Lay the Tech Foundation for IPO Success

Leaders of early-stage life sciences companies aim to change the world – or at least many people’s lives. And they might. But, before they do, they must focus on less dramatic items like ensuring segregation of duties, enlisting contract research and manufacturing organizations, and controlling burn rates – especially if they want to smooth the private-to-public company transition and set the stage for sustainable growth.

An initial public offering can provide a significant financial boost to a life sciences company in a crucial period of research and development and commercial planning. However, an IPO comes with the SOX audit – a penetrating assessment of a company’s operations and finances that will reveal any weak controls and problematic procedures.

These new, small life sciences companies should be wary of this audit because, at the start, they likely use rudimentary technology, rely on manual processes, and lack comprehensive financial controls and documentation for all business activities. As a company approaches an IPO and the accompanying SOX audit, it must dramatically upgrade its technology infrastructure (usually by implementing a robust, cloud-based enterprise resource planning system) to formalize its processes and controls and ensure compliance. 

The life sciences drug development and launch process has many moving pieces. During this intense early period, powerful and flexible foundational back-office technology can provide executives with solid ground on which to stand. While companies usually do a fine job preparing on an operational and financial level for IPOs, it can be easy to overlook the technological side of the equation. Without advanced back-office technology in place, it’s difficult to implement and structure the processes that support a SOX audit and facilitate long-term growth.

Many of the optimal business processes life sciences companies should implement are basic and common-sense ways to avoid conflicts of interest. For example, the person approving a spending item shouldn’t be the one cutting the check. But by structuring these processes using technology, a company prevents employees from straying from the proper path, even by accident. 

When selecting technology, a life sciences company also needs to consider its future beyond the public offering and build an infrastructure that has the processing power and capacity to accommodate inevitable changes in data, projects, personnel and relationships with contract organizations. The management of contract research and contract manufacturing organizations is especially important. As a company’s drug enters production stage, the company will need to manage inventory levels at these contract organizations. Technology that integrates well with these organizations’ systems is therefore a must. Before it gets to that point, a company must consider how it will handle its contracts and statements of work for clinical studies. And throughout the entire product development and clinical trial process, it must closely monitor spending across a growing number of different projects. A unified technology infrastructure allows a company to closely monitor granular details while also keeping an eye on the financial big picture.

Here are some key components of growth-ready technology for early-stage pharma companies:

• Customizability: Technology must accommodate each company’s unique – and evolving – organizational chart and processes. Technology leaders should be able to adjust the system quickly – to add roles, shift responsibilities and more – and in a way that limits disruption.

• Flexibility: Change – related to commercialization plans, spending priorities, and more – is the only certainty for an early-stage life sciences company. And these changes have implications for finance and reporting. So, technology leaders must be able to use their technology to maintain effective oversight of various items of spending amid shifting tactics.

• Speed of deployment: The days of one-to-two-year technology integrations still haunt many executives. But those days are gone, and the growth of the cloud enables streamlined implementations and ensures companies see a quicker return on investment.Company leaders should run away from overly complicated deployments.

In our experience working with early-stage life sciences companies, we’ve also identified a few hallmarks of success when it comes to making optimal use of technology:

• Commit early:A company should lay its technology foundation early, and, if possible, well in advance of an IPO. After all, it’s easier to develop, adjust and optimize internal policies, procedures and system controls before auditors scrutinize them.

• Get granular: A life sciences company we recently worked with manages 60-80 projects simultaneously. It did a great job leveraging the capability of its ERP system to track in a detailed manner spending on these various projects. The ability to closely monitor spending and project progress allows leaders to anticipate any financial shortages and seek added investment, as needed.

• Take a long view: Instead of trying to anticipate every possible situation the company will need to address with its technology, it’s more important to adopt a scalable, flexible system at the start and then configure it over time. 

Early-stage life sciences companies have grand ambitions and need a technology infrastructure that supports and facilitates their efforts over the long term. So, it’s crucial that company leaders find back-office technology systems that are robust enough to handle the company’s growth from the start-up phase to beyond launch. Viewing the pre-IPO technology integration process as long-term foundation building places it in its proper place alongside commercial and clinical priorities.

Mike Kean is a partner and Billy Tamulynas is a senior consultant on Sikich’s technology team.