As the cost of capital increases, Silicon Valley venture capitalists will be busy amidst a period of consolidation and transformation of healthcare startups. Venture capital firms will dictate investor-friendly terms to companies that find themselves in the unfortunate position of raising capital in this environment to launch new drugs.

There are 2,880 Biotechnology businesses in the US as of 2022, an increase of 7.5% from 2021. There isn’t enough VC capital to fund them, and VCs are looking for short-term growth. The first companies to find themselves in trouble will likely be single-condition companies that targeted a specific poorly managed disease—who, in the well-intentioned frenzy, create a new solution. They don’t have enough to launch new drugs in this environment, and money won’t be readily available until their drugs show promise in clinical trials.

Look also for failure among the wide range of companies valued more on the total addressable market than on any real-world impact on patient care.

Suppose a biotech company is lucky enough to have a promising drug that shows excellent results in clinical trials. In that case, I expect big pharma companies to swallow them up and market the drug at prices that will bring more heat to the industry.

A great example is Pfizer, which signaled its intent to quadruple the price of its COVID-19 vaccination potentially—and Moderna’s likely follow-on price increase would make anyone and everyone cynical. Defending biopharma with the “we need the money to develop drugs” lie will not cut it anymore. People want lower drug prices, and PhRMA can’t buy that many politicians.

I also expect that PBMs and insurers will ask for more data that new drugs perform much better than current molecules. Even cancer drugs will be scrutinized closer as prices continue to rise.

As for the people working in biotech? Too many had become multi-millionaires by cashing in on packages they were given when they joined the company. Moderna is an excellent example of executives making tens of millions of dollars off a vaccine developed by the NIH. That adds cost to small biotechs and scares away potential VCs.

Biotech companies will need to rethink their business plans in a changing healthcare environment where money will be tight. A lot won’t make it.