BIO Applauds SEC for Providing Regulatory Relief to Emerging Biotech Innovators
SEC vote will reduce compliance costs for smaller reporting companies
Washington, DC (June 28, 2018) – Biotechnology Innovation Organization (BIO) President and CEO Jim Greenwood released the following statement regarding today’s vote by the Securities and Exchange Commission (SEC):
“I applaud for the SEC for providing much-needed regulatory relief to small public companies. The broadened definition of ‘smaller reporting company’ will allow emerging biotech companies to spend more of their limited capital on lifesaving research, rather than unnecessary compliance costs. We also welcome the Commission’s willingness to explore broadening the definition of ‘non-accelerated filer,’ which would have an even greater impact on small companies by providing relief from the costly attestation of internal controls required under current law. If adopted, such a change would build upon the progress made in today’s vote to increase the efficiency of public capital markets for emerging biotech companies and their investors.”
Today, the Securities and Exchange Commission (SEC) voted to broaden the pool of small companies that benefit from scaled disclosures. The new definition of “smaller reporting company” (SRC) will reduce compliance burdens on small, innovative biotech companies and enable them to deploy capital and resources in more productive ways, such as investing in life-saving research in the lab or in the clinic. A particularly positive change was the inclusion of an alternative revenue test that applies to companies with less than $100 million in annual revenues if they also have either no public float or a public float that is less than $700 million. This final rule will increase the number of small companies eligible to provide scaled disclosures under Regulation S-K and Regulation S-X; and, as the SEC noted in their analysis, these reforms will “promote capital formation and reduce compliance costs for smaller registrants while maintaining investor protections.”
In today’s vote, the Commission also recognized the importance of providing scaled disclosures for a broader universe of small companies to more accurately reflect the nature of emerging businesses and allow them to tailor their compliance obligations accordingly. The same rationale should be applied to the definition of “non-accelerated filer” and BIO welcomes the Commission’s efforts to expand the non-accelerated filer definition to afford much-needed relief to emerging biotechs from the costly auditor attestation requirement under Sarbanes-Oxley 404(b).
The Commission also voted to adopt reforms of the eXtensible Business Reporting Language (XBRL) formatting requirements for financial statements and other public filings. While Inline XBRL will likely improve data integrity and improve comparability of financial data across larger firms, the costs associated with the transition to and upkeep of Inline XBRL will disproportionately burden smaller filers, including emerging biotech companies, without adding value for their investors. Therefore, the Commission ought to consider further action on exemptions from XBRL requirements for Emerging Growth Companies, SRCs, and non-accelerated filers.