Catalyst - Winter 2013 - Welcome


Corporate Finance for Life Science Companies - One Size Doesn't Fit All

By Robert S. Esposito, CPA, MAcc, EisnerAmper

Virtually all life science and healthcare companies must have one thing in common embedded in their corporate strategy (other than to develop and provide the best healthcare products and services to the patient) – "Strategic Transactions." No matter whether you are Johnson & Johnson (the world's largest healthcare products company) or a universitybased biotechnology start-up virtual company, all life science and healthcare companies must consider strategic transactions as a viable and necessary means of survival, competitive edge and value creation in the highly competitive and risky global healthcare industry.

Why is this the case? The inherent risk in the healthcare industry is unparalled in the global economy. Such companies face multiple areas of risk such as R&D risk, FDA regulatory risk, Financial Capital risk, Commercialization risk, Patent & IP risk, Global Market Entry risk, Reimbursement & Pricing risk, and Generic Competition risk, just to name a few. Transactions offer healthcare companies the potential avenue to mitigate such risks by securing the requisite capital (financial, human resource, technology, product line(s), etc.), access to global markets, and core competencies necessary to monetize the value of their underlying assets in a timely and cost-effective manner.

Life science companies spend many years and hundreds of millions of dollars navigating the R&D and FDA regulatory maze to obtain product approval. Only then are they faced with the daunting task of commercializing, manufacturing, marketing, selling and pricing such product within a limited patent protection period significantly reduced by the time invested in getting the potential product to such point in its lifecycle. Whether your strategic transaction of choice is an Initial Public Offering (IPO), PIPE, M&A, Corporate Partnership, License Agreement or Venture Capital/Private Equity capital raise (just to name a few), most life science companies will inevitably need to negotiate and execute numerous transactions within a short period of time to stay competitive and to improve their chances of monetizing the value of their asset base.

This issue of Catalyst focuses on Initial Public Offerings as the preferred form of strategic transaction that a life science company might consider to monetize its franchise value and secure necessary financial capital. The inherent risks of an IPO are significant and companies rarely get a second chance to get it right and go back to the public markets. Even before a company has listed successfully, management will have to steer it through a complicated and often time-consuming process to prepare it for an IPO.

The question we must all ask ourselves – "Are you prepared?"

Life science companies face many potential risks and underestimate the difficult challenges of the IPO process. One of the most common issues faced is that the process usually takes far longer than companies think, or would hope, it might. This is because any of the following may happen: issues uncovered during due diligence; changing market conditions; unrealistic timetables; delays in science and technology milestones; and the complexity of preparing and marketing the scientific and financial track records.

Key challenges in the process might include (among many others):

  • Preparation of a well-designed business plan;
  • Preparation/verification of prospectus;
  • Due diligence;
  • Enhanced corporate governance;
  • Regulatory compliance (e.g., Sarbanes-Oxley internal controls);
  • Coordination of numerous professional advisers;
  • Preparation of financial track record;
  • Marketing road shows to financial institutions and sophisticated retail investors;
  • Underestimation of the amount of time and resources needed;
  • Assessment and refinement of the company culture, controls and infrastructure;
  • Qualified executive management team and Board in place before IPO process starts;
  • Time commitment for key executives and impact on running normal company operations.

In this edition of Catalyst, we will look into many of these challenging areas that life science companies face as they prepare for what many might argue is the most defining event in a company's existence – the IPO.

EisnerAmper's Catalyst: Winter 2013

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