To say that the biotechnology sector is booming could be a significant understatement. The industry value increased to $1.38 trillion in 2023 and stays stable this is projected to grow to $4.25 trillion by 2033. Given this success, many biotech corporations are looking to move to the next phase of organizational development, which can mean an initial public offering.
Despite a slow thaw in the IPO market in recent years as the financial world was forced to deal with market disruptions ranging from geopolitical shocks to the fight against inflation, 18 biotech corporations have priced IPOs by September 2024. As optimism grows, market conditions may stabilize in 2025 – especially in the wake of recent rate of interest cuts – more biotech corporations may consider bidding.
However, going public is in fact easier said than done. With this in mind, here are some key pieces of data that biotech corporations should keep in mind when considering an IPO.
What exactly is an IPO and what types are there?
An initial public offering is a key step for any company, providing greater access to capital and visibility in the market.
There are three predominant types of IPO: conventional IPOs, which involve established corporations; IPOs of emerging growth corporations offering limited regulation; and SPAC IPOs, where a blank check company facilitates a listing.
Deciding on the appropriate IPO requires careful consideration, planning and execution in many areas.
Financial reporting and transparency
One of the most noticeable “shocks” that corporations face when going public is the extent of economic scrutiny from regulators.
Most biotech corporations are vaguely prepared to face the more stringent compliance guidelines set by Securities and Exchange Commission statute. But compliance expectations don’t end there – public corporations must also comply with many other requirements, including generally accepted accounting principles and the need to timely file financial reports akin to quarterly (10-k) and annual (10-k) reports. and other disclosures (8-K).
In addition to these expectations, biotechnology corporations must also establish strong internal controls to instill confidence among investors that their company is operating in a transparent and accountable manner.
Given the long road to an IPO, it is vital for management to engage in the process early on. Companies also need robust financial forecasting capabilities to provide timely and accurate guidance on revenue growth and profitability, which are key aspects for potential investors.
Corporate Governance and Leadership
Going public requires strengthened corporate governance structures, including a board of directors composed of independent members. Creating an effective board of directors is not a one-size-fits-all solution, as each industry and company would require a unique set of experience among board members.
For biotech corporations, this process is especially difficult because finding the correct mix of scientific expertise, public company experience and successful track records will be difficult. However, building a board with the right balance of competencies and experience is crucial for credibility and success.
Compliance with laws and regulations
Addressing legal and regulatory issues early is essential. Companies must make sure that their mental property is protected and be prepared for the constant risk of litigation. In IP-intensive industries akin to biotechnology, effective patent strategies are critical to maintaining competitive advantage and long-term value.
Compliance with the Sarbanes-Oxley Act, which imposes stringent internal controls over financial reporting, is one other key aspect, as is establishing a compliance function able to meeting these regulatory requirements.
Business model and development strategy
Investors evaluate not only the company’s past performance, but also its future potential. A transparent and compelling business model that demonstrates scalability and profitability is a must. Companies must communicate their strategy for growing market share, managing risk and maintaining competitive benefits.
Providing insight into growth drivers akin to recent product launches, market expansion or strategic partnerships helps investors understand how IPO proceeds can be used and how shareholder value can be created. This, in turn, will allow biotechnology corporations to encourage investor confidence and build a fame that can help them stand out from the competition.
Biotechnology-specific considerations
Biotech corporations face additional complexities due to the industry’s dependence on innovation and lengthy regulatory approvals. With long cycles of critical research and development that require significant capital investments that will not generate revenue for years, corporations must clearly communicate progress in drug preparation, clinical trials and regulatory timelines.
Additionally, it is vital to note that biotech IPO investors often focus on future potential somewhat than immediate profitability. So the more transparency biotech corporations can provide about how products are progressing, the market they’re targeting, and the competitive landscape, the higher.
Investor relations and saying “why”
An often ignored aspect of IPO readiness is the effective communication of the company’s value proposition to potential investors. This starts early in the process when corporations need to present a compelling narrative that highlights their strengths, market opportunities, growth potential, unique value proposition and explains their “why.”
Investor relations teams play a key role in ensuring that a company’s message is clear, consistent and supported by data. Whether it’s showcasing technological innovation, operational efficiency or revenue growth, the goal is to attract long-term investors with a strong data-driven story.
Post-IPO planning
After going public, corporations face recent pressures, including quarterly earnings expectations and go-to-market goals. For corporations used to operating more flexibly as private entities, managing market expectations will be difficult.
Maintaining regular communication with shareholders and achieving post-IPO goals is critical to long-term success. Companies that do not keep their guarantees risk falling share prices and market valuations, which can make it difficult to get better.