IPO readiness for life sciences

07 January 2022

Graham Bond, Co-Head of Life Sciences, highlights the key considerations for life sciences companies when planning their IPO strategy.

Setting the stage months, or even years, ahead of an initial public offering (IPO) is essential for life sciences companies.

Five key questions for life sciences companies to consider:

1. Do you have a clear story?

At a life sciences industry event chaired by RSM, panellists from listed biotech and life sciences companies shared what they learned from going public.

There are so many life sciences and biotech companies that you need to be able to stand out from the crowd. Most panellists highlighted the importance of clearly communicating the company story to investors - its origin and vision, and its milestones and investment journey. Supporting data is essential, but it’s the story that ensures investors don’t get lost in the science.

One panellist said that being able to explain your five-year plan in strategic steps is crucial, as otherwise it can be hard to explain your business vision to investors who aren’t specialists in your field. Unless investors can understand how to measure risk and value the progress milestones as you hit them, it’s very difficult for them to value your business.

2. How strong is your management team?

You need a strong management team to create investor confidence. As a panellist pointed out, you really want scientists focusing on the science and so it’s essential that responsibility for other key business functions is allocated to specialists.

If your business is lacking skills and experience in investor relations, the key areas to invest in are accounting, sales, and marketing, either through key hires or quality outsourced solutions.

Arming your business with excellent advisers and a strong board, which can include non-executive directors, was cited as essential preparation for IPO. Having these people in place will make a huge difference, especially as so much senior leadership time is spent securing investors and you are unlikely to have the time to speak to external stakeholders yourself.

3. Have you raised enough capital?

The panellists agreed it was essential to raise enough capital pre-IPO, as it can be tough to secure further funding before you reach certain milestones. One panellist highlighted how important it is to get the business valuation right, as it will create a positive news flow post-IPO that, in turn, helps to drive the share price. It’s better to under-promise and over-deliver to your shareholders. The costs of going public can easily be underestimated.

To fully understand the financial impact and risks of going public, we recommend working with your accounting, legal, and compliance advisers to assess the various fees and costs.

4. Is your infrastructure ready?

The panellists stressed the need to establish your company infrastructure as part of preparing your business for IPO. Systems, processes and controls may be inadequate to meet the demands of being a public company, so these three elements should all be evaluated and upgraded at the same time.

Becoming a public company will subject the accounting and finance function to more regulatory scrutiny. The reporting bar is much higher, and the flow of information to investors must be constantly maintained.

5. Are you allowing enough time for IPO preparation?

The panel agreed that early planning, with the assistance of a team of qualified professionals, was fundamental to a successful IPO. A panellist advised allowing enough time for the lengthy process of building relationships with investors, and getting on the investor road show well before you think you need to.

More specifically, the planning process should begin two to three years before the anticipated date of completing the offering. This lead time is important if you wish to keep IPO costs to a minimum, avoid surprises, and adequately prepare the company for the due diligence process and the public scrutiny associated with an IPO, and increase the chances of good market timing.