Equity Capital Markets are quiet right now given the COVID-19 pandemic. Less than a handful of IPOs priced last week and IPO activity is down almost 20% on a year over year basis. Life sciences initial public offerings have been a rare bright spot in an otherwise dim market.
The investment banks underwriting these transactions have had to expand their due diligence questions in light of the COVID-19 pandemic and the way it has transformed the economy, the supply chain, the workforce, clinical trials and regulatory authorities. Companies, many of them late in the IPO process, had to update and revise risk factors in order to ensure that COVID-19 related disclosures were current and accurate.
The COVID-19 pandemic will evolve, and due diligence and disclosure will evolve with it, but some recurring themes arise in looking at selected transactions from the last few weeks. Life sciences companies planning an offering now would be advised to be prepared for due diligence inquiries on topics such as:
- Drug Discovery, Development and Commercialization:
- Has COVID-19 and the related executive orders impacted your employees’ ability to go to the office? Have your laboratories had to close or reduce personnel? Have there been other impacts on productivity? Have business continuity plans worked as anticipated? Have there been any challenges with internal systems and controls?
- Has there been or do you anticipate any impact on third party manufacturers? Any impact on suppliers, business partners, distributors or vendors?
- Has there been any impact on clinical trials? Has patient enrollment changed? Have patients been able to follow relevant clinical trial protocols? Do you anticipate any impact to the foregoing?
- What has been the impact on clinical development timelines and why?
- Has COVID-19 caused any delays or issues with your contract research organizations, manufacturers or other third parties?
2. Financing operations:
- What impact could the COVID-19 related disruptions and volatility in the credit and financial markets have on your ability to raise additional capital?
- Has the company applied for or received loans under the Payroll Protection Program or any other federal program established in response to the COVID-19 outbreak.
3. Legal and Regulatory:
- COVID-19 has caused a temporary suspension in the previously planned reduction of Medicare payments to providers. Do you anticipate additional potential changes to Medicare or other healthcare funding and how will that impact your current or anticipated revenues?
- The pandemic has also caused – and will continue to cause – severe disruption to state finances. As a result, states may become more aggressive in seeking rebates for outpatient prescription drugs in their Medicaid programs. Are your therapies likely to be attractive to state attempts to obtain additional price concessions in Medicaid?
- What has the impact of the FDA’s decision to postpone many inspections of foreign manufacturing facilities and products been on you? What about the FDA’s announcement that it will postpone routine inspection of domestic manufacturing facilities? Have there been other impacts on your business as a result of recent FDA changes?
- Has the FDA’s resource shift towards the Coronavirus Treatment Acceleration Program caused delay for your products? Do you anticipate any interruption or delays in the operations of the FDA and how might that impact your review and approval timelines? What communications have you had with the FDA regarding your products and product development since the COVID-19 shift has occurred?
While every issuer is different and will have varying due diligence and disclosure, the pandemic has created a common list of challenges for life sciences companies seeking to access the market. We hope the markets open further and will continue monitoring these developments.