As biotech markets begin to show signs of life, how should company leaders and investors prepare for what’s next?
Biotech executives, investment bankers and partners from Deloitte’s life sciences practice and Fenwick’s capital markets and life sciences practices delved into this and other questions at our Life Sciences Summit – Navigating a Path to the Public Markets in Today’s Climate event in San Francisco last month, co-hosted with Deloitte.
A key takeaway from panelists is that it appears some promising “green shoots” are beginning to break up the nearly frozen IPO landscape. Investors this year have welcomed new biotech market entrants, even as the prices of public drug companies fluctuated.
Pharmaceutical giants—some about to lose exclusivity on top-selling drugs—are keen to acquire smaller companies that can add to their pipelines. But many biotech startups want to continue as standalone businesses, and are eyeing the public markets.
Below are select insights from our event panelists about life sciences exits, and whether biotech startups should batten down to remain private longer term, or prepare to go public via the traditional IPO process or other strategic transaction, such as a reverse merger.
- Dusting off the S-1s. After two blockbuster years for biotech IPOs, 2022 has unsurprisingly seen a slowdown. But investors are optimistic that next year will be more active, as high-quality companies with promising clinical data are putting the wheels in motion to go public.
- Focus on Various Means of Going Public. This year showed that SPACs can be complicated as they require adhering to new regulations and steady new capital. The traditional IPO path can mean volatile price swings, but allows companies to stay private until the day they debut and to better utilize testing-the-waters meetings with investors before launching publicly. Reverse mergers can be another means of going public but going this route may also require additional concurrent financing and carry other considerations, such as post-transaction analyst coverage and investor base.
- Importance of Preparation, Not Speed. Thorough preparation, not speed, is the key in preparing to go public, and biotech startups should take advantage of the slower market to get their houses in order. The critical period for many companies planning an IPO begins six to eighteen months prior to listing and lasts until the six months post-IPO. For many, this may also include preparing for your first financial statement audit. Startups should work backward from the date they intend to file an S-1.
- Budget Time to Build Finance Team. One public company executive noted that in the traditional IPO process, with many financial requirements to meet, time can be the enemy, and hiring a technical accounting firm can be very helpful. However, the talent market continues to be fairly tight, and many pre-IPO companies are using third-party providers to help them meet their financial reporting requirements.
- Revisit Board Composition. Biotech companies have time to prepare for what it will be like to be public. For example, they can make plans for the composition of their board of directors, which is almost certain to change. VC board members may step down, and there will likely be pressure to form a diverse board that includes various skillsets and points of view. In addition, many companies going public need to add an Audit Committee financial expert to their board. They are in high demand so companies should build in time to find this candidate.
- Be Prepared to (Frequently) Adapt Your Playbook. Going public in this environment can mean that data from previous IPOs go out the window, and there is no clearly defined playbook to follow. Plans that are made, often months in advance, are implemented through incremental progress.
Markets are great at surprising investors, and panelists agreed it will be interesting to see what surprises are in store this year and next. One thing that is not surprising is that biotech startups are beginning to eye the public markets again, hoping recent debuts are the harbingers of a positive new trend.
If this is the case, it might not be long until we see more interesting market debuts. We will be providing additional updates on the fast-changing biotech IPO landscape in the coming weeks and months.
Fenwick corporate partner Ryan Mitteness, Caribou CFO Jason O'Byrne, Deloitte & Touche LLP Audit & Assurance partner Carolyn Selig and Fenwick corporate partner Julia Forbess. (Credit: Fenwick)