New SEC rules will help small biotechs deliver the medicines we need

Good Day Bio, April 28, 2020 – https://go.bio.org/index.php/email/emailWebview

Amidst the countless coronavirus headlines, you might have missed this news: changes to SEC rules just went into effect that will offer welcome relief for small biotech companies and help them deliver the new medicines we need. Here’s the scoop.

Catch me up! The Securities and Exchange Commission (SEC) adopted regulatory changes providing small public companies with a temporary exemption from compliance with Sarbanes-Oxley Act of 2002 Section 404(b), which requires public companies to report on internal controls they have in place over financial reporting.

Section 404(b) is well intended—but it’s been proven to reduce company market values, increase audit fees, force companies to exit public markets, and reduce R&D investments in pre-revenue startups, and thus, lead to less innovation.

But without an exemption, it’s estimated it would cost small companies more than $800,000 to comply, forcing small biopharmas that do not generate revenue to choose between spending their limited funds on critical research or on filing paperwork with the SEC.

Now, thankfully, some small, public companies are exempt—specifically, companies with public float of less than $700 million and annual revenues less than $100 million.

The amendment to the rule went into effect yesterday, April 27. BIO has long advocated for the change (examples here and here).

Why it matters, especially now: Many small biopharmas with little to no revenue (yet) are working on the frontlines of the coronavirus pandemic. They need every dollar they can get to fund important R&D on vaccines, treatments, and cures for COVID-19 and other deadly diseases. This change provides these companies with temporary relief from a burdensome and expensive regulatory obligation with few economic or societal benefits—allowing them to focus on the science that will lead the world out of the crisis.

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