<<What's the denominator of small biotechs with tiny market caps, running short on cash? >>
Looking at / owning this universe in an undifferentiated manner is certainly not a good strategy for making money, we can all agree.
The question surely is whether we can pick a few late-stage biotechs that have a much better than average prospect of creating value. They'll do this by bringing products to market or close enough to market that they are bought out first.
It's my working hypothesis that quite a few of us can do well with this, inter alia because the sector is so beaten down that the bets are cheaply priced. However, to your point, if I read you right, if in this financial environment even highly promising companies cannot raise cash to get to the required stage for proving value, then my hypothesis will be disproved. (That's not the only potential disprover, of course.)
Do others look at the overall strategy differently?
I'm reading Nassem Taleb's Black Swan. Much of the meat of what he says applies to this game, seems to me, including the enormous difficulty of sticking to what you believe to be a promising bet in the face of day after day of declining stock prioe, snide comments from some who shall be nameless, short attacks, Brean Murray / Oppenheimer lies / distortions, etc. Always easier, even for smart guys, to be part of the herd at least some of the time.
This psychology explains why some of us who were on the right side of the DNDN bet, to take a stark black swan example, always harp on about it. We were convinced it was a good bet at the price, and we happen to have been proved right. (As long as we took some or all of our money and ran after the stock trebled / quintupled post-AC) Gotta hang on to those affirmations to have the courage / self-respect to hold other bets that may also take years to come good, or may indeed be the ones that don't pan out but were still ex ante good bets to take on. (Dew does the same with his occasional scorecarding on MNTA and other big payoffs.)
Anyway, it may be worth it for some of us to talk about "what the heck we think we are doing here" even if for others it's either too obvious or too 'academic' to be interesting.
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