The typical biotech timeline goes something like this: venture capital funding -- series A, B, C, D, etc. -- followed by an IPO (more money), followed by additional cash raises through secondary offerings.

Developing drugs isn't cheap. Raising cash is a necessary evil that unfortunately results in dilution for shareholders.

Fortunately, some biotechs have found a way to help investors keep a little bigger share of the pie.

Selling off the useless stuff
has been the king of specialization lately. The biotech sold the shares it still had in its spinoff RXi Pharmaceuticals, raising $17 million dollars. CytRx also let go of another spinoff, SynthRx, and sold off its molecular chaperone assets to Orphazyme. The cash raised will help the company fund its cancer drug program.

Similarly, Exelixis (Nasdaq: EXEL) sold off its mouse model business to raise some cash a few years ago. The company still doesn't have a drug on the market, but at least it's getting close.

Vertex Pharmaceuticals (Nasdaq: VRTX) recently received Food and Drug Administration approval for Incivek, but it wasn't the first FDA approval Vertex had a hand in. Until a few years ago, Vertex was receiving royalties for its efforts in developing GlaxoSmithKline's HIV drug Lexiva. In 2008, the drugmaker traded the royalty stream for upfront cash. Without that move, current investors would likely own a little smaller piece of Incivek.

A little help from a friend
(Nasdaq: NVAX) got help from Uncle Sam with its non-dilutive financing. The company secured a contract worth $97 million over three years with the potential for an additional $82 million in the subsequent years to design a new, faster way to produce flu vaccines.

Nonprofits can also be a source of funding for companies. Vertex took money from the Cystic Fibrosis Foundation. Ditto for Biogen Idec from the Juvenile Diabetes Research Foundation. And even big Johnson & Johnson (NYSE: JNJ) took some cash for a tuberculosis drug that probably wasn't financially worth developing without the help of the Global Alliance for TB Drug Development.

Grabbing money from a platform
Companies lucky enough to have a platform capable of developing multiple drugs can raise cash by licensing out their technology.

Seattle Genetics (Nasdaq: SGEN) and ImmunoGen (Nasdaq: IMGN) have technologies that allow antibodies to be attached to toxic payloads to increase the killing of tumor cells, and both have been busy licensing it. The upfront cash isn't particularly exciting -- Seattle Genetics got just $8 million up front from Pfizer -- but it adds up; all told, Seattle Genetics has raked in $145 million in licensing fees to help fund its own pipeline.

Similarly, Alnylam Pharmaceuticals' (Nasdaq: ALNY) RNAi technology can be used to develop multiple drugs. Novartis, for instance, has signed on to develop RNAi-based drugs against 31 different targets.

Dilution in disguise
Licensing out drugs is another way to draw upfront cash and potentially reduce the rate that cash is burned through if the licensor picks up some or all of the development costs. But out-licensing drugs ultimately has the same effect as raising cash by selling shares since current investors own less of the out-licensed drug than they did before the partnership.

That isn't to say that every partnership is a bad idea. For small drug developers, a partnership is often a much better choice than raising cash to push through to the next phase of development. Just don't forget you're giving something up when a company you're invested in signs up a development or marketing partner.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.