Getting ready to go public: Insights for early-stage life sciences companies

By Bonnie Jarecke, Audit & Assurance Partner, Deloitte & Touche LLP, and James Byrd, Audit & Assurance Partner, Deloitte & Touche LLP

Talking points

• Early-stage life sciences companies can get ready to go public by bolstering essential skill sets and capabilities.
• Closing, forecasting, and implementing more robust enterprise resource planning (ERP) systems that can scale with the business should be a priority.
• A number of technical accounting skills and considerations can also come into play.

The synergy between the life sciences sector and IPO market is undeniable. Approximately 44% of all IPOs from 2019 through 2023 were in the life sciences industry.¹ Naturally, the IPO market slump over the past two years had an impact on life sciences companies at a high rate as well. During this period, large numbers of early-stage life sciences companies decided to remain on the sidelines over uncertainties of lower valuations and tepid returns for their early investors.²

Fortunately, capital has begun flowing again in the US IPO market, with the number of IPOs for the first six months of 2024 increasing to 94 worth $16 billion compared to 79 IPOs worth $10.4 billion for the same period in 2023.³ Is this the start of a turnaround or just a brief window of opportunity? Deloitte’s Capital Markets Transactions group leaders are the first to say that no one knows for sure. Despite this uncertainty, life sciences companies looking to go public can be ready to move when market conditions are favorable. With that in mind, we thought we’d share a few important considerations for early-stage life sciences companies thinking about an IPO exit.

Skill sets and capabilities needed to go public

Valuable insights often come from companies that have completed the IPO process. These clients tell us that companies need three skill sets to avoid delays to their IPO launch calendar, which typically runs six to 18 months. Understanding whether your pre-IPO company has these skill sets starts with three questions.

Can we close? On Day 1 as a public company, you have to be able to close your books on time to meet US Securities and Exchange Commission (SEC) reporting deadlines. Consider accelerating your close process now as a private company by taking small steps each quarter toward streamlining the process. Implement the appropriate systems and automation, develop and maintain a detailed close calendar, and hire experienced resources.

Can we forecast? Providing accurate forecasts as a public company is also essential. When you’re a public company, the investor community will likely monitor your guidance closely. When certain milestones and financial targets aren’t met, there could be negative reactions by the investing public. You’ll need time to practice before going public to develop the muscle memory to accurately forecast. Consider focusing on and stress-testing key metrics and other performance indicators while the implications of a missed projection are less prominent.

Is our system stack up to the challenge? Closing on time and creating accurate forecasts can be expedited by implementing an ERP system. Choose your system wisely; for example, make sure it can scale and expand as the company grows. System implementations can be time-consuming and expensive but are an important investment to support the company in the long run. Consider upgrading systems for financial planning and analysis (FP&A), customer relationship management (CRM), and so on.

Technical accounting skills and advice

A private company typically develops its public company accounting policies and SOX readiness procedures four to six months before going public. After the IPO transaction closes, these policies and procedures will likely bring a host of new technical accounting challenges and considerations.

For example, what are the SEC disclosure requirements and exclusions for companies qualifying as an emerging growth company or smaller reporting company? And how does accounting for common standards relevant to life sciences companies—such as ASC 606, Revenue from Contracts with Customers, and ASC 808, Collaborative Arrangements—change for a public company? To navigate these and other technical accounting considerations, it is essential to have a specialized accounting skill set in-house or through a trusted adviser.

What role can Deloitte play?

Deloitte can provide advice and recommendations to your company while you navigate the demanding life sciences IPO readiness process and related accounting requirements. For more information, visit our IPO Readiness and IPO SelfAssess page or download our 2024 Life Sciences Industry Accounting Guide. Don’t hesitate to reach out with any questions.

Endnotes

1. Deloitte analysis of statistics compiled from publicly available historical IPO information furnished by Nasdaq and Yahoo Finance.

2. Rachael Bushey and Jennifer Porter, “Going public? For life sciences companies, pivoting in a down market,” Reuters, November 17, 2022.

3. Deloitte analysis of statistics compiled from publicly available historical IPO information furnished by Nasdaq, Stock Analysis, and Yahoo Finance.

The services described herein are illustrative in nature and are intended to demonstrate our experience and capabilities in these areas; however, due to independence restrictions that may apply to audit clients (including affiliates) of Deloitte & Touche LLP, we may be unable to provide certain services based on individual facts and circumstances.

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