BIO Praises House of Representatives for Passing the Promoting Job Creation and Reducing Small Business Burdens Act

Washington, DC, September 17, 2014 – Today, the Biotechnology Industry Organization (BIO) lauds the House of Representatives for passing H.R. 5405, the Promoting Job Creation and Reducing Small Business Burdens Act.  This package of bills, sponsored by Rep. Mike Fitzpatrick (R-PA), will support capital formation and reduce regulatory burdens for emerging biotech companies.

H.R. 5405 is an important follow-up to the Jumpstart Our Business Startups (JOBS) Act, which has stimulated over 110 IPOs in the biotechnology industry alone.  BIO supports two key pieces of legislation included within the package:

First, the Small Cap Liquidity Reform Act (H.R. 3448), originally introduced by Reps. Sean Duffy (R-WI) and John Carney (D-DE), would increase liquidity for emerging growth companies, including biotech innovators, that trade on the public market.

Currently, all securities on the public market are priced in $0.01 increments. This minimum trading increment is known as the “tick size.” The switch to the standard tick size of a penny was enacted in 2000 in order to boost trading in large company stocks, but many smaller issuers have experienced the opposite effect. 

This Act institutes a pilot program that will allow small issuers to choose larger trading increments (either $0.05 or $0.10) in order to spur trading activity in their stock. Allowing an increased tick size will grant flexibility to growing companies and increase the liquidity and capital availability necessary for emerging biotech companies to be successful on the public market.

“The current one-size-fits-all tick size subjects smaller issuers to the same trading framework as large, multinational companies with exponentially higher trading volumes and market caps,” said Jim Greenwood, BIO’s President and CEO. “This Act creates more flexibility, which will make the public market more effective as a capital formation tool and speed the development of cures and treatments for the most devastating and debilitating diseases,” said Greenwood. 

Second, the Small Company Disclosure Simplification Act (H.R. 4164), originally introduced by Reps. Robert Hurt (R-VA) and Terri Sewell (D-AL), would reform the existing eXtensible Business Reporting Language (XBRL) compliance regime to reduce the regulatory burden on emerging biotech companies.

Companies need experts in the XBRL language to properly file the appropriate reports, so small issuers turn to external contractors to complete their XBRL filings. The cost of an external XBRL contractor is significant for an emerging company, reducing the capital available for more vital functions like research and development.

By exempting emerging biotech companies from XBRL compliance, this Act removes an expensive bureaucratic roadblock from the path of emerging biotech issuers.

“The true value of a biotech company is found in scientific milestones and clinical trial advancement rather than financial disclosures,” said Greenwood. “Investors often make their decisions based on these criteria rather than XBRL filings.”

A recent study of investors across all sectors of the market found that 92 percent of investors do not consider data from XBRL reports when making investment decisions.

The legislation will broaden the IPO On-Ramp created by the JOBS Act by exempting emerging biotech companies from the XBRL compliance requirement. It also will institute a temporary XBRL exemption for small public companies and require the SEC to make recommendations on how to improve the compliance mechanism.

Many emerging biotech companies turn to the public market to raise the capital necessary to fund the decade-long, billion-dollar development timeline intrinsic to groundbreaking R&D.  These pre-revenue innovators are uniquely impacted by costly regulatory burdens, which divert funds from science to compliance, and they also struggle to maintain trading liquidity.  The Promoting Job Creation and Reducing Small Business Burdens Act addresses these issues, and others, by cutting bureaucratic red tape and making targeted market enhancements for growing businesses. 

For more information on issues affecting emerging biotech companies, please visit http://www.bio.org/ecs.