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Finance & Business Development INT LLIGEN INTELLIGENCE G for your Supply Chain • Risk Assessment • Chain of Custody • Data Analytics • Statistical Reporting • Hot Spot Mapping • Regulatory Compliance SOLUTIONS for Protection and Visibility • Program Management • Business Rules • Tracking • Monitoring • Driver Compliance • Route Management • Law Enforcement Dispatch PROVEN PROTECTION for your Supply Chain Contact Us Today 214.377.0222 www.lojacksci.com 54 LifeScienceLeader.com the most cost-effective route to find that funding. Alternatives to IPOs include private investors, bank loans, providing services for a fee, applying for government or private disease foundation grants, and partnering. Another alternative is "royalty financing" for products in very late-stage clinical development or on the market, where companies give up certain rights related to intellectual property in return for royalties and milestone payments. Australia has seen opportunities in raising capital from high-net-worth individuals, as Simon James, a partner with Audit and Assurance, Corporate Advisory, HLB Mann Judd, explains: "There has been a shift in the 'wealth market,' with high-net-worth people and the bigger banks looking to move away from investment in stocks and property toward a more diversified investment portfolio. This is fragmented money, but overall is a source of a lot of funding." Partnering with a distributor rather than spending money creating a sales force offers an alternative to an IPO. It can also add value to the company and its offering by bringing in expertise. "Going to a specialist, for example for marketing, production, sales, and other parts of the supply chain, can be quicker and cheaper. It also can be quite powerful," says James. Companies that want to list but don't want to go through the complex and time-consuming process can list "by the back door." This involves buying a business that is already listed. "This option doesn't have the buzz that goes with an IPO, but it is cheaper, and can inherit tax losses, which is good. However, it can also carry with it legal liabilities and the reputation of a failed company, which is not so good," says James. PUTTING IT INTO PRACTICE KaloBios Pharmaceuticals, a U.S.-based company with a focus on monoclonal antibodies for seriously ill patients with difficult-to-treat diseases, completed an IPO in February 2013, raising $70 million. The company's route to financing began with just over $100 million in five private rounds, followed by $15 million of venture debt financing, but it needed more to move projects into Phase 2 and beyond. After weighing the alternatives for further funding, KaloBios decided to begin the process of an IPO around the second quarter of 2012. "We felt that the IPO was the right decision to raise money to fund our programs," says Jeffrey Cooper, CFO, KaloBios Pharmaceuticals. "While we raised a significant amount of money over the years prior to our IPO, we felt that the market was tapped out for further private funding." The JOBS (Jumpstart Our Business Startups) Act, which came into law in April 2012, has helped small companies like KaloBios by allowing them to talk to investors before the formal IPO road show. "These 'testing the waters' meetings helped us educate potential investors, because our story with three programs in the pipeline is somewhat complex," says Cooper. "The JOBS act has also reduced our reporting requirements, which made the whole process easier." A WORD TO THE WISE IPOs tend to go in cycles of highs and lows, and it's always difficult to predict what's around the corner, including whether the IPO window will stay open, or close, or whether the market, currently buoyed up by the availability of secondary financing and now IPO financing, will remain upbeat. For companies that have decided to go down the IPO route, there are a few words of advice: Take time preparing, and look at all the options. Don't go public too early — create value first. Use money to move toward a data inflection point, such as results from a Phase 2 trial. Ideally, plan to reach the inflection point within six months, and no later than one year, of the IPO. Have answers ready for investors' questions, such as: What is the scientific and clinical risk? How compelling is the data, and how much risk will there be moving from Phase 2 to Phase 3? What is the commercial risk? Will the drug be reimbursed, and are there likely to be any other obstacles to adoption? September 2013