At BioCap 2024, Graham Bond, RSM UK’s Co-Head of Life Sciences, chaired an IPO session featuring a panel of life sciences experts and investors. Below, Graham summarises key themes raised by the panel, including a more positive investment market, the need for regulatory reform and diversity of investments, raising money in the UK and the US, dual listing and top tips for life sciences businesses considering the IPO route.

As a long-term corporate sponsor of Bionow and founder of BioCap, Graham was delighted to chair the IPO session, joined by his fellow panellists: Marcus Stuttard, Head of UK Primary Markets at the London Stock Exchange (LSE); Mark Eccleston, CEO of ValiRx; Chris Yates, CEO of Abingdon Health; and Will Marshall, Senior Corporate Broker of Shore Capital.

The panel agreed that there has been a clear positive direction of travel in the investment market over the past 12 months. While both public and private markets have faced headwinds in the last couple of years, there’s been an increase in activity, with investors less concerned about redemptions due to more certainty on interest rates.

Marcus Stuttard from the LSE highlighted a range of statistics for activity in the last year:

• Over £20bn raised so far in London across the Alternative Investment Market (AIM) and the main market in all sectors.
• High-value sell-downs, including the Pfizer sell-downs in Haleon stock, which shows institutions have capital they are willing to deploy in big chunks.
• There have been five IPOs, including AOTI, a US life sciences business. And despite the narrative about UK companies looking to IPO in the US, three of the first IPOs on to AIM in 2024 were US companies coming to the UK, recognising the benefits of our small cap environment.
• For the first half of 2024, the FTSE healthcare index was up 13.5% in the UK compared to the S&P Healthcare index, which was at 8%. This demonstrates that healthcare, as a wider sector, has outperformed in the UK versus the US.

However, our life sciences panellists highlighted that the market remains challenging from a valuation perspective, with low valuations impacting shareholders where money is raised at a low price and share price is heavily discounted. Concerns were also expressed about the lack of specialist institutional investors at the small cap end of the market, particularly in terms of biotech.

Marcus Stuttard from the LSE argued that a package of regulatory reforms is needed to encourage more capital into the market. Research by the Capital Markets Industry Taskforce has highlighted the scale of the issue and has helped to galvanise support.

There are a range of initiatives underway. The Mansion House Compact, a voluntary compact by the UK’s 11 largest institutions to allocate 5% of their funds by 2030, is focusing on private and growth markets, including AIM quoted stocks. The government’s pension investment review has had a short consultation period, which is an encouraging sign that they want to take swift action.

Will Marshall from Shore Capital indicated wide support from investment institutions for reform:

“Industry is supportive of pension reform, there are imbalances, we need a level playing field in terms of incentives and rules that exist in other countries.”

Marcus argued the importance of joining up the funding continuum and commented:

“Public markets work best when the private markets are functioning well and companies can start, scale and stay in the UK, and have got the choice of where they get their capital from.”

He also highlighted the need to maintain a range of investment routes. For example, Venture Capital Trusts (VCTs) and the Enterprise Investment Scheme (EIS) are key for earlier stages and help to attract other investors. The government has confirmed that VCTs and EIS will be extended for the next 10 years, so it’s good to have certainty.

But, as investors comply with more complex regulation, it’s important that the diversity of investors is not limited. Many investment schemes and pension funds are regulated based on how much they cost their investors, which can force fund managers into low-cost investment strategies, such as tracker funds. This doesn’t align with life sciences where a longer-term approach based on knowledge and expertise is needed.

Marcus commented: “The government’s approach to looking at long-term performance rather than cost alone will have a subtle but profound shift going forwards.”

Chris Yates from Abingdon Health agreed there’s a need to create conditions to attract more institutional investment, particularly at the smaller end of the market, but it’s not just about regulation, bureaucracy and a lack of institutional investment. The quality of the life sciences companies and their performance needs to improve, and they must consider if are they fit to IPO at the at the right time.

The panel compared their experiences raising money in the UK and the US and highlighted considerations for UK life sciences businesses weighing up which territory to IPO.

Some factors are consistent with both the UK and US IPO route, such as the importance of starting to talk to your investors early. Will advised that while there’s a different group of investors in the US in terms of knowledge, there are generalists in the UK and the US who may want to look at your business:

“Starting early is important as it takes time to explain what you do, and your journey is about hitting milestones.”

It’s important to have a clear rationale about why you need the investment in the UK or the US. For example, if you have customers in the US, raising US funds helps profile significantly. An IPO can also help to incentivise staff, for example through elective schemes for senior management.

However, the US IPO route is not without risk. Marcus highlighted some data points. In the period from 2013 to 2022, 10% of S&P healthcare companies were subject to class actions, which is why Directors’ and Officers’ Insurance is so high. This was against 7.5% for the broader S&P.

Of the 15 UK healthcare businesses that have tried the US capital markets, two have done well (Bicycle Therapeutics and Immunocore), four have delisted and the remaining nine are down on average 85% from their IPO price. Marcus commented:

“I would rather talk about the benefits of the UK market rather than the pitfalls of other markets but there’s a general perception that the US drives higher valuations and higher liquidity which is not true. For some companies it will be, but as a general point, it's not.”

A benefit of an IPO in the UK is that, as it is an international market, your business could attract global money managed by US fund managers in London without having to go to the US. So, you can get the benefits via London without the cost and the litigation risk.

The panel discussed what they’ve seen as significant differences between running a private and public company.

Our life sciences representatives agreed that CEOs of public and private businesses face a different set of challenges. Chris said there are complex regulatory aspects in both the UK and the US, which can take up more time than the commercial side of running and growing the business. Whereas in a smaller private company, driving growth is a key role for senior management. Mark Eccleston from ValiRx commented that as CEO, it’s about managing the interface of three aspects: the technology or product, the commercial angle and most importantly, your team, against the challenge from investors pushing back on costs. However, it’s essential to support the science and the commercial team.

The panel reflected that one of the big advantages of being public is the credibility it brings your business, as a product of the regulatory requirements for listed companies. Private equity is also attracted to businesses preparing to IPO due to the focus on good processes and management information systems. But for smaller companies, preparing to IPO is an additional overhead and workload, so staying private and doing licencing deals or moving up with a smaller group of investors can work best at this stage.

Mark commented that dual listing brings two sets of regulations to comply with, and you must be adaptable to both UK and US cultures. Will added that, with a dual list, you’re effectively splitting your liquidity, so unless you’re a large business or it’s part of a migration into the US market, there's no efficiency in having different trading venues in the UK and the US.

Looking at wider global markets, there was a consensus that “London is still the place to do business.”

Will, having worked different stock exchanges around the world, said:

“London does have a genuinely unique market, particularly at the junior end, and realistically within Europe there is no comparison.”

Top tips for an IPO

To conclude, our panellists highlighted their top tips for life sciences companies on their IPO journey:

• Have a clear rationale, strategy and purpose.
• Consider alternative options which may be more viable or an easier path to follow given your stage of development, as an IPO is an intensive exercise.
• Review your business competencies and the strength of your finance function and board. Do you have the relevant skills and experience to IPO? With a long lead time involved, the earlier you can get those things into place for an IPO scenario, the better.
• Keep your options open. Preparing for an IPO early puts you in good stead for other types of transactions, such as private investment. Try to keep your capital structure relatively simple from the outset as this increases your options.
• Make sure that when you IPO, you have a realistic valuation. It is hard to recover from a drop in value after an IPO.

How we can help your life sciences business

We are a specialist team within the life sciences sector and have a significant and varied client portfolio, ranging from start-ups to global leading businesses. We partner with you at every stage of your growth journey. Our cross-functional team is made up of dedicated life sciences sector specialists with UK and international expertise who can support you in reaching your goals.

To discuss your life sciences business, please contact Graham Bond or Laragh Jeanroy.