SOX Readiness: Keys to a Successful Life Sciences IPO

Going public means more than telling your science story — it means proving the company is ready to be governed like a public company. For life sciences leaders, the initial public offering (IPO) path is familiar. It’s a chance to raise capital, fuel the pipeline and bring your vision to the world stage. However, there’s a side of the process that doesn’t make it into the pitch deck: public company risk governance.

Even before the bell rings, the expectations shift. You’ll be expected to operate with transparency, discipline and internal controls that give investors confidence — not just in your data but in how you run the business. That’s where Sarbanes-Oxley (SOX) comes in. While it’s not the only element of IPO readiness, it’s one of the most visible. And it’s where many life sciences companies fall behind.

If you’re not deep in financial reporting, SOX might feel like just another set of rules to learn. For pre-IPO companies, SOX serves a broader purpose: showing that your team can identify, assess and control risk in a reliable, repeatable way. At its core, SOX is about financial integrity, making it important to ask: Are your financial statements accurate? Are controls in place to prevent material misstatements? And most critically, are those controls being followed in real life, not just on paper?

That’s why SOX readiness is so often treated as a proxy for IPO readiness. It’s one of the first areas investors, auditors and underwriters examine when evaluating operational discipline.

Unique Challenges for Life Sciences Companies

While every pre-IPO company has to navigate SOX, life sciences businesses face a unique set of hurdles:

• Clinical trial costs are messy: Contract research organization (CRO) invoices can lag by months, and site-level spending is often tracked in spreadsheets, with little control over timing or accuracy.
• Revenue isn’t straightforward: Licensing deals, collaboration agreements and milestone payments introduce complex revenue recognition challenges that require careful judgment and documentation.
• Stock compensation is widespread: Some life sciences companies frequently use equity to attract talent, but option valuations and expense recognition can be hard to get right.
• System complexity can create blind spots: Most companies run a mix of financial systems and operational tools. When those systems don’t communicate — or when access is loosely controlled — it’s difficult to ensure the accuracy and completeness that SOX requires.

These challenges aren’t just technical issues. They reflect the need for risk governance to mature quickly before the scrutiny of public markets sets in.

Misconceptions That Derail SOX Readiness

One of the biggest misconceptions is, “We’ll build our controls after we go public.” But that’s a gamble. Investors, boards and auditors will start asking SOX-related questions well before the first 10-K is filed. And while companies that qualify as emerging growth companies (EGCs) can defer auditor attestation under Section 404(b), that deferral can only last for up to five years and is contingent on meeting specific criteria.

That flexibility is helpful, but it shouldn’t create a false sense of security. You’ll still be required to assess and disclose internal control effectiveness under Section 404(a) in the first year of public reporting. Investor confidence begins long before your first audit.

Some patterns that occur most often in companies that underestimate SOX include:

• SOX is treated as a one-time project: In reality, SOX is a living, ongoing program. Companies don’t “get compliant” and move on. Compliance must evolve as the business does.
• Documentation is mistaken for execution: Flowcharts and process narratives may look complete but can still fail testing if people aren’t following them.
• The IT component of SOX is underestimated: Walkthroughs aren’t casual chats. Testing isn’t a checkbox. Auditors expect clear evidence, complete populations and controls that stand up to challenge. The biggest issues seen in year one are IT access and change management. Shared user accounts, missing access reviews and undocumented systems are common causes of material weakness.
• SOX is siloed within finance: Finance can’t own controls they don’t execute. Procurement, clinical operations, legal and IT all play essential roles. If they’re not engaged early, gaps emerge quickly.

How High-Performing Companies Approach SOX

You don’t need a perfect SOX program on day one, but you do need a plan and the discipline to execute it. Companies that manage SOX readiness effectively tend to view it as a foundation for long-term success — not just a compliance checkbox. They understand that control maturity builds trust with the board, investors and internally, across teams.

Here’s what we see from successful biotech companies that get it right:

• Start with governance, not paperwork: Establish an audit committee that oversees risk, a disclosure committee that understands their role and internal policies that people follow. Controls on paper won’t help if governance is lacking.
• Build cross-functional ownership early: While finance often leads SOX, it can’t succeed alone. Clinical, legal, IT and operations teams all touch key controls — from trial accruals to system access. The earlier they’re engaged, the smoother the implementation will be.
• Map the IPO timeline to control milestones: If you’re 18-24 months out, now is the time for a SOX readiness assessment. At 12 months, control design and documentation should be well underway. At six months or less, it’s essential to have a focused, risk-prioritized plan.
• Prioritize what really matters: Not all controls are created equal. Focus on the processes most likely to impact financial statements: period-end close, revenue recognition, clinical trial accruals, stock compensation, system access and change management.
• Use your post IPO grace period wisely: That first year is a chance to refine, test and remediate. Don’t lose it trying to play catch-up. It’s important to set realistic testing cycles, track issues visibly and treat auditors as collaborators rather than just reviewers.

SOX Readiness Builds Confidence Beyond Compliance

SOX readiness isn’t about passing an audit — it’s about building confidence. Confidence in your numbers. Confidence in your team. Confidence when investors ask tough questions. Companies are perceived as reliable when they go into an IPO roadshow able to clearly explain how they manage risk, oversee complex revenue models and articulate their financials. That confidence changes the tone of the conversation.

Even without formally disclosing SOX metrics, the discipline shows during board discussions, investor meetings and analyst calls.

Those that navigate the IPO process with the most success don’t treat SOX as a compliance hurdle. They treat it as a chance to build trust with the market, investors and themselves. If you’re gearing up for the next chapter in your company’s story, start building that trust now. SOX doesn’t require perfection on day one, but it does require a plan. The sooner the journey begins, the smoother it will be.

If you’re considering an IPO, contact us. Our team can help assess your SOX readiness, align your control environment with investor expectations and build a scalable path forward.

©2025