Is Your Biotech Actually Ready for an IPO?

Whether and when to go public is perhaps the most consequential decision that a private biotech company will make. For the right companies, the public markets offer the promise of large pools of capital, higher valuations and a potentially expedited path to M&A. 

However, before beginning the life science IPO preparation process, it’s worth acknowledging a hard truth. Over the past five years, the public markets have not been the right fit for many biotech companies, particularly those facing negative enterprise values, limited liquidity, and constrained financing options. In addition to the strategic questions behind the decision to go public, there are also many operational considerations to make the process work as smoothly as possible. Based on our work with dozens of companies who have made the choice to go public, with variable outcomes, below are the key questions for any company thinking about an IPO. 

1. Are you a fit for the public markets?

The public markets typically confer value to companies based on 12 month time horizons and require constant catalysts to sustain valuations, which reset daily. These requirements can often be a mismatch for biotech companies with longer durations between value inflections. Optimal IPO timing is, therefore, driven by alignment of your corporate profile with these market expectations. For most private biotech companies, this point is typically reached 6-12 months prior to Phase 2 readouts.

2. Are you ready for the constant scrutiny of the public markets?

The public markets demand a clear, concise explanation of value and timing while maintaining rigorous, ongoing disclosure requirements. The constant need to update corporate triumphs and challenges can have profound valuation, strategic and competitive implications far beyond what occurs in private markets and requires implementation of rigorous communications and investor relations competencies.

3. Can you credibly run a simultaneous IPO/M&A “dual process”?

The dual process, which describes a private biotech company simultaneously exploring a strategic acquisition while preparing to go public, has become a key element of an IPO. This strategy is designed to create a competitive bidding environment between these two large sources of capital, the public markets and the strategic buyer. The key to successful engaging both parties in to maintain credibility with two potential buyers who often have different demands.

4. What’s the optimal underwriter syndicate?

The lead manager is the first and most important hire, especially in the dual track scenario as they will run both processes. For this role, deal execution capabilities and strategic relationships should take priority. For other syndicate members, research quality/reputation is the most important variable as strong voices in the marketplace supporting your stock in your early days in the public market is the primary value that can be offered by the other syndicate banks.

5. How long does it take to get ready for an IPO?

Realistically about 9-12 months. The managerial challenge is to coordinate multiple complicated work streams across the clinical development, finance, and legal teams, each with its own timeline, to be completed at a synchronized point in the intermediate-term future.

6. Where should you start?

The Sarbanes/Oxley regulatory standard for 2 years of audited financial statements and a systems upgrade to establish more robust financial controls is always the longest pole in the tent. Get going on with those requirements first. After that, coming up with a plan and a timeline for drafting the S-1 is the next hurdle to address.

At its core, an IPO is one just one financing mechanism amongst many with its own strengths and limitations. Given the long term implications of being favored or punished by the public markets, companies need the right attributes, the right timing, and the right biotech IR advisor. To preserve the optionality for  securing a favorable outcome by launching into a receptive market, it is important to have the all pre-IPO questions answered and requirements completed well in advance of a contemplated offering.