Author: Lenin Lopez
For late-stage life sciences companies, the journey to the public markets often feels slow — until it doesn't.
Companies can spend years advancing science, building the pipeline, refining a regulatory strategy, recruiting talent and raising private capital. Then the Initial Public Offering (IPO) window opens or an alternative route to the public markets emerges and priorities compress almost overnight. In those cases, boards and management teams often find themselves suddenly balancing registration statement readiness, investor communications, governance enhancements, public company controls and insurance decisions simultaneously.
Insurance can easily become a final checklist item when it shouldn't.
In this article, we discuss:
- Why insurance readiness for life sciences companies should begin before the IPO timeline accelerates.
- How litigation risk shapes the Directors and Officers (D&O) insurance discussion.
- The benefits of evaluating cyber, clinical trial liability, product liability, errors and omissions (E&O) and related coverages as part of the broader public company readiness process.
The path to going public may vary, but not the scrutiny
A traditional IPO may be the most familiar route to the public markets, but late-stage life sciences companies have several options, like reverse mergers and SPAC transactions. These alternatives often become more attractive when the IPO window is challenging or when timing, cash needs, clinical milestones or investor appetite suggest another approach may be favorable.
A reverse merger can allow a private life sciences company to combine with a public company that has cash on hand but has experienced a failed clinical program or another setback. Then there are SPAC or de-SPAC transactions, which can offer one of the fastest routes to the public markets.
These structures can make strategic sense. However, they don't eliminate public company risk. In some cases, they may introduce additional insurance considerations involving legacy liabilities, transaction disclosures, projections, sponsor or counterparty dynamics and the structure of expiring and go-forward insurance programs.
Ultimately, the insurance-related question shouldn't be limited to: "What do we need at closing?"
The better question is: "What risks are we carrying into the public markets and does our insurance program match that reality?"
That question becomes even more important given the litigation environment facing public life sciences companies.
The litigation backdrop is real
Life sciences companies remain frequent securities litigation targets.
Recent securities litigation surveys have found that life sciences companies continue to represent a significant share of securities class action filings. One survey reported that plaintiffs filed 47 securities class action lawsuits against life sciences companies in 2025. That represents more than 22% of all securities class action lawsuits filed that year.1
Those numbers don't mean every newly public life sciences company will face securities litigation. In fact, even if a company is sued, the courts throw out about half of securities class actions at the motion-to-dismiss stage.
That said, filing activity matters because life sciences companies routinely encounter the types of events that can trigger significant stock price volatility and hindsight-driven allegations. Common triggering events include clinical trial delays, missed endpoints, negative feedback from the Food and Drug Administration (FDA), manufacturing challenges, commercialization setbacks, reimbursement concerns and cash runway pressures.
For D&O insurers, those aren't simply scientific or operational developments. They're factors that directly influence underwriting analysis.
When stock prices fall, familiar allegations often follow
Securities litigation rarely centers on the simple claim that "the science didn't work." More often, plaintiffs' firms allege that prior disclosures overstated opportunities, understated known risks, omitted material information or failed to adequately communicate uncertainty.
The Securities and Exchange Commission (SEC) and plaintiffs' firm allegations involving newly public or recently public life sciences companies have followed several recurring themes, including:
- Market opportunity estimates were based on flawed assumptions
- Revenue forecasts exceeded internal expectations
- Claims regarding product readiness or commercialization prospects were inconsistent with internal information
- Failure to disclose manufacturing, reliability or operational issues
- Problems with test accuracy or regulatory submissions
- Delays in anticipated regulatory authorization or commercialization timelines
- Overstatements about clinical data, platform capabilities or product demand
The point is that the same topics companies use to tell their growth story — like the strength of their science, the size of the market opportunity, the path to regulatory approval, manufacturing readiness and commercialization options — are often the same topics plaintiffs scrutinize after a stock drop.
Companies should keep these topics in mind when preparing their disclosures and also consider them when preparing their insurance program.
Cyber, product liability and E&O insurance should be part of the going-public discussion
D&O insurance may be the centerpiece of the going-public insurance process, but it shouldn't be the only conversation.
Life sciences companies often depend on sensitive clinical trial data, patient information, genetic data, regulatory submissions, intellectual property, manufacturing data and partner information. A cyber incident may not simply result in data breach; it could also delay a clinical trial, compromise research, disrupt manufacturing, trigger contractual obligations or create a public disclosure issue.
Product liability also becomes increasingly important as companies approach commercialization, expanded access programs, device deployment or revenue-generating products.
Similarly, E&O or technology E&O2 coverage may be relevant for diagnostics companies, platform companies, AI-enabled life sciences businesses and testing companies delivering services to partners, providers, payors, trial sponsors or research collaborators.
Taken together, the exposures help tell your company's risk story. They provide context around how the business operates, where vulnerabilities exist and how management approaches risk oversight.
That story matters not only when evaluating individual insurance coverage, but also when presenting your company to D&O underwriters.
D&O insurance is more than a procurement exercise
Too often, public company D&O insurance is viewed solely as a procurement exercise. However, it's both a risk-transfer decision and a market-positioning exercise.
D&O insurance underwriters will want to understand your company's science, pipeline, regulatory pathway and trial status, as well as its cash runway, financing plans, capitalization and investor base. They'll also evaluate the company's prior disputes, disclosure history, board composition and management experience. In addition, underwriters will consider the company's transaction path. An IPO, reverse merger, de-SPAC transaction or direct listing may each raise different questions regarding timing, legacy liabilities, transaction structure and post-closing exposure.
This is where preparation matters. A company that starts early will have more time to:
- Develop its D&O insurance underwriting narrative
- Benchmark appropriate limits
- Evaluate retentions
- Consider Side A protection
- Review indemnification agreements
- Educate the board
- Coordinate D&O insurance coverage with your company's broader insurance program
Companies can still secure coverage even if they go through a rushed process. They may simply have less time to address the issues that matter to directors, officers, investors and insurance underwriters.
An insurance readiness checklist for late-stage life sciences companies
The most successful public company transitions typically begin addressing these risk and insurance-related questions well before they file a registration statement or announce a transaction. As part of that preparation, boards and management teams should consider the following:
Transaction structure
- If your company is pursuing a reverse merger, SPAC, de-SPAC or direct listing, have you considered transaction-specific insurance issues?
- Are you addressing tail coverage, prior acts, transaction exclusions, legacy liabilities and the go-forward D&O structure early enough?
- Are you considering what risks are being left behind, assumed or carried forward?
Public company D&O insurance
- Is the D&O program being designed around your company's actual public company risk profile?
- Have you benchmarked limits, retentions and structure against relevant public company peers?
- Have you evaluated Side A protection for independent directors?
- Are indemnification agreements, charter provisions, bylaws and insurance structure aligned?
- Does the insurance underwriting narrative clearly explain your company's science, regulatory pathway, cash runway, board oversight and disclosure controls?
Clinical trial liability
- Does your company's clinical trial coverage match current and planned trials?
- Have you accounted for trial geographies, participant counts, contractual requirements and local admitted policy needs?
- If you're partnering with a clinical research organization (CRO) or other research collaborator, adequate insurance coverage and are obligations clearly defined and allocated?
Cyber insurance
- Does cyber coverage reflect your company's reliance on trial data, patient information, vendors, CROs, intellectual property and business interruption exposures?
- Are you addressing ransomware, dependent business interruption, incident response, regulatory coverage and vendor-related exposures?
- Have you considered how a cyber event could create a public disclosure issue?
Product liability and E&O
- Is product liability coverage keeping pace with commercialization, expanded access programs, device deployment or revenue-generating products?
- Do you need E&O or technology E&O coverage for diagnostics, testing, software, AI-enabled tools, data analytics or other service offerings?
- Are contractual insurance requirements aligned with your company's actual insurance program?
Other coverage areas
- Are other lines of insurance keeping pace with your company's growth?
- Have board members received a practical overview of how the insurance program supports the public company transition?
The takeaway
The public markets reward growth stories, but they also test them. For life sciences companies, clinical developments, regulatory outcomes, cybersecurity events, commercialization challenges and financing pressures can all become catalysts for shareholder scrutiny when expectations change.
As a result, insurance readiness should be viewed as part of public company readiness, not a transaction workstream to address at the end of the process. Companies that evaluate their D&O and other exposures early are often better prepared to enter the public markets with a risk strategy that matches the realities of the business.
Published July 2026
