In the past five years, hundreds of life science companies have completed IPOs. Given the ongoing need of most life science companies to fund product candidates through successful commercialization, it is critical for these companies to consider a range of financing options in varying marketing environments. Available capital-raising alternatives for public life science companies include follow-on offerings, registered direct offerings, PIPEs, equity lines of credit, at-the-market facilities, licensing and collaboration agreements, and royalty financings. Determining the optimal capital-raising strategy to pursue requires balancing pricing, capital requirements, SEC and stock exchange requirements, stock exchange limitations, timing, and investor liquidity considerations.

Underwritten “Follow-on” Offerings

After an IPO, life science companies can issue additional debt, equity, or other securities through an underwritten “follow-on” offering. Securities issued in a follow-on offering are typically marketed by one or more underwriters on a “firm commitment” basis under which the underwriters purchase the entire offering from the company and then sell the securities to the public (either a limited universe of investors or more broadly). Underwritten transactions have the reputational validation of an investment bank and provide investors with fully liquid shares, but the registration process can be time-consuming and announcement of a fully marketed transaction can have an adverse effect on pricing. These concerns can be mitigated if a company is eligible to file short-form (shelf) registration statements on Form S-3 and can do a “takedown” on an “overnight” basis (sometimes referred to as a confidentially marketed public offering or “wall-crossed” offering). Companies with a public float less than $75 million may also be subject to transaction size limitations under the “baby” shelf rules.

Registered Direct Offerings

Registered direct offerings are public securities offerings marketed on a “best efforts” basis to investors, generally through a placement agent. These offerings are typically targeted to a select group of institutional investors and may be structured as “any-or-all” transactions that will close regardless of the number of securities offered; “minimum-maximum” transactions that will only close if a certain monetary amount is raised or if a maximum offering size is reached; or “all-or-none” transactions that will only close when all of the securities offered are sold.

Because securities are marketed only to certain investors, it is easier to preserve confidentiality, and the risk of market price fluctuation is lessened because transactions can potentially be priced and marketed more quickly than in a traditional follow-on offering. Investors receive fully liquid shares, but the issuing company must meet the same stringent SEC registration requirements required for a follow-on offering. Additionally, the targeted marketing strategy may be a disadvantage to companies that seek to distribute their securities widely.


A private investment in public equity (PIPE) is a popular financing method in the life sciences and biotechnology industries. PIPE offerings are private placements of securities issued to a targeted group of “accredited investors” through exemptions to the registration requirements of the federal securities laws. PIPE offerings are often marketed through a placement agent such as an investment bank, which conducts due diligence on the company and negotiates the purchase of securities by the accredited investors.

Some benefits of PIPE offerings include lower transaction expenses and a shorter overall transaction time compared to public offerings. The company may also more easily issue securities customized to specific investor preferences, such as convertible preferred stock or warrants to purchase additional stock at a future date. However, because securities issued through a PIPE are exempt from SEC registration, they do not have the same immediate liquidity as securities issued through follow-on offerings or registered direct offerings. To provide investor liquidity, a resale shelf registration may be filed in connection with some PIPE financings.

Equity Lines of Credit

An equity line of credit (an “equity line”) allows companies to sell equity securities to private investors on an incremental basis during a set facility term. A company can periodically “draw down” equity financings from the facility. A standby investor will be obligated to purchase the securities drawn down from the facility if certain contractual conditions are met (such as the investor’s total purchase price, the number of drawdowns the company can make, and pricing formulas). Equity lines allow fast and frequent access to financing, although the amount that can be drawn down at any one time is typically limited.

Equity lines can be structured as registered primary offerings using a shelf registration or as registration-exempt continuous private placements. These issuances also have confidentiality benefits; disclosure is typically delayed until the end of the quarter, lessening the impact on market price. However, the company may be subject to ongoing maintenance and legal costs as the investor or broker-dealer continues to purchase stock through the facility.

At-the-Market Facility

An at-the-market (ATM) facility is similar to an equity line. During the term of the facility, publicly listed companies can sell registered securities on a periodic basis with a registered broker-dealer either purchasing as principal or selling into the market. Unlike an equity line, a broker-dealer in an ATM facility generally has the option to elect to not participate, and the pricing parameters do not need to be decided in advance. An ATM facility and the size of transactions is generally limited by the liquidity in the market for the company’s securities.

Licensing and Collaboration Agreements

Licensing and collaboration agreements typically provide development and commercialization rights in a product candidate in exchange for upfront milestone and future royalty payments. As part of a licensing agreement, a pharmaceutical company may also purchase equity or warrants for future equity in the company. Because licensing agreements are unique to the product being licensed, it is important to take into account the impact of the product candidate’s development timeline, intellectual property issues, and other considerations before entering into an agreement.

Royalty Financings

Biotechnology companies with marketable assets can also obtain financing by leveraging future revenue streams. Under a royalty financing arrangement, investors such as private equity firms or hedge funds typically provide up-front or milestone payments in exchange for royalties based on a percentage of profits that may increase or decrease over time. Future revenue streams may also be used as security for debt financings.

Limitations on offering size and terms imposed by stock exchanges can also influence capital raising terms. Before raising funds through any of these methods, a company should carefully consider whether these options fit with its individual growth plan and consult with its legal and financial advisors.