Washington, DC (March 8, 2012) – The Biotechnology Industry Organization (BIO) applauds the House on the passage of H.R. 3606, the Jumpstart Our Business Startups (JOBS) Act. The JOBS Act, which passed the House by a vote of 390-23, contains several provisions which would make the pathway to capital formation more attainable for small biotechnology companies.
The JOBS Act creates an “on-ramp” to the public market for emerging growth companies, allowing them five years to focus on conducting critical research that can lead to cures for debilitating diseasesbefore having to divert funds to costly regulations. Through this legislation, emerging growth companies would be exempt for their first five years on the public market from the compliance burdens of Sarbanes-Oxley (SOX) Section 404(b), which SEC studies estimate cost companies up to $2 million per year. An on-ramp would ease certain accounting and disclosure requirements for a company’s first five years. In addition, the legislation would:
Expand the eligibility requirements of SEC Regulation A to include companies conducting direct public offerings of up to $50 million;
Increase the limit that requires private companies to register with the SEC from 500 to 1000 shareholders; and
Require the SEC to revise Rule 506 of Regulation D to permit general solicitation in direct public offerings, broadening the investor base.
BIO President and CEO Jim Greenwood made the following statement today:
“BIO supports these reforms, which are especially important to innovative biotechnology companies that do not yet have product revenue and must spend investor dollars on compliance rather than the search for cures and breakthrough medicines for patients living with debilitating diseases such as cancer, HIV/AIDS and Parkinson’s.
“This legislation would make capital formation easier for small biotechnology companies, enabling them to focus more on curing and treating disease. Bringing groundbreaking cures and treatments from bench to bedside is a long and arduous road, and biotechnology companies are at the forefront of the effort.
"It can take more than a decade to bring a new medicine from discovery, through Phase I, Phase II, and Phase III clinical trials, and on to FDA approval. The entire endeavor can cost more than $1.2 billion. Due to this capital-intensive process, biotechnology companies must cultivate a wide range of public and private investors to finance the early stages of development.
“In addition to the research and development hurdles that biotechnology companies face on their search for cures and breakthrough medicines, biotech leaders also must deal with the day-to-day challenges of running a small business with the hopes of one day entering the public market. Of great import in the biotechnology industry is the need to lessen the constant struggle to find working capital to support this critical research.
“For the majority of biotechnology companies that are without any product revenue, the significant capital requirements necessitate fundraising through venture capital firms. These venture capital investors need to know that the companies they support will have the opportunity to be successful on the public market. Unfortunately, due to the current economic climate, it is becoming harder for biotech companies to go public. As a result, venture capital firms are turning elsewhere to make their investments, leading to a dearth of innovation capital in the biotechnology industry and undermining the ability of these innovative firms to develop their research into breakthrough medicines and cures to aid patients.
“BIO supports passage of the JOBS Act and efforts to incentivize and encourage capital formation for growing companies,and applauds the House for passing this important and timely legislation.”
A recent survey conducted by the National Venture Capital Association (NVCA) found that 41 percent of venture capital firms have decreased their investments in the biopharmaceutical sector in the past three years. Additionally, 40 percent of venture capitalists reported that they expect to further decrease their biopharmaceutical investments over the next three years. Therapeutic areas that affect millions of Americans will be hit by this change in investment strategy, including cardiovascular disease, diabetes, and cancer.
These disturbing trends in venture investing could be ameliorated by allowing emerging growth companies increased access to the public markets. If burdens on public financing were removed, private investors would have greater certainty that the companies they help take public will have the chance to succeed. This confidence will lead to augmented venture capital investment, the lifeblood of the biotechnology industry.
For data and analysis on the biotechnology industry, please visit http://insidebioia.com.