Since its passage more than two years ago, the JOBS Act has spurred more than 110 biotech IPOs. And now the SEC is in the process of finalizing another important piece of the law that could further encourage biotech capital formation.
The JOBS Act directs the SEC to raise the offering ceiling under Regulation A – a securities law exemption that allows companies to raise public capital with a reduced reporting burden – from $5 million to $50 million.
Biotech research is a decades-long, billion-dollar endeavor, and the $50 million offering pathway offered by the reformed Reg A (now known as Reg A+) could be an important capital formation avenue for emerging companies to fund their life-saving research.
One key issue still up in the air is whether the SEC will set a national standard for the review of Reg A+ offerings or instead subject companies to the labyrinth that is state-level securities law.
A national standard would provide clarity to small businesses while protecting investors and stimulating vital capital formation.
In its initial Reg A+ proposal, the SEC itself noted that “the cost of state securities law compliance…would discourage market participants from using” Reg A+.
We couldn’t agree more.
Because emerging biotechs do not generate product revenue, capital spent on regulatory burdens comes directly from investment dollars – a costly diversion of funds from science to compliance. Given that the goal of the JOBS Act was to increase capital availability, requiring issuers to spend dollars to analyze, understand, and comply with divergent – and often contradictory – securities law in all 50 states could deter growing companies from considering Reg A+ as a capital formation option.
Proposals have been put forth to standardize state review, but even the most well-intentioned of these would still subject growing innovators to a barrage of conflicting, state-specific questions, processes, and rules.
Only a national standard will truly secure the success of Reg A+ and fulfill the promise of the JOBS Act.
By increasing access to investors and removing regulatory roadblocks, the JOBS Act IPO On-Ramp already has been successful in funding research that will one day lead to breakthrough cures and treatments. Reg A+ can mimic the IPO On-Ramp’s success by similarly increasing investor access without weighing down companies with costly bureaucratic red tape – like a mandate to wade through a 50-state morass of requirements and prerequisites.
Capital formation is vital to the success of biotech innovators conducting breakthrough R&D. We are hopeful that the SEC will effectively implement Reg A+ so that it can spur capital availability, encourage company growth, and support next generation research at innovative small businesses across the country.