Taking Your Biotech Company Public: Considerations for a Modern Market
By: Adam Hunter
If your biotech company is considering going public, there are several different action steps to consider in preparation to ensure your success. Throughout the process of going public, invaluable resources include the right legal and accounting guidance, performing the necessary research and due diligence, and possessing the correct mindset.
An important prerequisite for going public is having the right advisors, both legal counsel and an accounting firm. Companies going public may not fully understanding the complex compliance requirements of both going public and being a public company. Before embarking on this process, it is critical you identify these advisors as they can help you fully understand your objectives and identify your company’s strengths and weaknesses. This will ensure you are prepared for the process, which can minimize the time and cost involved – along with reducing the stress!
Once you engaged the right advisors and fully understand the process, you must decide which method you will use to take your biotech company public. This can range from the traditional IPO process to a reverse merger with a current public company or even taking advantage of recent alternatives authorized by the SEC.
Going through an IPO would add a layer of complexity, as you would need interest from buyers before going public. If you choose a reverse merger into a shell, and that shell company is already public, you can enter the market without the initial buy-in. However, if you choose this path, perform the right research: do you have the right shell company for your goals and services? Performing due diligence into the acquisition target can save you from complications and legal issue later on. Intricacies with shareholders and stock options could complicate a reverse merger, but could be faster and easier if you have the right shell company. With a Form 10, the shares of your company aren’t actually registered for resale, but registers your company with the SEC and could potentially be good if you need visibility by going public. You could then file a separate registration statement on Form S-1 to register your shares for resale. Each of these options have their own benefits and drawbacks and making this decision will require careful planning and consideration with your advisors.
Performing the right research and due diligence will also ensure your entrance into the public market will be a success. When taking your company public, you will need capital along with a viable buyer; keep in mind, private equity generally does not invest in biotech. Take time to consider the best method of taking your company public to ensure you gain access to the market buy-in you need. Consulting with a strong legal team can also ensure you make correct and safe announcements through your public process, saving you from making claims you might not be able to back and opening the doors to potential legal liability. Additionally, your accounting firm can ensure the transaction is structured in the most tax-advantageous way for you and your company.
Once the public launch is successful, you will need to ensure your company has the necessary bandwidth and bench strength to follow the myriad of compliance requirements, such as quarterly reporting, filing other periodic required forms and internal control compliance certifications. If you’re not prepared for these prior to going public, it can strain a company’s time and resources unnecessarily and distract from your core operations. Your advisors can help you determine if your company is prepared for these challenges and can help point out things you may not have previously considered or planned for.
Finally, make sure you understand the mindset you need to have as a publicly traded company. Once you are no longer privately held, whether family owned or other, you are now owned by the general public, including board and committee members who now have to report to shareholders.
While there are several potential pitfalls to taking your company public, it can give you access to invaluable credit markets that could allow you to push your company to the next level.