An initial public offering marks an important milestone in a company’s journey — a positive one, assuming the process is meticulously designed and implemented. Errors in planning and communication, however, can turn a vital Wall Street debut into a credibility-damaging flop.
Unfortunately, there’s no shortage of examples of IPOs gone wrong. One case of fairly recent vintage: meal-kit delivery service Blue Apron.
Reported pricing and communication snags surrounding Blue Apron’s IPO last year slammed shares and prompted a management shakeup. Nearly a year later, Blue Apron stock traded below $3, a fraction of the $15 to $17 price range initially discussed and the $10 opening price.
While companies can eventually recover from troubled IPOs, it’s best to take the time to carefully plan and carry out the operation to avoid chaos, angry investors and reputational harm.
Healthcare companies face the same IPO risks that any business could encounter, as well as industry-specific pitfalls. I asked our team to share their advice on missteps to avoid in planning and preparing a healthcare IPO. Here are some of their thoughts.
Remember the Bigger Picture
CEOs and management teams often make the mistake of looking at their story in a vacuum, focusing almost entirely on their own business without regard to developments with competitors, payors, the regulatory environment and investor sentiment.
All factors must be considered for a successful IPO. You can have great data, but the timing from the macro-environment might be off. Always know what’s happening in your space to minimize surprises on your testing-the-waters and IPO road shows.
If a competitor’s program just failed, you need to understand why and whether there are any lessons for your company’s pipeline. Investors will surely ask, and management should be prepared.
— Patti Bank, Managing Director
Keep it Real, Keep it Simple
Companies tailoring their messaging to increase the likelihood of completing the offering may try to appear like the “hot” IPOs in the market — clouding the real picture in the process. Unfortunately, over the longer term, investors will gain a greater appreciation for the “true” company. Any discrepancy between image and reality will lead to significant difficulties in the public market and, ultimately, the company will be forced to revise its messaging.
— John Woolford, Managing Director
Your IPO presentation deck is as much about selling the dream as it is convincing investors you have the solution for a significant unmet medical need that will save lives or dramatically improve quality of life.
The early stage biotech and biopharma investor audience is more focused on the technology and the nitty-gritty details of the science and mechanism of action. Public investors care about this also, but not at the same level of detail.
The IPO is also a great time to drop the notion that the best slides have the most words, graphs or photos of dead rats. This is just not true.
Investors need to know that you have a product or idea that will generate significant revenue, because that is what drives market caps higher. Help investors make that connection in a simple, straightforward way, and your IPO will be successful.
— Robert Uhl, Managing Director
Management teams can run into trouble by not sharing projections in a strategic, coordinated and conservative fashion.
Treat all projections you share with syndicate analysts in advance of the IPO as if you were sharing public company financial guidance. A revenue or earnings miss versus your projections during the quarters leading up to your IPO will be viewed negatively and may dampen analyst enthusiasm for the story and the likelihood of a successful IPO.
— Mike Piccinino, Managing Director
Remember Post-IPO Company Life
Management teams sometimes focus so much on their IPO that they don’t plan well for life as a public company. Forcing valuation and multiples to make a larger IPO, for instance, can backfire, limiting the newly public company’s ability to conduct a follow-on offering. Setting metrics to dazzle during the IPO can pose a challenge later when the company is stuck with updating those numbers.
— Caroline Corner, Managing Director
Not preparing your company to handle the quarterly earnings process as a public company can prove to be a serious misstep. Wall Street uses your earnings announcements to benchmark your performance during the quarter and to set their expectations for your business going forward.
Buy-side and sell-side players alike will pay particular attention to your first earnings call as a public company, as this will be the Street’s first opportunity to really dig into the story, your performance and your guidance.
Developing the material included in your announcement can be complex and time-consuming for management teams, who also must host a live conference call to deliver the prepared remarks and field real-time questions from analysts in a public forum.
Not taking the time as a private company to practice the entire process from start to finish can turn your first quarterly call into a stressful, overly burdensome activity and detract from your messaging, which could negatively impact your stock price after the call.
— Mike Vallie, Vice President
Careful planning, attention to detail and clarity are key at every stage of the IPO process, as even a seemingly small lapse can create a big headache that won’t disappear overnight.
Westwicke Partners, the largest U.S. investor relations firm focused solely on healthcare companies, has handled 40 client IPOs in the past three years. Our IPO Advisory can help your company build relationships with Wall Street, decide whether and when to pursue an IPO, and confidently navigate the complex preparations leading up to the offering.
Learn more about IPOs. Download our “Insider’s Guide to Going Public.” Want to discover how the Westwicke team, with more than 300 years of Wall Street experience combined, can best position your
company for success with investors? Get in touch.