The amount of capital required to develop and bring a drug to market is significant. It is estimated that it costs US$1-2 billion to successfully take a drug from invention through all the clinical trials required to obtain the regulatory approvals and start the commercialisation process. Similarly, it costs many millions of dollars to complete the testing and obtain the regulatory approvals necessary to market a medical device. 

While many life sciences companies initially look to private capital for funding, there are many who turn to the public markets to raise capital; whether they have exhausted their private funding options or because they want to reach a broader investor base. This is particularly true for growth companies that have generated positive clinical data and are looking to raise larger amounts of capital than venture capital investors alone would be willing to invest (we explored venture capital funding options in our earlier article). 

Completing an initial public offering (“IPO”) is not ‘the easy option’ and there are certain types of life sciences companies for which an IPO may be more appropriate. In this article, we examine why a life sciences company might want to go public, the types of companies that might be best suited to life on the public markets and what the process of listing and completing secondary fundraisings looks like.

Why would a company in the life sciences sector want to list on the public markets?

At the time of listing, life sciences companies tend to be at a capital-intensive stage of development, whether they are involved in clinical trials, regulatory approval processes or preparing for the commercialisation of their products. Listing provides a variety of benefits including:

• Access to capital – There are many investors who provide funding to public companies who are not active in the private markets. These include institutional investors who can invest significant sums at the time of IPO, and in any follow-on fundraisings where a company shows progress in executing its business plan. There are also specialist ‘cross-over’ investors who focus on investing in companies that are working towards a listing, who seek to continue financing the company at IPO and thereafter. Receiving financial investment from institutional and other long-term investors can help to raise the profile of the company in the eyes of other potential investors;
   
• Access to specialist equity research analysts – Shortly prior to, and upon listing, a public company may receive coverage from equity research analysts who provide financial forecasts relating to the company, publish company news and results and may produce a rating on whether investors should buy or sell the company’s shares. Analyst coverage can give the company with greater exposure to potential investors, highlighting the company’s story and potential future developments;
   
• Reputational benefits – Listing on a recognised stock exchange can have a number of reputational benefits for a company. This may be as a result of being included in indices compiled by the markets e.g. the FTSE 250 or the NASDAQ Biotechnology Index, or simply because a particular jurisdiction views public companies as more trustworthy because they are more heavily regulated. This reputational advantage can provide access to opportunities that might not otherwise be available, such as the chance to bid for contracts or access funding; 
   
• Increased liquidity – Achieving and maintaining a listing on a recognised stock exchange enables the company’s shares to be traded more easily than they would be if the company remained private. This provides an increased level of liquidity for existing investors who may wish to exit their investment, while also allowing new investors to easily acquire shares in the company. There is also the opportunity to broaden the company’s shareholder base by giving retail investors the opportunity to buy the company’s shares; and
   
• Natural progression – Listing on the public markets is often seen as the natural progression for life sciences companies that have completed multiple rounds of private financing and want to broaden the pools of capital available to them. 

What type of life sciences company is best suited to listing?

Companies across the life sciences spectrum, including biotechs, pharma companies, medical device companies and med-tech companies have all listed on markets globally and grown successfully by accessing the capital available. Listed life sciences companies range from early-stage growth companies embarking on clinical trials to some of the world’s largest businesses, such as Pfizer, AstraZeneca, GlaxoSmithKline, Novo Nordisk and Sanofi etc. In London, the market capitalisation of life sciences companies ranges from less than £1 million to upwards of £190 billion. The diversity in the size of companies that have listed is matched by the investor pools who are available to support the companies at the different stages of development.

Life sciences companies can access public capital markets regardless of their specific sector, but some will attract more support than others. Typically, companies who can demonstrate sustained progress in the development of their products, e.g. through the achievement of development milestones, are likely to be of more interest to potential investors than those who are less active for significant periods of time. As we discuss further below, being able to update the market regularly with positive news is essential to maintaining interest in a listed company. 

How would a company decide which market to list on?

“Which market?” is one of the first decisions a board has to make after deciding to pursue a public listing. This is a very personal decision for each company and there is no ‘one size fits all’ response. It is important for the board to consider the specific opportunities available to their company if they pursue a listing on each of the markets they are considering.

What factors do the board need to think about?

Companies should consider the opportunities the market presents in a broad context. Key questions include:

• Which other companies are listed on the exchange and how do they compare in terms of size and stage of development?
   
• To what extent will analysts be interested in a company with this market capitalisation?
   
• Is there a pool of institutional investors who will potentially invest in a company at this particular stage of development? What is the size of the likely pool and is the investor of a type and quality the company would like to engage with?
   
• Does the company have a link to the jurisdiction the market is in that will help to generate investor interest?

The best way to make the decision is for the board to consider the advantages and disadvantages of the options available to the company. In our experience, the best way to do this is to speak with representatives of the various exchanges, advisers (including financial advisors and corporate finance lawyers) who work with companies on those exchanges and the companies who maintain listings on the exchange. Their experiences and tips can help guide a candidate company in its decision-making process.

But what about the company’s valuation?

The valuation that a company can achieve is usually given significant weight in the board’s “which market?” decision-making process. However, listing on a market purely based on the valuation achieved at the time of listing can cause the company difficulties later. A company whose shares are over-valued on admission may struggle to maintain that valuation in the after-market. Boards should consider the likely post-IPO performance of the shares and looking at the performance of companies in the same sector and with a similar profile can help with this. 

Is a US market listing the obvious answer? 

While a US listing might be the right option for many life sciences companies, it is not the right choice for all. It could be a mistake for a board to automatically opt for the US markets without considering the advantages that other markets can offer. 

Many life sciences companies are drawn towards a listing on the US markets (usually NASDAQ or the New York Stock Exchange) and the deep pools of capital available in the US. Our experience suggests that this is often driven by the perception that:

(i) the company is likely to achieve a higher valuation on the US markets than in London or elsewhere;

(ii) a US listing is the best way to access the market with the largest pool of capital in the world; and/or 

(iii) obtaining FDA approval can provide access to the largest healthcare market in the world and having a US link might provide some assistance with this process.

Earlier-stage life sciences companies may find that their market capitalisation would not be large enough, relative to other US listed companies, to allow them to achieve the outcomes that they seek on a US market. We would advise all companies to consider the benefits they could access by listing on markets outside the US, even where they may ultimately consider a move to the US markets in future. There have been several companies, including GW Pharma, which was ultimately acquired by Jazz Pharmaceuticals in 2021, and Spectral MD Holdings, Limited, that first listed on the AIM market on the London Stock Exchange and then moved to NASDAQ, either as a primary or secondary listing venue. 

Whichever market a company opts for, there is still the potential to obtain investment from US investors.  Many US institutional investors are active investors in the UK.  If this is an aim, the board should discuss with their chosen corporate finance advisers how the company might access US capital in a way best suited to the company’s circumstances.

What other factors should a company looking to access the public markets consider before starting the process?

Public companies are subject to greater regulatory requirements than private companies. In particular, there are disclosure obligations that the company must comply with at all times, so the board of directors and the management team must expand to ensure the company can meet these requirements. When considering whether to pursue a listing, a company’s board should consider the impact that the following matters will have on the company, its day-to-day operations and the management team:

• Additional scrutiny and a requirement to provide regular updates to the market – Listing on the public markets opens a company up to a level of public scrutiny that it is unlikely to have experienced before. Investors will expect to see a regular flow of news from the company, providing updates on the activities of the company and managing expectations. Failure to provide information can be just as damaging to a company’s reputation and share price as providing negative information, so it is essential for a candidate company to consider before listing (and regularly thereafter) how it will achieve a regular news flow. Key information which must be disclosed includes:
  
  
  • Financial reporting – There are regular financial reporting requirements to meet as a condition of maintaining a listing. The requirement on the London Stock Exchange is for at least half-yearly financial updates, but there are more onerous quarterly reporting requirements on other stock exchanges;
     
  • Market notification requirements – The disclosure requirements applicable to public companies require information to be released to all shareholders simultaneously. Only in certain limited circumstances can certain shareholders be provided with ‘inside information’, and there are restrictions on trading which will apply to that shareholder. This expectation is not commonly imposed on private companies, where discussions can be conducted with a few significant investors rather than the whole shareholder base. Companies considering listing will need to consider news flow in more detail and may need to seek additional support, e.g. from investor relations advisers, to help successfully navigate this new requirement.
     
  • Operational developments – Regular updates to the market on operational matters are necessary to maintain shareholder relations. This includes details of significant developments for example, the achievement or failure of key milestones such as the first dosing of patients in clinical trials, the results of clinical trials, or the conclusion of new contracts e.g. licensing and collaboration deals. The obligation to update the market extends to news which is both positive and that which is less positive. Significant changes in management expectations that have been communicated to the market will also require an update to be released, particularly where previously announced targets may be missed. There are also time limits on when information needs to be disclosed, so notifications cannot be delayed until the news is more positive; and
     
• Costs associated with the listing – Obtaining and maintaining a listing on any stock exchange can be expensive and time consuming and the company will incur costs that it would not otherwise incur if the company remained private. The initial costs are likely to be those required to prepare for and achieve the listing, including legal, accounting, specialist reporting (e.g. patent reporting), broker retention fees and commissions on funds raised and investor relations fees. Additionally, there are ongoing costs to maintain the listing, including fees payable to the relevant stock exchange and regulatory bodies, advisers required to be appointed as a condition of maintaining the listing and costs involved in complying with the various reporting and other requirements (as well as related management time). All of these need to be factored into the ongoing working capital requirements for the company. If the company wants to raise further funds or complete a significant transaction, that will also require fees to be incurred. The board of a listed company should regularly consider whether the benefits of being listed outweigh the costs involved in maintaining that listing.

Once a company has decided to pursue a listing, how should it prepare so that it is ‘IPO ready’?

Preparing for a listing can be an intensive process for a company’s management team. The work that needs to be undertaken is usually done in addition to the ‘day job’ of running the business. This can cause tensions when requests are received from various advisers and the management team feel they are being pulled in multiple directions. While the demands will inevitably increase as the company approaches the listing date, there are some matters that the board can consider in advance of the formal start of the process to help alleviate some of the tensions involved in the process, including:

• Ownership of assets – A life sciences company’s listing proposal will inevitably be based on its assets and the potential they offer. One of the most important classes of assets are the intellectual property rights (“IPR”) on which the company relies, whether owned or licensed. Prior to commencing the listing process, a company should conduct a detailed review of the IPR that it holds, ensuring that certificates and registration documents are easily available on request for review, and that licences are up to date and provide the rights that the company expects. It is also important to ensure that all registrations are up to date and that all fees have been paid;
   
• Board composition – It is important to consider whether the board composition needs to be adjusted to ensure that the board has the right balance of skills and experience required by a listed company. A listed company will generally appoint non-executive directors to the board and, if this is done in advance of the listing, they can assist the company in preparing for the IPO by familiarising themselves with the business. Companies should have discussions with their corporate finance and legal advisers in plenty of time before starting the listing process to ensure that appropriate candidates can be identified, interviewed and appointed in sufficient time to become acquainted with the company and the transaction documents ahead of the proposed listing date;
   
• Group reorganisations – Once the decision has been made as to which market the company will list on, the board should discuss with the company’s advisers whether any adjustments need to be made to the group structure to enable easy interaction with the market’s ongoing obligations, ensuring the best presentation of the group and its assets to investors; 
   
• Financial information – Although not a legal issue, one of the key elements of the listing process which takes a significant amount of time and management attention is the preparation of the company’s historical financial information and, where relevant, pro forma information. It is advisable for companies to discuss the proposed listing with their accountants prior to commencing the IPO process so they are in the best position to manage these demands efficiently; and
   
• Internal project management – As the listing process is run in parallel with the day-to-day business of the company, it is useful for the internal team who will be involved in the transaction to be assembled early on and for someone (usually someone relatively senior but not an executive director) to be responsible for co-ordinating and streamlining requests from external advisers and liaising internally to obtain the information required. 

This is not a comprehensive list of all considerations and the process for each company will be different. It is generally advisable to consult advisers with experience of the listing process at least 18-24 months in advance of an anticipated listing date to help prepare the company for the process.

What will the process of listing look like for a life sciences company?

The listing process will be different for each company, depending on the preparations required to prepare that specific company for listing and the market on which the company wishes to list. However, the following key aspects from a legal perspective will be present in all processes:

• Due diligence – The initial focus for the company’s lawyers will be to conduct an in-depth examination of all legal and regulatory areas of the business, including corporate structure, financing arrangements, contracts, intellectual property, data protection, employment and regulatory compliance, among others. In our fifth article we discussed the key areas that a buyer would focus on in the due diligence process for an M&A transaction and those areas will be similarly important for an IPO. The focus of due diligence is to identify risks that need to be disclosed to potential investors in the main listing document. Where possible, issues can be resolved prior to listing, but many of the issues may not be capable of rectification prior to, or after, listing and so these issues will need to be appropriately disclosed in the listing document;
   
• Investor presentations – Where a company is completing a simultaneous fundraising, an investor presentation will be prepared by the corporate finance advisers and broker. This will be used as part of the management meetings with potential investors that take place shortly prior to listing. The ‘investor roadshow’ is usually coordinated by the company’s broker and involves presentations to both existing and potential investors. This is an opportunity for the company’s management team to sell the company’s story to new investors to pique their interest and obtain further investment. It is also an opportunity for investors to ask questions of the management team to determine whether the company is one they would invest in;
   
• Listing Document – A listing document will need to be prepared and the form of this will differ depending on the particular market’s requirements. Broadly, it will incorporate sections covering the company, its business and future plans, its historical financial information, the general taxation position for investors, detailed information on the share history, constitutional documents, directors and significant shareholders’ holdings, material contracts entered into by the company, and a list of ‘risk factors’ that are specific to the company and the securities being offered. For a life sciences company there may be a separate IP or technical report, usually on the company’s patent portfolio, which provides investors with detailed information on the company’s key assets. The listing document will need to provide investors with sufficient information to enable them to make an informed view on the investment that they are making; and
   
• Verification – As the investor presentation and listing document will be provided to potential investors, they will each be subjected to a verification process prior to circulation. This involves each statement of fact or opinion in the document being verified against independent, third-party sources to ensure the statements are correct or based on reasonable beliefs.

Where necessary, unsubstantiated data or statements will either be removed or revised.  The verification process is intended to protect the directors of the company from making false or misleading statements, whether intentionally or inadvertently. This is because the directors are required to take responsibility for the contents of the presentation and listing document, ensuring that statements are not made to potential investors which might expose the company to litigation in the future and providing a record of the justification for including statements.

What happens when a company needs further funds?

The process of obtaining authorisation and achieving commercialisation is cash intensive. As with a private company, if a listed company requires additional funding it will likely first want to look to its existing shareholders for this. If funding is required in excess of what the existing shareholders will provide, a listed company has the opportunity to approach new investors in the market. The company’s financial adviser and broker will co-ordinate any fundraising process and will be able to suggest potential investors that the board may like to approach. The advantage for a listed company is that potential investors may already be aware of the company and have access to the information that the company has previously released to the market, which may help with the diligence process. 

Listed companies must comply with the rules of the relevant exchange when determining how much can be raised and whether any additional documentation is required, but their advisers will be able to guide them through this process. The ease with which a company can raise funds will depend upon the prevailing market conditions but companies with a strong story, who can demonstrate growth potential and an ability to deliver on their projections are likely to have the most success; a similar position to any fundraise conducted on IPO. 

What are the next steps if my company is considering a listing?

There are several steps that a company considering listing should take well before a final decision on strategy is taken.  The question of “which market?” will be an important one and we would advise any board to inform itself of the benefits of a variety of listing venues before coming to a decision. Even if a listing is a few years away, we would advise boards to ensure their corporate housekeeping, including the points raised in this article, is in order.  Finally, boards should start speaking to companies already listed on the markets, the relevant exchanges, as well as the company’s legal advisers and potential corporate finance advisers, to ensure that an informed decision can be taken when needed. 


If you would like to discuss any of the issues raised in this article, please contact Fiona McFarlane and James Baillieu, corporate life sciences partners, each based in the London office of Bird & Bird LLP.