JOBS Act Deconstructed: Confidential Filing

More than 40 biotech companies have gone public using provisions made available to emerging growth companies through the JOBS Act. BIOtechNOW’s JOBS Act Deconstructed series will explore why it has had such an impact on biotech offerings and how emerging companies can leverage the new law to their best advantage.

Any company conducting a public offering must file a registration statement, called an S-1, with the SEC.  The purpose of this document is to inform investors and regulators about the vitals of the issuer, including its financials, business model, and development plans.

In a nutshell: The JOBS Act allows emerging growth companies (EGCs) to file this document confidentially with the SEC before making it public at least 21 days before the start of a company’s roadshow.

Nearly 85% of EGCs have used the confidential filing process.  It is important to note that these issuers are not conducting a secret IPO – their S-1 is always made available to the public well in advance of an offering, often exceeding the 21 days required by law.  On average, investors have had 49 days pre-roadshow to inspect a company’s filings.

Why you should care: This change is beneficial to growing innovators for a number of reasons.  First, companies are able to respond to SEC feedback and make revisions to their filing out of the glare of the public spotlight.  Most EGCs have filed about two draft statements confidentially prior to their public filing.  The correct information is available to investors once the S-1 is made public, but the ability to keep drafts confidential allows issuers to make changes without damaging their prospects for a successful offering.

While getting feedback from the SEC, issuers can also meet with investors and gauge their interest.  Thanks to testing-the-waters meetings (covered in more detail HERE), companies are no longer bound just to meeting with investors during the roadshow.  While the registration statement is on file confidentially, investors and issuers can meet and discuss the potential IPO.  If there is a lack of investor interest, a company could decide not to go forward with an offering and avoid the negative publicity that pulling an S-1 would entail.  Avoiding media blowback is key for companies who might choose to pursue M&A activities or another venture round, or even those who might reconsider an IPO later in their lifecycle.

Confidential filing also allows companies to stay on file with the SEC while waiting for favorable market conditions.

Bottom line: Many biotechs that have gone public during the recent IPO surge filed confidentially as early as the fall of 2012 and waited for the market to be ready for their offering.  During their confidential period they were able to avoid tipping their hand to potential competitors while biding their time.  Once the market was hot, they made their S-1 public, conducted a roadshow, and went forward with their IPO.

 

This policy overview is not intended to, and does not, constitute legal counsel – issuers should consult their own legal teams before considering an offering and should not rely on this overview when considering such an offering.

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