and Program R&D. This initial split is the foundation of clear biotech budgeting strategies and provides immediate insight into your capital allocation.

Platform R&D includes costs associated with developing, maintaining, and improving your core technology. This is the engine that generates future programs. Think of expenses like foundational discovery research that is not tied to a specific drug candidate, technology optimization, new target validation activities, and the development of novel screening assays or computational tools. The return on investment (ROI) for platform spending is long-term and broad, enabling the creation of a pipeline of assets.

Program R&D covers costs directly attributable to advancing a specific drug candidate or asset. This includes expenses like lead optimization for a named compound, IND-enabling studies for a specific candidate, and any outsourced CRO work for a particular program, from pharmacology to GLP toxicology. Program ROI is more near-term and is measured by achieving discrete, value-inflecting milestones, such as demonstrating in vivo proof-of-concept or completing preclinical toxicology studies.

Separating these costs in your financial model, whether in Excel, Google Sheets, or your accounting software like QuickBooks (common in the US) or Xero (often used in the UK), provides immediate clarity on your capital efficiency. It allows you to see exactly how much you are investing to maintain and enhance your discovery engine versus how much you are spending to push specific assets toward the clinic.

The Gray Area: Mastering Drug Development Cost Allocation

The Two-Bucket System works perfectly for direct costs, like a CRO contract for a specific program. The complexity arises with shared costs, which is a primary pain point for founders. How do you handle the salary of a Head of Biology who oversees both platform discovery and a lead program? Or the cost of lab consumables used by multiple teams? This is where drug development cost allocation becomes critical.

The reality for most early-stage startups is more pragmatic: you don't need a perfect, audit-proof system from day one. Instead, you need a stage-appropriate method that provides directional accuracy for strategic financial decision making.

The ‘Good Enough’ Method (Pre-Seed/Seed): FTE-Based Allocation

For the earliest stages, a simple allocation based on Full-Time Equivalent (FTE) effort is sufficient. Sit down with your science leads quarterly and estimate the percentage of time key personnel spend on platform activities versus specific programs. This estimate then drives the allocation of their salaries and associated overhead like payroll taxes and benefits. This method is valuable for resource allocation in biotech when precision is less important than speed and directional accuracy.

Consider this illustrative example:

• Head of Biology: 50% Platform R&D, 30% Program 1 R&D, 20% Program 2 R&D
• Senior Scientist: 10% Platform R&D, 90% Program 1 R&D, 0% Program 2 R&D
• Lab Technician: 70% Platform R&D, 15% Program 1 R&D, 15% Program 2 R&D

The ‘Better’ Method (Series A): Project-Based Allocation

As your team grows and you raise a Series A, investors will expect more granularity. At this point, you can evolve to a simple project-based system. Assign project codes to your core platform and each drug program within your accounting system. Team members can loosely track their time against these codes, or the leadership team can estimate allocations at a project level. This provides a more defensible basis for managing biotech program expenses and satisfies investor demands for greater oversight.

The ‘Partner-Ready’ Method (Series B/Diligence): Simplified Activity-Based Costing (ABC)

By Series B, or when entering serious partnership discussions, a more robust model is needed. A simplified ABC approach allocates costs based on specific activities. For example, you might determine the cost per mouse in an in vivo study or the cost per assay run, and then attribute those costs to the platform or program that consumed the activity. This level of detail is essential for due diligence with potential pharma partners and demonstrates sophisticated R&D budget planning.

From Budget to Narrative: Answering Investor Questions on Platform Technology Funding

A well-structured budget is your most powerful fundraising tool because it preemptively answers the tough questions investors will ask. When your financial model clearly separates platform technology funding from program-specific spend, you can build a credible and compelling narrative. Investors want to understand how their capital translates into value-inflecting milestones. Your budget should directly link spending to outcomes.

For instance, you can clearly state: “With $5 million allocated to Program X, we will achieve in vivo proof-of-concept within 18 months. Concurrently, we are investing $2 million in our platform to generate our next two lead candidates.” This clarity demonstrates you are thinking not just about the science, but about capital efficiency and value creation.

This structure allows you to run scenarios that are critical for fundraising conversations. An investor might ask, “What if you killed Program Y and accelerated Program X?” With a segregated budget, you can quickly model this shift, showing the impact on your cash runway and milestone timelines. This demonstrates that you have a firm grasp on the financial levers of the business. You can show how a $15 million raise gets you to Milestone A, while a $20 million raise gets you to Milestone B and also de-risks the platform for a third program. This transforms the budget from a static spreadsheet into a dynamic tool for strategic dialogue, showing investors you are not just a scientist, but a capital-efficient operator.

The Agile Budget: Making Faster, Smarter Pivots

Science is unpredictable. Preclinical data can force a rapid change in priorities, and a rigid, annual line-item budget can hinder your ability to react. The platform vs. program structure is inherently agile and supports faster, smarter pivots, a critical element of biotech financial decision making.

Imagine your lead program unexpectedly fails a key toxicology study. With a traditional budget, untangling the program’s specific costs to reallocate capital could take weeks of work, delaying a crucial go/no-go decision. This risks wasting precious runway on a non-viable asset or missing a window of opportunity for a more promising backup candidate.

With a dynamic, two-bucket budget, the decision-making process is streamlined. You know precisely the monthly burn rate of the failed program, including the allocated headcount and direct external costs. This clarity allows you to immediately see how much capital is freed up by terminating it. You can then model the impact of reallocating that capital to another existing program or back into the platform to accelerate the discovery of a new candidate. This ability to pivot decisively, based on clear financial data, is a significant competitive advantage. It ensures that your resources are always aligned with the most promising science and the most efficient path to value creation.

Practical Takeaways for Your R&D Budget Planning

For founders navigating the complexities of R&D budget planning without a dedicated finance team, the goal is clarity, not unneeded complexity. Adopting a platform versus program budgeting approach is a pragmatic first step that provides immediate strategic benefits.

Here’s how to start:

1. Embrace the Two-Bucket System: Begin by restructuring your current budget spreadsheet. Create two main sections: Platform R&D and Program R&D. Go through your expenses line by line and assign each direct cost, like a specific CRO contract or reagent, to one of the two buckets.
2. Start with ‘Good Enough’ Allocation: For shared costs like salaries and lab supplies, use the FTE-based allocation method. It’s simple, requires minimal tracking, and is perfectly adequate for early-stage planning and seed-stage investor conversations. For more granular allocation later on, see activity-based costing.
3. Link Budget to Milestones: For each program bucket, clearly list the key scientific milestones that the allocated capital is intended to achieve and their target dates. This connects your financial plan directly to your R&D strategy and fundraising narrative.
4. Model Key Scenarios: Use your new structure to answer critical strategic questions. What happens to your runway if you pause Program 1? How much faster can you advance Program 2 if you double its budget? Having these answers ready builds confidence with your board and potential investors.

This isn't about perfect accounting, especially in the early days. It's about creating a financial framework that supports better decision-making, tells a clearer story, and allows your company to adapt to the inherent uncertainties of biotech R&D. This approach ensures your financial plan is a true reflection of your scientific strategy. See the program-portfolio FP&A hub for related guides.

Frequently Asked Questions

Q: How often should we update our FTE allocations?

A: For early-stage companies using the FTE method, a quarterly review is generally sufficient. Sit down with your scientific leadership to reassess time allocation as priorities shift. This keeps your budget directionally correct without creating excessive administrative burden for the research team.

Q: Can G&A (General & Administrative) overhead be allocated this way too?

A: While R&D is the primary focus, you can apply a similar logic to G&A. Typically, G&A is kept as a separate, third bucket. However, if a significant portion of leadership time is spent on a specific program's business development or fundraising, a portion of that cost could be allocated to the program.

Q: What is the biggest mistake founders make with this type of budget?

A: The most common mistake is failing to update the model. A budget is a living document. When experimental results change your priorities, the budget must be updated immediately. An outdated budget leads to poor biotech financial decision making and can damage credibility with investors if your narrative and numbers are misaligned.